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apa_redcondor.htm

Exhibit 10.1

 

 

 

 

 

 

 

 

 

 

ASSET PURCHASE AGREEMENT

 

BY AND AMONG

 

RED CONDOR, INC.,

 

ST. BERNARD SOFTWARE, INC.

 

AND WITH RESPECT TO SECTION 2.6 AND ARTICLES V AND X,

 

THE NOTEHOLDERS OF RED CONDOR, INC.

 

 

 

 

July 28, 2010

 

 

 

 

 

 

  

  

  

TABLE OF CONTENTS

 

	 	 	 	
Page

	 	 	 	 
	

ARTICLE I DEFINITIONS

	1
	 	 	 
	

ARTICLE II PURCHASE AND SALE

	10
	 	 	 	 
	 	
2.1

	

Purchased Assets

	10
	 	
2.2

	

Excluded Assets

	11
	 	
2.3

	

Assumed Liabilities

	12
	 	
2.4

	

Excluded Liabilities

	12
	 	
2.5

	

Collection of Receivables

	12
	 	
2.6

	

Cancellation of Certain Indebtedness

	12
	 	
2.7

	
Full Possession

	12
	 	 	 	 
	

ARTICLE III PURCHASE PRICE

	13
	 	 	 	 
	 	
3.1

	

Purchase Price

	13
	 	
3.2

	

Payment of Purchase Price

	13
	 	
3.3

	

Closing

	13
	 	
3.4

	

Transfer Taxes

	13
	 	
3.5

	

Allocation

	13
	 	 	 	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER	13
	 	 	 	 
	 	
4.1

	

Organization and Qualification

	14
	 	
4.2

	

Subsidiaries and Affiliates

	14
	 	
4.3

	

Charter, By-Laws and Corporate Records

	14
	 	
4.4

	

Capitalization

	14
	 	
4.5

	

Authorization; Enforceability

	14
	 	
4.6

	

No Violation or Conflict

	15
	 	
4.7

	

Contracts

	15
	 	
4.8

	

Litigation

	17
	 	
4.9

	

Brokers

	18
	 	
4.10

	

Compliance with Law

	18
	 	
4.11

	

Governmental Consents and Approvals

	18
	 	
4.12

	

No Other Agreements to Purchase

	18
	 	
4.13

	

Receivables

	18
	 	
4.14

	

Financial Statements

	19
	 	
4.15

	

Absence of Undisclosed Liabilities

	19
	 	
4.16

	

Conduct in the Ordinary Course; Absence of Changes

	19
	 	
4.17

	

Customers

	22
	 	
4.18

	

Real Property

	22
	 	
4.19

	

Personal Property

	23
	 	
4.20

	

Purchased Assets

	24
	 	
4.21

	

Insurance

	25
	 	
4.22

	

Permits

	25
	 	
4.23

	

Taxes

	25

 

 

  

  

  

 

	 	
4.24

	

Intellectual Property

	26
	 	
4.25

	

Labor Matters

	29
	 	
4.26

	

Employee Benefit Plans

	31
	 	
4.27

	

Environmental Matters

	31
	 	
4.28

	

Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney

	31
	 	
4.29

	

Affiliate Transactions

	32
	 	
4.30

	

Accounts Receivable; Accounts Payable

	32
	 	
4.31

	

Books and Records

	32
	 	
4.32

	

Reorganization

	33
	 	
4.33

	

Disclaimer of Other Representations and Warranties

	33
	 	
4.34

	

Disclosure

	33
	 	 	 	 
	

ARTICLE V ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLER AND NOTEHOLDERS

	34
	 	 	 	 
	 	
5.1

	

No Registration

	34
	 	
5.2

	

Investment Intent

	34
	 	
5.3

	

Investment Experience

	34
	 	
5.4

	

Speculative Nature of Investment

	34
	 	
5.5

	

Access to Data

	34
	 	
5.6

	

Accredited Investor

	35
	 	
5.7

	

Rule 144

	35
	 	
5.8

	

Authorization

	35
	 	
5.9

	

Brokers or Finders

	36
	 	
5.10

	

Tax Advisors

	36
	 	
5.11

	

Legends

	36
	 	 	 	 
	

ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

	37
	 	 	 	 
	 	
6.1

	

Organization and Qualification

	37
	 	
6.2

	

Authorization; Enforceability

	37
	 	
6.3

	

No Violation or Conflict

	37
	 	
6.4

	

Governmental Consents and Approvals

	37
	 	
6.5

	

Brokers

	38
	 	
6.6

	

Capitalization

	38
	 	
6.7

	

Absence of Changes

	38
	 	
6.8

	

SEC Reports

	38
	 	
6.9

	

Litigation

	39
	 	
6.10

	

Disclaimer of Other Representations and Warranties

	39
	 	
6.11

	

Disclosure

	39
	 	 	 	 
	ARTICLE VII COVENANTS	40
	 	 	 	 
	 	
7.1

	

Performance

	40
	 	
7.2

	

Conduct of Business Pending Closing

	40
	 	
7.3

	

Regulatory and Other Authorizations; Notices and Consents

	42
	 	
7.4

	

Access to Books and Records

	43
	 	
7.5

	

Confidentiality

	44

 

  

  

  

 

	 	
7.6

	

Use of Intellectual Property

	45
	 	 	 	 
	ARTICLE VIII EMPLOYEE MATTERS	45
	 	 	 	 
	 	
8.1

	

Offer of Employment

	45
	 	 	 	 
	

ARTICLE IX CONDITIONS PRECEDENT TO CLOSING; TERMINATION

	45
	 	 	 	 
	 	
9.1

	

Conditions Precedent to the Obligations of Purchaser

	45
	 	
9.2

	

Conditions Precedent to the Obligations of the Seller

	48
	 	
9.3

	

Termination

	50
	 	 	 	 
	ARTICLE X INDEMNIFICATION	51
	 	 	 	 
	 	
10.1

	

Escrow Fund

	51
	 	
10.2

	

Survival of Representations, Warranties and Covenants

	51
	 	
10.3

	

Investigation

	51
	 	
10.4

	

Definitions

	51
	 	
10.5

	

Indemnification Generally; Limitations

	52
	 	
10.6

	

Assertion of Claims

	53
	 	
10.7

	

Noteholders’ Representative

	53
	 	
10.8

	

Actions of the Noteholders’ Representative

	54
	 	
10.9

	

Notice and Defense of Third Party Claims

	54
	 	 	 	 
	ARTICLE XI MISCELLANEOUS	56
	 	 	 	 
	 	
11.1

	

Notices

	56
	 	
11.2

	

Entire Agreement

	57
	 	
11.3

	

Binding Effect

	57
	 	
11.4

	

Assignment

	57
	 	
11.5

	

Modifications and Amendments

	57
	 	
11.6

	

Waivers and Consents

	57
	 	
11.7

	

No Third Party Beneficiary

	57
	 	
11.8

	

Severability

	57
	 	
11.9

	

Publicity

	58
	 	
11.10

	

Governing Law; Jurisdiction

	58
	 	
11.11

	

Judicial Reference

	58
	 	
11.12

	

Counterparts

	59
	 	
11.13

	

Headings

	59
	 	
11.14

	

Expenses

	59
	 	

11.15

	

No Brokers

	59
	 	

11.16

	

Bulk Sales Law

	59
	 	

11.17

	

Further Assurances

	59

 

 

 

 

  

  

  

 

EXHIBITS AND SCHEDULES

 

	
EXHIBIT A

	
Form of Bill of Sale

	
EXHIBIT B

	
Contracts

	
EXHIBIT C

	
Excluded Assets

	
EXHIBIT D

	
Form of Assumption Agreement

	
EXHIBIT E

	
Assumed Liabilities

	
EXHIBIT F

	
Disclosure Schedule

	
EXHIBIT G

	
Form of Limited Release

	
EXHIBIT H

	
Form of Offer Letter

	
EXHIBIT I

	
Form of Proprietary Information and Invention Assignment Agreement

	
EXHIBIT J

	
Form of Escrow Agreement

 

	
SCHEDULE I

	
Schedule of Noteholders

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (the “Agreement”) is entered into as of July 28, 2010 by and among Red Condor, Inc., a Delaware corporation (the “Seller”), St. Bernard Software, Inc., a Delaware corporation (the “Purchaser”) and with respect to Section 2.6, Articles V and X only, the individuals and entities listed on Schedule I attached hereto (collectively, the “Noteholders”).

 

RECITALS

 

WHEREAS, the Seller is a Software, Hardware and service provider of security solutions that help businesses secure their email communications (the “Business”);

 

WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser desires to purchase from the Seller, certain assets of the Seller used in or relating to the Business and the Purchaser is willing to assume certain liabilities of the Seller relating to the Business, all upon the terms and conditions set forth herein;

 

WHEREAS, concurrently with the execution of this Agreement and as a material inducement to the willingness of the Purchaser to enter into the Agreement, the Purchaser and certain stockholders of the Seller (the “Lenders”) will enter into a Note Purchase Agreement (the “Note Purchase Agreement”), pursuant to which the Purchaser shall issue certain subordinated convertible promissory notes to the Lenders;

 

WHEREAS, concurrently with the execution of this Agreement and as a material inducement to the willingness of the Purchaser to enter into this Agreement, each employee of Seller identified on Schedule 7.1 hereto executed an employee offer letter (each, an “Offer Letter”) and a proprietary information and invention assignment agreement (each, a “PIIA”) with the Purchaser, which shall become effective upon the Closing; and

 

WHEREAS, the Seller, Purchaser and the Noteholders desire to make certain representations, warranties, covenants and other agreements in connection with the transactions contemplated herein.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants, representations and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

In addition to terms defined elsewhere in this Agreement, the following terms when used in this Agreement shall have the respective meanings set forth below:

 

“Action” means any claim, demand, action, cause of action, chose in action, right of recovery, right of set-off, suit, arbitration, inquiry, proceeding or investigation.

 

  

  

  

 

“Affiliate” means, with respect to a specified Person, any other Person which, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes, with respect to the specified Person:  (a) any other Person which beneficially owns or holds 5% or more of the outstanding voting securities or other securities convertible into voting securities of such Person, (b) any other Person of which the specified Person beneficially owns or holds 5% or more of the outstanding voting securities or other securities convertible into voting securities, or (c) any director, officer or employee of such Person.

 

“Affiliate Transaction” has the meaning set forth in Section 4.29.

 

“Agreement” has the meaning set forth in the recitals to this Agreement.

 

“Ancillary Agreements” means the Bill of Sale, the Assumption Agreement and the Escrow Agreement.

 

“Assumption Agreement” has the meaning set forth in Section 2.3.

 

“Assumed Contracts” has the meaning set forth in Section 2.1(i).

 

“Assumed Liabilities” has the meaning set forth in Section 2.3.

 

“Bill of Sale” has the meaning set forth in Section 2.1.

 

“Business” has the meaning set forth in the recitals to this Agreement.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which banks are required or authorized to be closed in the city of San Diego, California.

 

“Cash” means all cash and cash equivalents (including marketable securities and short-term investments) on hand or in banks or other depositories calculated in accordance with GAAP applied on a basis consistent with the preparation of the Financial Statements.

 

“Closing” has the meaning set forth in Section 3.3.

 

“Closing Date” has the meaning set forth in Section 3.3.

 

“Closing Shares” has the meaning set forth in Section 3.2(a).

 

“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“Contract” means any contract, plan, undertaking, understanding, agreement, license, lease, note, mortgage or other binding commitment, whether written or oral in which the Seller is a party.

 

  

2

  

 

“Court” means any court or arbitration tribunal of the United States, any domestic state, or any foreign country, and any political subdivision thereof.

 

“Copyrights” mean all copyrights (registered or otherwise) and registrations and applications for registration thereof, and all rights therein provided by multinational treaties or conventions.

 

“Customer” means a Person to whom Seller provides, provided, or will provide products or services in connection with or as part of the Business.

 

“Customer Contract” means any Contract entered into by and between (a) Seller or Purchaser and (b) a Customer.

 

“Database” means all data and other information recorded, stored, transmitted and retrieved in electronic form.

 

“Disclosure Schedule” has the meaning set forth in Article IV.

 

“Documents” means this Agreement together with the Ancillary Agreements, the Schedules and Exhibits hereto and thereto and the Disclosure Schedule and the other agreements, documents and instruments executed in connection herewith.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate” has the meaning set forth in Section 4.26.

 

“Escrow Agent” means U.S. Bank, National Association.

 

“Escrow Agreement” means that certain escrow agreement among the Seller, Purchaser and the Escrow Agent, in the form of Exhibit J attached hereto.

 

“Escrow Shares” has the meaning set forth in Section 3.2.

 

“Excluded Assets” has the meaning set forth in Section 2.2.

 

“Excluded Contracts” has the meaning set forth in Section 2.2(b).

 

“Excluded Liabilities” has the meaning set forth in Section 2.4.

 

“Event of Indemnification” has the meaning set forth in Section 10.4(a).

 

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

 

“Financial Statements” has the meaning set forth in Section 4.14(a).

 

“Financial Statements Date” has the meaning set forth in Section 4.14(a).

 

“GAAP” means United States generally accepted accounting principles and practices in effect from time to time consistently applied.

 

  

3

  

 

“Governmental Authority” means any governmental or legislative agency or authority (other than a Court) of the United States, any domestic state, or any foreign country, and any political subdivision or agency thereof, and includes any authority having governmental or quasi-governmental powers, including any administrative agency or commission.

 

“Hardware” means all mainframes, midrange computers, personal computers, notebooks, servers, switches, printers, modems, drives, peripherals and any component of any of the foregoing.

 

“Indebtedness” means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the Seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, and (g) all Indebtedness of others referred to in clauses (a) through (f) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss and all Indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.  The Indebtedness referred to in clauses (a) through (g) includes all obligations, including without limitation, principal, accrued and unpaid interest, penalties, fees and premiums.

 

“Indemnified Person” has the meaning set forth in Section 10.4(b).

 

“Indemnifying Person” has the meaning set forth in Section 10.4(c).

 

“Information System” means any combination of Hardware, Software and/or Database(s) employed primarily for the creation, manipulation, storage, retrieval, display and use of information in electronic form or media.

 

 

  

4

  

 

“Intellectual Property” means (a) inventions, whether or not patentable, whether or not reduced to practice or whether or not yet made the subject of a pending Patent application or applications, (b) ideas and conceptions of potentially patentable subject matter, including, without limitation, any patent disclosures, whether or not reduced to practice and whether or not yet made the subject of a pending Patent application or applications, (c) Patents, (d) Trademarks, including but not limited to, the trade names set forth in the Disclosure Schedules, and the corporate name, “Red Condor, Inc.”,  (e) Copyrights, (g) Software, websites and the internet domain name in Universal Resource Locator form (“URL”) set forth in the Disclosure Schedule, (h) trade secrets and confidential, technical or business information (including ideas, formulas, compositions, inventions, and conceptions of inventions whether patentable or unpatentable and whether or not reduced to practice), (i) whether or not confidential, technology (including know-how and show-how), manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information, (j) copies and tangible embodiments of all the foregoing, in whatever form or medium, (k) all rights to obtain and rights to apply for Patents, and to register Trademarks and Copyrights, (l) all rights under the License Agreements and any licenses, registered user agreements, technology or materials, transfer agreements, and other agreements or instruments with respect to items in (a) to (k) above; and (m) all rights to sue and recover and retain damages and costs and attorneys’ fees for present and past infringement of any of the Intellectual Property rights described above.

 

“IRS” shall mean the United States Internal Revenue Service.

 

“Knowledge” means (a) in the case an individual, knowledge of a particular fact or other matter if (i) such individual is actually aware of such fact or other matter, or (ii) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonable investigation concerning the existence of such fact or other matter, and (b) in the case of a Person (other than an individual) such Person will be deemed to have knowledge of a particular fact or other matter if (i) any individual who is serving, or has at any time served, as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, knowledge of such fact or other matter, or (ii) such Person could reasonably be expected to discover or otherwise become aware of such fact or other matter.

 

“Law” means all laws, statutes, ordinances and Regulations of any Governmental Authority including all decisions of Courts having the effect of law in each such jurisdiction.

 

“Leased Real Property” means the real property leased by the Seller as tenant, together with, to the extent leased by the Seller, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Seller attached or appurtenant thereto, and all easements, licenses, rights and appurtenances relating to the foregoing.

 

“Leases” has the meaning set forth in Section 4.18(e).

 

“Lenders” has the meaning set forth in the recitals to this Agreement.

 

“Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law, Action or Order, Liabilities for Taxes and those Liabilities arising under any Contract.

 

  

5

  

 

“License Agreements” has the meaning set forth in Section 4.24(c).

 

“Licensed Intellectual Property” means all Intellectual Property licensed or sublicensed by the Seller from a third party, including the License Agreements.

 

“Liens” means any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, charge, claim, security interest, security title, attachment, easement or encumbrance, lien (statutory or otherwise), option, conditional sale agreement, right of first refusal, first offer, termination, participation or purchase, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code (as the same may, from time to time, be in effect in the State of California) or comparable law of any jurisdiction) or charge of any kind (including any agreement to give any of the foregoing).

 

“Litigation” means any suit, action, arbitration, cause of action, claim, complaint, criminal prosecution, investigation, inquiry, demand letter, governmental or other administrative proceeding, whether at law or at equity, before or by any Court, Governmental Authority, arbitrator or other tribunal.

 

“Losses” has the meaning set forth in Section 10.4(d).

 

“Material Adverse Effect” means with respect to Seller, any circumstance, change in, or effect on, the Business or Purchased Assets that, individually or in the aggregate with any other circumstances, changes in, or effects on, such party and/or its Business or Purchased Assets (a) is, or could reasonably be expected to be, materially adverse to the Business, Purchased Assets or liabilities (including, without limitation, contingent liabilities), employee relationships, customer or supplier relationships, prospects, results of operations or the condition (financial or otherwise) of Seller, or (b) could reasonably be expected to materially adversely affect the ability of Seller to operate or conduct Seller’s business in the manner in which it is currently operated or conducted, or contemplated to be conducted, except to the extent that any such Material Adverse Effect primarily results from (A) adverse changes or developments in financial or securities markets or in connection with general economic, political or regulatory condition (provided that such changes do not affect the Seller disproportionately as compared to the Seller’s competitors); (B) changes or developments affecting the industry generally in which the Purchaser operates (provided that such changes do not affect the Purchaser disproportionately as compared to the Purchaser’s competitors) or (C) any action or omission of Seller taken at the prior written consent of Purchaser; and with respect to Purchaser, any circumstance, change in, or effect on, the business, assets, properties or operations of Purchaser that, individually or in the aggregate with any other circumstances, changes in, or effects on, Purchaser and/or its business, assets, properties or operations (a) is, or could be, materially adverse to the business, operations, assets or liabilities (including, without limitation, contingent liabilities), employee relationships, customer or supplier relationships, prospects, results of operations or the condition (financial or otherwise) of Purchaser, or (b) could reasonably be expected to materially adversely affect the ability of Purchaser to operate or conduct Purchaser’s business in the manner in which it is currently operated or conducted, or contemplated to be conducted; except to the extent that any such Material Adverse Effect primarily results from (A) adverse changes or developments in the general economic or regulatory condition (provided that such changes do not affect the Purchaser disproportionately as compared to the Purchaser’s competitors); (B) changes or developments affecting the industry generally in which the Purchaser operates (provided that such changes do not affect the Purchaser disproportionately as compared to the Purchaser’s competitors) or (C) any action or omission of Purchaser taken at the prior written consent of Seller.

 

 

  

6

  

 

“Material Contract” shall have the meaning given to it in Section 4.7(a).

 

“Note Purchase Agreement” has the meaning set forth in the recitals to this Agreement.

 

“Noteholders” has the meaning set forth in the recitals to this Agreement.

 

“Noteholders’ Representative” means William Baumel.

 

“Offer Letter” shall have the meaning given to it in Section 8.1.

 

“Order” means any judgment, order, writ, injunction, ruling, stipulation, determination, award or decree of or by, or any settlement under the jurisdiction of, any Court or Governmental Authority.

 

“Owned Intellectual Property” means all Intellectual Property in and to which the Seller has, or has a right to hold, right, title and interest.

 

“Owned Real Property” means the real property owned by the Seller, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Seller attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing.

 

“Patents” mean all national (including the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications, including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations, and all rights therein provided by multinational treaties or conventions and all improvements to the inventions disclosed in each such registration, patent or application.

 

“Permits” means any licenses, permits, pending applications, consents, certificates, registrations, approvals and authorizations.

 

“Person” means any natural person, corporation, limited liability company, unincorporated organization, partnership, association, joint stock company, joint venture, trust or any other entity.

 

“PIIA” has the meaning given to it in the recitals of this Agreement.

 

 

  

7

  

 

“Plan” has the meaning given to it in Section 4.26.

 

“Prepaid Customer Contract” means a Contract with a customer of the Seller which has been paid, in part or in full, upfront by such customer and under which the Seller has a continuing obligation to provide services to such customer up to the amount of such upfront payment.

 

“Public Software” shall mean any software that is (i) distributed as free software or as open source software (e.g., Linux), or (ii) subject to any licensing or distribution model that includes as a term thereof any requirement for distribution of source code to licensees or third parties, patent license requirements on distribution, restrictions on future patent licensing terms, or other abridgement or restriction of the exercise or enforcement of any Proprietary Rights through any means, or (iii) derived from in any manner (in whole or in part), links to, relies on, is distributed with, incorporates or contains any software described in (i) or (ii) above.  Public Software includes without limitation software licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following (each a “Public Software License”): (i) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL); (ii) the Artistic License (e.g., PERL); (iii) the Mozilla Public License; (iv) the Netscape Public License; (v) the Sun Community Source License (SCSL); (vi) the Sun Industry Standards License (SISL); (vii) the Apache License; and (viii) any licenses that are defined as OSI (Open Source Initiative ) licenses as listed on the opensource.org web site.  Software distributed under less restrictive free or open source licensing and distribution models such as those obtained under the BSD, MIT, Boost Software License, and the Beer-Ware Public Software Licenses or any similar licenses, and any software that is a public domain dedication are also “Public Software”.

