Document:

REVOLVING CREDIT AND TERM LOAN AGREEMENT

 

AGREEMENT (this “Agreement”) is made and entered into as of the 21st day of December, 2007, by and between  COMVEST CAPITAL, LLC , a Delaware limited liability company (the “ Lender ”), and AFTERSOFT GROUP, INC. , a Delaware corporation (the “ Borrower ”).

 

WITNESSETH:

 

WHEREAS, the Borrower is engaged in the business of designing, developing and providing software, information and services (including business management systems, information products and online services) to the automotive aftermarket in the United States, the United Kingdom and Canada (collectively, the “ Business Operations ”); and

 

WHEREAS, in order to provide funds for the Borrower’s working capital and other general corporate purposes, the Borrower has requested the Lender to extend to the Borrower a revolving credit facility and a term loan on the terms and conditions of this Agreement; and

 

WHEREAS, the Lender is willing and able to provide such revolving credit facility and make such term loan to the Borrower on the terms and conditions of this Agreement;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows:

 

I. DEFINITIONS

 

Section 1.01. Defined Terms. In addition to the other terms defined elsewhere in this Agreement, as used herein, the following terms shall have the following meanings:

 

“Accounts” shall mean “accounts” (as defined in the UCC) of the Borrower and/or its Subsidiaries from time to time.

 

“Account Debtor” shall mean any Person who is obligated on an Account.

 

“Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.

 

“Advances” shall mean the principal amounts loaned to the Borrower from time to time pursuant to Section 2.01 below.

 

“Affiliate” shall mean, with respect to any Person, any other Person in Control of, Controlled by, or under common Control with the first Person, and any other Person who has a substantial interest, direct or indirect, in the first Person or any of its Affiliates, including, without limitation, any officer or director of the first Person or any of its Affiliates and any family member of any such officer or director; provided , however , that neither the Lender nor any of its Affiliates shall be deemed an “Affiliate” of the Borrower for any purposes of this Agreement. For the purpose of this
definition, a “substantial interest” shall mean the direct or indirect legal or beneficial ownership of more than ten (10%) percent of any class of stock or similar interest.

 

  

  

  

 

“Agreement” shall mean this Revolving Credit and Term Loan Agreement as it may from time to time be amended, modified, supplemented and/or restated.

 

“Applicable Law” shall mean all applicable provisions of all (a) constitutions, statutes, ordinances, rules, regulations and orders of all governmental and/or quasi-governmental bodies, (b) Government Approvals, and (c) order, judgments and decrees of all courts and arbitrators.

 

“Availability” shall mean the amount (if any) by which, at the time of determination, (a) the Revolving Credit Commitment exceeds (b) the outstanding principal amount of Advances.

 

“Borrowing Base” shall mean an amount, determined in accordance with the most recent borrowing base report theretofore provided to the Lender under Section 5.04(d) below, up to (a) 80% of Eligible Accounts, plus (b) in the Lender’s sole discretion, 40% of Eligible Inventory, minus  (c) such reserves as the Lender may establish from time to time in its Permitted Discretion (including, without limitation, to account for Account concentration and other risks of collection, and for obsolete, slow-moving or otherwise problematic inventory). In the event that the Borrower has not timely delivered a
current Borrowing Base report in accordance with Section 5.04(d) below, then the applicable Borrowing Base shall be such amount as is established by the Lender, until such time as the Borrower has delivered a current Borrowing Base report.

 

“Borrowing Date” means the Business Day on which the Lender makes a Loan hereunder.

 

“Business Day” shall mean a day other than (a) a Saturday, (b) a Sunday, or (c) a day on which banking institutions in the State of Florida or the State of New York are authorized or required by law or executive order to close.

 

“Capital Expenditures” shall mean with respect to any Person, all expenditures of such Person for tangible assets which are capitalized, and the fair value of any tangible assets leased by such Person under any lease which would be a Capitalized Lease, determined in accordance with GAAP, including all amounts paid or accrued by such Person in connection with the purchase (whether on a cash or deferred payment basis) or lease (including Capitalized Lease Obligations) of any machinery, equipment, real property, improvements to real property (including leasehold improvements), or any other tangible asset of such Person which is required, in accordance with GAAP, to be treated as a fixed asset on the consolidated balance sheet of such
Person.

 

“Capitalized Lease” shall mean any lease which is or should be capitalized on the balance sheet of the lessee thereunder in accordance with GAAP.

  

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“Capitalized Lease Obligation” shall mean with respect to any Person, the amount of the liability which reflects the amount of future payments under all Capitalized Leases of such Person as at any date, determined in accordance with GAAP.

 

“Cash Equivalents” shall mean (a) marketable securities issued, or directly and fully guaranteed or insured, by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve (12) months from the date of acquisition; (b) time deposits, demand deposits, certificates of deposit, acceptances or prime commercial paper issued by, or repurchase obligations for underlying securities of the types described in clause (a) entered into with any commercial bank having a short-term deposit rating of at least A-2 or the equivalent thereof by Standard & Poor’s Corporation or at least P-2 or
the equivalent thereof by Moody’s Investors Service, Inc.; (c) investment grade commercial paper maturing within twelve (12) months after the date of acquisition; (d) marketable direct obligations issued by any state in the United States or any agency or instrumentality thereof maturing within twelve (12) months from the date of acquisition thereof and, at the time of acquisition, have one of the two highest ratings generally obtainable from either Standard & Poor’s Corporation or Moody’s Investors Services, Inc.; (e) tax-exempt commercial paper of United States municipal, state or local governments rated at least A-2 or the equivalent thereof by Standard & Poor’s Corporation or at least P-2 or the equivalent thereof by Moody’s Investors Services, Inc. and maturing within twelve (12) months after the date of acquisition thereof; (f) any other items selected by the Borrower and approved by the Lender (which approval shall not be unreasonably
withheld or delayed); or (g) any mutual fund or other pooled investment vehicle which invests principally in the foregoing obligations.

 

“Closing Date” shall mean the date on which the Term Loan is funded.

 

“Closing Fees” shall mean the sum of $100,000 with respect to the Term Loan and $15,000 in respect of the Revolving Credit Commitment, which shall be payable in accordance with Section 2.04(a) below.

 

“Code” shall mean the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as in effect from time to time.

 

“Collateral” shall mean all collateral pledged by the Borrower and/or any of the Subsidiaries as security for the payment and performance of the Obligations, whether pursuant to the Collateral Agreement or any other Security Document.

 

“Collateral Agreement” shall mean the Collateral Agreement, dated as of the Closing Date, by and among the Borrower, its Subsidiaries and the Lender, as same may be amended, modified, supplemented and/or restated from time to time; provided , however , that the members of the EXP Group shall not be required to execute and deliver or become a party to the Collateral Agreement except in accordance with Section 5.11 below.

 

“Commitment Fees” shall mean the annual fees payable to the Lender pursuant to Section 2.04(b)(ii) below.

 

  

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“Common Stock” shall mean the authorized common stock of the Company, $.0001 par value per share.

 

“Confidential Information” shall mean information that the Borrower furnishes to the Lender which is not generally available to the public or available to the Lender from a source other than the Borrower which is not, to the Lender’s knowledge, bound by any confidentiality agreement in respect thereof.

 

“Contract” shall mean any indenture, agreement (other than this Agreement), other contractual restriction, lease in which the Borrower or any Subsidiary is a lessor or lessee, license or instrument.

 

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

 

“Control Agreement” shall mean, with respect to each bank account and/or securities account maintained by or in the name of the Borrower or any Subsidiary from time to time, an agreement executed and delivered by the Borrower (or the subject Subsidiary, as applicable) and the account intermediary, whereby the account intermediary acknowledges the Lender’s Lien on such account and all funds or property therein, and “control” (within the meaning of the UCC) over such account is established in favor of the Lender.

 

“Debt Service” shall mean, for the period in question, the sum of all principal payments scheduled or required to be made during or with respect to such period in respect of Indebtedness of the Borrower and its Subsidiaries, and all Interest Expense of the Borrower and its Subsidiaries for such period.

 

“Default” shall mean any of the events specified in Article VII hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

 

“Disclosure Schedule” shall mean the disclosure schedule, dated as of the Closing Date, executed and delivered by the Borrower to the Lender, the section numbers of which correspond to the Section numbers of this Agreement.

 

“Dollars” or “$” shall mean United States Dollars, lawful currency for the payment of public and private debts.

 

“Domestic Subsidiary” shall mean any Subsidiary which is incorporated or formed under the laws of the United States, any State or Commonwealth in the United States, or the District of Columbia.

 

“EBIDA” shall mean, for the subject period, for the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) Net Income, plus  (b) Interest Expense deducted in the calculation of such Net Income, plus  (c) depreciation and amortization expense deducted in the calculation of such Net Income, plus  (d) other non-cash charges and expenses deducted in the calculation of such Net Income, excluding accruals for cash expenses made in the ordinary course of business.

 

  

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“Eligible Account” shall mean the face amount of each trade Account of the Borrower or a Subsidiary (if same has become a party to the Guaranty Agreement and the Collateral Agreement) for services rendered or goods and products sold in the ordinary course of the Business Operations which the Lender, in its Permitted Discretion, deems to be an Eligible Account; provided , however , that an Account shall not be deemed an Eligible Account unless it meets all of the following conditions:

 

(a) the subject services or products and goods have been rendered, shipped or delivered on an absolute sale basis to an Account Debtor which is not an Affiliate, vendor or supplier of the Borrower or a Subsidiary, with an invoice date contemporaneous with or within thirty (30) calendar days after the date of shipment or service, and which does not constitute a consignment sale, bill-and-hold sale, sale-and-return or other such arrangement and is not subject to any other repurchase, return or offset agreement binding upon the Borrower or a Subsidiary; the subject services or products and goods have been rendered, shipped and delivered (or shipped f.o.b.) to such Account Debtor on an open account basis (or with payment guaranteed by a letter of credit, drawn on or by a domestic financial institution,
acceptable to the Lender in all respects), and no part of the subject services, products or goods has been returned, rejected, lost or damaged; the Account is not evidenced by chattel paper or an instrument of any kind; and such Account Debtor, unless pre-approved in writing by the Lender, is not insolvent or the subject of any bankruptcy or insolvency proceeding of any kind in any jurisdiction;

 

(b) if the Account Debtor is located outside the continental United States, Canada or the United Kingdom, either (i) payment for the subject services or goods shall be secured by an irrevocable letter of credit, which letter of credit shall have been confirmed by a financial institutional reasonably acceptable to the Lender payable in the full amount of the face value of the Account in Dollars or other currency reasonably acceptable to the Lender, (ii) such Account shall be covered by credit insurance reasonably acceptable to the Lender, or (iii) such Account and Account Debtor are reasonably satisfactory to the Lender in its Permitted Discretion;

 

(c) it is a valid, legally enforceable obligation of the Account Debtor thereunder payable in Dollars or other currency reasonably satisfactory to the Lender, and is not subject to any recoupment, offset or other defense or any discount or chargeback on the part of such Account Debtor (provided that prompt payment discounts granted in the ordinary course of business shall not cause an Account to be disqualified hereunder, so long as only the discounted amount of such Account, if not otherwise disqualified, is included in the calculation of the Borrowing Base) or to any claim on the part of such Account Debtor denying liability thereunder (provided that the undisputed portion may be considered to be an Eligible Account);

 

(d) it is subject to no Lien whatsoever, except for the Lien of the Lender;

 

(e) it has not remained unpaid in whole or in part for a period exceeding ninety (90) days after the original invoice date;

 

  

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(f) it does not arise out of a transaction (whether direct or indirect) with an employee, officer, agent, director or Affiliate of the Borrower or any Subsidiary or with any entity controlled by any employee, officer, agent or director of the Borrower or any Subsidiary;

 

(g) it is not subject to any contract retainage or other withholding of any portion of payments on amounts invoiced, whether to secure the Borrower’s or any Subsidiary’s performance or otherwise;

 

(h) it does not represent the unpaid portion of an Account any portion of which was previously paid or agreed to be paid through the issuance or delivery of equity securities or other non-cash consideration;

 

(i) if the Account Debtor is the United States, any State or Commonwealth therein, or any department, agency or instrumentality thereof, or any foreign government (federal, national, provincial or local) or agency of a foreign government, the Borrower or the applicable Domestic Subsidiary has duly assigned its rights to payment of such Account to the Lender pursuant to the federal Assignment of Claims Act, any comparable state statutes or any comparable foreign statutes (as applicable);

 

(j) the Lender has a perfected first priority Lien in such Account;

 

(k) such Account is not payable by any person other than the Account Debtor (such as a beneficiary, recipient or subscriber individually), provided that the portion thereof which is payable by the Account Debtor may be considered to be an Eligible Account;

 

(l) at least sixty (60%) percent in dollar amount of the total Accounts owed by such Account Debtor and/or its Affiliates constitute Eligible Accounts;

 

(m) the total Accounts owed by the subject Account Debtor and/or its Affiliates constitute less than ten (10%) percent of the net collectible dollar value of all Eligible Accounts (provided that only the excess over ten (10%) percent shall be disqualified under this clause (m), unless the Lender has otherwise consented in writing to the inclusion of all or any portion of such excess);

 

(n) such Account is payable solely to the Borrower or a Subsidiary, and the Borrower or such Subsidiary is not aware of any dispute by the Account Debtor with respect to such Account; and

 

(o) it is not otherwise determined by the Lender, in the Lender’s Permitted Discretion, to be difficult to collect, uncollectible or otherwise unacceptable for any reason.

 

“Eligible Inventory” shall mean the lower of the cost (on a [first in-first out] basis) or fair market value of that inventory consisting of raw materials or finished goods (but excluding work in process and product models or samples) of Borrower or any Subsidiary which is party to the Guaranty Agreement and the Collateral Agreement, which (a) is in good and merchantable condition, (b) was manufactured in accordance with and meets all standards imposed by any governmental agency having regulatory authority over such goods and/or their use, manufacture and/or sale, (c) is in the physical possession of the Borrower or the subject Subsidiary, or has been shipped to the Borrower or the subject Subsidiary with title thereto having passed to
the Borrower or such Subsidiary, (d) is currently usable or currently saleable in the normal course of the Business Operations, (e) is not on consignment to or from any Person, (f) is not subject to any Lien whatsoever, except for the Lien of the Lender, which shall be perfected with respect to such inventory, (g) has not been sold to any Person, and (h) is otherwise satisfactory to the Lender in its Permitted Discretion; provided , however , that any inventory which is held or stored at any location which is not subject to an effective Landlord Waiver shall not constitute Eligible Inventory unless expressly agreed to in writing by the Lender.

 

  

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“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as in effect from time to time.

 

“ERISA Affiliate” shall mean, with respect to any Person, any other Person which is under common control with the first Person within the meaning of Section 414(b) or 414(c) of the Code; provided , however , that with respect to the Borrower, no Person which is an Affiliate of the Lender (other than the Borrower and its Subsidiaries) shall be deemed an ERISA Affiliate for purposes of this Agreement

 

“Event of Default” has the meaning set forth in Article VII below.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

“Factor” shall mean Eurofactor UK Limited.

 

“Factoring Facility” shall mean the invoice discounting and factoring credit facility heretofore provided to MMI Automotive Ltd. by the Factor.

 

“Financial Statements” has the meaning set forth in Section 3.01(a) below.

 

“Fiscal Year” shall mean the fiscal year of the Borrower which ends on June 30 of each year.

 

“Foreign Investment Limitation” has the meaning set forth in Section 6.01(g) below.

 

“Foreign Subsidiary” shall mean any Subsidiary which is not a Domestic Subsidiary.

 

“GAAP” shall mean generally accepted accounting principles in the United States of America, consistently applied, unless the context otherwise requires, with respect to any financial terms contained herein, as then in effect with respect to the preparation of financial statements.

 

“Government Approval” shall mean an authorization, consent, non-action, approval, license or exemption of, registration or filing with, or report to, any governmental or quasi-governmental department, agency, body or other unit.

 

  

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“Guaranty”, “Guaranteed” or to “Guarantee”, as applied to any Indebtedness, liability or other obligation, shall mean (a) a guaranty, directly or indirectly, in any manner, including by way of endorsement (other than endorsements of negotiable instruments for collection in the ordinary course of business), of any part or all of such obligation, and (b) an agreement, contingent or otherwise, and whether or not constituting a guaranty, assuring, or intended to assure, the payment or performance (or payment of damages in the event of non-performance) of any part or all of such obligation
by any means (including, without limitation, the purchase of securities or obligations, the purchase or sale of property or services, or the supplying of funds).

 

“Guaranty Agreement” shall mean a guaranty agreement, in form and substance satisfactory to the Lender, to be executed by each Subsidiary in favor of the Lender, pursuant to which such Subsidiary will guaranty the full and timely payment and performance of all of the Obligations; provided , however , that the members of the EXP Group shall not be required to execute and deliver or become a party to the Guaranty Agreement except in accordance with Section 5.11 below.

 

“Indebtedness” shall mean (without duplication), with respect to any Person, (a) all obligations or liabilities, contingent or otherwise, for borrowed money, (b) any and all obligations represented by promissory notes, bonds, debentures or the like, or on which interest charges are customarily paid, (c) any liability secured by any mortgage, pledge, lien or security interest on property owned or acquired, whether or not such liability shall have been assumed, (d) obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade payables
and accrued obligations incurred in the ordinary course of business), (f) any obligations (contingent or otherwise) of such Person as an account party or applicant in respect of letters of credit and/or bankers’ acceptances, or in respect of interest rate swaps, interest rate caps, hedging agreements or other financial or hedging obligations, and (g) Guarantees, endorsements (other than for collection in the ordinary course of business) and other contingent obligations in respect of the obligations of others.

 

“Intellectual Property” shall have the meaning ascribed thereto in the Collateral Agreement.

 

“Interest Expense” shall mean, for the relevant period, total interest expense (including interest attributable to Capitalized Leases in accordance with GAAP) and fees with respect to outstanding Indebtedness.

 

“Investment”, as applied to the Borrower or any Subsidiary, shall mean: (a) any shares of capital stock, evidence of Indebtedness or other security issued by any other Person to the Borrower or any Subsidiary, (b) any loan, advance or extension of credit to, or contribution to the capital of, any other Person, other than credit terms extended to customers in the ordinary course of business, (c) any other investment by the Borrower or any Subsidiary in any assets or securities of any other Person, and (d) any commitment to make any Investment.

 

  

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“Knowledge” or “Known” or words of similar import shall mean, with respect to the Borrower and/or any Subsidiary, the actual knowledge of Ian Warwick, Simon Chadwick and/or Charles Trapp (and/or their respective successors as officers of the Borrower) after reasonable inquiry of the appropriate employees of the Borrower and the Subsidiaries.

 

“Landlord Waiver” shall mean a landlord waiver, subordination and/or access agreement, in form and substance reasonably satisfactory to the Lender, executed in favor of the Lender by the landlord of a Leased Real Property.

 

“Leased Real Property” shall mean any and all Real Properties (other than Owned Real Properties) leased or occupied by the Borrower or any Subsidiary from time to time.

 

“Liabilities and Contingencies” has the meaning set forth in Section 3.01(c) below.

 

“Lien”, as applied to the property or assets (or the income or profits therefrom) of the Borrower or any Subsidiary, shall mean (in each case, whether the same is consensual or non-consensual or arises by contract, operation of law, legal process or otherwise): (a) any mortgage, lien, pledge, hypothecation, attachment, assignment, deposit arrangement, encumbrance, charge, lease constituting a Capitalized Lease Obligation, conditional sale or other title retention agreement, or other security interest or encumbrance of any kind in respect of any property (including, without limitation, stock of any Subsidiary) of the Borrower or any Subsidiary, or upon the income or profits therefrom; (b) any arrangement under which any property of the
Borrower or any Subsidiary is transferred, sequestered or otherwise identified for the purpose of subjecting or making available the same for the payment of Indebtedness or the performance of any other liability in priority to the payment of the general, unsecured creditors of the Borrower or any Subsidiary; (c) any Indebtedness or liability which remains unpaid after the same shall become due and payable and which, if unpaid, by law or otherwise is given any priority whatsoever over the general unsecured creditors of the Borrower or any Subsidiary; and (d) any agreement (other than this Agreement) or other arrangement which, directly or indirectly, prohibits the Borrower or any Subsidiary from creating or incurring any lien on any of its properties or assets or which conditions the ability to do so on the security, on a pro rata  or other basis,
of Indebtedness other than Indebtedness outstanding under this Agreement.

 

“Loan Documents” shall mean the collective reference to this Agreement, the Notes, the Security Documents, the Warrants, the Registration Rights Agreement, and any and all other agreements, instruments, certificates and other documents as may be executed and delivered by the Borrower and/or any of the Subsidiaries pursuant hereto or thereto.

 

“Loans” shall mean, collectively, the Advances and the Term Loan.

 

“Material Adverse Effect” shall mean any event, act, omission, condition or circumstance which has or would reasonably be expected to have a material adverse effect on (a) the business, operations, properties, assets or condition, financial or otherwise, of the Borrower and the Subsidiaries, taken as a whole, (b) the ability of the Borrower or any Subsidiary to perform any of its obligations under any of the Loan Documents, or (c) the validity or enforceability of, or the Lender’s rights and remedies under, any of the Loan Documents, other than due to the acts or omissions of the Lender or any of its Affiliates.

 

  

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“Maturity Date” shall mean Revolving Credit Maturity Date and/or the Term Loan Maturity Date, as the case may be.

 

“Maximum Revolver Amount” shall mean $1,000,000.

 

“Monitoring Fee” shall mean the fees payable to the Lender pursuant to Section 2.04(b)(i) below.

 

“Net Income” shall mean the consolidated net income (or loss) of the Borrower and its Subsidiaries for the period in question, after giving effect to deduction of or provision for all operating expenses, all taxes and reserves (including reserves for deferred taxes) and all other proper deductions, all determined in accordance with GAAP and (for so long as the Borrower is subject thereto) Regulation S-X promulgated under the Act; provided , however , that for purposes of calculating Net Income, there shall be excluded and no effect shall be given to (a) any restoration of any contingency reserve, except to the
extent that provision for such reserve was made out of income for the subject period, and (b) any Net Income attributable to any Subsidiary to the extent that the Borrower is prohibited (by law, by Contract or otherwise) from receiving a distribution of such Net Income from such Subsidiary.

 

“Non-UK Subsidiary” shall mean any Foreign Subsidiary which is not incorporated under the laws of England and Wales.

 

“Notes” shall mean, collectively, the Revolving Credit Note and the Term Note.

 

“Obligations” shall mean the collective reference to all Indebtedness and other liabilities and obligations of every kind and description owed by the Borrower to the Lender from time to time under or pursuant to this Agreement, the Notes, the Security Documents and the other Loan Documents (excluding the Warrant and Registration Rights Agreement, other than amounts payable from time to time pursuant to Section 2(c) of the Registration Rights Agreement), and/or otherwise in respect of the Loans, however evidenced, created or incurred, fixed or contingent, now or hereafter existing, due or to become due.

