Asure Software Inc.
ASURE SOFTWARE INC (Form: 10-Q, Received: 11/14/2011 17:31:11)


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

 
FORM 10-Q
 


(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR
 
o
TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
Commission file number: 0-20008
 
ASURE SOFTWARE, INC.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
74-2415696
(State of other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
110 Wild Basin Road
   
Austin, Texas
 
78746
(Address of Principal Executive Offices)
 
(Zip Code)
 
(512) 437-2700
(Registrant’s Telephone Number, including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

      Large accelerated filer o
     Accelerated filer o
     Non-accelerated filer o
     Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o     No x

As of November 11, 2011, the registrant had outstanding 3,084,521 shares of its Common Stock, $0.01 par value. 
 
 
 

 
TABLE OF CONTENTS
 
   
Page
   
Number
PART I - FINANCIAL INFORMATION
 
     
Item 1.
3
 
3
 
4
 
5
 
6
Item 2.
14
Item 3.
18
Item 4.
18
     
PART II - OTHER INFORMATION
 
     
Item 1A.
19
Item 6.
19
     
20
 
 
 

 
PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
 
   
September 30,
2011
   
December 31,
2010
 
ASSETS
 
(Unaudited)
       
  Current Assets:
           
  Cash and cash equivalents
 
$
6,082
   
$
1,070
 
  Accounts receivable, net of allowance for doubtful accounts of $17 and $46 at
        September 30, 2011 and December 31, 2010, respectively
   
979
     
1,239
 
  Notes receivable
   
120
     
62
 
  Inventory
   
6
     
25
 
  Prepaid expenses and other current assets
   
227
     
255
 
Total Current Assets
   
7,414
     
2,651
 
  Notes receivable
   
-
     
60
 
  Property and equipment, net
   
221
     
281
 
  Intangible assets, net
   
2,258
     
2,844
 
  Total Assets
 
$
9,893
   
$
5,836
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
  Current Liabilities:
               
  Accounts payable
 
$
686
   
$
560
 
  Line of credit
   
500
     
-
 
  Accrued compensation and benefits
   
72
     
95
 
  Other accrued liabilities
   
399
     
361
 
  Deferred revenue
   
2,522
     
1,955
 
Total Current Liabilities
   
4,179
     
2,971
 
  Long-term deferred revenue
   
150
     
116
 
  Subordinated notes   (related parties $800)
   
1,450
     
-
 
  Subordinated convertible notes   (related parties $800)
   
1,400
     
-
 
  Other long-term obligations
   
4
     
25
 
Total Liabilities
   
7,183
     
3,112
 
                 
  Stockholders’ Equity:
               
  Preferred stock, $.01 par value; 1,500 shares authorized; none issued or outstanding
   
-
     
-
 
  Common stock, $.01 par value; 6,500 shares authorized; 3,341 and 3,341 shares
     issued; 3,085 and 3,085 shares outstanding at September 30, 2011 and December 31, 2010, respectively
   
334
     
334
 
  Treasury stock at cost, 256 shares at September 30, 2011 and December 31, 2010, respectively
   
(5,017
)
   
(5,017
)
  Additional paid-in capital
   
271,033
     
270,978
 
  Accumulated deficit
   
(263,545
)
   
(263,541
)
  Accumulated other comprehensive loss
   
(95
)
   
(30
)
Total Stockholders’ Equity
   
2,710
     
2,724
 
Total Liabilities and Stockholders’ Equity
 
$
9,893
   
$
5,836
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)

   
FOR THE
THREE MONTHS ENDED
SEPTEMBER 30,
   
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues
 
$
2,502
   
$
2,542
   
$
7,293
   
$
7,627
 
Cost of Sales
   
(486
)
   
(601
)
   
(1,363
)
   
(1,741
)
Gross Margin
   
2,016
     
1,941
     
5,930
     
5,886
 
                                 
Operating Expenses:
                               
Selling, general and administrative
   
1,526
     
1,507
     
4,340
     
4,391
 
Research and development
   
366
     
394
     
1,150
     
1,100
 
Amortization of intangible assets
   
150
     
150
     
449
     
448
 
Loss on lease amendment
   
-
     
-
     
-
     
1,203
 
Total Operating Expenses
   
2,042
     
2,051
     
5,939
     
7,142
 
                                 
Loss From Operations
   
(26
   
(110
)
   
(9
)
   
(1,256
)
                                 
Other Income (Expenses):
                               
Interest income
   
2
     
-
     
8
     
2
 
Foreign currency translation gain (loss)
   
67
     
(24
)
   
47
     
(41
)
Loss (gain) on sale of assets
   
-
     
(18
)
   
-
     
5
 
Interest expense and other
   
(5
)
   
(20
)
   
(20
)
   
(57
)
Gain on sale of investment
   
-
     
130
     
-
     
130
 
Total Other Income (Expense)
   
64
     
68
     
35
     
39
 
                                 
Income (Loss) Before Income Taxes
   
38
     
(42
)
   
26
     
(1,217
)
(Provision) Benefit For Income Taxes
   
(9
)
   
42
     
(30
)
   
14
 
Net Income (Loss)
 
$
29
   
$
0
   
$
(4
)
 
$
(1,203
)
                                 
Basic  Income (Loss) Per Share
 
$
0.01
   
$
0
   
$
(0.00
)
 
$
(0.39
)
Diluted Income (Loss) Per Share
 
$
0.01
   
$
0
   
$
(0.00
)
 
$
(0.39
)
                                 
Shares Used In Computing Basic Income (Loss) Per Share
   
3,085
     
3,085
     
3,085
     
3,088
 
Shares Used In Computing Diluted Income (Loss) Per Share
   
3,094
     
3,085
     
3,085
     
3,088
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except per share data)
(Unaudited)
 
   
FOR THE NINE MONTHS 
ENDED 
SEPTEMBER 30,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
 
$
(4
)
 
$
(1,203
Adjustments to reconcile net loss to net cash used in operations:
               
Depreciation and amortization
   
702
     
776
 
Amortization of leasehold advance and lease impairment
   
-
     
(758
)
Provision for doubtful accounts
   
(29
)
   
29
 
Share-based compensation
   
55
     
41
 
(Gain) loss on sale/disposal of assets
   
-
     
(23
)
Loss on disposal of subtenant leasehold improvements
   
-
     
199
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
289
     
151
 
Inventory
   
19
     
(36
Notes receivable
   
2
     
(120
)
Prepaid expenses and other current assets
   
28
     
(53
)
Accounts payable
   
126
     
(185
)
Accrued expenses and other long-term obligations
   
30
     
(90
Deferred revenue
   
601
     
84
 
Net cash used in operating activities
   
1,819
     
(1,188
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
                 
Net purchases of property and equipment
   
(60
)
   
(131
)
Net cash used in investing activities
   
(60
)
   
(131
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments on capital leases
   
(36
)
   
(36
)
Proceeds from a line of credit, subordinated notes payable and convertible notes payable to fund the ADI acquisition ($1,600 provided by related parties)
   
 3,350
     
-
 
Purchase of treasury stock
   
-
     
(110
)
Net cash provided by (used in) financing activities
   
3,314
     
(146
)
                 
Effect of translation exchange rates
   
(61)
     
39
 
                 
Net increase (decrease) in cash and equivalents
   
5,012
     
(1,426
)
Cash and equivalents at beginning of period
   
1,070
     
2,263
 
Cash and equivalents at end of period
 
$
6,082
   
$
837
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
 
NOTE 1 – GENERAL AND BASIS OF FINANCIAL STATEMENTS
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and accordingly, do not include all information and footnotes required under U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, these interim financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of the financial position of Asure Software, Inc. (“Asure” or the “Company”) as of September 30, 2011 and December 31, 2010, the results of operations for the three and nine months ended September 30, 2011 and 2010, and the cash flows for the nine months ended September 30, 2011 and 2010. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010.  The results for the interim periods are not necessarily indicative of results for a full fiscal year.

As of September 30, 2011, Asure’s principal source of liquidity consisted of $6,082 of current cash and cash equivalents as well as future cash generated from operations. The increase of cash and cash equivalents of $5,012 for the nine months ended September 30, 2011 is primarily due to $2,850 in debt issuance, a $500 line of credit and $1,662 cash generated from operations.  The cash received from debt issuance, line of credit and a portion of operating cash was used in the acquisition of  substantially all the assets of ADI Time, LLC (see Note 11- Subsequent Events).  The Company believes that it has and/or will generate sufficient cash for its short and long term needs. The Company is continuing to reduce expenses and thus may utilize its cash balances in the short-term to reduce long-term costs. The Company expects that it will be able to generate positive cash flows from operating activities for the remainder of 2011.   

Management is focused on growing its existing software operations and looking to make additional strategic acquisitions in the near future.  In the short-term, any acquisitions will be funded with equity, cash on the balance sheet, cash from operations, and cash or debt raised from outside sources.
 
There is no assurance that the Company will be able to grow its cash balances or limit its cash consumption and thus maintain sufficient  cash balances, and it is possible that the Company’s future business demands may lead to cash utilization at levels greater than recently experienced. Management believes that the Company has sufficient capital and liquidity to fund and cultivate the growth of its current and future operations for the next 12 months and thereafter.  However, due to uncertainties related to the timing and costs of these efforts, Asure may need to raise additional capital in the future.  Yet, there is no assurance that the Company will be able to raise additional capital if and when it is needed.
 
NOTE 2 – INTANGIBLE ASSETS
 
Asure accounted for its historical acquisitions in accordance with FASB ASC 805, Business Combinations (FASB ASC 805).  The Company recorded the amount exceeding the fair value of net assets acquired at the date of acquisition as goodwill. The Company recorded intangible assets apart from goodwill if the assets had contractual or other legal rights or if the assets could be separated and sold, transferred, licensed, rented or exchanged.  Asure’s goodwill and intangible assets relate to its acquisition of iSarla Inc. and the iEmployee operations.
 
In accordance with FASB ASC 350, Asure reviews and evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable.  When such factors and circumstances exist, including those noted above, the Company compares the assets’ carrying amounts against the estimated undiscounted cash flows to be generated by those assets over their estimated useful lives.  If the carrying amounts are greater than the undiscounted cash flows, the fair values of those assets are estimated by discounting the projected cash flows.  Any excess of the carrying amounts over the fair values are recorded as impairments in that fiscal period.
 
On May 3, 2010, the Company and Ceridian Corporation (“Ceridian”), a reseller of the Company’s iEmployee products, entered into an agreement by which joint customers of the Company and Ceridian were given until July 31, 2010 to choose either to  (i) contract directly with the Company to continue using our goods and services, or (ii) continue using Ceridian’s offerings that may not include the Company’s products and services.  Depending on the number of customers that contracted with Asure and the related pricing, the cash flows associated with the Ceridian customers may vary from historical levels.  Thus the Company tested the Ceridian contract intangible asset for impairment in accordance with FASB ASC 350.  The Company compared the asset’s carrying amount against the estimated undiscounted cash flows to be generated from the customers that contracted with Asure over the estimated useful life of the intangible asset.  The undiscounted cash flows from the intangible asset exceeded the carrying value of the intangible asset and thus no impairment was required.
 
 
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)

The gross carrying amount and accumulated amortization of the Company’s intangible assets as of September 30, 2011 and December 31, 2010 are as follows:
 
         
September 30, 2011
 
   
Amortization
         
Accumulated
       
Intangible Asset
 
Period (Years)
   
Gross
   
Amortization
   
Net
 
                         
Developed Technology
   
5
   
$
915
   
$
(730
 
$
185
 
Customer Relationships
   
8
     
4,015
     
(2,000
   
2,015
 
Trade Names
   
5
     
288
     
(230
   
58
 
Covenant not-to-compete
   
4
     
150
     
(150
   
0
 
           
$
5,368
   
$
(3,110
)
 
$
2,258
 
 
         
December 31, 2010
 
   
Amortization
         
Accumulated
       
Intangible Asset
 
Period (Years)
   
Gross
   
Amortization
   
Net
 
                         
Developed Technology
   
5
   
$
915
   
$
(592
 
$
323
 
Customer Relationships
   
8
     
4,015
     
(1,624
   
2,391
 
Trade Names
   
5
     
288
     
(187
   
101
 
Covenant not-to-compete
   
4
     
150
     
(121
   
29
 
           
$
5,368
   
$
(2,524
)
 
$
2,844
 
 
Amortization expense is recorded using the straight-line method over the estimated economic useful lives of the intangible assets, as noted above.  Amortization expense for the three months ended September 30, 2011 and 2010 was $150 included in Operating Expenses and $45 included in Cost of Goods Sold.  Amortization expense for the nine months ended September 30, 2011 and 2010 was $449 and $448 included in Operating Expenses, respectively and $137 included in Cost of Goods Sold. 
 
NOTE 3 – FAIR VALUE MEASUREMENTS
 
Effective August 1, 2008, Asure adopted ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles and expands disclosures about fair value measurements.  The adoption of FASB ASC 820 did not have a material impact to the Company’s consolidated financial statements.
 
 
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
 
ASC 820 establishes a three-tier fair value hierarchy, which is based on the reliability of the inputs used in measuring fair values. These tiers include:
                          
 
Level 1:
Quoted prices in active markets for identical assets or liabilities;

 
Level 2:
Quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active for identical or similar assets or liabilities; and model-driven valuations whose significant inputs are observable; and
 
 
Level 3:
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
The following table presents the fair value hierarchy for the Company’s financial assets (cash and cash equivalents) measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010:
 
         
Fair Value Measure at September 30, 2011
 
   
Total
   
Quoted
   
Significant
       
   
Carrying
   
Prices
   
Other
   
Significant
 
   
Value at
   
in Active
   
Observable
   
Unobservable
 
   
September 30,
   
Market
   
Inputs
   
Inputs
 
Description
 
2011
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Cash and cash equivalents
 
$
6,082
   
$
6,082
   
$
   
$
 
                                 
Total
 
$
6,082
   
$
6,082
   
$
   
$
 
                                 
         
Fair Value Measure at December 31, 2010
 
   
Total
   
Quoted
   
Significant
       
   
Carrying
   
Prices
   
Other
   
Significant
 
   
Value at
   
in Active
   
Observable
   
Unobservable
 
   
December 31,
   
Market
   
Inputs
   
Inputs
 
Description
 
2010
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Cash and cash equivalents
 
$
1,070
   
$
1,070
   
$
   
$
 
                                 
Total
 
$
1,070
   
$
1,070
   
$
   
$
 
 
 
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
 
NOTE 4 – COMPREHENSIVE INCOME (LOSS)
 
In accordance with the disclosure requirements of FASB ASC 220, Comprehensive Income (FASB ASC 220), the Company’s comprehensive income (loss) is comprised of net income (loss) and foreign currency translation adjustments.  The following table presents the Company’s comprehensive income (loss) and its components for the three and nine months ended September 30, 2011 and 2010:
 
   
For the Three Months
   
For the Nine Months
 
   
Ended September 30,
   
Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net Income (Loss)
 
$
29
   
$
0
   
$
(4
)
 
$
(1,203
)
Foreign currency gain (loss)
   
(74
)
   
(22
)
   
(65
)
   
34
 
Comprehensive Income (Loss)
 
$
(45
)
 
$
(22
)
 
$
(69
)
 
$
(1,169
)

NOTE 5 – RECENT ACCOUNTING PRONOUNCEMENTS
 
In October 2009, the FASB updated FASB ASC 605, Revenue Recognition (FASB ASC 605) to address how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting. This guidance eliminates the residual method and replaces it with the “relative selling price” method when allocating revenue in a multiple deliverable arrangement. The selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, otherwise third-party evidence of selling price shall be used. If neither exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable. After adoption, this guidance will also require expanded qualitative and quantitative disclosures. The updated FASB ASC 605 is effective for the Company’s revenue arrangements entered into or materially modified in fiscal years beginning on or after September 15, 2010, with early adoption permitted. The Company adopted the updated FASB ASC 605 on January 1, 2010 on a prospective basis for any new contracts entered into after the date of adoption.  The adoptions of this ASC update did not have a material impact to its condensed consolidated statement of operations for the three and nine months ended September 30, 2011 and 2010. However, the Company cannot predict whether the impact of this update will have a material impact in future quarters due to potential changes in products and product mix.  Prior to the adoption of the updated FASB ASC 605, the Company accounted for its software subscriptions and related setup, implementation and professional services as a single accounting unit.  Thus all revenues associated with such an arrangement were recognized pro-rata over the life of the software subscription service contract.  Subsequent to the adoption of the updated FASB ASC 605, the Company accounts for each of these elements as separate accounting units.  Thus the software subscription service revenue is recognized pro-rata over the life of the software subscription contract, while the related setup and implementation revenues are recognized upon completion.  The result of the adoption is an immaterial acceleration of setup and implementation revenues related to software subscriptions.
 
