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    EXHIBIT
10.1

     

    SETTLEMENT
AGREEMENT

     

    This
Settlement Agreement (“Agreement”) is made effective as of the first date on
which all Parties hereto have executed the Agreement (“the Effective Date”), by
and among Kara Technology Incorporated (“KT,” or “Seller”), Salim Kara (“Mr.
Kara”) and Stamps.com Inc. (”Stamps.com” or “Buyer”).  KT and Mr. Kara
(collectively, “Kara”), on the one hand, and Stamps.com, on the other, are each
referred to in this Agreement as a “Party.”

     

    A.           On
October 22, 2004, KT filed a Complaint against Stamps.com in the United States
District Court for the Southern District of New York Case No. 04-CV-8364 (LMM)
alleging causes of action for (1) Infringement of United States Patent No.
6,505,179  (“the ‘179 Patent”), (2) Infringement of United States
Patent No. 6,735,575 (“the ‘575 Patent”), (3) Misappropriation and Misuse of
Trade Secrets, (4) Breach of Contract, (5) Unfair Competition, and (6) Unjust
Enrichment.  On November 29, 2004, Stamps.com filed its Answer and
Counterclaims, alleging counterclaims for (1) Declaratory Judgment of
Noninfringement of the ‘179 Patent and the ‘575 Patent and (2) Declaratory
Judgment of Patent Invalidity and Unenforceability of the ‘179 Patent and the
‘575 Patent.  On January 7, 2005, Stamps.com filed its First Amended
Answer and Counterclaims, alleging counterclaims for (1) Declaratory Judgment of
Noninfringement of the ‘179 Patent and the ‘575 Patent, (2) Declaratory Judgment
of Patent Invalidity of the ‘179 Patent and the ‘575 Patent, and (3) Declaratory
Judgment of Unenforceability of the ‘179 Patent and the ‘575
Patent.  On February 8, 2005, the case was transferred to the United
States District Court for the Central District of California, Case No. CV
05-1890 CBM (SSx).  This dispute, including but not limited to those
facts set forth in KT’s complaint and Stamps.com’s counterclaims, shall
hereinafter collectively be referred to as “the Litigation.”

     

    B.           By
entering into this Agreement, the Parties seek and intend to fully, completely,
and finally resolve, terminate, and settle all disputes, claims and actions
which they assert or could assert against each other, arising from the facts
alleged in the Litigation, including those claims which were actually asserted
or which could have been asserted from the beginning of time to the date of
execution of this Agreement.

     

    WHEREFORE, for good and
valuable consideration of the declarations, promises, covenants and
representations set forth below, the receipt and adequacy of which are hereby
acknowledged, the Parties hereby agree as follows:

     

    1.           Payment

     

    1.1 Stamps.com
shall, within seven (7) days of the execution of this Agreement: (i) pay
$5,100,000 (being allocated $4,225,000 to KT and $875,000 to Mr. Kara) in
consideration of the settlement, releases, and covenants received by Stamps.com
herein, (ii) pay $400,000 to KT in consideration of the assignment of the IP
Assets recited in section 3, and (iii) grant to Mr. Kara options on 35,000
shares of Stamps.com stock in consideration of his ongoing assistance with
prosecution and enforcement of certain intellectual property rights as recited
in section 6.1, with a strike price set as the closing price on the date of
grant, which options shall vest in equal monthly amounts over 48 months, with
the first vesting occurring one (1) month after the grant date.  The
grant date of these options shall be the Effective Date, and the options shall
expire ten years from the grant date.  The options shall be
administered by Stamps.com’s then current third party stock option
administrator(s) during the life of the options.  Mr. Kara shall set
up an account and accept the option grant agreement, as required by other
Stamps.com option recipients, with Stamps.com’s then current third party stock
option administrator before being able to exercise any vested
options.  Should Mr. Kara come into possession of any material,
non-public information, he will abide by Stamps.com’s Insider Trading
Policy.  Stamps.com shall provide instructions to Mr. Kara regarding
the administrative requirements and processes regarding the option grant,
consistent with the administrative requirements and processes Stamps.com
requires of its other option grant recipients, and such shall have such other
terms as set forth in the Stock Option Agreement attached hereto as Exhibit
2.

     

    
      
        
        

      

      
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    1.2 The
payments provided in Section 1.1 above, and totaling $5,500,000.00, shall be
made in United States Dollars by electronic wire transfer on or before the dates
due and owing to the account of Baker Botts L.L.P., ABA No. XXXXXXXXX, Swift
Code XXXXXXXX, J.P. Morgan Chase Bank, 712 Main, Houston, TX 77002, Account No.
XXXXXXXXXXX.  Kara hereby acknowledges and agrees that payment to the
third party account set forth above shall fulfill the payment obligations under
this Agreement regardless of any further allocation or distribution of funds
from that account.

     

    2.           Dismissal of the
Litigation

     

    Within
seven (7) days of the date on which Stamps.com makes the payments recited in
Section 1, KT and Stamps.com shall sign and Stamps.com shall file a Stipulated
Request for Dismissal with prejudice of all claims and counterclaims asserted in
the Litigation, with each Party to bear its respective costs, expenses and
attorneys’ fees for the Litigation.