 

“Purchase Price” has the meaning set forth in Section 3.1.

 

“Purchased Assets” has the meaning set forth in Section 2.1.

 

“Purchase Shares” has the meaning set forth in Section 3.1.

 

“Purchaser” has the meaning set forth in the recitals to this Agreement.

 

“Real Property” means the Leased Real Property and the Owned Real Property.

 

“Receivables” means any and all accounts receivable, notes, book debts and other amounts due or accruing due to the Seller in connection with the Business, whether or not in the ordinary course, together with any unpaid financing charges accrued thereon and the benefit of all security for such accounts, notes and debts.

 

“Regulation” shall mean any rule or regulation of any Governmental Authority.

 

“Reorganization” shall mean the merger of Red Condor, Inc., a California corporation, into and with Seller

 

“Rohnert Park Lease” shall mean a certain Lease dated September 22, 2006 by and between Seller, as tenant, and Sonoma Mountain Village LLC and KDRP LLC, as landlord, as amended by the First Amendment to Lease dated June 14, 2007, Second Amendment to Lease dated August 7, 2007, Third Amendment to Lease dated October 25, 2007 and Fourth Amendment to Lease dated May 6, 2008.

 

  

8

  

 

“SEC Reports” shall mean all reports required to be filed by the Purchaser under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two (2) years preceding the date hereof (or such shorter period as the Purchaser was required by law to file such material).

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Seller” has the meaning set forth in the recitals to this Agreement.

 

“Software” means any and all (a) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, (d) the technology supporting any Internet site(s) operated by or on behalf of Seller and (e) all documentation, including user manuals and training materials, relating to any of the foregoing.

 

“Subordinated Convertible Promissory Note” has the meaning given to it in the recitals of this Agreement.

 

“Subsidiary” or “Subsidiaries” of a specified Person means any other Person in which such Person owns, directly or indirectly, more than 50% of the outstanding voting securities or other securities convertible into voting securities, or which may effectively be controlled, directly or indirectly, by such Person.

 

“Survival Date” has the meaning set forth in Section 10.2.

 

“Tangible Personal Property” has the meaning set forth in Section 4.19(a).

 

“Tax” or “Taxes” means any and all federal, state, local, or foreign taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority or other taxing authority, including, without limitation: taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, disability, social security, workers’ compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes; license, registration and documentation fees; and customs’ duties, tariffs, and similar charges, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the Tax Liability of any other Person.

 

“Tax Returns” means returns, reports and information statements, including any schedule or attachment thereto, with respect to Taxes required to be filed with the IRS or any other Governmental Authority or other taxing authority or agency, domestic or foreign, including consolidated, combined and unitary tax returns.

 

  

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“Third Party Claim” has the meaning set forth in Section 10.7.

 

“Trademarks” mean all trademarks, service marks, trade dress, logos, trade names and corporate names, whether or not registered, including all common law rights, and registrations and applications for registration thereof, including, but not limited to, all marks registered in the United States Patent and Trademark Office, the Trademark Offices of the States and Territories of the United States of America, and the Trademark Offices of other nations throughout the world, and all rights therein provided by multinational treaties or conventions.

 

ARTICLE II

 

PURCHASE AND SALE

 

2.1   Purchased Assets.  Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Seller agrees to sell, assign, transfer, convey and deliver to the Purchaser pursuant to a Bill of Sale (the “Bill of Sale”) in substantially the form of Exhibit A attached hereto, and the Purchaser agrees to purchase from the Seller, free and clear of all Liens, all of the assets and property used in connection with or otherwise relating to the Business (other than the Excluded Assets), in an as-is and where-is condition, whether real or personal, tangible or intangible, of every kind and description and whether or not specifically referred to in this Agreement (collectively, the “Purchased Assets”), including, without limitation, the following:

 

(a)   Machinery, Equipment and Furniture.  All furniture, fixtures, equipment, machinery and other tangible personal property used or held for use by the Seller at the locations at which the Business is conducted, or otherwise owned or held by the Seller at the Closing Date for use in the conduct of the Business, including, without limitation, the furniture, fixtures, equipment, machinery and tangible personal property listed in Schedule 4.20;

 

(b)   Accounts Receivable.  All Receivables;

 

(c)   Books and Records.  All books and records (other than those required by law to be retained by the Seller, copies of which will be made available to the Purchaser) including, without limitation, customer lists, sales records, price lists and catalogues, sales literature, advertising material, manufacturing data, production records, employee manuals, personnel records, supply records, inventory records and correspondence files (together with, in the case of any such information which is stored electronically, the media on which the same is stored);

 

(d)   Goodwill.  The goodwill of the Seller relating to the Business together with the exclusive right for the Purchaser to represent itself as carrying on the Business in succession to the Seller and the right to use any words indicating that the Business is so carried on, including the exclusive right to use the name “Red Condor, Inc.”, or any variation thereof, as part of the name or style under which the Business or any part thereof is carried on by the Purchaser;

 

  

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(e)   Intellectual Property.  All the Seller’s right, title and interest in, to and under the Licensed Intellectual Property and the Owned Intellectual Property of the Seller;

 

(f)   Claims and Causes of Action.  All Actions of any kind (including rights to insurance proceeds and rights under and pursuant to all warranties, representations and guarantees made by suppliers of products, materials or equipment, or components thereof) pertaining to or arising out of the Business, and inuring to the benefit of the Seller, together with any and all Liens granted or otherwise available to Seller as security for collection of any of the foregoing;

 

(g)   Prepaid Expenses.  All prepaid expenses of the Seller;

 

(h)   Cash.  All of the Cash of the Seller as of the Closing Date and any additional Cash received by Seller related to the Purchased Assets after the Closing Date, including without limitation, Cash from the return of insurance premiums, which Seller will hold in trust for Purchaser and transfer to Purchaser as soon as practicable and in any event within 15 days.

 

(i)   Contracts.  All rights under the Contracts listed in Exhibit B together with all of the Seller’s claims or rights of action now existing or hereafter arising thereunder (the “Assumed Contracts”); and

 

(j)   Hardware and Software.  All of the Seller’s Information Systems and other Hardware, Software and Databases, including, without limitation, all rights under licenses and other agreements or instruments related thereto.

 

2.2   Excluded Assets.  Notwithstanding the provisions of Section 2.1, the Purchased Assets shall not include any of the following property and assets of the Seller (collectively, the “Excluded Assets”):

 

(a)   Income Taxes.  All income tax installments paid by the Seller and the right to receive any refund of income taxes paid by the Seller;

 

(b)   Excluded Contracts.  All rights under Contracts together with all of the Seller’s claims or rights of action now existing or hereafter arising thereunder except for those Contracts listed in Exhibit B attached hereto (the “Excluded Contracts”);

 

(c)   Organization and Stock Records.  All corporate records related to the Seller’s corporate legal organization and capitalization, including, but not limited to, the Seller’s minute book and stock record book, but not including records of the Business relating to operation of the Business described in Section 2.1(c); and

 

(d)   The Excluded Assets listed in Exhibit C attached hereto.

 

  

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2.3   Assumed Liabilities.  At the Closing, the Purchaser shall execute and deliver the Assignment and Assumption Agreement substantially in the form of Exhibit D attached hereto (the “Assumption Agreement”), pursuant to which, subject to the provisions of Section 2.4, it shall assume and agree to pay, perform and discharge only the following Liabilities of the Seller (the “Assumed Liabilities”):

 

(a)   Liabilities arising under the Assumed Contracts (other than liabilities or obligations attributable to any failure by Seller to comply with the terms thereof prior to the Closing, except with respect to the Prepaid Customer Contracts, which shall be Assumed Liabilities); and

 

(b)   The Liabilities set forth on Exhibit E attached hereto.

 

2.4   Excluded Liabilities.  The Seller shall retain, and shall be responsible for paying, performing and discharging when due, and the Purchaser shall not assume or have any responsibility for, any and all Liabilities of the Seller other than the Assumed Liabilities (the “Excluded Liabilities”), including without limitation, any Excluded Contracts.

 

2.5   Collection of Receivables.  The Seller agrees that, from and after the Closing Date, the Purchaser shall have the right and authority to collect for its own account the Receivables, subject to the provisions hereof, and to endorse with the name of the Seller all checks received on account of the Receivables.  The Seller agrees that it will, within one Business Day, transfer, assign and deliver to the Purchaser all cash and other property which it may receive with respect to any Receivable from and after the Closing Date, and pending any such delivery to the Purchaser of any such property, the Seller shall hold any such property in trust for the benefit of the Purchaser.

 

2.6   Cancellation of Certain Indebtedness.  As of the Closing Date, each Noteholder agrees to cancel and extinguish the promissory note(s) of the Seller that such Noteholder holds in exchange for its pro rata share of the Purchase Shares.  Each Noteholder agrees to take all such actions as may be reasonably requested by the Seller and Purchaser to document the cancellation and extinguishment of such promissory note(s) of the Seller held by such Noteholder, including without limitation, executing and delivering at the Closing a limited release (the “Limited Release”) in favor of the Seller and Purchaser stating that the consideration received by such Noteholder at the Closing is in full satisfaction of all debts and liabilities of the Seller owed to such Noteholder in connection with the promissory note(s) of the Seller and that the Purchaser is not a successor in interest to the Seller and shall not have any liability to such Noteholder for any liabilities of Seller other than the Assumed Liabilities, in substantially the form attached hereto as Exhibit E.

 

2.7   Full Possession. Subject to the terms and conditions of this Agreement, at the Closing, Seller shall put Purchaser into full and actual possession, enjoyment and operating control of the Purchased Assets.  The sale of the Purchased Assets contemplated hereby shall be effected by the Assumption Agreement to vest in Purchaser all of the rights, title and interests of Seller in the Assets and, subject to the obtaining of any required authorizations, approvals, consents and waivers, and the satisfaction or termination of any required waiting periods under any applicable law, to such sale of the Purchased Assets, to put Buyer in full and actual possession, enjoyment and operating control of the Assets.

 

 

 

  

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ARTICLE III

 

PURCHASE PRICE

 

3.1   Purchase Price.  As consideration for the purchase of the Purchased Assets, upon the terms and subject to the conditions set forth in this Agreement and in reliance upon the representations and warranties, Purchaser will (a) issue to the Seller up to 2,416,272 shares of the Seller’s Common Stock, par value $0.01 (the “Purchase Shares”); and (b) assume the Assumed Liabilities (collectively, the “Purchase Price”).

 

3.2   Payment of Purchase Price.  Purchaser shall pay the Seller the Purchase Price as follows:

 

(a)   At the Closing, Purchaser shall issue and deliver to the Seller 1,933,018 of the Purchase Shares (the “Closing Shares”); and

 

(b)   At the Closing, Purchaser shall deposit or cause to be deposited 483,254 of the Purchase Shares (the “Escrow Shares”) with the Escrow Agent in accordance with the terms of the Escrow Agreement.

 

3.3   Closing.  Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., 5 Palo Alto Square, 6th Floor, 3000 El Camino Real, Palo Alto, CA 94306 at 10:00 A.M. (local time) on July 30, 2010, or at such other place or time or on such other date as the Seller and the Purchaser may mutually agree upon in writing (the day on which the Closing takes place being the “Closing Date”).

 

3.4   Transfer Taxes.  The Seller shall be liable for and shall pay all federal and state sales Taxes (including any retail sales Taxes and land transfer Taxes) and all other Taxes, duties, fees or other like charges of any jurisdiction properly payable in connection with the transfer of the Purchased Assets by the Seller to the Purchaser.

 

3.5   Allocation.  The Purchase Price shall be allocated in accordance with the allocations and methodologies on Schedule 3.5.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

Subject to the disclosures set forth in the disclosure schedule attached hereto as Exhibit F (the “Disclosure Schedule”) delivered to the Purchaser concurrently with the parties’ execution of this Agreement (each of which disclosures, in order to be effective, shall clearly indicate the Section and, if applicable, the Subsection of this Article IV to which it relates and each of which disclosures shall also be deemed to be representations and warranties made by the Seller to the Purchaser under this Article IV), the Seller represents and warrants to the Purchaser as of the date hereof and as of the Closing Date as follows:

 

 

  

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4.1   Organization and Qualification.  Except as set forth in Schedule 4.1, the Seller is (i) a corporation duly organized, validly existing and in good standing under the laws of Delaware, and (ii) duly licensed or qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions listed on Schedule 4.1, such jurisdictions being the only jurisdictions in which the failure to be so licensed or qualified could have a Material Adverse Effect on the Business or any of the Purchased Assets.

 

4.2   Subsidiaries and Affiliates.  The Seller has not, nor does it currently, own or control, directly or indirectly, any interest in any Affiliate or Subsidiary.

 

4.3   Charter, By-Laws and Corporate Records.  The Seller has delivered to Purchaser true, correct and complete copies of each of (a) the Certificate of Incorporation of the Seller, as amended and in effect on the date hereof, (b) the By-Laws of the Seller, as amended and in effect on the date hereof.  The Seller is in compliance with, and not in default or violation of, its Certificate of Incorporation and By-Laws.

 

4.4   Capitalization.  The authorized capital stock of the Seller consists of (i) 60,000,000 shares of common stock, $0.0001 par value per share, of which 1,032,660 shares are issued and outstanding, and (ii) 41,379,496 shares of preferred stock, $0.0001 par value per share, 2,069,009 of which are designated as Series A-1 Preferred Stock, 2,069,009 of which are issued and outstanding, 15,308,087 of which are designated as Series A-2 Preferred Stock, 15,308,087 of which are issued and outstanding and 24,002,400 of which are designated as Series B Preferred Stock, 9,107,979 of which are issued and outstanding. A complete list of the capital stock of the Seller which has been previously issued and the names in which such capital stock is registered on the stock transfer book of the Seller is set forth in Schedule 4.4.  All the outstanding shares of capital stock of the Seller have been duly authorized and are validly issued, fully paid and nonassessable.  The offer and sale of all capital stock and other securities of the Seller previously issued by the Seller complied with or were exempt from all applicable federal and state securities laws and no stockholder has a right of rescission with respect thereto. The designations, powers, preferences, rights (including the liquidation rights), qualifications, limitations and restrictions in respect of the capital stock of the Seller are as set forth in the Seller’s Certificate of Incorporation, as amended, a copy of which has been provided to Purchaser.  Except as set forth in Schedule 4.4, there are no shareholder agreements, voting trusts, proxies or other agreements, instruments or understandings with respect to the voting of the capital stock of the Seller.

 

4.5   Authorization; Enforceability.  The Seller has the corporate power and authority to own, hold, lease and operate its properties and assets, including without limitation the Purchased Assets, and to carry on the Business as currently conducted.  The Seller has the corporate power and authority to execute, deliver and perform this Agreement, the other Documents and each other instrument or document required to be executed, delivered and performed by it under this Agreement or the Documents.  The execution, delivery and performance of this Agreement and the other Documents and the consummation of the transactions contemplated herein and therein have been duly authorized and approved by the Seller and its stockholders, and no other no other action on the part of the Seller or its stockholders is necessary in order to give effect thereto.  This Agreement and each of the other Documents to be executed and delivered by the Seller have been duly executed and delivered by, and constitute the legal, valid and binding obligations of, the Seller, enforceable against the Seller in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought.

 

 

  

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4.6   No Violation or Conflict.  Except as set forth in Schedule 4.6, none of (a) the execution and delivery by the Seller of this Agreement and the other Documents to be executed and delivered by the Seller, (b) consummation by the Seller of the transactions contemplated by this Agreement and the other Documents, or (c) the performance of this Agreement and the other Documents required by this Agreement to be executed and delivered by the Seller at the Closing, will (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Seller, (ii) conflict with or violate any Law, Order or Permit applicable to the Seller or by which the Seller’s properties are bound or affected (including, but not limited to, any applicable bulk sale, bulk transfer or similar laws in all jurisdictions), or (iii) result in any breach or violation of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Seller’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Lien on any of the properties or assets of the Seller pursuant to, any Contract or other instrument or obligation to which the Seller is a party or by which the Seller or its properties are bound or affected except, in the case of clause (b) or (c) above, for any such conflict, breach, violation, default or other occurrence that would not individually or in the aggregate, have a Material Adverse Effect.

 

4.7   Contracts

 

(a)           Schedule 4.7(a) lists each of the Contracts to which the Seller is a party or by which it or any of its properties or assets may be bound which is or may become material to the Business, any of the Purchased Assets or any of the Assumed Liabilities, including, without limitation, the following Contracts (each of such Contracts being a “Material Contract” and, collectively, being the “Material Contracts”):

 

(i)   each Contract, invoice, or purchase order for the purchase of materials or personal property with any supplier or for the furnishing of services to the Seller or otherwise related to the Business under the terms of which the Seller: (A) is likely to pay or otherwise give consideration of more than $10,000 in the aggregate during the calendar year ended December 31, 2010, (B) is likely to pay or otherwise give consideration of more than $10,000 in the aggregate over the remaining term of such Contract, or (C) cannot be cancelled by the Seller without penalty or further payment and without more than 30 days’ notice, or (D) was not entered into in the ordinary course of business;

 

(ii)   each Contract, invoice, or sales order for the sale of personal property or for the furnishing of services by the Seller which: (A) is likely to involve consideration of more than $10,000 in the aggregate during the calendar year ended December 31, 2010, (B) is likely to involve consideration of more than $10,000 in the aggregate over the remaining term of such Contract, (C) cannot be cancelled by the Seller without penalty or further payment and without more than 30 days’ notice, or (D) was not entered into in the ordinary course of business;

 

 

 

  

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(iii)     all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts to which the Seller is a party;

 

(iv)     all management and employment Contracts and Contracts with independent contractors or consultants (or similar arrangements), or any other Contract with any director, officer or employee of the Seller, to which the Seller is a party, and which is not cancelable without penalty or further payment and without more than 30 days’ notice;

 

(v)      all Contracts relating to Indebtedness of the Seller or an officer or director of the Seller, including, without limitation, any Contracts relating to the guarantee, support, indemnification, assumption, endorsement of, or any other similar commitment with respect to, the obligations, liabilities (whether accrued, absolute, contingent or otherwise) or Indebtedness of any other Person;

 

(vi)      all Contracts with any Governmental Authority to which the Seller is a party;

 

(vii)     all Contracts that limit the ability of the Seller to compete in any line of business or with any Person or in any geographic area or during any period of time, and all Contracts involving confidentiality, secrecy or non-disclosure (whether the Seller is an obligors or beneficiaries thereunder);

 

(viii)    all Contracts between or among the Seller or any other Affiliate of the Seller;

 

(ix)      all Contracts for capital expenditures which are, in each instance, in excess of $10,000;

 

(x)   all Contracts pursuant to which the Seller is a lessor of any machinery, equipment, motor vehicle, office equipment, furniture or fixtures, other personal property;

 

(xi)      all Contracts of the Seller which relate, in whole or in part to any Intellectual Property;

 

(xii)     all Contracts of the Seller which expire, or may expire if the same are renewed or extended at the option of any Person other than the Seller, one year after the date hereof;

 

(xiii)    all Contracts of the Seller which relate to partnership, joint venture or other similar arrangement;

 

(xiv)    all collective bargaining agreements and any other Contract between the Seller and any labor union;

 

(xv)     all Contracts for providing benefits under any Plan; and

 

  

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(xvi)    all other Contracts, whether or not made in the ordinary course of the Business, which are material to the Seller or the conduct of the Business, or the absence of which would have a Material Adverse Effect.

 

(b)   The Seller has delivered or made available to the Purchaser true, correct and complete copies of all Assumed Contracts which are in writing, and Schedule 4.7(a) contains an accurate summary of all Assumed Contracts which are not in writing.  The Seller has paid in full or set aside adequate reserves for all amounts due as of the date hereof under each Material Contract and as of the Closing Date will have satisfied in full all of its liabilities and obligations thereunder due in the ordinary course of business prior to the Closing.

 

(c)   The Assumed Contracts are in full force and effect and are the valid and binding obligations of the Seller and the other parties thereto, enforceable in accordance with their respective terms, subject only to bankruptcy, insolvency or similar laws affecting the rights of creditors generally and to general equitable principles.  Except as set forth on Schedule 4.7(c), each Assumed Contract is freely and fully assignable to the Purchaser without penalty or other adverse consequences and no consent of or notice to any third party is required in order to validly assign and transfer the Assumed Contracts to Purchaser.  The Seller has not received notice of default by the Seller under any of the Assumed Contracts and no event has occurred which, with the passage of time or the giving of notice or both, would constitute a default by the Seller thereunder.  To the Knowledge of the Seller, none of the other parties to any of the Assumed Contracts is in default thereunder, nor has an event occurred which, with the passage of time or the giving of notice or both would constitute a default by such other party thereunder.  The Seller has not received notice of the pending or threatened cancellation, revocation or termination of any of the Assumed Contracts, nor does it have Knowledge of any facts or circumstances that could reasonably be expected to lead to any such cancellation, revocation or termination.

 

(d)   Except to the extent consents are not obtained prior to the Closing or as set forth on Schedule 4.7(d), the continuation, validity and effectiveness of the Assumed Contracts under the current terms thereof will in no way be affected by the execution of this Agreement and the other Documents or the consummation of the transactions contemplated herein and therein.

 

(e)   None of the Assumed Contracts was entered into outside the ordinary course of business, contains any unusual, onerous or burdensome provisions that could impair or adversely effect in any material way the operations of the Seller or the Business, or is reasonably likely to be performed at a material loss.