NOTE 6 – SHARE BASED COMPENSATION
 
Share based compensation for the Company’s stock option, restricted stock and stock purchase plans for the three months ended September 30, 2011 and 2010 were $27 and $13, respectively and $56 and $41 for the nine months ended September 30, 2011 and 2010, respectively. The Company did not issue shares of common stock related to exercises of stock options granted from its Stock Option, Restricted Stock, and Stock Purchase Plans for the three or nine months ended September 30, 2011 and 2010, respectively.
 
On September 21, 2009, the Board adopted the Company’s 2009 Equity Plan (the “2009 Equity Plan”) and the plan was approved by the Company’s stockholders at the December 17, 2009 Annual Meeting of Stockholders.  The purpose of the 2009 Equity Plan is to enhance the long-term stockholder value of the Company by offering opportunities to directors, officers, employees and eligible consultants of the Company to acquire and maintain stock ownership in the Company in order to give these persons the opportunity to participate in the Company’s growth and success, and to encourage them to remain in the service of the Company. At the Annual Meeting of the Shareholders held on June 10, 2011 the company shareholders amended to increase the number of shares on the plan by 150 thousand.  A total of 350 thousand shares of the Company’s Common Stock were available for issuance under the 2009 Equity Plan and provides for the granting of (i) incentive stock options, (ii) non statutory stock options and (iii) stock purchase rights.  A total of 340 thousand options have been granted and are outstanding pursuant to the plan as of September 30, 2011.
 
 
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
 
NOTE 7 – CONTINGENCIES

Asure was the defendant or plaintiff in various actions that arose in the normal course of business. None of the pending legal proceedings to which the Company is a party are material to the Company.

NOTE 8 – INCOME (LOSS) PER SHARE

Basic Income (Loss) per share (EPS) is computed based on the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the maximum dilution that would have resulted from incremental common shares issuable upon the exercise of stock options.  The number of common share equivalents, which includes stock options, is computed using the treasury stock method.
 
The following tables provide the components of the basic and diluted EPS computations for the three and nine month periods ended September 30, 2011 and 2010:
 
   
For the Three Months
   
For the Nine Months
 
   
Ended September 30,
   
Ended September 30,
 
Basic EPS Computation
 
2011
   
2010
   
2011
   
2010
 
Net Income/(Loss)
 
$
29
   
$
0
   
$
(4)
   
$
(1,203
)
                                 
Weighted average shares outstanding
   
3,085
     
3,085
     
3,085
     
3,088
 
Basic Net Income/(Loss) per share
 
$
0.01
   
$
0.00
   
$
(0.00)
   
$
(0.39
)

   
For the Three Months
   
For the Nine Months
 
   
Ended September 30,
   
Ended September 30,
 
Diluted EPS Computation
 
2011
   
2010
   
2011
   
2010
 
Net Income/(Loss)
 
$
29
   
$
0
   
$
(4)
   
$
(1,203
)
                                 
Weighted average shares outstanding
   
3,085
     
3,085
     
3,085
     
3,088
 
Common shares equivalents
   
9
     
-
     
-
     
-
 
Diluted shares outstanding
   
3,094
     
3,085
     
3,085
     
3,088
 
Basic Net Income/(Loss) per share
 
$
0.01
   
$
0.00
   
$
(0.00)
   
$
(0.39
)

Stock options to acquire 185 thousand and 138 thousand shares for the three and nine month periods ended September 30, 2011 and convertible debt shares of 300 thousand shares for the three and nine month periods ended September 30, 2011 were excluded in the computations of diluted EPS because the effect of including the stock options would have been anti-dilutive and stock options to acquire 184 thousand shares for the three and nine months ended September 30, 2010 were excluded in the computations of diluted EPS because the effect of including the stock options would have been anti-dilutive.
 
 
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
 
NOTE 9 – LOSS ON LEASE AMENDMENT
 
On April 28, 2010 the Company entered into an Amendment to its current building lease with Wild Basin. Pursuant to the terms of the amended Lease, the Landlord agreed to reduce the square footage leased by the Company from 137 thousand square feet to 9 thousand square feet for the lease’s remaining three years.  In addition, the monthly rent of $299 was reduced to $20 beginning April 1, 2010.  In exchange for the rent and square footage reduction, the Company made a one time payment of $1,500 and agreed to forgo approximately $159 of monthly sub-tenant income it received from the excess space under the prior lease.  Additionally, the Company forfeited its rights to any potential future net profits interest in the lease.  The $1,203 loss consists of the following expenses; the $1,500 lease termination fee, the write-off of $186 of subtenant lease hold improvements and $45 in transaction costs.  These expenses were offset by the reversal of the following liabilities; $254 of leasehold advance, $235 of leasehold impairment and $39 of other net liabilities.

NOTE 10 – DEBT

During the quarter ended September 30, 2011, the Company entered into the following debt arrangements for the primary purpose of acquiring substantially all the assets of ADI Time, LLC (see Note 11- Subsequent Events).
 
Credit Agreement

On September 29, 2011, Asure Software, Inc. (the “Company”) entered into a Credit Agreement with JPMorgan Chase Bank N.A. (“Bank”), providing for a $500 line of credit (the “Credit Agreement”). The line of credit will bear interest at a rate of 1.5% above the CB Floating Rate.  The CB Floating rate is defined as the Bank’s prime rate, as announced from time to time, provided that the CB Floating Rate may not be less than the adjusted one month LIBOR rate. The aggregate principal amount of advances outstanding at any one time under the line of credit may not exceed 80% of eligible trade accounts and accounts receivable or the maximum principal amount then available, whichever is less.

The Company’s obligations to the Bank are guaranteed by ADI Software, LLC, a wholly owned subsidiary of the Company, and secured by all of the assets of the Company and its subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants, including but not limited to limitations with respect to debt, liens, sale of equity interests, mergers and acquisitions, sale of assets, and loans or advances to and investments in others. The Company is also required to maintain total cash and marketable securities of not less than $300, beginning on December 31, 2011; a debt service coverage ratio of not less than 1.2 to 1.0 for each period of four consecutive fiscal quarters beginning the twelve months ending December 31, 2011; and EBITDA of not less than $100 for each fiscal quarter beginning the quarter ending December 31, 2011.

Events of default under the Credit Agreement include, among others, (i) the failure to pay when due the obligations owing to the Bank, (ii) the failure to perform covenants set forth in the Credit Agreement (as described above), (iii) any materially incorrect or misleading representation, warranty or certificate to the Bank, (iv) any materially incorrect or misleading representation in any financial statement or other information delivered to the Bank, (v) certain cross defaults and cross accelerations, (vi) the failure to perform under the guaranty, (vii) the occurrence of certain bankruptcy or insolvency events, (viii) judgments against the Company or its subsidiaries, and (ix) certain material adverse changes. In some cases, the events of default are subject to customary notice and grace period provisions.

On September 30, 2011, the Company borrowed $500 under the line of credit for working capital.
 
 
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)

Securities Purchase Agreements

In order to finance the purchase of ADI Time, LLC, the Company needed to raise additional capital to finance such transaction.  Certain related parties of the Company expressed a willingness to provide capital to the Company by participating in the debt offerings on terms that compared favorably to those offered by third parties.  The Board of Directors of the Company established a temporary independent sub committee of the Board for the purposes of: (i) negotiating the terms of any financing offered by the related party investors, (ii) managing the process by which any such financing from related party investors is obtained to ensure a fair process and (iii) ultimately making a recommendation to the full Board as to whether or not the Company should accept the capital from related party investors. Following the negotiation of the terms, the independent sub committee notified the full Board of their belief that the negotiated terms of the financing from the related party investors are fair to the Company and its shareholders as a whole.  Based upon the recommendation of the independent sub committee and the Board’s own analysis of the financing terms offered by third party investors, the Board approved the negotiated terms of the financing provided by the related party investors.

15% Subordinated Notes

On September 30, 2011, the Company entered into a Securities Purchase Agreement  (the “15% Note Purchase Agreement”) relating to the sale of $1,700 aggregate principal amount of the Company’s 15% subordinated notes (“15% Notes”) in a private placement to accredited investors. The 15% Note will pay interest on each of March 31, June 30, September 30 and December 31, beginning on December 31, 2011, at a rate of 15% per year. The 15% Notes will mature on September 30, 2014. The 15% Notes are secured by all of the assets of the Company and are subordinated to the Company’s obligations to the Bank. The 15% Notes also contain customary terms of default.

Patrick Goepel, the Company’s Chief Executive Officer purchased $500,000 of the 15% Notes.  Pinnacle Fund, LLLP purchased $300,000 of the 15% Notes.  David Sandberg, the Company’s Chairman, is the controlling member of Red Oak Partners, LLC, which owns 50% of Pinnacle Partners, LLC, which is the general partner of the Pinnacle Fund, LLLP.  Red Oak Partners, LLC is also the manager of the Pinnacle Fund, LLLP.  

The Company received $1,450 of the $1,700 on September 30, 2011 and the remainder on October 31, 2011.

9% Subordinated Convertible Notes

On September 30, 2011, the Company entered into a Securities Purchase Agreement  (the “9% Note Purchase Agreement”) relating to the sale of $1,500 aggregate principal amount of the Company’s 9% subordinated convertible notes (“9% Notes”) in a private placement to accredited investors. The 9% Notes will pay interest on each of March 31, June 30, September 30 and December 31, beginning on December 31, 2011, at a rate of 9% per year. The 9% Note will mature on September 30, 2014. The 9% Note is secured by all of the assets of the Company and is subordinated to the Company’s obligations to the Bank and the 15% Notes.

Beginning 12 months from the date of issuance, the holder may convert the 9% Notes into shares of the Company’s common stock at a conversion price of $5.00 per share.  The conversion price will be adjusted for certain events, such as stock dividends and stock splits. Additionally, if the Company subsequently issues common stock at a price below the then current conversion price, the conversion price will be reset to the greater of $3.27 per share (the closing price of the Company’s Common Stock on September 30, 2011) or such lower price. In the event that a holder of a 9% Note elects to convert the 9% Note into equity, and the Company determines that such conversion would jeopardize the Company’s tax benefits under Section 382 of the Internal Revenue Code, the Company may elect to prepay any or all of such 9% Notes prior to conversion, subject to certain limitations at a purchase price equal to the product of the number of shares into which the 9% Note is convertible and the volume weighted average closing price during the 20 day trading period beginning on the 10 th day before the conversion notice is received by the Company multiplied by the Premium Rate.  The Premium Rate is 1.1 if a holder notifies the Company of an intention to convert their 9% Note into equity prior to the date that is 90 days before the maturity date and 1.5 if such notification is made within 90 days of the maturity date. The 9% Notes also contain customary terms of default.
 
 
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)

The 9% Note Purchase Agreement provides that, if the Company issues common stock below $3.25 per share, each holder of the 9% Notes outstanding at that time will have the right to purchase its pro rata portion of such stock issuance.

These convertible notes contain embedded derivative instruments related to the conversion feature that are accounted for separately.   The derivative instruments entered into to finance the ADI acquisition.   The fair values of these instruments are re-measured each reporting period and a gain or loss is recorded for the change in fair value.  As these instruments were entered into on September 30, 2011, the change in fair value for the three and nine month periods ended September 30, 2011 was not material.

Mr. Goepel, the Company’s Chief Executive Officer, purchased $200 of the 9% Notes. Red Oak Fund, LP purchased $600 of the 9% Notes. Mr. Sandberg, the Company’s Chairman, is the controlling member of Red Oak Partner s, LLC, which manages the Red Oak Fund.

The Company received $1,400 of the $1,500 on September 30, 2011 and the remainder on October 31, 2011.

NOTE 11 – SUBSEQUENT EVENTS

Effective as of October 1, 2011, the Company, through ADI Software, LLC, a wholly owned subsidiary of the Company (“Purchaser”), purchased substantially all of the assets and assumed certain liabilities of ADI Time, LLC (“Seller”) relating to its time and attendance software and management services business, pursuant to an Asset Purchase Agreement (“APA”) by and among the Company, Purchaser and Seller. The APA contains certain customary representations, warranties, indemnities and covenants of the Company, Purchaser and Seller.

The purchase price for the assets consisted of $6,000 in cash and a promissory note of the Purchaser (“Purchaser Note”) in the aggregate principal amount of $1,095. The Purchaser Note bears interest at an annual rate of 0.16%, will mature on October 1, 2014, and is guaranteed by the Company. The Purchaser may offset any indemnification payments owed by the Seller under the APA against up to $1,000 under the Purchaser Note. The cash portion of the purchase price was funded with the Company’s cash on hand and proceeds from the Credit Agreement and the Subordinated Notes. The Company will record this purchase in the fourth quarter of 2011.


ITEM 2 .     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following review of Asure’s financial position as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010 should be read in conjunction with the Company’s 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission.  Asure’s internet website address is http://www.asuresoftware.com.  The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of the Company’s internet website free of charge as soon as reasonably practicable after they are electronically filed, or furnished to, the Securities and Exchange Commission.  Asure’s internet website and the information contained therein or connected thereto are not intended to be incorporated into this Quarterly Report on Form 10-Q.

The Company currently offers two main product lines in its software and services business: NetSimplicity and iEmployee. Asure’s NetSimplicity product line provides simple and affordable solutions to common office administration problems.  NetSimplicity’s flagship product, Meeting Room Manager (“MRM”), automates the entire facility scheduling process: reserving rooms, requesting equipment, ordering food, sending invitations, reporting on the meeting environment and more.  Asure’s iEmployee product line helps simplify the HR process and improves employee productivity by managing and communicating human resources, employee benefits and payroll information.  IEmployee’s web-based solutions include Time & Attendance, Timesheets, Human Resource Benefits, Expenses and others.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
Certain statements in this Report represent forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results of operations, levels of activity, economic performance, financial condition or achievements to be materially different from future results of operations, levels of activity, economic performance, financial condition or achievements as expressed or implied by such forward-looking statements.

 Asure has attempted to identify these forward-looking statements with the words “believes,” “estimates,” “plans,” “expects,” “anticipates,” “may,” “could” and other similar expressions. Although these forward-looking statements reflect management’s current plans and expectations, which are believed to be reasonable as of the filing date of this report, they inherently are subject to certain risks and uncertainties.  Additionally, Asure is under no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results.

SUBSEQUENT EVENTS

Effective as of October 1, 2011, the Company, through ADI Software, LLC, a wholly owned subsidiary of the Company (“Purchaser”), purchased substantially all of the assets and assumed certain liabilities of ADI Time, LLC (“Seller”) relating to its time and attendance software and management services business, pursuant to an Asset Purchase Agreement (“APA”) by and among the Company, Purchaser and Seller. The APA contains certain customary representations, warranties, indemnities and covenants of the Company, Purchaser and Seller.