     

    3.           Assignment of KT
Intellectual Property

     

    KT shall,
within seven (7) days of the date on which Stamps.com makes the payments recited
in Section 1, deliver to Stamps.com an Assignment with respect to the IP Assets
(defined below) in the form attached as Exhibit 1 in order to sell, convey,
assign, grant, transfer, set over and deliver to Stamps.com, free and clear of
any and all known liens, mortgages, pledges, security interests, restrictions on
title, prior assignments and claims of ownership or property interest of every
kind, nature or character (“Liens”), and Stamps.com shall
purchase, acquire and receive, through said Assignment, from KT, KT’s entire
right, title and interest, in and to the ‘179 Patent and the ‘575 Patent, as
well as all reissues, reexaminations, continuations, continuations-in-part,
divisionals, and foreign counterparts of those patents (collectively “the IP
Assets”).  KT shall take reasonable steps to avoid impairment of the
value of the assigned intellectual property rights prior to the date of the
assignment, and shall, within seven (7) days of the Effective Date, deliver the
complete files in its and its current patent counsel’s possession relating to
the IP Assets (including all materials in electronic and paper format, in the
possession of Kara and its counsel) to Stephen Sullivan, Esq., Convergent Law
Group LLP, 475 N. Whisman Rd., St. 400, Mountain View, California
94043.  KT shall also take reasonable steps to effect the transfer of
any files relating to the IP Assets that are in the possession of prior patent
counsel (including but not limited to Fulbright & Jaworski L.L.P.) to
Stamps.com, including but not limited to providing written authorization for
release of such files to Stamps.com.

     

    4.           Mutual Covenants Not to
Sue

     

    4.1.           Covenant
by KT and Kara

     

    Except as
to such rights as may be created by this Agreement, concurrent with the
Effective Date, Kara and their Affiliates hereby covenant not to sue Stamps.com
or any of its Affiliates, officers, directors, agents, employees, attorneys,
customers and partners, if any, for a period of five (5) years for infringement
of any rights in intellectual property (including but not limited to patents,
trademarks, copyrights, and trade secrets), breach of any contracts (other than
this Agreement or any future agreement between any of Kara and/or their
Affiliates with Stamps.com), or any business-related torts under the law of any
state of the United States.  This covenant shall extend only to
activities of Stamps.com and activities of third parties resulting from,
involving or otherwise related to a relationship with Stamps.com (such as, by
way of example and not of limitation, a relationship of Affiliate, officer,
director, agent, employee, attorney, customer or partner of Stamps.com),
including but not limited to the use of any products or services offered or
provided by Stamps.com.  An “Affiliate” of a Party for the purpose of
this Agreement shall mean any person or entity now existing that directly or
indirectly controls, is controlled by or is under common control with a Party;
for this purpose, “control” means direct or indirect ownership of, or the right
to exercise, at least 40% of the voting power, or at least 40% of the ownership
interest representing the right to make binding decisions for the
entity.

     

    
      
        
        

      

      
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    4.2.           Covenants
by Stamps.com

     

    Except as
to such rights as may be created by this Agreement, concurrent with the
Effective Date, Stamps.com and its Affiliates hereby covenant not to sue
Kara  for a period of five (5) years for (i) infringement of any
rights in intellectual property (including but not limited to patents,
trademarks, copyrights and trade secrets), breach of any contracts (other than
this Agreement or any future agreement between any of Stamps.com and/or its
Affiliates with Kara), or any business-related torts under the law of any state
of the United States, based on any acts by Kara that occurred on or before the
date of this Agreement, or (ii) any business-related torts under the law of any
state of the United States based on any acts that occur for a period of five (5)
years following the date of this Agreement.  For the avoidance of
doubt, it is understood and agreed that this covenant shall not extend to (i)
such rights as may be created by this Agreement, or (ii) any claims for
infringement of any intellectual property rights (including but not limited to
patents, trademarks, copyrights, and trade secrets) based on any acts that occur
following the date of this Agreement.

     

    5.           Mutual General
Releases

     

    5.1.           General
Release

     

    Except as
to such rights as may be created by this Agreement, concurrent with the
Effective Date, Kara and their Affiliates hereby release and forever discharge
Stamps.com, and all of its Affiliates, officers, directors, agents, employees,
attorneys, customers and partners, from any and all claims, losses, debts,
liabilities, demands, obligations, disputes, fees, controversies, costs,
expenses, damages, attorneys’ fees and costs, actions and causes of action,
whether known or unknown, that any of the releasing parties had or has prior to
or as of the date of this Agreement.  This release shall extend only
to the activities of Stamps.com and activities of third parties resulting from,
involving or otherwise related to a relationship with Stamps.com (such as, by
way of example and not of limitation, a relationship of Affiliate, officer,
director, agent, employee, attorney, customer or partner of Stamps.com),
including but not limited to the use of any products or services offered or
provided by Stamps.com.

     

    
      
        
        

      

      
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    5.2.           General
Release

     

    Except as
to such rights as may be created by this Agreement, concurrent with the
Effective Date, Stamps.com and its Affiliates hereby release and forever
discharge Kara, and all of their Affiliates, officers, directors, agents,
employees, and attorneys, from any and all claims, losses, debts, liabilities,
demands, obligations, disputes, fees, controversies, costs, expenses, damages,
attorneys’ fees and costs, actions and causes of action, whether known or
unknown, that any of the releasing parties had or has prior to or as of the date
of this Agreement.