 

4.8   Litigation.  Except as set forth on Schedule 4.8, there is no Litigation or investigation pending or, to the Knowledge of the Seller, threatened against, or otherwise adversely affecting, the Business or the Purchased Assets or rights of Seller relating thereto, before any Court or Governmental Authority, nor does there exist any reasonable basis for any such Litigation.  The Seller is not subject to any outstanding Litigation or Order, which, individually or in the aggregate, would prevent, hinder or delay the Seller from consummating the transactions contemplated by this Agreement.  There is no Litigation pending or threatened that might call into question the validity of this Agreement or any of the other Documents or any action taken or to be taken pursuant hereto or thereto, nor does there exist any reasonable basis for any such Litigation.  There is no action by the Seller pending or threatened against any third party with respect to the Business or any of the Purchased Assets.  With respect to all Litigation disclosed on Schedule 4.8, such disclosure includes the parties thereto, nature of the proceeding, date and method commenced, amount of damages or other relief sought and, if applicable, paid or granted and the date the matter was referred to Seller’s insurance carrier, a statement as to whether the matter is insured and, if so, the insurance policy applicable to such matter.  None of the matters disclosed on Schedule 4.8 has had or could reasonably be anticipated to have a Material Adverse Effect.

 

  

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4.9    Brokers.  Except as set forth on Schedule 4.9, the Seller has not employed any financial advisor, broker or finder, and Seller has not incurred and will not incur any broker's, finder's, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement.

 

4.10   Compliance with Law.  Except as set forth in Schedule 4.10, the Seller is, and has conducted and continues to conduct the Business, in compliance with, and is not in default or violation of, all Laws, Orders and other requirements applicable to it or by which any of its assets or properties are bound or affected including, without limitation, those relating to (i) the development, manufacture, packaging, distribution and marketing of products, (ii) employment, safety and health, and (iii) building, zoning and land use.  The Seller is not subject to any Order that adversely affects, individually or in the aggregate, the Business, or its operations, properties, assets or condition (financial or otherwise).  The Seller has not received at any time  any notice or other communication (whether written or oral from any Governmental Authority or other Person regarding any actual, alleged, possible or potential breach, violation of or non-compliance with any Order to which the Seller, the Business or any of the Purchased Assets is or has been subject. There is no existing Law or Order, and the Seller is not aware of any proposed Law or Order, which would prohibit or materially restrict the Purchaser from, or otherwise materially adversely affect the Purchaser in, conducting the Business in any jurisdiction in which such business is now conducted.

 

4.11   Governmental Consents and Approvals.  Except as set forth in Schedule 4.11, the execution, delivery and performance of this Agreement and the other Documents by the Seller do not and will not require any consent, approval, authorization, Permit or other order of, action by, filing with or notification to, any Governmental Authority.

 

4.12   No Other Agreements to Purchase.  No person other than the Purchaser has any written or oral agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option for the purchase or acquisition from the Seller of any of the Purchased Assets.

 

4.13   Receivables.  Schedule 4.13 contains a list of all Receivables as of the Closing Date.  Except as set forth on Schedule 4.13, all Receivables listed on Schedule 4.13 were invoiced prior to the Closing and arose from the Contracts, consistent with past practice, to Persons not affiliated with the Seller and constitute or will constitute, as the case may be, only valid, undisputed claims of the Seller not subject to valid claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business, consistent with past practice and after deducting the reserve for doubtful accounts.  All Receivables reflected on Schedule 4.13 (except as otherwise indicated therein) are owned by the Seller free and clear of any Liens.

 

 

 

 

 

  

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4.14     Financial Statements.

 

(a)   The Seller has delivered to the Purchaser the unaudited balance sheet of the Seller as of and for the period ended May 31, 2010 and the related statements of income, cash flow and stockholders’ equity for the six-month period then ended and the audited balance sheets of the Seller as of December 31, 2009 and December 31, 2008 and the related statements of income, cash flow and stockholders’ equity for the respective twelve-month periods then ended, together with the reports of the Seller’s accountants thereon (the “Financial Statements”).  The Financial Statements are consistent with the books and records of the Seller (which in turn are accurate and correct in all material respects) and present fairly the financial condition and operating results of the Seller as of the date(s) and during the period(s) indicated therein subject to normal year-end adjustments and the absence of footnotes.  Since June 30, 2010 (the “Financial Statements Date”) and except as set forth in the Disclosure Schedule, (i) there has been no change in the assets, liabilities or financial condition of the Business from that reflected in the Financial Statements, except for changes in the ordinary course of business, and (ii) none of the business, prospects, condition (financial or otherwise), operations, property or affairs of the Business has been materially adversely affected by any occurrence or development, individually or in the aggregate, whether or not insured against.

 

(b)   Based on the financial condition of the Seller as of the Closing Date and upon the consummation of the transactions contemplated hereby, (i) the fair saleable value of the Purchased Assets exceeds the amount that will be required to be paid on or in respect of their existing debts and other liabilities (including known contingent liabilities) as they mature; and (ii) the Seller will be solvent.

 

(c)   The Seller’s Board of Directors has determined that (i) the consideration received by Seller hereunder is full and adequate consideration for the Purchased Assets and Assumed Liabilities and reflects the fair market value of the Purchased Assets and (ii) the Seller shall receive not less than a reasonably equivalent value for the transactions contemplated hereby.

 

(d)   Schedule 4.14(d) is a true and complete list of the Indebtedness of the Seller as of immediately prior to the Closing.

 

4.15     Absence of Undisclosed Liabilities.  There are no Liabilities of the Seller other than Liabilities (a) reflected or reserved against on the Financial Statements or occurring in ordinary course after the date of the Financial Statements; (b) disclosed in Schedule 4.15 and (c) under Contracts listed in Schedule 4.7(a).  Except as expressly contemplated in the preceding sentence, the Seller does not know of, and has no reason to know of, any basis for the assertion against the Seller with respect to the Business of any Liability.

 

4.16     Conduct in the Ordinary Course; Absence of Changes.  Since the Financial Statements Date, except as disclosed in Schedule 4.16, the Business has been conducted in the ordinary course of business, consistent with past practice, and there has been no change in the Purchased Assets or the Business which has had, or could reasonably be anticipated result in a Material Adverse Effect. As amplification of, and as a not limitation of the foregoing, except as disclosed in Schedule 4.16, since the Financial Statements Date, the Seller has not:

 

 

  

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(a)   permitted or allowed any of the Purchased Assets to be subjected to any Lien, other than Liens that will be released at or prior to the Closing;

 

(b)   discharged or otherwise obtained the release of any Lien or paid or otherwise discharged any Liability, other than current liabilities reflected on the Financial Statements and current liabilities incurred in the ordinary course of business consistent with past practice since the Financial Statements Date;

 

(c)   written off, written down or written up (or failed to write down or write up in accordance with GAAP consistent with past practice) the value of any Receivables or revalued any Purchased Assets other than in the ordinary course of business consistent with past practice and in accordance with GAAP;

 

(d)   made any change in any method of accounting or accounting practice or policy other than such changes required by GAAP and disclosed in Schedule 4.16;

 

(e)   amended, terminated, cancelled or compromised any material claims of the Seller or waived any other rights of substantial value to the Seller;

 

(f)   sold, transferred, leased, subleased, licensed or otherwise disposed of any of the assets used in the Business, including the Purchased Assets;

 

(g)   suffered any loss of a major customer or cancellation of any material order or the threat thereof;

 

(h)   made any material change in the Business or operations of the Business or in the manner of conducting the Business, or suffered any Material Adverse Effect;

 

(i)   done any of the following: (i) entered into, adopted or amended any Plan, (ii) made any grant of any severance or termination pay to any director, officer, employee or individual providing services to the Seller, (iii) entered into any employment, deferred compensation, change in control or other similar agreement (or any amendment to any such existing agreement) with any director, officer, employee or individual providing services to the Seller, (iv) increased or promised to increase any benefits payable under any existing severance or termination pay policies or employment agreements, or (v) increased or promise to increase any compensation, bonus or other benefits payable to directors, officers, employees or individuals providing services to the Seller;

 

(j)   made any loan, advance or capital contribution to or investment in, or guaranteed any indebtedness of or otherwise incurred any Indebtedness on behalf of, any Person other than loans or advances to employees of the Seller made in the ordinary course of business consistent with past practice;

 

 

 

  

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(k)   borrowed any amount or incurred or become subject to any Liabilities, except current liabilities incurred in the ordinary course of business consistent with past practice;

 

(l)   instituted or settled any Litigation;

 

(m)     disclosed any proprietary or confidential information to any Person not associated with the Seller, unless such Person, prior to such disclosure executed and delivered a standard form of non-disclosure agreement in favor of the Seller;

 

(n)   made any single capital expenditure or commitment therefor in excess of $10,000, or aggregate capital expenditures or commitments therefor in excess of $10,000;

 

(o)   entered into any joint venture, partnership or similar arrangement;

 

(p)   made or changed any Tax election, changed an annual accounting period, adopted or changed any accounting method, filed any amended Tax Returns, entered into any closing agreement, settled or consented to any claims with respect to Taxes, surrendered any right to claim a refund of Taxes, settled or compromised any Tax Liability or consented to any extension or waiver of the limitation period applicable to any claims with respect to Taxes;

 

(q)   failed to pay any creditor any amount owed to such creditor when due;

 

(r)   entered into any agreement, arrangement or transaction with any of its directors, officers, employees or stockholders (or with any relative, beneficiary, spouse or Affiliate of any such Person);

 

(s)   terminated, discontinued, closed or disposed of any plant, facility or other business operation, or laid off any employees (other than layoffs of less than 50 employees in any six month period) or implemented any early retirement, separation or program providing early retirement benefits or announced or planned any such action or program for the future;

 

(t)   entered into or committed to enter into any transaction in connection with the Business except in the ordinary course of business;

 

(u)   granted any assignment, license, transfer or termination of any Intellectual Property or permitted to lapse or abandoned any Intellectual Property (or any registration or grant therefor or any application relating thereto) in which the Seller has any right, title, interest or license;

 

(v)   allowed any Permit that was issued or relates to the Seller or otherwise relates to the Business to lapse or terminate, or failed to renew any insurance policy or Permit that is scheduled to terminate or expire within 45 days after the Closing Date;

 

(w)   failed to maintain the property and equipment used in the Business in good repair and operating condition, ordinary wear and tear excepted;

 

 

  

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(x)   suffered any casualty loss or damage with respect to any of the Purchased Assets (whether or not covered by insurance) which in the aggregate have a replacement cost of more than $10,000, whether or not such losses or damage shall have been covered by insurance;

 

(y)   amended, modified or consented to the termination of any Contract or the Seller’s rights thereunder;

 

(z)   amended or restated its Certificate of Incorporation or By-Laws;

 

(aa)     taken, or failed to take, any action which could reasonably be expected to prevent, hinder or materially delay the ability of the Seller to consummate the transactions contemplated by this Agreement;

 

(bb)     taken any action that would have required the consent of the Purchaser pursuant to Section 7.2 had such action or event occurred after the date hereof and prior to the closing; or

 

(cc)     agreed, whether in writing or otherwise, to take any of the actions specified in this Section 4.16 or entered into any commitment to effect any of the actions specified in this Section 4.16, except as expressly contemplated by this Agreement and the Ancillary Agreements.

 

4.17     Customers.  Listed in Schedule 4.17 are the names and addresses of the customers of the Business for the twelve month period ended June 30, 2010 and the amount for which each such customer was invoiced during such period.  Except as set forth in Schedule 4.17, the Seller has not received any notice and has no reason to believe that any significant customer of the Seller has ceased, or will cease, to use the products, equipment, goods or services of the Seller or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time.

 

4.18     Real Property

 

(a)   Seller does not own any Owned Real Property.

 

(b)   Schedule 4.18(b) identifies all Leased Real Property.

 

(c)   The Seller is in peaceful and undisturbed possession of each parcel of Real Property and there are no contractual or legal restrictions that preclude or restrict the ability to use the premises for the purposes for which they are currently being used.

 

(d)   Except as set forth in Schedule 4.18(d), the Seller has not leased or subleased any parcel or any portion of any parcel of Real Property to any other Person, nor has the Seller assigned its interest under any lease or sublease to any third party.

 

 

  

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(e)   The Seller has delivered to the Purchaser correct and complete copies of all leases and subleases listed in Schedule 4.18(b) and any and all ancillary documents pertaining thereto (including, but not limited to, all amendments, consents for alterations and documents recording variations and evidence of commencement dates and expiration dates) (the “Leases”).  With respect to each such Lease:

 

(i)   such Lease is legal, valid, binding, enforceable and in full force and effect and represents the entire agreement between the respective landlord and tenant with respect to such property;

 

(ii)   such Lease will not cease to be legal, valid, binding, enforceable and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of the transactions contemplated by this Agreement constitute a breach or default under such Lease or otherwise give the landlord a right to terminate such Lease;

 

(iii)   with respect to each such Lease (A) the Seller has not received any notice of cancellation or termination under such Lease and no lessor has any right of termination or cancellation under such Lease except in connection with the default of the Seller thereunder, (B) the Seller has not any notice of a breach or default under such Lease, which breach or default has not been cured and (C) the Seller has not granted to any other Person any rights, adverse or otherwise, under such Lease;

 

(iv)   neither the Seller, nor, to the Knowledge of the Seller, any other party to such Lease, is in breach or default in any material respect, and, to the Knowledge of the Seller, no event has occurred that, with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration under such Lease; and

 

(v)   the rental set forth in each Lease is the actual rental being paid, and there are no separate agreements or understandings with respect to the same.

 

(f)   There are no present, pending or threatened special assessments, tax takings, condemnation proceedings or eminent domain proceedings of any kind pending or, to the Knowledge of the Seller, threatened against any of the Real Property.

 

(g)   Except as otherwise set forth in Schedule 4.18(g), there are no employment, management, maintenance, repair, supply or other contracts in connection with the Real Property.

 

4.19     Personal Property

 

(a)   Schedule 4.19 lists a reasonably specific accounting and description of machinery, equipment, tools, supplies, furniture, fixtures, vehicles, rolling stock and other tangible personal property used in the Business and owned or leased by the Seller (the “Tangible Personal Property”), and the location thereof.

 

 

 

  

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(b)   The Seller has delivered to the Purchaser correct and complete copies of all leases for Tangible Personal Property and any and all material ancillary documents pertaining thereto (including, but not limited to, all amendments, consents and evidence of commencement dates and expiration dates).  With respect to each of such leases:

 

(i)   such lease, together with all ancillary documents delivered pursuant to the first sentence of this Section 4.19(b), is legal, valid, binding, enforceable and in full force and effect and represents the entire agreement between the respective lessor and lessee with respect to such property;

 

(ii)   except as set forth in Schedule 4.19, such lease will not cease to be legal, valid, binding, enforceable and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of the transactions contemplated by this Agreement constitute a breach or default under such lease or otherwise give the lessor a right to terminate such lease;

 

(iii)   except as otherwise set forth in Schedule 4.19, with respect to each such lease, (A) the Seller has not received any notice of cancellation or termination under such lease and no lessor has any right of termination or cancellation under such lease or sublease except in connection with the default of the Seller thereunder, (B) the Seller has not received any notice of a breach or default under such lease, which breach or default has not been cured and (C) the Seller has not granted to any other Person any rights, adverse or otherwise, under such lease; and

 

(iv)   neither the Seller, nor, to the Knowledge of the Seller, any other party to such lease, is in breach or default in any material respect, and no event has occurred that, with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration under, such lease.

 

(c)   The Seller has, and upon the Closing will continue to have, the full right to exercise any renewal options contained in the leases pertaining to the Tangible Personal Property on the terms and conditions therein and upon due exercise would be entitled to enjoy the use of each item of leased Tangible Personal Property for the full term of such renewal options.

 

(d)   All Tangible Personal Property that is included in the Purchased Assets is adequate and usable for the use and purposes for which it is currently used, is in good operating condition, and has been maintained and repaired in accordance with good business practice.

 

4.20     Purchased Assets

 

(a)    Except as set forth in Schedule 4.20(a), the Seller (i) owns, leases or has the legal right to use all the properties and assets, including, without limitation, the Owned Intellectual Property, the Licensed Intellectual Property, the Real Property and the Tangible Personal Property, used, intended to be used in the conduct of the Business, and (ii) with respect to contractual rights, is a party to and enjoys the right to the benefits of all Contracts, all of which properties, assets and rights constitute Purchased Assets, except for the Excluded Assets.  Except as set forth in Schedule 4.20(a), the Seller has good and marketable title to, or, in the case of leased or subleased Purchased Assets, valid and subsisting leasehold interests in, all the Purchased Assets, free and clear of all Liens.

 

(b)   The Purchased Assets and the Excluded Assets constitute all of the properties, assets and rights, used in operating the Business as currently conducted.  At all times, the Seller has caused the Purchased Assets to be maintained, in all material respects, in accordance with good business practice, and all the Purchased Assets are in good operating condition and repair except for reasonable wear and tear and are suitable for the purposes for which they are used.

 

  

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(c)   Except as set forth in Schedule 4.20(c), the Seller has the complete and unrestricted power and unqualified right to sell, assign, transfer, convey and deliver the Purchased Assets to the Purchaser without penalty or other adverse consequences.  Following the consummation of the transactions contemplated by this Agreement and the execution of the instruments of transfer contemplated by this Agreement, the Purchaser will own, with good, valid and marketable title, or lease, under valid and subsisting leases, or otherwise acquire the interests of the Seller in the Purchased Assets, free and clear of all Liens, and without incurring any penalty or other adverse consequence, including, without limitation, any increase in rentals, royalties, or license or other fees imposed as a result of, or arising from, the consummation of the transactions contemplated by this Agreement.

 

4.21     Insurance.  The Seller has furnished to the Purchaser true and complete copies of all insurance policies and fidelity bonds covering the assets, business, equipment, properties and operations of the Seller relating to the Business, a list of which (by type, carrier, policy number, limits, premium and expiration date) is set forth in Schedule 4.21.  Schedule 4.21 lists all claims made by the Seller under any such insurance policies since January 1, 2008.  All such insurance policies are in full force and effect and will remain in full force and effect with respect to all events occurring prior to the Closing.  Such policies of insurance and bonds are of the type and in amounts customarily carried by Persons conducting businesses similar to that of the Seller.  Such policies and bonds are carried in an amount and form and are otherwise adequate to protect the Seller from any material loss resulting from risks and liabilities reasonably foreseeable at the date hereof.  he Seller has not failed to give any notice of any claim under any such policy in due and timely fashion, has not received notice of cancellation or non-renewal of any such policy and has no knowledge of any threatened or proposed cancellation or non-renewal of any such policy, and the Seller is otherwise in compliance with the terms of such policies.  The Seller has never maintained, established, sponsored, participated in or contributed to any self-insurance plan. There are no outstanding claims under any such policy which have gone unpaid for more than thirty (30) days, or as to which the insurer has disclaimed liability.  The Seller has not been denied or had revoked, cancelled, non-renewed or rescinded any policy of insurance.

 

4.22     Permits.  There are no Permits used in or otherwise necessary for the conduct of the Business.

 

4.23     Taxes

 

(a)   (i) all returns and reports in respect of Taxes required to be filed with respect to the Seller or the Business have been timely filed; (ii) all Taxes required to be shown on such returns and reports or otherwise due have been timely paid; (iii) all such returns and reports are true, correct and complete in all material respects; (iv) no adjustment relating to such returns has been proposed formally or informally by any Governmental Authority and, to the Knowledge of the Seller, no basis exists for any such adjustment; (v) there are no pending or, to the Knowledge of the Seller, threatened actions or proceedings for the assessment or collection of Taxes against the Seller or (insofar as either relates to the activities or income of the Seller or the Business or could result in Liability of the Seller on the basis of joint and/or several liability) any corporation that was includible in the filing of a return with the Seller on a consolidated or combined basis; (vi) no consent under Section 341(f) of the Code has been filed with respect to the Seller; (vii) there are no Tax Liens on any assets of the Seller or of the Business; (viii) none of the Assumed Liabilities is an obligation to make a payment that will not be deductible under Code §280G; (ix) Seller has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party, and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed.

 

  

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(b)   Except as set forth in Schedule 4.23(b), (i) there are no outstanding waivers or agreements extending the statute of limitations for any period with respect to any Tax to which the Seller or the Business may be subject; (ii) there are no requests for information currently outstanding that could affect the Taxes of the Seller or the Business; and (iii) to the knowledge of Seller, there are no proposed reassessments of any property owned by the Seller or other proposals that could increase the amount of any Tax to which the Seller or the Business would be subject.

 

(c)   On the Financial Statements, reserves and allowances have been provided adequate to satisfy all Liabilities for Taxes relating to the Business for periods through the Closing Date (without regard to the materiality thereof).

 

(d)   Seller is not a party to any Tax allocation or sharing agreement.  The Seller (A) has not been a member of an affiliated group filing a consolidated federal income Tax return (other than a group the common parent of which was the Seller, and (B) has no liability for the Taxes of any Person under Reg. §1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

 

4.24     Intellectual Property

 

(a)   Schedule 4.24(a) sets forth all of the Owned Intellectual Property, including, without limitation, a complete and accurate list of all Patents, Trademarks, domain name registrations, registered Copyrights and a reasonably specific description of any unregistered Copyrights, indicating for each item, to the extent applicable, the jurisdiction of registration (or application), registration number (or application number) and date issued (or date filed).

 

(b)   All Trademarks, Patents and Copyrights listed in Schedule 4.24(a) are currently in compliance with all legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications with respect to Trademarks, and the payment of filing, examination and annuity and maintenance fees and proof of working or use with respect to Patents), are valid and enforceable and are not subject to any maintenance fees or actions falling due within ninety (90) days after the Closing Date.  No Trademark is currently involved in any opposition or cancellation proceeding and no such action has been threatened with respect to any of the Trademarks or trademark registration applications.  No Patent is currently involved in any interference, reissue, re-examination or opposition proceeding and no such action has been threatened with respect to any Patent.  There are no potentially conflicting Trademarks or potentially interfering Patents of any third party as defined under 35 U.S.C. 135 of the United States Patent Code.

