TABLE OF CONTENTS

				Page
ARTICLE I		Purchase of Assets		2
1.1		Purchase of Assets		2
1.2		Excluded Assets		3
1.3		Assumed Liabilities		4
1.4		Excluded Liabilities		5
1.5		Consideration.		6
1.6		Closing		9
1.7		Closing Deliveries		9
1.8		Further Assurances		10
1.9		Allocation of Purchase Price		10
ARTICLE II		Representations and Warranties of the Sellers		11
2.1		Organization		11
2.2		Authority.		12
2.3		Title to Assets.		12
2.4		No Violation		13
2.5		Governmental Consents		13
2.6		SEC Filings; Seller Financial Statements.		14
2.7		Business Changes		15
2.8		Taxes.		16
2.9		Litigation.		18
2.10		Compliance with Laws		18
2.11		Permits		18
2.12		Employee Matters.		18
2.13		Employee Benefit Plans; Change of Control Benefits.		20
2.14		Business Contracts.		21
2.15		Customers.		23
2.16		Intellectual Property Rights.		24
2.17		Environmental Matters.		26
2.18		Competing Interests		27
2.19		Illegal Payments or Activities		28
2.20		No Misrepresentations		28
2.21		Sufficiency of Consideration		28
2.22		No Involuntary Liquidation, Insolvency, Winding-Up.		28
2.23		Disclosure		29
2.24		Bulk Transfer Laws		29
2.25		Product Warranties		29
2.26		Various Agreements		30
2.27		Settlement Agreements		30
2.28		Insurance Coverage		30

 

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2.29		Backlog		30
2.30		Privacy of Customer Information		30
2.31		Distributors and Partners.		31
2.32		Suppliers		31
2.33		Fairness Opinion Provider		31
2.34		Broker Fees		31
2.35		[Intentionally Omitted]		31
2.36		Internal Controls		31
2.37		Export Control Laws		32
2.38		[Intentionally Omitted]		32
2.39		Ordinary Course of Business		32
2.40		Remaining Proceeds		32
2.41		2006 Reorganization		32
ARTICLE III		Representations and Warranties of Buyer		33
3.1		Organization		33
3.2		Authority		33
3.3		No Violation		33
3.4		Governmental Consents		33
3.5		Disclosure		33
3.6		Financing		34
3.7		Certain Proceedings		34
3.8		Brokers’ Fees		34
ARTICLE IV		Covenants and Agreements		34
4.1		Conduct of Business		34
4.2		Access and Information		37
4.3		Supplemental Disclosure		38
4.4		Regulatory Filings; Reasonable Efforts.		38
4.5		Publicity		40
4.6		Transaction Costs		40
4.7		No-Shop Provisions.		40
4.8		Nondisclosure		43
4.9		Employee Matters.		43
4.10		Tax Information		45
4.11		Proxy Statement.		45
4.12		Meeting of Citadel’s Stockholders.		46
4.13		Post-Closing Payment of Citadel Party Liabilities.		47
4.14		Name Changes		48
4.15		Access to Records		49
4.16		Voluntary Self-Disclosure Proceedings		49
4.17		Buyer’s Certificate		49
4.18		Third Party Consents		49

 

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ARTICLE V		Closing Conditions		50
5.1		Conditions to Obligations of Buyer		50
5.2		Conditions to Obligations of the Sellers		52
ARTICLE VI		Indemnification		53
6.1		Indemnification of Buyer and Parent		53
6.2		Indemnification of the Citadel Parties		54
6.3		Survival.		54
6.4		Notice		55
6.5		Defense of Claims.		55
6.6		Amount Limitation of Indemnification.		56
ARTICLE VII		Covenant Not to Compete or Solicit		57
7.1		Covenant Not to Compete		57
7.2		Covenant Not to Solicit		57
7.3		Enforcement		58
7.4		Acknowledgement of Consideration		58
7.5		Remedies		58
ARTICLE VIII		Termination, Amendment And Waiver		58
8.1		Termination		58
8.2		Effect of Termination		60
ARTICLE IX		Miscellaneous		60
9.1		Notices		60
9.2		Fees and Expenses.		61
9.3		Counterparts		62
9.4		Interpretation		63
9.5		Severability		63
9.6		Binding Effect; Assignment		63
9.7		Entire Agreement, Amendment		63
9.8		Specific Performance, Remedies Not Exclusive		63
9.9		GOVERNING LAW		64
9.10		JURISDICTION AND VENUE		64
9.11		Drafting		64
9.12		Usage		64
9.13		Certain Definitions		64

 

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ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (the “ Agreement ”) is made and entered into as of October 2, 2006, by and between McAfee, Inc. a Delaware corporation (“ Parent ”), and McAfee Security, LLC, a Delaware limited liability company (the “ Buyer ”), Citadel Security Software Inc., a Delaware corporation (“ Citadel ”), Citadel Security Software International, LLC, a Delaware limited liability company and wholly owned subsidiary of Citadel (“ Citadel Sub ”), Canberra Operating, L.P., a Texas limited partnership of which Citadel is the general partner (“ Canberra LP ”), and Canberra, LLC, a Delaware limited liability company which is the limited partner of Canberra LP and which is a wholly owned subsidiary of Citadel (“ Canberra LLC ”).  Each of Citadel, Citadel Sub and Canberra LP are a “ Seller ” and together they are the “ Sellers .”   The Sellers and Canberra LLC are each referred to as a “ Citadel Party ” and together they are the “ Citadel Parties .”

WHEREAS, Sellers engage in the business of providing enterprise vulnerability management and policy compliance and enforcement software solutions (such business, the “ Business ”);

WHEREAS, Sellers desire to sell substantially all of their assets to Buyer, and Buyer desires to purchase such assets from Sellers, and Buyer wishes to assume certain identified liabilities of Sellers, all on the terms and subject to the conditions set forth in this Agreement;

WHEREAS, other than the Assets and Excluded Assets held by Citadel Sub, Citadel owns legal title to all of the Assets and Excluded Assets, and Canberra LP owns the beneficial interests in all of the Assets and Excluded Assets;

WHEREAS, concurrently with the execution and delivery of this Agreement, as a material inducement to Buyer and Parent to enter into this Agreement, the Chief Executive Officer of Citadel (the “ Citadel CEO ”) has entered into a consulting agreement contingent on and subject to the Closing (as defined in Section 1.6 ) in the form attached hereto as Exhibit A (the “ Independent Contractor Agreement ”) and the appropriate related attachments thereto;

WHEREAS, concurrently with the execution and delivery of this Agreement, as a material inducement to Buyer and Parent to enter into this Agreement, certain employees and stockholders of Citadel (including the Persons (as defined in Section 2.9(a) ) identified on Schedule 2.26 ) are executing and delivering support agreements (the “ Support Agreements ”) substantially in the form attached hereto as Exhibit C , to Buyer;

WHEREAS, concurrently with the execution and delivery of this Agreement, as a material inducement to Buyer and Parent to enter into this Agreement, all holders of Citadel’s outstanding shares of preferred stock (the “ Preferred Holder Entities ”) have entered into an agreement in the form attached hereto as Exhibit D with Citadel (the “ Preferred Holder Agreement ”); and

WHEREAS, concurrently with the execution and delivery of this Agreement, as a material inducement to Buyer and Parent to enter into this Agreement, each Key Employee (as defined in Section 4.9(a) ) has agreed to employment with Parent pursuant to an Offer Letter, the effectiveness of which is contingent on and subject to the Closing (as defined in Section 1.6 ) in

 

the form attached hereto as Exhibit E (the “ Key Employee Offer Letter ”) and the appropriate attachments related thereto;

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

ARTICLE I
Purchase of Assets

1.1           Purchase of Assets .  At the Closing, Sellers agree to sell, transfer, assign and deliver to Buyer the Assets (as defined below), and Buyer agrees to purchase and take the Assets, on the terms and subject to the conditions set forth in this Agreement.