 

“Organic Documents” shall mean, with respect to any Person, the certificate of incorporation, articles of incorporation, certificate of formation, certificate of limited partnership, by-laws, operating agreement, limited partnership agreement or other such document of such Person.

 

“Owned Real Property” shall mean each Real Property in which the Borrower or any Subsidiary holds an ownership or fee interest from time to time.

 

“Permitted Discretion” shall mean a determination or judgment made by the Lender in good faith in the exercise of reasonable business judgment from the perspective of a secured lender.

 

  

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“Permitted Indebtedness” shall mean any and all Indebtedness expressly permitted pursuant to Section 6.01 below.

 

“Permitted Liens” shall mean those Liens expressly permitted pursuant to Section 6.02 below.

 

“Person” shall mean any individual, partnership, corporation, limited liability company, banking association, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.

 

“Qualified Proceeds” shall mean any and all net proceeds received by the Borrower from time to time after the date of this Agreement from the issuance and/or sale of any capital stock of the Borrower or any security (including any Indebtedness incurred subsequent to the Closing Date) convertible into or exchangeable for capital stock of the Borrower, except to the extent that such proceeds are, within sixty (60) days after the receipt thereof, applied to pay the purchase price and/or directly associated expenses of the Borrower’s acquisition (directly or through a Wholly-Owned Subsidiary) of another business (whether through merger, consolidation, share exchange, stock purchase, or purchase of all or substantially all of the assets
of the target company or an operating division or unit thereof), in each case effected subject to and in accordance with the requirements of this Agreement and the Collateral Agreement (including, without limitation the pledge to the Lender of the capital stock and/or assets (as applicable) of the acquired business). In determining the amount of net proceeds for purposes of this definition, there shall be deducted from gross proceeds only those reasonable expenses incurred by the Borrower directly related to the subject issuance or sale, exclusive of any fees or commissions paid to any officer, director or other Affiliate of the Borrower or any Affiliate of any of the foregoing.

 

“Real Properties” shall mean, collectively, any real properties (land, buildings and/or improvements) now owned or leased or occupied by the Borrower or any of the Subsidiaries, and, during the period of the Borrower’s and/or Subsidiary’s occupancy thereof, any other real properties heretofore owned or leased by the Borrower or any Subsidiary (provided that, with respect to leased properties, the “Real Property” shall refer only to the portion of the subject property (excluding common areas) leased by the Borrower or a Subsidiary).

 

“Registration Rights Agreement” shall mean the Registration Rights Agreement, to be dated as of the Closing Date, made by the Borrower for the benefit of the Lender and any subsequent Holders (as such term is defined in the Registration Rights Agreement), as same may be amended, modified, supplemented and/or restated from time to time.

 

“Revolving Credit Commitment” shall mean the Lender’s agreement to make Advances to the Borrower within the limitations set forth in Section 2.01 below.

 

“Revolving Credit Maturity Date” shall mean the earlier of (a) November 30, 2009, subject to extension accordance with Section 2.01(h) below, or (b) the date of prepayment in full of the Term Loan (or the date on which such prepayment is required to be made).

 

  

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“Revolving Credit Note” shall mean the promissory note of the Borrower issued to the Lender to represent the Advances and interest thereon, as described in Section 2.01(f) below.

 

“Sale” shall mean any transaction or series of related transactions (a) whereby Control of the Borrower is held by a Person (or group of Persons acting in concert), provided that a “Sale” shall not be deemed to have occurred solely by reason of normal market trading in the Common Stock which does not result in the acquisition by a single Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of a majority of the outstanding voting stock of the Borrower, (b) in which the Borrower is a constituent party to any merger, consolidation or share exchange and as a result thereof (i) the holders of the outstanding capital stock of the Borrower which ordinarily has voting power for the election of
directors (including preferred stock counted on an “as converted” basis into common stock) immediately prior to such merger or consolidation cease to own a majority of the outstanding capital stock of the Borrower which ordinarily has voting power for the election of directors (including preferred stock counted on an “as converted” basis into common stock), or (ii) the Borrower is not the surviving corporation, or (c) whereby all or any material portion of the assets of the Borrower or any Subsidiary are sold, assigned or transferred; provided , however , that the term “Sale” shall not include (i) the distribution by Data Network, Inc. of the Common Stock currently held by such entity.

 

“SEC” shall mean the United States Securities and Exchange Commission, and any successor agency performing the functions thereof.

 

“SEC Reports” shall mean the periodic and current reports, registration statements, proxy statements and other reports filed or required to be filed by the Borrower with the SEC from and after December 2005 pursuant to the Act and/or the Exchange Act, and any amendments or supplements thereto filed with the SEC.

 

“Security Documents” shall mean the Guaranty Agreement, the Collateral Agreement, the U.K. Security Agreement, the Validity Guaranties, any collateral assignments, Landlord Waivers, Control Agreements, financing statements, Lien recordings or other such agreements or documents pursuant thereto, and any other agreements or instruments securing or creating or evidencing Liens securing the Obligations.

 

“Subordinated Debt” shall mean all Indebtedness for money borrowed and other liabilities of the Borrower or any Subsidiary, whether or not evidenced by promissory notes, which is contractually subordinated in right of payment, in a manner satisfactory to the Lender (as evidenced by the Lender’s prior written approval thereof), to all Obligations of the Borrower and/or the subject Subsidiary to the Lender.

 

“Subsidiary” or “Subsidiaries” shall mean the individual or collective reference to any corporation, limited liability company or other entity of which 50% or more of the outstanding shares of stock or other equity interests of each class having ordinary voting power and/or rights to profits (other than stock having such power only by reason of the happening of a contingency) is at the time owned by the Borrower, directly or indirectly through one or more Subsidiaries of the Borrower.

 

  

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“Term Loan” shall mean the term loan in the principal amount of $5,000,000 to be made pursuant to Section 2.02(a) below.

 

“Term Loan Maturity Date” shall mean November 30, 2010.

 

“Term Note” shall mean the convertible promissory note of the Borrower issued to the Lender as described in Section 2.02(d) below.

 

“UCC” means the Uniform Commercial Code as in effect in the State of New York on the date hereof and hereafter from time to time.

 

“U.K. Security Agreement” shall mean the collective reference to (a) a Guarantee and Debenture, to be dated the Closing Date, by and among the Foreign Subsidiaries and the Lender, and (b) a Charge Over Shares, to be dated the Closing Date, by and between the Borrower and the Lender, each as may be amended, modified, supplemented and/or restated from time to time.

 

“Validity Guaranties” shall mean the Validity Guaranties to be executed and delivered to the Lender by the Company and Ian Warwick, by the Company and Simon Chadwick, and by the Company and Charles Trapp, each as of the Closing Date.

 

“Warrants” shall mean the warrants to purchase shares of Common Stock (such warrants covering an aggregate of 5,083,333 shares of Common Stock, subject to adjustment) to be issued by the Borrower to the Lender on the Closing Date.

 

“Wholly-Owned Subsidiary” shall mean each Subsidiary of which all of the outstanding equity securities (other than directors’ qualifying shares) are owned by the Borrower or another such Wholly-Owned Subsidiary.

 

“Wholly-Owned Domestic Subsidiary” shall mean each Wholly-Owned Subsidiary which is a Domestic Subsidiary.

 

Section 1.02. Use of Defined Terms. All terms defined in this Agreement shall have their defined meanings when used in the Notes, the Security Documents, the other Loan Documents, and all certificates, reports or other documents made or delivered pursuant to this Agreement, unless otherwise defined therein or unless the specific context shall otherwise require.

 

Section 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP.

 

Section 1.04. Other Definitional Provisions. The words “hereof,” “herein”, “hereto” 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 references are to this Agreement unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified.

 

  

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II. GENERAL TERMS

 

Section 2.01. Revolving Credit Loans.

 

(a) Subject at all times to all of the terms and conditions of this Agreement, the Lender hereby agrees to extend to the Borrower a secured revolving credit facility, from the Closing Date to the Revolving Credit Maturity Date, in an aggregate principal amount not to exceed, at any time outstanding, the lesser of (i) the Borrowing Base at the subject time, or (ii) the Maximum Revolver Amount (the “ Revolving Credit Commitment ”).

 

(b) Such revolving credit loans are herein sometimes referred to individually as an “Advance” and collectively as the “ Advances .” Subject at all times to all of the terms and conditions of this Agreement, from the Closing Date to the Revolving Credit Maturity Date and within the limits of the Revolving Credit Commitment, the Lender shall lend, and the Borrower may borrow, prepay (without premium or penalty) and reborrow under this Section 2.01. Each request for an Advance (i) shall be irrevocable, (ii) shall be deemed to constitute an express affirmation that all conditions precedent set forth in part B of Article IV hereof are satisfied on the date of
such request and will be satisfied on the requested Borrowing Date, and (iii) shall be made to the Lender in writing, not later than three (3) Business Days prior to the requested Borrowing Date, by an authorized officer of the Borrower or by telephonic communication by such authorized officer to the Lender, which shall be confirmed by written notice to the Lender to be delivered to the Lender by the Business Day next following the subject request. In no event shall the Borrower request, or shall the Lender be required to honor, (A) any request for an Advance in an amount greater than the Availability at such time, (B) any request for an Advance in an amount less than $100,000, or (C) more than one request for the borrowing of an Advance in any seven (7) calendar day period.

 

(c) The Borrower shall pay the Lender interest on all Advances at the rate(s) per annum as in effect from time to time in accordance with the Revolving Credit Note. Such interest shall be payable monthly in arrears on the first day of each calendar month commencing January 1, 2008 and on the Revolving Credit Maturity Date, and shall be computed on the daily unpaid balance of all Advances made under the Borrower’s revolving credit loan accounts with the Lender, based on a three hundred sixty (360) day year, counting the actual number of days elapsed. The Borrower hereby authorizes the Lender to charge the Borrower’s revolving credit loan accounts for all such interest; provided , however , that the Lender shall be under no obligation to make any such charge to the Borrower’s revolving credit loan accounts (including, without limitation, if there is insufficient Availability at the time such interest is due and payable).

 

(d) In the event and to the extent that, at any time, the outstanding principal amount of Advances exceeds the Revolving Credit Commitment then in effect, then the Borrower shall immediately, without notice or demand, make a payment to the Lender in respect of the Advances in an amount sufficient to cause the outstanding principal amount of Advances to be equal to or less than the Revolving Credit Commitment then in effect.

 

  

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(e) Unless sooner due and payable by reason of an Event of Default or Sale having occurred, the Borrower shall pay in full all of the Obligations to the Lender in respect of all Advances on the Revolving Credit Maturity Date.

 

(f) All Advances shall be evidenced by a secured Revolving Credit Note of the Borrower payable to the Lender or registered assigns.

 

(g) The Borrower may, at its option, terminate the Revolving Credit Commitment at any time upon five (5) Business Days’ prior written notice, and paying to the Lender, on the date fixed for termination, an amount equal to the sum of (i) all outstanding principal and accrued interest of the Advances, and (ii) prorated accrued Commitment Fees.

 

(h) Provided that the Revolving Credit Maturity Date has not theretofore occurred by reason of clause (b) of the definition thereof, the Borrower may, at its option, by written notice to the Lender given not earlier than September 1, 2009 and not later than November 1, 2009, elect to extend the Revolving Credit Maturity Date to November 30, 2010, provided that, at the time of such notice and on the scheduled Revolving Credit Maturity Date, no Default or Event of Default shall have occurred and be continuing. The Borrower’s extension notice shall expressly certify to the satisfaction of such conditions, and once given, any such notice shall be irrevocable.

 

Section 2.02. Term Loan.

 

(a) Subject at all times to all of the terms and conditions of this Agreement, the Lender hereby agrees to extend to the Borrower a Term Loan in the principal amount of $5,000,000. The Term Loan shall be borrowed in a single borrowing on the Closing Date, and any principal amounts repaid in respect of the Term Loan may not be reborrowed.

 

(b) The Term Loan shall be repayable in installments, in accordance with the schedule of payments set forth in the Term Note. The Borrower shall be required to prepay the Term Loan (i) in full simultaneously with the consummation of any Sale, and (ii) in whole or in part from time to time in the event and to the extent of 50% of any Qualified Proceeds received by the Borrower from time to time. Any prepayment required under the foregoing clause (ii) shall be due and payable as and when the amount of Qualified Proceeds is determined (i.e., upon receipt of such Qualified Proceeds in the event that no acquisition transaction is then pending, or sixty (60) days after receipt of such Qualified Proceeds to the extent that such Qualified Proceeds have not been applied to the purchase price and/or related expenses
of a consummated business acquisition).

 

(c) The Borrower shall pay the Lender interest on the principal balance of the Term Loan at the rate(s) per annum as in effect from time to time in accordance with the Term Note. Such interest shall be payable monthly in arrears commencing January 1, 2008, on the first day of each calendar month thereafter, and on the Term Loan Maturity Date, and shall be computed on the daily unpaid balance of the Term Loan, based on a three hundred sixty (360) day year, counting the actual number of days elapsed. The Borrower hereby authorizes the Lender to charge the Borrower’s revolving credit loan accounts for all such interest and/or for any or all principal amounts due and payable in respect of the Term Loan; provided , however , that the Lender shall be under no obligation to make any such charge to the Borrower’s revolving credit loan accounts (including, without limitation, if there is insufficient Availability at the time such interest and/or principal is due and payable).

 

  

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(d) The Term Loan shall be evidenced by a secured Convertible Term Note of the Borrower payable to the Lender or registered assigns.

 

Section 2.03. [Reserved].

 

Section 2.04. Fees and Premiums.

 

(a) The Borrower shall pay the Closing Fees to the Lender on the Closing Date. The Closing Fees shall be deemed fully earned on the Closing Date and shall not be refundable in whole or in part and shall not be subject to reduction or set-off under any circumstances.

 

(b) The Borrower shall further pay to the Lender, in respect of the Revolving Credit Commitment:

 

(i) in advance on the Closing Date and on the first (1st) Business Day of each calendar month prior to (A) the Revolving Credit Maturity Date, or (B) the earlier termination of the Revolving Credit Commitment and payment of the Obligations thereon in accordance with this Agreement, a collateral monitoring and administrative fee in the amount of $1,500 per month or portion thereof; and

 

(ii) on December 1 of each year commencing December 1, 2008, and upon any termination of the Revolving Credit Commitment (appropriately prorated in such latter case), an annual Commitment Fee in the amount of $15,000.

 

(c) In the event of any prepayment of all or any portion of the Term Loan other than pursuant to Section 2.02(b)(ii) above, in addition to the payment of the subject principal amount and all unpaid accrued interest thereon, the Borrower shall be required to pay to the Lender a prepayment premium in an amount equal to (i) three (3%) percent of the principal amount being prepaid if such prepayment is made or is required to be made on or prior to the second (2 nd ) anniversary of the Closing Date, and (ii) one (1%) percent of the principal amount being prepaid if such prepayment is made or is required to be made subsequent to the second (2 nd ) anniversary
of the Closing Date.

 

(d) Payments received in respect of the Obligations after 12:00 Noon (Eastern Time) on any day shall be deemed to be received on the next succeeding Business Day, and if any payment is received other than by wire transfer of immediately available funds, such payment shall be subject to three (3) Business Days’ clearance prior to being credited to the Obligations for interest calculation purposes.

 

(e) In the event that the Lender notifies the Borrower that the Lender is ready, willing and able to fund the Loans on substantially the terms of this Agreement and the other Loan Documents presented to the Borrower and its Subsidiaries, and the Closing Date has not occurred within ten (10) days thereafter other than due to the fault of the Lender, then the Lender may, at any time thereafter until the Closing Date, terminate this Agreement by written notice to the Borrower, in which event the Borrower shall immediately pay to the Lender (i) an amount equal to all out-of-pocket costs, charges and expenses incurred by the Lender in respect of the transactions contemplated by this Agreement, and (ii) an additional fee in the amount of $150,000. This Section 2.04(e) shall survive any termination of this
Agreement.

 

  

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Section 2.05. Use of Proceeds. The Borrower shall utilize the proceeds of the Loans solely for working capital and other general corporate purposes of the Borrower.

 

Section 2.06. Further Obligations. With respect to all Obligations for which the interest rate is not otherwise specified herein (whether such Obligations arise hereunder, pursuant to the Notes or Security Documents, or otherwise), such Obligations shall bear interest at the rate(s) in effect from time to time pursuant to the Revolving Credit Note.

 

Section 2.07. Application of Payments. Except as otherwise provided in Section 2.02(b), all amounts paid to or received by the Lender in respect of the Loans from whatever source (whether from the Borrower, any Subsidiary pursuant to the Guaranty Agreement, any realization upon any Collateral, or otherwise) shall, unless otherwise directed by the Borrower with respect to any particular payment (unless an Event of Default shall then be continuing, in which event the Lender may disregard the Borrower’s direction), be applied (a) first, to reimburse the Lender for all out-of-pocket costs and expenses incurred by the Lender which are reimbursable to the Lender in accordance with this Agreement, the Notes and/or any of the other Loan Documents, (b)
next, to any accrued but unpaid fees or prepayment premiums, and amounts payable under Section 2.2(c) of the Registration Rights Agreement, (c) next, to unpaid accrued interest on the Term Loan, (d) next, to unpaid accrued interest on the Advances, (e) next, to the outstanding principal of the Term Loan, to the extent then due and payable, (f) next, to the outstanding principal of the Advances, and (g) finally, to the payment of any other outstanding Obligations; and after payment in full of the Obligations, any further amounts paid to or received by the Lender in respect of the Loans shall be paid over to the Borrower or such other Person(s) as may be legally entitled thereto.

 

Section 2.08. Sale. Anything elsewhere contained in this Agreement and/or the Notes to the contrary notwithstanding, the Revolving Credit Commitment shall terminate and all Obligations shall become immediately due and payable, without requirement of any notice or demand, upon the consummation of any Sale.

 

Section 2.09. Obligations Unconditional.

 

(a) The payment and performance of all Obligations shall constitute the absolute and unconditional obligations of the Borrower, and shall be independent of any defense or rights of set-off, recoupment or counterclaim which the Borrower might otherwise have against the Lender. All payments required by this Agreement and/or the Notes shall be paid free of any deductions or withholdings for any taxes (but only for the original Lender and any investment funds under common management with such Lender) or other amounts and without abatement, diminution or set-off. If the Borrower is required by law to make such a deduction or withholding from a payment hereunder, the Borrower shall pay to the Lender such additional amount as is necessary to ensure that, after the making of such deduction or withholding, the Lender
receives (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. The Borrower shall (i) pay the full amount of any deduction or withholding, which it is required to make by-law, to the relevant authority within the payment period set by the relevant law, and (ii) promptly after any such payment, deliver to the Lender an original (or certified copy) official receipt issued by the relevant authority in respect of the amount withheld or deducted or, if the relevant authority does not issue such official receipts, such other evidence of payment of the amount withheld or deducted as is reasonably acceptable to the Lender.

 

  

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(b) If, at any time and from time to time after the Closing Date, (i) any change in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (ii) any new law, regulation, treaty or directive enacted or application thereof, or (iii) compliance by the Lender with any request or directive (whether or not having the force of law) from any governmental authority (A) subjects the Lender to any tax, levy, impost, deduction, assessment, charge or withholding of any kind whatsoever with respect to any Loan Document, or changes the basis of taxation of payments to the Lender of any amount payable thereunder (except for net income taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, state, local or foreign taxing authorities with respect
to interest or commitment fees or other fees payable hereunder or changes in the rate of tax on the overall net income of the Lender or its members), or (B) imposes on the Lender any other condition or increased cost in connection with the transactions contemplated thereby or participations therein, and the result of any of the foregoing is to increase the cost to the Lender of making or continuing any Loan or to reduce any amount receivable hereunder, then, in any such case, the Borrower shall promptly pay to the Lender any additional amounts necessary to compensate the Lender, on an after-tax basis, for such additional cost or reduced amount as determined by the Lender. If the Lender becomes entitled to claim any additional amounts pursuant to this Section 2.09(b), the Lender shall promptly notify the Borrower of the event by reason of which the Lender has become so entitled and the basis therefor (to the extent known to the Lender) in reasonable detail, and each such notice of
additional amounts payable pursuant to this Section 2.09(b) submitted by the Lender to the Borrower shall, absent manifest error, be final, conclusive and binding for all purposes.

 

Section 2.10. Reversal of Payments. To the extent that any payment or payments made to or received by the Lender pursuant to this Agreement or any other Loan Document are subsequently invalidated, declared to be fraudulent or preferential, set aside, or required to be repaid to any trustee, receiver or other person under any state or federal bankruptcy or other such law, then, to the extent thereof, such amounts shall be revived as Obligations and continue in full force and effect hereunder as if such payment or payments had not been received by the Lender.

 

III. REPRESENTATIONS AND WARRANTIES

 

As of the Closing Date and on each Borrowing Date (unless the representation and warranty refers to a specific date), the Borrower hereby makes the following representations and warranties to the Lender, all of which representations and warranties shall survive the Closing Date, the delivery of the Notes and the making of the Loans, shall be continuing in nature so long as any Obligations are outstanding or the Revolving Credit Commitment remains in effect, and are as follows:

 

  

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Section 3.01. Financial Matters.

 

(a) The Borrower has heretofore furnished to the Lender the audited consolidated financial statements (including balance sheets, statements of income and statements of cash flows) of the Borrower and its Subsidiaries as at June 30, 2005, 2006 and 2007, and for the Fiscal Years then ended (collectively, the “ Financial Statements ”).

 

(b) The Financial Statements (i) have been prepared in accordance with GAAP and Regulation S-X promulgated under the Act on a consistent basis for all periods (subject, in the case of unaudited statements, to the absence of full footnote disclosures, and to normal non-material audit adjustments), (ii) are complete and correct in all material respects, (iii) fairly present the consolidated financial condition of the Borrower and its Subsidiaries as of said dates, and the results of their operations for the periods stated, (iv) contain and reflect all necessary adjustments and accruals, as applicable, for a fair presentation of the Borrower’s and its Subsidiaries’ consolidated financial condition and results of operations as of the dates of and for the periods covered by such Financial Statements,
and (v) make full and adequate provision, subject to and in accordance with GAAP, for the various assets and liabilities (including, without limitation, deferred revenues) of the Borrower, fixed or contingent, and the results of their operations and transactions in their accounts, as of the dates and for the periods referred to therein.