     

    5.3.           Waiver of Unknown
Claims

     

    The
Parties understand the meaning and effect of California Civil Code § 1542
which provides:

     

    A general
release does not extend to claims which the creditor does not know or suspect to
exist in his or her favor at the time of executing the release, which if known
by him or her must have materially affected his or her settlement with the
debtor.

     

    The
Parties assume the risk of any and all unknown, unanticipated or misunderstood
defenses, claims, causes of action, contracts, liabilities, indebtedness and
obligations which are released by this Agreement and hereby waive and release
all rights and benefits which they might otherwise have under California Civil
Code § 1542.

     

    6.           Representations and
Warranties

     

    6.1.           Assistance with Prosecution
and Enforcement

     

    Mr. Kara
agrees, represents and warrants that he will provide Stamps.com with reasonable
cooperation and assistance, upon Stamps.com’s request and at Stamps.com’s
expense for out-of-pocket disbursements made in compliance with Stamps.com’s
then current Business Travel and Expense Reimbursement Policy applicable to
Stamps.com employees, which shall be made available to Mr. Kara
upon  request, in connection with the prosecution and enforcement of
any patents owned by Stamps.com on which he is named an inventor, including but
not limited to the case entitled Stamps.com v.
Endicia, filed in the United States District Court for the Central
District of California, Case No. CV 06-7499 ODW (CTx), and on appeal to the
Federal Circuit, Case No. 2010-1328.  For avoidance of doubt, such
reasonable cooperation and assistance shall be provided upon reasonable prior
notice, and Mr. Kara’s obligation to provide such cooperation and assistance
shall cease upon the expiration of the last patent to expire that is owned by
Stamps.com and on which Mr. Kara is named as an inventor.  In the
event such assistance and cooperation requires Mr. Kara to dedicate more than
ten (10) business days in any given calendar year, then Mr. Kara shall be
additionally compensated at a rate of $187.50 an hour for such assistance and
cooperation under the terms of a mutually agreeable consulting
agreement.

     

    6.2.           Organization
and Qualification

     

    Each of
Buyer and KT represents and warrants as to itself that such Party (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, and has full corporate power and authority to
conduct its business as now conducted and to own, use, license and lease its
assets and properties including (in the case of KT) the IP Assets; (ii) is duly
qualified, licensed or admitted to do business and is in good standing as a
foreign corporation in each jurisdiction in which the ownership, use, licensing
or leasing of its assets and properties including (in the case of KT) the IP
Assets, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for such failures to be so duly
qualified, licensed or admitted and in good standing that could not reasonably
be expected to have a material adverse effect on that Party, taken as a whole,
or (in the case of KT) the IP Assets.

     

    
      
        
        

      

      
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    6.3.           Authority
of Seller Relative to this Agreement

     

    Each
Party represents and warrants that (i) it has full corporate or individual power
(as applicable) and authority to execute and deliver this Agreement and the
other agreements which are attached (or forms of which are attached) as exhibits
hereto (the “Ancillary Agreements”) to which that Party is a signatory, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby; (ii) the execution and delivery by
that Party of this Agreement and the Ancillary Agreements to which that Party is
a signatory and the consummation by that Party of the transactions contemplated
hereby and thereby, and the performance by that Party of its obligations
hereunder and thereunder, have been duly and validly authorized by all necessary
action by the board of directors of that Party or otherwise; (iii) this
Agreement and the Ancillary Agreements to which that Party is a party have been
or will be, as applicable, duly and validly executed and delivered by that Party
and, assuming the due authorization, execution and delivery hereof (and, in the
case of the Ancillary Agreements to which the other Party is a party, thereof)
by the other Party, each constitutes or will constitute, as applicable, a legal,
valid and binding obligation of that Party enforceable against that Party in
accordance with its respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity.

     

    6.4.           Authority
of Kara and KT Relative to this Agreement

     

    Each
Party represents and warrants that no provision of this Agreement violates any
duties owed by that Party to any other Party or to any of their creditors or
shareholders, and that each signatory on behalf of that Party has the full legal
authority (including approval of any Board of Directors and if needed of its
shareholders) to enter into, execute and sign this Agreement in the name of and
on behalf of that Party, which shall thereupon be effective without the consent,
approval or joinder of any other party and that this execution will thereby bind
and obligate both that Party to the terms of this Agreement and be enforceable
against that Party, collectively or separately. In addition, KT and Mr. Kara
each represent and warrant to Stamps.com that (i) KT ceased normal and material
business operations in October 2000; (ii) there are no debts outstanding to any
creditors of KT or any other debt or other monetary obligations owed by KT to
any third party as of the Effective Date other than current liabilities which
will be satisfied in full from the settlement proceeds, (iii) KT properly
provided notice of all material terms of the Agreement (including but not
limited to the fact and amounts of the consideration paid to Mr. Kara and KT
specified in section 1.1 of this Agreement) to all its shareholders and
conducted an official KT meeting of shareholders to approve the Agreement; (iv)
the Agreement was properly approved by the shareholders of KT at such meeting;
(v) 82.45% of all shares of KT entitled to vote at the meeting of shareholders
voted in favor of approving the Agreement while only 67% of such vote was
required for approval; and (vi) 63.98% of the Series A preferred shares entitled
to vote at the meeting of shareholders voted in favor of approving the Agreement
while only 50% of such vote was required for approval.