Subject to the provisions of Section 1.2 , the “ Assets ” means all right, title and interest to all the tangible and intangible assets of each of the Sellers (other than the Excluded Assets, as defined in Section 2.3(a)) , including but not limited to all of Sellers’ right, title and interest in and to any of the following:

(a)        all (1) patents, patent applications of any kind, patent rights, inventions, discoveries and invention disclosures (whether or not patented) (collectively, “ Patents ”); (2) trade names, trade dress, brands, logos, packaging design, slogans, Internet domain names, all phone numbers of any Seller, registered and unregistered trademarks and service marks and related registrations and applications for registration (collectively, “ Marks ”); (3) copyrights in both published and unpublished works, including all compilations, databases and computer programs, source code, object code, manuals and other documentation and all copyright registrations and applications, and all derivatives, translations, adaptations and combinations of the above (collectively, “ Copyrights ”); (4) know-how, trade secrets, confidential or proprietary information, research in progress, knowledge, methods, algorithms, data, designs, processes, formulae, drawings, diagrams, schematics, blueprints, flow charts, models, strategies, prototypes, techniques, benchmark data, testing procedures and testing results (collectively, “ Trade Secrets ”); (5) other intellectual property rights and/or proprietary rights relating to any of the foregoing; and (6) goodwill, franchises, licenses, permits, consents, approvals, and claims of infringement against third parties (collectively, “ Seller Intellectual Property ”);

(b)         all goodwill associated with the Seller Intellectual Property and the Business;

(c)         all Assumed Permits (as defined in Section 2.11 ) (to the extent assignable under applicable law);

(d)         customer, prospect and marketing lists, sales data, books, records, ledgers, files, documents, correspondence, personnel files and other personnel documents related to Transferred Employees (except with respect to “protected health information” under 45 C.F.R. 164.103), advertising, promotional and marketing materials and similar items, whether in hard copy or computer format (collectively, the “ Books and Records ”), including the Sellers’ email archives (other than personal email or email protected by the attorney-client privilege), and Sellers’ Softrax accounting software;

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(e)         all accounts receivable and other receivables (other than receivables that, as of the Effective Time, are Factored Accounts (as defined in Section 1.5(c) ) pursuant to that certain Factoring Agreement, dated as of October 28, 2005, between Citadel and Allied Capital Partners, L.P. (such party is referred to herein as the “ Factor ,” and such agreement is referred to herein as the “ Factoring Agreement ”) (Citadel will attach a complete and accurate description of such factored receivables (the “ Excluded Receivables ”) as Schedule 1.1(e) hereto on the Closing Date), inventory, prepaid expenses and prepaid assets, securities, deposits, warranties, claims, refunds, causes of action, choses in action, rights of recovery, rights of set off and rights of recoupment, and similar other assets that would be characterized as “accounts receivable,” “inventory” or “current assets” (or similar nomenclature) on any balance sheet included in Citadel’s filings with the SEC (as defined in Section 2.6(a) );

(f)          the equipment (including computers, telephones, computer screens, copiers, facsimile machines, scanners, projectors and servers), furniture, vehicles and other tangible personal property that would be characterized as “property and equipment” (or similar nomenclature) on any balance sheet included in Citadel’s filings with the SEC;

(g)         all right, title and interest under any of the Business Contracts (as defined in Section 2.14(a) ) identified in Schedule 1.1(g)(A) (as updated pursuant to Section 4.3 ) (collectively, the “ Assumed Business Contracts ”) (excluding any Business Contracts that are not Assumed Business Contracts (“ Excluded Business Contracts ”), including the Excluded Business Contracts listed on Schedule 1.1(g)(B) (as updated pursuant to Section 4.3) );

(h)         all Seller Intellectual Property assets owned or held by a Seller acquired or developed before the Effective Time (as defined in Section 1.6 ) pursuant to any Business Contract, including Excluded Business Contracts;

(i)          all assets, properties or interests of any Seller that would be characterized as “other assets” (or similar nomenclature) on any balance sheet included in Citadel’s filings with the SEC; and

(j)          all rights to refunds of state Taxes (as defined in Section 2.8(g)) paid by Seller for periods prior to the Closing;

provided , however , no right of a Seller under any Excluded Business Contract related to periods after the Effective Time (as defined in Section 1.6 ) shall constitute an Asset hereunder.

1.2           Excluded Assets .  The Excluded Assets consist of the following, which will remain the property of Sellers following the Closing:

(a)         all cash and cash equivalents, investments, short term securities or other securities that would be classified as “cash or cash equivalents” or “short term securities” (or similar nomenclature) on any balance sheet included in Citadel’s filings with the SEC;

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(b)         the Excluded Receivables;

(c)         all rights relating to deposits and prepaid expenses, claims for refunds and rights to offset in respect thereof that are listed in Schedule 1.2(c) ;

(d)         all personnel Books and Records that a Seller is required by Law to retain in its possession, a description of which is set forth on Schedule 1.2(d) ;

(e)         all rights to refunds of Taxes of a Seller and other governmental charges of whatever nature for periods prior to the Closing Date other than the refunds described in Section 1.1(j) ;

(f)          all rights and interests under any of the Employee Benefit Plans (as defined in Section 2.13(a) );

(g)         all rights of Sellers in this Agreement, the Seller Documents and Buyer Documents;

(h)         the shares of capital stock of Citadel held in treasury, and the capital stock, membership or partnership interests in Citadel Sub, Canberra LP and Canberra LLC, and any Non-Seller Subsidiary (as defined in Section 2.1(b) ) held by any Seller;

(i)          all insurance policies and rights thereunder of the Sellers listed on Schedule 1.2(i) ;

(j)          subject to the provisions of Section 1.1(g) , any rights under any Excluded Business Contract;

(k)         minute books, stock records, corporate seals and Tax records of any Citadel Entity (as defined in Section 2.1(a) );

(l)          [Intentionally Omitted];

(m)       a copy of the accounting records stored by the Sellers using the Sellers’ Softrax software; and

(n)         the bank accounts of any Seller listed on Schedule 1.2(n).

1.3           Assumed Liabilities .  At the Closing, Buyer will assume only the following (collectively, the “ Assumed Liabilities ”):

(a)         All obligations of any Citadel Party that arise after the Effective Time and that are required to be performed after the Effective Time under the Assumed Business Contracts and the Assumed Permits (subject to Section 1.4(l) ); and

(b)         any debt, obligation or liability related to the Assets that arises out of acts or omissions occurring after the Effective Time.

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1.4           Excluded Liabilities .  It is understood and agreed that Buyer will not assume, and the Citadel Parties will retain and discharge, when due or otherwise satisfy following the Closing, any Liabilities (as defined in Section 9.13(f) ) of any Citadel Party other than the Assumed Liabilities (collectively, the “ Excluded Liabilities ”).  The Excluded Liabilities include:

(a)        Liabilities in respect of any of the Excluded Assets;

(b)        Liabilities relating to any Litigation (as defined in Section 2.9(a) ) and any settlements thereof or related to any violation by any Citadel Party or Affiliate (as defined in Section 9.13(b) ) thereof of Laws (as defined in Section 2.10 );

(c)        Liabilities relating to indebtedness for borrowed money;

(d)        Liabilities relating to Taxes for any Citadel Party, including any liability for Taxes of a third Person for which a Citadel Party may be liable;

(e)        any Liability of a Citadel Party to indemnify or guaranty the Liability of any Person, except for such indemnifications and guaranties that are included in Assumed Business Contracts and that related to acts or omissions occurring after the Effective Time (as defined in Section 1.6 );

(f)         Liabilities relating to any Permit (as defined in Section 2.11(a) ) retained by a Citadel Party or any Excluded Business Contract;

(g)        Liabilities related to transaction fees and expenses of each of the Citadel Parties as contemplated in Section 4.6 ;

(h)        any undisclosed Liability of a Citadel Party;

(i)         Liabilities incurred by a Citadel Party other than in the Ordinary Course of Business (as defined in Section 9.13(i) );

(j)         any Liability of a Citadel Party incurred under this Agreement or any Seller Document (as defined in Section 2.2(a) );

(k)        any Liability relating to employment matters, Employee Benefit Plans or Change of Control Payments (as defined in Section 1.5(b) );

(l)         any Liability for a refund to any customer, distributor, partner or other Person that relates to payments received under an agreement with any such Person by a Citadel Party before the Closing Date (unless such Liability is created due to the intentional or willful breach of Buyer or primarily due to the negligence of Buyer following the Closing under an Assumed Business Contract);

(m)       any Liability of any Non-Seller Subsidiary (as defined in Section 2.1(b) ); and

(n)        any other Liability that is not an Assumed Liability.