 

(c) Except as set forth in Schedule 3.01 of the Disclosure Schedule, neither the Borrower nor any of its Subsidiaries have any liabilities, obligations or commitments of any kind or nature whatsoever, whether absolute, accrued, contingent or otherwise (collectively “ Liabilities and Contingencies ”), including, without limitation, Liabilities and Contingencies under employment agreements and with respect to any “earn-outs”, stock appreciation rights, or related compensation obligations, except: (i) Liabilities and Contingencies disclosed in the Financial Statements or footnotes thereto, (ii) Liabilities and Contingencies incurred in the ordinary course of
business and consistent with past practice since the date of the most recent Financial Statements, or (iii) those Liabilities and Contingencies which are not required to be disclosed under GAAP. The reserves, if any, reflected on the balance sheet included in the most recent Financial Statements are appropriate and reasonable. Neither the Borrower nor any of its Subsidiaries have any Indebtedness for money borrowed, outstanding obligations for the purchase price of property, contingent obligations or liabilities for taxes, or any material or unusual forward or long-term commitments, except as specifically set forth in Schedule 3.01  of the Disclosure Schedule.

 

(d) Since the date of the most recent Financial Statements, except as set forth in Schedule 3.01 of the Disclosure Schedule, there has been no material adverse change in the working capital, condition (financial or otherwise), assets, liabilities, reserves, business, management, operations or prospects of the Borrower or any of its Subsidiaries, including, without limitation, the following:

 

  

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(i) there has been no material change in any assumptions underlying, or in any methods of calculating, any bad debt, contingency or other reserve relating to the Borrower or any Subsidiary;

 

(ii) there have been (A) no material write-downs in the value of any inventory of, and there have been no write-offs as uncollectible of any notes, accounts receivable or other receivables of, the Borrower or any Subsidiary other than write-offs of accounts receivable reserved in full as of the date of the most recent financial statements delivered to the Lender, and (B) no reserves established for the uncollectibility of any notes, Accounts or other receivables of the Borrower or any Subsidiary except to the extent that same have been disclosed to the Lender in writing and would not, individually or in the aggregate, cause the outstanding Advances to exceed the Revolving Credit Commitment;

 

(iii) no debts which, individually or in the aggregate, are material to the Borrower and its Subsidiaries (taken as a whole) have been cancelled, no claims or rights of substantial value have been waived and no properties or assets (real, personal or mixed, tangible or intangible) have been sold, transferred, or otherwise disposed of by the Borrower or any Subsidiary except in the ordinary course of business and consistent with past practice;

 

(iv) there has been no change in any method of accounting or accounting practice utilized by the Borrower or any Subsidiary;

 

(v) no material casualty, loss or damage has been suffered by the Borrower or any Subsidiary, regardless of whether such casualty, loss or damage is or was covered by insurance;

 

(vi) Any announced changes in the policies or practices of any customer, supplier or referral source of the Borrower or any Subsidiary which the Borrower or such Subsidiary has received written notice of and which would reasonably be expected to have a Material Adverse Effect;

 

(vii) Any incurrence of (A) any liability or obligation outside of the ordinary course of business which, individually or in the aggregate, is or will be material to the consolidated financial condition of the Borrower and its Subsidiaries, or (B) any Indebtedness other than Permitted Indebtedness;

 

(viii) Any declaration, setting aside or payment of any dividend or distribution or any other payment of any kind by the Borrower to or in respect of any equity securities of the Borrower; and

 

(ix) No action described in this Section 3.01(d) has been agreed to be taken by the Borrower or any Subsidiary.

 

(e) The Borrower and its Subsidiaries have in place adequate systems of internal controls and disclosure controls and procedures sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences, and (v) the Borrower and its management are able to obtain timely and accurate information regarding
the Business Operations and all material transactions relating to the Borrower and the Subsidiaries; and no material deficiency exists with respect to the Borrower’s or any Subsidiary’s systems of internal controls.

 

  

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(f) All of the SEC Reports (as amended), as of the respective dates thereof, complied in all material respects, as applicable, with the Act and the Exchange Act.

 

(g) The representations and warranties made in this Section 3.01 are subject to the matters disclosed in the Borrower’s Current Report on Form 8-K dated October 18, 2007, filed with the SEC.

 

Section 3.02. Organization; Corporate Existence.

 

(a) The Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) has all requisite corporate power and authority to own its properties and to carry on its business as now conducted and as proposed hereafter to be conducted, (iii) is qualified to do business as a foreign corporation in each jurisdiction in which the failure of the Borrower to be so qualified would have a Material Adverse Effect, and (iv) has all requisite corporate power and authority to execute and deliver, and perform all of its obligations under, the Loan Documents. True and complete copies of the Organic Documents of the Borrower, together with all amendments thereto to the date hereof, have been furnished to the Lender.

 

(b) On the date of this Agreement, the outstanding capital stock of the Borrower, the number and amount of all outstanding options, warrants, convertible securities, subscriptions and other rights to acquire capital stock of the Borrower, and the number of shares reserved or to be reserved under outstanding, authorized or proposed option plans or the like, are as set forth in Schedule 3.02  of the Disclosure Schedule. All of such outstanding capital stock is validly issued, fully paid and nonassessable. Except as set forth in such Schedule 3.02 , no holders of any such securities have any registration rights in respect thereof.

 

(c) Schedule 3.02 of the Disclosure Schedule further sets forth, with respect to each Subsidiary on the date of this Agreement, (i) its proper legal name, (ii) its jurisdiction of incorporation or formation, (iii) the jurisdictions in which it is qualified to do business as a foreign entity, (iv) the number of shares of capital stock, equity securities or ownership interests outstanding (all of which are validly issued, fully paid and nonassessable), and (v) the owner(s) of such outstanding capital stock, equity securities or other ownership interests. Each of the Subsidiaries (A) is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, (B) has all requisite power
and authority to own its properties and to carry on its business as now conducted and as proposed hereafter to be conducted, and to execute and deliver, and perform all of its obligations under, the Loan Documents to which it is a party, and (C) is not required to be qualified to do business as a foreign entity in any jurisdiction in which it is not so qualified and the failure to be so qualified would reasonably be expected to have a Material Adverse Effect. True and complete copies of the Organic Documents of each Subsidiary, together with all amendments thereto to the date hereof, have been furnished to the Lender.

 

  

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Section 3.03. Authorization.

 

(a) The execution, delivery and performance by the Borrower and the Subsidiaries of their respective obligations under the Loan Documents have been duly authorized by all requisite corporate and other action and will not, either prior to or as a result of the consummation of the transactions contemplated by this Agreement: (i) violate any provision of Applicable Law, any order of any court or other agency of government, any provision of the Organic Documents of the Borrower or any Subsidiary, or any Contract, indenture, agreement or other instrument to which the Borrower or any of the Subsidiaries is a party, or by which the Borrower or any of the Subsidiaries or any of its assets or properties are bound, or (ii) be in conflict with, result in a breach of, or constitute (after the giving of notice or lapse
of time or both) a default under, or, except as may be provided in the Loan Documents, result in the creation or imposition of any Lien of any nature whatsoever upon any of the property or assets of the Borrower or any of the Subsidiaries pursuant to, any such Contract, indenture, agreement or other instrument.

 

(b) This Agreement and the other Loan Documents have been duly executed and delivered by the Borrower and its Subsidiaries party thereto, and constitute the valid and binding obligations of the Borrower and its Subsidiaries party thereto, enforceable against the Borrower and such Subsidiaries in accordance with their respective terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moretorium, fraudulent transfer or other similar laws now or hereafter in effect relating to creditors’ rights generally, and by general principles of equity.

 

(c) Except for compliance with applicable federal or state securities laws, as applicable, neither the Borrower nor any of the Subsidiaries is required to obtain any Government Approval, consent or authorization from, or to file any declaration or statement with, any governmental instrumentality or agency in connection with or as a condition to the execution, delivery or performance of any of the Loan Documents.

 

(d) Without limitation of Sections 3.03(a) through 3.03(c) above, the issuance of the Term Note and the Warrants has been authorized by all requisite corporate action of the Borrower, and such issuance does not conflict with any shareholders’ agreement, preemptive rights, limitation under or requirement of Organic Documents, or other agreement or commitment of the Borrower. Upon conversion of the Term Note (in whole or in part) from time to time in accordance therewith, the shares of Common Stock issuable upon such conversion will be validly issued, fully paid and nonassessable; and upon exercise of the Warrants in accordance with the terms thereof, the Warrant Shares (as such term is defined in the Warrants) will be validly issued, fully paid and nonassessable.

 

Section 3.04. Litigation. Except as disclosed on Schedule 3.04 of the Disclosure Schedule, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of the Subsidiaries or any of their respective assets, which, if adversely determined, would have a Material Adverse Effect. The Borrower has no Knowledge of any state of facts, events, conditions or circumstances which are reasonably likely to give rise to, or would properly constitute grounds for or the basis of, any suit, action, arbitration, proceeding or investigation
(including, without limitation, any unfair labor practice charges, interference with union organizing activities, or other labor or employment claims) against or with respect to the Borrower or any Subsidiary.

 

  

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Section 3.05. Material Contracts. Except as disclosed on Schedule 3.05 of the Disclosure Schedule, neither the Borrower nor any of the Subsidiaries is (a) a party to any Contract, agreement or instrument or subject to any charter or other corporate or organizational restriction which has had or could reasonably be expected to have a Material Adverse Effect, (b) subject to any liability or obligation under or relating to any collective bargaining agreement, or (c) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contract, agreement or instrument to which it is a party or by which any of its assets or properties
is bound, which default, individually or in the aggregate, would have or could reasonably be expected to have a Material Adverse Effect.

 

Section 3.06. Title to Properties. Except as set forth in Schedule 3.06 fo the Disclosure Schedule, the Borrower and each of the Subsidiaries has good title to all of its properties and assets, free and clear of all mortgages, security interests, restrictions, encumbrances or other Liens of any kind, except for restrictions on the nature of use thereof imposed by Applicable Law, and except for Permitted Liens, none of which materially interfere with the use and enjoyment of such properties and assets in the normal course of the Business Operations as presently conducted, or materially impair the value of such properties and assets for the purpose of such business.

 

Section 3.07. Real Property. Neither the Borrower nor any Subsidiary owns any Owned Real Property.  Schedule 3.07 of the Disclosure Schedule sets forth a correct and complete lists of all Leased Real Properties. The Borrower has a valid lessee’s interest in each Leased Real Property currently leased or occupied by the Borrower and neither the Borrower nor, to the Borrower’s Knowledge, any other party thereto, is in material breach or violation of any requirements of any such lease. All Real Properties currently owned or occupied by the Borrower or any Subsidiary are in good condition (reasonable wear and tear
excepted) and are adequate for the current and proposed businesses of the Borrower and its Subsidiaries. To the Borrower’s Knowledge, its use of the Real Properties in the normal conduct of the Business Operations does not violate any applicable building, zoning or other law, ordinance or regulation affecting such Real Properties, and no covenants, easements, rights-of-way or other such conditions of record materially impair the Borrower’s use of the Real Properties in the normal conduct of the Business Operations.

 

Section 3.08. Machinery and Equipment. The machinery and equipment owned and/or used by the Borrower and the Subsidiaries is, as to each individual material item of machinery and equipment, and in the aggregate as to all such equipment, in good and usable condition and in a state of good maintenance and repair (reasonable wear and tear excepted), and adequate for its use in the Business Operations.

 

  

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Section 3.09. Capitalization. Except as set forth in Schedule 3.02 of the Disclosure Schedule and for new Subsidiaries which may hereafter be formed or acquired in compliance with this Agreement, the Borrower does not, directly or indirectly, own any capital stock of or any form of equity interest in any other Person.

 

Section 3.10. Solvency. After giving effect to the Loans and the other transactions contemplated hereby, the borrowings made and/or to be made by the Borrower under this Agreement do not and will not render the Borrower insolvent or with unreasonably small capital for its business; the fair saleable value of all of the assets and properties of the Borrower does now, and will, upon the funding of the Loans contemplated hereby, exceed the aggregate liabilities and Indebtedness of the Borrower (including contingent liabilities); the Borrower is not contemplating either the filing of a petition under any state or federal bankruptcy or insolvency law, or the liquidation of all or any substantial portion of its assets or property; the Borrower has no
Knowledge of any Person contemplating the filing of any such petition against the Borrower; and the Borrower reasonably anticipates that it will be able to pay its debts as they mature.

 

Section 3.11. No Investment Company. The Borrower is not an “investment company” or a company “controlled” by an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

 

Section 3.12. Margin Securities. The Borrower does not own or have any present intention of acquiring any “margin security” or any “margin stock” within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System (herein called “margin security” and “margin stock”). None of the proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry, any margin security or margin stock or for any other purpose which might constitute the transactions contemplated hereby a “purpose credit” within the meaning of said
Regulations T, U or X, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Exchange Act, or any rules or regulations promulgated under such statutes.

 

Section 3.13. Taxes.

 

(a) Except as set forth in Schedule 3.13 of the Disclosure Schedule, all material federal, state, local and foreign tax returns and tax reports required to be filed by the Borrower and/or any Subsidiary have been timely filed with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed, and all of such tax returns, tax reports and other filings are correct and complete in all material respects. All federal, state, local and foreign income, franchise, sales, use, property, excise, ad valorem, value-added, payroll and other taxes (including interest, penalties and additions to tax and including estimated tax installments where required to be filed and paid) due from or with respect to
the Borrower and the Subsidiaries have been fully paid, and appropriate accruals have been made on the Borrower’s books for taxes not yet due and payable. All taxes and other assessments and levies which the Borrower and/or any Subsidiary is required by law to withhold or to collect have been duly withheld and collected, and have been paid over to the proper governmental authorities to the extent due and payable. Except as set forth in Schedule 3.13  of the Disclosure Schedule, there are no outstanding or pending claims, deficiencies or assessments for taxes, interest or penalties with respect to any taxable period of the Borrower or any Subsidiary, and no outstanding tax Liens.

 

  

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(b) Except as disclosed in Schedule 3.13 of the Disclosure Schedule, the Borrower has no Knowledge and has not received notice of any pending audit with respect to any federal, state, local or foreign tax returns of the Borrower or any Subsidiary, and no waivers of statutes of limitations have been given or requested with respect to any tax years or tax filings of the Borrower or any Subsidiary.

 

Section 3.14. ERISA. Except as set forth in Schedule 3.14 of the Disclosure Schedule, neither the Borrower nor any ERISA Affiliate of the Borrower maintains or has any obligation to make any contributions to any pension, profit sharing or other similar plan providing for deferred compensation to any employee. With respect to any such plan(s) as may now exist or may hereafter be established by the Borrower or any ERISA Affiliate of the Borrower, and which constitutes an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA, except as set forth on Schedule 3.14  of the Disclosure
Schedule: (a) the Borrower or the subject ERISA Affiliate has paid and shall cause to be paid when due all amounts necessary to fund such plan(s) in accordance with its terms, (b) except for normal premiums payable by the Borrower to the Pension Benefit Guaranty Corporation (“ PBGC ”), the Borrower or the subject ERISA Affiliate has not taken and shall not take any action which could result in any liability to the PBGC, or any of its successors or assigns, (c) the present value of all accrued benefits thereunder shall not at any time exceed the value of the assets of such plan(s) allocable to such accrued benefits, (d) there have not been and there shall not be any transactions such as would cause the imposition of any tax or penalty under Section 4975 of the Code or under Section 502 of ERISA, which would adversely affect the funded benefits attributable to the Borrower or the subject ERISA Affiliate, (e)
there has not been and there shall not be any termination or partial termination thereof (other than a partial termination resulting solely from a reduction in the number of employees of the Borrower or an ERISA Affiliate of the Borrower, which reduction is not anticipated by the Borrower), and there has not been and there shall not be any “reportable event” (as such term is defined in Section 4043(b) of ERISA) on or after the effective date of Section 4043(b) of ERISA with respect to any such plan(s) subject to Title IV of ERISA, (f) no “accumulated funding deficiency” (as defined in Section 412 of the Code) has been or shall be incurred on or after the effective date of Section 412 of the Code, (g) such plan(s) have been and shall be determined to be “qualified” within the meaning of Section 401(a) of the Code, and have been and shall be duly administered in compliance with ERISA and the Code, and (h) the Borrower is not aware of any fact, event,
condition or cause which might adversely affect the qualified status thereof. As respects any “multi-employer plan” (as such term is defined in Section 3(37) of ERISA) to which the Borrower or any ERISA Affiliate thereof has heretofore been, is now, or may hereafter be required to make contributions, the Borrower or such ERISA Affiliate has made and shall make all required contributions thereto, and there has not been and shall not be any “complete withdrawal” or “partial withdrawal” (as such terms are respectively defined in Sections 4203 and 4205 of ERISA) therefrom on the part of the Borrower or such ERISA Affiliate. Neither the Borrower nor any of its Subsidiaries is or has at any time been an employer (for purposes of Sections 38 to 51 of the Pensions Act 2004 under English law) of an occupational pension scheme which is not a money purchase scheme (both terms as defined in the Pensions Schemes Act 1993 under English law), or
“connected” with an “associate” of such an employer (as those terms are used in Sections 39 and 43 of the Pensions Act 2004 under English law).

 

  

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Section 3.15. Intellectual Property.

 

(a) To the Knowledge of the Borrower, the Borrower and the Subsidiaries own or have the valid right to use all material patents, trademarks, copyrights, software, computer programs, equipment designs, network designs, equipment configurations, technology and other intellectual property used, marketed and/or sold in the Business Operations, and the Borrower and the Subsidiaries are in compliance in all material respects with all licenses, user agreements and other such agreements regarding the use of intellectual property used in the Business Operations; and the Borrower has no Knowledge of or received written notice claiming that any such intellectual property infringes upon or violates the rights of any other Person.

 

(b) Schedule 3.15(b) of the Disclosure Schedule sets forth all material Intellectual Property owned by the Borrower and its Subsidiaries (“ Owned Intellectual Property ”), including the name, if any, and a brief description thereof. Except as set forth in such Schedule 3.15(b) , to the Knowledge fo the Borrower, either the Borrower or one of its Subsidiaries holds, good, valid and indefeasible title to all Owned Intellectual Property, free and clear of any liens or encumbrances of any kind, except for: (i) any lien for current taxes not yet due and payable, and (ii) liens that have arisen in the ordinary
course of business and that do not (individually or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of the Borrower and its Subsidiaries.

 

(c) Schedule 3.15(c) of the Disclosure Schedule sets forth: (i) all material Intellectual Property licensed by the Borrower or any of its Subsidiaries from third parties and used in the conduct of the business of the Borrower and its Subsidiaries (“ Licensed Intellectual Property ”), including a brief description thereof; (ii) with respect to any Owned Intellectual Property that is the subject of any registration or pending application in any jurisdiction, the names of the jurisdictions, any registration and/or application serial numbers, and the current status thereof; (iii) a brief description of all material licenses, sublicenses, and other agreements pursuant to
which the Borrower (or any of its Subsidiaries) or any sublicensee of the Borrower (or any of its Subsidiaries) has granted to any third party the right to use any of the Owned Intellectual Property; (iv) all other material consents, indemnifications, forbearances to sue, settlement agreements and licensing or cross-licensing arrangements to which the Borrower or any of its Subsidiaries is a party relating to the Owned Intellectual Property; and (v) any ongoing royalty or payment obligations with respect to the Licensed Intellectual Property.

 

(d) To the Knowledge of the Borrower, the Borrower and its Subsidiaries have a valid right to use, license, and otherwise exploit all Licensed Intellectual Property, and any rights thereunder will not be affected by the Borrower and its Subsidiaries entering into this Agreement, the other Loan Documents and the agreements and transactions contemplated hereby and thereby. Except as set forth in Schedule 3.15(d)  of the Disclosure Schedule, neither the Borrower nor any of its Subsidiaries is under any obligation to pay royalties or other payments in connection with any license, sublicense, or other agreement, nor restricted from assigning its right under any sublicense or agreement respecting the Licensed Intellectual Property, nor will
the Borrower or any of its Subsidiaries otherwise be, as a result of the execution and delivery of this Agreement, the other Loan Documents or the performance of their obligations hereunder and thereunder, in breach of any license, sublicense or other agreement relating to the Licensed Intellectual Property.

 

  

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(e) To the Knowledge of the Borrower, the Borrower’s and each Subsidiary’s rights in all of the Owned Intellectual Property are valid, subsisting, and enforceable. None of the Owned Intellectual Property or any registrations therefor have been cancelled or adjudicated invalid or unenforceable, or are subject to any outstanding order, judgment, or decree restricting its use or adversely affecting or reflecting the Borrower’s or any of its Subsidiaries’ rights thereto. To the Knowledge of the Borrower, all Owned Intellectual Property that is the subject of a registration or pending application is valid, subsisting, unexpired, and in proper form, and all renewal fees and other maintenance fees that have fallen due on or prior to the Closing Date have been paid. Either the Borrower or its
applicable Subsidiary has timely made all filings and payments with the appropriate intellectual property offices required to maintain in subsistence all Owned Intellectual Property. All documentation necessary to confirm and effect the Borrower’s and its Subsidiaries’ ownership of and rights in any Owned Intellectual Property that is the subject of a registration or pending application acquired by the Borrower or any of its Subsidiaries from third parties has been filed in the United States Patent and Trademark Office and the United States Copyright Office, and any and all other relevant intellectual property offices and agencies in other jurisdictions. Except for any pending application by the Borrower or a Subsidiary, no Owned Intellectual Property is the subject of any legal or governmental proceeding before any governmental, registration or other authority in any jurisdiction, including any office action or other form of preliminary or final refusal of
registration.

 

(f) The consummation of the transactions contemplated hereby will not materially alter or impair any Owned Intellectual Property. To the Knowledge of the Borrower, no Owned Intellectual Property has been used, divulged, disclosed or appropriated to the detriment of the Borrower or any of its Subsidiaries for the benefit of any third party; and, to the Knowledge of the Borrower, no employee or agent of the Company or any of its Subsidiaries has misappropriated any material trade secrets or other material confidential information of any third party in the course of the performance of his or her duties as an employee of the Borrower or any of its Subsidiaries. To the Knowledge of the Borrower, (i) none of the Owned Intellectual Property infringes on any Intellectual Property owned or used by any other Person;
(ii) none of the products that are or have been designed, created, developed, assembled, manufactured or sold by the Borrower or any of its Subsidiaries is infringing, misappropriating, or making any unlawful use of any Intellectual Property owned by any other Person, and the Borrower and its Subsidiaries have all rights and licenses reasonably necessary in order to make, have made, use or sell such products, (iii) no other Person is infringing, misappropriating or making any unlawful use of, and no Intellectual Property owned or used by any other Person infringes on any Owned Intellectual Property, and (iv) there is no claim, suit, action or proceeding pending or threatened or asserted against the Borrower or any of its Subsidiaries: (A) alleging any conflict or infringement by the Borrower or any of its Subsidiaries of any other Person’s intellectual property or proprietary rights; or (B) challenging the Borrower’s or any of its Subsidiaries’ ownership or use of, or
the validity or enforceability of, any of the Owned Intellectual Property or the Licensed Intellectual Property.