 

 

 

 

  

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(c)   Schedule 4.24(c) sets forth a complete and accurate list of all license agreements granting any right to use or practice any rights under any Intellectual Property, whether the Seller is the licensee or licensor thereunder, and any assignments, consents, term, forbearances to sue, judgments, Orders, settlements or similar obligations relating to any Intellectual Property to which the Seller is a party or otherwise bound (collectively, the “License Agreements”), indicating for each the title, the parties, date executed, whether or not it is exclusive and the Intellectual Property covered thereby.  The License Agreements are valid and binding obligations of Seller, enforceable in accordance with their terms, and there exists no event or condition that will result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default by the Seller under any such License Agreement.  None of the execution, delivery or performance of this Agreement by the Seller, the consummation by it of its obligations hereunder, or compliance by it with any of the provisions of this Agreement will conflict with or result in any breach of any provision contained in any of the Licensed Agreements.  No royalties, honoraria or other fees are payable to any third parties for the use of or right to use any Intellectual Property except pursuant to the License Agreements set forth in Schedule 4.24(c).

 

(d)   The Owned Intellectual Property and the Licensed Intellectual Property constitute all of the Intellectual Property used in or necessary for the conduct of the Business as currently conducted.  The Seller exclusively owns, free and clear of all Liens and obligations to license, all Owned Intellectual Property, and except as set forth in Schedule 4.24(d), has a valid, enforceable and transferable right to use all of the Licensed Intellectual Property.  The Seller has taken all reasonable steps to protect the Owned Intellectual Property, including all reasonable steps to protect the Owned Intellectual Property from third party infringement.  No third party has challenged the ownership, use, validity or enforceability of any of such Owned Intellectual Property.

 

(e)   The conduct of the Business as currently conducted does not infringe upon any Intellectual Property rights of any third party.  The Seller has not been notified by any third party of any allegation that Seller’s activities or the conduct of the Business infringes upon, violates or constitutes the unauthorized use of the Intellectual Property rights of any third party.  No third party has notified the Seller that (i) any of such third party’s Intellectual Property rights are infringed or (b) the Seller requires a license to any of such third party’s Intellectual Property rights.  Further, the Seller has not been offered a license to any of such third party’s Intellectual Property rights.

 

(f)   Except as set forth in Schedule 4.24(f), there is no litigation pending or threatened alleging that the Seller’s activities or the conduct of the Business infringes upon, violates, or constitutes the unauthorized use of the Intellectual Property rights of any third party nor has any third party brought or threatened any Litigation challenging the ownership, use, validity or enforceability of any Intellectual Property of the Seller.

 

 

 

  

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(g)   To the Knowledge of Seller, no third party is misappropriating, infringing, diluting, or violating any Owned Intellectual Property and, except as set forth in Schedule 4.24(g), no such claims have been brought against any third party by the Seller.

 

(h)   None of the execution, delivery or performance of this Agreement by the Seller, the consummation by it of its obligations hereunder, or compliance by it any of the provisions of this Agreement will result in the loss or impairment of the Seller’s or the Purchaser’s right to own or use any of the Intellectual Property, nor will the approval of any Governmental Authority or third party in respect of any such Intellectual Property be required.

 

(i)   Schedule 4.24(i) lists (i) all Software (other than off-the-shelf software applications programs having an acquisition price of less than $1,000) which is owned, licensed to or by the Seller, leased to or by the Seller, or otherwise used by the Seller, and identifies which Software is owned, licensed, leased or otherwise used, as the case may be and (ii) lists all Software sold, licensed, leased or otherwise distributed by the Seller to any third party, and identifies which Software is sold, licensed, leased, or otherwise distributed as the case may be.  The Software listed in Schedule 4.24(i)  which the Seller owns was either developed (i) by employees of the Seller or any of its Subsidiaries within the scope of their employment, or (ii) by independent contractors who have assigned their rights to the Seller pursuant to enforceable written agreements.

 

(j)   All Trademarks of the Seller have been in continuous use by the Seller.  There has been no prior use of any such Trademarks or other action taken by any third party which would confer upon said third party superior rights in such Trademarks, the Seller has taken all reasonable steps to protect the Trademarks against third party infringement and the registered Trademarks have been continuously used in the form appearing in, and in connection with the goods and services listed in, their respective registration certificates or identified in their respective pending applications.

 

(k)   The Seller has taken all necessary steps to obtain and preserve the Patents, including the payment of annuities or maintenance fees and the filing of all required documents.

 

(l)   The Copyrights relate to works of authorship (i) created by (A) employees of the Seller within the scope of their employment, or (B) independent contractors who have assigned their rights to the Seller pursuant to enforceable written agreements, or (ii) acquired from the original author(s) or subsequent assignees.  The works covered by the Copyrights were not copies of nor derived from any work for which the Seller does not own the Copyrights, and no third party has any claim to authorship or ownership of any part thereof.

 

(m)   The Seller has taken all reasonable steps to protect the Seller’s rights in confidential information and trade secrets of the Seller.  Without limiting the foregoing, the Seller has and enforces a policy of requiring each employee, consultant, contractor and potential business partner or investor to execute proprietary information, confidentiality and assignment agreements substantially consistent with the Seller’s standard forms thereof (complete and current copies of which have been delivered to the Purchaser).  Except under confidentiality obligations, there has been no material disclosure of any Seller confidential information or trade secrets.

 

 

  

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(n)   All Software owned by the Seller, and all Software licensed from third parties by the Seller, conforms to the specifications thereof, if applicable, and, with respect to the Software owned by the Seller, the applications can be compiled from their associated source code without undue burden.  The Seller has furnished the Purchaser with all existing documentation relating to use, maintenance and operation of the Software.  The Seller has taken those actions reasonably necessary and customary in the software industry to document the Software and their operation.

 

(o)   The Seller has valid registrations for each of the domain names set forth in Schedule 4.24(a).  The Seller’s registration of each of the domain names is free and clear of any Liens and is in full force and effect.  The Seller has paid all fees required to maintain each registration.  None of the Seller’s registrations or use of the domain names has been disturbed or placed "on hold" and no claim (oral or written) has been asserted against the Seller adverse to its rights to such domain names.

 

(p)   To the Knowledge of the Seller, the Owned Intellectual Property and the Licensed Intellectual Property constitute all of the Intellectual Property necessary for the conduct of the Business as presently conducted, in the territories in which the Seller conducts sales or operations as of the Closing Date, including without limitation the manufacture, use, sale, licensing and other commercial exploitation of all Seller products including those currently undergoing alpha or beta testing if any, and constitute all of the Intellectual Property necessary to operate the Business after the Closing in substantially the same manner as such business heretofore has been operated by the Seller prior to the Closing.

 

4.25     Labor Matters

 

(a)   Schedule 4.25(a) sets forth a list of a complete and accurate list of all current officers and employees as of the date hereof and each such officer or employee’s (i) rate of pay or annual compensation (including actual or potential bonus payments and the terms of any commission payments or programs), (ii) title(s), (iii) status of employment or engagement, (iv) date of hire or engagement, (v) annual vacation, sick and other paid time off allowance, (vi) amount of accrued vacation, sick and other paid time off and the economic value thereof, (vii) description of other fringe benefits, (viii) terms of severance benefits, and (ix) location of employment.  Schedule 4.25(a) also sets forth all employment, severance pay, continuation pay, termination or indemnification Contracts between the Seller and any current or former officer or employee.

 

(b)   Schedule 4.25(b) sets forth a complete and accurate list of all Contracts between the Seller and any current consultant or advisor.

 

(c)   The Seller is not, and, as of the Closing Date, will not be delinquent in payments to any officer or employee for any wages, salaries, commissions, bonuses, benefits or other compensation for any services performed by such officer or employee to date or through the Closing Date or for any amounts required to be reimbursed to any officer or employee or for any post-employment obligations of any type.  The Seller is not, and, as of the Closing Date, will not be delinquent in payments to any consultant or advisor for any consultant fees or other payments for any services performed by the consultant or advisor to date or through the Closing Date or for any post-consultant obligations of any type.

 

  

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(d)   Except as set forth in Schedule 4.25(d), upon termination of employment of any officer or employee or consulting relationship with any consultant or advisor, neither Purchaser nor any of its Affiliates will, by reason of anything done prior to the Closing, be liable to any officer or employee or consultant or advisor for so-called “severance pay” or for vacation pay or for any other similar payments, and to the Seller’s knowledge, there are no circumstances whereby any current or former officer or employee or consultant or advisor may demand payment or compensation in connection with the termination of the officer or employee’s employment or the consultant or advisor’s relationship with the Seller.  No individual will as a direct or indirect result of the transactions contemplated hereby, accrue or receive additional benefits, service or accelerated rights to payments under any employee benefit plan, including the right to receive any parachute payment, as defined in Code §280G, or become entitled to severance, termination allowance or similar payments that could result in the payment of any such benefits or payments.  No current officer, employee, consultant or advisor has informed the Seller that such officer, employee, consultant or advisor intends to terminate the officer or employee’s employment, or the consultant or advisor’s consulting, relationship with the Seller.

 

(e)   Neither the Seller nor, to the Seller’s Knowledge, any officer, director, employee, consultant or advisor is in violation of any term of any employment, consulting, independent contractor, non-disclosure, non-competition, inventions assignment or any other Contract (or any other legal obligation such as a trade secrets statute or common law duty of loyalty) relating to the relationship of such Business officer, director, employee, consultant or advisor with the Seller or any other Person or has been notified that such officer, director, employee, consultant or advisor may be in violation of any such Contract or other legal obligation.

 

(f)   During the preceding twelve (12) months, the Seller has had adequate levels of staffing to conduct the Business in a commercially reasonable manner.  The current employees and officers constitute sufficient personnel to continue the operations of the Business uninterrupted following the Closing.

 

(g)   The Seller is not a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices.  None of the Seller’s employment policies or practices with respect to the Business is currently being audited or investigated by any Government Authority.

 

(h)   All directors, officers, management employees, consultants, advisors, technical and professional employees of the Seller are underwritten obligation to the Seller to maintain in confidence all confidential or proprietary information acquired by them in the course of their employment or consultancy and to assign to the Seller all inventions made by them within the scope of their employment or consultancy during such employment and for a reasonable period thereafter.

 

 

 

  

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(i)   There are no strike, labor dispute or union organization activities pending or threatened between it and its employees.  To the Seller’s Knowledge, none of its employees belongs to any union or collective bargaining unit.  The Seller is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement.  Except as disclosed herein, the Seller is not aware that any officer or key employee intends to terminate his employment with the Seller, nor does the Seller have a present intention to terminate the employment of any officer or key employee. Subject to general principles related to wrongful termination of employees, the employment of each officer and employee of the Seller is terminable at the will of the Seller.  The Seller has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment.

 

4.26   Employee Benefit Plans.  Schedule 4.26 identifies each plan, agreement, policy, or other arrangement of the Seller in effect or with respect to which the Seller (or any trade or business, whether or not incorporated that is a member of a controlled group of entities or a trade or business under common control with the Seller (within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) of the ERISA) (each, an “ERISA Affiliate”)) could reasonably be expected to have any material liability that provides any benefits to any employees, including, without limitation, any employment, consulting, pension, profit sharing, deferred compensation, severance, bonus, stock option, stock purchase, retirement or other form of deferred benefit, health, accident or other welfare plan, agreement, policy or other arrangement.  Each plan, agreement, policy or arrangement required to be set forth on Schedule 4.26 pursuant to the foregoing is referred to herein as a “Plan.”  With respect to each Plan, the Seller has provided or made available to the Purchaser a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof (including, without limitation, all amendments thereto) and the most recent summary plan description together with the summary or summaries of material modifications thereto, if any.  Each Plan has been maintained and administered in all material respects in compliance with its terms and the requirements prescribed by applicable law, including without limitation the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Code.  Neither the Seller nor any of its ERISA Affiliates maintains, participates in, contributes to, or has any liability with respect to, nor has it ever maintained, participated in or contributed to, any “multiemployer plan” as defined in Section 3(37) of ERISA, a plan described in Section 413 of the Code or any plan subject to Title IV of ERISA or Section 302 of ERISA.

 

4.27   Environmental Matters.  The Seller is not in violation of any applicable statute, law, or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law, or regulation.

 

4.28   Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney.  Schedule 4.28 is a true and complete list of (a) the names of each bank, savings and loan association, securities or commodities broker or other financial institution in which the Seller has an account, including cash contribution accounts, and the names of all persons authorized to draw thereon or have access thereto, (b) the location of all lockboxes and safe deposit boxes of the Seller and the names of all Persons authorized to draw thereon or have access thereto, and (c) the names of all Persons, if any, holding powers of attorney from the Seller relating to the Business or the Seller.  At the time of the Closing, the Seller shall not have any such account, lockbox or safe deposit box other than those listed in Schedule 4.28, nor shall any additional Person have been authorized, from the date of this Agreement, to draw thereon or have access thereto or to hold any such power of attorney, without the prior written consent of the Purchaser.  Except as disclosed in Schedule 4.28, the Seller has not commingled monies or accounts of the Seller with other monies or accounts of shareholders or any Affiliates of the Seller.  At the time of the Closing, all monies and accounts of the Seller shall be held by, and be accessible only to, the Seller.

 

  

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4.29     Affiliate Transactions. Schedule 4.29 lists all Contracts or transactions to or by which the Seller, on the one hand, and any of its Affiliates, officers, directors or employees or, to the knowledge of the Seller, any family member, relative or Affiliate of any such officer, director or employee, on the other hand, are or have been a party or otherwise bound or affected and that (i) were entered into since the Reorganization, (ii) are currently pending or in effect or (iii) involve continuing Liabilities that, individually or in the aggregate, have been or will be material to the Seller (each an “Affiliate Transaction”).  Each Affiliate Transaction was on terms and conditions as favorable to the Seller as would have been obtainable by it at the time in a comparable arm’s-length transaction with a Person other than such Person.  Neither any officer, director or employee of the Seller, nor, to the knowledge of the Seller, any family member, relative or Affiliate of any such officer, director or employee, (i) owns, directly or indirectly, any interest in (x) any asset or other property used in or held for use by the Seller in connection with the operation of the Business or (y) any Person that is a supplier, customer, vendor or competitor of the Seller, (ii) serves as an officer, director or employee of any Person that is a supplier, customer, vendor or competitor of the Seller or (iii) is a debtor or creditor of the Seller.

 

4.30     Accounts Receivable; Accounts Payable.

 

(a)   All Accounts Receivable of the Seller as of the Closing Date (i) have arisen from bona fide transactions in the ordinary course of business consistent with past practice, (ii) represent valid and enforceable obligations, and (iii) are owned by the Seller free and clear of all Liens.  No discount or allowance from any such receivable has been made or agreed to and none represents billings prior to actual sale of goods or provision of services.  To the Knowledge of Seller, there is no obligor of any such Account Receivable that has refused or threatened to refuse to pay its obligations for any reason and, to the Knowledge of Seller, no such obligor has been declared bankrupt by a court of competent jurisdiction or that is subject to any bankruptcy proceeding.  Attached hereto as Schedule 4.30(a) is a complete and accurate accounts receivable aging report as of the date hereof.

 

(b)   All accounts payable and accrued expenses of the Seller have arisen only from bona fide transaction in the ordinary course of business consistent with past practice, and no such account payable or accrued expense is, or as of the Closing Date will be, delinquent in its payment. Schedule 4.30(b) is a complete and accurate accounts payable aging report as of the date hereof.

 

4.31     Books and Records.  The books and records of the Seller delivered or made available to Buyer are complete and accurate and reflect the assets, liabilities, prospects, business, financial condition and results of operations of the Business and have been maintained in accordance with prudent business practices.  The minute books of the Seller contain accurate and complete records of all meetings held by, and corporate action taken by, the stockholders, the board of directors and committees of the board of directors of the Seller, including all materials, power point presentations and handouts presented at those meetings, and no meeting of any stockholders, board of directors or committee has been held where material matters were approved, voted upon or acted upon for which minutes have not been prepared and are not contained in such minute books.

 

 

 

  

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4.32     Reorganization.

 

(a)   All corporate action on the part of the Seller and its directors, officers and stockholders and the predecessor organization and its directors, officers and securityholders necessary for the authorization, execution and delivery of the agreements necessary to effect the Reorganization, the authorization and completion of the transactions on the part of the Seller and its directors, officers and stockholders and the predecessor organization and its directors, officers and securityholders necessary to effect the Reorganization, and the performance of all of Seller’s and the predecessor organizations’ obligations in connection with the Reorganization has been taken.  The agreements executed by Seller in connection with the Reorganization constitute valid and binding obligations of Seller, enforceable in accordance with their terms, except (i) as limited by laws of general application relating to bankruptcy, insolvency and the relief of debtors and (ii) as limited by rules of law governing specific performance, injunctive relief or other equitable remedies and by general principles of equity.  The Reorganization was validly completed by February 2003.

 

(b)   All consents, approvals or authorizations of or designation, declaration or filing with the appropriate Governmental Authority required in connection with the Reorganization have been completed.  All required consents and approvals have been obtained from, and all required notices have been delivered to, the parties to the Contracts executed on or before the effective date of the Reorganization to assign such Contracts to Seller.  The assignment of all of the assets related to the Business by the predecessor organization to Seller has been duly authorized and completed.

 

4.33     Disclaimer of Other Representations and Warranties.  The Seller does not make, has not made and shall not be deemed to have made, any representations or warranties relating to its business, operations, properties, assets or otherwise in connection with the transactions contemplated hereby, other than those expressly set forth in this Article IV.  Without limiting the generality of the foregoing, the Seller has not made and shall not be deemed to have made, any representations or warranties as to the information contained in any presentation relating to the Seller in connection with the transactions contemplated hereby, and no statement made in any such presentation shall be deemed a representation or warranty hereunder or otherwise.  It is understood that any cost estimates, projections or other predictions, any data, any financial information or any memoranda or presentations are not and shall not be deemed to be or to include representations or warranties of Seller (it being understood that this Section 4.33 shall not be deemed to limit the representations and warranties contained herein, including, without limitation, those with respect to the Financial Statements).

 

4.34     Disclosure.  No representation or warranty of the Seller contained in this Agreement and the other Documents, and no statement, report, or certificate furnished by or on behalf of the Seller to the Purchaser or its agents pursuant to this Agreement or any of the other Documents, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading or omits or will omit to state a material fact necessary in order to provide the Purchaser with full and proper information as to the business, financial condition, assets, results of operation or prospects of the Seller and the value of its properties and assets.

 

 

  

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ARTICLE V

 

ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLER AND NOTEHOLDERS

 

In order to induce the Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby pursuant to which the Noteholders will receive the Purchase Shares, all of which will be issued to the Noteholders and none to the Seller, each of the Noteholders represents and warrants to the Purchaser as of the date hereof and as of the Closing Date, as follows:

 

5.1   No Registration.  The Noteholder understands that the Purchase Shares have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Noteholder’s representations as expressed herein or otherwise made pursuant hereto.

 

5.2   Investment Intent.  The Noteholder is acquiring the Purchase Shares for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof, and that the Noteholder has no present intention of selling, granting any participation in, or otherwise distributing the same.  The Noteholder further represents that it does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participation to such person or entity or to any third person or entity with respect to any of the Purchase Shares.

 

5.3   Investment Experience.  The Noteholder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Purchaser and acknowledges that the Noteholder can protect its own interests.  The Noteholder has such knowledge and experience in financial and business matters so that the Noteholder is capable of evaluating the merits and risks of its investment in the Purchaser.

 

5.4   Speculative Nature of Investment.  The Noteholder understands and acknowledges that an investment in the Purchaser is highly speculative and involves substantial risks. The Noteholder can bear the economic risk of the Noteholder’s investment and is able, without impairing the Noteholder’s financial condition, to hold the Purchase Shares for an indefinite period of time and to suffer a complete loss of the Noteholder’s investment.

 

5.5   Access to Data.  The Noteholder has had an opportunity to ask questions of, and receive answers from, the officers of the Purchaser concerning the Purchase Shares, the Agreement, the exhibits and schedules attached hereto and the transactions contemplated by the Agreement, as well as the Purchaser’s business, management and financial affairs, which questions were answered to its satisfaction. The Noteholder believes that it has received all the information the Noteholder considers necessary or appropriate for deciding whether to purchase the Purchase Shares.  The Noteholder acknowledges that any business plans prepared by the Purchaser have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.  The Noteholder also acknowledges that it is relying solely on its own counsel and not on any statements or representations of the Purchaser or its agents for legal advice with respect to this investment or the transactions contemplated by the Agreement.

 

 

  

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5.6   Accredited Investor.  The Noteholder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act and shall submit to the Purchaser such further assurances of such status as may be reasonably requested by the Purchaser, including without limitation, the residency or principal place of business of the Noteholder.

 

5.7   Rule 144.  The Noteholder acknowledges that the Purchase Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available.  The Noteholder is aware of the provisions of Rule 144 promulgated under the Securities Act which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Purchaser; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “brokers’ transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable.  The Noteholder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Purchase Shares. The Noteholder understands that, although Rule 144 is not exclusive, the SEC has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.

 

5.8   Authorization.

 

(a)   The Noteholder has all requisite power and authority to execute and deliver the Agreement, to receive the Purchase Shares hereunder as contemplated herein and to carry out and perform its obligations under the terms of the Agreement.  All action on the part of the Noteholder necessary for the authorization, execution, delivery and performance of the Agreement, and the performance of all of the Noteholder’s obligations under the Agreement, has been taken or will be taken prior to the Closing Date.

 

(b)   The Agreement, when executed and delivered by the Noteholder, will constitute valid and legally binding obligations of the Noteholder, enforceable in accordance with their terms except: (i) to the extent that the indemnification provisions contained in the Agreement may be limited by applicable law and principles of public policy, (ii) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (iii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies or by general principles of equity.

 

 

 

  

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(c)   No consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to be obtained by the Noteholder in connection with the execution and delivery of the Agreement by the Noteholder or the performance of the Noteholder’s obligations hereunder.

 

5.9   Brokers or Finders.  The Noteholder has not engaged any brokers, finders or agents, and neither the Purchaser nor any other Noteholder has, nor will, incur, directly or indirectly, as a result of any action taken by the Noteholder, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Agreement.