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1.5           Consideration .

(a)        Closing Payment .  As consideration in full for the acquisition of the Assets from Sellers, Buyer is assuming the Assumed Liabilities, and Buyer is paying Sellers the aggregate sum of $55,805,000 plus the allowance (the “ Severance Allowance ”) set forth in Section 1.5(b) (collectively, the “ Purchase Price ”), to be paid at Closing by wire transfer of immediately available funds to the account or accounts specified in Schedule 1.5(a) (which Sellers will provide at least 3 days before the Closing Date).  Parent guarantees the payments of any amounts owed by Buyer and any performance of Buyer’s obligations under this Agreement.

(b)        Severance Allowance . At the Closing, as part of its certificate delivered pursuant to Section 5.1(s) , Citadel will certify (for which certification Citadel may rely, in part, on Parent’s delivery of an updated Schedule 4.9(a) at Closing) as to: (A) which employees of each Seller are Non-Transferred Employees (as defined in Section 4.9(a) ), and (B) the aggregate change of control, severance, tax gross-up, option exercise price payments and other termination payments any Citadel Party will be obligated to pay such Non-Transferred Employees upon consummation of the transactions contemplated herein (“ Change of Control Payments ”).  As part of the Purchase Price, Buyer will pay the lesser of the Change of Control Payments and $345,000.  Notwithstanding the foregoing, (i) Buyer will not be required to make any payment with respect to a Non-Transferred Employee unless such Non-Transferred Employee is listed on Schedule 1.5(b) and (ii) the amount allocated to any individual Non-Transferred Employee will not exceed the amount set forth opposite such individual’s name on Schedule 1.5(b) .

(c)        Post-Closing Payment.

(i)            At least seven days prior to the Closing, Sellers will provide Parent with Sellers’ estimate of the Op Ex Amount (as defined below) and the Cash Amount (as defined below) (the “ Initial Estimate ”).  Included as part of the Initial Estimate will be (A) a detailed description of all cash, check, wire transfer or similar receipts or other payments (“ Cash Payments ”) and related Cash Amounts (as defined below) received by a Seller between August 1, 2006 and the Closing Date (estimated for the two weeks that precede the Closing Date), (B) a calculation of the Op Ex Amount, (C) a calculation of the Op Ex Reimbursement (as defined below), (D) an indication on a detailed basis whether such payments should be included in the Cash Amount or not, (E) an indication whether any such Cash Payment was made in respect of a Factored Account (as defined below), and, if so, an explanation for the basis of the calculation of the related Cash Amount, and (F) for all such Cash Payments that are not included in the Cash Amount, an explanation for why such Cash Payments should be so excluded.

(ii)           On the Closing Date, the Sellers will provide Parent with (x) an update of the Initial Estimate through the Closing Date, which will include an update of the matters identified in Section 1.5(c)(i)(A)-(F) through the Closing Date (the “ Final Estimate ”), and, (y) attached thereto, a certification, signed by a

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senior officer of Citadel, that to the Knowledge (as defined in Section 9.13(d) ) of the Citadel Parties such Final Estimate is true and correct in all respects.

(iii)          If the Cash Amount exceeds the Op Ex Amount, then Citadel shall as promptly as is commercially reasonable pay Buyer an amount equal to the difference between the Cash Amount and the Op Ex Amount.  If the Op Ex Amount exceeds the Cash Amount, Buyer shall pay Sellers an aggregate amount equal to the difference between the Op Ex Amount and the Cash Amount (the “ Op Ex Reimbursement ”).

(iv)          If (x) the Final Estimate shows that there is an Op Ex Reimbursement, (y) Sellers have complied with Section 1.5(c)(i)-(ii) and (z) the Citadel CEO executes and delivers to Buyer and Parent a Guaranty of payment in the form attached hereto as Exhibit F (the “ Guaranty ”), then Buyer shall make such payment within five days of (A) the delivery to Parent of the Final Estimate, in final complete form, (B) the delivery to Parent of the related certification described in Section 1.5(c)(ii) and (C) the execution and delivery to Parent and Buyer of the Guaranty by the Citadel CEO; provided, however, if, as a result of the progress of Parent’s Audit (as defined below) through the date such payment is due, Parent believes that the Op Ex Reimbursement set forth in the Final Estimate is inaccurate, Buyer shall be entitled to reduce such payment by the amount of such inaccuracy.  If the conditions set forth in this Section 1.5(c)(iv) are not met, Buyer shall make such payment as promptly as is commercially reasonable upon completion of the Audit (as defined in below) (and subject to the conclusions of such Audit).  If the Op Ex Reimbursement is made before the completion of the Audit, it is referred to herein as the “ Estimated Op Ex Reimbursement Payment .”

(v)           Following the Closing, Parent will conduct an audit to determine the Op Ex Amount, the Cash Amount and the Op Ex Reimbursement (if any) (the “ Audit ”).  Each Citadel Party agrees to cooperate in all respects with the Audit and to provide any information that Parent requests in connection with the Audit, and if the Citadel Parties so cooperate and provide such information promptly, Parent will complete the Audit within 30 days following the Closing Date.  Upon completion of the Audit, Parent will promptly deliver to Citadel a summary of the Audit, including detail regarding Parent’s determination of the Op Ex Reimbursement and Parent’s assessment of the determinations set forth in the Final Estimate. The Citadel Parties shall have five (5) business days (excluding the day received) to object in writing to the results of the Audit which objection must specify the nature of the objection in detail, and if no such objection is made, the results of the Audit shall be deemed accepted by all Seller Parties and shall be, absent manifest error, binding upon the parties.  If the Citadel Parties object to the results of the Audit, Citadel and Parent shall attempt in good faith to resolve any objection within 5-business days.  In the event the parties are unable to resolve their differences within said 5-business day period, Parent shall select a firm of certified public accountants reasonably acceptable to Citadel (which shall be one of Grant Thornton LLP or BDO Seidman, LLP) to determine the Op Ex

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Amount, the Cash Amount and the Op Ex Reimbursement (if any), whose determination shall be, absent manifest error, final and binding on the parties (such arbitration is the “ Op Ex Arbitration ”).  Each of Parent and Citadel shall pay one-half of the costs of the Op Ex Arbitration.

(vi)          If (x) Citadel has made a payment pursuant to Section 1.5(c)(iii) , and (y) following the Audit (or the Op Ex Arbitration, if applicable), Parent concludes that Citadel did not pay the correct amount, then (A) if Citadel paid Parent a greater amount than Parent concludes was required, Parent shall pay Citadel the difference promptly, and (B) if Citadel paid Parent a lesser amount than Parent concludes was required, Citadel shall pay Buyer the difference promptly upon receipt of notice thereof.

(vii)         If an Estimated Op Ex Reimbursement Payment made pursuant to Section 1.5(c)(iv) is more than the Op Ex Reimbursement, as determined by Parent in connection with the Audit (or as determined in connection with the Op Ex Arbitration, if applicable), then Parent will give notice of such shortfall (the “ Op Ex Shortfall ”) to the Citadel Parties. The Citadel Parties agree, jointly and severally, to reimburse Buyer for the Op Ex Shortfall within 3 days of receipt of such notice.  If Buyer does not receive such payment within such 3-day period, Buyer may collect the Op Ex Shortfall pursuant to the Guaranty, and if Buyer does receive such payment within such 3-day period, the Guaranty will terminate.  In addition, if within 10 days following completion of the Audit (or within 10 days following completion of the Op Ex Arbitration, if applicable), Parent does not deliver notice of an Op Ex Shortfall to the Citadel Parties, then the Guaranty will terminate.