     

    
      
        
        

      

      
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    6.5.           Non-Assignment

     

    Each
Party represents and warrants that (i) it is the sole owner of all rights and
interest in and to all claims, demands, actions, cause or causes of action,
damages and losses and other matters which are the subject of or are related to
the Litigation or which are contemplated to be assigned or released by this
Agreement and (ii) it has not, prior to the Effective Date, assigned or
transferred or purported to assign or transfer any claims, demands, actions,
cause or causes of action, damages or losses which are the subject of or related
to the Litigation or which are contemplated to be released by this
Agreement.

     

    6.6           No
Conflicts

     

    Each
Party represents and warrants that the execution and delivery by that Party of
this Agreement and any other agreements, instruments and documents to be
executed and delivered by that Party pursuant hereto do not, and the performance
and consummation by that Party of the transactions contemplated hereby and
thereby will not, conflict with or result in any breach or violation of or
default, termination, forfeiture or Lien under (or upon the failure to give
notice or the lapse of time, or both, result in any conflict with, breach or
violation of or default, termination, forfeiture or Lien under) any terms or
provisions of that Party's charter documents, each as amended, or any statute,
rule, regulation, judicial or governmental decree, order or judgment, to which
that Party is a signatory or to which that Party or (in the case of Kara) the IP
Assets are subject.

     

    6.7           No
Consent Required

     

    No
consent, authorization, approval, order, license, certificate or permit or act
of or from, or declaration or filing with, any foreign, federal, state, local or
other governmental authority or regulatory body or any court or other tribunal
to which that Party or (in the case of Kara) the IP Assets are subject is
required for the execution, delivery or performance by that Party of this
Agreement or any of the other agreements, instruments and documents being or to
be executed and delivered hereunder or in connection herewith or for the
consummation of the transactions contemplated hereby or thereby, other than
governmental filings with US and foreign authorities which are necessary to
effect the recordation of transfer as provided for herein of the IP
Assets.

     

    6.8           Solvency  

     

    KT
represents and warrants that (i) the transactions contemplated by this Agreement
will not render Seller insolvent; (ii) by entering into the transactions
contemplated by this Agreement Seller does not intend to incur, and does not
believe that it will incur, debts that will be beyond Seller's ability to pay as
such debts mature; and (iii) Seller is not entering into the transactions
contemplated by this Agreement or incurring any obligation pursuant to this
Agreement with the intent to hinder, delay, or defraud any creditor to which
Seller is indebted on or after the date hereof.

     

    7.           Indemnity

     

    KT and
Mr. Kara hereby jointly and severally indemnify Stamps.com, and defend and hold
it harmless, from and against any and all claims, damages, liability, judgments,
settlements, loss, cost, and expense whatsoever (including, without limitation,
attorneys’ fees) incurred as a direct or indirect result of any breach by either
of KT or Mr. Kara, or any third party allegation of facts evidencing a breach by
either of KT or Mr. Kara, of any representation, warranty or provision of this
Agreement; provided, however, that Mr. Kara’s personal obligations under this
section for breaches or alleged breaches of KT (i) shall be limited to breaches
or alleged breaches involving duties or obligations owed to shareholders or
creditors of KT, (ii) shall be limited to only those breaches or alleged
breaches that occur within eighteen (18) months of the Effective Date or are,
within eighteen (18) months of the Effective Date, alleged to have occurred and
(iii) shall not exceed $250,000.  In the event that KT and/or Mr. Kara
assumes the defense of an action on behalf of Stamps.com, then they shall have
the right to retain counsel of their choice to represent Stamps.com in such
action and to control the defense of such action, provided further that neither
they nor such counsel as they shall engage to represent Stamps.com shall have
the authority to enter into a settlement or other resolution of such matter on
behalf of Stamps.com without Stamps.com’s express prior written
consent.

     

    
      
        
        

      

      
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    Stamps.com
hereby indemnifies Kara, and defends and holds them harmless, from and against
any and all claims, damages, liability, judgments, settlements, loss, cost, and
expense whatsoever (including, without limitation, attorneys’ fees) incurred as
a direct or indirect result of any breach by Stamps.com, or any third party
allegation of facts evidencing a breach, of any representation, warranty or
provision of this Agreement; provided, however, that Stamps.com’s obligations
under this section shall be limited to only those breaches or alleged breaches
that occur within six years of the Effective Date or are, within six years of
the Effective Date, alleged to have occurred.  In the event that
Stamps.com assumes the defense of an action on behalf of Kara, then it shall
have the right to retain counsel of its choice to represent Kara in such action
and to control the defense of such action, provided further that neither
Stamps.com nor such counsel as it shall engage to represent Kara shall have the
authority to enter into a settlement or other resolution of such matter on
behalf of Kara without Kara’s express prior written consent.

     

    8.           Miscellaneous

     

    8.1.           Neutral
Interpretation

     

    The
provisions contained herein shall not be construed in favor of or against any
party because that party or its counsel drafted this Agreement, but shall be
construed as if all Parties prepared this Agreement, and any rules of
construction to the contrary, including, without limitation, California Civil
Code § 1654, are hereby specifically waived.  The terms of this
Agreement were negotiated at arm’s length by the Parties hereto.

     

    8.2.           Severability

     

    If any
term or provision of this Agreement is determined to be illegal, unenforceable,
or invalid in whole or in part for any reason, such illegal, unenforceable, or
invalid provision or part thereof shall be stricken from this Agreement, and
such provision shall not affect the legality, enforceability or validity of the
remainder of this Agreement.