 

5.10     Tax Advisors.  The Noteholder has reviewed with its own tax advisors the U.S. federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Agreements. With respect to such matters, the Noteholder relies solely on such advisors and not on any statements or representations of the Purchaser or any of its agents, written or oral. The Noteholder understands that it (and not the Purchaser) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Agreements.

 

5.11     Legends.  The Noteholder understands and agrees that the certificates evidencing the Purchase Shares, or any other securities issued in respect of the Purchase Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall bear the following legend (in addition to any legend required under applicable securities laws):

 

“The Shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under any applicable state securities laws and neither the Shares nor any interest therein may be sold, transferred, pledged or otherwise disposed of in the absence of such registration or an exemption from registration under such Act and the rules and regulations thereunder, or an opinion of counsel for the proposed transferor is delivered to the Company, which opinion shall in form and substance be reasonably satisfactory to the Company and its counsel and shall state that an exemption from such registration is available..  The shares represented by this certificate may not be pledged as collateral for any short sale of the shares of the Company.”

 

“These Shares have not been qualified under the California Corporate Securities Law of 1968, as amended (“CSL”) and are also restricted under the provision of that law. These Shares must be held indefinitely unless they are subsequently qualified under the CSL or are otherwise exempt from qualifications under that Law.”

 

 

 

  

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ARTICLE VI

 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

In order to induce the Seller and the Noteholders to enter into this Agreement and to consummate the transactions contemplated hereby, the Purchaser represents and warrants to the Seller and the Noteholders as of the date hereof and as of the Closing Date as follows:

 

6.1   Organization and Qualification.  The Purchaser is (i) a corporation duly organized validly existing and in good standing under the laws of Delaware; (ii) duly licensed or qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions listed on Schedule 6.1, such jurisdictions being the only jurisdictions in which the failure to be so licensed or qualified could have a Material Adverse Effect on the Purchaser.

 

6.2   Authorization; Enforceability.  The Purchaser has the corporate power and authority to execute, deliver and perform this Agreement and the other Documents.  The execution, delivery and performance of this Agreement and the other Documents and the consummation of the transactions contemplated herein and therein have been duly authorized and approved by the Purchaser, and no other action on the part of the Purchaser is necessary in order to give effect thereto. This Agreement and each of the other Documents to be executed and delivered by the Purchaser have been duly executed and delivered by, and constitute the legal, valid and binding obligations of, the Purchaser, enforceable against the Purchaser, in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought.

 

6.3   No Violation or Conflict.  None of (a) the execution and delivery by the Purchaser of this Agreement and the other Documents to be executed and delivered by the Purchaser, (b) consummation by the Purchaser of the transactions contemplated by this Agreement and the other Documents, or (c) the performance of this Agreement and the other Documents required by this Agreement to be executed and delivered by the Purchaser at the Closing, will (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Purchaser, (ii) conflict with or violate any Law, Order or Permit applicable to the Purchaser  or (iii) result in any breach or violation of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Purchaser’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Lien on any of the properties or assets of the Purchaser pursuant to, any Contract or other instrument or obligation to which the Purchaser is a party or by which the Purchaser or its properties are bound or affected except, in the case of clause (b) or (c) above, for any such conflict, breach, violation, default or other occurrence that would not individually or in the aggregate, have a Material Adverse Effect.

 

6.4   Governmental Consents and Approvals.  The execution, delivery and performance of this Agreement and the other Documents by the Purchaser do not and will not require any consent, approval, authorization, Permit or other order of, action by, filing with or notification to, any Governmental Authority.

 

 

  

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6.5   Brokers.  The Purchaser has not employed any financial advisor, broker or finder, and Seller has not incurred and will not incur any broker's, finder's, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement.

 

6.6   Capitalization.  As of July 27, 2010, the authorized capital stock of the Purchaser consists of 50,000,000 shares of common stock, $0.01 par value per share, of which 13,501,043 shares are issued and outstanding and 5,000,000 shares of preferred stock, $0.01 par value per share, of which no shares are issued and outstanding. The Purchase Shares are duly authorized and, when issued and paid for in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, free and clear of all liens, encumbrances and rights of first refusal, and conform to the description of Common Stock contained in the SEC Reports. The designations, powers, preferences, rights (including the liquidation rights), qualifications, limitations and restrictions in respect of the capital stock of the Purchaser are as set forth in the Purchaser’s Certificate of Incorporation, as amended, a copy of which has been provided to Purchaser.  As of July 27, 2010, Purchaser has authorized 4,448,998 shares of common stock for issuance to employees, consultants and directors pursuant to its St. Bernard Software, Inc., 2005 Stock Option Plan and the St. Bernard Software, Inc., 2006 Recruitment Equity Incentive Plan, of which options to purchase 3,212,397 shares are issued and outstanding as of such date.  As of July 27, 2010, Purchaser has issued warrants to purchase 1,153,850 shares of common stock that are issued and outstanding.  Except as set forth in the SEC Reports, there are no outstanding subscriptions, options, warrants, rights, calls or convertible securities, stock appreciation rights (phantom or otherwise), joint venture, partnership or other commitments of any nature relating to shares of the capital stock of the Purchaser and the Purchaser has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof.  Except as set forth in the SEC Reports, there are no shareholder agreements, voting trusts, proxies or other agreements, instruments or understandings with respect to the voting of the capital stock of the Purchaser.

6.7   Absence of Changes.  Since the date of the Purchaser's latest audited financial statements included in the SEC Reports and except as disclosed in the SEC Reports, (i) the Purchaser has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Purchaser's financial statements pursuant to GAAP or required to be disclosed in filings made with the SEC, (ii) the Purchaser has not altered its method of accounting or the identity of its auditors, (iii) the Purchaser has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (iv) the Purchaser has not issued any equity securities to any officer or director, except pursuant to existing Purchaser stock option and employee plans.

 

6.8   SEC Reports.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Purchaser included in the SEC Reports, as subsequently amended, comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in all material respects in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain footnotes required by GAAP, and fairly present in all material respects the financial position of the Purchaser as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments.

 

 

  

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6.9   Litigation.  Except as set forth in the SEC Reports, there is no Litigation or investigation pending or, to the Knowledge of the Purchaser, threatened in writing against, or otherwise adversely affecting, the business of the Purchaser or the properties, assets or rights of Seller relating thereto, before any Court or Governmental Authority.  The Purchaser is not subject to any outstanding Litigation or Order, which, individually or in the aggregate, would prevent, hinder or delay the Purchaser from consummating the transactions contemplated by this Agreement.  There is no Litigation pending or threatened in writing that might call into question the validity of this Agreement or any of the other Documents or any action taken or to be taken pursuant hereto or thereto, nor does there exist any reasonable basis for any such Litigation.  There is no action by the Purchaser pending or threatened in writing against any third party with respect to the business of the Purchaser or the properties, assets or rights of Seller relating thereto.  With respect to all Litigation set forth in the SEC Reports, such disclosure includes the parties thereto, nature of the proceeding, date and method commenced, amount of damages or other relief sought and, if applicable, paid or granted and the date the matter was referred to Seller’s insurance carrier, a statement as to whether the matter is insured and, if so, the insurance policy applicable to such matter.  None of the matters set forth in the SEC Reports has had or could reasonably be anticipated to have a Material Adverse Effect

 

6.10     Disclaimer of Other Representations and Warranties.  The Purchaser does not make, has not made and shall not be deemed to have made, any representations or warranties relating to its business, operations, properties, assets or otherwise in connection with the transactions contemplated hereby, other than those expressly set forth in this Article VI.  Without limiting the generality of the foregoing, the Purchaser has not made and shall not be deemed to have made, any representations or warranties as to the information contained in any presentation relating to the Purchaser in connection with the transactions contemplated hereby, and no statement made in any such presentation shall be deemed a representation or warranty hereunder or otherwise.  It is understood that any cost estimates, projections or other predictions, any data, any financial information or any memoranda or presentations are not and shall not be deemed to be or to include representations or warranties of Purchaser.

 

6.11     Disclosure.  No representation or warranty of the Purchaser contained in this Agreement and the other Documents, and no statement, report, or certificate furnished by or on behalf of the Purchaser to the Seller or its agents pursuant to this Agreement or any of the other Documents, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading or omits or will omit to state a material fact necessary in order to provide the Seller with full and proper information as to the business, financial condition, assets, results of operation or prospects of the Purchaser and the value of its properties and assets.

 

 

 

 

  

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ARTICLE VII

 

COVENANTS

 

7.1   Performance.  Subject to the terms and conditions provided in this Agreement, each of the parties to this Agreement shall use its respective reasonable commercially reasonable efforts in good faith to take or cause to be taken as promptly as practicable all reasonable actions that are within its power to cause to be performed and fulfilled those of the conditions precedent to its obligations to consummate the transactions contemplated by this Agreement that are dependent upon its actions, including obtaining all necessary approvals, to the end that the transactions contemplated hereby will be fully and timely consummated.

 

7.2   Conduct of Business Pending Closing.

 

(i)   The Seller covenants and agrees that, between the date hereof and the Closing Date, or the earlier termination of this Agreement, except as Purchaser shall otherwise consent in writing, the Seller shall not:

 

(ii)   permit or allow any of the Purchased Assets to be subjected to any Lien, other than Liens that will be released at or prior to the Closing;

 

(iii)   discharge or otherwise obtain the release of any Lien or paid or otherwise discharged any Liability, other than current liabilities reflected on the Financial Statements and current liabilities incurred in the ordinary course of business consistent with past practice since the Financial Statements Date;

 

(iv)   write off, write down or write up (or fail to write down or write up in accordance with GAAP consistent with past practice) the value of any Receivables or revalued any Purchased Assets other than in the ordinary course of business consistent with past practice and in accordance with GAAP;

 

(v)   make any change in any method of accounting or accounting practice or policy other than such changes required by GAAP and disclosed in Schedule 4.16;

 

(vi)   amend, terminate, cancel or compromise any material claims of the Seller or waived any other rights of substantial value to the Seller;

 

(vii)   sell, transfer, lease, sublease, license or otherwise dispose of, or encumber, any of the assets used in the Business, including the Purchased Assets;

 

(viii)   suffer any loss of a major customer or cancellation of any material order or the threat thereof;

 

(ix)   make any material change in the Business or operations of the Business or in the manner of conducting the Business, or suffer any Material Adverse Effect;

 

  

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(x)   do any of the following: (A) enter into, adopt or amend any Plan, (B) make any grant of any severance or termination pay to any director, officer, employee or individual providing services to the Seller, (C) enter into any employment, deferred compensation, change in control or other similar agreement (or any amendment to any such existing agreement) with any director, officer, employee or individual providing services to the Seller, (D) increase or promise to increase any benefits payable under any existing severance or termination pay policies or employment agreements, or (E) increase or promise to increase any compensation, bonus or other benefits payable to directors, officers, employees or individuals providing services to the Seller;

 

(xi)   make any loan, advance or capital contribution to or investment in, or guaranteed any indebtedness of or otherwise incurred any Indebtedness on behalf of, any Person other than loans or advances to employees of the Seller made in the ordinary course of business consistent with past practice;

 

(xii)   borrow any amount or incur or become subject to any Liabilities, except current liabilities incurred in the ordinary course of business consistent with past practice;

 

(xiii)     institute or settled any Litigation;

 

(xiv)     disclose any proprietary or confidential information to any Person not associated with the Seller, unless such Person, prior to such disclosure executed and delivered a standard form of non-disclosure agreement in favor of the Seller;

 

(xv)   make any single capital expenditure or commitment therefor in excess of $10,000, or aggregate capital expenditures or commitments therefor in excess of $10,000;

 

(xvi)     enter into any joint venture, partnership or similar arrangement;

 

(xvii)     make or change any Tax election, change an annual accounting period, adopt or change any accounting method, filed any amended Tax Returns, enter into any closing agreement, settle or consent to any claims with respect to Taxes, surrender any right to claim a refund of Taxes, settle or compromise any Tax Liability or consent to any extension or waiver of the limitation period applicable to any claims with respect to Taxes;

 

(xviii)    fail to pay any creditor any amount owed to such creditor when due;

 

(xix)   enter into any agreement, arrangement or transaction with any of its directors, officers, employees or stockholders (or with any relative, beneficiary, spouse or Affiliate of any such Person);

 

(xx)   terminate, discontinue, close or dispose of any plant, facility or other business operation, or lay off any employees (other than layoffs of less than 50 employees in any six month period) or implement any early retirement, separation or program providing early retirement benefits or announce or plan any such action or program for the future;

 

(xxi)   enter into or committed to enter into any transaction in connection with the Business except in the ordinary course of business;

 

  

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(xxii)   grant any assignment, license, transfer or termination of any Intellectual Property or permit to lapse or abandoned any Intellectual Property (or any registration or grant therefor or any application relating thereto) in which the Seller has any right, title, interest or license;

 

(xxiii)   allow any Permit that was issued or relates to the Seller or otherwise relates to the Business to lapse or terminate, or fail to renew any insurance policy or Permit that is scheduled to terminate or expire within 45 days after the Closing Date;

 

(xxiv)   fail to maintain the property and equipment used in the Business in good repair and operating condition, ordinary wear and tear excepted;

 

(xxv)   suffer any casualty loss or damage with respect to any of the Purchased Assets (whether or not covered by insurance) which in the aggregate have a replacement cost of more than $10,000, whether or not such losses or damage shall have been covered by insurance;

 

(xxvi)   amend, modify or consent to the termination of any Contract or the Seller’s rights thereunder;

 

(xxvii)   amend or restate its Certificate of Incorporation or By-Laws;

 

(xxviii)   take, or fail to take, any action which could reasonably be expected to prevent, hinder or materially delay the ability of the Seller to consummate the transactions contemplated by this Agreement; or

 

(xxix)   agree, whether in writing or otherwise, to take any of the actions specified in this Section 7.2 or enter into any commitment to effect any of the actions specified in this Section 7.2, except as expressly contemplated by this Agreement and the Ancillary Agreements.

 

7.3   Regulatory and Other Authorizations; Notices and Consents

 

(a)   The Seller will use its commercially reasonable efforts to obtain all authorizations, consents, orders and approvals of all Governmental Authorities and officials that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the other Documents and will cooperate fully with the Purchaser in promptly seeking to obtain all such authorizations, consents, orders and approvals, including any filings required to be made by the Seller or any Affiliate under the Exchange Act in connection with the issuance or ownership of the Purchaser’s shares of Common Stock.

 

 

  

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(b)   Subject to the terms of this Agreement, the Seller shall give promptly such notices to third parties and use its commercially reasonable efforts to obtain such third party consents and estoppel certificates as the Purchaser may reasonably deem necessary or desirable in connection with the consummation of the transactions contemplated by this Agreement and the other Documents, including, without limitation, all consents to the transfer of the Contracts listed in Schedule 4.7(c) and all consents required to transfer to the Purchaser all of the Licensed Intellectual Property, if any (which Seller agrees are reasonable requests of Purchaser).  With respect to any Contracts listed in Schedule 4.7(a), the Purchaser shall cooperate and use all reasonable efforts to assist the Seller in giving such notices and obtaining such consents and estoppel certificates; provided, however, that subject to the terms of this Agreement, the Purchaser shall have no obligation to give any guarantee or other consideration of any nature in connection with any such notice, consent or estoppel certificate or to consent to any change in the terms of any Contract which the Purchaser in its sole and absolute discretion may deem adverse to the interests of the Purchaser or the Business.

 

(c)   Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any Purchased Asset or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of a third party thereto, would constitute a breach or other contravention thereof or in any way adversely affect the rights of the Purchaser or the Seller thereunder.  The Seller will use its commercially reasonable efforts to obtain the consent of the other parties to any such Purchased Asset or any claim or right or any benefit arising thereunder for the assignment thereof to the Purchaser as the Purchaser may reasonably request.  If such consent is not obtained, or if an attempted assignment thereof would be ineffective or would adversely affect the rights of the Seller thereunder so that the Purchaser would not in fact receive all such rights, the Seller and the Purchaser will cooperate in a mutually agreeable arrangement under which the Purchaser would obtain the benefits and assume the obligations thereunder in accordance with this Agreement, including subcontracting, sub-licensing, or sub-leasing to the Purchaser, or under which the Seller would enforce for the benefit of the Purchaser, with the Purchaser assuming the Seller’s obligations, any and all rights of the Seller against a third party thereto.  The Seller will promptly pay to the Purchaser when received all monies received by the Seller under any Purchased Asset or any claim or right or any benefit arising thereunder in each case that relate to the time period from and after the Closing Date, except to the extent the same represents an Excluded Asset.  In such event, the Seller and the Purchaser shall, to the extent the benefits and obligations of any Purchased Asset have not been provided to the Purchaser by alternative arrangements satisfactory to the Purchaser and Seller, negotiate in good faith an adjustment in the Purchase Price.

 

(d)   Prior to the Closing, the Seller and the Purchaser shall use commercially reasonable efforts to negotiate with the parties to the Prepaid Customer Contracts to reduce the Seller’s liability under such contracts.

 

7.4   Access to Books and Records.  In order to facilitate the resolution of any claims made against or incurred by the Seller prior to the Closing, for a period of seven years after the Closing, the Purchaser shall (i) retain the books and records of the Seller which are transferred to the Purchaser pursuant to this Agreement relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of the Seller and (ii) upon reasonable notice, afford the officers, employees and authorized agents and representatives of the Seller reasonable access (including the right to make, at the Seller’s expense, photocopies), during normal business hours, to such books and records.

 

 

  

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7.5   Confidentiality

 

(a)   The Seller agrees to, and will cause its agents, representatives, Affiliates, employees, officers and directors to: (i) except to enforce their rights under this Agreement or any of the Documents or as required by applicable as explicitly requested by the Purchaser, treat and hold as confidential (and not disclose or provide access to any Person to) all information relating to trade secrets, processes, patent or trademark applications, product development, price, customer and supplier lists, pricing and marketing plans, policies and strategies, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans and any other confidential information with respect to the Business or the Seller, (ii) in the event that the Seller or any such agent, representative, Affiliate, employee, officer or director becomes legally compelled to disclose any such information, provide the Purchaser with prompt written notice of such requirement so that the Purchaser may seek a protective order or other remedy or waive compliance with this Section 7.5(a), (iii) in the event that such protective order or other remedy is not obtained, or the Purchaser waives compliance with this Section 7.5(a), furnish only that portion of such confidential information which is legally required to be provided and exercise its best efforts to obtain assurances that confidential treatment will be accorded such information, and (iv) promptly furnish (prior to, at, or as soon as practicable following, the Closing) to the Purchaser any and all copies (in whatever form or medium) of all such confidential information then in the possession of the Seller or any of its agents, representatives, Affiliates, employees, officers and directors that relate to the Purchased Assets and Assumed Liabilities and destroy any and all additional copies then in the possession of the Seller or any of its agents, representatives, Affiliates, employees, officers and directors of such information and of any analyses, compilations, studies or other documents prepared, in whole or in part, on the basis thereof; provided, however, that this sentence shall not apply to any information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by the Seller, its agents, representatives, Affiliates, employees, officers or directors; provided further that specific information shall not be deemed to be within the foregoing exception merely because it is embraced in general disclosures in the public domain.  In addition, any combination of features shall not be deemed to be within the foregoing exception merely because the individual features are in the public domain unless the combination itself and its principle of operation are in the public domain.

 

(b)   The Seller acknowledges that the restrictions set forth in this Section 7.5 are considered by the parties to be reasonable for the purposes of protecting the value of the business and goodwill of the Purchaser, including, after the Closing, the Business.  The Seller acknowledges that the Purchaser would be irreparably harmed and that monetary damages would not provide an adequate remedy to the Purchaser in the event the covenants contained in this Section 7.5 were not complied with in accordance with their terms.  Accordingly, the Seller agrees that any breach or threatened breach by it of any provision of this Section 7.5 shall entitle the Purchaser to seek injunctive and other equitable relief to secure the enforcement of these provisions, in addition to any other remedies (including damages) which may be available to the Purchaser.

 

(c)   It is the desire and intent of the parties that the provisions of this Section 7.5 be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement is sought.  If any provisions of this Section 7.5 relating to the time period, scope of activities or geographic area of restrictions is declared by a court of competent jurisdiction to exceed the maximum permissible time period, scope of activities or geographic area, as the case may be, the time period, scope of activities or geographic area shall be reduced to the maximum which such court deems enforceable.  If any provisions of this Section 7.5 other than those described in the preceding sentence are adjudicated to be invalid or unenforceable, the invalid or unenforceable provisions shall be deemed amended (with respect only to the jurisdiction in which such adjudication is made) in such manner as to render them enforceable and to effectuate as nearly as possible the original intentions and agreement of the parties.  In addition, if any party brings an action to enforce this Section 7.5 hereof or to obtain damages for a breach thereof, the prevailing party in such action shall be entitled to recover from the non-prevailing party all reasonable attorney's fees and expenses incurred by the prevailing party in such action.

 

  

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7.6   Use of Intellectual Property

 

(a)   Except as set forth in Schedule 7.6(a), from and after the Closing, the Seller shall not use any of the Owned Intellectual Property or the Licensed Intellectual Property.

 

(b)   Immediately after the Closing, upon the reasonable request of the Purchaser, the Seller shall change its corporate name, and amend its Certificate of Incorporation accordingly, to one not using any trademark, service mark, trade dress, logo, trade name or corporate name contained in the Owned Intellectual Property or the Licensed Intellectual Property or any trademark, service mark, trade dress, logo, trade name or corporate name similar or related thereto.  As promptly as practicable following the Closing, the Seller shall remove any Owned Intellectual Property or Licensed Intellectual Property from letterheads and other materials remaining in its possession or under its control, and the Seller shall not use, put into use, or purport to authorize any other Person to use, after the Closing any materials that bear any trademark, service mark, trade dress, logo, trade name or corporate name contained in the Owned Intellectual Property or the Licensed Intellectual Property or any trademark, service mark, trade dress, logo, trade name or corporate name similar or related thereto.