(viii)        “ Op Ex Amount ” shall mean the amount determined by: (1) multiplying the number of full calendar months that elapse between August 1, 2006 and the Closing Date by $1.7 million and (2) adding a pro-rated portion of $1.7 million based upon the number of days elapsed in the calendar month during which the Closing occurs through the day immediately before the Closing Date divided by the total number of days in such calendar month.

(ix)           “ Cash Amount ” shall mean an amount equal to the aggregate dollar amount of any Cash Payments received by a Citadel Party from any direct or indirect customer billings and invoices between August 1, 2006 and the Closing Date; provided , however , for any cash received with respect to a Factored Account (as defined below), the amount credited as a Cash Amount for purposes hereof shall be the face amount of the Factored Account (and not the lesser amount of cash received from the Factor).  “ Factored Accounts ” are accounts receivable or other billings factored or sold pursuant to the Factoring Agreement.

(x)            Each Seller hereby represents that it has billed and invoiced during the period from July 1, 2006 until August 1, 2006 in a manner consistent with its historical practices.

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1.6           Closing .  The closing (the “ Closing ”) of the transactions contemplated by this Agreement shall take place at the offices of Hughes & Luce LLP, 1717 Main Street, Suite 2800, Dallas, Texas 75201, or via Federal Express, emailed pdf signature pages and/or facsimile, as agreed by the parties, at 10:00 a.m. local time on the first business day that is commercially practicable after all conditions to Closing have been satisfied or waived in writing, but in any case, provided such conditions have been satisfied, no later than five business days following the completion of the Stockholder Approval (as defined in Section 5.1(i) ) at the Citadel Stockholders’ Meeting (as defined in Section 4.12(a) ) (such date and time of closing being herein called the “ Closing Date ”).  The Closing will be deemed to be effective for purposes of this Agreement as of 10:00 a.m. local time on the Closing Date (the “ Effective Time ”).

1.7           Closing Deliveries .  At the Closing,

(a)        Buyers will pay the Purchase Price to Sellers;

(b)        Sellers will endorse and deliver to Buyer any certificates of title necessary to effect or record the transfer of any Assets for which ownership is evidenced by a certificate of title (each of which is listed on Schedule 1.7(b) );

(c)        Sellers will execute and deliver to Buyer a Bill of Sale conveying the Assets to Buyer, in the form attached hereto as Exhibit G ;

(d)        Sellers and Buyer will execute and deliver to each other an Assignment of Patents conveying the Seller Patents included within the Assets, in the form attached hereto as Exhibit H1 and an Assignment of Patent Applications conveying the patent applications included within the Assets in the form attached hereto as Exhibit H2 ;

(e)        Sellers and Buyer will execute and deliver to each other an Assignment of Marks conveying the Seller Marks included within the Assets, in the form attached hereto as Exhibit I ;

(f)         Sellers and Buyer will execute and deliver to each other an Assignment of Copyrights conveying the Seller Copyrights included within the Assets, in the form attached hereto as Exhibit J ;

(g)        Sellers and Buyer will execute and deliver to each other an Assignment of Intellectual Property conveying the Intellectual Property included within the Assets other than Listed Intellectual Property (as defined in Section 2.16(a) ), in the form attached hereto as Exhibit K ;

(h)        Buyer and Sellers will execute and deliver to each other an Assignment and Assumption Agreement evidencing the assumption by Buyer of the Assumed Liabilities, in the form attached hereto as Exhibit L ;

(i)         Buyer will execute and deliver an assumption agreement in the form attached hereto as Exhibit M pursuant to which Buyer assumes indemnification obligations under Citadel’s engagement letter with ThinkEquity Partners LLC;

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(j)         Buyer and Sellers will execute and deliver an Assignment of Domain Names, in the form attached hereto as Exhibit N ;

(k)        the Sellers will execute and deliver to Buyer such other assignments, releases, consents to assignment and other instruments of sale, conveyance, assignment, assumption and transfer satisfactory in form and in substance to Buyer as reasonably requested by Buyer in order to convey to Buyers all right, title and interest in and to the Assets in the manner provided for in this Agreement;

(l)         Sellers will deliver to Buyer the originals or copies of all of Sellers’ books, records, ledgers, disks, proprietary information and other data included within the Assets and all other written or electronic depositories of information relating to the Assets and the Business, including a “snap shot” copy in a format reasonably requested by Buyer of all data stored by Sellers using Sellers’ Softrax software; and

(m)       the Buyers and the Sellers will execute and deliver the documents required to be delivered by each of them pursuant to Article V .

1.8           Further Assurances .  At or after the Closing, and without further consideration, the Sellers will execute and deliver to Buyer such further instruments of conveyance and transfer, and take such other action, as Buyer may reasonably request in order more effectively to convey and transfer the Assets to Buyer and to put Buyer in operational control of the Assets and the Business, for aiding, assisting, collecting and reducing to possession any of the Assets and exercising rights with respect thereto or for fulfilling the obligations of the Sellers pursuant to Section 4.10 .

1.9           Allocation of Purchase Price .  Within 20 days after the Closing Date, Buyer will provide to the Sellers a proposed allocation of the Purchase Price.  If the Sellers disagree with any aspect of the proposed allocation, the Sellers shall, within 15 days after receipt thereof, furnish to Buyer a written statement of such disagreement, together with the reasons therefor.  If, within such 15 day period, Buyer does not receive such a written statement of disagreement from the Sellers, the Sellers shall be deemed to have accepted the proposed allocation and the proposed allocation shall be final and binding upon the Sellers.  If Buyer does receive such a written statement of disagreement from the Sellers within such 15 day period, then within 10 days of such receipt the Sellers and Buyer shall discuss in person, by telephone, or by videoconference, their disagreement in order to attempt to resolve it through good faith negotiations.  If the Sellers and Buyer are unable to resolve their disagreement within 20 days after receipt by Buyer of the written statement of disagreement from the Sellers, the disagreement shall be submitted for determination to a mutually agreed upon independent nationally recognized accounting firm (the “ Accountant ”), which determination, absent manifest error, shall be final and binding upon the Sellers and Buyer and not subject to appeal.  Such determination by the Accountant shall be made in accordance with this Agreement.  The expenses incurred due to retention of the Accountant in making such determination shall be borne equally by the Sellers and Buyer.

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ARTICLE II
Representations and Warranties of the Sellers

Except as set forth in the Schedules in a response that corresponds to the Section numbers identified below, each of the Citadel Parties hereby jointly and severally represents and warrants to Buyer as follows as of the date hereof and, by delivery of the certificate identified in Section 5.1(s) , as of the date of Closing:

2.1           Organization .

(a)        Citadel is a Delaware corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Citadel Sub is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.  Canberra LLC is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and Canberra LP is a Texas limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas.  Canberra LLC owns no assets (other than limited partnership interest in Canberra LP) and operates no business other than the ownership of such interest.  Citadel owns, directly or indirectly, all of the outstanding equity, membership and voting interests in each Seller and in Canberra LLC.  Each of the Citadel Parties has full power to own its properties and to conduct its business as presently conducted. Each of the Sellers, Canberra LLC and each of the Non-Seller Subsidiaries (as defined in Section 2.1(b) ) (collectively, the “ Citadel Entities ”) is duly authorized, qualified or licensed to do business and is in good standing in each state or other jurisdiction in which the Business as presently conducted makes such qualification necessary except where the failure to be so qualified would not, individually or in the aggregate, constitute a Material Adverse Change (as defined in Section 2.7(a) ) or a Material Event (as defined below).  Each Citadel Party is required to be qualified to do business as a foreign entity in the jurisdictions set forth in Schedule 2.1 , and each Citadel Party is so qualified in such applicable jurisdictions except where the failure to be so qualified would not, individually or in the aggregate, constitute a Material Adverse Change or a Material Event.  Set forth in Schedule 2.1 is a list of all assumed names, DBAs or fictitious names under which each Citadel Entity operates and all jurisdictions in which any of such assumed names is registered.  “ Material Event ,” for purposes of this Agreement, means any event, action or omission that (i) has resulted in (or can reasonably be expected to result in) damage to, or reduction of value in, the Assets or the Business that exceeds $30,000, (ii) that requires the consent, authorization or approval of a third party or Governmental Body (as defined in Section 2.5 ), in connection with the transactions contemplated hereby, that, but for such event, action or omission, would not have been required, or (iii) that materially and adversely affects (or can reasonably be expected to materially and adversely affect) Seller’s ownership of or rights in the Seller Intellectual Property.