The purchase price for the assets consisted of $6,000 thousand in cash and a promissory note of the Purchaser (“Purchaser Note”) in the aggregate principal amount of $1,095 thousand. The Purchaser Note bears interest at an annual rate of 0.16%, will mature on October 1, 2014, and is guaranteed by the Company. The Purchaser may offset any indemnification payments owed by the Seller under the APA against up to $1,000 thousand under the Purchaser Note. The cash portion of the purchase price was funded with the Company’s cash on hand and proceeds from the Credit Agreement and the Subordinated Notes. The Company will record this purchase in the fourth quarter of 2011.
 
RESULTS OF OPERATIONS
 
The following table sets forth the percentage of total revenues represented by certain items in Asure’s Consolidated Statements of Operations for the fiscal periods indicated:

   
FOR THE THREE
MONTHS ENDED
SEPTEMBER 30,
   
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues
   
100
%
   
              100
%
   
100
%
   
                100
%
Gross margin
   
80.6
     
76.4
     
81.3
     
77.2
 
Selling, general and administrative
   
61.0
     
59.3
     
59.5
     
57.6
 
Research and development
   
14.6
     
15.5
     
15.8
     
14.4
 
Amortization of intangible assets
   
6.0
     
5.9
     
6.2
     
5.9
 
Loss on lease amendment
   
0.0
     
0.0
     
0.0
     
15.8
 
Total operating expenses
   
81.6
     
80.7
     
81.4
     
93.6
 
Other (loss) income, net
   
2.6
     
2.7
     
0.5
     
0.5
 
Net income (loss)
   
1.2
     
0
     
 (0.1
)
   
(15.8
)
 
 
THREE AND NINE MONTHS SEPTEMBER 30, 2011 AND 2010
 
Revenues

Consolidated revenues represent the combined revenues of the Company and its subsidiaries, including sales of the Company’s scheduling software, human resource and time and attendance software, complementary hardware devices to enhance its software products, software maintenance and support services, installation and training services and other professional services.
 
Revenues for the three months ended September 30, 2011 were $2,502 thousand, a decrease of $40 thousand, or 2%, from the $2,542 thousand reported for the three months ended September 30, 2010.  This increase was primarily due to a $115 thousand increase in MRM SaaS revenues and a $112 thousand increase in MRM maintenance and support revenues, which were offset by decrease of $133 thousand in MRM Perpetual Software license revenue and $137 thousand in MRM Hardware revenue.

Revenues for the nine months ended September 30, 2011 were $7,293 thousand, a decrease of $334 thousand, or 4%, from the $7,627 thousand reported for the nine months ended September 30, 2010.  This decrease was primarily due to a $466 thousand decrease in MRM perpetual license revenue which was offset by increase in MRM Saas revenues of $312 thousand. The growth in MRM Saas revenue and the decrease in MRM perpetual software revenue are in line with Asure’s focus to move to sell more products in a Saas environment. The Iemployee Saas revenue also decreased $206 which was primarily due to the conversion of Ceridian customers.

Asure will continue to target small and medium businesses and divisions of enterprises.  In addition to continuing to develop its workforce management solutions and release new software updates and enhancements, the Company is actively exploring other opportunities to acquire additional products or technologies to complement its current software and services.  For example, in 2010, Asure acquired an additional product from its Australian distribution partner.  This product, NetSimplicity’s Social View, is available as a complementary product to both Meeting Room Manager On Demand and the perpetual in-house software solution.  Social View is a public calendar module that allows read-only access to event and/or room information to the web without user login.  Asure also is implementing marketing initiatives, including tailoring its solutions to provide increased value and a simplified purchasing model to targeted customers.  As the overall workforce management solutions market continues to experience significant growth related to software as a service (“SaaS”) products, Asure will continue to focus on sales of its MRM and iEmployee SaaS products.  Management believes that an economic recovery will facilitate additional revenue growth.
 
In addition, with the acquisition of ADI Time the Company now has added the ADI Time's suite of on-site and software-as-a-service (SaaS) time & attendance solutions which helps companies improve the supervision of their workforces, provide better visibility into labor costs, and achieve greater operational efficiencies.  ADI is focused on delivering solutions to the small market and blue collar vertical markets, which complements Asure's iEmployee cloud-based time and attendance offering which is designed to meet the needs of the mid and the white collar vertical markets. This acquisition enables Asure to bring ADI Time's solutions to a much larger marketplace.  The Company also acquired the adiPad™ and the adiTouch™ time terminals, which provide a seamless interface with labor management subscription services and on-premise software to help organizations of all sizes automate time and attendance, lower costs, and reduce errors related to payroll processing.

Gross Margin
 
Gross margins for the three months ended September 30, 2011 were $2,016 thousand, an increase of $75 thousand, or 4%, from the $1,941 thousand reported for the three months ended September 30, 2010.  Gross margins as a percentage of revenues were 80.6% and 76.4% for the three months ended September 30, 2011 and 2010, respectively.  The increase in gross margins of $75 thousand is primarily due to decrease in lower margin hardware sales for the period.

Gross margins for the nine months ended September 30, 2011 were $5,930 thousand, an increase of $44 thousand, or 1%, from the $5,886 thousand reported for the nine months ended September 30, 2010.  Gross margins as a percentage of revenues were 81.3% and 77.2% for the nine months ended September 30, 2011 and 2010, respectively.  The increase in gross margins of $44 thousand is primarily due to the reduction in revenues which is offset by an increase in gross margin percentage due to a decrease in lower margin hardware sales and reductions in third party cost of goods sold expenses.
 
Selling, General and Administrative
 
Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2011 were $1,526 thousand, an increase of $19 thousand or 1.3%, from the $1,507 thousand reported for the three months ended September 30, 2010. SG&A expenses as a percentage of revenues were 61.0% and 59.3% for the three months ended September 30, 2011 and 2010, respectively.  The increase in SG&A is associated to travel and legal expenses associated with pre-acquisition costs related to the ADI acquisition discussed above.
 

Selling, general and administrative (“SG&A”) expenses for the nine months ended September 30, 2011 were $4,340 thousand, a decrease of $51 thousand or 1.2%, from the $4,391 thousand reported for the nine months ended September 30, 2010. SG&A expenses as a percentage of revenues were 59.5% and 57.6% for the nine months ended September 30, 2011 and 2010, respectively.  The $51 thousand decrease was primarily driven by business turnaround efforts and other cost reductions.  The increase in the percentage of revenue of SG&A was primarily attributable to the reduction in revenue for the nine months ended September 30, 2011.

Throughout its operations, Asure continues to evaluate any unnecessary SG&A expenses and plans to further reduce expenses as appropriate.
 
Research and Development
 
Research and development (“R&D”) expenses for the three months ended September 30, 2011 were $366, a decrease of $28 thousand, or 7.1%, from the $394 thousand reported for the three months ended September 30, 2010. Research and development expenses as a percentage of revenues were 14.6% and 15.5% for the three months ended September 30, 2011 and 2010, respectively.  The $28 thousand decrease in Research and development is primarily to employment reduction costs incurred during the Three months ended September 30, 2010.

Research and development (“R&D”) expenses for the nine months ended September 30, 2011 were $1,150 thousand, an increase of $50 thousand, or 4.5%, from the $1,100 thousand reported for the nine months ended September 30, 2010. Research and development expenses as a percentage of revenues were 15.8% and 14.4% for the nine months ended September 30, 2011 and 2010, respectively.  The $50 thousand increase in research and development expenses was primarily due to consulting expenses towards development efforts for future releases and enhancements.

Asure continues to enhance its workforce management solutions – particularly its Time & Attendance software from the iEmployee product line and its Meeting Room Manager (“MRM”) software from its NetSimplicity product line.   Recent enhancements to the Time & Attendance include an additional application programming interface (“API”) delivered via web services for time collection, which expands the software’s interoperability with various time clocks in addition to Asure’s Easy Touch Time Clock.  Additionally, the Company implemented a new line of clocks that contains several forms of data collection including magnetic stripe, barcode, proximity and biometric readers. The expanded interoperability and new line of clocks expanded Time & Attendance’s capabilities to meet various customers’ requirements by increasing the customers’ choices when selecting hardware devices.  Asure also added functionality to its Time & Attendance software by developing an automated calculation of the time off accruals and a new flexible pay schedule that allows customers to specify start and end dates and times for multiple different pay periods.

Additionally, Asure continues to develop Meeting Room Manager and released client driven enhancements in 2010 that enhanced the Microsoft Outlook Plug-in, Web and Interactive LCD interfaces, allowed assigned delegates the ability to schedule meetings on behalf of others, and provided more sophisticated conflict resolution options for scheduling recurring meetings via Microsoft Outlook.
 
Asure’s development efforts for future releases and enhancements are driven by feedback received from its existing and potential customers and by gauging marketing trends.  Management believes it has the appropriate development team to design and further improve its workforce management solutions.
 
Amortization of Intangible Assets in Operating Expenses
 
Amortization expense for the three months ended September 30, 2011 and 2010 was $150 thousand and $150 thousand, respectively.  Amortization expense for the nine months ended September 30, 2011 and 2010 was $449 thousand and $448 thousand, respectively. Upon acquiring the iEmployee business in October 2007, Asure recorded several intangible assets, which are being amortized over their estimated useful lives.  The amortization expenses during the three and nine months ended September 30, 2011 and 2010 relate entirely to these acquired intangible assets.

Net Income/Loss
 
Asure generated net income of $29 thousand, or $0.01 per share (basic and diluted), during the three months ended September 30, 2011, compared to zero net income or $0.00 per share reported for the three months ended September 30, 2010.  Net income as a percentage of total revenues was 1.2% and net income as a percentage of total revenues was 0% for the three months ended September 30, 2011 and 2010, respectively.
 
 
Asure generated a net loss of $4 thousand, or ( $0.001) per share (basic and diluted), during the nine months ended September 30, 2011, compared to a net loss of $1,203 thousand or ($0.39) per share reported for the nine months ended September 30, 2010.  Net income/loss as a percentage of total revenues was (0.1%) and (15.8%) for the nine months ended September 30, 2011 and 2010, respectively.
 
Asure will continue to implement its corporate strategy for growing its software and services business by modestly investing in areas that directly generate revenue and positive cash flows for the Company.  However, uncertainties and challenges remain, especially during this macroeconomic environment downturn, and there can be no assurance that the Company can successfully grow its revenues or achieve profitability during the remainder of fiscal year 2011.
 
LIQUIDITY AND CAPITAL RESOURCES
 
   
FOR THE NINE MONTHS ENDED
 
   
SEPTEMBER 30,
 
   
2011
   
2010
 
   
(in thousands)
 
             
Working capital
 
$
3,235
   
$
(641
)
Cash, cash equivalents and short-term investments
   
6,082
     
837
 
Cash provided by/(used in) operating activities
   
1,819
     
(1,188
)
Cash (used in) investing activities
   
(60
)
   
(131
)
Cash provided by/(used in) financing activities
   
3,314
     
(146
)

Working capital was $3,235 thousand on September 30, 2011, an increase of $3,876 thousand from $(641) thousand on September 30, 2010. The increase was primarily due to increase in cash of $5,245 thousand offset by an increase in current liabilities of $943 thousand. The Company believes that it can continue to generate positive cash flow as demonstrated by the current quarter and thus continue to increase its available working capital.

Cash provided by operating activities was $1,819 thousand for the nine months ended September 30, 2011 compared to cash used in operating activities of $1,188 thousand for the nine months ended September 30, 2010.  The increase of cash generated by operations of $3,007 thousand was due primarily to a decrease of $1,199 thousand in net Loss, a decrease of lease liabilities of $758 thousand, an increase in the change in deferred revenue of $517, accrued expenses $120 thousand and accounts payable $311 thousand.

Cash used by investing activities was $60 thousand for the nine months ended September 30, 2011 due to net purchases of property and equipment. Cash used in investing activities was $131 thousand for the nine months ended September 30, 2010 due to net purchases of property and equipment. Asure’s current operations are not capital intensive and management does not anticipate any significant capital expenditures during the remainder of calendar year 2011.

The Company leases office space and equipment under non-cancelable operating leases that expire at various dates through 2013. Certain leases obligate Asure to pay property taxes, maintenance and insurance and include escalation clauses. The total amount of base rentals over the term of the Company’s leases is charged to expense on a straight-line basis, with the amount of the rental expense in excess of the lease payments recorded as a deferred rent liability.  Approximately $360 thousand or 84% of the Company’s total operating lease obligations relate to its corporate office facility at Wild Basin in Austin, Texas.

Management continues to evaluate and reduce any unnecessary expenditure, while continuing to closely monitor all of its cash sources and uses as it manages its operations through the current recession.
 
Cash provided by financing activities was $3,314 thousand for the nine months ended September 30, 2011 primarily due to $2,850 thousand debt issued for an acquisition and $500 thousand line of credit. Cash used in financing activities was $146 thousand for the nine months ended September 30, 2010 and was related to the repurchase of treasury stock for $110 thousand and payments on capital leases of $36 thousand.  Management believes it currently has sufficient cash and short-term investments on hand to fund its operations during the next twelve months and beyond without needing to obtain long-term financing. Therefore, the Company does not anticipate that it will be affected by any credit shortage in the current economic business environment.
 
 
Pursuant to Asure’s stock repurchase plan, the Company is allowed to repurchase up to 300,000 shares (adjusted for the 10 to 1 reverse stock split) of the Company’s common stock.  In total, Asure has repurchased 256,107 shares for approximately $5.0 million over the life of the plan.  Management will periodically assess repurchasing additional shares, depending on the Company’s cash position, market conditions and other factors.
 
As of September 30, 2011, Asure’s principal source of liquidity consisted of $6,082 thousand of current cash and cash equivalents as well as future cash generated from operations. The increase of cash and cash equivalents of $5,012 thousand for the nine months ended September 30, 2011 is primarily due to $2,850 thousand in debt issuance, a $500 thousand line of credit and $1,662 thousand cash generated from operations.  The cash received from debt issuance, line of credit and a portion of operating cash was used in the acquisition of  substantially all the assets of ADI Time, LLC (see Note 11- Subsequent Events).  The Company believes that it has and/or will generate sufficient cash for its short and long term needs. The Company is continuing to reduce expenses and thus may utilize its cash balances in the short-term to reduce long-term costs. The Company expects that it will be able to generate positive cash flows from operating activities for the remainder of 2011.   

Management is focused on growing its existing software operations and looking to make additional strategic acquisitions in the near future.  In the short-term, any acquisitions will be funded with equity, cash on the balance sheet, cash from operations, and cash or debt raised from outside sources.
 
There is no assurance that the Company will be able to grow its cash balances or limit its cash consumption and thus maintain sufficient  cash balances, and it is possible that the Company’s future business demands may lead to cash utilization at levels greater than recently experienced. Management believes that the Company has sufficient capital and liquidity to fund and cultivate the growth of its current and future operations for the next 12 months and thereafter.  However, due to uncertainties related to the timing and costs of these efforts, Asure may need to raise additional capital in the future.  Yet, there is no assurance that the Company will be able to raise additional capital if and when it is needed.
 
CRITICAL ACCOUNTING POLICIES
 
There were no material changes to our critical accounting policies and estimates since December 31, 2010.  For additional information on critical accounting policies, refer to “Management’s Discussion and Analysis” in our 2010 Annual Report on Form 10-K.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The Company is a smaller reporting company as defined by Rule 12b-2 under the Exchange Act and is not required to provide the information required under this item.
 