 

  

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Section 3.16. Compliance with Laws. The Borrower and the Subsidiaries are in compliance with all occupational safety, health, wage and hour, employment discrimination, environmental, flammability, labeling and other Applicable Law which are material to the Business Operations, except where such non-compliance would not, individually or in the aggregate, have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has any Knowledge of any state or facts, events, conditions or occurrences which may now or hereafter constitute or result in a violation of any Applicable Law, or which may give rise to the assertion of any such violation, which in either case could have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has
received written notice of default or violation, nor is the Borrower or any Subsidiary in default or violation, with respect to any Applicable Law. Neither the Borrower nor any Subsidiary has received written notice of or been charged with, or is, to the Borrower’s Knowledge, under investigation with respect to, any violation of any provision of any Applicable Law, which violation would have a Material Adverse Effect.

 

Section 3.17. Licenses and Permits. The Borrower and each Subsidiary has all federal, state and local licenses and permits required to be maintained in connection with and material to the Business Operations, and all such licenses and permits are valid and in full force and effect. The Borrower and each Subsidiary has complied with the requirements of such licenses and permits in all material respects, and has received no notice of any pending or threatened proceedings for the suspension, termination, revocation or limitation thereof. There is no circumstance or condition Known to the Borrower that would cause or permit any of such licenses or permits to be voided, revoked or withdrawn.

 

Section 3.18. Insurance. Schedule 3.18 of the Disclosure Schedule lists all insurance coverages maintained by the Borrower on the date of this Agreement, including the names of insurers, policy limits and deductibles. The Borrower has not received written notice of cancellation or intent not to renew any of such policies, and there has not occurred, and there does not exist, any condition (other than general industry-wide conditions) such as would cause any of such insurers to cancel any of such insurance coverages, or would be reasonably likely to materially increase the premiums charged to the Borrower for coverages consistent with the scope and amounts of coverages as in effect on
the date hereof.

 

Section 3.19. Environmental Laws.

 

(a) The Borrower and each Subsidiary has complied in all material respects with all Environmental Laws relating to its business and properties, and to the Knowledge of the Borrower there exist no Hazardous Substances in amounts in violation of applicable Environmental Laws or underground storage tanks on any of the Real Properties the existence of which would have a Material Adverse Effect, except those that are stored and used in compliance with Applicable Laws.

 

(b) Neither the Borrower nor any Subsidiary has received written notice of any pending or threatened litigation or administrative proceeding which in any instance (i) asserts or alleges any violation of applicable Environmental Laws on the part of the Borrower or any Subsidiary, (ii) asserts or alleges that the Borrower or any Subsidiary is required to clean up, remove or otherwise take remedial or other response action due to the disposal, depositing, discharge, leaking or other release of any Hazardous Substances or materials, or (iii) asserts or alleges that the Borrower or any Subsidiary is required to pay all or any portion of the costs of any past, present or future cleanup, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or
other release of any hazardous substances or materials by the Borrower or any Subsidiary. To the Borrower’s Knowledge, neither the Borrower nor any Subsidiary is subject to any judgment, decree, order or citation related to or arising out of any Environmental Laws. To the Borrower’s Knowledge, neither the Borrower nor any Subsidiary has been named or listed as a potentially responsible party by any governmental body or agency in any matter arising under any Environmental Laws. Neither the Borrower nor any Subsidiary is a participant in, nor does the Borrower have Knowledge of, any governmental investigation involving any of the Real Properties.

 

  

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(c) To the Borrower’s Knowledge, neither the Borrower, any Subsidiary nor any other Person has caused or permitted any Hazardous Substances or other materials to be stored, deposited, treated, recycled or disposed of on, under or at any of the Real Properties in violation of applicable Environmental Laws, which materials, if known to be present, would reasonably be expected to require or authorize cleanup, removal or other remedial action under any applicable Environmental Laws.

 

(d) As used in this Section 3.19 and in Section 5.08 below, the following terms have the following meanings:

 

“Environmental Laws” include all federal, state, local and foreign laws, rules, regulations, ordinances, permits, orders, and consent decrees agreed to by the Borrower or any Subsidiary, relating to health, safety, and environmental matters applicable to the business and property of the Borrower or any Subsidiary. Such laws and regulations include but are not limited to the Resource Conservation and Recovery Act (“ RCRA ”), 42 U.S.C. §6901 et seq., as amended; the Comprehensive Environmental Response, Compensation and Liability Act (“ CERCLA ”), 42 U.S.C. §9601 et seq., as
amended; the Toxic Substances Control Act (“ TSCA ”), 15 U.S.C. §2601 et seq., as amended; and the Clean Water Act, 33 U.S.C. §1331 et seq., as amended.

 

“Hazardous Substances”, “Release”, “Respond” and “ Response ” shall have the meanings assigned to them in CERCLA, 42 U.S.C. §9601, as amended.

 

“Notice” means any actual summons, citation, directive, information request, notice of potential responsibility, notice of violation or deficiency, order, claim, complaint, investigation, proceeding, judgment, letter, or other communication, written or oral, from the United States Environmental Protection Agency or other federal, state, local or foreign agency or authority, or any other entity or individual, public or private, concerning any intentional or unintentional act or omission which involves management of Hazardous Substances in amounts in violation of Environmental Laws on or off any Real Properties; the imposition of any lien on any Real Properties, including but not limited to liens asserted by government entities in
connection with any Borrower’s or Subsidiary’s response to the presence or Release of Hazardous Substances in amounts in violation of Environmental Laws; and any alleged violation of or responsibility under any Environmental Laws.

 

  

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Section 3.20. Sensitive Payments. Neither the Borrower nor any Subsidiary has (a) made any contributions, payments or gifts to or for the private use of any governmental official, employee or agent where either the payment or the purpose of such contribution, payment or gift is illegal under the laws of the United States or the jurisdiction in which made, (b) established or maintained any unrecorded fund or asset for any purpose or made any false or artificial entries on its books, (c) made any payments to any person with the intention that any part of such payment was to be used for any purpose other than that described in the documents supporting the payment, or (d) engaged in any “trading with the enemy” or other transactions
violating any rules or regulations of the Office of Foreign Assets Control or any similar laws, rules or regulations.

 

Section 3.21. Full Disclosure. No statement of fact made by the Borrower in this Agreement or any other Loan Document, in any SEC Report (as amended), or in any information memorandum, business summary, agreement, certificate, schedule or other written statement furnished by the Borrower or any Subsidiary to the Lender pursuant hereto, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary to make any statements contained herein or therein not misleading. Except for matters of a general economic or political nature which do not affect the Borrower or any Subsidiary uniquely, there is no fact presently known to the Borrower which has not been disclosed to the Lender, which has had
or would reasonably be expected to have a Material Adverse Effect.

 

Section 3.22. Reaffirmation. Each and every request by the Borrower for an Advance shall constitute a reaffirmation of the truth and accuracy of the Borrowers’ and each Subsidiary’s representations and warranties made in this Agreement and the Security Documents on and as of the date of such request.

 

IV. CONDITIONS OF MAKING THE LOANS

 

A. The obligation of the Lender to make the initial Loan hereunder and to consummate the other transactions contemplated hereby are subject to the following conditions precedent:

 

Section 4.01. Representations and Warranties. The representations and warranties set forth in Article III hereof and in the other Loan Documents shall be true and correct on and as of the Closing Date.

 

Section 4.02. Loan Documents. The Borrower and its Subsidiaries (as applicable) shall have duly executed and/or delivered to the Lender all of the following:

 

(a) The Notes;

 

(b) The Guaranty Agreement, the Collateral Agreement, the U.K. Security Agreement, the Validity Guaranties (which shall also be executed by Ian Warwick, Simon Chadwick and Charles Trapp, respectively) and any and all other Security Documents required by the Lender at the Closing Date (including, without limitation, Control Agreements in respect of the Borrower’s and its Subsidiaries’ deposit accounts, and any Landlord Waivers, warehousemen’s waivers, bailee letters or consents required by the Lender);

 

(c) The Warrants;

 

  

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(d) The Registration Rights Agreement;

 

(e) A certificate or certificates of insurance, with loss payable endorsements, evidencing the insurance required by Section 5.01(d) below;

 

(f) A current Borrowing Base report in conformity with Section 5.04(d) below, and a written request for the borrowing of the Term Loan and the initial Advance;

 

(g) A certificate of the Secretary or an Assistant Secretary of the Borrower and each Subsidiary, certifying the vote of the Boards of Directors or other governing body of the Borrower and each Subsidiary, authorizing and directing the execution and delivery of the Loan Documents and all further agreements, instruments, certificates and other documents pursuant hereto and thereto;

 

(h) A certificate of the Secretary or an Assistant Secretary of the Borrower and each Subsidiary, certifying the names of the officers of the Borrower and each Subsidiary who are authorized to execute and deliver the Loan Documents and all other agreements, instruments, certificates and other documents to be delivered pursuant hereto and thereto, together with the true signatures of such officers. The Lender may conclusively rely on such certificate until the Lender shall receive any further such certificate canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate;

 

(i) Certified copies of the Organic Documents of the Borrower and each Subsidiary, and a certificate of the Secretary of State or other appropriate official of the jurisdiction of incorporation of the Borrower and each Subsidiary and of each jurisdiction in which the Borrower and each Subsidiary is qualified to do business as a foreign corporation, dated reasonably prior to the Closing Date, stating that the Borrower and each Subsidiary is duly formed or qualified and in good standing in such jurisdiction; provided , however , that with respect to any Foreign Subsidiary, (i) the delivery of uncertified copies of its Organic Documents shall be satisfactory, and (ii) no certificate
of good standing need be delivered if the subject jurisdiction does not issue such certificates or comparable documents;

 

(j) Such other agreements, instruments, documents and certificates (including, without limitation, satisfactory lien and judgment searches respecting the Borrower and its Subsidiaries) as the Lender or its counsel may reasonably request.

 

Section 4.03. Payoff and Release Letter. The Borrower shall have received, and shall have delivered to the Lender, a payoff and release letter signed by the Factor, in form and substance satisfactory to the Lender, (a) confirming the amount required to be paid to the Factor in order to pay all of the Borrower’s and its Subsidiaries’ obligations to the Factor under or in respect of the Factoring Facility, (b) affirming that, upon receipt of such amount on or prior to the Closing Date, all claims, Liens, encumbrances and security interests held by the Factor under, pursuant to or in respect of the Factoring Facility shall be terminated and released, and all collateral therefor and receivables purchased thereunder shall be released,
reassigned and returned to the transferor(s) thereof, and (c) authorizing the filing, upon receipt of such amount on the Closing Date, of termination statements in respect of any and all Lien filings against the Borrower and/or its Subsidiaries in respect of such Liens, encumbrances and security interests of the Factor.

 

  

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Section 4.04. Equity Matters. The Borrower shall have provided to the Lender written evidence of, and all material agreements relating to, (a) the receipt by the Borrower of gross proceeds of not less than $2,500,000 from the issuance and sale of Common Stock subsequent to July 1, 2007, and (b) the resolution to the Lender’s satisfaction the “toxic” provision of the Rho preferred stock.

 

Section 4.05. Legal Opinions. The Lender shall have received written opinions of Gersten Savage LLP and McFaddens, United States and United Kingdom (respectively) counsel for the Borrower and the Subsidiaries, dated the Closing Date, satisfactory to the Lender and its counsel in scope and substance.

 

Section 4.06. Fees and Reimbursements. The Borrower shall have paid to the Lender the Closing Fee and the initial Monitoring Fee, and shall have paid or reimbursed the Lender for its reasonable out-of-pocket costs, charges and expenses incurred to the Closing Date; and in connection herewith, the Borrower hereby irrevocably authorizes the Lender to charge such amounts as Advances to the Borrower’s revolving credit loan accounts. Failure of the Lender to effect any such charge shall not excuse the Borrower from its obligation to pay such amounts.

 

Section 4.07. Further Matters. All legal matters, and the form and substance of all documents, incident to the transactions contemplated hereby shall be satisfactory to the Lender and its counsel.

 

Section 4.08. No Default. No Default or Event of Default shall have occurred and be continuing.

 

B. The obligation of the Lender to make any Advances subsequent to the Closing Date is subject to (a) the representations and warranties set forth in Article III and in the other Loan Documents being true and correct in all material respects (except that, to the extent that any representation or warranty is already qualified by concepts of materiality and/or Material Adverse Effect, then such representations and warranties shall be true and correct in all respects) on and as of the subject Borrowing Date, (b) the Lender’s receipt of a current Borrowing Base report in conformity with Section 5.04(d) below, (c) the execution and delivery of such further Security Documents as the Lender may have reasonably requested pursuant to the Security Documents theretofore executed and delivered, and (d) there being
no continuing Default or Event of Default.

 

V. AFFIRMATIVE COVENANTS

 

The Borrower hereby covenants and agrees that, from the date hereof and until all Obligations (whether now existing or hereafter arising) have been paid in full and the Revolving Credit Commitment has been terminated, unless the Lender shall otherwise consent in writing, the Borrower shall, and shall cause each of its Subsidiaries to:

 

Section 5.01. Corporate and Insurance. Do or cause to be done all things necessary to at all times (a) preserve, renew and keep in full force and effect its corporate or other legal existence, rights, licenses, permits and franchises, (b) comply with the Loan Documents and any other agreements and instruments executed and delivered hereunder and thereunder (to the extent a party thereto), (c) maintain, preserve and protect all of its franchises and material trade names, and preserve all of its material property used or useful in the conduct of its business and keep the same in good repair, working order and condition (reasonable wear and tear excepted), and from time to time make, or cause to be made, all needed and proper repairs, renewals,
replacements, betterments and improvements thereto, so that the Business Operations carried on in connection therewith may be properly and advantageously conducted at all times, consistent with past practice, (d) maintain insurance in amounts, on such terms and against such risks (including fire and other hazards insured against by extended coverage, and public liability insurance covering claims for personal injury, death or property damage) as are customary for companies of similar size in the same or similar businesses and operating in the same or similar locations, as well as all such other insurance as is required by the Collateral Agreement, each of which policies (other than workers compensation or any similar statutorily-required employee coverage) shall be issued by a financially sound and reputable insurer reasonably satisfactory to the Lender and shall name the Lender as loss payee and additional insured as its interest appears and provide for the Lender to receive
written notice thereof at least thirty (30) days prior to any cancellation of the subject policy, and (e) comply in all material respects with all material Contracts and material obligations to which it is a party or by which it is bound, all benefit plans which it maintains or is required to contribute to, and all Applicable Law (including, without limitation, Environmental Laws) material to its Business Operations, and all requirements of its insurers, whether now in effect or hereafter enacted, promulgated or issued; provided , however , that the Borrower shall be permitted to contest any of the foregoing matters in good faith by appropriate proceedings, and subject to the maintenance of appropriate reserves therefor on its books in accordance with GAAP. The Borrower will provide to the Lender a certificate of the foregoing insurance, promptly upon
request.

 

  

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Section 5.02. Payment of Taxes. File, pay and discharge, or cause to be paid and discharged, all material taxes, assessments and governmental charges or levies imposed upon the Borrower and/or any Subsidiary or upon its income and profits or upon any of its property (real, personal or mixed) or upon any part thereof, before the same shall become in default, as well as all lawful claims for labor, materials, supplies and otherwise, which, if unpaid when due, might become a Lien or charge upon such property or any part thereof; provided , however , that neither the Borrower nor any Subsidiary shall be required to pay and
discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as (a) the validity thereof shall be contested in good faith by appropriate proceedings and the Borrower or such Subsidiary shall have set aside on its books adequate reserves (to the extent required by GAAP) with respect to any such tax, assessment, charge, levy or claim so contested, and (b) payment with respect to any such tax, assessment, charge, levy or claim shall be made before any of the Borrower’s or such Subsidiary’s property shall be seized or sold in satisfaction thereof.

 

Section 5.03. Notices. Give prompt written notice to the Lender of (a) the filing by the Borrower of any SEC Reports, (b) any proceedings instituted against the Borrower or any Subsidiary in any federal, state, local or foreign court or before any commission or other regulatory body, whether federal, state, local or foreign, which, if adversely determined, could reasonably be expected to have a Material Adverse Effect (c) occupancy of any new or additional Real Property, and (d) the occurrence of any material casualty to any Collateral, any Material Adverse Effect, or any Default or Event of Default, and the action that the Borrower has taken, is taking, or proposes to take with respect thereto.

 

  

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Section 5.04. Periodic Reports. Furnish to the Lender:

 

(a) Within ninety (90) calendar days after the end of each Fiscal Year, consolidated balance sheets, and consolidated and consolidating statements of income, statements of stockholders’ equity, and statements of cash flows of the Borrower and its Subsidiaries, together with footnotes and supporting schedules thereto, certified (as to the consolidated statements) by independent certified public accountants selected by the Borrower and reasonably satisfactory to the Lender, showing the financial condition of the Borrower and its Subsidiaries at the close of such Fiscal Year and the results of operations of the Borrower and its Subsidiaries during such Fiscal Year;

 

(b) Within thirty (30) calendar days after the end of each calendar month (forty-five (45) calendar days in the case of the end of a fiscal quarter), consolidated and consolidating unaudited balance sheets, statements of income and statements of cash flows of the Borrower and its Subsidiaries, in each case with supporting schedules thereto, prepared by the Borrower and certified by the Borrower’s Chairman, President, Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, such balance sheets to be as of the close of such calendar month and such statements of income and statements of cash flows to be for the period from the beginning of the then-current Fiscal Year to the end of such calendar month, together with comparative statements of income and cash flows for the corresponding
period in the immediately preceding Fiscal Year, in each case subject to normal audit and year-end adjustments;

 

(c) Concurrently with the delivery of each of the financial statements required by Sections 5.04(a) and 5.04(b) above, a certificate on behalf of the Borrower (signed by the Chairman, President, Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer of the Borrower), certifying that he has examined the provisions of this Agreement and that, to the best of his knowledge, no Default or Event of Default (including, without limitation, under Sections 6.16 and 6.17 below, as demonstrated by detailed calculations included in such certificate) has occurred and/or is continuing;

 

(d) On or prior to the fifth (5th) Business Day of each calendar month, a detailed calculation of the Borrowing Base as of the end of the immediately preceding calendar month, in form and substance, and with supporting documentation (including, without limitation, receivables and payables agings as of the close of the immediately preceding calendar month) as may reasonably be required by the Lender; and, on or prior to the twentieth (20 th ) calendar day of each calendar month, a detailed calculation of the Borrowing Base as of a date not earlier than the fifteenth (15 th )
calendar day of such calendar month, with supporting documentation as aforesaid;

 

(e) As soon as approved by the Borrower’s Board of Directors (but in any event not later than thirty (30) days after the beginning of each Fiscal Year), a budget and operating plan (on a quarter-by-quarter basis) for such Fiscal Year, in such detail as may reasonably be required by the Lender;

 

  

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(f) As and when distributed to the Borrower’s shareholders, copies of all proxy materials, reports and other information which the Borrower provides to its shareholders; and as and when distributed to any other holders of Indebtedness of the Borrower or the Subsidiaries, copies of all reports, statements and other information provided to such lenders; and

 

(g) Promptly, from time to time, such other information (including, without limitation, receivables and payables agings, and sales reports) regarding the Borrower’s or any Subsidiary’s operations, assets, business, affairs and financial condition, as the Lender may reasonably request.

 

To the extent that the financial statements required by Sections 5.04(a) and 5.04(b) are contained in any SEC Reports filed by the Borrower within the required time period hereunder for the delivery of such financial statements, then the Borrower shall be deemed to have complied with the subject financial statement delivery by notifying the Lender of the filing of the subject SEC Report.

 

To the extent that any report or other delivery required under this Section 5.04 or elsewhere in this Agreement will, at the time of anticipated delivery to the Lender, contain any material non-public information, the Borrower will notify the Lender thereof as promptly as practicable prior to the delivery of such report (but without disclosing the specific items of material non-public information or the nature thereof), and if so requested by the Lender prior to the required date of the information delivery hereunder, the Borrower shall (x) if reasonably practicable, redact such material non-public information from the subject report prior to the delivery thereof to the Lender, or (y) defer delivery of such report until such time as the Borrower has made public disclosure of the subject material information or
the Lender has affirmatively requested delivery of such report. Absent timely request by the Lender as aforesaid, the Borrower shall make the required delivery to the Lender on a timely basis; provided , that the Lender shall keep such material non-public information confidential in accordance with Section 9.13 below, and shall refrain from trading in the Common Stock until the earlier of such time as such information ceases to be material or 48 hours after such information has become generally available to the public.

 

Section 5.05. Books and Records; Inspection. Maintain centralized books and records regarding all of the Business Operations at the Borrower’s principal place of business, and permit agents or representatives of the Lender to inspect, at any time during normal business hours, upon reasonable notice, and without material disruption of the Business Operations, all of the Borrower’s and its Subsidiaries’ various books and records, to make copies, abstracts and/or reproductions thereof, and to discuss the business and affairs of the Borrower and the Subsidiaries with the management of the Borrower; provided , that to the extent of any material non-public information
disclosed to the Lender (after fair warning to the Lender of the material non-public nature of such information) or otherwise obtained by the Lender in connection with any such inspection, the Lender shall keep such information confidential in accordance with Section 9.13 below, and shall refrain from trading in the Common Stock until the earlier of such time as such information ceases to be material or 48 hours after such information has become generally available to the public.

 

  

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Section 5.06. Accounting. Maintain a standard system of accounting in order to permit the preparation of financial statements in accordance with GAAP and Regulation S-X promulgated under the Act.

 

Section 5.07. Reimbursements. Pay or reimburse the Lender or other appropriate Persons on demand for all reasonable costs, expenses and other charges incurred or payable from time to time in connection with the transactions contemplated by this Agreement, any waivers or amendments in respect of any Loan Documents (whether or not completed or executed), and any “workout” or enforcement action (whether or not consummated or completed, and regardless of the outcome thereof), including but not limited to any and all search fees, recording fees, costs of inspections, reasonable legal and accounting fees, and costs related to routine Exchange Act filings in respect of the Lender’s and its Affiliates’ position in securities of the
Borrower.

 

Section 5.08. Environmental Response. In the event of any material discharge, spill, injection, escape, emission, disposal, leak or other Release of Hazardous Substances in amounts in violation of applicable Environmental Laws by the Borrower or any Subsidiary on any Real Property owned or leased by the Borrower or any Subsidiary, which is not authorized by a permit or other approval issued by the appropriate governmental agencies and which requires notification to or the filing of any report with any federal or state governmental agency, the Borrower shall promptly: (a) notify the Lender; and (b) comply with the notice requirements of the Environmental Protection Agency and applicable state agencies, and take all steps necessary to promptly clean
up such discharge, spill, injection, escape, emission, disposal, leak or other Release in accordance with all applicable Environmental Laws and the Federal National Contingency Plan, and, if required, receive a certification from all applicable state agencies or the Environmental Protection Agency, that such Real Property has been cleaned up to the satisfaction of such agency(ies).

 

Section 5.09. Management. Cause Ian Warwick to continue to be employed or to function as the Chief Executive Officer of the Borrower, and Charles Trapp and Simon Chadwick to continue to be employed or to function as executive officers of the Borrower, unless a successor is appointed within sixty (60) days after the termination of any such individual’s employment and such successor is reasonably satisfactory to the Lender.