(b)        Other than Citadel Sub, Canberra LP and Canberra LLC, the following are the only direct or indirect subsidiaries of Citadel:  Kent-Marsh Ltd., Inc., a Texas Corporation; Astonishing Developments, Inc., a Texas corporation; Danasoft, Inc., a Delaware corporation; and Citadel Computer Systems Acquisition, Inc. (f/k/a LSHC Acquisition

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Corp.), a Delaware corporation (the “ Non-Seller Subsidiaries ”), and no Seller has any other subsidiaries or owns any direct or indirect equity or debt interest or any form of proprietary interest in any other Person, or any obligation, right or option to acquire (including by conversion) any such interest.

2.2                                  Authority .

(a)                          Each Citadel Party has all requisite power, authority and capacity to execute, deliver and perform under this Agreement and the other agreements, certificates and instruments to be executed by such Citadel Party in connection with or pursuant to this Agreement (collectively, the “ Seller Documents ”).  Subject only to the approval of the Stockholder Approval Matters (as defined in Section 4.11(a) ) by the stockholders of Citadel as described in Section 2.2(b) , the execution, delivery and performance by each Seller of each Seller Document to which it is a party has been duly authorized by all necessary action on the part of such Seller.  In connection with the foregoing, the Board of Directors of Citadel has unanimously, as of the date hereof (i) determined that this Agreement and the transactions contemplated by this Agreement are advisable and in the best interests of Citadel and its stockholders, and (ii) adopted this Agreement in accordance with the provisions of applicable Law and Citadel’s certificate of incorporation and bylaws.  This Agreement has been, and at the Closing the other Seller Documents will be, duly executed and delivered by each Citadel Party (to the extent each is a party thereto).  This Agreement is, and, upon execution and delivery at the Closing, each of the other Seller Documents will be a legal, valid and binding agreement of each Citadel Party (to the extent it is a party thereto), enforceable against each Citadel Party in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar laws affecting the enforcement of creditors’ rights generally and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding of law or in equity).

(b)                         The affirmative vote of the holders of at least a majority of the outstanding shares of Citadel’s common stock are the only votes of holders of any shares of the capital stock of Citadel necessary to approve the Stockholder Approval Matters at the Citadel Stockholders’ Meeting (as defined in Section 4.12(a) ).

2.3                                  Title to Assets .

(a)                          (i) Set forth in Schedule 2.3(a)(i) is a complete list of each tangible Asset of any Seller; and (ii) set forth on Schedule 2.3(a)(ii) is a complete and detailed list of the street address of all real property leased by any Seller or otherwise used in connection with the Business (the “ Real Property ”) along with the rent obligations over the terms of the underlying leases and the leasehold improvements associated with each piece of such Real Property.  Set forth in Schedule 2.3(a)(iii) is a list of all of the assets of Sellers other than the Assets (collectively, the “ Excluded Assets ”).  The Assets, together with the Excluded Assets, constitute all of the assets of Sellers that are used in, generated by or associated with the Business.  The Assets, together with the Excluded Assets, constitute all assets necessary to carry on the Business as currently conducted.  No Non-Seller Subsidiary has any customers, owns any license, intellectual property, permit, material

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asset or any asset used in, generated by or associated with the Business.  No Non-Seller Subsidiary is a party to or a beneficiary of any material agreement or any agreement related to or associated with the Business.  Substantially all of the assets (tangible and intangible) of each of the Non-Seller Subsidiaries were validly transferred to Citadel effective in May 2002.  No Citadel Entity owns any real property, nor has any Citadel Entity ever owned any real property.  No Citadel Entity owns or leases any motor vehicles.

(b)                         Each Citadel Party has good and marketable title to all of the Assets it owns, or purports to own, and a valid leasehold interest in all leased assets included within the Assets, free and clear of any Liens (as defined in Section 9.13(g) ), other than Permitted Liens (as defined in Section 9.13(j) ).  The execution and delivery of the Seller Documents by the Sellers at the Closing will convey to and vest in Buyer good and marketable title to the Assets, free and clear of any Liens.  The Assets, including any Assets held under leases or licenses: (i) are in good condition and repair, ordinary wear and tear excepted; and (ii) are in good working order and have been properly and regularly maintained.  There is no default by any Citadel Entity or, to the Knowledge of the Citadel Parties, any landlord under any lease of the Real Property, and to the Knowledge of the Citadel Parties, no event has occurred and no condition exists which, with notice or given the passage of time, or both, would constitute a default by any party under such leases.

2.4                                  No Violation .  Except as described in Schedule 2.4 , neither the execution or delivery of the Seller Documents nor the consummation of the transactions contemplated thereby, including the sale of the Assets to Buyer, will conflict with or result in the breach of any term or provision of, require consent or violate or constitute a default under (or an event that with notice or lapse of time or both would constitute a breach or default), or result in the creation of any Lien on the Assets pursuant to, or relieve any Person of any obligation to any Citadel Entity or give any Person the right to terminate or accelerate any obligation under, any charter provision, bylaw, Permit (as defined in Section 2.11 ) or Law to which any Citadel Entity is a party or by which any Citadel Entity or any of the Assets or the Business is in any way bound or obligated.

2.5                                  Governmental Consents .  N o consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental or quasi-governmental agency, authority, commission, board or other body (collectively, a “ Governmental Body ”) is required on the part of any Citadel Entity in connection with the sale and purchase of the Assets or any of the other transactions contemplated by this Agreement, e xcept (a) as required in connection with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), (b) the filing of, and clearance of any SEC comments to, the Proxy Statement (as defined in Section 4.11(a) ) with the SEC (as defined in Section 2.6(a) ) in accordance with the Exchange Act (as defined in Section 2.6(a) ), (c) the approval of Citadel’s stockholders as solicited thereby, (d) the consents listed in Schedule 2.5 , and (e) notice filings with Governmental Bodies which are necessary to effect the transfer of the Intellectual Property included within the Assets and which may be made following the Closing Date.

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2.6                                  SEC Filings; Seller Financial Statements .

(a)                          Citadel has made available to Buyer (through reference to documents filed by EDGAR or otherwise) accurate and complete copies of all reports or registration statements filed by it with the U.S. Securities and Exchange Commission (“ SEC ”), all in the form so filed (as amended to date, the “ Seller SEC Reports ”).  As of their respective filing dates (or if amended or superseded by a filing prior to the date of this Agreement, then on the filing date of such amending or superseding filing), the Seller SEC Reports (i) were prepared in accordance and complied in all material respects with the requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), or the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), as the case may be, and the rules and regulations of the SEC thereunder applicable to such Seller SEC Reports and, (ii) to the Knowledge of Citadel Parties, did not, at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except to the extent corrected by a Seller SEC Report filed prior to the date of this Agreement.

(b)                         Each of the financial statements (including, in each case, any related notes thereto) contained in the Seller SEC Reports (the “ Financial Statements ”), including each Seller SEC Report filed after the date hereof until the Closing, as of their respective filing dates, (i) complied, or, as to future Seller SEC Reports, will comply, as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) was prepared or, as to future Seller SEC Reports, will be prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q or Form 10-QSB as applicable at the time under the Exchange Act) and (iii) fairly presented, or as to future Seller SEC Reports, will fairly present the financial position of Citadel as of the respective dates thereof and the results of Citadel’s operations and cash flows for the periods indicated, except that the unaudited interim financial statements may not contain footnotes and were or are subject to normal and recurring year-end adjustments. The balance sheet of Citadel contained in Citadel’s Form 10-Q for the quarter ended June 30, 2006 (the “ Latest Balance Sheet Date ”) as filed with the SEC is hereinafter referred to as the “ Latest Balance Sheet .”

