Amendment No. 2 to Asset Purchase Agreement

1.  The undersigned hereby amend the Asset Purchase Agreement as follows:

(a)	The reference in Section 2.06(a)(i) of the Asset Purchase Agreement to “$124,526” is changed to “$119,392”.

(b)	The reference in Section 2.06(a)(iii) of the Asset Purchase Agreement to “$191,435” is changed to “$194,658”.

(c)	The reference in Section 2.08(a)(i) of the Asset Purchase Agreement to “May 1, 2010 through February 28, 2011” is changed to “August 1, 2010 through May 31, 2011”.

(d)	Exhibit A-2 to the Asset Purchase Agreement is amended and restated in its entirety in form attached hereto.

2.  Seller hereby waives the condition to consummate the Closing set forth in Section 6.03(e) of the Asset Purchase Agreement.   Seller acknowledges and understands that, since June 9, 2011, Parent has received executed investor subscription agreements representing $400,000 in financing commitments (of which Parent has actually received $325,000 in gross proceeds).

3.  Except as expressly set forth herein, the Asset Purchase Agreement remains unmodified and in full force an effect.

Acknowledged and agreed as of August 1, 2011 by:

1.1 Interest Rate.   No interest shall accrue or be payable on the outstanding principal amount of this Note (the “Principal Amount”)

 

1.2 Principal Payments.  Amortizing payments of the Principal Amount shall be made in cash by the Maker as set forth on Note Amortization Schedule attached hereto.  Any remaining Principal Amount together with any accrued and unpaid interest under this Note shall be due and payable on the Maturity Date.  Holder acknowledges and agrees that any payments made by Maker to Sero Group, LLC in respect of the Balloon Promissory Note dated November 4, 2010 issued by Holder will be deemed to be payments of the Principal Amount hereunder.

 

1.3 Optional Prepayment.  The Maker may prepay this Note, in whole or in part, at any time without penalty.

 

3.1 Events of Default.  The occurrence of any of the following events set forth in this Section 3.1 shall constitute an event of default (“Event of Default”) hereunder:

 

(a) Failure to Pay.  The Maker fails to pay when due any principal or interest hereon, and, in any such case, such failure shall continue for a period of five (5) days following the date upon which the Holder delivers notice to Maker of any such failure;

 

(b)           Bankruptcy.  The Maker shall (i) apply for, consent to or suffer to exist the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of creditors, (iii) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition seeking to take advantage of any other law providing for the relief of debtors, or (vi) acquiesce to, without challenge within ten (10) days of the filing thereof, or failure to have dismissed, within thirty (30) days, any petition filed against it in any involuntary case under such bankruptcy laws;

 

(c)  Insolvency.  The Maker shall admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business;

 

(d)           Default Under Other Indebtedness.  An event of default shall occur under terms of that certain Secured Subordinated Promissory Note of even date herewith executed by Maker in favor of Holder.

 

3.2 Acceleration; Default Rate.  Upon the occurrence of an Event of Default, without any action required on the part of Holder, the entire unpaid Principal Amount, together with all accrued but unpaid interest and all other sums due from Maker hereunder, shall become immediately due and payable, and Holder may exercise any one or more remedies and rights available under this Note and/or applicable law.   Upon the occurrence of an Event of Default, the interest payable on the outstanding Principal Amount shall thereafter accrue at a rate per annum equal to 16.25% until such Event of Default is cured.

 

3.3 Costs of Collection.  Maker agrees to pay all reasonable costs of collection, including reasonable attorneys’ fees and expenses, and all costs of suit, in case the unpaid Principal Amount, or any interest or other payment, is not paid in full when due, whether suit be brought or not, and whether through courts of original jurisdiction, as well as in courts of appellate jurisdiction, or through a Bankruptcy Court or other legal proceedings.

 

3.4 Waivers and Remedies.  Except as set forth in this Note, to the extent permitted by applicable law, Maker, and each person who is or may become liable hereunder, jointly and severally waive and/or agree not to assert (a) exemption rights, demand, grace period, presentment for payment, protest, notice of nonpayment, nonperformance, dishonor, maturity and protest and default; (b) all diligence in collection or realization of any of the amounts due hereunder; and (c) all benefit of any statute of limitations or repose affecting the amounts due hereunder or the enforcement hereof.  Holder may extend the time for payment of or renew this Note, or release any party from liability hereunder, and any such extension, renewal, release or other indulgence shall not alter or diminish the liability of Maker or any other person or entity who is or may become liable on this Note, except as expressly set forth in a writing signed by Holder evidencing such extension, renewal, release or other indulgence.  All of Holder’s remedies under this Note are cumulative and non-exclusive.  The acceptance by Holder of any partial payment will not waive any rights of Holder to enforce the prompt payment hereof.  Holder’s failure to require strict performance of Maker of any provision of this Note shall not waive, affect or diminish any right of Holder to demand strict compliance and performance with the terms hereof, unless such waiver is in writing and signed by Holder (which, in any event, shall not apply to any other failure of Maker to comply with this Note).

4.1 No Assignment.   Neither Maker nor Holder shall assign or transfer this Note without the other party’s consent, which may be granted or withheld in such party’s sole discretion.  Any assignment or transfer of this Note or any rights herein which is not in compliance with this provision shall be void.

 

4.2 Binding Nature.  The provisions of this Note shall be binding upon Maker and its representatives, successors and permitted assigns, and shall inure to the benefit of Holder and its successors and permitted assigns.

 

4.3 Amendment Provision.  The term “Note” and all references thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented, and any successor instrument as such successor instrument may be amended or supplemented.

 

4.4 Governing Law.

 

(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

 

(b) THE MAKER AND THE HOLDER HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF SAN DIEGO, STATE OF CALIFORNIA SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE MAKER, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE.  THE MAKER AND THE HOLDER EACH EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.

 

4.5 Construction.  Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other.

 

4.6 Usury.  Notwithstanding any provision of this Note, the total liability for payments of interest and in the nature of interest shall not exceed the limits imposed by the usury laws of the State of California.  If Holder receives as interest an amount that would exceed such limits, such amount that would be excessive interest shall be applied to the reduction of the unpaid Principal Amount and not to the payment of interest and if a surplus remains after full payment of the Principal Amount and lawful interest, the surplus shall be remitted to Maker by Holder, and Maker hereby agrees to accept such remittance.

 

4.7 Time of the Essence.  It is agreed that time is of the essence in the performance of all obligations hereunder.