 

Section 5.10. Use of Proceeds. Cause all proceeds of the Loans to be utilized solely in the manner and for the purposes set forth in Section 2.05 above.

 

Section 5.11. Future Subsidiaries. At any time and from time to time when the Borrower or any of its Subsidiaries proposes to form or acquire any Subsidiary subsequent to the Closing Date, the Borrower shall give written notice thereof to the Lender reasonably in advance of (and in no event less than fifteen (15) days prior to) the formation or acquisition of such Subsidiary, accompanied by true and complete copies of the Organic Documents of such Subsidiary and stating, with respect to such Subsidiary, (a) its proper legal name, (b) its jurisdiction of incorporation or formation, (c) the jurisdictions (if any) in which it is qualified or is required to be qualified to do business as a foreign entity, (d) the number of shares of capital stock,
equity securities or ownership interests outstanding, and (e) the record owners of such outstanding capital stock, equity securities or other ownership interests; and contemporaneously with the formation or acquisition of such new Subsidiary, such new Subsidiary shall be deemed to have made and joined in all of the representations and warranties made by the Borrower in this Agreement and the other Loan Documents (all of which shall be applicable to such new Subsidiary as if named therein), and the Borrower shall cause such new Subsidiary to execute and deliver to the Lender (i) a Guaranty Agreement in substantially the form of the Guaranty Agreement as then in effect (or a joinder agreement with respect to the existing Guaranty Agreement in form and substance reasonably satisfactory to the Lender), and (ii) a Collateral Agreement (with completed perfection certificate and other appropriate Security Documents) in substantially the form of the Collateral Agreement as then in effect (or a
joinder agreement with respect to the existing Collateral Agreement and/or U.K. Security Agreement (as applicable) in form and substance reasonably satisfactory to the Lender) and other Security Documents as reasonably requested by the Lender.

 

  

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Section 5.12. Landlord Waivers. Unless in effect at the Closing Date, obtain, within thirty (30 days after the Closing Date, a Landlord Waiver in form and substance reasonably satisfactory to the Lender, in respect of the Borrower’s Leased Real Property located in Allentown, Pennsylvania; and to the extent requested by the Lender from time to time subsequent to the Closing Date, use their commercially reasonable efforts to obtain, within thirty (30) days after the Lender’s request therefor, in form and substance reasonably satisfactory to the Lender, any and all bailee waivers, warehousemen’s waivers, Landlord Waivers and/or access agreements requested by the Lender in respect of locations where there is stored or held Collateral
having an aggregate fair market value in excess of $25,000.

 

Section 5.13. Deposit Accounts. Notify the Lender upon opening any new bank account or securities account, and cause the subject bank or securities intermediary promptly to execute and deliver to the Lender a Control Agreement in respect of such bank account or securities account; and this Section 5.13 shall also be applicable to any and all bank accounts for which Control Agreements have not been entered into on the Closing Date if (a) the funds in such bank account exceed $25,000 (or the Dollar equivalent), or (ii) the funds held in the Bank Accounts for which Control Agreements are not in place exceed $100,000 (or the Dollar equivalent) in the aggregate; and to the extent that a required Control Agreement is not entered into within sixty (60)
days after the Closing Date, then the subject bank account(s) shall be promptly closed and the funds held therein shall be transferred to one or more accounts at another banking institution which has executed and delivered a Control Agreement in respect of such account(s) in form and substance satisfactory to the Lender.

 

VI. NEGATIVE COVENANTS

 

The Borrower hereby covenants and agrees that, until all Obligations (whether now existing or hereafter arising) have been paid in full and the Revolving Credit Commitment has been terminated, unless the Lender shall otherwise consent in writing, the Borrower shall not, and shall not permit any Subsidiary to, directly or indirectly:

 

Section 6.01. Indebtedness. Incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Indebtedness, other than :

 

(a) Indebtedness to the Lender pursuant to the Loan Documents;

 

  

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(b) liabilities with respect to trade obligations, accounts payable, advances, royalty or other similar payments, operating leases and other normal accruals incurred in the ordinary course of business, or with respect to which the Borrower or the subject Subsidiary is contesting in good faith the amount or validity thereof by appropriate proceedings, and then only to the extent that the Borrower or the subject Subsidiary has set aside on its books adequate reserves therefor;

 

(c) Indebtedness existing on the date of this Agreement owed to those Persons, in those amounts and having those maturities as set forth in Schedule 3.01  of the Disclosure Schedule, and any Indebtedness that refinances any of such Indebtedness (provided that such refinancing shall not cause an increase in the principal amount of the refinanced Indebtedness immediately prior to such refinancing);

 

(d) Capitalized Leases reflected in the Financial Statements, and Capitalized Leases hereafter entered into by the Borrower or its Subsidiaries, subject to the limitations of Section 6.16 below;

 

(e) purchase money Indebtedness incurred in connection with the Borrower’s or its Subsidiaries’ acquisition of assets, including capital assets, subject to the limitations of Section 6.16 below;

 

(f) Subordinated Debt;

 

(g) intercompany Indebtedness between the Borrower and any Subsidiary or between Subsidiaries, provided that all such Subsidiaries are, at the time of incurring such intercompany Indebtedness, parties to the Guaranty Agreement and the Collateral Agreement (and, to the extent applicable, the U.K. Security Agreement) and in compliance with their respective obligations thereunder; provided , however , that except for the intercompany Indebtedness disclosed in Schedule 6.01  of the Disclosure Schedule, the aggregate intercompany Indebtedness owed to the Borrower or any Domestic Subsidiary by any and all Non-UK
Subsidiaries, when aggregated with the amount of all other Investments in Non-UK Subsidiaries and the face amount of all Guarantees made by the Borrower or its Domestic Subsidiaries in respect of obligations of Non-UK Subsidiaries, shall not at any time exceed $100,000 (the “ Foreign Investment Limitation ”); and.

 

(h) Guarantees to the extent permitted pursuant to Section 6.03 below.

 

Section 6.02. Liens. Create, incur, assume or suffer to exist any Lien or other encumbrance of any nature whatsoever on any of its assets, now or hereafter owned, other than:

 

(a) subject to Section 5.02 above, Liens securing the payment of taxes which are either not yet due or the validity of which is being contested in good faith by appropriate proceedings, and as to which the Borrower or the subject Subsidiary shall have set aside on its books adequate reserves;

 

(b) deposits under workers’ compensation, unemployment insurance and social security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of money borrowed) or leases, or to secure statutory obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business;

 

  

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(c) statutory Liens of landlords and Liens imposed by law, such as, carriers’, warehousemen’s, materialmen’s or mechanics’ liens, incurred by the Borrower or any Subsidiary in good faith in the ordinary course of business and discharged promptly after same are incurred; fully bonded Liens arising out of a judgment or award against the Borrower or any Subsidiary with respect to which the Borrower or such Subsidiary shall currently be prosecuting an appeal, a stay of execution pending such appeal having been secured; and Liens arising out of a judgment or award against the Borrower or any Subsidiary which are fully covered by insurance (subject to applicable deductibles) and for which the relevant insurer has not denied or disclaimed coverage;

 

(d) other Liens incurred in connection with Indebtedness expressly permitted pursuant to Section 6.01(d) and/or Section 6.01(e) above, provided that such Liens do not extend to any assets or property other than the specific assets or properties acquired pursuant to such permitted Indebtedness;

 

(e) encumbrances consisting of easements, rights-of-way, survey exceptions and other similar restrictions on the use of Real Property, or irregularities in title thereto which do not materially impair the use of such property in the operation of the business of the Borrower and its Subsidiaries;

 

(f) Liens in existence on the date of this Agreement, as set forth on Schedule 6.02 of the Disclosure Schedule;

 

(g) Liens arising out of judgments or awards (i) which are fully covered by insurance (subject to applicable deductibles) and for which the relevant insurer has not denied or disclaimed coverage, or (ii) with respect to which the Borrower or the subject Subsidiary shall be prosecuting an appeal in good faith and in respect of which a stay of execution shall have been issued;

 

(h) Liens created by standard account agreements in favor of the depository institution in respect of funds in the Borrower’s and its Subsidiaries’ bank accounts;

 

(i) Liens in favor of the Lender;

 

(j) any other Liens specifically consented to by the Lender in writing; and

 

(k) extensions, renewals or replacements of any Lien referred to in clauses (a) through (f) above, provided that same shall not extend such Lien to any additional assets or effect any increase in any principal amount secured thereby.

 

Section 6.03. Guarantees. Guarantee, endorse or otherwise in any manner become or be responsible for obligations of any other Person, except (a) endorsements of negotiable instruments for collection in the ordinary course of business, (b) subject to the Foreign Investment Limitation, Guarantees by the Borrower of obligations of Wholly-Owned Subsidiaries in the ordinary course of business.

 

  

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Section 6.04. Sales of Assets and Management. Except as disclosed in Schedule 6.04 of the Disclosure Schedule, (a) sell, lease, transfer, encumber or otherwise dispose of any of the Borrower’s or any Subsidiary’s properties, assets, rights, licenses or franchises other than (i) sales of inventory in the ordinary course of business, (ii) licenses, joint ventures and related transactions entered into, modified or terminated in the ordinary course of business, (iii) the disposition of surplus, obsolete or worn-out personal properties in the ordinary course of business, or the abandonment or disposition of Intellectual Property as and to the extent permitted by the Collateral
Agreement, or (b) permit any Affiliate of the Borrower (other than a Subsidiary which is a party to the Guaranty Agreement and the Collateral Agreement) to own or obtain any patent, patent application, copyright, copyright application, trademark, trademark application, license, or other intangible asset relating to the Business Operations except in the normal course of business on terms and conditions no less favorable to the Borrower or any Subsidiary than those which could be obtained in an arms’ length transaction with an unaffiliated third party.

 

Section 6.05. Sale-Leaseback. Enter into any arrangement, directly or indirectly, with any Person whereby the Borrower or any Subsidiary shall sell or transfer any property (real, personal or mixed) used or useful in the Business Operations, whether now owned or hereafter acquired, and thereafter rent or lease such property.

 

Section 6.06. Investments; Acquisitions. Make any Investment in, or otherwise acquire or hold securities (including, without limitation, capital stock and evidences of Indebtedness) of, or make loans or advances to, or enter into any arrangement for the purpose of providing funds or credit to, any other Person (including any Affiliate), except :

 

(a) The outstanding intercompany loans described in the proviso to Section 6.01(g) above, and Investments in Wholly-Owned Subsidiaries which have complied with the requirements of Section 5.11 hereof (subject, in the case of Foreign Subsidiaries, to the Foreign Investment Limitation);

 

(b) advances (to the extent permitted by Applicable Law, including federal securities laws) to employees of the Borrower or any Wholly-Owned Subsidiaries for normal business expenses not to exceed at any time $10,000 in the aggregate;

 

(c) Investments of excess cash generated in the Business Operations in Cash Equivalents; and

 

(d) Investments of cash in overnight deposits or other customary cash management Investments with commercial banks or in commercial paper satisfying the criteria for such banks or commercial paper as set forth in the definition of Cash Equivalents.

 

Section 6.07. Corporate Form; Acquisitions. Purchase or acquire any Real Property or any ownership interest in any Real Property; cause or permit any reduction in the Borrower’s ultimate percentage ownership interest in any Subsidiary; or dissolve or liquidate, or consolidate or merge with or into, sell all or substantially all of the assets of the Borrower or any Subsidiary to, or acquire all or substantially all of the securities, assets or properties of, any other Person, except for (a) consolidations of a Subsidiary with a Wholly-Owned Subsidiary (provided that no Domestic Subsidiary shall be consolidated with a Foreign Subsidiary); (b) mergers of a Wholly-Owned Subsidiary into the Borrower or into a Wholly-Owned Subsidiary (provided that
no Domestic Subsidiary shall be merged into any Foreign Subsidiary); or (c) sales to the Borrower or another Subsidiary for fair value.

 

  

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Section 6.08. Dividends and Redemptions. Directly or indirectly declare or pay any dividends, or make any distribution of cash or property, or both, to any Person in respect of any of the shares of the capital stock or other equity securities of the Borrower or any other Person, or directly or indirectly redeem, purchase or otherwise acquire for consideration any securities or shares of the capital stock or other equity securities of the Borrower or any other Person; provided , that this Section 6.08 shall not be deemed to prohibit the payment of dividends or distributions by any Subsidiary to the Borrower or to any direct or indirect Wholly-Owned Domestic Subsidiary.

 

Section 6.09. Compensation. Directly or indirectly pay any cash compensation to any executive officers of the Borrower except in accordance with the compensation levels disclosed in Schedule 6.09  of the Disclosure Schedule or as otherwise approved by the independent members of the Board of Directors of the Borrower but in no case in any amount or amounts which would cause or reasonably be expected to cause a Material Adverse Effect.

 

Section 6.10. Change of Business. Directly or indirectly: (a) engage in a business materially different from the general nature of the Business Operations (i) as now being conducted, or (ii) as the same may hereafter be reasonably expanded from time to time in like areas of business; (b) wind up the Business Operations or cease substantially all of its normal Business Operations for a period in excess of thirty (30) consecutive days; or (c) suffer any material disruption, interruption or discontinuance of a material portion of its normal Business Operations for a period in excess of thirty (30) consecutive days.

 

Section 6.11. Receivables. Sell or assign in any way any accounts receivable, promissory notes or trade acceptances held by the Borrower or any Subsidiary with or without recourse, except for collections (including endorsements) in the ordinary course of business.

 

Section 6.12. Certain Amendments. Agree, consent, permit or otherwise undertake to amend any of the terms or provisions of the Borrower’s or any Subsidiary’s Organic Documents in a manner which may impair in any respect any of the Lender’s rights under any of the Loan Documents.

 

Section 6.13. Affiliate Transactions. Enter into any Contract, agreement or transaction with any Affiliate of the Borrower except (a) as disclosed in Schedule 6.13  of the Disclosure Schedule, (b) for intercompany Indebtedness between the Borrower and any Wholly-Owned Subsidiary or between any Wholly-Owned Subsidiaries (subject to the limitations provided in Section 6.06(a) above), or (c) in the normal course of business on terms and conditions no less favorable to the Borrower or any Subsidiary than those which could be obtained in an arms’ length transaction with an unaffiliated third party.

 

Section 6.14. Fiscal Year. Amend its Fiscal Year.

 

  

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Section 6.15. Subordinated Debt. Prepay any of the Indebtedness listed in Schedule 3.01 of the Disclosure Schedule; or prepay, redeem or purchase any Subordinated Debt, or make any payment on any Subordinated Debt, in each case in violation of the applicable subordination agreement.

 

Section 6.16. Capital Expenditures. Make aggregate Capital Expenditures in excess of $600,000 in any Fiscal Year; provided , however , that there shall not be counted against such limitation any Capital Expenditures included in the purchase price of any business acquired after the Closing Date (provided that any required consent with respect thereto under this Agreement has been obtained).

 

Section 6.17. Coverage Test. Permit, as of the end of any quarter of any Fiscal Year, the ratio of (a) EBIDA minus Capital Expenditures incurred to maintain or replace capital assets, to (b) Debt Service, for the four (4) consecutive quarters then ended to be less than 1.25 to 1.00.

 

VII. DEFAULTS

 

Section 7.01. Events of Default. Each of the following events is herein, and in the Notes, sometimes referred to as an Event of Default:

 

(a) if any representation or warranty made herein or in any other Loan Document, or in any certificate, financial statement, Borrowing Base report, instrument or other written statement furnished by the Borrower or any Subsidiary in connection with this Agreement, any other Loan Document or any of the borrowings hereunder shall be false, inaccurate or misleading in any material respect when made or when deemed made hereunder;

 

(b) any default in the payment of any principal or interest under any of the Notes or any other Obligations when the same shall be due and payable, whether at the due date thereof or at a date required for prepayment or by acceleration or otherwise, and the continuance of any such non-payment (in whole or in part) for a period of five (5) Business Days;

 

(c) any default in the due observance or performance of any covenant, condition or agreement contained in any Section of Article VI hereof, which, if capable of being cured, is not fully cured within thirty (30) days after the occurrence thereof;

 

(d) any default in the due observance or performance of any covenant, condition or agreement to be observed or performed under Article V hereof, or otherwise pursuant to the terms hereof or any other Loan Document and not addressed in Sections 7.01(a), (b) or (c), and the continuance of such default unremedied for a period of thirty (30) days (ten (10) Business Days in the case of Section 5.01(d) hereof) after written notice thereof to the Borrower, or such other cure period as may be provided in the applicable Loan Document;

 

(e) any uncured default or event of default with respect to any Indebtedness of the Borrower or any of the Subsidiaries (other than to the Lender) in an amount in excess of $100,000, if the effect of such default or event of default is to permit the holder, with or without notice or lapse of time or both, to accelerate the maturity of any such Indebtedness for money borrowed or to cause such Indebtedness for money borrowed to become due prior to the stated maturity thereof;

 

  

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(f) if the Borrower or any Subsidiary shall: (i) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute of any other jurisdiction or foreign country, or (v) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing;

 

(g) if any order, judgment or decree shall be entered, without the application, approval or consent of the Borrower or any Subsidiary, by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Borrower or any Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Borrower or any Subsidiary, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) days;

 

(h) if final judgment(s) or administrative order for the payment of money in an uninsured amount in excess of $100,000, individually or in the aggregate shall be rendered against the Borrower and/or any Subsidiary, and the same shall remain undischarged or unbonded for a period of thirty (30) consecutive days, during which execution shall not be effectively stayed;

 

(i) the occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Borrower or any Subsidiary having an aggregate fair value or repair cost (as the case may be) in excess of $100,000 individually or in the aggregate, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within thirty (30) days after the date thereof;

 

(j) if any Lien purported to be created by any Security Document shall cease to be a valid perfected first priority Lien (subject only to any priority accorded by law to Permitted Liens) on the assets or properties covered thereby, or the Borrower or any Subsidiary shall assert in writing that any Lien purported to be created by any Security Document is not a valid perfected first priority lien (subject only to any priority accorded by law to Permitted Liens) on the assets or properties purported to be covered thereby; or if any Subsidiary which is a Wholly-Owned Subsidiary shall cease to be a Wholly-Owned Subsidiary;

 

(k) if any of the Loan Documents shall cease to be in full force and effect (other than as a result of the discharge thereof in accordance with the terms thereof or by written agreement of all parties thereto);

 

(l) if the Common Stock shall not be listed or traded on any national securities exchange or any NASDAQ market, or shall cease to be listed or quoted on the OTC Bulletin Board, for any period in excess of thirty (30) consecutive days;

 

  

43

  

 

(m) if the Borrower or any Subsidiary shall be indicted for, convicted of or plead nolo contendere to any criminal offense; or

 

(n) the occurrence of a Material Adverse Effect.

 

Section 7.02. Remedies. Upon the occurrence of any Event of Default, and at all times thereafter during the continuance thereof: (a) the Notes, and any and all other Obligations, shall, at the Lender’s option (except in the case of Sections 7.01(f) and 7.01(g) hereof, the occurrence of which shall automatically effect acceleration, regardless of any action or forbearance in respect of any prior or ongoing Default or Event of Default which may be inconsistent with such automatic acceleration), become immediately due and payable, both as to principal, interest and other charges, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Notes or other evidence of such
Obligations to the contrary notwithstanding, (b) all outstanding Obligations under the Notes, and all other outstanding Obligations, shall bear interest at the default rates of interest provided in the Notes, (c) the Lender may file suit against the Borrower on the Notes and against the Borrower and the Subsidiaries under the other Loan Documents and/or seek specific performance or injunctive relief thereunder (whether or not a remedy exists at law or is adequate), (d) the Lender shall have the right, in accordance with the Security Documents, to exercise any and all remedies in respect of such or all of the Collateral as the Lender may determine in its discretion (without any requirement of marshalling of assets or other such requirement, all of which are hereby waived by the Borrower), and (e) the Revolving Credit Commitment shall, at the Lender’s option (except in the case of Sections 7.01(f) and 7/01(g) hereof, the occurrence of which shall automatically effect termination,
regardless of any action or forbearance in respect of any prior or ongoing Default or Event of Default which may be inconsistent with such automatic termination), be immediately terminated or reduced, and the Lender shall be under no further obligation to consider making any further Advances.

 

VIII. PARTICIPATING LENDERS; ASSIGNMENT.

 

Section 8.01. Participations. Anything in this Agreement to the contrary notwithstanding, the Lender may, at any time and from time to time, without in any manner affecting or impairing the validity of any Obligations, transfer, assign or grant participating interests in the Loans as the Lender shall in its sole discretion determine, to such other Persons (the “ Participants ”) as the Lender may determine. Notwithstanding the granting of any such participating interests: (a) the Borrower shall look solely to the Lender for all purposes of this Agreement and the transactions contemplated hereby, (b) the Borrower shall at all times have the right to rely upon any waivers or
consents signed by the Lender as being binding upon all of the Participants, and (c) all communications in respect of this Agreement and such transactions shall remain solely between the Borrower and the Lender (exclusive of Participants) hereunder.

 

Section 8.02. Transfer and Assignment. Anything in this Agreement to the contrary notwithstanding, the Lender may, at any time and from time to time, subject to Section 8.03 below, without in any manner affecting or impairing the validity of any Obligations, transfer and assign all or any portion of its interest in this Agreement, the Notes and the other Loan Documents to any Person (an “ Assignee Lender ”) as the Lender may determine; provided , however , that unless an Event of Default shall have occurred and be continuing, the Lender shall
not, without the Borrower’s prior written consent, make any such assignment to any Person which, to the Lender’s knowledge, derives any material amount of revenues from the operation (directly or through any Affiliate) of any business competitive with the Business Operations. Upon any such transfer or assignment, the Assignee Lender shall be deemed to succeed (to the extent of the interest assigned) to the rights and obligations of the Lender for all purposes of this Agreement. In the event of any transfer and assignment of the Lender’s entire interest in this Agreement, the Notes and the Security Documents, the Lender shall be replaced by the Assignee Lender as “Secured Party” under the Collateral Agreement and all other Security Documents.

 

  

44

  

 

Section 8.03. Recordation of Assignment. In respect of any negotiation, transfer or assignment of all or any portion of any Lender’s interest in this Agreement, any Note and/or any other Loan Documents at any time and from time to time, the following provisions shall be applicable:

 

(a) The Borrower, or any agent appointed by the Borrower, shall maintain a register (the “ Register ”) in which there shall be recorded the name and address of each Person holding any Note(s) hereunder or any commitment to lend hereunder, and the principal amount payable to such Person under such Person’s Note(s) or committed by such Person under such Person’s lending commitment. The Borrower hereby irrevocably appoints the Lender (and/or any subsequent Lender appointed by the Lender then maintaining the Register) as the Borrower’s agent for the purpose of maintaining the Register.