(c)                          Except as disclosed in the Latest Balance Sheet or in Schedule 2.6(c) , no Citadel Entity has any Liabilities (absolute, accrued, contingent or otherwise) which are, individually or in the aggregate, material to the business, results of operations or financial condition of the Citadel Entities taken as a whole, except for (i) liabilities incurred since the Latest Balance Sheet Date in the Ordinary Course of Business that are not, individually or in the aggregate, material to the Citadel Entities and (ii) liabilities incurred pursuant to this Agreement or the Seller Documents.

(d)                         All accounts receivable reflected in the Latest Balance Sheet or included in the Assets are fully collectible in the Ordinary Course of Business, without resort to

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litigation, at the face amount thereof less any reserve reflected in the Latest Balance Sheet, and will not be subject to counterclaim, set-off or other reduction.

(e)                          Citadel has heretofore furnished to Buyer a complete and correct copy of any amendments or modifications, which have not yet been filed with the SEC but which are required to be filed, to agreements, documents or other instruments which previously had been filed by Citadel with the SEC pursuant to the Securities Act or the Exchange Act.

2.7                                  Business Changes .  Since the Latest Balance Sheet Date, each Seller has operated the Business in the Ordinary Course of Business, and except as set forth in Schedule 2.7 or as contemplated by this Agreement, there has not been:

(a)                          any material adverse change in the condition of the Citadel Entities, taken as a whole (financial or other) or the business, assets, properties or results of operations of the Citadel Entities, taken as a whole, or any actions, omissions or events that, individually or in the aggregate,  materially and adversely affects the ability of the parties hereto to consummate the transactions contemplated hereby (a “ Material Adverse Change ”);

(b)                         any revaluation by a Seller of any of the Assets, including the writing down or off of notes or accounts receivable, other than in the Ordinary Course of Business;

(c)                          any entry by a Citadel Entity into any material commitment or transaction, including incurring or agreeing to incur capital expenditures in excess of, or any entry into any lease obligations with aggregate payments in excess of, $20,000, individually or $60,000 in the aggregate;

(d)                         any breach or default (or event that with notice or lapse of time would constitute a breach or default), termination or threatened termination under any Business Contract or amendment to such Business Contract in any manner adverse to a Seller, or any acceleration of any obligations thereunder, if and to the extent any such events would, individually or in the aggregate, constitute a Material Event;

(e)                          any changes by a Citadel Entity in its accounting methods, principles or practices;

(f)                            except as contemplated in this Agreement, any increase in the benefits under, or the establishment or amendment of, any Employee Benefit Plan (as defined in Section 2.13(a) ), or any increase in the compensation payable or to become payable to any director, manager, officer or employee of a Seller, except for annual merit increases in salaries or wages in the Ordinary Course of Business;

(g)                         as of the date hereof, the termination of employment (whether voluntary or involuntary) of any employee of a Seller;

(h)                         any theft, condemnation or eminent domain proceeding or any damage, destruction or casualty loss affecting any asset of a Citadel Entity, whether or not

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covered by insurance, if any such events would, individually or in the aggregate, constitute a Material Event;

(i)                             any sale, assignment, lease or transfer (other than within any Citadel Entity’s organization or between Citadel Entities) of any asset, except in the Ordinary Course of Business;

(j)                             any waiver by a Citadel Entity of any material rights related to the Business or the Assets;

(k)                          any mortgage, pledge or other encumbrance of any Asset, other than Permitted Liens;

(l)                             any notice received by any Citadel Entity of any claim or potential claim of ownership by any Person other than a Seller of the Intellectual Property, or of infringement by a Citadel Entity or the Business of any other Person’s intellectual property rights;

(m)                       any declaration, setting aside or payment of any dividend by a Citadel Entity, or the making of any other distribution in respect of the capital stock of a Citadel Entity, or any direct or indirect redemption, purchase or other acquisition by a Citadel Entity of its own capital stock other than pursuant to the Preferred Holder Agreement;

(n)                         any labor trouble or claim of unfair labor practices involving a Citadel Entity;

(o)                         any loss, or any known development that could reasonably be expected to result in a loss, of any significant supplier, customer, distributor or account of a Seller;

(p)                         [intentionally omitted];

(q)                         any agreement or understanding by a Citadel Entity or their respective employees, agents or Affiliates to do or resulting in any of the foregoing (other than negotiations with Parent and Buyer and their representatives regarding the transactions contemplated by this Agreement or the Seller Documents); or

(r)                            any other transaction, agreement or commitment entered into or affecting the Business or the Assets by a Citadel Entity, except in the Ordinary Course of Business or that otherwise, individually or in the aggregate, is not a Material Event and would not reasonably be expected to result in a Material Adverse Change.

2.8                                  Taxes .

(a)                          Except as set forth in Schedule 2.8(a) , all federal, state, local and other Tax returns, notices and reports (including income, property, sales, use, franchise, withholding, single business, social security and unemployment Tax returns) required to be filed by any Citadel Entity have been accurately prepared and duly and timely filed, and all Taxes required to be paid with respect to the periods covered by any such returns

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have been timely paid (including any Taxes owed on behalf of any third Person).  There are no liens for Taxes (other than for Permitted Liens) upon the assets of the Citadel Entities.

(b)                         No Tax deficiency has been proposed or assessed against any Citadel Entity, and no Citadel Entity has executed any waiver of any statute of limitations on the assessment or collection of any Tax.  Except as set forth in Schedule 2.8(b) , no Tax audit, action, suit, proceeding, investigation or claim is now pending or, to the Knowledge of the Citadel Parties, threatened against any Citadel Entity, and no issue or question has been raised (and is currently pending) by any taxing authority in connection with any Citadel Entity’s Tax returns or reports.

(c)                          The provision for Taxes in the Latest Balance Sheet is sufficient as of the Latest Balance Sheet Date for the payment of any accrued and unpaid Taxes of any nature and, since the Latest Balance Sheet Date, no Citadel Entity has incurred Taxes other than in the Ordinary Course of Business.  Consummation of the transactions contemplated by this Agreement will not cause any Citadel Entity to incur any U.S. federal Tax liability other than federal alternative minimum Tax of Citadel; which Citadel will promptly pay when due, and (assuming the Closing occurs on or before December 31, 2006) to the Knowledge of the Canberra Parties, consummation of the transactions contemplated by this Agreement will not cause any Citadel Entity to incur any other Tax liability other than in amounts that would not reasonably be expected to constitute a Material Event or result in a Material Adverse Change.

(d)                         Each Citadel Entity has withheld or collected from each payment made to each of its employees and other payees the full amount of any and all Taxes required to be withheld or collected therefrom and has paid the same to the proper Tax receiving officers or authorized depositaries.

(e)                          Except as described in Schedule 2.8(e) , no Citadel Entity has any obligation or liability for the payment of Taxes of any other Person, including but not limited to the following:  a liability for the payment of any Tax arising (i) as a result of being a member of any affiliated group pursuant to Treasury Regulation Section 1.1502-6 or otherwise, (ii) as a result of any expressed or implied obligation to indemnify another Person and (iii) as a result of assuming or succeeding to the Tax liability of any other Person as a successor, transferee or otherwise.

(f)                            Buyer will not be responsible for any Tax that arises out of or results from the sale of the Assets to the Buyer hereunder, the operation of the Assets by Sellers prior to the Closing or any other transaction or activity of any Citadel Entity.