ITEM 4.     CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Control and Procedures
 
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of as of September 30, 2011 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
Change in Internal Controls over Financial Reporting
 
During the period ended September 30, 2011, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
PART II – OTHER INFORMATION
 
ITEM 1A .  RISK FACTORS
 
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
 
ITEM 6.    EXHIBITS
 
 
EXHIBIT NUMBER
 
DESCRIPTION
2.3 *
 
     
4.3 *
 
     
4.4 *
 
     
4.5 *
 
     
4.6 *
 
     
4.7 *
 
     
4.8 *
 
     
31.1*
 
     
31.2*
 
     
32.1*
 
     
32.2*
 
     
101*
 
 The following materials from Asure Software, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Cash Flows, and (4) Notes to Consolidated Financial Statements, tagged as blocks of text.
 
 
* Filed herewith
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ASURE SOFTWARE, INC.
 
       
       
November 14, 2011
By:
/s/ PATRICK GOEPEL      
 
   
Patrick Goepel
 
   
Chief Executive Officer
 
       
 
       
       
November 14, 2011
By:
/s/ DAVID SCOGLIO         
 
   
David Scoglio
 
   
Chief Financial Officer
 
       
 
 
INDEX TO EXHIBITS
 
 
EXHIBIT NUMBER
 
DESCRIPTION
2.3 *
 
     
4.3 *
 
     
4.4 *
 
     
4.5 *
 
     
4.6 *
 
     
4.7 *
 
     
4.8 *
 
     
31.1*
 
     
31.2*
 
     
32.1*
 
     
32.2*
 
     
101*
 
 The following materials from Asure Software, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Cash Flows, and (4) Notes to Consolidated Financial Statements, tagged as blocks of text.
 
 
* Filed herewith
 
* Filed herewith 
 
Exhibit 2.3

 
 
ASSET PURCHASE AGREEMENT
 
DATED AS OF OCTOBER 1, 2011
 
BY AND AMONG
 
ASURE SOFTWARE, INC.,
 
ADI SOFTWARE, LLC
 
AND
 
ADI TIME, LLC
 

 
 
 

 
 
 
SECTION 1. SALE AND PURCHASE OF ASSETS AND CLOSING
1
SECTION 1.1
SALE AND PURCHASE
1
SECTION 1.2
EXCLUDED ASSETS
2
SECTION 1.3
PURCHASE PRICE
3
SECTION 1.4
ALLOCATION OF PURCHASE PRICE
4
SECTION 1.5
ASSUMPTION OF SELLER LIABILITIES
4
SECTION 1.6
EXCLUDED LIABILITIES
4
SECTION 1.7
CLOSING
5
     
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER
5
SECTION 2.1
ORGANIZATION AND QUALIFICATION
5
SECTION 2.2
AUTHORITY
5
SECTION 2.3
NO CONFLICTS; CONSENTS
6
SECTION 2.4
FINANCIAL STATEMENTS
6
SECTION 2.5
REVENUES AND CUSTOMER ACCOUNTS
6
SECTION 2.6
ACCOUNTS RECEIVABLE
7
SECTION 2.7
TITLE TO ASSETS
7
SECTION 2.8
ASSIGNED CONTRACTS
7
SECTION 2.9
INTELLECTUAL PROPERTY
8
SECTION 2.10
EMPLOYEES
10
SECTION 2.11
PRODUCTS AND PRODUCT WARRANTIES
10
SECTION 2.12
PRODUCT LIABILITY
10
SECTION 2.13
LITIGATION
11
SECTION 2.14
ABSENCE OF UNDISCLOSED LIABILITIES
11
SECTION 2.15
TAXES
11
SECTION 2.16
ABSENCE OF CERTAIN CHANGES
11
SECTION 2.17
COMPLIANCE WITH LAWS
12
SECTION 2.18
EMPLOYEE BENEFIT PLANS
12
SECTION 2.19
INSURANCE
12
SECTION 2.20
FINDERS’ FEES
13
SECTION 2.21
COMPLETENESS
13
     
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT
13
SECTION 3.1
ORGANIZATION
13
SECTION 3.2
AUTHORITY
13
SECTION 3.3
NO CONFLICTS; CONSENTS
13
SECTION 3.4
LITIGATION
14
SECTION 3.5
FINDERS’ FEES
14
 
 
 

 
 
SECTION 4. CLOSING DELIVERABLES
14
SECTION 4.1
DELIVERIES OF SELLER AT CLOSING
14
SECTION 4.2
DELIVERIES OF PURCHASER AT CLOSING
15
     
SECTION 5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
16
SECTION 5.1
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
16
SECTION 5.2
INDEMNIFICATION BY SELLER
16
SECTION 5.3
REIMBURSEMENT
17
SECTION 5.4
HOLDBACK; SET-OFF
17
SECTION 5.5
INDEMNIFICATION BY PARENT AND PURCHASER
18
SECTION 5.6
REIMBURSEMENT
18
SECTION 5.7
MATTERS INVOLVING THIRD PARTIES
19
SECTION 5.8
LIMITATIONS ON INDEMNIFICATION
20
SECTION 5.9
MISCELLANEOUS INDEMNIFICATION MATTERS
20
     
SECTION 6. COVENANTS AND AGREEMENTS
20
SECTION 6.1
COLLECTION ON ACCOUNTS RECEIVABLE
20
SECTION 6.2
NOTICE TO CUSTOMER ACCOUNTS
20
SECTION 6.3
EMPLOYEE MATTERS.
21
SECTION 6.4
NON-COMPETITION AND NON-SOLICITATION
21
     
SECTION 7. MISCELLANEOUS
22
SECTION 7.1
NO WAIVER
22
SECTION 7.2
SUCCESSORS AND ASSIGNS
22
SECTION 7.3
GOVERNING LAW; JURISDICTION
22
SECTION 7.4
EXPENSES
23
SECTION 7.5
NOTICES
23
SECTION 7.6
COUNTERPARTS
23
SECTION 7.7
ANNOUNCEMENTS AND COMMUNICATIONS
24
SECTION 7.8
ENTIRE AGREEMENT
24
SECTION 7.9
DELAYS OR OMISSIONS
24
SECTION 7.10
SEVERABILITY
24
SECTION 7.11
CUMULATIVE REMEDIES
24
SECTION 7.12
TIME; CAPTIONS; EXHIBITS AND SCHEDULES
24
SECTION 7.13
FURTHER ASSURANCES
24
SECTION 7.14
CONSTRUCTION
25
SECTION 7.15
THIRD PARTY BENEFICIARIES
25
 
 
 

 

ASSET PURCHASE AGREEMENT
 
THIS ASSET PURCHASE AGREEMENT (“Agreement”) is made effective as of the 1st day of October, 2011, by and among Asure Software, Inc., a Delaware corporation (“Parent”), ADI Software, LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“Purchaser”), and ADI Time, LLC, a Rhode Island limited liability company  (“Seller”).
 
WITNESSETH:
 
WHEREAS, Seller provides time and attendance software and management services to small-to-mid-sized businesses and divisions of large enterprises (the “Business”); and
 
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller substantially all the assets and assume certain specified liabilities of the Business, subject to the terms and conditions set forth herein.
 
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
 
SECTION 1.
 
SALE AND PURCHASE OF ASSETS AND CLOSING
 
Section 1.1   Sale and Purchase .  On the terms and subject to the conditions of this Agreement, at Closing, Seller hereby agrees to sell, convey, assign, deliver and transfer to Purchaser, to the extent transferable, and Purchaser agrees to purchase from Seller, all of the assets of Seller, tangible or intangible, wherever located, primarily used in the Business, other than the Excluded Assets as defined in Section 1.2 hereunder (collectively, the “Purchased Assets”), including, without limitation, the following:
 
(a)   All cash and cash equivalents;
 
(b)   All machinery and equipment, tools, office equipment, computer equipment, hardware, software and related program documentation, supplies and all other tangible personal property owned by Seller and primarily used in the conduct of the Business, which Purchased Assets shall include, but shall not be limited to, those items set forth on Schedule 1.1(b) attached hereto (“Tangible Personal Property”);
 
(c)   All of Seller’s right and interest in the accounts receivables set forth on Schedule 1.1(c) attached hereto (“Accounts Receivable”);
 
(d)   All customer accounts, including the customers who have transacted business with Seller since January 1, 2005 listed in Schedule 1.1(d) attached hereto, and all claims and rights under any contracts, agreements, commitments with customers and purchase orders (including backlogged orders), written and oral, all customer lists, route books, records, software, computer records and other similar data relating to customer accounts, and rights under bids and proposals now pending (collectively, the “Customer Accounts”);
 
 
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(e)   All inventory, finished goods, raw materials, work in progress, packaging, supplies, parts, materials, testing units, and other inventories, wherever located, which are owned, solely employed by or held for use by Seller in the conduct of the Business, all of which are listed on Schedule 1.1(e);
 
(f)   All Purchased Intellectual Property that is owned by Seller and used in or, in Seller’s belief, necessary for the conduct of the Business as currently conducted
 
(g)   Copies of all books and records (including computer records) of Seller, including books of account, ledgers, general business, financial and accounting records, price lists, sales records, research and development files, strategic plans, personnel records of employees of Seller hired by Purchaser, customer lists, supplier lists, customer complaints, mailing lists, promotional and advertising materials, and research and files relating to the Intellectual Property;
 
(h)   All contracts, leases, deeds, mortgages, licenses, instruments, commitments, undertakings and other agreements, commitments and legally binding arrangements, whether written or oral, including Intellectual Property Licenses, described in Schedule 2.8 (collectively, the “Assigned Contracts”);
 
(i)   All governmental approvals, authorizations, certifications, consents, variances, permissions, licenses and permits, which are held by Seller and required for the conduct of the Business as currently conducted or for the ownership and use of the Purchased Assets;
 
(j)   All of Seller’s rights under warranties, indemnitees and all similar rights against third parties to the extent related to any Purchased Assets;
 
(k)   All insurance benefits, including rights and proceeds, arising from or relating to the Business, the Purchased Assets or the Assumed Liabilities;
 
(l)   All rights to any actions of any nature available to or being pursued by Seller to the extent related to the Business, the Purchased Assets or the Assumed Liabilities, whether arising by counterclaim or otherwise; and
 
(m)   The goodwill and going concern value of the Business (the “Goodwill”);
 
Section 1.2   Excluded Assets .  Under the terms of this Agreement, Purchaser will not purchase from Seller and Seller will retain the assets of Seller not constituting the Purchased Assets (collectively, the “Excluded Assets”), to include without limitation:
 
(a)   The assets, properties and rights specifically set forth on Schedule 1.2(a);
 
(b)   All oral and written contracts, licenses, agreements, commitments, undertakings or other legally binding arrangements that are not disclosed in Schedule 2.8; and
 
 
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(c)   Organizational documents, minute books, member records and tax records.
 
Section 1.3   Purchase Price .
 
(a)   Subject to the adjustments described in this Section 1.3, the aggregate purchase price (the “Purchase Price”) for the Purchased Assets shall be equal to the sum of the following and shall be paid as follows
 
(i)           $6,000,000.00, less $95,392 (the “Heldback Amount”), and less the Cash Deficit, if any, which aggregate amount shall be paid in cash (the “Cash Payment”) in the manner set forth in Section 1.3(e) below; plus
 
(ii)           $1,095,392.00, which shall be paid with a promissory note from the Purchaser (“Holdover Note”) in the form of Exhibit A, of which $1,000,000 shall be available to satisfy any and all claims of the Purchaser Indemnitees that have been determined to be subject to indemnification by Seller pursuant to Section 5.
 
(b) The “Cash Deficit” shall be equal to the amount by which $250,000 exceeds the Closing Cash.
 
(c) If total revenues generated solely and directly in connection with the Business for the 12-month period ending on September 30, 2012 (“2012 Business Revenue”), as calculated by Purchaser, exceed the revenue target provided by Purchaser with input from Seller and as set forth on Schedule 1.3(c), then the principal amount of the Holdover Note shall be increased by an amount equal to such excess; provided that in no event shall such amount exceed the Cash Deficit. No later than December 31, 2012, Purchaser shall prepare and deliver to Seller a written statement setting forth the amount of the 2012 Business Revenue and a reasonably detailed computation of such amount.
 
(d) The Heldback Amount will be deposited by wire transfer of immediately available funds into an escrow account established under the Escrow Agreement and will be held and distributed in accordance with the terms of the Escrow Agreement to pay for the procurement of the components identified on Schedule 1.3(d) (“Unique Components”) which are required for the manufacture of up to 1,000 electro-mechanical devices related to the Business.   If Purchaser is not able to sell all of such electro-mechanical devices within the 12 month period after September 15, 2011, t he remainder of the Heldback Amount in the escrow account will be released to Purchaser to pay the obligation related to the Unique Components.   If Purchaser is not able to sell all of such electro-mechanical devices by September 29, 2013, then the principal amount of the Holdover Note will be reduced by an amount equal to (A) $95,392 multiplied by (B) the proportionate amount of such unsold devices.
 
(e) The Purchaser shall pay to Seller $750,000 of the Cash Payment (“Closing Day Cash Payment”) in cash at the Closing and the remaining portion of the Cash Payment, as adjusted pursuant to Section 1.3(a)(i), on October 3, 2011 by wire transfer of immediately available funds to the account specified by Seller in writing. However, Purchaser shall not be in default of this Agreement if any wire transfer is delayed due to reasons beyond the control of Purchaser provided that all wire transfers must be completed by the end of the business day on October 4, 2011 (the “Delayed Wires”).  In no event shall the Delayed Wires exceed a total of $500,000. 
 
 
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Section 1.4   Allocation of Purchase Price .  Seller and Purchaser agree that the Purchase Price shall be allocated among the Purchased Assets for all purposes as shown on the allocation schedule (the “Allocation Schedule”). A draft of the Allocation Schedule shall be prepared by Purchaser and delivered to Seller within thirty (30) business days after the Closing Date.  For a period of ten (10) business days after Purchaser provides the Allocation Schedule to Seller, Seller shall have the opportunity to review and comment on the Allocation Schedule. If Seller notifies Purchaser in writing that Seller objects to one or more items reflected in the Allocation Schedule, Purchaser and Seller shall negotiate in good faith to resolve such dispute; provided, however, that if Purchaser and Seller are unable to resolve any dispute with respect to the Allocation Schedule within ten (10 business days after the end of 10 business day review and comment period, such dispute shall be referred to an impartial, nationally recognized firm of independent certified public accountants (the “Auditor”), as mutually agreed to by Purchaser and Seller, for resolution as promptly as practicable. The Allocation Schedule as so agreed to or determined by the Auditor shall be conclusive and binding upon the parties, and the parties agree that that all tax returns (including IRS Form 8594) and all financial statements of the parties shall be prepared in a manner consistent with (and the parties shall not otherwise file a tax return or take any tax position inconsistent with) the such Allocation Schedule. The fees and expenses of the Auditor shall be borne equally by Purchaser and Seller.
 
Section 1.5   Assumption of Seller Liabilities .  Subject to the terms and conditions set forth herein, Purchaser shall assume and agree to pay, perform and discharge only the following liabilities of Seller (collectively, the “Assumed Liabilities”):
 
(a)   all obligations and liabilities arising and accruing after the Closing Date from the Customer Accounts and Assigned Contracts, including the amount of commissions due and payable to employees of Seller as set forth on Schedule 1.5(a); and
 
(b)   trade accounts payable of Seller to third parties in connection with the Business that are reflected on the Latest Balance Sheet or arose in the ordinary course of business consistent with past practice since the date of the Latest Balance Sheet.
 