 

(b) In connection with any negotiation, transfer or assignment as aforesaid, the transferor/assignor shall deliver to the Lender then maintaining the Register an assignment and assumption agreement executed by the transferor/assignor and the transferee/assignee, setting forth the specifics of the subject transaction, including but not limited to the amount and nature of Obligations and/or lending commitments being transferred or assigned (and being assumed, as applicable), and the proposed effective date of such transfer or assignment and the related assumption (if applicable).

 

(c) Subject to receipt of completed tax forms (indicating withholding status, or exemption from withholding, as applicable, of the transferee/assignee) reasonably required by the Person then maintaining the Register, and (if required by such Person) surrender of the negotiated, transferred or assigned Note(s) for reissuance by the Borrower, such Person shall record the subject transfer, assignment and assumption in the Register. Anything contained in any Note or other Loan Document to the contrary notwithstanding, no negotiation, transfer or assignment shall be effective until it is recorded in the Register pursuant to this Section 8.03(c). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error; and the Borrower and each Lender shall treat each Person whose name
is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and each Lender at any reasonable time and from time to time upon reasonable prior notice.

 

IX. MISCELLANEOUS

 

Section 9.01. Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto, shall survive the making by the Lender of the Loans and the execution and delivery to the Lender of the Notes, and shall continue in full force and effect for so long as the Notes or any other Obligations are outstanding and unpaid or the Revolving Credit Commitment remains outstanding. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements in this Agreement contained, by or on behalf of the Borrower shall inure to the benefit of the
successors and assigns of the Lender.

 

  

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Section 9.02. Indemnification. The Borrower shall indemnify the Lender and its directors, officers, employees, attorneys and agents against, and shall hold the Lender and such Persons harmless from, any and all losses, claims, damages and liabilities and related expenses, including reasonable counsel fees and expenses, incurred by the Lender or any such Person arising out of, in any way connected with, or as a result of: (a) any breach by the Borrower or any Subsidiary of any of the Loan Documents; (b) the use of any of the proceeds of the Loans made by the Lender to the Borrower; (c) this Agreement, the ownership and operation of the Borrower’s and any Subsidiary’s assets, including all Real Properties and improvements or any Contract,
the performance by the Borrower or any other Person of their respective obligations thereunder, and the consummation of the transactions contemplated by this Agreement; (d) any finder’s fee, brokerage commission of other such obligation payable or alleged to be payable in respect of the transactions contemplated by this Agreement which arises or is alleged to arise from any agreement, action or conduct of the Borrower or any of its Affiliates, and/or (e) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not the Lender or its directors, officers, managers, employees, attorneys or agents are a party thereto; provided  that such indemnity shall not apply to any such losses, claims, damages, liabilities or related expenses arising from (i) any unexcused breach by the Lender of any of its obligations under this Agreement, (ii) the willful misconduct or gross
negligence of the Lender as determined by a final, non-appealable judgment of a court of competent jurisdiction, or (iii) the breach of any commitment or legal obligation of the Lender to any Person other than the Borrower or its Affiliates, provided  that such breach is determined pursuant to a final and nonappealable decision of a court of competent jurisdiction. The foregoing indemnity shall remain operative and in full force and effect regardless of the expiration or any termination of this Agreement, the consummation of the transactions contemplated by this Agreement, the repayment of the Loans, the invalidity or unenforceability of any term or provision of any Loan Document, any investigation made by or on behalf of the Lender, and the content or accuracy of any representation or warranty made by the Borrower or any Subsidiary in any Loan Document. All amounts due under this Section 9.02 shall be payable
on written demand therefor.

 

Section 9.03. Governing Law. This Agreement and the other Loan Documents shall (irrespective of where same are executed and delivered) be governed by and construed in accordance with the laws of the State of New York (without giving effect to principles of conflicts of laws).

 

Section 9.04. Waiver and Amendment. Neither any modification or waiver of any provision of this Agreement, the Notes, or any other Loan Document, nor any consent to any departure by the Borrower or any Subsidiary therefrom, shall in any event be effective unless the same shall be set forth in writing duly signed or acknowledged by the Lender (or, in the event that there are multiple Lenders at any time, Lenders holding a majority of the outstanding principal balance of the Term Loan and the maximum Revolving Credit Commitment) and all parties to such Loan Document, and then such waiver or consent shall be effective only in the specific instance, and for the specific purpose, for which given. No notice to or demand on the Borrower in any instance
shall entitle the Borrower to any other or future notice or demand in the same, similar or other circumstances.

 

  

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Section 9.05. Reservation of Remedies. Neither any failure nor any delay on the part of the Lender in exercising any right, power or privilege hereunder or under the Notes or any other Loan Document shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or future exercise, or the exercise of any other right, power or privilege.

 

Section 9.06. Notices. All notices, requests, demands and other communications under or in respect of this Agreement or any transactions hereunder shall be in writing and shall be personally delivered, sent by prepaid recognized overnight courier service, or telecopied by facsimile transmission to the applicable party at its address or telecopier number indicated below.

	
If to the Lender:

	  	  
	        	
ComVest Capital, LLC

	  	
One North Clematis, Suite 300

	  	
West Palm Beach, FL 33401

	  	
Attention: Chief Financial Officer

	  	
Telecopier: (212) 829-5986

	  	  
	
with a copy to:

	  	  
	  	
Greenberg Traurig, LLP

	  	
200 Park Avenue

	  	
New York, New York 10166

	  	
Attention: Shahe Sinanian, Esq.

	  	
Telecopier: (212) 801-6400

	  	  
	
If to the Borrower:

	  	  
	  	
Aftersoft Group, Inc.

	  	
Regus House

	  	
Heronsway Chester Business Park

	  	
Chester, CH4 9QR United Kingdom

	  	
Attention: Simon Chadwick

	  	
Telecopier: 011-44-870-134-2941

	  	  
	
with a copy to:

	  	  
	  	
Gersten Savage LLP

	  	
600 Lexington Avenue, 9 th  Floor

	  	
New York, New York 10022-6018

	  	
Attention: John H. Riley, Esq.

	  	
Telecopier: (212) 980-5192

 

  

47

  

 

or, as to each party, at such other address or telecopier number as shall be designated by such party in a written notice to the other party delivered as aforesaid. All such notices, requests, demands and other communications shall be deemed given (a) when personally delivered, (b) three (3) Business Days after being delivered to the telegraph company or overnight courier service, if prepaid and sent overnight delivery, addressed as aforesaid and with all charges prepaid or billed to the account of the sender, or (c) when sent by facsimile transmission to a telecopier number designated by such addressee (provided that, if such facsimile is sent other than during normal business hours at the point of receipt, such facsimile shall be deemed to have been sent on the next succeeding Business Day).

 

Section 9.07. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not assign any of its rights or obligations hereunder without the prior written consent of the Lender.

 

Section 9.08. Consent to Jurisdiction; Waiver of Jury Trial. Each of the Lender and the Borrower hereby consents to the non-exclusive jurisdiction of all courts of the State of New York and the United States District Court for the Southern District of New York, as well as to the jurisdiction of all courts from which an appeal may be taken from such courts, for the purpose of any suit, action or other proceeding arising out of or with respect to this Agreement, any other Loan Document, any other agreements, instruments, certificates or other documents executed in connection herewith or therewith, or any of the transactions contemplated hereby or thereby, or any of the Lender’s, the Borrower’s or any Subsidiary’s obligations
hereunder or thereunder. The Borrower hereby waives the right to interpose any counterclaims (other than compulsory counterclaims) in any action brought by the Lender hereunder or in respect of any other Loan Document, provided that this waiver shall not preclude the Borrower from pursuing any such claims by means of separate proceedings. EACH OF THE LENDER AND THE BORROWER HEREBY EXPRESSLY WAIVES ANY AND ALL OBJECTIONS WHICH IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS, AND ALSO WAIVES TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Each party may file a copy of this Agreement as evidence of the foregoing waiver of right to jury trial.

 

Section 9.09. Certain Waivers. The Borrower and the Lender each hereby waives any claims for special, consequential or punitive damages in any way arising out of or relating to this Agreement, any of the other Loan Documents, or any breach hereof or thereof.

 

Section 9.10. Severability. If any provision of this Agreement is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given circumstances, or excised from this Agreement, as the situation may require, and this Agreement shall be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein, as the case may be.

 

Section 9.11. Captions. The Article and Section headings in this Agreement are included herein for convenience of reference only, and shall not affect the construction or interpretation of any provision of this Agreement.

 

  

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Section 9.12. Sole and Entire Agreement. This Agreement, the Notes, the other Loan Documents, and the other agreements, instruments, certificates and documents referred to or described herein and therein constitute the sole and entire agreement and understanding between the parties hereto as to the subject matter hereof, and supersede all prior discussions, agreements and understandings of every kind and nature between the parties as to such subject matter.

 

Section 9.13. Confidentiality. The Lender shall not disclose any Confidential Information to any Person, or use Confidential Information except in connection with the administration of this Agreement and the other Loan Documents, without the prior written consent of the Borrower; provided , however , that nothing herein contained shall limit any disclosure of the tax structure of the transactions contemplated hereby, or the disclosure of any information (a) to the extent required by statute, rule, regulation or judicial process, (b) to counsel for the Lender, (c) to bank examiners, auditors, accountants or, if required by
law, any regulatory authority, (d) to the officers, partners, managers, directors, employees, agents and advisors (including independent auditors and counsel) of the Lender, subject to the requirements of this Section 9.13, (e) in connection with any litigation which relates to this Agreement to which the Lender is a party, (f) to a subsidiary or Affiliate of the Lender, subject to the requirements of this Section 9.13, or (g) to any assignee or participant (or prospective assignee or participant) which agrees to be bound by this Section 9.13, and further provided , that in no event shall the Lender be obligated or required to return any materials furnished by the Borrower. The obligations of the Lender under this Section 9.13 shall supersede and replace the obligations of the Lender under any
confidentiality letter in respect of this financing previously signed and delivered by the Lender to the Borrower. In no event shall the Lender trade in any securities of the Borrower using non-public information of the Borrower.

 

Section 9.14. Counterparts; Fax Signatures. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same agreement. This Agreement may be executed by fax or e-mailed signatures, each of which shall be fully binding on the signing party.

 

[The remainder of this page is intentionally blank]

 

  

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

	
COMVEST CAPITAL, LLC

	  
	
By: 

	
/s/ Gary E. Jaggard

	  	
Name: Gary E. Jaggard

	  	
Title: Managing Director

	  
	
AFTERSOFT GROUP, INC.

	  
	
By: 

	
/s/ Simon Chadwick

	  	
Name: Simon Chadwick

	  	
Title: Chief Operating Officer

 

  

  

  

 

Disclosure Schedules

 

NoneEMPLOYMENT AGREEMENT

BETWEEN

AFTERSOFT GROUP, INC.

 

And

IAN WARWICK

(Executive)

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of December 1, 2008 (the “Effective Date”) is entered into by and between Aftersoft Group, Inc., a Delaware corporation (the “Company”), and Ian Warwick, an individual with a physical address at The Dovecotes, Plas Devon Court, Rossett Road, Holt LL13 9SY, United Kingdom, (the “Executive”) (collectively, the “Parties,” individually, a “Party”).

 

WITNESSETH:

 

WHEREAS, the Executive has been employed by the Company to turnaround certain businesses that were formerly part of Auto Data Network and now part of the Company; and

 

WHEREAS, the Executive has made significant progress in turning around such businesses and preparing them to be spun off from Auto Data Network; and

 

WHEREAS, the Company in embarking on a spinoff into an independent publicly traded corporation that will bring with it new dynamics and challenges; and

 

WHEREAS, the Board of Directors of the Company (the “Board”) has requested and the Executive has agreed to continue services to the Company as President and Chief Executive Officer in order to continue his efforts on behalf of the Company; and

 

WHEREAS, the Board has determined that it is in the best interest of the Company, its affiliates, and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined Article Seven herein); and

 

WHEREAS, the Board has determined that it is in the best interests of the Company and its stockholders to indemnify the Executive for claims for damages arising out of or relating to the performance of such services to the Company in accordance with the terms and conditions set forth in this Agreement and pursuant to Delaware law; and

 

WHEREAS, as an inducement to serve and in consideration for such services, the Company has agreed to indemnify the Executive for claims for damages arising out of or relating to the performance of such services to the Company in accordance with the terms and conditions set forth in a separate agreement, which indemnification agreement is attached as an exhibit hereto and is incorporated herein by reference; and

 

  

  

  

 

WHEREAS, in order to accomplish these objectives and establish the rights, duties and obligations of the Parties, which shall be generally stated herein and which may be more fully stated in other agreements between the Parties, including equity-based agreements, indemnity agreements, and other employment or incentive related agreements as the Company or the Board may adopt from time to time, the Board has caused the Company to enter into this Agreement;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the Parties, intending to be legally bound, hereby agree as follows:

 

ARTICLE ONE

  

Definitions

 

1. Definitions. As used in this Agreement:

 

1.1 The term “Accrued Obligations,” when used in the case of the Executive’s death or disability shall mean the sum   of (1) the that portion Executive’s Base Salary that was not previously paid to the Executive from the last payment date through the Date of Termination, and (2) any Severance Benefit due.

 

1.2 The term “Automatic Extension” shall have the meaning set forth in Section 2.2 herein.

 

1.3 The term “Base Salary” shall have the meaning set forth in Section 3.1 herein.

 

1.4 The term “Board” shall have the meaning set forth in the recitals.

 

1.5 The term “Cause” shall have the meaning set forth in Section 4.3 herein.

 

1.6 The term “Common Stock” shall mean the Common Stock, par value $0.0001, of the Company.

 

1.7 The term “Compensation Committee” shall mean the Compensation Committee of the Company.

 

1.8 The term “Corporate Documents” shall mean the Company’s Certificate of Incorporation, as amended and/or its Bylaws, as amended.

 

  

  

  

  

1.9 The term “Effective Date” shall have the meaning set forth in the preamble.

 

1.10 The term “Good Reason” shall have the meaning set forth in Section 4.4 herein.

 

1.11 The term “Initial Term” shall have the meaning set forth in Section 2.2 herein.

 

1.12 The term “Severance Benefit” shall have the meaning set forth in Section 4.8(a)(i) herein.

 

1.13 The term “Without Cause” shall have the meaning set forth in Section 4.3 herein.

 

1.14 The term “Without Good Reason” shall have the meaning set forth in Section 4.5 herein.

 

ARTICLE TWO

 

POSITION & DUTIES

 

2. Employment.

 

2.1 Title. The Executive shall serve as the President and Chief Executive Officer of the Company and agrees to perform services for the Company and such other affiliates of the Company, as described in Section 3 herein.

 

2.2 Term. The Executive’s employment shall be for an initial term of two and one-half (2.5) years (“Initial Term”), commencing on the Effective Date. The Executive’s employment shall be automatically extended on the day after the second and a half year anniversary of the Effective Date (“Automatic Extension”), and on each anniversary date thereof, for additional one (1) year periods unless, with respect to any such Automatic Extension, Executive’s employment is terminated by either party during the 60-day period prior to such anniversary date as provided in Article Four.

 

2.3 Duties and Responsibilities. The Executive shall report to the Board and in his capacity as an officer of the Company shall perform such duties and services as may be appropriate and as are assigned to him by the Board. During the term of this Agreement Executive shall, subject to the direction of the Board of the Company, oversee and direct the operations of the Company, and shall perform such duties as are customarily performed by the President and Chief Executive Officer of a company such as the Company or as are otherwise delegated to him from time to time by the Board.

 

2.4 Board Membership. Executive will be appointed to serve as a member of the Board as of the Effective Date. Thereafter, at each annual meeting of the Company’s stockholders during the Employment Term, the Company will nominate Executive to serve as a member of the Board. Executive’s service as a member of the Board will be subject to any required stockholder approval. Upon the termination of Executive’s employment for any reason, Executive will be deemed to have resigned from the Board (and any boards of subsidiaries) voluntarily, without any further required action by the Executive, as of the end of the Executive’s employment and Executive, at the Board’s request, will execute any documents necessary to reflect
his resignation.

 

  

  

  

  

2.5 Performance of Duties. During the term of the Agreement, except as otherwise approved by the Board or as provided below, the Executive agrees to devote his full business time, effort, skill and attention to the affairs of the Company and its subsidiaries, will use his best efforts to promote the interests of the Company, and will discharge his responsibilities in a diligent and faithful manner, consistent with sound business practices. The foregoing shall not, however, preclude Executive from devoting reasonable time, attention and energy in connection with the following activities, provided that such activities do not materially interfere with the performance of his duties and services hereunder:

 

(a) serving as a director or a member of a committee of any company or organization, if serving in such capacity does not involve any conflict with the business of the Company or any subsidiary and such other company or organization is not in competition, in any manner whatsoever, with the business of the Company or any of its subsidiaries;

 

(b) fulfilling speaking engagements;

 

(c) engaging in charitable and community activities;

 

(d) managing his personal business and investments; and

 

(e) any other activity approved of by the Board. For purposes of this Agreement, any activity specifically listed on Schedule A  shall be considered as having been approved by the Board.

 

2.6 Representations and Warranties of the Executive with Respect to Conflicts, Past Employers and Corporate Opportunities . The Executive represents and warrants that:

 

(a) his employment by the Company will not conflict with any obligations which he has to any other person, firm or entity; and

 

(b) he will not, without disclosure to and approval of the Board, directly or indirectly, assist or have an active interest in (whether as a principal, stockholder, lender, employee, officer, director, partner, venturer, consultant or otherwise) in any person, firm, partnership, association, corporation or business organization, entity or enterprise that competes with or is engaged in a business which is substantially similar to the business of the Company;  provided, however,  that ownership of not more than two percent (2%) of the outstanding securities of any class of any publicly held corporation shall not be deemed a violation of this Section 2.6; provided, further, that any investment specifically listed on Schedule A shall
not be deemed a violation of this Section 2.6.

 

  

  

  

 

2.7 Activities and Interests with Companies Doing Business with the Company. In addition to those activities and interests of Executive disclosed on Schedule A  attached hereto, Executive shall promptly disclose to the Board, in accordance with the Company’s policies, full information concerning any interests, direct or indirect, he holds (whether as a principal, stockholder, lender, executive, director, officer, partner, venturer, consultant or otherwise) in any business which, as reasonably known to Executive, purchases or provides services or products to, the Company or any of its subsidiaries, provided that the Executive need not disclose any such interest
resulting from ownership of not more than two (2%) of the outstanding securities of any class of any publicly held corporation.

 

2.8 Other Business Opportunities. Nothing in this Agreement shall be deemed to preclude the Executive from participating in other business opportunities if and to the extent that: (a) such business opportunities are not directly competitive with, similar to the business of the Company, or would otherwise be deemed to constitute an opportunity appropriate for the Company; (b) the Executive’s activities with respect to such opportunities do not have a material adverse effect on the performance of the Executive’s duties hereunder, and (c) the Executive’s activities with respect to such opportunity have been fully disclosed in writing to the Board.

 

2.9 Reporting Location. For purposes of this Agreement, the Executive’s reporting location shall be Chester, England, which shall include the metropolitan area within a 40-mile radius from the Company’s current office; provided, however, that it is understood and agreed that Executive’s responsibilities include frequent travel to the United States to oversee the Company’s US operations.

 

  

  

  

 

ARTICLE THREE

 

COMPENSATION

 

3. Compensation.

 

3.1 Base Salary.

 

(a) Executive shall receive an initial annual base salary of three hundred thousand dollars (US$300,000.00), payable bi-monthly in arrears (the “Base Salary”) and subject to all applicable withholding requirements. The Base Salary shall be reviewed by the Board annually for adequacy.

 

(b) The Base Salary shall be paid in U.S. Dollars; provided, however, that in the event the value of the U.S. Dollar relative to the British Pound Sterling increases such that the Executive’s Base Salary is reduced as a result of such currency translation by 10% or more, the Executive shall be entitled to a make-whole provision that will restore the Executive to the Pound Sterling equivalent that existed on the Effective Date. (By way of example, the value of US$1.00 on the Effective Date is £0.5659, so that US$300,000 would equal £169,755.27. In the event that the value of the US Dollar to the British Pound Sterling were to fall to £0.5093, the Executive would be entitled to a make-whole amount annualized to £16,975.52 for
so long as the exchange rate remained to the Executive’s detriment.) During a make-whole period, the Compensation Committee will evaluate the relative value of the two currencies monthly to determine the appropriate make-whole amount. It shall be the responsibility of the Executive to bring to the attention of the Compensation Committee the fact that the movement between the two currencies has resulted in a reduction in his salary equal to 10% or more. The Executive agrees that as he is being paid in US Dollars, that no currency translation will increase his salary beyond the stated salary as determined by the Compensation Committee.

 

(c) Upon the market capitalization of the Company becoming equal to or greater than US$50,000,000 for 25 consecutive trading days, the Base Salary of the Executive shall be increased on an annualized basis to US$350,000. A trading day shall be defined as any day in which the NASDAQ market is open for business in the United States. Upon the increase of the Executive’s salary to $350,000, the make-whole provisions of Section 3.1(b) shall be of no further effect, except and unless the relative value of the two currencies causes the Executive’s salary to fall below £165,000;  provided further, however , in the event that an Annual Incentive is paid to the Executive in a prior year, there shall be no make-whole amount owing to
the Executive.

3.2 Annual Incentive. Executive will be eligible to receive annual cash incentives payable for the achievement of performance goals established by the Compensation Committee;  provided, however , that no covenants in any then-existing debt facility or any then-outstanding debt issuance are or would be violated by payment of such Annual Incentive, if paid in cash. An Annual Incentive payment may be made in cash if such existing covenants have been specifically and explicitly waived in writing by any then-lender or investor;  provided, however , that no Annual Incentive can be paid if the Company would be required
to pay for such a waiver. Executive will be entitled to an Annual Incentive provided the following metrics, as applied to targets established by the Compensation Committee or independent directors (defined pursuant to NASDAQ rules and regulations):

 

  

  

  

 

In the event the Company’s results amount to less than 80% of the established target(s), the Executive will be entitled to no cash bonus.

 

In the event the Company’s results are equal to 80% of the established target(s), the Executive will be entitled to a cash bonus of 50% of his Base Salary.

 

In the event the Company’s results are equal to 100% of the established target(s), the Executive will be entitled to a cash bonus of 100% of his Base Salary.

 

In the event the Company’s results are equal to or better than 120% of the established target(s), the Executive will be entitled to a cash bonus of 150% of his Base Salary.

 

Results between the established parameters described herein will be interpolated.