(g)                         “ Tax ” or “ Taxes ” means any and all taxes, charges, fees, levies, assessments, duties or other amounts payable to any federal, state, local or foreign taxing authority or agency, including: (i) income, franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad valorem, value added, sales, use, service, real or personal property, capital stock, license, payroll, withholding, disability, employment, social security, workers compensation, unemployment compensation, utility, severance,

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excise, stamp, windfall profits, transfer and gains taxes; (ii) customs, duties, imposts, charges, levies or other similar assessments of any kind; and (iii) interest, penalties and additions to tax imposed with respect thereto.

2.9                                  Litigation.

(a)                          Except as described in Schedule 2.9 , there are currently no pending or, to the Knowledge of the Citadel Parties, threatened lawsuits, administrative proceedings or reviews, or formal or informal complaints or investigations or inquiries (including grand jury subpoenas) (collectively, “ Litigation ”) by any individual, corporation, partnership, Governmental Body or other entity (collectively, a “ Person ”) against any Citadel Entity that, individually or in the aggregate, constitutes a Material Event or would reasonably be expected to constitute a Material Adverse Change.

(b)                         Except as described in Schedule 2.9 , no Citadel Entity is subject to or bound by any currently existing judgment, order, writ, injunction or decree that relates in any way to the Business or the Assets that, individually or in the aggregate, constitutes a Material Event or would reasonably be expected to result in a Material Adverse Change.

2.10                            Compliance with Laws .  Except as described in Schedule 2.10 , each Citadel Entity is currently complying with and has at all times complied with each applicable statute, law (including common law), ordinance, decree, order, rule or regulation of any Governmental Body applicable to such Citadel Entity or the Business as conducted by such Seller (collectively, “ Laws ”), except such non-compliances that, individually or in the aggregate, do not constitute a Material Event and cannot reasonably be expected to result in a Material Adverse Change.  Except as described in Schedule 2.10 , no Citadel Entity has received any notice of violation from any Governmental Body with respect to any Law.

2.11                            Permits .  Each Seller owns or possesses from each appropriate Governmental Body all right, title and interest in and to all permits, licenses, authorizations, approvals, quality certifications, franchises or rights (collectively, “ Permits ”) issued by any Governmental Body that are necessary to conduct the Business, except such Permits, the absence of which, individually or in the aggregate, is not a Material Event and cannot reasonably be expected to result in a Material Adverse Change.  Each Permit is described in Schedule 2.11 , and the Permits described on Schedule 2.11(a) , to the extent assignable (as updated pursuant to Section 4.3 ) (the “ Assumed Permits ”) are included within the Assets.  The Permits identified on Schedule 2.11(b) (as updated pursuant to Section 4.3 ) are “ Excluded Permits ” and are Excluded Assets.  No loss or expiration of any such Assumed Permit is pending or, to the Knowledge of the Citadel Parties, threatened or reasonably foreseeable, other than expiration in accordance with the terms thereof of such Assumed Permits that may be renewed in the Ordinary Course of Business without lapsing.

2.12                            Employee Matters .

(a)                          Set forth in Schedule 2.12(a) is a complete list of all current employees, as of the date of this Agreement, all of whom (except to the extent indicated on Schedule 2.12(a)) are Active Employees (as defined in Section 9.13(a) ), of each Seller, which

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Schedule 2.12(a) includes the following additional information with respect to each such Employee: (i) date of employment, (ii) current title, (iii) all forms of compensation (broken out by type) including salary, bonus payments, membership dues, rights to company aircraft or fractional transitional interests in aircraft, benefits (i.e. life insurance policies), automobile use, leases or payments, car allowances, travel allowances, housing allowances and other perquisites, (iv) date of last promotion and (v) date and amount of last increase in compensation.  No update to Schedule 2.12(a) required pursuant to Section 4.3 shall be deemed to be a breach of this Section 2.12(a) of Agreement.

(b)                         No Citadel Entity has any collective bargaining, union or labor agreements, contracts or other arrangements with any group of employees, labor union or employee representative and, to the Knowledge of the Citadel Parties, there is no organizational effort currently being made or threatened by or on behalf of any labor union with respect to employees of any Citadel Entity.  No Citadel Entity has experienced, and, to the Knowledge of the Citadel Parties, there is no basis for, any strike, material labor dispute, work stoppage, slow down or other interference with or impairment of the Business.

(c)                          Except as set forth in Schedule 2.12(c) , no Citadel Entity is delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for a Citadel Entity or amounts required to be reimbursed to such employees.  No Citadel Entity has received any notice indicating that any of its employment policies or practices are currently being audited or investigated by any Governmental Body.  There are no charges or claims made to a Citadel Entity or, to the Knowledge of the Citadel Parties made to any Governmental Body, from employees of a Citadel Entity regarding the terms or conditions of their employment, including, claims or charges of employment discrimination, sexual harassment or unfair labor practices, nor any strikes, slowdowns, stoppages of work, or any other concerted interference with normal operations existing, pending or, to the Knowledge of the Citadel Parties, threatened against or involving a Citadel Entity.

(d)                         To the Knowledge of the Citadel Parties, each Citadel Entity is, and at all times has been, in compliance in all material respects with the requirements of the Immigration Reform Control Act of 1986.

(e)                          To the Knowledge of the Citadel Parties, each Citadel Entity is, and at all times has been in compliance with the requirements of Executive Order 11246, the Rehabilitation Act of 1873, the Vietnam Veterans Readjustment Act and the Fair Labor Standards Act.

(f)                            No Citadel Entity has ever implemented any plant closing or mass layoff of employees in violation of the Worker Adjustment Retraining and Notification Act of 1988, as amended, or any similar state or local law or regulation, and no layoffs that would implicate such laws or regulations are currently contemplated as of the date hereof by any Citadel Entity.

(g)                         Each Citadel Entity has complied with all garnishment of wages required by any Governmental Body or applicable Law.

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(h)                         No Non-Seller Subsidiary has any employees.

2.13                            Employee Benefit Plans; Change of Control Benefits .

(a)                          Set forth in Schedule 2.13(a) is a complete and correct list of all “Employee Benefit Plans.”  The term “ Employee Benefit Plans ” means: (a) any “multiemployer plans” as that term is defined in Section 4001 of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) and any “employee benefit plan” within the meaning of Section 3(3) of ERISA that are subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as amended (the “ Code ”), which a Citadel Entity or any other entity under common control with a Citadel Entity (an “ ERISA Affiliate ”), as determined under Section 414(b), (c) or (m) of the Code, has maintained, contributed to or been required to contribute to at any time within the six (6) year period immediately prior to the Closing Date or with respect to which a Citadel Entity or any ERISA Affiliate has any liability; and (b) all plans or policies providing for fringe benefits (including vacation, sick pay, PTO, paid holidays, personal leave, employee discounts, educational benefits or similar programs) and each other bonus, incentive compensation, deferred compensation, profit sharing, severance, retirement, health, life, disability, group insurance, employment, equity plan, award or arrangement (such as an option plan, stock, restricted stock, stock options, stock purchase, stock appreciation right or performance share), supplemental unemployment, layoff, consulting, or any other similar plan, agreement, policy or understanding (whether written or oral, qualified or nonqualified, currently effective or terminated), which provides benefits, or describes policies or procedures applicable, to any employee of any of the Citadel Entities or any dependent thereof.  Citadel Parties have provided to Buyer a true and complete copy of each Employee Benefit Plan and all amendments thereto and the most recently disseminated summary plan description and an explanation of any material plan modifications made after the date thereof.  Except as set forth in Schedule 2.13(a) , Citadel Entities have no formal plan or commitment, whether legally binding or not, to create any additional Employee Benefit Plan or modify or change any existing Employee Benefit Plan that would affect any employee of a Citadel Party, or any dependent or beneficiary thereof.

(b)                         Buyer will not assume sponsorship or adoption of any Employee Benefit Plans of any Citadel Party or take on any Liability relating to any Employee Benefit Plans of any Citadel Party except as otherwise expressly stated in this Agreement.