Section 1.6   Excluded Liabilities . Except for the Assumed Liabilities, Purchaser shall not assume and shall not be responsible to pay, perform or discharge any liabilities of Seller of any kind or nature whatsoever (the “Excluded Liabilities”), and the Seller shall remain responsible for all such Excluded Liabilities.  Without limiting the generality of this Section 1.6 and notwithstanding any other provision hereof, the Excluded Liabilities shall include, but not be limited to, the following:
 
(a)   Any liability of Seller arising from, or in connection with, the conduct of the Business prior to Closing or the ownership of the Purchased Assets by Seller prior to the Closing, including, without limitation, any such liabilities arising by reason of any violation or claimed violation by Seller, by acts or events or omissions arising or occurring prior to the Closing, of any federal, state or local law, rule, regulation, ordinance or any requirement of any governmental body;
 
 
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(b)   Except for any liability set forth on Schedule 1.6(b) that is reflected on the Latest Balance Sheet or arose in the ordinary course of business consistent with past practice since the date of the Latest Balance Sheet, any liability of Seller related to or arising out of the Excluded Assets;
 
(c)   Any liability of Seller for any Taxes;
 
(d)   Any liability for any present or former employees, agents or independent contractors of Seller, including, without limitation, any liabilities associated with any claims for wages or other benefits, severance, termination or other payments; and
 
(e)   Any liability under any Benefit Plan (later defined), including without limitation, any employee benefit plan of or sponsored by Seller, any 401K plan or any other “employee pension benefit plan” as defined in Section 3(2) of ERISA (later defined).
 
Section 1.7   Closing .  Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated by this Agreement (“Closing”) shall be held by the exchange of documents by mail or other delivery services or electronic delivery of documents and/or funds or at the offices of Messerli & Kramer P.A. on the date hereof, or at such other place and on such date as the Seller and Purchaser shall agree. The date on which the Closing occurs is referred to as the “Closing Date.”  The Closing shall be deemed to occur as of 12:01 a.m., Rhode Island time, on the date hereof.
 
SECTION 2.
 
REPRESENTATIONS AND WARRANTIES OF SELLER
 
Except as set forth in the Disclosure Schedules, Seller represents and warrants to Purchaser and Parent that the statements contained in this Section 2 are true and correct as of the date hereof.
 
Section 2.1   Organization and Qualification .  Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Rhode Island and has full limited liability company power and authority to own or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or as such business is currently conducted.  Seller has no subsidiaries.
 
Section 2.2   Authority .  Seller has full limited liability company power and authority to enter into this Agreement and each agreement, document and instrument to be executed and delivered by Seller pursuant to this Agreement and to carry out the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and each such other agreement, document and instrument by Seller has been duly and validly authorized and approved by all necessary action on the part of Seller and no other action on the part of Seller or its members is required in connection therewith.  This Agreement and each agreement, document and instrument to be executed and delivered by Seller pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of Seller, each enforceable in accordance with their respective terms, except to the extent that enforcement is limited by bankruptcy, insolvency, moratorium, conservatorship, receivership or similar laws of general application affecting creditors’ rights or by the application by a court of equity principles.
 
 
5

 
 
Section 2.3   No Conflicts; Consents .  The execution, delivery and performance by Seller of this Agreement and each such agreement, document and instrument to be executed and delivered by Seller pursuant to this Agreement (a) does not and will not violate any foreign, federal, state, local or other laws, regulations or ordinances applicable to Seller; (b) does not or will not violate any term or provision of Seller’s certificate of formation, operating agreement or other organizational documents of Seller; and (c) does not and will not result in a breach of, constitute or result in a default under, accelerate any obligation under or give rise to a right of termination of, any indenture or loan or credit agreement or any other agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Seller is a party or by which the Purchased Assets are bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the Purchased Assets. Except as set forth on Schedule 2.3, no consent or waiver by, approval of, or designation, declaration or filing with, or notice to, any governmental or public body or authority, any lender or lessor or any other person or entity is required by or in connection with the execution, delivery and performance by Seller of this Agreement and each agreement, document and instrument to be executed and delivered by Seller pursuant to this Agreement.
 
Section 2.4   Financial Statements .   Complete copies of the audited financial statements consisting of the balance sheet of Seller as of December 31 in each of years 2008, 2009 and 2010 and the related statements of income and members’ equity and cash flow for the years then ended (the “Audited Financial Statements”), and the unaudited financial statements consisting of the balance sheet as of August 31, 2011 (the “Latest Balance Sheet”) and the related statements of income and cash flow for the period then ended (the “Interim Financial Statements” and together with the Audited Financial Statements, the “Financial Statements”) have been delivered to Purchaser. The Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the period involved, subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that, if presented, would not differ materially those presented in the Audited Financial Statements). The Financial Statements are based on the books and records of Seller, and fairly present the financial condition of Seller as of the respective dates they were prepared and the results of operations and cash flows of Seller for the periods indicated. Seller maintains a standard system of accounting, established and administered in accordance with GAAP.
 
Section 2.5   Revenues and Customer Accounts .    The information contained in Schedule 1.1(d) is true and accurate in all material respects.  Except as set forth in Schedule 2.5, Seller has not received any notice from any customer of the Business that the customer has terminated or intends to terminate its account or materially reduce the level of orders or services associated therewith after the Closing, or of any dispute with respect its account.  Seller does not have actual knowledge of any fact which reasonably can be expected in the future to cause Seller to be in default under any Customer Account. All written customer contracts are valid and enforceable in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance and other similar laws relating to or affecting creditors’ rights generally and general equitable principles, and, except for such contracts listed on Schedule 2.3, are assignable without consent.  Seller has not received and holds no security deposits or escrow deposits from any of its customers. Except as set forth in Schedule 2.5, Seller is not servicing, and has not for at least twelve (12) months prior to the date hereof, serviced any customer who is a party to a Customer Account for any period on a charge-free basis. Except as set forth in Schedule 1.1(c), Seller invoices the Customer Accounts consistent with any written customer contracts to the extent applicable and invoices all other customers on a basis consistent with customary industry practices.  Except as set forth in Schedule 2.5, Seller is not presently offering, and has not, within the last twelve (12) months, offered any discount or allowance to any customer, including early payment discounts.
 
 
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Section 2.6   Accounts Receivable .  The Accounts Receivable reflected on the Interim Financial Statements and the Accounts Receivable arising after the date thereof (a) have arisen from bona fide transactions entered into by Seller in the ordinary course of business consistent with past practice; (b) except as set forth in Schedule 2.6, are valid, undisputed claims and are not subject to known counterclaims or setoffs, and (c) are fully collectible in accordance with their terms, except to the extent of any bad debt reserves shown on the Interim Financial Statements. The reserve for bad debts shown on the Latest Balance Sheet or, with respect to Accounts Receivable arising after the date of the Latest Balance Sheet, on the accounting records of Seller have been determined in accordance with GAAP, consistently applied, subject to normal year-end adjustments and the absence of notes.  Seller has provided to Purchaser a complete and accurate list of all Accounts Receivable of Seller as of the date of the Latest Balance Sheet, which list sets forth the aging of such Accounts Receivable.
 
Section 2.7   Title to Assets .   Except as set forth in Schedule 2.7, Seller has good and marketable title to, or a valid leasehold interest in, the Purchased Assets.  None of the Purchased Assets is subject to any mortgage, pledge, lien, conditional sales agreement, security interest, encumbrance or other charge, except for the security interest granted to Bank of America that will be discharged at closing. All of the personal property included in the Purchased Assets that are currently in use are in good repair and operating condition. The Purchased Assets, together with those assets identified on Schedule 2.7 that are not owned by Seller, are the only assets used in or, in Seller’s belief, necessary to operate, the Business as currently conducted. None of the Excluded Assets are material to the Business.
 
Section 2.8   Assigned Contracts .  Descriptions of the Assigned Contracts, including the terms and conditions of any oral Assigned Contract, in Schedule 2.8 are true, correct and complete. Complete and correct copies of each Assigned Contract (including all amendments, extensions or other modifications thereto and waivers thereunder as of the date hereof) have been made available to Purchaser. Except as set forth on Schedule 2.8, to Seller’s Knowledge, each Assigned Contract is valid and enforceable in accordance with their respective terms, in full force and effect, and transferable without the consent of any party thereto, or any required consent has been obtained. Except as set forth in Schedule 2.5, none of the Assigned Contracts have been terminated. No notice has been given by any party thereto of any alleged breach or default by any party thereunder, and Seller is not aware of any intention or right of any party to declare another party to any of the Assigned Contracts to be in breach of or in default or otherwise to demand a refund. Seller is not in default under any of the Assigned Contracts, and, to Seller’s Knowledge, no event or circumstance exists that, with notice or lapse of time or both, that would constitute a default thereunder or result in a termination thereof. This Agreement and the transactions contemplated hereby will not give rise to a default under the “select escrow agreements” listed in Schedule 2.9(a). For purposes of this Agreement, “Seller’s Knowledge” shall mean actual knowledge of any governor, senior executive officer, executive committee member or manager of Seller after due and diligent inquiry of all relevant employees, consultants and advisors of Seller.
 
 
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Section 2.9   Intellectual Property .
 
(a)   Schedule 2.9(a) lists all Purchased Intellectual Property. The Purchased Assets include all Purchased Intellectual Property that is, individually or in the aggregate, material to the Business.  Except as set forth on Schedule 2.9(a), Seller is the sole owner of and possesses all right, title and interest in and to the Purchased Intellectual Property, free and clear of mortgages, pledges, liens, conditional sales agreements, security interests, encumbrances or other charges. Except as set forth in Schedule 2.9(a), Seller has not granted to any person any license or sublicense, option, consent, right of first or last offer, or negotiation or other rights or authority in or to any of the Purchased Intellectual Property. Seller is in full compliance with all legal requirements applicable to the Purchased Intellectual Property and Seller’s ownership and use thereof. Except as set forth on Schedule 2.9(a), all users of Purchased Intellectual Property are mere licensees and have no right or claim to ownership of the Purchased Intellectual Property.
 
(b)   Schedule 2.9(b) lists all Intellectual Property Licenses. Seller has provided Purchaser with true and complete copies of all of such Intellectual Property Licenses. Seller is not in default under any Intellectual Property Licenses.
 
(c)   Except as set forth in Schedule 2.9(b), no interference actions or other judicial or adversary proceedings, or other disputes, concerning the Purchased Intellectual Property and Intellectual Property Licenses are outstanding or pending and, to Seller’s Knowledge, no such action or proceeding is threatened. Except as set forth in Schedule 2.9(b), Seller has the right and authority to use the Purchased Intellectual Property and Intellectual Property Licenses in connection with the conduct of the Business in the manner presently conducted and has not received notice, and has no reason to believe, that such use conflicts with, infringes upon or violates any rights of any other person, firm or corporation.
 
(d)   Seller has taken all actions it reasonably believes are necessary to maintain and protect each item of Purchased Intellectual Property. Seller has taken reasonable measures to safeguard the confidentiality and value of all Purchased Intellectual Property comprising trade secrets or other confidential information.
 
(e)   Schedule 2.9(e) lists all licenses, sublicenses and other agreements pursuant to which Seller grants rights or authority to any person with respect to any Purchased Intellectual Property or Intellectual Property Licenses. Seller has provided Buyer with true and complete copies of all of such agreements. All such agreements are valid, binding and enforceable between Seller and the other parties thereto. To Seller’s Knowledge, no person has infringed, violated or misappropriated, or is infringing, violating or misappropriating, any of the Purchased Intellectual Property.
 
 
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(f)   For all purposes of this Agreement, the definitions set forth below shall apply:
 
(g)    “Purchased Intellectual Property” means all Intellectual Property that is owned by Seller and used in the conduct of the Business as currently conducted.
 
(i)    “Intellectual Property Licenses” means all licenses, sublicenses and other agreements by or through which other persons grant Seller rights or interests in or to any Intellectual Property that is used in or , in Seller’s belief, necessary for the conduct of the Business as currently conducted.
 
(ii)    “Intellectual Property” means all intellectual property or other proprietary rights of every kind throughout the world, both domestic and foreign, including all inventions and improvements thereon, Patents, Trademarks, Domain Names, Trademark Rights, Copyrights, Technology and trade secrets and Seller’s name “ADI Time.”
 
(iii)    “Patents” means the United States patents and patent applications, including any continuations, divisionals, continuations in part, or reissues of patent applications and patents issuing thereon and any past, present or future claims or cause of action arising out of or related to any infringement or misappropriation of any of the foregoing.
 
(iv)    “Trademarks” means the trademark registrations and applications for trademark registration, together with the goodwill associated with any of the foregoing, and all applications, registrations and renewals thereof, and any past, present or future claims or cause of action arising out of our related to any infringement or misappropriation of any of the foregoing.
 
(v)   “Domain Names” means the internet domain names and all registrations, applications and renewals related to the foregoing.
 
(vi)    “Trademark Rights” means all common law rights in the United States in trade names, corporate names, logos, slogans, designs, trade dress, and unregistered trademarks and service marks, together with all translations, adaptations, derivations and combinations thereof, and the goodwill associated with any of the foregoing.
 
(vii)   “Copyrights” means all copyrightable works, and all United States and foreign registered copyrights and applications, registrations and renewals therefore, and any past, present or future claims or cause of actions arising out of or related to any infringement or misappropriation of any of the foregoing,.
 
 
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(viii)   “Technology” means, collectively, all designs, formulae, algorithims, procedures, methods, techniques, now-how, research and development, technical data, programs, subroutines, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship and other similar materials, and all recordings, graphs, drawings, reports, analyses, and other writings, and other tangible embodiments of the foregoing, in any form whether or not specifically listed herein, and all related technology, that are used in, incorporated in, embodied in, displayed by, or are used in the design, used in the development, used in the reproduction, used in the maintenance or used in the modification of any of products or services developed, manufacture, marketed or sold in connection with the business.
 
Section 2.10   Employees .  Copies of allowable documents under applicable law from the personnel files for employees of Seller (“Employees”) have been delivered to Purchaser. Schedule 2.10 includes all written agreements (including but not limited to employment agreements, deferred compensation agreements, and bonus agreements) between Seller and the Employees.  Seller is not delinquent in payments to any of the employees of the Seller, including the Employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it to the date hereof or amounts required to be reimbursed to such employees.  Upon termination of the employment of any Employees, Purchaser will not by reason of anything done prior to the Closing be liable to any of Employees for “severance pay” or any other payments. To Seller’s Knowledge, Seller is in material compliance with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and conditions of employment and wages and hours.  To Seller’s Knowledge, there are no charges of employment or age discrimination, sexual harassment or unfair labor practices, claims by the Employees against Seller or strikes, slowdowns, stoppages of work or any other concerted interference with normal operations existing, pending or threatened against or involving Seller.  No grievance which might have a material adverse effect on the Business has been asserted.  There is no collective bargaining agreement in effect or contemplated to be in effect by Seller for the Employees.
 
Section 2.11   Products and Product Warranties . Except as set forth in Schedule 2.11, Seller owns all of the tools, dies and specifications for, and all intellectual property and other rights to manufacture and sell, all timeclocks and other products sold as Seller’s products.  There are no breach of warranty claims currently pending, or to Seller’s Knowledge, to be asserted regarding any product sold, leased or delivered or services rendered by Seller.
 
Section 2.12   Product Liability .  To Seller’s Knowledge, Seller has no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against it giving rise to any liability) arising out of any injury to individuals or property as a result of the ownership, possession or use of any product sold, leased or delivered or services rendered by Seller.
 
 
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Section 2.13   Litigation .  Except as set forth on Schedule 2.13, there are no suits, actions or administrative, arbitration or other proceedings or governmental investigations pending or threatened against or relating to Seller or the Purchased Assets.  Except as set forth on the Schedule 2.13, Seller is not otherwise engaged as a party in any suit, action or administrative, arbitration or other proceeding.  Seller has not entered into or been subject to any consent decree, compliance order or administrative order with respect to any of the Purchased Assets or the Business.  Seller has not received any request for information, notice, demand letter, administrative inquiry or formal or informal complaint or claim with respect to the Purchased Assets or the Business.  Seller has not been named by the U.S. Environmental Protection Agency or a state environmental agency as a potentially responsible party (or similar designation under applicable state law) in connection with any site at which hazardous substances, hazardous materials, toxic substances, oil or petroleum products have been released or are threatened to be released.
 