 

ARTICLE VIII

 

EMPLOYEE MATTERS

 

8.1   Offer of Employment.  On the Closing Date, the Purchaser shall offer employment to the employees listed on Schedule 8.1 pursuant to an offer letter in substantially the form attached hereto as Exhibit H (the “Offer Letter”).

 

ARTICLE IX

 

CONDITIONS PRECEDENT TO CLOSING; TERMINATION

 

9.1   Conditions Precedent to the Obligations of Purchaser.  The obligation of the Purchaser to consummate the transactions described in this Agreement and any and all liability of the Purchaser to the Seller shall be subject to the fulfillment on or before the Closing of the following conditions precedent, each of which may be waived by the Purchaser in its sole discretion:

 

(a)   Representations, Warranties and Covenants.  The representations and warranties of the Seller contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing (other than such representations and warranties that are qualified by materiality, which shall be true and correct as of the Closing), with the same force and effect as if made as of the Closing Date, other than such representations and warranties that are expressly made as of another date, and the covenants and agreements contained in this Agreement to be complied with by the Seller on or before the Closing shall have been complied with, and the Purchaser shall have received a certificate from the Seller to such effect signed by a duly authorized officer thereof.

 

  

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(b)   No Adverse Change.  No events or conditions shall have occurred which individually or in the aggregate, have had, or may reasonably be anticipated, to give rise to any Material Adverse Effect.

 

(c)   Governmental Approvals.  The Purchaser shall have received evidence, in each instance in form and substance reasonably satisfactory to it, in its sole discretion, that any and all approvals from Governmental Authorities required for the lawful consummation of the transactions contemplated by this Agreement and the other Documents shall have been obtained.

 

(d)   Consents and Notices.  The Purchaser shall have received the consents listed on Schedule 9.1(d) with respect to any Contract, which consents shall not be conditioned on the occurrence of any fact or circumstance other than the Closing.  The Purchaser shall have received reasonable proof of delivery of any notices required to effect the Closing or the delivery of the Purchased Assets to the Purchaser.

 

(e)   No Actions, Suits or Proceedings.  No Order of any Court or Governmental Authority shall have been issued restraining, prohibiting, restricting or delaying, the consummation of the transactions contemplated by this Agreement and the other Documents.  No Litigation shall be pending or, to the Knowledge of the parties to this Agreement, threatened, before any Court or Governmental Authority (i) to restrain, prohibit, restrict or delay, or to obtain damages or a discovery order in respect of this Agreement or the consummation of the transactions contemplated hereby, or (ii) which has had or may have a Material Adverse Effect on the Seller or the Business.  No insolvency proceeding of any character including without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors, voluntary or involuntary, affecting the Seller shall be pending, and the Seller shall not have taken any action in contemplation of, or which would constitute the basis for, the institution of any such proceedings.

 

(f)   Delivery of Purchased Assets.  The Seller shall have delivered possession of the Purchased Assets to the Purchaser, and shall have made all intangible Purchased Assets available to Purchaser.

 

(g)   Closing Documents.  The Seller and/or each of the Noteholders shall have delivered to the Purchaser the resolutions, certificates, documents and instruments set forth below:

 

(i)   this Agreement;

 

 

  

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(ii)   each of the Ancillary Agreements to which it is a party;

 

(iii)   the Escrow Agreement, in substantially in the form attached hereto as Exhibit J;

 

(iv)   the certificate of the Seller referred to in Section 9.1(a)

 

(v)   a certificate of the Seller executed by the Seller’s Secretary, attaching and certifying to the truth and correctness of (1) the Certificate of Incorporation, (2) the By-laws, (3) the resolutions duly and validly adopted by the Board of Directors and the stockholders of the Seller, authorizing and approving the execution and delivery and performance of this Agreement, the Ancillary Agreements and the other Documents and the transactions contemplated hereby and thereby and the acts of the officers and employees of the Seller in carrying out the terms and provisions hereof and (4) the names and signatures of the officers of the Seller authorized to sign this Agreement and the Documents;

 

(vi)   all of the books, data, documents, instruments and other records relating to the Business of the Seller set forth in Section 2.1(g);

 

(vii)   certificates issued by the Secretary of State or other similar appropriate governmental department, as of a date not more than seven (7) Business Days prior to the Closing, as to the good standing of the Seller in its jurisdiction of incorporation and in each other jurisdiction in which it is qualified to do business, and, as to its jurisdiction of incorporation, certifying its Certificate of Incorporation; and

 

(viii)   such other documents and instruments as the Purchaser or its counsel may reasonably request.

 

(h)   Offer Letters.  At least 100% of the employees identified under the heading “Critical Employees” on Schedule 8.1 and 50% of the employees identified under the heading “Other Employees” on Schedule 8.1 shall have delivered to the Purchaser an executed version of their Offer Letter in the form attached hereto as Exhibit H and an executed version of their PIIA in the form attached hereto as Exhibit I.

 

(i)   Note Purchase Agreement. The Purchaser and the Lenders shall have executed and delivered the Note Purchase Agreement and consummated all of the conditions to closing thereunder.

 

(j)   Leased Real Property.  The Seller shall have delivered, with respect to the Rohnert Park Lease, a consent of the landlord to assign the Rohnert Park Lease to Purchaser and an agreement to amend the Rohnert Park Lease in a form and with terms and conditions reasonably acceptable to Purchaser.

 

(k)   Seller Indebtedness.  The Seller shall have delivered, with respect to the Indebtedness of Seller, payoff letters or other evidence of satisfaction, each in a form reasonably acceptable to Purchaser, from the holders with all outstanding Indebtedness of Seller.

 

  

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(l)   Replacement of Certain Public Software.  The Purchaser and Seller have engaged Open Logic to analyze the Seller’s Software for Public Software, and the Purchaser and Seller expect Open Logic’s report on or about July 29, 2010.  If such report identifies any Public Software (“Identified Public Software”) that (i) precludes or limits the Purchaser in any way from exercising or enforcing its rights in the Intellectual Property of the Seller related to the Business (“Core Intellectual Property”), (ii) requires the Purchaser to obtain a license from a third party or grant licenses to any third party under such Core Intellectual Property, or (iii) restricts any future licensing activities, in each case by reason of any of the Core Intellectual Property being Indentified Public Software or being derived from, linking to, forming any part of, relying on, being distributed with, incorporating or containing any of the Identified Public Software, the Seller must provide evidence reasonably acceptable to the Purchaser that (x) licenses for such Identified Public Software are commercially available for an aggregate cost of not greater than $20,000 or (y) the immediate removal of such Identified Public Software from the Core Intellectual Property will not materially impair the features, performance or functions of the applicable Core Intellectual Property

 

(m)   Quicksweep.  Seller shall have delivered to Purchaser evidence of assignment of all of the assets, including without limitation, all Intellectual Property, from Quicksweep LLC to Seller, in form reasonably acceptable to Purchaser.

 

(n)   Due Diligence.  The Purchaser shall have completed all of its business, legal, accounting and environmental due diligence with respect to the Business and shall, in its sole and absolute judgment, be satisfied with the results thereof.

 

9.2   Conditions Precedent to the Obligations of the Seller.  The obligation of the Seller to consummate the transactions described in this Agreement and any and all liability of the Seller to the Purchaser shall be subject to the fulfillment on or before the Closing Date of the following conditions precedent, each of which may be waived by the Seller in its sole respective discretion:

 

(a)   Representations, Warranties and Covenants.  The representations and warranties of the Purchaser contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing (other than such representations and warranties that are qualified by materiality, which shall be true and correct as of the Closing), with the same force and effect as if made as of the Closing Date, other than such representations and warranties that are expressly made as of another date, and the covenants and agreements contained in this Agreement to be complied with by the Purchaser on or before the Closing shall have been complied with, and the Seller shall have received a certificate from the Purchaser to such effect signed by a duly authorized officer thereof.

 

(b)   No Actions, Suits or Proceedings.  No Order of any Court or Governmental Authority shall have been issued restraining, prohibiting, restricting or delaying, the consummation of the transactions contemplated by this Agreement and the other Documents.  No Litigation shall be pending or, to the Knowledge of the parties to this Agreement, threatened, before any Court or Governmental Authority to restrain, prohibit, restrict or delay, or to obtain damages or a discovery order in respect of this Agreement or the consummation of the transactions contemplated hereby.  No insolvency proceeding of any character including without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors, voluntary or involuntary, affecting the Purchaser shall be pending, and the Purchaser shall not have taken any action in contemplation of, or which would constitute the basis for, the institution of any such proceedings.

 

  

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(c)   Purchase Price.  The Purchaser shall have delivered the Closing Shares as provided in Section 3.2(a).

 

(d)   Closing Documents.  The Purchaser shall have delivered to the Seller the resolutions, certificates, documents and instruments set forth below:

 

(i)   this Agreement;

 

(ii)   each of the Ancillary Agreements to which it is a party;

 

(iii)   the Escrow Agreement, in substantially in the form attached hereto as Exhibit J;

 

(iv)   a certificate of the Purchaser executed by the Purchaser’s Secretary, attaching and certifying to the truth and correctness of (1)  the resolutions duly and validly adopted by the Board of Directors of the Purchaser, authorizing and approving the execution and delivery and performance of this Agreement, the Ancillary Agreements and the other Documents and the transactions contemplated hereby and thereby and the acts of the officers and employees of the Purchaser in carrying out the terms and provisions hereof and (2) the names and signatures of the officers of the Purchaser authorized to sign this Agreement and the Documents;

 

(v)   certificates issued by the Secretary of State or other similar appropriate governmental department, as of a date not more than seven (7) Business Days prior to the Closing, as to the good standing of the Purchaser in its jurisdiction of incorporation and in each other jurisdiction in which it is qualified to do business, and, as to its jurisdiction of incorporation, certifying its Certificate of Incorporation; and

 

(vi)   such other documents and instruments as the Seller or its counsel may reasonably request.

 

(e)   Offer Letter.  The Purchaser shall have delivered to the Seller’s employees identified on Schedule 8.1 an executed version of their Offer Letter in the form attached hereto as Exhibit H.

 

(f)   SVB Consent and Subordination Agreement.  The Purchaser shall have delivered to the Seller the written consent of Silicon Valley Bank (“SVB”) for this Agreement and the transactions contemplated herein and a Subordination Agreement executed by the Purchaser, SVB and the Lenders.

 

(g)   Note Purchase Agreement. The Purchaser and the Lenders shall have executed and delivered the Note Purchase Agreement and consummated all of the conditions to closing thereunder.

 

 

  

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9.3   Termination.

 

(a)   Right to Terminate.  This Agreement may be terminated and the transactions contemplated hereby may be abandoned as follows:

 

(i)   by mutual written consent duly authorized by the parties hereto;

 

(ii)   by either the Purchaser or the Seller if the Closing shall not have occurred on or before 30 days after the date hereof, unless such date is extended by the mutual written agreement of the parties; provided that the right to terminate this Agreement under this Section 9.3(a)(ii) shall not be available to any party whose willful failure to fulfill any material obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to have occurred on or before such date;

 

(iii)   by either the Purchaser or the Seller, if a Court or Governmental Authority shall have issued an Order or taken any other action, in each case, which has become final and non-appealable and which restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated by this Agreement; or

 

(iv)   by the Purchaser, if (A) at any time any of the representations and warranties of the Seller herein are or become untrue or inaccurate such that Section 9.1(a) would not be satisfied or (B) there has been a breach on the part of the Seller of any of their covenants or agreements contained in this Agreement such that Section 9.1(a) will not be satisfied, and, in both case (A) and case (B), such breach (if curable) has not been cured within 15 days after written notice to the Seller;

 

(v)   by the Seller, if the Seller is not in material breach of its obligations under this Agreement which has not been waived by the Purchaser, and if (A) at any time the representations and warranties of the Purchaser herein become untrue or inaccurate such that Section 9.2(a) would not be satisfied, or (B) there has been a breach on the part of the Purchaser of any of its covenants or agreements contained in this Agreement such that Section 9.2(a) would not be satisfied, and, in both case (A) and case (B), such breach (if curable) has not been cured within 15 days after written notice to the Purchaser; or

 

(b)   Effect of Termination.  Except as provided in this Section 9.3(b), in the event of the termination of this Agreement pursuant to Section 9.3(a), this Agreement (other than this Section 9.3(b), Sections 7.5(a), (b) and (c), Article X and Article XI, which shall survive such termination) will forthwith become void, and there will be no liability on the part of the Purchaser, the Seller or any of their respective officers or directors to the other and all rights and obligations of any party hereto will cease, provided, that nothing herein will relieve any party from liability for any breach of any representation, warranty, covenant or agreement contained in this Agreement which occurred prior to termination of this Agreement in accordance with its terms.

 

 

 

  

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ARTICLE X

 

INDEMNIFICATION

 

10.1  Escrow Fund.  The Escrow Shares shall be held in escrow by the Escrow Agent pursuant to the terms of an Escrow Agreement in substantially the form of Exhibit J attached hereto (the “Escrow Agreement”) in order to provide a source for the payment of any indemnification of the Purchaser pursuant to Article X.

 

10.2  Survival of Representations, Warranties and Covenants.  The representations and warranties contained in this Agreement and the other Documents, shall survive the Closing and any investigation at any time made by or on behalf of any party for the applicable limitation period or term expressly set forth in this Agreement; provided however, that the representations and warranties set forth in Article IV and Article V of this Agreement shall survive the Closing and continue in full force and effect for a period of eighteen (18) months.  Any claims for indemnification asserted in writing as provided for in this Article X prior to the expiration date applicable to the representation or warranty with respect to which such claim for indemnification is made shall survive until finally resolved and satisfied in full. For convenience of reference, the date upon which any representation and warranty contained herein shall terminate is referred to herein as the “Survival Date.”  No third party other than the Indemnified Persons, shall be a third party or other beneficiary of such representations and warranties and no such third party shall have any rights of contribution with respect to such representations or warranties or any matter subject to or resulting in indemnification under this Article X or otherwise.  All covenants and agreements contained in this Agreement (and in the corresponding covenants and agreements set forth in any of the Documents) shall survive the Closing and continue in full force until fully performed in accordance with their terms.

 

10.3  Investigation.  The representations, warranties, covenants and agreements set forth in this Agreement and the other Documents shall not be affected or diminished in any way by any investigation (or failure to investigate) at any time by or on behalf of the party for whose benefit such representations, warranties, covenants and agreements were made.  All statements contained herein or in any of the other Document, shall be deemed to be representations and warranties for purposes of this Agreement.

 

10.4  Definitions.  As used in this Agreement, the following terms shall have the following meanings:

 

(a)   “Event of Indemnification” shall mean the following:

 

(i)   The untruth, inaccuracy or breach of any representation or warranty contained in this Agreement or in any of the other Documents;

 

(ii)   The breach of any covenant, agreement or condition of the Seller contained in this Agreement or in any of the other Documents; or

 

(iii)   Any other Liabilities of the Seller or relating to the Business not expressly included in the Assumed Liabilities.

 

 

  

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(b)   “Indemnified Persons” shall mean and include the Purchaser and its Affiliates, successors and assigns, and the respective officers, directors, agents and employees of each of the foregoing.

 

(c)   “Indemnifying Persons” shall mean and include each of the Seller and the Noteholders and their successors, assigns, heirs, legal representatives and estate.

 

(d)   “Losses” shall mean any and all losses, claims, shortages, damages, liabilities, expenses (including reasonable attorneys’ and accountants’ fees), assessments, Taxes (including interest or penalties thereon) sustained, suffered or incurred by any Indemnified Person arising from or in connection with any such matter that is the subject of indemnification under Section 10.5 hereof.

 

10.5  Indemnification Generally; Limitations.  The Indemnifying Persons shall severally, but not jointly indemnify the Indemnified Persons from and against any and all Losses arising from or in connection with any Event of Indemnification with respect to the Indemnified Persons, which shall be paid promptly by the Indemnifying Persons, provided that, (a) except with respect to fraud, intentional or willful misrepresentation or a breach of Section 4.5, the maximum aggregate liability of the Indemnifying Person shall be equal to the Escrow Shares; (b) the maximum liability for a breach of the representation of Section 4.5 for each of the Indemnifying Person shall be equal to the aggregate consideration received by such Indemnifying Person; (c) no Indemnifying Person shall be liable, and no claim for indemnification may be asserted for any loss of profits or earnings or consequential damages; and (d) no Indemnifying Person shall be liable under this Article X until Losses exceed $25,000 in the aggregate, at which time the Indemnifying Persons shall be obligated to indemnify the Indemnified Person for all Losses, subject to the limitations set forth in Section 10.5(a), (b) and (c) above, inclusive of such $25,000.  The amount of any Losses incurred or suffered shall be reduced by any related Tax benefits actually realized by an Indemnified Party, including the present value of future Tax benefits (the present value of such benefits to be determined based on 10% discount rate).  Except with respect to fraud, intentional or willful misrepresentation, by or on behalf of the Seller or an Indemnifying Person, an Indemnified Person’s right to indemnification under this Article X constitutes such Indemnified Person’s sole and exclusive remedy from such Indemnified Person for Losses with respect to any inaccuracy in, or breach of, any representation or warranty or breach of any covenant, agreement, obligation or undertaking of the Seller or such Indemnifying Person in this Agreement or in any certificate, instrument, document or agreement delivered by or on behalf of an Indemnifiying Person or the Seller pursuant to or in connection with this Agreement.  Notwithstanding any of the foregoing, nothing contained in this Section 10.5 shall in any way limit, impair, modify or otherwise affect the rights of the Indemnified Persons (including rights available under the Securities Act or the Exchange Act) nor shall there be any limitation of liability of Indemnifying Persons in connection with any of such rights of the Indemnified Persons (A) to bring any claim, demand, suit or cause of action otherwise available to the Indemnified Persons based upon an allegation or allegations that the Seller and/or the Indemnifying Persons, or any of them, had an intent to defraud or made a willful, intentional or reckless misrepresentation or willful omission of a material fact in connection with this Agreement and the transactions contemplated hereby or (B) to enforce any judgment of a court of competent jurisdiction which finds or determines that the Seller and/or the Indemnifying Persons, or any of them, had an intent to defraud or made a willful misrepresentation or omission of a material fact in connection with this Agreement and the transactions contemplated hereby.  Any Losses entitled to be recovered by an Indemnified Person pursuant to this Article X shall be satisfied first against the Escrow Shares and in the case of fraud, intentional or willful misrepresentation, by or on behalf of the Seller or an Indemnifying Person or a breach of the representations of Section 4.5, any Losses entitled to be recovered by an Indemnified Person shall be satisfied first against the Escrow Shares and then the Purchase Shares.  For the purposes of this Article X, the value of one Escrow Share (or one Purchase Share, if applicable) shall be the average of the closing price of the Purchaser’s Common Stock for the twenty trading days immediately preceding, and the twenty trading days immediately following, the date the Indemnified Person makes a claim pursuant to this Article X.

 

 

  

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10.6  Assertion of Claims.  No claim shall be brought under Section 10.5 hereof unless the Indemnified Persons, or any of them, at any time prior to the applicable Survival Date, give the Indemnifying Persons (a) written notice of the existence of any such claim, specifying the nature and basis of such claim and the amount thereof, to the extent known, or (b) written notice pursuant to Section 10.7 of any Third Party Claim, the existence of which might give rise to such a claim but the failure so to provide such notice to the Indemnifying Persons will not relieve the Indemnifying Persons from any liability which they may have to the Indemnified Persons under this Agreement or otherwise (unless and only to the extent that such failure results in the loss or compromise of any rights or defenses of the Indemnifying Persons and they were not otherwise aware of such action or claim).  Upon the giving of such written notice as aforesaid, the Indemnified Persons, or any of them, shall have the right to commence legal proceedings prior or subsequent to the Survival Date for the enforcement of their rights under Section 10.5 hereof.

 

10.7  Noteholders’ Representative.

 

(a)   The Noteholders’ Representative shall be constituted and appointed as agent for and on behalf of the Noteholders to give and receive notices and communications, to authorize delivery to Purchaser of the Escrow Shares from the Escrow Fund in satisfaction of indemnification claims by any of the Indemnified Persons, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Noteholders’ Representative for the accomplishment of the foregoing.  Such agency may be changed by the holders of a majority in interest of the Escrow Fund from time to time upon not less than 10 days’ prior written notice to Purchaser.  No bond shall be required of the Noteholders’ Representative, and the Noteholders’ Representative shall receive no compensation for his services.  Notices or communications to or from the Noteholders’ Representative regarding indemnification claims under this Article X for which an Indemnified Person is seeking recovery from the Escrow Fund shall constitute notice to or from each of the Noteholders.

 

(b)   The Noteholders’ Representative shall not be liable for any act done or omitted hereunder as Noteholders’ Representative (i) while acting in good faith and in the exercise of reasonable judgment and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith or (ii) in the absence of gross negligence or bad faith.  The Noteholders shall severally indemnify and hold the Noteholders’ Representative harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Noteholders’ Representative and arising out of or in connection with the acceptance or administration of his duties hereunder, including any out-of-pocket costs and expenses and legal fees and other legal costs reasonably incurred by the Noteholders’ Representative.  If not paid directly to the Noteholders’ Representative by the Noteholders, such losses, liabilities or expenses may be recovered by the Noteholders’ Representative after the termination date of the Escrow Fund from Escrow Fund otherwise distributable to the Noteholders (and not distributed or distributable to any Indemnified Person or subject to a pending indemnification claim of any Indemnified Person) following the such termination date pursuant to the terms hereof and of the Escrow Agreement, at the time of distribution, and such recovery will be made from the Noteholders according to their respective pro rata shares.