     

    8.3.           Counterparts

     

    This
Agreement may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original.  The counterparts shall
constitute one and the same Agreement.  Facsimile signatures shall
have the same force and effect as original signatures.

     

    
      
        
        

      

      
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    8.4.           Modification

     

    This
Agreement may be modified or rescinded only by a writing signed by the
Parties.  The failure of a  Party to
exercise any right or remedy provided by this Agreement or by law shall not be a
waiver of any obligation or right of the Parties, nor shall it constitute a
modification of this Agreement.

     

    8.5.           Venue and
Jurisdiction

     

    For
purposes of any litigation arising out of or related to this Agreement, the
Parties agree to exclusive jurisdiction of and venue in the federal or state
courts located in Los Angeles, California, and that California law applies to
all disputes arising out of or related to this Agreement or this matter without
regard to California law regarding conflicts of laws.  The prevailing
party in any such action shall be entitled to recover its litigation expenses,
including its reasonable attorneys’ fees.

     

    8.6.           Integration
Clause

     

    This
Agreement contains the entire agreement between the Parties relating to the
settlement and transactions contemplated hereby, and all prior or
contemporaneous agreements, understandings, representations, and statements,
whether oral or written, and whether by a party of such party’s legal counsel
are merged herein.  No modification, waiver, amendment, discharge, or
change of this Agreement shall be valid unless the same is in
writing.

     

    IN WITNESS WHEREOF the
undersigned Parties have executed this Agreement as of the dates indicated
below.

     

    
      
        	 	
                Kara
      Technology Incorporated

              	 
	 	 	 	 
	
                Dated: _______________

              	
                By:
      

              	 	 
	 	Its:	
              	 
	 	 	 	 
	 	

                Stamps.com
      Inc.

              	 
	 	 	 	 
	

                Dated: _______________

              	By:	 	 
	 	Its:	 	 
	 	 	 	 
	 	 	 	 
	

                Dated: _______________

              	By:	 	 
	 	 	

                Salim
      Kara

              	 

      

    

     

    
      
        
        

      

      
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      Exhibit
1

     

    PATENT
ASSIGNMENT

     

    This PATENT ASSIGNMENT (this
"Assignment") is entered into is entered into by Kara Technology Incorporated, a
Texas corporation, having a place of business located at 17 Bayview Forest Lane,
Thornhill, Ontario, Canada L3T 7S4 ("Assignor"), as assignor, in favor of
Stamps.com Inc., a Delaware corporation having a place of business located at
12959 Coral Tree Place, Los Angeles, California 90066 ("Assignee"), as assignee,
with reference to the following facts and circumstances:

     

    Assignor and Assignee have entered into
that certain Settlement Agreement dated _________________ , which, along with
the promises contained herein, constitute mutual consideration for the promises
herein;

     

    Assignor is the sole and exclusive
owner of the Letters Patents and applications shown on the attached Exhibit A,
as well as all reissues, reexaminations, continuations, continuations-in-part,
divisionals, and foreign counterparts of those patents, in the United States
(hereinafter the "Patents").

     

    Assignee desires to acquire, and
Assignor desires to assign, Assignor's right, title and interest in, to and
under the Patents.

     

    NOW, THEREFORE, to all whom it may
concern, be it known that for good and valuable consideration the receipt and
adequacy of which is hereby acknowledged, Assignor does hereby sell, assign, and
transfer  to Assignee, its successors, assigns, and legal
representatives, the entire right, title and interest for the United States and
all foreign countries, in and to the Patents, to the end of the term or terms
for which the Patents are granted or may be reissued as fully and entirely as
the same would have been held and enjoyed by Assignor if this assignment and
sale had not been made; together with all claims for damages by reason of past
infringement of the Patents, with the right to sue for, and collect the same for
Assignee's own use and benefit and for the use and benefit of Assignee's
successors, assigns or other legal representatives.  Assignor agrees
to execute all rightful oaths, assignments, powers of attorney and other papers;
and to communicate to said Assignee, its successors, assigns, and
representatives, pursuant to reasonable requests and under reasonable
circumstances, all facts known to the undersigned relating to said
Patents.

     

    Assignor further warrants that it has
not executed, and will not execute, any agreements in conflict with or
inconsistent with this assignment.

     

    In testimony whereof, Assignor has
caused this Assignment to be executed by its officer(s) thereunto duly
authorized.

     

    
      
        	 	

                ASSIGNOR

                  KARA
      TECHNOLOGY INCORPORATED

                

              	 
	 	 	 	 
	
                Dated:  ________________

              	
                By:
      

              	 	 
	 	 	Salim Kara	 
	 	 	CEO	 

      

    

     

    
      
        
        

      

      
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    PROVINCE
OF ONTARIO

    

    CANADA

     

    On
_______________________, before me, GARY WISEMAN, Notary Public, personally
appeared SALIM KARA, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.

     

    WITNESS
my hand and official seal.

     

    ______________________________

    Notary
Public

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A TO PATENT ASSIGNMENT

    

    UNITED STATES ISSUED
PATENTS

    

    
      	

              Title

            	 	

              Patent
      No.

            	 
	
              Verifying
      the Authenticity of Printed Documents on Universally Available Paper
      Stock

            	 	 	6,505,179	 
	
              Verifying
      the Authenticity of Printed Documents

            	 	 	6,735,575	 

    

     

    UNITED STATES PENDING PATENT
APPLICATIONS

    

    
      	

              Serial
      No.