Section 2.14   Absence of Undisclosed Liabilities .  Except as set forth in Schedule 2.14, to Seller’s Knowledge, Seller has no indebtedness, liabilities or obligations of any nature or kind, whether accrued, absolute, contingent or otherwise, whether due or to become due, and regardless of when asserted, relating to products or services provided by Seller, other than (a) those which are adequately reflected or reserved against in the Latest Balance Sheet and (b) those which have been incurred in the normal course of business consistent with past practice after the date of the Latest Balance Sheet and which are not, individually or in the aggregate, material in amount.
 
Section 2.15   Taxes .  After Closing and as a result of the transactions contemplated by this Agreement, Purchaser will not be responsible or liable for any federal, state and local income, profits, gross receipts, franchise, sales, use, occupation, real or personal property, value-added, ad valorem, withholding, social security, payroll, excise and other taxes, charges, levies, tariffs, duties, liabilities, assessments, fees and governmental charges (including for any interest, penalties or other expenses related thereto) (collectively, “Taxes”) related to Seller’s pre-Closing operations, nor will Seller or the Purchased Assets be subject to any lien or other claim by any federal, state or local governmental authority relating to any such Taxes.  No tax audit, actions, suit, proceeding or claim is now pending or, to Seller’s Knowledge, threatened against Seller or the Purchased Assets.
 
Section 2.16   Absence of Certain Changes .  Except as provided in any Schedule hereto, since December 31, 2010, there has not been:
 
(a)   any change in the condition (financial or otherwise), properties, assets, liabilities, business, prospects or operations of Seller which change, by itself or in conjunction with all other such changes, has been or is likely to be materially adverse with respect to Seller’s Business, the value of the Purchased Assets or the ability of Seller to consummate the transactions contemplated hereby;
 
(b)   any purchase, sale, license or other disposition, or any agreement or other arrangement for the purchase, sale, license or other disposition, of any part of the Purchased Assets other than purchases and sales in the ordinary course of business;
 
 
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(c)   any damage, destruction or loss, whether or not covered by insurance, adversely affecting the Purchased Assets or Seller in excess of $5,000 per single occurrence;
 
(d)   any mortgage or pledge of any of the Purchased Assets or any waiver of any rights with respect to any of the Purchased Assets or the Business;
 
(e)   any acceleration, termination, modification or cancellation of any agreement, contract, lease or license (or series of related agreements, contracts, leases or licenses) involving more than $10,000 to which Seller is a party or by which it is bound and which is an Assigned Contract or is related to the Business;
 
(f)   any material change in any method of accounting or accounting practice for the Business, except as required by GAAP or as disclosed in the notes to the Financial Statements;
 
(g)   any material change in cash management practices and polices, practices and procedures with respect to collection of Accounts Receivable, establishment of reserves for uncollectible Accounts Receivable, accrual of Accounts Receivable, prepayment of expenses, payment of accounts payable, accrual of other expenses, deferral of revenue, and acceptance of customer deposits; or
 
(h)   any agreement or understanding, whether in writing or otherwise, for Seller to take any of the foregoing actions, or any action or omission that would result in any of the foregoing.
 
Section 2.17   Compliance with Laws .  Seller is not in material violation of any laws, rules or regulations which apply to the conduct of Seller’s Business or properties which violation has had or may be expected to have a material adverse effect on the Purchased Assets or Seller’s business, financial condition or results of operations.  There has never been any citation, fine or penalty imposed, asserted or threatened against Seller under any foreign, federal, state, local or other law or regulation relating to employment, immigration, occupational safety, zoning or environmental matters and Seller is not aware of any circumstances, occurrences or conditions likely to result in the imposition or assertion of such a citation, fine or penalty, nor has Seller received any notice to the effect that Seller is in violation of any such laws or regulations
 
Section 2.18   Employee Benefit Plans .   After Closing and as a result of the transactions contemplated by this Agreement, Purchaser will not be responsible or liable for any payments or other obligations of Seller related to any employee benefit plans, as that term is defined in Section 3(3) of ERISA, and fringe benefit plans, as that term is defined in Section 6039D(d) of the Code, which now are or ever have been maintained by Seller (or any subsidiary of Seller) or to which Seller (or any subsidiary of Seller) now has or has ever had an obligation to contribute (the “Employee Benefit Plans”).
 
Section 2.19   Insurance .  The Purchased Assets and operations of Seller’s Business are insured to the extent disclosed in the Schedule 2.19 hereto, including general liability and errors and omissions insurance policies.  All such present policies of insurance are in full force and effect, all premiums with respect thereto are currently paid and Seller is in compliance with the terms thereof.
 
 
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Section 2.20   Finders’ Fees .   Neither Seller nor its members has incurred or will incur or become liable for any broker’s commission or finder’s fee relating to or in connection with the transactions contemplated by this Agreement.
 
Section 2.21   Completeness .   No representation, warranty or statement contained in this Agreement and in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Purchaser pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements stated therein, in light of the circumstances in which they are made, not misleading.
 
SECTION 3.
 
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT
 
Each of Purchaser and Parent represents and warrants to Seller that the statements contained in this Section 3 are true and correct as of the date hereof.
 
Section 3.1   Organization .             Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
 
Section 3.2   Authority .  Purchaser has full limited liability company power and authority, and Parent has full corporate power and authority, to enter into this Agreement and each agreement, document and instrument to be executed and delivered by Purchaser and Parent, as applicable, pursuant to this Agreement and to carry out the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and each such other agreement, document and instrument to which the Purchaser or Parent is a party have been duly and validly authorized and approved by all necessary action on the part of Purchaser and Parent, as applicable, and no other action on the part of Purchaser and Parent, as applicable, is required in connection therewith.  This Agreement and each agreement, document and instrument to be executed and delivered by Purchaser and Parent pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of each of Purchaser and Parent, as applicable, enforceable against Purchaser and Parent in accordance with their respective terms, except to the extent that enforcement is limited by bankruptcy, insolvency, moratorium, conservatorship, receivership or similar laws of general application affecting creditors’ rights or by the application by a court of equity principles.
 
Section 3.3   No Conflicts; Consents .   The execution, delivery and performance by Purchaser and Parent of this Agreement and each such agreement, document and instrument to be executed and delivered by them pursuant to this Agreement (a) does not and will not violate any foreign, federal, state, local or other laws, regulations or ordinances applicable to Purchaser or Parent; and (b) does not or will not violate any term or provision of the organizational documents of Purchaser or Parent. No consent or waiver by, approval of, or designation, declaration or filing with, or notice to, any governmental or public body or authority or any other person or entity is required by or in connection with the execution, delivery and performance by Purchaser or Parent of this Agreement and each agreement, document and instrument to be executed and delivered by Purchaser and Parent pursuant to this Agreement.
 
 
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Section 3.4   Litigation .   There is no pending action, suit, investigation or proceeding that has been commenced against Purchaser or Parent that challenges or may have the effect of preventing, delaying or otherwise interfering with the transactions contemplated hereby.  To Purchaser’s and Parent’s knowledge, no such suit, investigation or proceeding has been threatened.
 
Section 3.5   Finders’ Fees .  Neither Purchaser nor Parent has incurred or will incur or become liable for any broker’s commission or finder’s fee relating to or in connection with the transactions contemplated by this Agreement.
 
SECTION 4.
 
CLOSING DELIVERABLES
 
Section 4.1   Deliveries of Seller at Closing .   Unless otherwise specifically set forth herein, at the Closing, Seller shall deliver to Purchaser the following:
 
(a)   Possession of the Purchased Assets;
 
(b)   A bill of sale in the form of Exhibit B hereto (“Bill of Sale”) and duly executed by Seller, conveying free, clear and unencumbered title to the tangible personal property included in the Purchased Assets to Purchaser;
 
(c)   An assignment and assumption agreement in the form of Exhibit C hereto (”Assignment and Assumption Agreement”) and duly executed by Seller, effecting the assignment to and assumption by Purchaser of the Purchased Assets and Assumed Liabilities;
 
(d)   Such documents of assignment and transfer duly executed by Seller (the “Intellectual Property Assignments”), transferring all of Seller’s right, title and interest in and to any of Purchased Intellectual Property and Intellectual Property Licenses to Purchaser;
 
(e)   A limited power of attorney in the form of Exhibit D hereto and duly executed by Seller;
 
(f)   The consent to assignment for that certain lease agreement with South Office Crossings, LLC;
 
(g)   Within fifteen (15) days following Closing, ehttp://www.innercitytennis.org/programs.htmlvidence of filing of UCC-3 termination statements with respect the security interest securing the obligations under the Bank of America loan;
 
(h)   Non-competition and non-solicitation agreements in the form of Exhibit E hereto (“Non-Competition Agreements”), duly executed by those members of Seller listed on Schedule 4.1(h);
 
 
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(i)   An escrow agreement among Purchaser, Seller and the entity designated to serve as escrow agent (the “Escrow Agreement”), duly executed by Seller;
 
(j)   A written statement setting forth the amount of Seller’s cash and cash equivalents as of 11:59 p.m., Rhode Island time, on September 30, 2011 (“Closing Cash”), certified by the Chief Executive Officer of Seller;
 
(k)   Resolutions duly adopted by the members of Seller, authorizing the execution, delivery and performance of this Agreement, such other agreement, document and instrument required to be delivered pursuant to the Agreement to which Seller is a party, and the transactions contemplated hereby and thereby, certified by a duly authorized officer;
 
(l)   The certificate of the Secretary (or equivalent officer) of Seller certifying the names and signatures of the officers of Seller authorized to sign this Agreement and the other agreements, documents and instruments to be delivered pursuant to this Agreement; and
 
(m)   Such other documents, certificates or instruments as Purchaser or Parent reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.
 
Section 4.2   Deliveries of Purchaser at Closing .  At the Closing, Purchaser shall deliver the Heldback Amount to the escrow agent pursuant to the Escrow Agreement and shall deliver to Seller the following:
 
(a)   The Closing Day Cash Payment;
 
(b)   The Holdover Note executed by Purchaser and payable to Seller in the aggregate principal amount of $1,095,392;
 
(c)   A guaranty in the form of Exhibit F hereto (“Guaranty”) and duly executed by Parent;
 
(d)   The Assignment and Assumption Agreement duly executed by Purchaser;
 
(e)   The Non-Competition Agreements duly executed by Purchaser and Parent;
 
(f)   The Escrow Agreement duly executed by Purchaser;
 
(g)   Resolutions duly adopted by the board of directors of Parent and the sole member of Purchaser, each authorizing the execution, delivery and performance of this Agreement, such other agreement, document and instrument required to be delivered pursuant to the Agreement to which Parent or Purchaser is a party, and the transactions contemplated hereby and thereby, certified by a duly authorized officer of Parent and Purchaser;
 
(h)   The certificate of the Secretary (or equivalent officer) of each of Purchaser and Parent certifying the names and signatures of the officers of Purchaser and Parent authorized to sign this Agreement and the other agreements, documents and instruments to be delivered pursuant to this Agreement; and
 
 
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(i)   Such other documents, certificates or instruments as Seller reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.
 
SECTION 5.
 
SURVIVAL OF REPRESENTATIONS AND
 
WARRANTIES AND INDEMNIFICATION
 
Section 5.1   Survival of Representations and Warranties .  Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing for a period of twenty-four (24) months after the Closing Date; provided, that the representations and warranties in Section 2.1, Section 2.2, Section 2.20, Section 3.1, Section 3.2, and Section 3.5 shall survive indefinitely, and the representations and warranties in Section 2.15 and Section 2.18 shall survive for the full period of all applicable statute of limitations or tolling period with respect to the matter at issue.  All covenants and agreements of the parties contained herein (including, but not limited to, Seller’s obligations under Section 5.2 hereof) shall survive for a period of 24 months after the Closing Date. Notwithstanding the above limitations, indemnification for matters fraudulently concealed by any party hereto shall extend indefinitely or until the applicable statute of limitations or tolling period.
 
Section 5.2   Indemnification by Seller .  Subject to the terms and conditions contained in this Section 5, Seller covenants and agrees to defend, indemnify and hold harmless Purchaser, Parent and their respective officers, directors, affiliates, employees, agents, advisors and representatives (collectively, the “Purchaser Indemnitees”) from and against, and pay or reimburse the Purchaser Indemnitees for any and all claims, demands, losses, damages, liabilities, strict liabilities, obligations, fines, costs and expenses (including interest and penalties with respect thereto and reasonable attorneys’ fees and out-of-pocket expenses and costs of investigation), or other damages (whether absolute, accrued, conditional or otherwise and whether or not resulting from third party claims) fixed or contingent, liquidated or unliquidated, matured or unmatured and all demands, assessments, judgments (collectively, “Losses”), resulting from or arising out of:
 
(a)   any inaccuracy of any representation or warranty when made or deemed made by Seller herein;
 
(b)   Seller’s conduct of the Business or ownership of the Purchased Assets prior to the Closing Date not assumed within the Assumed Liabilities;
 
(c)   any act of fraud related to this Agreement;
 
(d)   any failure of Seller to perform any covenant or agreement hereunder on a timely basis, to the extent that such failure to perform is not cured by Seller within ten (10) business days of receipt of written notice thereof from Purchaser;
 
(e)   any Excluded Asset or any third party claim or other liabilities arising from any Excluded Asset  or from the Business prior to the Closing Date;
 
 
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(f)   any Excluded Liability, or any third party claim or other liabilities arising from the Business prior to the Closing Date;
 
(g)   any severance or other obligation due to any employee or former employee of Seller, including those arising out of the Closing or as a consequence of this Agreement or Purchaser’s election not to hire any employee of Seller;
 
(h)   any non-compliance by Seller with any applicable fraudulent transfer;
 
(i)   any and all liabilities for Taxes owed by Seller;
 
(j)   the threatened litigation listed on Schedule 2.13; and
 
(k)   all actions, suits, proceedings, demands, assessments or judgments (including all reasonable attorney fees and expenses) incident to any of the foregoing.
 
Section 5.3   Reimbursement .  If a Purchaser Indemnitee has a claim for indemnification under Section 5.2, the Purchaser Indemnitee will deliver prompt written notice to Seller stating in reasonable detail the nature and basis for such claim and the amount, to the extent known, of such claim. The failure to give such prompt notice shall not, however, relieve the Seller of its indemnification obligations, except and only to the extent that the Seller forfeits rights or defenses by reason of such failure. If the Seller disputes the claim for indemnification, it shall notify the Purchaser Indemnitee within 30 days after delivery of the notice of such claim by Purchaser Indemnitee, and the Seller and Purchaser Indemnitee will proceed in good faith to negotiate a resolution of such dispute. If the dispute is not resolved within 30 days after the commencement of negotiations, either Seller or the Purchaser Indemnitee may initiate litigation in accordance with Section 7.3. If the Seller does not dispute such claim for indemnification, the Seller will pay the amount of Loss to the Purchaser Indemnitee.  Subject to Section 5.4, Seller will pay the amount of any Loss incurred by the Purchaser Indemnitee within 10 days following the determination of Seller’s liability for and the amount of such Loss (whether such determination is made pursuant to the procedures set forth under this Section 5.3, by agreement between the Seller and the Purchaser Indemnitee or by final adjudication).
 