 

 

 

  

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(c)   The Noteholders’ Representative shall have reasonable access to information about Seller and the reasonable assistance of the Purchaser’s or its successor’s officers and employees for purposes of performing his duties and exercising his rights hereunder, provided that the Noteholders’ Representative shall treat confidentially and not disclose any nonpublic information from or about Seller to anyone (except on a need to know basis to individuals who agree to treat such information confidentially or solely as reasonably necessary in the performance of its duties hereunder to resolve an indemnification claim hereunder, provided that the Noteholders’ Representative uses its best efforts to minimize the public disclosure of such nonpublic information).

 

(d)   Purchaser acknowledges that the Noteholders’ Representative may have a conflict of interest with respect to his duties as Noteholders’ Representative, and in such regard the Noteholders’ Representative has informed Purchaser that he will act in the best interests of the Noteholders.

 

10.8  Actions of the Noteholders’ Representative.  A decision, act, consent or instruction of the Noteholders’ Representative shall constitute a decision of all Noteholders for whom the Purchase Shares otherwise payable to them is deposited in the Escrow Fund and shall be final, binding and conclusive upon each such Noteholders, and the Escrow Agent and Purchaser may rely upon any decision, act, consent or instruction of the Noteholders’ Representative as being the decision, act, consent or instruction of each and every such Noteholder.  The Escrow Agent and Purchaser are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Noteholders’ Representative.

 

10.9  Notice and Defense of Third Party Claims.  Losses resulting from the assertion of liability by third parties (each, a “Third Party Claim”) shall be subject to the following terms and conditions:

 

(a)   The Indemnified Persons shall promptly give written notice to the Indemnifying Persons of any Third Party Claim that might give rise to any Loss by the Indemnified Persons, stating the nature and basis of such Third Party Claim, and the amount thereof to the extent known.  Such notice shall be accompanied by copies of all relevant documentation with respect to such Third Party Claim, including, without limitation, any summons, complaint or other pleading that may have been served, any written demand or any other document or instrument.  Notwithstanding the foregoing, the failure to provide notice as aforesaid to the Indemnifying Persons will not relieve the Indemnifying Persons from any liability which they may have to the Indemnified Persons under this Agreement or otherwise (unless and only to the extent that such failure directly results in the loss or compromise of any rights or defenses of the Indemnifying Persons and they were not otherwise aware of such action or claim).

 

 

 

 

  

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(b)   The Indemnifying Persons shall have the right to assume the defense of any such Third Party Claim.  Notwithstanding the foregoing, an Indemnifying Persons may not assume the defense of any such Third Party Claim if the claim (i) is reasonably likely to result in imprisonment of the Indemnified Persons, (ii) is reasonably likely to result in a criminal penalty or fine against the Indemnified Persons the consequences of which would have a Material Adverse Effect on the Indemnified Persons unrelated to the size of such penalty or fine, or (iii) is reasonably likely to result in an equitable remedy which would have a Material Adverse Effect on the Indemnified Persons.  If Indemnifying Persons assume the defense of such Third Party Claim, such Indemnifying Persons shall conduct such defense diligently, shall have full and complete control over the conduct of such proceeding on behalf of the Indemnified Persons and shall, in their sole discretion, have the right to decide all matters of procedure, strategy, substance and settlement relating to such proceeding, provided, however, that (A) any counsel chosen by such Indemnifying Persons to conduct such defense shall be reasonably satisfactory to the Indemnified Persons and (B) the Indemnifying Persons will not, without the written consent of the Indemnified Persons, consent to the entry of any judgment or enter into any settlement with respect to the matter which does not include a provision whereby the plaintiff or the claimant in the matter releases the Indemnified Persons from all liability with respect thereto.  The Indemnified Persons may participate in such proceeding and retain separate co-counsel at its their sole cost and expense, provided, however, that the Indemnifying Persons shall be responsible for the reasonable fees and expenses of one separate co-counsel for the Indemnified Persons to the extent the Indemnified Persons are advised by counsel that either (1) the counsel the Indemnifying Persons have selected has a conflict of interest or (2) there are legal defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Persons).  Failure by an Indemnifying Persons to notify the Indemnified Persons of their election to defend any such Third Party Claim within 30 days after notice of the Third Party Claim shall have been given to such Indemnifying Persons by the Indemnified Persons shall be deemed a waiver by such Indemnifying Persons of their right to defend such claim or action.

 

(c)   If no Indemnifying Persons are permitted to or do not elect to assume the defense, or do not diligently pursue the defense of, a Third Party Claim, the Indemnified Persons shall diligently defend against such Third Party Claim in such manner as they may deem appropriate.  Any counsel chosen by such Indemnified Persons to conduct such defense must be reasonably satisfactory to the Indemnifying Persons and only one counsel shall be retained to represent all Indemnified Persons in an action (except that if litigation is pending in more than one jurisdiction with respect to an action, one such counsel may be retained in each jurisdiction in which such litigation is pending).

 

 

 

 

  

55

  

 

ARTICLE XI

 

MISCELLANEOUS

 

11.1  Notices.  All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party’s address set forth below or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by facsimile transmission, (iii) sent by recognized overnight courier, or (iv) sent by certified mail, return receipt requested, postage prepaid.

 

	If to the Purchaser to: 	St. Bernard Software, Inc.
	 	15015 Avenue of Science
	 	San Diego, CA 92128
	 	Attn: President
	 	Facsimile: 858-676-2299
	 	 
	
With a copy to:

	Mintz, Levin, Cohn, Ferris, 
	 	Glovsky and Popeo, P.C. 
	 	
5 Palo Alto Square, 6th Floor

	 	
3000 El Camino Real

	 	
Palo Alto, CA 94306

	 	
Attn:  Brady Berg

	 	
Facsimile: 650-251-7739

	 	 
	
If to the Seller to:

	
Red Condor, Inc.

	 	
1300 Valley House Drive, Suite 115

	 	
Rohnert Park, CA 94928

	 	
Facsimile: 707-324-6159

	 	Attn: ________________ 
	 	 
	
With a copy to:

	
Goodwin Procter LLP

	 	
135 Commonwealth Drive

	 	
Menlo Park, CA 94025-1105

	 	
Attn:  Kathy Fields

	 	
Facsimile: 650.853.1038

	 	 
	
If to the Noteholder:

	
Such address listed opposite such

	 	
Noteholder’s name on Schedule I

 

All notices, requests, consents and other communications hereunder shall be deemed to have been (a) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (b) if sent by facsimile transmission, at the time receipt has been acknowledged by electronic confirmation or otherwise, (c) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (d) if sent by certified mail, on the 5th business day following the day such mailing is made.

 

 

  

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11.2   Entire Agreement.  The Documents embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in the Documents shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.

 

11.3   Binding Effect.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives, legal representatives, and permitted assigns.

 

11.4   Assignment.  Neither this Agreement, nor any right hereunder, may be assigned by any of the parties hereto without the prior written consent of the other parties, except that the Purchaser may assign all or part of its rights and obligations under this Agreement to one or more direct or indirect Subsidiaries or Affiliates (in which event, representations and warranties relating to the Purchaser shall be appropriately modified).

 

11.5   Modifications and Amendments.  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by all parties hereto.

 

11.6   Waivers and Consents.  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.  No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing between the parties hereto, shall operate as a waiver of any such right, power or remedy of the party.  No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder.  The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies.  No notice to or demand on a party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other or further action in any circumstances without such notice or demand.

 

11.7   No Third Party Beneficiary.  Except as provided in Section 10.2, nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any Person other than the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement.

 

11.8   Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

 

 

  

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11.9   Publicity.  No party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the Purchaser and the Seller, except as may be required by Law, the SEC rules or regulations, or any listing agreement related to the trading of the shares of such party on any national securities exchange or national automated quotation system, in which case the party proposing to issue such press release or make such public announcement shall use reasonable efforts to consult in good faith with the other party before issuing any such press release or making any such public announcement. The parties shall cooperate as to the timing and contents of any such press release or public announcement.

 

11.10   Governing Law; Jurisdiction.  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the Law of the State of California without giving effect to the conflict of law principles thereof.    Any legal action or proceeding with respect to this Agreement shall be brought in the courts of State of California or of the United States of America located in San Diego County, California.  By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.  The parties hereby irrevocably waive an objection or defense that they now or hereafter have to the assertion of personal jurisdiction by any court in any such action or to the laying of the venue of any such action in any such court, and hereby waive, to the extent not prohibited by law, and agree not to assert, by way of motion, as a defense, or otherwise, in any such proceeding, any claim that it is not subject to the jurisdiction of the above-named courts for such proceedings.

 

11.11   Judicial Reference.  THE PARTIES DESIRE THAT THEIR CLAIMS OR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO AGREE THAT A JUDICIAL REFEREE WILL BE APPOINTED UNDER CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 631 TO DETERMINE ANY FACTUAL ISSUES IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN SELLER AND PURCHASER ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE AGREEMENT OR THE TRANSACTIONS RELATED THERETO.  SELLER AND PURCHASER SHALL SELECT A SINGLE NEUTRAL REFEREE, WHO SHALL BE A RETIRED STATE OR FEDERAL JUDGE WITH AT LEAST FIVE YEARS OF JUDICIAL EXPERIENCE IN CIVIL MATTERS, WHO SHALL HEAR THE DISPUTE EXCLUSIVELY IN SAN DIEGO COUNTY IN THE STATE OF CALIFORNIA.  IN THE EVENT THAT SELLER AND PURCHASER CANNOT AGREE UPON A REFEREE, THE REFEREE SHALL BE APPOINTED BY THE COURT.  SELLER, ON THE ONE HAND, AND PURCHASER, ON THE OTHER HAND, SHALL EQUALLY BEAR THE FEES AND EXPENSES OF THE REFEREE UNLESS THE REFEREE OTHERWISE PROVIDES IN THE STATEMENT OF DECISION

 

 

 

  

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11.12   Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement.  This Agreement may be executed by facsimile with the same validity as if it were an ink-signed document.

 

11.13   Headings.  The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.

 

11.14   Expenses.  Except as otherwise specified in this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.

 

11.15   No Brokers.  The Purchaser shall indemnify and hold harmless the Seller from any liability for any commission or compensation in the nature of a broker's, finder's, investment banking or similar fees, commissions or expenses (and the costs and expenses of defending against such liability or asserted liability) for which the Seller or any of its constituent partners, members, officers, directors, employees or representatives are responsible to the extent such liability is attributable to any inaccuracy or breach of the representations and warranties contained in Section 6.5.

 

11.16   Bulk Sales Law.  The Seller warrants and agrees to pay and discharge when due all claims of creditors, which could be asserted against the Purchaser by reason of all applicable bulk sale, bulk transfer or similar laws in all jurisdictions.  The Seller shall indemnify and agree to hold Purchaser harmless from, against and in respect of (and shall on demand, reimburse Purchaser for) any losses, damages or expenses suffered or incurred by Purchaser by reason of the failure of the Seller to pay or discharge such claims.  As a condition precedent of the payment by the Purchaser of the Purchase Price, the Seller shall furnish to the Purchaser such evidence as the Purchaser shall reasonably request in order to confirm that the provisions of this section have been complied with.

 

11.17   Further Assurances.  At any time and from time to time after the Closing Date, at the request of the Purchaser and without further consideration, the Seller shall execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation as may be reasonably requested in order to more effectively transfer, convey and assign to the Purchaser, and to confirm the Purchaser’s title to, the Purchased Assets.

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

 

 

 

  

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

 

	 	PURCHASER	 
	 	 	 
	 	ST. BERNARD SOFTWARE, INC.  	 
	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Louis Ryan                                                                    	 
	 	 	Louis Ryan	 
	 	 	President and Chief Executive Officer	 

 

 

	 	SELLER
	 	 
	 	RED CONDOR, INC.
	 	 
	 	 
	 	By:    /s/ Mike Hodges                                                                
	 	 
	 	Name:    Mike Hodges                                                                  
	 	 
	 	Title:   Chairman                                                                         

 

 

 

 

 

  

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

 

 

	 	WITH RESPECT TO SECTION 2.6 AND ARTICLES V AND X ONLY
	 	 
	 	 
	 	NOTEHOLDERS
	 	 
	 	ATA VENTURES II, L.P.
	 	ATA AFFILIATES FUND II, L.P.
	 	ATA INVESTMENT FUND II, L.P.
	 	 
	 	By its General Partner, ATA Management II, LLC 
	 	 
	 	 
	 	By:    /s/ Hatch Graham                                                             
	 	 
	 	Name:    Hatch Graham                                                              
	 	 
	 	Title:   Managing Director                                                         
	 	 
	 	 
	 	By:    /s/ Mike Hodges                                                                
	 	 
	 	Name:    Mike Hodges                                                                  
	 	 
	 	Title:   Chairman                                                                         

 

 

 

 

 

  

61

  

 

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

 

 

	 	WITH RESPECT TO SECTION 2.6 AND ARTICLES V AND X ONLY
	 	 
	 	 
	 	NOTEHOLDERS
	 	 
	 	RWI VENTURES II, L.P.
	 	 
	 	By its General Partner, RWI Ventures Management II LLC
	 	 
	 	 
	 	By:   /s/ William R. Baumel                                                        
	 	 
	 	Name:    William R. Baumel                                                        
	 	 
	 	Title:   Managing Director                                                         
	 	 
	 	 
	 	DONALD AND MAUREEN GREEN LIVING TRUST 
	 	 
	 	 
	 	By:   /s/ Donald Green                                                                     
	 	 
	 	Name:    Donald Green                                                                 
	 	 
	 	Title:   Trustee                                                                               
	 	 
	 	 
	 	THOMAS STEDING 
	 	 
	 	 
	 	/s/ Thomas Steding                                                                      
	 	Name: Thomas Steding 

 

  

62spa.htm

Exhibit 10.2

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of July 28, 2010, among St. Bernard Software, Inc., a Delaware corporation (the “Company”), and the investors identified on the signature pages hereto (each, an “Investor” and collectively, the “Investors”).

 

WHEREAS, the Company wishes to sell to each Investor, and each Investor wishes to purchase, severally and not jointly with the other Investors, on the terms and subject to the conditions set forth in this Agreement, (i) a Convertible Note in the form attached hereto as Exhibit A (collectively, the “Notes”) and (ii) a Warrant in the form attached hereto as Exhibit B (collectively, the “Warrants”).

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Investor hereby agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions.  In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

 

“Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.

 

“Asset Purchase Agreement” shall mean that certain Asset Purchase Agreement of even date herewith by and among Red Condor, Inc., the Company and the Noteholders as defined therein.

 

“Asset Purchase Agreement Closing” shall mean the closing of the transactions contemplated by the Asset Purchase Agreement.

 

“ATA Ventures” shall mean ATA Ventures II, L.P., together with its Affiliates.

 

“Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.

 

  

 

  

“Closing” has the meaning set forth in Section 2.3.

 

“Closing Date” has the meaning set forth in Section 2.3.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, $0.01 par value per share, and any securities into which such common stock may hereafter be reclassified.

 

 “Contract” means any contract, plan, undertaking, understanding, agreement, license, lease, note, mortgage or other binding commitment, whether written or oral.

 

“Conversion Shares” means the shares of Common Stock into which the Notes are convertible.

 

“Court” means any court or arbitration tribunal of the United States, any domestic state, or any foreign country, and any political subdivision thereof.

 

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

 

“GAAP” means United States generally accepted accounting principles and practices in effect from time to time consistently applied.

 

“Governmental Authority” means any governmental or legislative agency or authority (other than a Court) of the United States, any domestic state, or any foreign country, and any political subdivision or agency thereof, and includes any authority having governmental or quasi-governmental powers, including any administrative agency or commission.

 

“Knowledge” means (a) in the case an individual, knowledge of a particular fact or other matter if (i) such individual is actually aware of such fact or other matter, or (ii) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonable investigation concerning the existence of such fact or other matter, and (b) in the case of a Person (other than an individual) such Person will be deemed to have knowledge of a particular fact or other matter if (i) any individual who is serving, or has at any time served, as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, knowledge of such fact or other matter, or (ii) such Person could reasonably be expected to discover or otherwise become aware of such fact or other matter.

 

“Law” means all laws, statutes, ordinances and Regulations of any Governmental Authority including all decisions of Courts having the effect of law in each such jurisdiction.

 

“Lien” means any lien, charge, encumbrance, security interest, right of first refusal or other restrictions of any kind.

 

  

-2-

  

“Litigation” means any suit, action, arbitration, cause of action, claim, complaint, criminal prosecution, investigation, inquiry, demand letter, governmental or other administrative proceeding, whether at law or at equity, before or by any Court, Governmental Authority, arbitrator or other tribunal.

 

“Material Adverse Effect” means any circumstance, change in, or effect on, the business, assets, properties or operations of the Company that, individually or in the aggregate with any other circumstances, changes in, or effects on, the Company and/or its business, assets, properties or operations (a) is, or could be, materially adverse to the business, operations, assets or liabilities (including, without limitation, contingent liabilities), employee relationships, customer or supplier relationships, prospects, results of operations or the condition (financial or otherwise) of the Company, or (b) could reasonably be expected to materially adversely affect the ability of the Company to operate or conduct the Company’s business in the manner in which it is currently operated or conducted, or contemplated to be conducted; except to the extent that any such Material Adverse Effect primarily results from (A) adverse changes or developments in the general economic or regulatory condition (provided that such changes do not affect the Company disproportionately as compared to the Company’s competitors); (B) changes or developments affecting the industry generally in which the Company operates (provided that such changes do not affect the Company disproportionately as compared to the Company’s competitors); or (C) any action or omission of the Company taken at the prior written consent of the Investors.

 

“Order” means any judgment, order, writ, injunction, ruling, stipulation, determination, award or decree of or by, or any settlement under the jurisdiction of, any Court or Governmental Authority.

 

“Permits” means any licenses, permits, pending applications, consents, certificates, registrations, approvals and authorizations.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Purchase Price” means, with respect to a Note and Warrant purchased at Closing, the original amount of such Note.

 

“Regulation” shall mean any rule or regulation of any Governmental Authority.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“RWI Ventures” means RWI Ventures II, L.P., together with its Affiliates.

 

“SEC Reports” shall mean all reports required to be filed by the Company under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two (2) years preceding the date hereof (or such shorter period as the Company was required by law to file such material).

 

  

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“Securities” means the Notes, the Conversion Shares, the Warrants and the Warrant Shares.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

 “Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X promulgated by the Commission under the Exchange Act.

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on which the Common Stock if traded in the over-the-counter market is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the NYSE Amex, The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

 

“Transaction Documents” means this Agreement, the Notes, the Warrants and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Warrant Shares” means the shares of Common Stock into which the Warrants are exercisable.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1           Purchase and Sale.  Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and each Investor agrees to purchase (i) a Note with a principal amount equal to the amount set forth next to such Investor’s name on Annex I hereto and (ii) a Warrant exercisable into a number of shares of Common Stock equal to such Investor’s pro rata portion of an aggregate of 210,111 Warrant Shares, such pro rata portion to be based on the amount that such Investor’s Note bears to the aggregate outstanding principal under all of the Notes issued pursuant to this Agreement.  Annex I hereto shall be updated immediately following the Third Closing (as defined herein) to reflect the number of shares of Common Stock underlying the Warrants issued to the Investors hereunder.

 

2.2           First Closing.  The first closing of the transactions contemplated herein (the “First Closing”) will be held at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., 5 Palo Alto Square, 6th Floor, 3000 El Camino Real, Palo Alto, CA 94306 on July 30, 2010, or at such other time and place as the Company and the Investors shall determine (the "First Closing Date").  At the First Closing, (A) this Agreement and the other Transaction Documents shall have been executed and delivered by the Company and each Investor participating in such First Closing, (B) each of the conditions to the First Closing described in this Agreement shall have been satisfied or waived as specified herein and (C) full payment of each such Investor’s Purchase Price shall have been made by wire transfer of immediately available funds against physical delivery by the Company of duly executed certificates representing the Note and Warrant being purchased by such Investor.

 

  

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2.3           Second Closing.  At any time within 30 days after the First Closing Date, the Company may issue and sell additional Notes and Warrants for up to an aggregate purchase price of $475,000 at a second closing (the “Second Closing”) to existing stockholders of the Company who are accredited investors, as such term is defined in the Securities Act (the “Company Stockholders”).  The Second Closing shall occur at such time and place as the Company shall determine (the "Second Closing Date").  Any such Second Closing shall be made on the terms and conditions set forth in this Agreement.  At the Second Closing, (A) this Agreement and the other Transaction Documents shall have been executed and delivered by the Company and each Company Stockholder participating in such Second Closing, (B) each of the conditions to the Second Closing described in this Agreement shall have been satisfied or waived as specified herein and (C) full payment of each such Company Stockholder’s Purchase Price shall have been made by wire transfer of immediately available funds against physical delivery by the Company of duly executed certificates representing the Note and Warrant being purchased by such Company Stockholder.  Upon the consummation of the Second Closing, each such Company Stockholder shall be considered an Investor for purposes hereunder and Annex I shall be amended by the Company to reflect the sale of the Notes and Warrants in the Second Closing.

 

2.4           Third Closing.  At any time following the Second Closing and on or prior to December 31, 2010, and provided that the ATA/RWI Investors (as defined herein) are not at such time in breach of Section 4.8 hereof, the Company shall issue and sell additional Notes and Warrants for up to an aggregate purchase price of $25,000 at a third closing (the “Third Closing” and each of the First Closing, the Second Closing and the Third Closing, a “Closing”) to ATA Ventures and/or RWI Ventures if so requested in writing by ATA Ventures or RWI Ventures, respectively.  Each of ATA Ventures on the one hand and RWI Ventures on the other hand shall have the right to purchase up to its respective pro rata portion of the Notes and Warrants to be sold in the Third Closing based on their relative ownership in the Company immediately prior to the Third Closing.  The Third Closing shall occur on or before December 31, 2010, or at such time and place as the Company and each of ATA Ventures and RWI Ventures shall determine (the "Third Closing Date" and each of the First Closing Date, the Second Closing Date, and the Third Closing Date, a “Closing Date”).  Any such Third Closing shall be made on the terms and conditions set forth in this Agreement.  At the Third Closing, (A) this Agreement and the other Transaction Documents shall have been executed and delivered by the Company and each ATA/RWI Investor participating in such Third Closing, (B) each of the conditions to the Third Closing described in this Agreement shall have been satisfied or waived as specified therein and (C) full payment of each such ATA/RWI Investor’s Purchase Price shall have been made by wire transfer of immediately available funds against physical delivery by the Company of duly executed certificates representing the Note and Warrant being purchased by such ATA/RWI Investor.  Upon the consummation of the Third Closing, Annex I shall be amended by the Company to reflect the sale of the Notes and Warrants in the Third Closing.