 

3.3  The actual earned Annual Incentive, if any, payable to Executive for any performance period will depend upon the extent to which the applicable performance goal(s) specified by the Compensation Committee are achieved and will be decreased or increased for under- or over- performance. Except as specifically provided herein, Executive’s Annual Incentive will be subject to the terms and conditions of a formal bonus plan that may be adopted by the Compensation Committee from time to time; provided, that if there is no formal bonus plan that has been established by the Company, the Executive’s Annual Incentives shall be establish each year by the Compensation Committee. The Compensation Committee has established the following targets for purposes of the fiscal year ended June 30, 2009, and has
authorized the following payout in the event that the lender’s covenants have not been waived as provided in Section 3.2 herein:

 

An organic EBITDA target of $3.25 million, which is $250,000 above guidance previously given to the Compensation Committee, shall entitle a payout to an executive pool of $250,000; provided, that cash of at least $50,000 above a lender’s covenants shall remain in the Company at all times net of such payout. Assuming that there is sufficient cash of $50,000 as provided for herein and $250,000 is available for such a pool, Executive shall be entitled to $110,000 of such bonus pool.

In addition, for each organic EBITDA dollar ($1.00) over the organic EBITDA target provided for above, an additional pool 10% of all such additional organic EBITDA achieved over the $3.25 million target shall be established. Executive shall be entitled to 44% of such additional bonus pool.

 

  

  

  

 

3.4 Long Term Incentives.

 

(i) Long-Term Ongoing Performance Equity Incentive. Executive will be eligible to receive long-term performance equity incentives at a level and on conditions as the Compensation Committee shall establish. Any long-term incentive will be subject to terms and conditions of the Company’s 2007 Stock Incentive Plan (the “LTIP”), or any successor thereto, or any other equity-based compensation plan that may be established by the Committee and approved by the shareholders. In addition, any long-term incentive will be subject to the Committee’s standard terms and conditions for the applicable type of award, including vesting criteria such as continued service or performance objectives. The Committee has established criteria
for the first grant to Executive under the LTIP, which criteria shall be based on earnings per share as computed according US GAAP (“EPS”) and return on invested capital (“ROIC”), which calculation shall be done in accordance with the calculation set forth in Schedule B . The initial criteria are:

 

(1) EPS targets of $0.01 for FY09, $0.02 for FY10, and $0.04 for FY11. The Executive shall be awarded 500,000 performance share units as a base objective, with 30% of the award vesting in the first year of the grant, provided that the base target is met, 30% of the award vesting in the second year of the grant, provided that the base target is met, and 40% of the award shall vest in the third and final year of the grant provided that the base target is met.

 

(2) ROIC targets of 3.50% for FY09, 8.00% for FY10, and 13.00% for FY11. The Executive shall be awarded 500,000 performance share units as a base objective, with 30% of the award vesting in the first year of the grant, provided that the base target is met, 30% of the award vesting in the second year of the grant, provided that the base target is met, and 40% of the award shall vest in the third and final year of the grant provided that the base target is met.

(3) The following metrics have been established for purposes of the vesting of the 2008 awards described in Section 3.4(i)(1) and Section 3.4(i)(2) above:

 

In the event the Company’s results amount to less than 80% of the established target(s), none of the awards will vest.

 

In the event the Company’s results are equal to 80% of the established target(s), 50% of the award will vest.

 

In the event the Company’s results are equal to 100% of the established target(s), 100% of the award will vest.

 

  

  

  

 

In the event the Company’s results are equal to or better than 120% of the established target(s), 150% of the award will vest.

 

Results between the established parameters described herein will be interpolated.

 

(ii) Stock Options. Executive will be granted 300,000 options as part of his equity compensation component. The options will have a maximum term of ten (10) years. The options will vest ratably over a three-year period. Under the first year’s grant, 100,000 options will have a strike price of $0.75 per share, 100,000 options will have a strike price of $1.00 per share, and the final tranche of 100,000 options will have a strike price of $1.25 per share. The Compensation Committee shall consider the strike price of future awards of stock options to the Executive from time to time in connection with its annual assessment of the Executive’s compensation.

 

3.5 Participation In Benefit Plans.

 

(a) Retirement Plans. Executive shall be entitled to participate, without any waiting or eligibility periods, in all qualified retirement plans provided to other executive officers and other key employees.

 

(b) Life Insurance. The Company will purchase life insurance on the life of Executive in an amount not less than $3,000,000, the benefits of which will be payable one-half to the Executive’s beneficiary and one-half to the Company. The Executive’s “beneficiary” is the person or persons (who may be designated concurrently, successively or contingently) designated by the Executive in his last effective writing filed with the Company prior to his death, or if the Executive shall have failed to make an effective designation, the Executive’s beneficiary is his spouse, if the Executive is married and his spouse is living at the time of each payment, and otherwise his surviving children. The Executive shall assist the
Company in procuring such insurance by submitting to such examinations and by signing such applications and other instruments as may be reasonable and as may be required by the insurance carriers to which application is made for any such insurance. The Executive represents that, to the best of his knowledge, he is currently insurable at standard premium rates for life insurance policies.

(c)  Employee Benefit Plans and Insurance. The Executive shall have the right to participate in employee benefit plans and insurance programs of the Company that the Company may sponsor from time to time and to receive customary Company benefits, if those benefits are so offered. Nothing herein shall obligate Executive to accept such benefits if and when they are offered.

 

(d) Vacation.

 

  

  

  

 

(i) The Executive shall be entitled to six weeks of vacation, with pay. No more than 1.5 times (1.5x) Executive’s authorized annual vacation allocation may be accrued, at any given time. In the event that Executive has reached his maximum authorized vacation allocation, accrual will not re-commence until Executive uses some of his paid vacation credit and thereby brings the balance below his maximum. Accrued paid vacation credit forfeited because of an excess balance can not be retroactively reapplied.

 

(ii) Pay will only be provided for any unused, accrued paid vacation credit at the time of Executive’s separation from the business by the Company due to a reduction in force, by Executive upon retirement, or upon his death or disability, provided that Executive has been a regular full-time employee for three calendar months prior to such event. Termination of employment for Cause by the Company, or Executive’s resignation, will result in the forfeiture of any unused paid vacation credit.

 

(e) Paid Holidays. The Executive shall be entitled to such paid holidays as are generally available to all employees.

 

3.6 Relocation and Business-related Expenses. In the event that Executive is required to move from his primary residence and consents to such move, then Executive shall be provided with relocation assistance as provided below:

 

(a) Housing and Temporary Lodging. The Company will pay the costs, for the Executive and his family, of house-hunting trips and the cost of transporting the Executive, his spouse, furniture, household effects, and vehicles, to the area in which the Company will be headquartered. In addition, the Company will pay the cost of the Executive’s travel, temporary living expenses, including housing, whether hotel or apartment, and meals, during the period prior to the Executive’s move to the city in which the Company will be headquartered.

 

(b) Reimbursement. Executive shall be entitled to reimbursement within a reasonable time for all properly documented and approved expenses for travel. The Company shall reimburse business expenses of Executive directly related to Company business, including, but not limited to, airfare, lodging, meals, travel expenses, medical expenses while traveling not covered by insurance, business entertainment, expenses associated with entertaining business persons, local expenses to governments or governmental officials, tariffs, applicable taxes outside of the United States or United Kingdom, special expenses associated with travel to certain countries, supplemental life insurance or supplemental insurance of any kind or special insurance rates or
charges for travel outside the Executive’s country of residence (unless such insurance is being provided by the Company), rental cars and insurance for rental cars, and any other expenses of travel that are reasonable in nature or that have been otherwise pre-approved. Executive shall be governed by the travel and entertainment policy in effect at the Company.

 

  

  

  

 

(c) Transportation Allowance. The Executive shall be entitled to a transportation allowance of $1,250 per month.

 

3.7 Severance Benefit. In the event that Executive’s employment is terminated, other than for Cause, Executive shall receive compensation pursuant to Section 4.8 herein.

 

3.8 Payroll Procedures and Policies. All payments required to be made by the Company to the Executive pursuant to this Article Three shall be paid on a regular basis in accordance with the Company’s normal payroll procedures and policies.

  

ARTICLE FOUR

  

TERMINATION OF EMPLOYMENT

 

4.1 Death. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Term.

 

4.2 Disability. If the Company determines in good faith that the Disability (as defined below) of the Executive has occurred during the Employment Term, the Company may give the Executive notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment hereunder shall terminate effective on the 30 th day after receipt of such notice by the Executive (the “Disability Effective Date”);  provided ,  that , within the 30-day period after such receipt, the Executive shall
not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties hereunder on a full-time basis for an aggregate of 180 days within any given period of 270 consecutive days (in addition to any statutorily required leave of absence and any leave of absence approved by the Company) as a result of incapacity of the Executive, despite any reasonable accommodation required by law, due to bodily injury or disease or any other mental or physical illness, which will, in the opinion of a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative, be permanent and continuous during the remainder of the Executive’s life.

4.3 Termination by Company.

 

(a) Termination for Cause.

 

The Company may terminate the Executive’s employment hereunder for Cause (as defined below). For purposes of this Agreement, “Cause” shall mean:

 

  

  

  

 

(i) the willful and continued failure of the Executive to perform substantially the Executive’s duties hereunder (other than any such failure resulting from bodily injury or disease or any other incapacity due to mental or physical illness) after a written demand for substantial performance is delivered to the Executive by the Board or the Chairman of the Company, which specifically identifies the manner in which the Board or the Chairman of the Company believes the Executive has not substantially performed the Executive’s duties; or

 

(ii) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably detrimental to the Company and/or its affiliated companies, monetarily or otherwise.

For purposes of this provision, no act, or failure to act, on the part of the Executive shall be considered “willful” unless done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, upon the instructions of the Chairman or another Board Member of Company, or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company and its affiliated companies. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board then in office, excluding the Executive, at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.

(iii) the Executive’s conviction of, or plea of nolo contendere to, any felony of theft, fraud, embezzlement or violent crime.

 

(b) Termination without Cause.

 

All terminations by the Company that are not for Cause, or on the occasion of the Executive death or disability, or that are not terminated during the 60-day period prior to any Automatic Extension as provided in Section 2.2 or Section 4.5 shall be considered Without Cause.

 

4.4 Termination by Executive. The Executive may terminate the Executive’s employment hereunder (x) at any time during the Employment Term for Good Reason (as defined below) or (y) during the Window Period (as defined below) Without Good Reason. For purposes of this Agreement, the “Window Period” shall mean the 30-day period immediately following the first anniversary of the Effective Date, and “Good Reason” shall mean any of the following (without the Executive’s express written consent):

 

  

  

  

 

(a) The assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), duties, functions, responsibilities or authority as contemplated by Section 2.3 of this Agreement, or any other action by the Company that results in a diminution in such position, duties, functions, responsibilities or authority, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

 

(b) Any failure by the Company to comply with any of the provisions of Section 2.3 or Section 2.5 of this Agreement, other than an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

 

(c) The Company’s requiring the Executive to be based at any office or location other than as provided in Section 2.9 of this Agreement or the Company’s requiring the Executive to travel on the Company’s or its affiliated companies’ business to a substantially greater extent than during the three-year period immediately preceding the Effective Date;

 

(d) Any failure by the Company to comply with and satisfy Section 8.1 of this Agreement; or

 

(e) Any purported termination by the Company of the Executive’s employment hereunder otherwise than as expressly permitted by this Agreement, and for purposes of this Agreement, no such purported termination shall be effective.

For purposes of this Section 4.4, any good faith determination of “Good Reason” made by the Executive shall be conclusive.

 

4.5 Termination without Prejudice. The Company or the Executive may terminate this Agreement at any time during the 60-day period prior to the Automatic Extension.

 

4.6 Notice of Termination. Any termination of the Executive’s employment hereunder by the Company or by the Executive (other than a termination pursuant to Section 4.1) shall be communicated by a Notice of Termination (as defined below) to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which (a) indicates the specific termination provision in this Agreement relied upon, (b) in the case of a termination for Disability, Cause or Good Reason, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (c) specifies the Date of Termination (as
defined in Section 4.7 below); provided, however, that notwithstanding any provision in this Agreement to the contrary, a Notice of Termination given in connection with a termination for Good Reason shall be given by the Executive within a reasonable period of time, not to exceed 120 days, following the occurrence of the event giving rise to such right of termination. The failure by the Company or the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Disability, Cause or Good Reason shall not waive any right of the Company or the Executive hereunder or preclude the Company or the Executive from asserting such fact or circumstance in enforcing the Company’s or the Executive’s rights hereunder.

 

  

  

  

 

4.7 Date of Termination. For purposes of this Agreement, the “Date of Termination” shall mean the effective date of termination of the Executive’s employment hereunder, which date shall be (a) if the Executive’s employment is terminated by the Executive’s death, the date of the Executive’s death, (b) if the Executive’s employment is terminated because of the Executive’s Disability, the Disability Effective Date, (c) if the Executive’s employment is terminated by the Company (or applicable affiliated company) for Cause or by the Executive for Good Reason, the date on which the Notice of Termination is given, (d) if the Executive’s employment is terminated pursuant
to Section 2.2, the date on which the Employment Term ends pursuant to Section 2.2 due to a party’s delivery of a Notice of Termination thereunder, and (e) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination, which date shall in no event be earlier than the date such notice is given; provided, however, that if within 30 days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).

 

4.8 Obligations of the Company upon Termination.

 

(a) Good Reason or During the Window Period; Other Than for Cause, Death or Disability. If, during the Employment Term, the Company (or applicable affiliated company) shall terminate the Executive’s employment hereunder other than for Cause or Disability or the Executive shall terminate the Executive’s employment for Good Reason during the Window Period:

 

(i) the Company shall pay to the Executive (either in a lump sum or on in equal monthly installments over a six (6)-month period after the Date of Termination, at the Company’s option) the  sum of  (1) that portion of Executive’s Base Salary that was not previously paid to the Executive from the last payment date through the Date of Termination,  and  (2) an amount equal 12 months salary at the level of the Executive’s Base Salary then in effect, (such 12 months amount is hereinafter referred to as the “Severance Amount”);

 

(ii) all stock options, stock appreciation rights, and restricted stock shall immediately vest;

(iii) all stock options and stock appreciation rights shall be payable in Common Stock;

 

  

  

  

 

(iv) all performance share units that would vest in the course of any fiscal year shall vest on a pro rata basis; and

 

to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice or arrangement or contract or agreement of the Company and its affiliated companies (such other amounts and benefits hereinafter referred to as the “Other Benefits”).

 

(b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Term, this Agreement shall terminate without further compensation obligations to the Executive’s legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 90 days of the Date of Termination) and the timely payment or settlement of any other amount pursuant the Other Benefits and (ii) treatment of all other compensation under existing plans as provided by the terms and rules of those plans.

 

(c) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Term, this Agreement shall terminate without further compensation obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 90 days of the Date of Termination) and the timely payment or settlement of any other amount pursuant to the Other Benefits and (ii) treatment of all other compensation under existing plans as provided by the terms and rules of those plans.

 

(d) Cause; Other than for Good Reason or During the Window Period. If the Executive’s employment is terminated for Cause during the Employment Term, this Agreement shall terminate without further compensation obligations to the Executive other than the obligation to pay to the Executive Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates the Executive’s employment during the Employment Term, excluding a termination either for (i) Good Reason or (ii) Without Good Reason during the Window Period, this Agreement shall terminate without further compensation obligations to the
Executive, other than for the that portion Executive’s Base Salary that was not previously paid to the Executive from the last payment date through the effective date of the Executive’s voluntary termination and the timely payment or provision of the Other Benefits, as provided in any applicable plan, and the Executive shall have no further obligations nor liability to the Company. In such case, any amounts owed to the Executive shall be paid to the Executive in a lump sum in cash within 90 days of the Date of Termination subject to applicable laws and regulations.

 

  

  

  

 

4.9 Continuation of Payments During Disputes. The Parties agree that in the case of:

 

(a) termination which the Company contends is for Cause, but Executive claims is not for Cause; or

 

(b) termination by Executive under Section 4.4 herein,

 

the Company shall continue to pay all compensation due to Executive hereunder until the resolution of such dispute, but the Company shall be entitled to repayment of all sums so paid, if it ultimately shall be determined by a court of competent jurisdiction, in a final non-appealable decision, that the termination was for Cause or such termination by Executive was not authorized under Section 4.4 herein, and all sums so repaid shall bear interest at the prime rate as published in  The Wall Street Journal  on the date on which such court makes such determination. Any such reimbursement of payments by Executive shall not include any legal fees or other loss, costs, or expenses incurred by the Company, notwithstanding any provision of the
Indemnification Agreement, which is attached as Exhibit A  and is considered a part of this Agreement.

 

ARTICLE FIVE

 

INDEMNIFICATION

 

5. Indemnification. The Executive shall be indemnified and held harmless pursuant to the terms and conditions set forth in the Indemnity Agreement substantially in the form attached as Exhibit A  hereto.

 

  

  

  

  

ARTICLE SIX

 

CONFIDENTIALITY

 

6. Confidentially; Non-Competition; and Non-Solicitation.

 

6.1 Confidentiality. In consideration of employment by the Company and Executive’s receipt of the salary and other benefits associated with Executive’s employment, and in acknowledgment that (a) the Company is engaged in the automotive software business, (b) maintains secret and confidential information, (c) during the course of Executive’s employment by the Company such secret or confidential information may become known to Executive, and (d) full protection of the Company’s business makes it essential that no employee appropriate for his or her own use, or disclose such secret or confidential information, Executive agrees that during the time of Executive’s employment and for a period of two (2) years
following the termination of Executive’s employment with the Company, Executive agrees to hold in strict confidence and shall not, directly or indirectly, disclose or reveal to any person, or use for his own personal benefit or for the benefit of anyone else, any trade secrets, confidential dealings, or other confidential or proprietary information of any kind, nature, or description (whether or not acquired, learned, obtained, or developed by Executive alone or in conjunction with others) belonging to or concerning the Company or any of its subsidiaries, except (i) with the prior written consent of the Company duly authorized by its Board, (ii) in the course of the proper performance of Executive’s duties hereunder, (iii) for information (x) that becomes generally available to the public other than as a result of unauthorized disclosure by Executive or his affiliates or (y) that becomes available to Executive on a non-confidential basis from a source other than the Company
or its subsidiaries who is not bound by a duty of confidentiality, or other contractual, legal, or fiduciary obligation, to the Company, or (iv) as required by applicable law or legal process.

 

6.2 Non-Competition. During Executive’s employment with the Company and for so long as Executive receives any Severance Benefit or is receiving any Severance Amount provided under this agreement in respect of the termination of his employment, Executive shall not be engaged as an officer or executive of, or in any way be associated in a management or ownership capacity with any corporation, company, partnership or other enterprise or venture which conducts a business which is in direct competition with the business of the Company;  provided, however , that Executive may own not more than two percent (2%) of the outstanding securities, or equivalent equity interests, of
any class of any corporation, company, partnership, or either enterprise that is in direct competition with the business of the Company, which securities are listed on a national securities exchange or traded in the over-the-counter market. For purposes of this Agreement, a lump sum payment equivalent made to Executive shall be judged in relation to his most recent annual base salary to determine whether Executive is continuing to receive a Severance Benefit or Severance Amount and shall be measured from the date such payment is received. It is expressly agreed that the remedy at law for breach of this covenant is inadequate and that injunctive relief shall be available to prevent the breach thereof.

 

  

  

  

  

6.3 Non-Solicitation. Executive also agrees that he will not, directly or indirectly, during the term of his employment or within one (1) year after termination of his employment for any reason, in any manner, encourage, persuade, or induce any other employee of the Company to terminate his employment, or any person or entity engaged by the Company to represent it to terminate that relationship without the express written approval of the Company;  provided, however,  that in the event an employee with whom the Executive had a preexisting relationship prior to his employment with the Company individually elects to resign as a consequence of the Executive’s having
left the Company’s employ, this non solicitation provision this in Section 6.3 shall not prohibit their subsequent association. It is expressly agreed that the remedy at law for breach of this covenant is inadequate and that injunctive relief shall be available to prevent the breach thereof.

 

ARTICLE SEVEN

 

CHANGE OF CONTROL

 

7. Certain Definitions.

 

7.1 Change of Control Effective Date. The “Change of Control Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 7.2) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive’s employment with the Company (or applicable affiliated company) is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the “Change of Control Effective Date” shall mean the date immediately prior to the date of such termination of employment.

 

7.2 Change of Control Period. The “Change of Control Period” shall mean the period commencing on the date of this Agreement and ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof herein referred to as the “Renewal Date”), the Change of Control Period shall be automatically extended so as to terminate three years after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

 

7.3 Change of Control. For purposes of this Agreement, a “Change of Control” shall mean:

 

(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding Common Shares the Company (the “Outstanding Shares”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Voting Securities”);  provided, however , that for purposes of this Subsection 7.3(a) the following acquisitions shall not constitute a Change of Control: (w) Company-sponsored
recapitalization that is approved by the Incumbent Board, as defined below; (x) a capital raise initiated by the Company where the Incumbent Board remains for at least at least 548 days after the closing date of the raise, (y) an acquisition of another company or asset(s) initiated by the Company and where the Company’s shareholders immediately after the transaction own at least 51% of the equity of the combined concern of (z) the spin-off of shares of the Company to shareholders of Auto Data Network; or

 

  

  

  

 

(b) individuals who, as of the date of this Agreement, constitute the Company’s Board (the “Incumbent Board”) cease for any reason to constitute a majority of such Board of Directors; provided, however , that any individual becoming a director of the Company shareholders subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders was approved by a vote of a majority of the directors of the Company then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other
actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company Board; or

 

(c) consummation of a reorganization, merger, amalgamation or consolidation of the Company, with or without approval by the shareholders of the Company, in each case, unless, following such reorganization, merger, amalgamation or consolidation, (i) more than 50% of, respectively, the then outstanding shares of common stock (or equivalent security) of the company resulting from such reorganization, merger, amalgamation or consolidation and the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Shares and Outstanding Voting Securities immediately
prior to such reorganization, merger, amalgamation or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, amalgamation or consolidation, of the Outstanding Shares and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding a parent of the Company that may come into being after the date of this Agreement through any transaction deliberately undertaken by the Company after an affirmative vote of its Incumbent Directors and the Company shareholders), any employee benefit plan (or related trust) of the Company or such company resulting from such reorganization, merger, amalgamation or consolidation, and any Person beneficially owning, immediately prior to such reorganization, merger, amalgamation or consolidation, directly or indirectly, 20% or more of the Outstanding Shares or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock (or equivalent security) of the company resulting from such reorganization, merger, amalgamation or consolidation or the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors, and (iii) a majority of the members of the board of directors of the company resulting from such reorganization, merger, amalgamation or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, amalgamation or consolidation; or

 

  

  

  

 

(d) consummation of a sale or other disposition of all or substantially all the assets of the Company, with or without approval by the shareholders of the Company, other than to a company, with respect to which following such sale or other disposition, (i) more than 50% of, respectively, the then outstanding shares of common stock (or equivalent security) of such company and the combined voting power of the then outstanding voting securities of such Company entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Shares and Outstanding Voting Securities immediately prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Shares and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such company, and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Shares or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock (or equivalent security) of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) a majority of the members of the board of directors of such company were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Incumbent
Board providing for such sale or other disposition of assets of the Company; or

 

(e) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

(f) The term Change of Control shall not refer to any transaction with Commonwealth Associates, LP or any affiliate of Commonwealth Associates, LP, unless a majority of the Incumbent Board of Directors has affirmatively determined that the nature of such acquisition is hostile or otherwise against the interests of the Company and/or management.