Section 5.4   Holdback; Set-Off .  After satisfaction of the requirements of Section 5.3, a Purchaser Indemnitee will recoup all or any part of any Loss incurred by the Purchaser Indemnitee, first, by offsetting up to $1,000,000 of principal or interest due and payable by Purchaser to Seller under the Holdback Note and then by reimbursement from Seller pursuant to Section 5.3. If a Purchaser Indemnitee has delivered notice of a claim for indemnification in good faith pursuant to Section 5.3 in respect of Losses estimated by Purchaser Indemnitee to be in excess of $500,000 and such claim has not been finally resolved or agreed to on or before any required payment date under the Holdback Note, the failure of Purchaser to make the required payment of principal and interest on the Holdback Note when due will not constitute an event of default under the Holdback Note or the Guaranty. If a Purchaser Indemnitee has delivered notice of a claim for indemnification in good faith pursuant to Section 5.3 in respect of Losses estimated by Purchaser Indemnitee to be $500,000 or less and such claim has not been finally resolved or agreed to on or before any required payment date under the Holdback Note, then Purchaser Indemnitee shall have the right to hold back payment of 150% of the amount of the estimated claim (the “Holdback Claim”) and pay the remainder of the principal, if any, as required under the Holdback Note. The failure of Purchaser to pay the Holdback Claim on the applicable payment date under the Holdback Note will not constitute an event of default under the Holdback Note or the Guaranty.
 
 
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Section 5.5   Indemnification by Parent and Purchaser .  Parent and Purchaser covenant and agree to defend, indemnify and hold harmless Seller, its officers, directors, employees, agents, advisors and representatives and members (collectively, the “Seller Indemnitees”) from and against, and pay or reimburse Seller Indemnitees for all Losses resulting from or arising out of:
 
(a)   any inaccuracy of any representation or warranty when made or deemed made by Purchaser or Parent herein;
 
(b)   any act of fraud related to this Agreement;
 
(c)   any failure of Purchaser or Parent to perform any covenant or agreement hereunder on a timely basis, to the extent that such failure to perform is not cured by Purchaser or Parent, as applicable,  within thirty (10) business days of receipt of written notice thereof from Seller;
 
(d)   any of the Assumed Liabilities;
 
(e)   Purchaser’s or Parent’s operation of the Purchased Business or ownership of the Purchased Assets after the Closing Date; and
 
(f)   all actions, suits proceedings, demands, assessments or judgments (including all reasonable attorney fees and expenses) incident to any of the foregoing.
 
Section 5.6   Reimbursement .  If a Seller Indemnitee has a claim for indemnification under Section 5.5, the Seller Indemnitee will deliver prompt written notice to Purchaser stating in reasonable detail the nature and basis for such claim and the amount, to the extent known, of such claim. If the Purchaser disputes such claim for indemnification, it shall notify the Seller Indemnitee within 30 days after delivery of the notice of such claim by Seller Indemnitee, and the Purchaser and Seller Indemnitee will proceed in good faith to negotiate a resolution of such dispute. If the dispute is not resolved within 30 days after the commencement of negotiations, either Purchaser or the Seller Indemnitee may initiate litigation in accordance with Section 7.3. If the Purchaser does not dispute such claim for indemnification, the Purchaser will pay the amount of Loss to the Seller Indemnitee.  Purchaser will pay the amount of any Loss incurred by the Seller Indemnitee within 10 days following the determination of Purchaser’s liability for and the amount of such Loss (whether such determination is made pursuant to the procedures set forth under this Section 5.3, by agreement between the Purchaser and the Seller Indemnitee or by final adjudication).
 
 
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Section 5.7  Matters Involving Third Parties .

(a) If any third party shall notify any party entitled to indemnification under Section 5 (the “Indemnified Party”) with respect to any matter (a “Third Party Claim”) which may give rise to a claim for indemnification against the party from whom indemnification is claimed (the “Indemnifying Party”) under this Section 5, then the Indemnified Party shall promptly notify the Indemnifying Party thereof in writing; provided, however , that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party forfeits rights or defenses by reason of such failure.
 
(b) The Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim at the Indemnifying Party’s expense, with counsel of its choice reasonably satisfactory to the Indemnified Party, so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within twenty (20) business days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against any Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (B) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (C) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to materially adversely affect the business of the Indemnified Party, and (D) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently.
 
(c) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 5.7(b) above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (B) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld or delayed unreasonably), and (C) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld or delayed unreasonably).
 
(d) In the event any of the conditions in Section 5.7(b) above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may deem appropriate but only after the approval of the Indemnifying Party (which approval shall not be unreasonably withheld or delayed), (B) the Indemnifying Party will reimburse the Indemnified Party promptly and periodically for the reasonable costs of defending against the Third Party Claim (including reasonable attorneys’ fees and expenses incurred by the Indemnified Party), and (C) subject to the limitations contained in this Section 5, the Indemnifying Party will remain responsible for any Losses the Indemnified Party may suffer resulting from arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 5.
 
 
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Section 5.8 Limitations on Indemnification .
 
(a) Except as set forth in Section 5.8(c) below, Seller shall not be liable to Purchaser Indemnitees under this Agreement unless and until the aggregate amount of all Losses in respect of indemnification under Section 5.2 exceeds Fifty Thousand Dollars ($50,000) (the “Basket Amount”) after which Seller shall be liable only for such Losses in excess of the Purchaser Basket Amount. The maximum aggregate obligation of Seller with respect to all matters for which Purchaser Indemnitees may seek indemnification under this Agreement shall not exceed the Purchase Price.
 
(b) Except as set forth in Section 5.8(c)( below, Purchaser and Parent shall not be liable to Seller Indemnitees under this Agreement unless and until the aggregate amount of all Losses in respect of indemnification under Section 5.5 exceeds Fifty Thousand Dollars ($50,000) (the “Seller’s Basket Amount”) after which Purchaser and Parent shall be liable only for such Losses in excess of the Seller’s Basket Amount. The maximum aggregate obligation of Purchaser and Parent with respect to all matters for which Seller Indemnitees may seek indemnification under this Agreement shall not exceed the Purchase Price.
 
(c) The Basket Amount shall not apply to any claim made by Purchaser based upon the representations and warranties of Seller contained in Section 2.1, Section 2.2, Section 2.7, Section 2.15, Section 2.18, and Section 2.20.  The Seller’s Basket Amount shall not apply to any claim made by Seller based upon the representations and warranties of Purchaser or Parent contained in Section 3.1, Section 3.2, and Section 3.5.  Notwithstanding anything to the contrary contained herein, neither the Basket Amount nor the Seller’s Basket Amount shall apply to any indemnification claims resulting from a fraudulent breach by the Seller or Purchaser or Parent, as applicable, of any of their respective representations, warranties or covenants under this Agreement.
 
Section 5.9  Miscellaneous Indemnification Matters »
 
.  In determining the amount of any Losses suffered by an indemnitee for which it is entitled to payment or indemnification pursuant hereto or otherwise, there shall be taken into account any insurance proceeds or other amounts actually received by the indemnitee and attributable to or derived from such Loss.
 
SECTION 6.
 
COVENANTS AND AGREEMENTS
 
Section 6.1   Collection on Accounts Receivable .  On or after the Closing Date, Purchaser shall have the right and authority to collect for Purchaser’s account all receivables which constitute a part of the Purchased Assets. On and after the Closing Date, Seller shall promptly remit to Purchaser, or reimburse Purchaser for, all amounts, and endorse or remit to Purchaser the proceeds of all checks, drafts, notes, or other documents, received by Seller that should have otherwise been paid to Purchaser.
 
Section 6.2   Notice to Customer Accounts .  In order to promote the smooth transition of the Business and Customer Accounts to Purchaser after Closing, Seller shall cooperate with Purchaser in providing notice to each Customer Account advising each such Customer Account of the sale of the Business to Purchaser.
 
 
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Section 6.3   Employee Matters.
 
(a)   Seller acknowledges that Purchaser is not obligated to offer employment to any of Seller’s employees that do not meet Purchaser’s employment requirements and that all such hired employees shall be “at-will” employees.  All terms of employment for such employees shall be at the discretion of Purchaser and all benefits and other terms are subject to change as determined by Purchaser in its sole and absolute discretion.
 
(b)   Seller acknowledges and agrees with Purchaser that Seller shall have responsibility for and shall remain liable for all compensation (except for commissions as provided below) and employee benefits for Seller’s employees through the close of business on the Closing Date, whether or not accrued on the books of Seller as of the Closing Date, including, but not limited to, accrued but unused vacation pay, sick leave, COBRA benefits, bonuses, severance, and fringe benefits, if any. Purchaser shall be responsible to pay, to the extent included in the Assumed Liabilities, the amount of commissions due and payable to employees of Seller as set forth on Schedule 1.5(a). For the purposes of this Agreement, “COBRA” shall mean health insurance continuation coverage as required by Section 4980B of the Code and Sections 601 through 609 of ERISA or as required by any applicable state law.
 
(c)   On and after the Closing Date, Purchaser shall bear sole responsibility for instructing and supervising employees of Seller hired by Purchaser and shall be responsible for providing compensation and benefits to all employees of Seller hired by Purchaser for periods on and after the Closing Date during the respective periods of employment of such employees with Purchaser. On and after the Closing Date, Purchaser does not assume, and Seller shall remain fully responsible for, the payment of any compensation and employee benefits to any employees of Seller not hired by Purchaser, including any employee who fails to accept Purchaser’s employment offer.
 
Section 6.4   Non-Competition and Non-Solicitation .
 
(a)   Seller covenants and agrees that for a period of two (2) years from the date hereof, Seller shall not, directly or indirectly, on its own behalf or on behalf of any other person or entity (other than Purchaser) (i) sell or assist in the sale of any product or service that is the same or substantially similar to the time and attendance software and management services sold or provided by the Business during the one (1) year period ending with the Closing Date; (ii) divert, attempt to divert, or assist in diverting any time and attendance software and management service business of Purchaser from Purchaser to any other person or entity; or (iii) solicit or hire any person who is or was an employee of Purchaser during the one (1) year period ending with the Closing Date.
 
(b)   In the event of any breach of Section 6.4 by Seller,  in addition to, and not in lieu of any other remedies to which the non-breaching party may be entitled, Seller and Purchaser each agree that a breach of any covenant set forth in this 6.4 would result in irreparable injury, harm, and damage to the non-breaching party for which such party would have no adequate remedy at law, and Seller and Purchaser each further agree, in the event of any violation or breach of any provision of this 6.4, the non-breaching party shall be entitled to an immediate injunction and restraining order to prevent such violation or continuing violation, without having to prove damages, and any such violation may be enjoined through proper action filed in a court of competent jurisdiction.
 
 
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(c)   Seller and Purchaser each agree that all restrictions in this 6.4 are necessary and fundamental to the protection of the Business and the Purchased Assets, and are reasonable and valid, and all defenses to the strict enforcement hereof are hereby waived.  In the event any term, provision, or restriction is held to be illegal, invalid or unenforceable in any respect, such finding shall in no way affect the legality, validity or enforceability of all other provisions of this Section 6.4.  Purchaser and Seller each agree that any such unenforceable term, provision or restriction shall be deemed modified to the extent necessary to permit its enforcement to the maximum extent permitted by applicable law.
 
(d)   The provisions of this 6.4 shall survive the termination or expiration of this Agreement for any reason or no reason.
 
SECTION 7.
 
MISCELLANEOUS
 
Section 7.1   No Waiver .  The failure of any party hereto at any time to require performance by any other party of any provision of this Agreement shall not affect the right of such party to require performance of that provision and any waiver by any party of any breach of any provision of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provisions, a waiver of the provision itself or a waiver of any right under this Agreement.
 
Section 7.2   Successors and Assigns .  No assignment by any party hereto shall be permissible without the written consent of the other parties hereto, and this Agreement and all representations, warranties, covenants and agreements contained herein shall be binding upon and inure to the benefit of the parties hereto and their authorized assigns and their respective successors, heirs and administrators.  At or after the Closing, all or any of the rights of Purchaser hereunder may be assigned as collateral security to any lender or lenders (including any agent for any such lender or lenders) providing financing to Purchaser, or to any assignee or assignees of any such lender, lenders or agent.
 
Section 7.3   Governing Law; Jurisdiction .  This Agreement is being delivered and is intended to be performed in the State of Delaware and shall be construed, interpreted, governed and enforced in accordance with the laws of that State. Each of the parties submits to the jurisdiction of the federal or state courts located in Wilmington, Delaware in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby and agrees that all claims in respect of any such action or proceeding may be heard and determined by such tribunal. Each party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto. Either party may make service on the other party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 7.5.
 
 
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Section 7.4   Expenses .  Seller and Purchaser shall each pay their own expenses (including, but not limited to, fees and expenses of counsel) incurred in connection with the negotiation, preparation, execution and consummation of this Agreement and the transactions contemplated hereby, whether or not such transactions are consummated or abandoned for any reason, without reimbursement from or by any other party hereto. Sales and other taxes resulting from the transfer of the Purchased Assets to Purchaser shall be paid by Seller.
 
Section 7.5   Notices .  All notices, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given: (a) when delivered by hand (with written confirmation of receipt); (b) when received if sent by a nationally recognized overnight delivery service (receipt requested); and (c) on the third day after the date mailed, if sent by certified or registered mail, return receipt requested.  In each case notice shall be sent to the following address or to such other place and with such other copies as any party may designate as to itself by notice to the others:
 
If to Purchaser or Parent:                    Asure Software, Inc.
110 Wild Basin Road, Suite 100
Austin, Texas  78746
Attention:  CFO

With a copy to:                                    Messerli & Kramer P.A.
100 South Fifth Street
1400 Fifth Street Towers
Minneapolis, Minnesota  55402
Attention:  David Weigman, Esq.

If to Seller:                                             ADI Time, LLC
c/o David Ursillo
Rodio & Ursillo, Ltd
86 Weybosset Street
Providence, Rhode Island  02903

With a copy to:                                    Chace Ruttenberg & Freedman, LLP
One Park Row, Suite 300
Providence, Rhode Island  02903
Attention: Drew P. Kaplan, Esq.

Section 7.6   Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which, taken together, shall constitute one in the same instrument.  A facsimile signature page shall be deemed an original.
 
 
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Section 7.7   Announcements and Communications .  Seller and Purchaser agree not to make any public announcement or furnish any information to the public or any third party concerning the financial or non-financial aspects of the transactions contemplated by this Agreement prior to or after Closing, unless such announcement or furnishing of information is agreed upon by all parties hereto or is necessitated by Securities and Exchange Commission rules and regulations, stock exchange rules,  federal securities laws or other applicable laws, as reasonably determined by counsel for the Purchaser and after consultation with Seller. Nothing contained herein shall prohibit or restrict communication by Purchaser to customers of the Business.
 
Section 7.8   Entire Agreement .  This Agreement, together with the Schedules, documents and instruments delivered pursuant to and specified in this Agreement, sets forth the entire agreement and understanding between the parties as to the subject matter hereof, and merges and supersedes all prior discussions, agreements and understandings of every and any nature between them, and no party shall be bound by any condition, definition, warranty or representation, other than as expressly set forth or provided for in this Agreement, or as may be, on or subsequent to the date hereof, set forth in writing and signed by the party to be bound thereby.  This Agreement may not be changed or modified, except by agreement in writing, signed by all of the parties hereto.
 
Section 7.9   Delays or Omissions .  No delay or omission to exercise any right, power or remedy accruing to Purchaser or the Seller, upon any breach or default of Seller or of Purchaser, respectively, under this Agreement, shall impair any such right, power or remedy of such person nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.
 
Section 7.10   Severability .  Unless otherwise provided herein, if any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the unenforceable provision shall be deemed modified to the limited extent required to permit its enforcement in a manner most closely approximating the intention of the parties as expressed herein.
 
Section 7.11   Cumulative Remedies .  Except as otherwise specifically provided in this Agreement, all rights and remedies of any party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.
 