 

  

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company.  The Company hereby makes the following representations and warranties to each Investor as of the date hereof and the applicable Closing Date:

 

(a)           Organization and Qualification.  The Company is (i) a corporation duly organized validly existing and in good standing under the laws of Delaware; (ii) duly licensed or qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions listed on Schedule 3.1(a), such jurisdictions being the only jurisdictions in which the failure to be so licensed or qualified could have a Material Adverse Effect on the Company.

 

(b)           Authorization; Enforceability.  The Company has the corporate power and authority to execute, deliver and perform this Agreement and the other Transaction Documents.  The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated herein and therein have been duly authorized and approved by the Company, and no other action on the part of the Company is necessary in order to give effect thereto. This Agreement and each of the other Transaction Documents to be executed and delivered by the Company have been duly executed and delivered by, and constitute the legal, valid and binding obligations of, the Company, enforceable against the Company, in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought.

 

(c)           No Violation or Conflict.  None of (a) the execution and delivery by the Company of this Agreement and the other Transaction Documents to be executed and delivered by the Company, (b) consummation by the Company of the transactions contemplated by this Agreement and the other Transaction Documents, or (c) the performance of this Agreement and the other Transaction Documents required by this Agreement to be executed and delivered by the Company at the Closing, will (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Company, (ii) conflict with or violate any Law, Order or Permit applicable to the Company  or (iii) result in any breach or violation of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Company’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Lien on any of the properties or assets of the Company pursuant to, any Contract or other instrument or obligation to which the Company is a party or by which the Company or its properties are bound or affected except, in the case of clause (b) or (c) above, for any such conflict, breach, violation, default or other occurrence that would not individually or in the aggregate, have a Material Adverse Effect.

 

  

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(d)           Governmental Consents and Approvals.  The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company do not and will not require any consent, approval, authorization, Permit or other order of, action by, filing with or notification to, any Governmental Authority.

 

(e)           Brokers.  The Company has not employed any financial advisor, broker or finder in connection with the transactions contemplated by this Agreement.

 

(f)           Capitalization.  As of July 27, 2010, the authorized capital stock of the Company consists of 50,000,000 shares of common stock, $0.01 par value per share, of which 13,501,043 shares are issued and outstanding and 5,000,000 shares of preferred stock, $0.01 par value per share, of which no shares are issued and outstanding.  The issuance of the Notes and the Warrants is duly authorized and free from all taxes, liens and charges with respect to the issue thereof.  Upon conversion in accordance with the terms of the Notes or exercise in accordance with the Warrants, as the case may be, the Conversion Shares and Warrant Shares, respectively, when issued will be validly issued, fully paid and nonassessable, free from all taxes, liens and charges with respect to the issue thereof.  The designations, powers, preferences, rights (including the liquidation rights), qualifications, limitations and restrictions in respect of the capital stock of the Company are as set forth in the Company’s Certificate of Incorporation, as amended, a copy of which has been provided to the Company.  As of July 27, 2010, the Company has authorized 4,448,998 shares of common stock for issuance to employees, consultants and directors pursuant to its St. Bernard Software, Inc., 2005 Stock Option Plan and the St. Bernard Software, Inc., 2006 Recruitment Equity Incentive Plan, of which options to purchase 3,212,397 shares are issued and outstanding as of such date.  As of July 27, 2010, the Company has issued warrants to purchase 1,153,850 shares of common stock that are issued and outstanding.  Except as set forth in the SEC Reports, there are no outstanding subscriptions, options, warrants, rights, calls or convertible securities, stock appreciation rights (phantom or otherwise), joint venture, partnership or other commitments of any nature relating to shares of the capital stock of the Company and the Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof.  Except as set forth in the SEC Reports, there are no shareholder agreements, voting trusts, proxies or other agreements, instruments or understandings with respect to the voting of the capital stock of the Company.

 

(g)           Absence of Changes.  Since the date of the Company's latest audited financial statements included in the SEC Reports and except as disclosed in the SEC Reports or in connection with the Asset Purchase Agreement, (i) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (ii) the Company has not altered its method of accounting or the identity of its auditors, (iii) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (iv) the Company has not issued any equity securities to any officer or director, except pursuant to existing Company stock option and employee plans.

 

  

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(h)           SEC Reports.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports, as subsequently amended, comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in all material respects in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain footnotes required by GAAP, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments.

 

(i)           Litigation.  Except as set forth in the SEC Reports, there is no Litigation or investigation pending or, to the Knowledge of the Company, threatened in writing against, or otherwise adversely affecting, the business of the Company before any Court or Governmental Authority.  The Company is not subject to any outstanding Litigation or Order, which, individually or in the aggregate, would prevent, hinder or delay the Company from consummating the transactions contemplated by this Agreement.

 

(j)           Disclaimer of Other Representations and Warranties.  The Company does not make, has not made and shall not be deemed to have made, any representations or warranties relating to its business, operations, properties, assets or otherwise in connection with the transactions contemplated hereby, other than those expressly set forth in this Section 3.1.  Without limiting the generality of the foregoing, the Company has not made and shall not be deemed to have made, any representations or warranties as to the information contained in any presentation relating to the Company in connection with the transactions contemplated hereby, and no statement made in any such presentation shall be deemed a representation or warranty hereunder or otherwise.  It is understood that any cost estimates, projections or other predictions, any data, any financial information or any memoranda or presentations are not and shall not be deemed to be or to include representations or warranties of Company.

 

(k)           Disclosure.  No representation or warranty of the Company contained in this Agreement and the other Transaction Documents contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading or omits or will omit to state a material fact necessary in order to provide the Investors with full and proper information as to the business, financial condition, assets, results of operation or prospects of the Company and the value of its properties and assets.  Any reference to assets of the Company in this Agreement shall exclude any assets purchased by the Company pursuant to the Asset Purchase Agreement.

 

  

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3.2           Representations and Warranties of the Investors.  Each Investor hereby, for itself and for no other Investor, represents and warrants to the Company as follows:

 

(a)           Organization.  Such Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations thereunder.

 

(b)           No Registration.  Such Investor understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.

 

(c)           Investment Intent.  Such Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same.  Such Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participation to such person or entity or to any third person or entity with respect to any of the Securities.

 

(d)           Investment Experience.  Such Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company and acknowledges that the Investor can protect its own interests.  Such Investor has such knowledge and experience in financial and business matters so that the Investor is capable of evaluating the merits and risks of its investment in the Company.

 

(e)           Speculative Nature of Investment.  Such Investor understands and acknowledges that an investment in the Company is highly speculative and involves substantial risks. Such Investor can bear the economic risk of the Investor’s investment and is able, without impairing the Investor’s financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of the Investor’s investment.

 

(f)           Access to Data.  Such Investor has had an opportunity to ask questions of, and receive answers from, the officers of the Company concerning the Securities, the Agreement, the exhibits and schedules attached hereto and the transactions contemplated by the Agreement, as well as the Company’s business, management and financial affairs, which questions were answered to its satisfaction. Such Investor believes that it has received all the information the Investor considers necessary or appropriate for deciding whether to purchase the Securities.  Such Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.  Such Investor also acknowledges that it is relying solely on its own counsel and not on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Agreement.

 

  

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(g)           Accredited Investor.  Such Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Commission under the Securities Act and shall submit to the Company such further assurances of such status as may be reasonably requested by the Company, including without limitation, the residency or principal place of business of the Investor.

 

(h)           Rule 144.  Such Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available.  Such Investor is aware of the provisions of Rule 144 promulgated under the Securities Act which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “brokers’ transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Exchange Act and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable.  Such Investor acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. Such Investor understands that, although Rule 144 is not exclusive, the Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.

 

(i)           Authorization.  Such Investor has all requisite power and authority to execute and deliver the Agreement, to receive the Securities hereunder as contemplated herein and to carry out and perform its obligations under the terms of the Agreement.  All action on the part of the Investor necessary for the authorization, execution, delivery and performance of the Agreement, and the performance of all of the Investor’s obligations under the Agreement, has been taken or will be taken prior to the applicable Closing Date.  The Agreement, when executed and delivered by the Investor, will constitute valid and legally binding obligations of the Investor, enforceable in accordance with their terms except: (i) to the extent that the indemnification provisions contained in the Agreement may be limited by applicable law and principles of public policy, (ii) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (iii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies or by general principles of equity.  No consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to be obtained by the Investor in connection with the execution and delivery of the Agreement by the Investor or the performance of the Investor’s obligations hereunder.

 

  

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(j)           Brokers or Finders.  Such Investor has not engaged any brokers, finders or agents, and neither the Company nor any other Investor has, nor will, incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Agreement.

 

(k)           Tax Advisors.  Such Investor has reviewed with its own tax advisors the U.S. federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Agreements. With respect to such matters, such Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Such Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Agreements.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           (a)           Except with respect to any sale or transfer of the Notes and/or Warrants to any Affiliate of an Investor, any such Investor desiring to sell or transfer such Investor’s Notes and/or Warrants shall obtain the prior written consent of the Company.  The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of the Securities other than pursuant to an effective registration statement, to the Company, or to an Affiliate of an Investor, the Company may also require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.

 

(b)           Certificates evidencing the Notes and the Warrants will contain a legend in substantially the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE PLEDGED AS COLLATERAL FOR ANY SHORT SALE OF THE SHARES OF THE COMPANY.

 

  

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Certificates evidencing the Conversion Shares and the Warrant Shares will contain a legend in substantially the following form, until such time as they are not required under Section 4.1(c):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

(c)           Certificates evidencing the Conversion Shares and/or Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b)): (i) following a sale of such Conversion Shares and/or Warrant Shares pursuant to an effective registration statement (including the Registration Statement) so long as the purchaser of the Conversion Shares and/or Warrant Shares is not an Affiliate of the Company, or (ii) following a sale of such Conversion Shares and/or Warrant Shares pursuant to Rule 144 (or any successor provision), subject to receipt by the Company of customary documentation reasonably acceptable to the Company in connection therewith or (iii) while such Conversion Shares and/or Warrant Shares are eligible for resale under Rule 144 (or any successor provision) without regard to the number of shares that may be sold.  Following such time as restrictive legends are not required to be placed on certificates representing Conversion Shares and/or Warrant Shares, the Company will, not later than five Trading Days following the delivery by an Investor to the Company or the Company’s transfer agent of a request for legend removal and a certificate representing such Conversion Shares and/or Warrant Shares containing a restrictive legend, deliver or cause to be delivered to such Investor a certificate representing such Conversion Shares and/or Warrant Shares that is free from all restrictive and other legends, subject to the Company’s receipt of all reasonably required representations and documentation from the Investor.

 

  

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4.2           Securities Laws Disclosure; Publicity.  Within four Business Days following the date of this Agreement, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the Exchange Act and attaching the material Transaction Documents (including, without limitation, this Agreement, the form of the Note and the form of Warrant) as exhibits to such filing.  Except as may be required by applicable law and/or this Agreement, the Company shall not use, directly or indirectly, any Investor’s name or the name of any of its Affiliates in any advertisement, announcement, press release or other similar communication unless it has received the prior written consent of such Investor or its Affiliate, as the case may be, for the specific use contemplated or as otherwise required by applicable law or regulation.

 

4.3           Non-Public Information.  The Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Investor or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Investor shall have executed a written agreement regarding the confidentiality and use of such information.  The Company understands and confirms that each Investor shall be relying on the foregoing representations in effecting transactions in securities of the Company.

 

4.4           Use of Proceeds.  The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes.

 

4.5           Reservation of Shares.  The Company shall take at all times have authorized, and reserved for the purpose of issuance, such number of shares of Common Stock as shall be necessary to effect the full conversion of the Notes that have been issued hereunder and the full exercise of the Warrants issued hereunder (the “Share Reserve”).  If at any time the Share Reserve is insufficient to effect the full conversion of the Notes then outstanding or the full exercise of the Warrants outstanding, the Company shall, promptly (and in any event within 90 days) increase the Share Reserve accordingly.

 

4.6           Company’s Instructions to Transfer Agent.  On or prior to the applicable Closing Date, the Company shall execute and deliver irrevocable written instructions to the transfer agent for its Common Stock (the “Transfer Agent”), and provide each Investor with a copy thereof, directing the Transfer Agent (i) to issue certificates representing Conversion Shares upon conversion of the Notes and receipt of a valid Conversion Notice (as defined in the Notes) from an Investor, in the amount specified in such Conversion Notice, in the name of such Investor or its nominee, (ii) to issue certificates representing Warrant Shares upon exercise of the Warrants and (iii) to deliver such certificates to such Investor no later than the close of business on the third (3rd) Trading Day following the related Conversion Date (as defined in the Notes) or Exercise Date (as defined in the Warrant), as the case may be.  Such certificates may bear legends pursuant to applicable provisions of this Agreement or applicable law.  The Company shall instruct the transfer agent that, in lieu of delivering physical certificates representing shares of Common Stock to an Investor upon conversion of the Notes, or exercise of the Warrants, and as long as the Transfer Agent is a participant in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, and such Investor has not informed the Company that it wishes to receive physical certificates therefor, and no restrictive legend is required to appear on any physical certificate if issued, the transfer agent may effect delivery of Conversion Shares or Warrant Shares, as the case may be, by crediting the account of such Investor or its nominee at DTC for the number of shares for which delivery is required hereunder within the time frame specified above for delivery of certificates.  The Company represents to and agrees with each Investor that it will not give any instruction to the Transfer Agent that will conflict with the foregoing instruction or otherwise restrict such Investor’s right to convert the Notes or to receive Conversion Shares in accordance with the terms of the Notes or to exercise the Warrant or to receive Warrant Shares upon exercise of the Warrants.  In the event that the Company’s relationship with the Transfer Agent should be terminated for any reason, the Company shall use its commercially reasonable efforts to cause the Transfer Agent to continue acting as transfer agent pursuant to the terms hereof until such time that a successor transfer agent is appointed by the Company and receives the instructions described above.

 

  

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4.7           Board Seat.  Immediately following the First Closing, the Company agrees to use commercially reasonable efforts to cause the appointment and maintenance in office a designee of RWI Ventures (the “RWI Designee”) to the Company’s Board of Directors (the “Board”), with William R. Baumel being the initial RWI Designee, so long as RWI Ventures holds in the aggregate at least 50% of (i) the shares of Common Stock issued to it pursuant to the Asset Purchase Agreement and (ii) the shares of Common Stock issued or issuable upon conversion and/or exercise of the Notes and Warrants purchased by RWI Ventures hereunder (together, the “Condition”).  RWI Ventures agrees to use commercially reasonable efforts to cause each RWI Designee to enter into an agreement with the Company that such RWI Designee shall agree to resign from the Board in the event that the Condition is not satisfied unless mutually agreed otherwise by the Company and RWI Ventures.

 

4.8           Second Closing Guarantee.  ATA Ventures and RWI Ventures (together, the “ATA/RWI Investors”) hereby agree that to the extent that the aggregate purchase price of the Notes and Warrants sold in the Second Closing to Investors other than the ATA/RWI Investors is less than $175,000 (the actual aggregate of purchase price sold to such other Investors being the "Other Investor Amount"), then ATA Ventures on the one hand and RWI Ventures on the other hand, severally and not jointly, shall each purchase at the Second Closing their respective pro rata share of an aggregate amount equal to $175,000 minus the Other Investor Amount, with their respective pro rata shares to be determined based on their relative ownership in the Company following the First Closing.

 

ARTICLE V.

CONDITIONS PRECEDENT TO CLOSING

 

5.1           Conditions Precedent to the Obligations of Investors.  The obligations of each Investor to purchase its respective Note and Warrant at each Closing are subject to the fulfillment, on or before such Closing, of each of the following conditions, unless otherwise waived:

 

(a)           Representations, Warranties and Covenants.  The representations and warranties of the Company contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing (other than such representations and warranties that are qualified by materiality, which shall be true and correct as of the Closing), with the same force and effect as if made as of the Closing Date, other than such representations and warranties that are expressly made as of another date, in which case such representations and warranties shall be true only as of such date.

 

  

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(b)            Performance.  The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by the Company on or before such Closing.

 

(c)           SVB Consent.  Silicon Valley Bank shall have consented in writing to the consummation of the transactions contemplated by the Asset Purchase Agreement.

 

(d)           Asset Purchase Agreement.  The Asset Purchase Agreement Closing shall have occurred or shall occur simultaneously with such Closing.

 

5.2           Conditions Precedent to the Obligations of the Company.  The obligations of the Company to sell the Notes and Warrants to the Investors at each Closing are subject to the fulfillment, on or before such Closing, of each of the following conditions, unless otherwise waived:

 

(a)           Representations, Warranties and Covenants.  The representations and warranties of each Investor contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing (other than such representations and warranties that are qualified by materiality, which shall be true and correct as of the Closing), with the same force and effect as if made as of the Closing Date, other than such representations and warranties that are expressly made as of another date, in which case such representations and warranties shall be true only as of such date.

 

(b)            Performance.  The Investors shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by the Investors on or before such Closing.

 

(c)           SVB Consent.  Silicon Valley Bank shall have consented in writing to the consummation of the transactions contemplated by the Asset Purchase Agreement.

 

(d)           Asset Purchase Agreement.  The Asset Purchase Agreement Closing shall have occurred or shall occur simultaneously with such Closing.

 

ARTICLE VI.

MISCELLANEOUS

 

6.1           Fees and Expenses.  Each Investor and the Company shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents.  The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Securities under this Agreement.

 

  

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6.2           Entire Agreement.  The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

6.3           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 specified in this Section prior to 5:00 p.m. (eastern time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:00 p.m. (eastern time) on any Trading Day, (c) the Trading 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 follows:

 

	 	
If to the Company: 

	
St. Bernard Software, Inc.

15015 Avenue of Science

San Diego, CA 92128

Attn: President

 

Facsimile: 858-676-2299

 

 

	 	
With a copy to:

	
Mintz, Levin, Cohn, Ferris,

Glovsky and Popeo, P.C.

5 Palo Alto Square, 6th Floor

3000 El Camino Real

Palo Alto, CA 94306

Attn:  Brady Berg

Facsimile: 650-251-7739

 

 

	 	
If to an Investor:

	
To the address set forth under such Investor’s name on the signature pages hereof; or such other address as may be designated in writing hereafter, in the same manner, by such Person.

 

  

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6.4           Amendments; Waivers.  No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Investors holding at least sixty-six and two-thirds percent (66 2/3%) of the outstanding and unpaid principal amount of the Notes; provided that any amendment or waiver which adversely affects the rights of any of the Investors in a manner that is disproportionate to the adverse effect on the rights of the other Investors, respectively, shall require the written consent of sixty-six and two-thirds percent (66 2/3%) of the outstanding and unpaid principal amount of the Notes held by such disproportionately affected Investors.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.  Each Investor acknowledges that by the operation of this paragraph, the holders of sixty-six and two-thirds percent (66 2/3%) of the outstanding and unpaid principal amount of the Notes issued hereunder will have the right and power to diminish or eliminate all rights of such Investor under this Agreement.

 

6.5           Construction.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.  This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

 

6.6           Successors and Assigns.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Any transferee of the Notes or Warrants in accordance with the terms hereof shall, as a condition precedent to such transfer, execute an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term “Investor” shall be deemed to refer to such transferee as though such transferee were an original signatory hereto.

 

6.7           Governing Law; Jurisdiction. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the Law of the State of California without giving effect to the conflict of law principles thereof.  Any legal action or proceeding with respect to this Agreement shall be brought in the courts of State of California or of the United States of America located in San Diego, California.  By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.  The parties hereby irrevocably waive an objection or defense that they now or hereafter have to the assertion of personal jurisdiction by any court in any such action or to the laying of the venue of any such action in any such court, and hereby waive, to the extent not prohibited by law, and agree not to assert, by way of motion, as a defense, or otherwise, in any such proceeding, any claim that it is not subject to the jurisdiction of the above-named courts for such proceedings.   Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.   If either party shall commence a legal proceeding to enforce any provisions of this Agreement, then the prevailing party in such legal proceeding shall be entitled to recover its fees and other costs and expenses (including reasonable attorneys’ fees) incurred with the investigation, preparation and prosecution of such legal proceeding.

 

  

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6.8           Survival.  The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Securities.

 

6.9           Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

 

6.10           Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

6.11           Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Investors and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

6.12           Independent Nature of Investors’ Obligations and Rights.  The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document.  The decision of each Investor to purchase Securities pursuant to the Transaction Documents has been made by such Investor independently of any other Investor.  Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document.  Each Investor acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no Investor will be acting as agent of such Investor in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents.  Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

SIGNATURE PAGES FOLLOW]

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

 

 

	 	
ST. BERNARD SOFTWARE, INC.

By:  /s/ Louis Ryan                                                  

Title: President and Chief Executive Officer

 

 

 

 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR INVESTORS FOLLOW]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

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IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

 

 

 

ATA Ventures II, L.P.,

by its General Partner, ATA Management II, LLC

 

ATA Affiliates Fund II, L.P.,

by its General Partner, ATA Management II, LLC

 

ATA Investment Fund II, L.P.,

by its General Partner, ATA Management II, LLC

 

 

By: /s/ Hatch Graham              

Title: Managing Director

 

By: /s/ Michael Hodges         

Title: Venture Partner

 

 

RWI Ventures II, L.P.

 

 

By: /s/ William R. Baumel         

Title: Managing Member

 

 

Donald and Maureen Green Living Trust

 

By: /s/ Donald Green           

Title: Trustee

 

 

 

 

 

 

 

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