            	 	

              Filing
      Date

            	

              Title

            
	
              PCT/US1999/027408

            	 	
              11/17/1999

            	
              Internet
      Purchase System

            
	
              PCT/US2000/14347

            	 	
              05/24/2000

            	
              Verifying
      the Authenticity of Printed Documents on Universally Available Paper
      Stock

            
	
              PCT/US2000/035631

            	 	
              12/28/2000

            	
              System
      and Method for Hand Held Code Verification

            
	11/431,162	 	
              05/09/2006

            	
              Verifying
      the Authenticity of Printed Documents

            
	90/009,682	 	
              02/08/2010

            	
              Verifying
      the Authenticity of Printed Documents on Universally Available Paper
      Stock

            
	90/009,704	 	
              04/29/2010

            	
              Verifying
      the Authenticity of Printed
Documents

            

    

     

    
      
        
        

      

      
        11Unassociated Document

     

    THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES OR “BLUE
SKY LAWS,” AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

     

    10%
SENIOR SECURED CONVERTIBLE BRIDGE NOTE

    DUE
___________, 2011

    

    PUBCO(1)

     

    Date:
______________,
2010                                                                                                                                  US$_________

     

    FOR VALUE RECEIVED, in cash
and other consideration, Pubco., a Nevada
corporation (“Borrower”), hereby
promises to pay to ____________, or its registered assigns (“Holder”), the sum of
_________________ Dollars (US$_________) (the “Principal”).

     

    (1)           Payments
of Principal.  On the Maturity Date, unless an Event of Default
shall have occurred, Borrower shall pay to Holder the entire principal
amount (the “Principal
Amount”) under this Secured Promissory Note (this “Note”) plus all
accrued and unpaid interest (i) in cash, or (ii) at the option of the Holder, in
whole or in part, in securities to be issued by Borrower in the Financing at the
same price paid by other investors (the “Conversion
Option”).  The “Maturity Date” shall be the
earlier of (A) the date Borrower completes a financing transaction (the “Financing”) for the
offer and sale of shares of Borrower’s common stock (the “Common Stock”),
including securities convertible into or exercisable for Common Stock, in an
aggregate amount of no less than 125% of the principal amounts evidenced by this
Note and a series of identical notes issued on the date hereof (collectively,
the “Notes”),
and (B) __________, 2011 [twelve months from the date
hereof].  Borrower may prepay all
or any portion of the amounts owing under this Note at any time without fee,
charge or premium.

    

    (2)           Interest.  This
Note shall bear interest at the rate of 10% per annum payable in full on the
Maturity Date.

    

       

        
          

        

      

    

    (1)           Name
of debtor will be disclosed immediately prior to completion of the transaction
contemplated hereunder.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    (3)           Issuance
of Additional
Securities.

    

    (a)           In
addition to the repayment of the principal amount and all accrued interest
hereunder, whether or not such amounts shall have been prepaid as permitted
hereunder, on the Maturity Date, Borrower shall issue to Holder, at Holder’s
option, (i) three year warrants (the “Warrants”) to
purchase that number of shares of Common Stock equal to the Principal Amount
plus all accrued and unpaid interest divided by the per share purchase price of
the Common stock offered and sold in the Financing (the “Offering Price”)
which Warrants shall be exercisable at the Offering Price and shall include
cashless exercise provisions commencing 18 months from the date of issuance of
the Warrants if there is not at that time an effective registration statement
covering the shares of Common Stock exercisable upon exercise of the Warrants,
or (ii) that number of shares of Common Stock equal to the product arrived at by
multiplying (x) the Principal Amount plus all accrued and unpaid interest
divided by the Offering Price and (y) 0.33 (the “Share
Option”).

    

    (b)           Borrower
shall not issue to Holder shares of Common Stock whether upon exercise of the
Share Option or the Warrants, and the Holder shall not have the right to
exercise the Share Option or the Warrants, to the extent that after giving
effect to such exercise, Holder (together with Holder’s affiliates) would
beneficially own in excess of 4.99% of the shares of Common Stock outstanding
immediately after giving effect to such exercise.  For purposes of
this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended.  For
purposes of exercise of the Share Option or the Warrants, in determining the
number of outstanding shares of Common Stock, Holder may rely on the number of
outstanding shares of Common Stock as reflected in Borrower’s most recent
reports filed with the Securities and Exchange Commission.  The
limitation of this Section (3)(b) may not be waived by Holder except on no less
than 61-day prior written notice.

    

    (4)           Security
Interest.  Borrower’s performance of the obligations and
covenants of this Note, including but not limited to repayment, shall be secured
by a first priority lien and security interest in all of Borrower’s assets as
set forth in that certain pledge and security agreement of even date herewith
among Borrower and the holders of the Notes.

    

    (5)           Event of
Default.