Section 7.12   Time; Captions; Exhibits and Schedules .  Time is of the essence of this Agreement.  The captions contained in this Agreement in no way define, limit or extend any provision of this Agreement.  The Exhibits and Disclosure Schedules that are attached to this Agreement are a part of this Agreement and are incorporated herein by reference.
 
Section 7.13   Further Assurances .  The parties shall cooperate reasonably with each other and with their respective representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish upon request to each other such further information; (b) execute and deliver to each other such other documents; and (c) do such other acts and things all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions contemplated herein.
 
 
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Section 7.14   Construction .  This Agreement is to be deemed to have been prepared jointly by the parties hereto after arms-length negotiations, and any uncertainty or ambiguity existing herein shall not be interpreted against any party, but according to the application of the rules of interpretation of contracts.
 
Section 7.15   Third Party Beneficiaries .  Except as expressly provided in this Agreement, each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than parties hereto and their respective successors and permitted assigns.
 
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
 
PARENT

ASURE SOFTWARE, INC.


By: /s/ PATRICK GOEPEL
Name: Patrick Goepel
Title: Chief Executive Officer

PURCHASER

ADI SOFTWARE, LLC


By: /s/ PATRICK GOEPEL
Name: Patrick Goepel
Title: Chief Executive Officer

SELLER

ADI TIME, LLC


By: /s/ JOHN DIPIPPO
Name: John DiPippo
Title: Chief Executive Officer


 
[Signature page to Asset Purchase Agreement]
 
 
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Exhibit 4.3
 
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER 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 AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The indebtedness evidenced by this instrument is subordinated to the prior payment in full of certain other debt of the Company as identified in the Security and Intercreditor Agreement (the “ Senior Debt ”) pursuant to, and to the extent provided in, the Security and Intercreditor Agreement.

Original Issue Date: September 30, 2011

$[_______________]

 9.0% SUBORDINATED CONVERTIBLE PROMISSORY NOTE
DUE THREE YEARS FROM ORIGINAL ISSUE DATE

THIS 9.0% SUBORDINATED CONVERTIBLE PROMISSORY NOTE (this “ Note ”) is one of a series of duly authorized and issued 9.0% Subordinated Convertible Promissory Notes of Asure Software , a Delaware corporation, having a principal place of business at 110 Wild Basin Road, Austin, TX 78746 (the “ Company ”), designated as its  9.0% Subordinated Convertible Promissory Notes due three years from the Original Issue Date (the “ Notes ”).

FOR VALUE RECEIVED, the Company promises to pay to [________________________] or its registered assigns (the “ Holder ”), the principal sum of $[_______________] on the date that is three years from the Original Issue Date set forth above or such earlier date as this Note is required or permitted to be repaid as provided hereunder (the “ Maturity Date ”) (other than such amounts converted pursuant to Section 4 below) and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note (“ Interest ”) in accordance with the provisions hereof.  On the Maturity Date, the Holder, at its option, shall receive the amounts due under this Note in cash or Note Shares (as defined below).  This Note is subject to the following additional provisions:
  
 
 

 
 
Section 1 .             Definitions .  For the purposes hereof, in addition to the terms defined elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, and (b) the following terms shall have the following meanings:

Bankruptcy Event ” means any of the following events: (i) the Company or any Significant Subsidiary (as such term is defined in Rule 1.02(s) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof; (ii) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement; (iii) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (iv) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (v) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors; (vi) the Company or any Significant Subsidiary thereof calls a meeting of substantially all of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (vii) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

Board ” means the Board of Directors of the Company.
 
Business Day ” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

Change of Control Transaction ” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company, or (ii) the execution by the Company of an agreement to which the Company  is a party or by which it is bound, providing for any of the events set forth above in (i).
 
Common Stock ” means shares of the common stock of the Company, $0.01 par value per share.

Conversion Date ” shall have the meaning set forth in Section 4(a) hereof.

Conversion Price ” shall have the meaning set forth in Section 4(b) hereof.

Event of Default ” shall have the meaning set forth in Section 6 hereof.
 
 
 

 

Excluded Securities ” means (a) shares of Common Stock, options or warrants issued to employees, officers, directors or consultants of the Company under equity plans approved by the Board, (b) securities upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, (c) a dividend of Common Stock payable to holders of Common Stock, and (d) securities with an aggregate fair market value (as determined as of the date of issuance in the good faith determination of the Board) not greater than $250,000 that are issued pursuant to acquisitions or strategic transactions which the Board determines in good faith have business synergies and benefits in addition to the investment of funds.

Fundamental Transaction ” shall have the meaning set forth in Section 7 hereof.

Net Operating Loss Rights Plan ” shall mean the Company’s Amended and Restated Rights Plan dated on or about October 28, 2009.

Original Issue Date ” shall mean the date of the first issuance of this Note as provided on the cover page hereof, regardless of the number of transfers of this Note and regardless of the number of instruments which may be issued to evidence this Note.

 “ Person ” means a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

Purchase Agreement ” means the Securities Purchase Agreement between the Holder and the Company, pursuant to which this Note is initially purchased, as amended, modified or supplemented from time to time in accordance with its terms.

Registration Rights Agreement ” means the Registration Rights Agreement between the Holder and the Company dated as of the date hereof.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Secured Parties ” means any Federal, state or local governmental or quasi-governmental agencies or divisions and any lender or creditor holding a security interest under the Uniform Commercial Code in assets and other property of the Company.

Senior Debt ” shall have the meaning set forth above.
 
 “ Security and Intercreditor Agreement ” means that certain Security and Intercreditor and Agreement dated on or about the Original Issue Date by and among the Company and the lenders identified therein.

Transaction Documents ” means this Agreement, the Purchase Agreement, the Security and Intercreditor Agreement, the Registration Rights Agreement, and any other documents or agreements executed by the Holder in connection with the transactions contemplated hereby.
 
 
 

 

Section 2 .             Interest .

a)   Payment of Interest . Interest shall accrue on the unpaid, aggregate unconverted and then outstanding principal amount of this Note commencing on the date hereof and continuing until repayment of this Note in full at a rate of Nine Percent ( 9.0%) per annum, with interest only payable in cash on each of March 31, June 30, September 30, and December 31, commencing December 31, 2011 (except that, if any such date is not a Business Day, then such payment shall be due on the next succeeding Business Day), and on each Conversion Date (as to that principal amount then being converted), in the number of shares of Common Stock equal to the aggregate unpaid and accrued interest divided by the Conversion Price.

b)   Interest Calculations .

(i)           Interest shall cease to accrue with respect to any principal amount converted, provided that the Company in fact delivers the Note Shares within the time period required by Section 4(c).  Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of Notes (the “ Note Register ”).

(ii)           From and after the occurrence and during the continuance of an Event of Default, the Interest Rate shall be increased to twelve percent (12%) per annum.  In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default.
 
c)  Prepayment .  Other than: (i) on or prior to October 5, 2011 at the sole election of the Company (without penalty or interest) or (ii) as specifically permitted by the Holder or as provided in Section 4(d) hereof, the Company may not prepay any portion of the outstanding principal amount of this Note and accrued and unpaid Interest.

Section 3.              Registration of Transfers and Exchanges .
 
a)  Different Denominations . This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same.  No service charge will be made for such registration of transfer or exchange.

b)  Investment Representations . This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.
 
 
 

 

c)            Reliance on Note Register . Prior to due presentment to the Company for transfer of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.              Conversion .
 
a)   Voluntary Conversion . Subject to the Company Buy Out Option (as defined below), the Notes may be converted, beginning 12 months from the date of issuance, provided that the Holder provides notice to the Company of its intent to convert (“ Notice of Conversion ”) at least 10 days prior to the date of conversion (“ Conversion Date ”).  The Notice of Conversion, the form of which is provided in Annex A , must include the total number of shares of Common Stock of the Company that the Holder would be deemed to directly or beneficially own as of the Conversion Date.  To effect conversions hereunder, the Holder shall not be required to physically surrender Notes to the Company unless the entire principal amount of this Note plus all accrued and unpaid interest thereon has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion.  The Holder and the Company shall maintain records showing the principal amount converted and the date of such conversions.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.  Conversion Notices shall be irrevocable, except as provided in Section 4.19 of the Purchase Agreement or as approved by the Board.
 
b)   Conversion Price .  The conversion price on any Conversion Date shall be $5.00 per share, subject to adjustment as provided in Section 5 hereof (the “ Conversion Price ”).

 
c)   Mechanics of Conversion .
 
i.  Note Shares Issuable Upon Conversion .  The number of shares of Common Stock issuable upon a conversion (“ Note Shares ”) hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted plus all accrued and unpaid interest thereon by (y) the Conversion Price.

ii.  Delivery of Certificate Upon Conversion .  Not later than 7 Business Days after any Conversion Date, the Company will deliver to the Holder a certificate or certificates representing the number of shares of Note Shares being acquired upon the conversion of this Note or a portion of this Note.

iii.  Reservation of Certificates. Certificates for the Note Shares on conversion of this Note shall be made without charge to the Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.
 
 
 

 

d)   Company Buy Out Option .  During the period following the Company’s receipt of a Conversion Notice but prior to the Conversion Date (the “ Conversion Notice Period ”), the Company may elect, at the Board’s sole discretion, to pre-pay any or all of the Notes (the “ Company Buy Out Option ”) pursuant to the following limitations:

i.   The Company Buy Out Option may only be exercised with respect to such Notes (or portion thereof) the conversion of which would result in the holder of such Note being deemed a 5% holder (the “ Section 382 Excess Shares ”) for the purposes of Section 382 of the Internal Revenue Code (“ Section 382 ”).

ii.   The Company Buy Out Option may only be exercised if the Company’s Net Operating Loss Rights Plan (or a successor plan) remains in effect on the date of receipt by the Company of the Conversion Notice.

iii.   To the extent that the Conversion Notice Period for different holders of Notes overlap, the Company will be required to either: (i) exercise the Company Buy Out Option to the fullest extent possible (subject the limitation set forth in (ii) above)) with respect to all such holders of Notes or (ii) exercise the Company Buy Out Option between such holders in the manner which in the Board’s reasonable discretion maximizes the preservation of Net Operating Losses under Section 382.
 
iv.   Holders subject to the Company Buy Out shall receive a payment in exchange for their Notes equal to the product of: (A) the number of Note Shares that such Note is convertible into at such time, multiplied by (B) VWAP (as defined below), multiplied by (C) the Premium Rate (as defined below).  “ VWAP ” shall mean the volume weighted average closing price for Asur during the twenty-day trading period beginning on the tenth day prior to the date that the Conversion Notice is received by the Company.  “ Premium Rate ” shall mean 1.25 if the Conversion Notice is received by the Company prior to the date that is 90 days prior to the maturity date and 1.5 if the Conversion Notice is received by the Company within 90 days of the Maturity Date.

The Conversion Notice shall be deemed null and void with respect to any principal and associated interest that the Company exercises the Company Buy Out Option. For the avoidance of doubt, upon receipt by the Holder of such principal, interest and the amount set forth in subclause d(iv) above, the Holder shall no longer be entitled to any Note Shares arising therefrom.
 
v. In the event that the Company does not exercise the Company Buy Out Option with respect to all of the Section 382 Excess Shares and as a result thereof, the Company agrees to take all action necessary to ensure that the Company’s Net Operating Loss Right Plan will not be triggered on account of the issuance of such Section 382 Excess Shares.  The Company hereby agrees to reimburse, indemnify and hold the Holder harmless against any and all costs, expenses or damages of any kind suffered or incurred by Holder as a result of a breach of such obligation by the Company, including without limitation: (i) damage and loss suffered by the Holder from dilution or otherwise with respect to all shares of Common Stock held or owned by Holder (whether Note Shares or otherwise acquired) and (ii) lost profit (e.g. appreciated value of Notes Shares), consequential, special and punitive damages and all attorney and collection fees.
 
 
 

 

e)   Registration Rights . The Holder has been granted registration rights with respect to the shares of Common Stock issuable upon conversion of this Note as more fully set forth in the Registration Rights Agreement.

Section 5 .             Certain Adjustments .
 
a)   Stock Dividends and Stock Splits .  If the Company, at any time while this Note is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Note), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
 
b)   Dividends .  In the event that the Company issues a dividend of: (i) cash, (ii) property or (iii) securities (other than Common Stock issued to holders of Common Stock) during the period of time that a Note is outstanding, and the Note is converted into Common Stock, the Holder shall receive in addition to shares of Common Stock, an amount in cash equal to the amount of dividends and distributions such Holder would have received had the Note been converted into Common Stock immediately prior to such distribution or dividend. In the event that there are dividends or distributions of non-cash assets, the value of such non-cash distributions or dividends shall be the fair market value of such dividends or distributions at the time such were made, as determined by the Board in good faith. With respect to any Note (or portion of any Note) that is repaid in cash (not converted), there shall be no additional payments made on account of such dividends or distributions.
 
c)  Anti-Dilution .  In the event the Company issues Common Stock other than Excluded Securities below the then current Conversion Price (a “ Dilutive Transaction ”) prior to the conversion or satisfaction of the Notes, the Conversion Price of the Notes that are outstanding as of the date of such issuance will be reset to an amount equal to the greater of $3.25 (as equitably adjusted for stock splits, combinations and the like) per share or such issuance price.  For the avoidance of doubt, no adjustment or anti dilution protection will be afforded to any principal or interest which was converted into Note Shares prior to such dilutive issuance.
 
 
 

 

d)  Notice to Holders .

i.  Adjustment to Conversion Price .  Whenever the Conversion Price is adjusted pursuant to any of this Section 5, the Company shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
 
ii.  Notice to Allow Conversion by Holder .  If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be mailed to the Holder at the Holder’s last address appearing on the  stock books of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange, of Change of Control is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided , that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to convert this Note during the 10-day period commencing the date of such notice to the effective date of the event triggering such notice.
 
e)  Calculations . All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 5, the number of shares of Common Stock outstanding as of a given date shall be the sum of the aggregate number of issued and to be converted shares of Common Stock (excluding treasury shares, if any) outstanding.
 
 
 

 

Section 6 .             Events of Default .

a) “ Event of Default ”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i. any default in the payment of (A) the principal of amount of this Note, or (B) interest on, or liquidated damages in respect of, this Note, in each case free of any claim of subordination, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured, within 30 Business Days;

ii. the Company shall fail to deliver certificates representing Note Shares issuable upon a conversion or redemption hereunder that comply with the provisions hereof prior to the 30th Business Day after such shares are required to be delivered hereunder, or the Company shall provide written notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion or redemption of this Note  in accordance with the terms hereof;

iii. the Company shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to the Holder upon a conversion hereunder and shall not have cured the above within 30 Business Days;

iv. the Company shall materially fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents to which the Holder is a party, and such failure or breach shall not, if subject to the possibility of a cure by the Company, have been remedied within 30 calendar days after the date on which written notice of such failure or breach shall have been given; or

vi. there shall have occurred a Bankruptcy Event.

vii. the Company and/or any Subsidiary, individually or in the aggregate is in breach or violation of any agreement for monies owed or owing in an amount in excess of $250,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder;

viii. a final judgment or judgments for the payment of money aggregating in excess of $250,000 are rendered against the Company and/or any of its Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, paid, bonded, discharged or stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $250,000 amount set forth above; and

ix. the Company fails to file reports on Form 10-Q and Form 10-K under the Securities Act of 1924, as amended  (to extent the Company is so required).
 
 
 

 
 
b)  Remedies Upon Event of Default . If any Event of Default occurs and is continuing for more than 30 days, the full principal amount of this Note, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder’s election, immediately due and payable in cash. When this Note shall have been paid in full in accordance herewith, the Holder shall promptly surrender this Note to or as directed by the Company.  The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under