 

  

  

  

 

ARTICLE EIGHT

 

MISCELLANEOUS

 

8. Miscellaneous.

 

8.1 Benefit. This Agreement shall inure to the benefit of and be binding upon each of the Parties, and their respective successors. This Agreement shall not be assignable by any Party without the prior written consent of the other Party. The Company shall require any successor, whether direct or indirect, to all or substantially all the business and/or assets of the Company expressly to assume and agree to perform, by instrument in a form reasonably satisfactory to Executive, this Agreement and any other agreements between Executive and the Company or any of its subsidiaries, in the same manner and to the same extent as the Company.

 

8.2 Governing Law. This Agreement shall be governed by, and construed in accordance with the laws of the State of Delaware without resort to any principle of conflict of laws that would require application of the laws of any other jurisdiction except as may apply to the Executive pursuant to applicable employment or related laws of the United Kingdom; provided, however , that Delaware law shall govern with respect to the Executive’s rights under a Change of Control under Article Seven herein.

 

8.3 Counterparts. This Agreement may be executed in counterparts and via facsimile, each of which shall be deemed to constitute an original, but all of which together shall constitute one and the same Agreement. Each such counterpart shall become effective when one counterpart has been signed by each Party thereto.

 

8.4 Headings. The headings of the various articles and sections of this Agreement are for convenience of reference only and shall not be deemed a part of this Agreement or considered in construing the provisions thereof.

 

8.5 Severability. Any term or provision of this Agreement that shall be prohibited or declared invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or declaration, without invalidating the remaining terms and provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction, and if any term or provision of this Agreement is held by any court of competent jurisdiction to be void, voidable, invalid or unenforceable in any given circumstance or situation, then all other terms and provisions hereof, being severable, shall remain in full force and effect in such circumstance or situation, and such term or provision shall remain
valid and in effect in any other circumstances or situation.

8.6 Construction. Use of the masculine pronoun herein shall be deemed to refer to the feminine and neuter genders and the use of singular references shall be deemed to include the plural and vice versa, as appropriate. No inference in favor of or against any Party shall be drawn from the fact that such Party or such Party’s counsel has drafted any portion of this Agreement.

 

  

  

  

 

8.7 Equitable Remedies. The Parties hereto agree that, in the event of a breach of this Agreement by either Party, the other Party, if not then in breach of this Agreement, may be without an adequate remedy at law owing to the unique nature of the contemplated relationship. In recognition thereof, in addition to (and not in lieu of) any remedies at law that may be available to the non-breaching Party, the non-breaching Party shall be entitled to obtain equitable relief, including the remedies of specific performance and injunction, in the event of a breach of this Agreement, by the Party in breach, and no attempt on the part of the non-breaching Party to obtain such equitable relief shall be deemed to constitute an election of remedies by the
non-breaching Party that would preclude the non-breaching Party from obtaining any remedies at law to which it would otherwise be entitled.

 

8.8 Attorney’s Fees. If any Party hereto shall bring an action at law or in equity to enforce its rights under this Agreement, the prevailing Party in such action shall be entitled to recover from the Party against whom enforcement is sought its costs and expenses incurred in connection with such action (including fees, disbursements and expenses of attorneys and costs of investigation). In the event that Executive institutes any legal action to enforce Executive’s legal rights hereunder, or to recover damages for breach of this Agreement, Executive, if Executive prevails in whole or in part, shall be entitled to recover from the Company reasonable attorneys’ fees and disbursements incurred by Executive with respect to the
claims or matters on which Executive has prevailed.

 

8.9 No Waiver. No failure, delay or omission of or by any Party in exercising any right, power or remedy upon any breach or default of any other Party, or otherwise, shall impair any such rights, powers or remedies of the Party not in breach or default, nor shall it be construed to be a waiver of any such right, power or remedy, or an acquiescence in any similar breach or default; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any provisions of this Agreement must be in writing and be executed by the Parties and shall be effective only to the extent
specifically set forth in such writing.

 

8.10 Remedies Cumulative. All remedies provided in this Agreement, by law or otherwise, shall be cumulative and not alternative.

8.11 Amendment. This Agreement may be amended only by a writing signed by all of the Parties hereto.

 

8.12 Entire Contract. This Agreement and the documents and instruments referred to herein constitute the entire contract between the parties to this Agreement and supersede all other understandings, written or oral, with respect to the subject matter of this Agreement.

 

8.13 Survival. This Agreement shall constitute a binding obligation of the Company and any successor thereto. Notwithstanding any other provision in this Agreement, the obligations under Articles 5 and 6 shall survive termination of this Agreement.

 

  

  

  

 

8.14 Savings Clause. Notwithstanding any other provision of this Agreement, if the indemnification provisions in Exhibit A  hereto or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Executive as to Expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law.

 

8.15 Modifications and Waivers. Notwithstanding any other provision of this Agreement, the indemnification provisions in Exhibit A  hereto and the Change of Control provisions Article Seven herein, may be amended from time to time to reflect changes in Delaware law or for other reasons.

 

8.16 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed:

  

(a)   if to Executive:

 

Ian Warwick

The Dovecotes

Plas Devon Court, Rossett Road

Holt LL13 9SY, United Kingdom

  

(b)   if to the Company:

 

Aftersoft Group, Inc.

c/o Gersten Savage LLP

New York, NY 10022

Attn: Chairman, Compensation Committee

 

or to such other address as may have been furnished to Executive by the Company or to the Company by Executive, as the case may be.

 

8.17 No Limitation. Notwithstanding any other provision of this Agreement, for avoidance of doubt, the parties confirm that the foregoing does not apply to or limit Executive’s rights under Delaware law or the Company’s Corporate Documents.

 

[Signatures Follow On Next Page]

 

  

  

  

  

IN WITNESS WHEREOF, the parties have set their hands and seals hereunto on the date first above written.

 

	
AFTERSOFT GROUP, INC.

	
EXECUTIVE

	  	  
	
By: /s/ Dwight Mamanteo

	
By: /s/ Ian Warwick

	
Name: Dwight Mamanteo

	
Name: Ian Warwick

	
Title: Chairman, Compensation Committee

	  

 

  

  

  

 

Schedule A

 

Outside Activities/Investments

Ian Warwick

 

	
Company or

Project Name

	  	
Nature of

Business

	  	
Date Hired or

Commenced

Involvement

	  	
Position

	  	
Compensation

	  	
Annual Time

Commitment, (time

away from office)

	  	  	  	  	  	  	  	  	  	  	  
	  	  	  	  	  	  	  	  	  	  	  
	  	  	  	  	  	  	  	  	  	  	  
	  	
  

	  	
  

	  	
  

	  	
  

	  	
  

	  

  

Dated: November 18, 2008

 

Initials:                     Executive: _____                                          Company: ______                                   

  

  

  

  

  

Schedule B

 

Return on Invested Capital Calculation

 

Management must attain Return-on-Invested Capital (ROIC) greater than the Weighted-Average-Cost-of-Capital (WACC) by 2% or more. The Cost of Equity as determined by Bloomberg but will be greater than 8%.

 

  

  

  

 

EXHIBIT A

 

INDEMNITY AGREEMENT

 

This INDEMNITY AGREEMENT (the “Agreement”) is dated as of 24 November 2008, and is made by and between Aftersoft Group, Inc. a Delaware corporation (the “Company”), and [_____], an officer or director of the Company (the “Indemnitee”).

 

RECITALS

 

A.           The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance and/or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and officers;

 

B.           The Board of Directors of the Company (the “Board”) has concluded that, to retain and attract talented and experienced individuals to serve as officers and directors of the Company and to encourage such individuals to make the business decisions necessary or appropriate for the success of the Company and its Subsidiaries (as defined in Section 1 below), it is necessary for the Company contractually to indemnify its directors and certain of its officers, and certain of the directors and officers of its Subsidiaries, and to assume for itself maximum permissible liability for Expenses, losses, liabilities and damages in connection with claims against such officers and directors relating to their service in such capacities, and has
further concluded that the failure to provide such contractual indemnification could result in significant harm to the Company and its Subsidiaries and the Company’s stockholders;

 

C.           The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors and officers with adequate, reliable knowledge of legal risks to which they are exposed or information regarding the proper course of action to take;

 

D.           Plaintiffs often seek damages in such large amounts and the costs of litigation may be so great (whether or not the case is meritorious), that the defense and/or settlement of such litigation may be beyond the personal resources of directors and officers;

 

E.           Section 145 of the General Corporation Law of Delaware, under which the Company is organized (the “Law”), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by the Law is not exclusive; further the provisions of the Amended Certificate of Incorporation of the Company (the “Certificate of Incorporation”) specifically state that the rights to indemnification and payment of expenses described therein are not exclusive, and thereby contemplate that contracts with respect to indemnification and
payment of Expenses by the Company and similar obligations of the Company may be entered into by and between the Company and persons entitled to such rights described in the Certificate of Incorporation; and

 

  

  

  

 

F.           The Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company. As an inducement to serve and in consideration for such service, the Company has agreed to indemnify the Indemnitee for claims for damages arising out of or related to the performance of such services to the Company in accordance with the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

 

Definitions.

 

Agent.  For the purposes of this Agreement, “Agent” of the Company means any person who is or at any time was a director or officer of the Company or a subsidiary of the Company; or is or at any time was serving at the request of, for the convenience of, or to represent the interest of the Company or a subsidiary of the Company as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or an affiliate of the Company; or was a director or officer of another enterprise or affiliate of the Company at the request of, for the convenience of, or to represent the interests of such predecessor corporation. The term “enterprise” includes any employee benefit plan of the
Company, its subsidiaries, affiliates and predecessor corporations.

 

Change in Control.  “Change in Control” means a change in control of the Company occurring after December 1, 2008, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after December 1, 2008, (i) any “person” (as such term is
used in Sections 13(d) and 14(d) of the Act) other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two-thirds of the members of the board of directors of the Company in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the board of directors of the Company then in
office, as a consequence of which members of the board of directors in office immediately prior to such transaction or event constitute less than a majority of the board of directors thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (ii) of this subsection (c), individuals who at the beginning of such period constituted the board of directors of the Company (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the board of directors.

 

  

  

  

 

Company.  As used herein the term “Company” includes all successors and assigns to the Company, including, without limitation, any corporation or other entity that is a successor to the Company by virtue of a Change in Control.

 

Controlled. “Controlled” means subject to the power to exercise a controlling influence over the management or policies of a corporation, partnership, joint venture, trust or other entity.

 

Expenses. For purposes of this Agreement, “Expenses” includes all direct and indirect costs of any type or nature whatsoever (including, without limitation, attorneys’ fees and related disbursements and retainers, costs of travel, other out-of-pocket costs such as fees and disbursements of expert witnesses, private investigators and professional advisors, court costs, transcript costs, fees of experts, duplicating, printing, and binding costs, telephone and fax transmission charges, postage, delivery services, secretarial services and other disbursements and expenses and reasonable compensation for time spent by the Indemnitee for which he is not otherwise compensated by the Company or any third party) actually and reasonably incurred by the
Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement of expenses under this Agreement, Section 145 of the Law or otherwise.

 

Proceeding. For the purposes of this Agreement, a “Proceeding” means any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution process, investigation, administrative hearing, appeal, inquiry or other proceeding, whether civil, criminal, administrative, investigative or any other type whatsoever, whether formal or informal, including a proceeding initiated by Indemnitee pursuant to Section 9 of this Agreement to enforce Indemnitee’s rights hereunder.

 

Subsidiary. For purposes of this Agreement, “Subsidiary” means any corporation, partnership, limited liability company, trust, joint venture, or other entity of which more than fifty percent (50%) of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more of its subsidiaries or by one or more of the Company’s subsidiaries.

 

Agreement to Serve.  The Indemnitee agrees to serve and/or continue to serve as an agent of the Company, at the will of the Company (or under separate agreement, if such agreement exists), in the capacity the Indemnitee currently serves as an agent of the Company, faithfully and to the best of his ability, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the charter documents of the Company or any Subsidiary of the Company; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any contractual obligation that the Indemnitee may have assumed apart from this Agreement), and the Company or any Subsidiary shall have no obligation
under this Agreement to continue the Indemnitee in any such position. For the avoidance of doubt, the Company and Indemnitee each acknowledge and agree that the resignation or other termination of Indemnitee as an agent of the Company under this paragraph 2 shall not impair any right that Indemnitee may otherwise have to be indemnified under the terms of this Agreement.

 

  

  

  

 

Directors’ and Officers’ Insurance. The Company shall, to the extent that the Board determines it to be economically reasonable, maintain a policy of directors’ and officers’ liability insurance (“D&O Insurance”), on such terms and conditions as may be approved by the Board.

 

Mandatory Indemnification. Subject to Section 9 below, the Company shall indemnify and hold the Indemnitee harmless to the fullest extent permitted by the Law. Without limiting the generality of the foregoing, the Company shall indemnify and hold harmless the Indemnitee as follows:

 

Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or at any time was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all claims, expenses and liabilities of any type whatsoever (including, but not limited to, attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and/or

 

Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or at any time was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all claims, expenses and liabilities, including without limitation attorneys’ fees, amounts paid in settlement of any such proceeding and all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement, or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company;
except that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged, in a judgment not subject to appeal, to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his duty to the Company, unless and only to the extent that the Court of Chancery in Delaware or the court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the Court of Chancery or such other court shall deem proper; and/or

 

Exception for Amounts Covered by Insurance. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to the Indemnitee by D&O Insurance.

 

  

  

  

 

Partial Indemnification and Contribution.

 

Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) incurred by him in the investigation, defense, settlement, or appeal of a proceeding but is not entitled, however, to indemnification for all of the total amount thereof, then the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled to indemnification.

 

Contribution. If the Indemnitee is not entitled to the indemnification provided in Section 4 for any reason other than the statutory limitations set forth in the Law, then in respect of any threatened, pending or completed proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such proceeding), the Company shall contribute to the amount of Expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative
fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such Expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such Expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or any other method of allocation, which does not take account of the foregoing equitable considerations.

 

Mandatory Advancement of Expenses.

 

Advancement. Subject to Section 9 below, the Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, participation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or at any time was an agent of the Company or by reason of anything done or not done by him in any such capacity. The Indemnitee hereby undertakes promptly to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Certificate of Incorporation, or Bylaws of the Company, the Law or otherwise. The
advances to be made hereunder shall be paid by the Company to the Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Company.

 

  

  

  

 

Exception. Notwithstanding the foregoing provisions of this Section 6, the Company shall not be obligated to advance any expenses to the Indemnitee arising from a lawsuit filed directly by the Company against the Indemnitee if an absolute majority of the members of the Board reasonably determines in good faith, within thirty (30) days of the Indemnitee’s request to be advanced expenses, that the facts known to them at the time such determination is made demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If such a determination is made, the Indemnitee may have such decision reviewed by another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with all references therein to “indemnification” being deemed
to refer to “advancement of expenses,” and the burden of proof shall be on the Company to demonstrate clearly and convincingly that, based on the facts known at the time, the Indemnitee acted in bad faith. The Company may not avail itself of this Section 6.2 as to a given lawsuit if, at any time after the occurrence of the activities or omissions that are the primary focus of the lawsuit, the Company has undergone a change in control. For this purpose, a change in control shall mean a given person or group of affiliated persons or groups increasing their beneficial ownership interest in the Company by at least fifteen (15) percentage points without advance Board approval.

 

Notice and Other Indemnification Procedures.

 

Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof.

 

If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such D&O Insurance policies.

 

In the event the Company shall be obligated to advance the expenses for any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that: (a) the Indemnitee shall have the right to employ his own counsel in any such proceeding at
the Indemnitee’s expense; (b) the Indemnitee shall have the right to employ his own counsel in connection with any such proceeding, at the expense of the Company, if such counsel serves in a review, observer, advice, and counseling capacity and does not otherwise materially control or participate in the defense of such proceeding; or (c) if (i) the employment of counsel by the Indemnitee has been previously authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of the Company.

 

  

  

  

 

Determination of Right to Indemnification.

 

To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or matter described therein, the Company shall indemnify the Indemnitee against expenses actually and reasonably incurred by him in connection with the investigation, defense or appeal of such proceeding, or such claim, issue or matter, as the case may be, including without limitation Indemnitee’s attorneys’ fees.

 

In the event that Section 8.1 is inapplicable, or does not apply to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee unless the Company shall prove by clear and convincing evidence to a forum listed in Section 8.3 below that the Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification.

 

The Indemnitee shall be entitled to select the forum in which the validity of the Company’s claim under Section 8.2 hereof that the Indemnitee is not entitled to indemnification will be heard from among the following:

 

a quorum of the Board consisting of directors who are not parties to the proceeding for which indemnification is being sought;

 

the stockholders of the Company, provided however that the Indemnitee can select a forum consisting of the stockholders of the Company only with the approval of the Company;

 

legal counsel mutually agreed upon by the Indemnitee and the Board, which counsel shall make such determination in a written opinion;

 

a panel of three arbitrators, one of whom is selected by the Company, another of whom is selected by the Indemnitee and  the last of whom is selected by the first two arbitrators so selected; or

 

the Court of Chancery of Delaware or other court having jurisdiction of subject matter and the parties.

 

As soon as practicable, and in no event later than thirty (30) days after the forum has been selected pursuant to Section 8.3 above, the Company shall, at its own expense, submit to the selected forum its claim that the Indemnitee is not entitled to indemnification, and the Company shall act in the utmost good faith to assure the Indemnitee a complete opportunity to defend against such claim.

 

If the forum selected in accordance with Section 8.3 hereof is not a court, then after the final decision of such forum is rendered, the Company or the Indemnitee shall have the right to apply to the Court of Chancery of Delaware, the court in which the proceeding giving rise to the Indemnitee’s claim for indemnification is or was pending or any other court having jurisdiction of subject matter and the parties, for the purpose of appealing the decision of such forum, provided that such right is executed within sixty (60) days after the final decision of such forum is rendered. If the forum selected in accordance with Section 8.3 hereof is a court, then the rights of the Company or the Indemnitee to appeal any decision of such court shall be governed by the
applicable laws and rules governing appeals of the decision of such court.

 

  

  

  

 

Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify the Indemnitee against all Expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all Expenses incurred by the Indemnitee in connection with any other proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims and/or defenses of the Indemnitee in any such proceeding was frivolous or not made in good faith.

 

Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

 

Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to proceedings specifically authorized by the Board or brought to establish or enforce a right to indemnification and/or advancement of Expenses arising under this Agreement, the charter documents of the Company or any Subsidiary or any statute or law or otherwise, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or

 

Unauthorized Settlements. To indemnify the Indemnitee hereunder for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld; or

 

Securities Law Actions. To indemnify the Indemnitee on account of any suit in which judgment is rendered against the Indemnitee for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section l6(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or

 

Unlawful Indemnification. To indemnify the Indemnitee if a final decision by a court having jurisdiction in the matter, in a judgment not subject to appeal, shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication.

 

  

  

  

 

Non-Exclusivity.

 

THE PROVISIONS FOR INDEMNIFICATION AND ADVANCEMENT OF EXPENSES SET FORTH IN THIS AGREEMENT SHALL NOT BE DEEMED EXCLUSIVE OF ANY OTHER RIGHTS WHICH THE INDEMNITEE MAY HAVE UNDER ANY PROVISION OF LAW, THE COMPANY’S CERTIFICATE OF INCORPORATION OR BYLAWS, THE VOTE OF THE COMPANY’S STOCKHOLDERS OR DISINTERESTED DIRECTORS, OTHER AGREEMENTS OR OTHERWISE, BOTH AS TO ACTION IN THE INDEMNITEE’S OFFICIAL CAPACITY AND TO ACTION IN ANOTHER CAPACITY WHILE OCCUPYING HIS POSITION AS AN AGENT OF THE COMPANY, AND THE INDEMNITEE’S RIGHTS HEREUNDER SHALL CONTINUE AFTER THE INDEMNITEE HAS CEASED ACTING AS AN AGENT OF THE COMPANY AND SHALL INURE TO THE BENEFIT OF THE HEIRS, EXECUTORS AND ADMINISTRATORS OF THE INDEMNITEE.

 

Burden of Proof. In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.

 

Duration of Agreement.

 

This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that the Indemnitee shall have ceased to serve as a director and/or officer of the Company or director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which the Indemnitee served at the request of the Company; or (b) one year after the final, nonappealable termination of any Proceeding then pending in respect of which the Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Section 10 of this Agreement relating thereto.

General Provisions.

 

Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of expenses to the Indemnitee to the fullest extent now or hereafter permitted by law, except as expressly limited herein.

 

Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal, or unenforceable for any reason whatsoever, then:

 

the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal, or unenforceable that are not themselves invalid, illegal, or unenforceable) shall not in any way be affected or impaired thereby; and

 

to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 13.1 hereof.

 

  

  

  

 

Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

 

Subrogation. In the event of full payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary or desirable to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

 

Counterparts. This Agreement may be executed in one or more counterparts and via facsimile, each of which shall constitute an original, but all of which when taken together shall constitute a single agreement.

 

Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto.

 

Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given: (a) if delivered by hand and signed for by the party addressee; or (b) if mailed by certified or registered mail, with postage prepaid, on the third business day after the mailing date. Addresses for notices to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice.

 

Gender. The masculine, feminine or neuter pronouns used herein shall be interpreted without regard to gender, and the use of the singular or plural shall be deemed to include the other whenever the context so requires.

 

Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware.

 

If the General Corporation Law of the State of Delaware (the “Delaware Law”) or any other applicable law is amended after the date hereof to permit the Company to indemnify Indemnitee for Expenses or liabilities, or to indemnify Indemnitee with respect to any action or Proceeding, not contemplated by this Agreement, then this Agreement (without any further action be either party hereto) shall automatically be deemed to be amended to require that the Company indemnify Indemnitee to the fullest extent permitted by the Delaware Law.

 

Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding, which arises out of or relates to this Agreement.

 

Attorneys’ Fees. In the event Indemnitee is required to bring any action to enforce rights under this Agreement (including, without limitation, the payment or reimbursement of expenses of any proceeding described in Section 4), the Indemnitee shall be entitled to all reasonable fees and expenses in bringing and pursuing such action, unless a court of competent jurisdiction finds each of the material claims of the Indemnitee in any such action was frivolous and not made in good faith.

  

[Balance of the Page Intentionally Left Blank]

 

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have entered into this Agreement effective as of the date first written above.

 

	
AFTERSOFT GROUP, INC.

	  	
INDEMNITEE

	  	  	  
	  	  	  
	
By:

	  	  	
By:

	
Name:

	  	  
	
Title:

	  	
Name:

	  	  	
Title:

	  	  	  
	
Date: 24 November 2008

	  	
Date: 24 November 2008

	  	  	  
	
Address:

	  	
Address:

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