     

    (a)           Event of
Default.  Each of the following events shall constitute an
“Event of
Default” hereunder: 

     

    (i) Borrower's
failure to pay to the Holder any amount when and as due under this Note for a
period of ten (10) Business Days after notice of such failure;
or

     

    (ii) Borrower
shall either (i) fail to pay, when due, or within any applicable grace
period, any payment in respect of any Indebtedness in excess of $100,000,
individually or in the aggregate, due to any third party, other than, with
respect to unsecured indebtedness only, payments contested by the Borrower in
good faith by proper proceedings and with respect to which adequate reserves
have been set aside for the payment thereof, or otherwise be in breach or
violation of any agreement for monies owed or owing in respect of any
indebtedness in an amount in excess of $250,000, individually or in the
aggregate, which breach or violation permits the other party thereto to declare
a default or otherwise accelerate amounts due thereunder, or (ii) suffer to
exist any other circumstance or event that would, with or without the passage of
time or the giving of notice, result in a default or event of default under any
agreement binding Borrower, which default or event of default would or is likely
to have a material adverse effect on the business, operations, properties,
prospects of financial condition of Borrower or any of its Subsidiaries,
individually or in the aggregate;

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (iii) Borrower
or any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S.
Code, or any similar Federal, foreign or state law for the relief of debtors
generally (collectively, “Bankruptcy Law”),
(A) commences a voluntary case, (B) consents to the entry of an order
for relief against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or similar official for
substantially all of its assets (a “Custodian”),
(D) makes a general assignment for the benefit of its creditors or
(E) admits in writing that it is generally unable to pay its debts as they
become due;

     

    (iv) a court
of competent jurisdiction enters an order or decree under any Bankruptcy Law
that (A) is for relief against Borrower or any of its Subsidiaries in an
involuntary case, (B) appoints a Custodian of Borrower or any of its
Subsidiaries for substantially all of its assets, or (C) orders the
liquidation of Borrower or any of its Subsidiaries;

     

    (v) a final
judgment or judgments for the payment of money aggregating in excess of $250,000
are rendered against Borrower or any of its Subsidiaries and which judgments are
not, within sixty (60) days after the entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within sixty (60) days after
the expiration of such stay; provided, however, that any judgment which is
covered by insurance or an indemnity from a credit worthy party shall not be
included in calculating the $250,000 amount set forth above; and

     

    (vi) Borrower
breaches any covenant or other term or condition or any material representation
or warranty of any of the Transaction Documents, except, in the case of a breach
of a covenant or other term or condition which is curable, and provided that
Borrower delivers prompt notice of such breach to the Holder, only if such
breach continues for a period of at least ten (10) consecutive Business
Days.

    

    (b)           Acceleration.  Upon
the occurrence of an Event of Default under this Note, Holder shall have, at its
option, the right, without further notice or demand, which Borrower hereby
expressly waives, to declare the unpaid principal and interest immediately due
and payable and to exercise any other rights and remedies that Holder may
have.  Holder’s failure to accelerate the payment of this Note upon
the occurrence of one or more events of default shall not constitute a waiver of
Holder’s right to exercise such options at any subsequent time with respect to
the same or any other event of default.  Holder’s acceptance of any
payment under this Note which is less than payment in full of all amounts then
due and payable shall not constitute a waiver by Holder of any right to declare
a default hereunder or to pursue any remedy available under this Note, at law or
in equity, or under any other agreement, instrument or document entered into by
and between Borrower and Holder. 

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    (6)           Registration
Rights.

    

    (a)           Definitions.  As
used in this Section 6, the following terms shall have the following
meanings.

     

    (i) The
term “Holder”
shall mean Holder or any of Holder’s permitted transferees.

    

    (ii) The
terms “register,” “registered” and “registration” refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or order of
effectiveness of such registration statement or document. 

    

    (iii) The
term “Registrable
Securities” shall mean: (i) Common Stock issued to Holder upon exercise
of the Conversion Option, (ii) shares of Common Stock issuable upon exercise of
the Warrants, and (iii) shares issuable upon exercise of the Share Option, provided, however, that
securities shall only be treated as Registrable Securities if and only for so
long as they (A) have not been disposed of pursuant to a registration statement
declared effective by the SEC; (B) have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities Act
so that all transfer restrictions and restrictive legends with respect thereto
are removed upon the consummation of such sale; (C) are held by Holder or a
permitted transferee of Holder pursuant to this Section 6; and (D) may not be
disposed of under Rule 144 without restriction.

    

    (b)           Shelf
Registration.  If at any time Borrower shall propose the filing
of a Registration Statement on an appropriate form under the Securities Act of
any of Borrower’s securities, but excluding
Registration Statements relating to any employee benefit plan or a corporate
reorganization, then Borrower shall give Holder notice of such proposed
registration and shall include in any Registration Statement relating to such
securities all or a portion of Holder’s Registrable Securities as Holder shall
request, by notice given by Holder to Borrower within twenty (20) days after the
giving of such notice by Borrower, to be so included.  In the event of
the inclusion of Registrable Securities pursuant to this Section 6, Borrower
shall bear all of the costs and expenses of such registration excluding (i)
legal expenses of the Holder and (ii) underwriting discounts and commissions
relating to Registrable Securities.  In the event the distribution of
securities of Borrower covered by a Registration Statement referred to in this
Section 5 is to be underwritten, then Borrower’s obligation to include
Registrable Securities in such Registration Statement shall be subject, at the
option of the Borrower, to the following further conditions:

    

    (i) The
distribution for the account of the Holder shall be underwritten by the same
underwriters who are underwriting the distribution of the securities for the
account of Borrower and/or any other persons whose securities are covered by
such Registration Statement, and the holder will enter into an agreement with
such underwriters containing customary provisions;

     

    (ii) If the
underwriting agreement entered into with the aforesaid underwriters contains
restrictions upon the sale of Borrower’s securities, other than the securities
which are to be included in the proposed distribution, for a period not
exceeding one hundred eighty (180) days from the effective date of the
Registration Statement, then such restrictions will be binding upon the Holder
and, if requested by Borrower, the Holder will enter into a written agreement to
that effect; and

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (iii) If the
underwriters state in writing that they are unwilling to include any or all of
the Holder’s securities in the proposed offering because such inclusion will
materially interfere with the orderly sale and distribution of the securities
being offered by Borrower, then the number of the Holder’s Registrable
Securities to be included will be reduced in accordance with such statement by
the underwriters. 

     

    (c)           Furnish
Information.  It shall be a condition precedent to the
obligation of Borrower to take any action pursuant to this Section 6 with
respect to the Registrable Securities of the Holder that Holder shall furnish to
Borrower such information regarding the Holder, the Registrable Securities held
by the Holder, and the intended method of disposition of such securities as
shall be reasonably required by Borrower to effect the registration of Holder’s
Registrable Securities.

    

    (7)           Notices;
Payments.

    

    (a)           Notices.  Any and
all notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (Pacific time) on a Business Day, (b)
the next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto on a day that is not a Business Day or later
than 5:30 p.m. (Eastern time) on any Business Day, (c) the
2nd  Business Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given.  The address
for such notices and communications shall be as set forth below:

     

    If to
Borrower:

    

    8929 Aero
Drive, Suite E

    San
Diego, CA 92123

    Attn.:
Dennis Becker

    Fax:
(619) 725-0958

     

    With a
copy to:

    

    Louis A.
Brilleman, Esq.

    1140
Avenue of the Americas, 9th
Floor

    New York,
NY 10036

    Facsimile:
(646) 380-6899

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    If to
Holder:

    

    With a
copy to:

     

    (b)            Payments.  Whenever
any payment of cash is to be made by Borrower to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of Borrower and sent via overnight courier
service to such Person at the address provided for notice pursuant to Section
13(a) above, or as subsequently provided to the other party in writing; provided
that the Holder may elect to receive a payment of cash via wire transfer of
immediately available funds by providing Borrower with prior written notice
setting out such request and the Holder's wire transfer
instructions.  Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day.

    

    (8)           Cancellation.  After
all principal, interest and other
amounts at any time owed on this Note have been indefeasibly paid in full, this
Note shall automatically be deemed canceled, shall be surrendered to Borrower
for cancellation and shall not be reissued, and the security interest granted in
the Collateral shall terminate.  The Holder agrees to promptly
execute, file and/or deliver any and all documents reasonably required or
requested to further evidence such termination.

     

    (9)           Waivers
by
Borrower.  Borrower (a) waives diligence, grace, demand, presentment
for payment, exhibition of this Note, protest, notice of protest, notice of
dishonor, notice of demand, notice of nonpayment, and any or all other notices
whatsoever, and any and all exemption rights against the indebtedness evidenced
by this Note; (b) agrees to any and all extensions or renewals from time to time
without notice and to any partial payments of this Note; (c) consents to offsets
of any sums owed to Borrower by Holder at any time and to any release of all or
any part of the security for this Note, or to any release of any party liable
for payment of this Note; and (d) agrees that any such waiver, extension,
renewal, release, consent, or partial payment may be made without notice to
Borrower or any other party and shall not release or discharge any one or all of
them from the obligation of payment of this Note or any installment of this Note
or any other liability under this Note.  Any security given for the
obligations of Borrower may be waived, exchanged, surrendered or otherwise dealt
with by Holder without affecting the liability of Borrower or any other party
who might subsequently become liable hereon.

     

    (10)           Governing
Law; Jurisdiction; Severability; Jury Trial.  This Note shall
be construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Note shall be
governed by, the internal laws of the State of California, without giving effect
to any choice of law or conflict of law provision or rule that would cause the
application of the laws of any jurisdictions other than the State of
California.  Borrower hereby irrevocably submits to the exclusive
jurisdiction of the Commercial Court sitting in the City of San Diego, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  In the event that any provision of
this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law.  Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Note.  Nothing contained herein shall be
deemed or operate to preclude the Holder from bringing suit or taking other
legal action against Borrower in any other jurisdiction to collect on Borrower's
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder.

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (11)           Usury
Savings.  Borrower and Holder intend to contract in compliance
with all state and federal usury laws governing the loan evidenced by this
Note.  Holder and Borrower agree that none of the terms of this Note
shall be construed to require payment of interest at a rate in excess of the
maximum interest rate allowed by any applicable state, federal or foreign usury
laws.  If Holder receives sums which constitute interest that would
otherwise increase the effective interest rate on this Note to a rate in excess
of that permitted by any applicable law, then all such sums constituting
interest in excess of the maximum lawful rate shall at Holder’s option either be
credited to the payment of principal or returned to Borrower.  The
provisions of this Section 9 control the other provisions of this Note and any
other agreement between Borrower and Holder.

    

    (12)           Severability.  All
provisions hereof are severable.  If any provision hereof is declared
invalid for any reason, that invalidity shall not affect any other provision of
this Note, all of which shall remain in full force and effect.

     

    [Signature
Page Follows]

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    IN
WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the set
forth above.

    

    Borrower:

    

    PUBCO

     

    By:
________________________

      

    
      
         

      

      
        8

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