(c)                          Schedule 2.13(c) sets forth all severance or change of control “single trigger” or “double trigger” benefits a Citadel Party may or will owe an employee or service provider as a result of (i) an involuntary or constructive termination of such Person, (ii) the consummation of the transactions contemplated hereby or (iii) any combination of the foregoing.  Schedule 2.13(c) includes detail regarding (w) the dollar payments (including good faith estimates of any tax gross-ups) that may or will be owed to any such Person, (x) any vesting acceleration that such Person may or will receive, (y) any other benefits such Person may or will receive (such as access to health plans) and (z) whether any such payments will be subject to taxation under 280G of the Code and, if so, the amount of such payment.

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(d)                         Any plan sponsored by any Seller providing for the deferral of compensation within the meaning of Code Section 409A has been operated and administered in good faith compliance in all material respects with the requirements of Section 409A of the Code and Internal Revenue Service Notice 2005-1 or the proposed regulations issued by the Internal Revenue Service and U.S. Department of Treasury under Section 409A of the Code on September 29, 2005.

2.14                            Business Contracts .

(a)

(i)                                      The Annexes to Schedule 2.14(b) entitled “Data Room Folder 8.1 Contracts,” “Data Room Folder 8.11 Contracts” and “Citadel Software Licenses,” collectively, the “ Listed Business Contracts Annexes ”) collectively list each vendor, customer, sales, distribution, reseller, licensing (including open-source licensing and including all Intellectual Property Licenses-In, as defined in Section 2.16 ), royalty, supplier, contractor, OEM, outsourcing, independent contractor, teaming, marketing or similar agreement (whether written or oral and including all amendments thereto) to which any Citadel Party is a party or a beneficiary or by which any Citadel Party or any of the Assets is bound or otherwise obligated (collectively, the “ Listed Business Contracts ”).

(ii)                                   Schedule 2.14(a)(ii) lists all real estate leases to which a Citadel Party is a party and all agreements evidencing, securing or otherwise relating to any indebtedness for borrowed money for which any Citadel Party is, directly or indirectly, liable (the “ Leases/Loan Agreements ”).

(iii)                                The Listed Business Contracts and the Leases/Loan Agreements, along with any other agreement or contract to which any Citadel Party is a party or a beneficiary or by which any Citadel Party or any of the Assets is bound or otherwise obligated, are collectively referred to herein as the “ Business Contracts .”

(b)                         The Listed Business Contracts Annexes identify which of the Listed Business Contracts (i) require the consent of a third Person to be assigned to Buyer (including the name and address of the Person whose consent is required), (ii) require that notice be given to a third Person in order for such Assumed Business Contract to be assigned to Buyer (including the name and address of the Person who must be notified), (iii) include an exclusivity, exclusive dealing,  non-competition, non-solicitation or similar provision binding on a Citadel Party, (iv) include a “most favored nation,” “equally favored nation” or similar provision binding on a Citadel Party, (v) include indemnification obligations binding on a Citadel Party (other than indemnifications of customers or resellers in the Ordinary Course of Business pursuant to which no damages have been paid by a Citadel Party), (vi) provide for the payment of a royalty, license or similar payment by a Citadel Party, (vii) may not be terminated upon less than thirty days notice without payment of a financial penalty equal to or greater than $5,000, (viii)  to which a Governmental Body is a party, (ix) include provisions regarding service

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obligations (other than standard customer support obligations) outstanding (along with a description of the obligations of any Citadel Party thereunder including specific detail regarding the services to be provided, the amount of services to be provided and the remaining term of such agreement, all of which is set forth on Annex 2.14(b)(ix) to Schedule 2.14(b) ), (x) include a “future pricing” provision (i.e., a commitment by a Citadel Party to pricing with respect to products or services to be delivered pursuant to future arrangements that can not be changed by such Citadel Party on less than 30 days’ notice), other than future pricing provisions in the Ordinary Course of Business providing limitations on increases in maintenance and support services fees, (xi) include a “future product” provision binding on a Citadel Party (i.e., a requirement that a Citadel Party build, customize or tailor a Seller product for a customer, partner, reseller or other contractual counter-party), other than future product provisions in the Ordinary Course of Business providing for standard upgrades or releases of fixes or patches as part of customary maintenance and support services, (xii) pursuant to which a Citadel Party grants or licenses any Seller Intellectual Property to a third person, other than license (but not outright grants) of Seller Intellectual Property to customers or resellers in the Ordinary Course of Business, or (xiii) are subject to reimbursement or coverage under Hercules SecurePlus, a Hercules Vulnerability Remediation Update Warranty, an American Insurance Group and/or American International Specialty Lines Insurance Company policy or any similar provision for information asset loss and/or the cost of restoring lost data (the “ SecurePlus Insurance Coverage ”) ( Annex 2.14(b)(xiii) to Schedule 2.14(b) lists all customers who have the benefit of the SecurePlus Insurance Coverage, the date on which the remaining obligation to such customers expires and the amount the maximum amount that could be owed to such customers as a result thereof (without giving effect to the benefits of any insurance coverage)).

(c)                          Sellers have delivered to Buyer a copy of each written Business Contract and a written, detailed summary of each material term of each oral Business Contract.  Except as described in Schedule 2.14(c) :  (i) each Business Contract is valid, binding and in full force and effect and enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar laws affecting the enforcement of creditors’ rights generally and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding of law or in equity), and each such Business Contract has not expired or terminated in accordance with its terms (as of the date of this Agreement), by act or omission of any party or otherwise; (ii) each Citadel Party has performed all of its obligations under each Business Contract, and there exists no breach or default (or event that with notice or lapse of time would constitute a breach or default) on the part of such Citadel Party or, to the Knowledge of the Citadel Parties, on the part of any other Person under any Business Contract; (iii) there has been no termination or notice of default or, to the Knowledge of the Citadel Parties, any threatened termination under any Business Contract; and (iv) to the Knowledge of the Citadel Parties, no party to any Business Contract intends to alter its relationship with any Citadel Party as a result of or in connection with the acquisition contemplated by this Agreement.

(d)                         Except as set forth in the Listed Business Contracts Annexes or Schedule 2.14(a)(ii) , no Business Contract, (i) assuming such Business Contract is an Excluded

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Contract and therefore will not be assigned to Buyer in connection herewith, nevertheless requires the consent of a third Person (other than Excluded Consents, as defined below) in connection with the transactions contemplated hereby, (ii) assuming such Business Contract is an Excluded Contract and therefore will not be assigned to Buyer in connection herewith, nevertheless requires that notice (other than Excluded Consents) be given to a third Person in order for the transaction contemplated hereby to be consummated, or (iii) includes provisions pursuant to which a Citadel Party has granted or transferred any Seller Intellectual Property to a third person, other than licenses (but not outright grants) of Seller Intellectual Property to customers or resellers in the Ordinary Course of Business.  “ Excluded Consents ” means any notices, consents or waivers, the absence of which (x) will not result in the imposition or continuance of a Lien on any of the Assets after the Closing, (y) will not adversely affect the operation of the Business after consummation of this Agreement (assuming it is operated in the Ordinary Course of Business),  and (z) will not result in a Material Event or a Material Adverse Change.

2.15                            Customers .

(a)                          Set forth on Schedule 2.15(a) is a complete list of each customer of a Seller that has accounted for more than $50,000 of customer orders for the year ended December 31, 2005 or more than $30,000 of customer orders for the eight month period ending August 31, 2006 (the “ Material Customers ”), which list indicates the amount of customer orders attributable to each such Material Customer during the year ended December 31, 2004 and 2005 and during the eight month period ending on August 31, 2006.  None of the Material Customers has threatened to a Citadel Party (or, to Citadel’s Knowledge, to any Person), or notified a Citadel Party of any intention to terminate or materially alter its relationship with a Citadel Party.  There has been no material change in pricing or pricing structure (other than changes in the Ordinary Course of Business made as a result of changes in commodity prices) with any Material Customer, and there has been no material dispute with a Material Customer, in each case since December 31, 2005.

(b)                         No customer from which a Seller received more than $150,000 of customer orders during the year ended December 31, 2005 or more than $100,000 of customer orders during the period ended August 31, 2006 (each, a “ Large Customer ”) has terminated or reduced its agreement or relationship with the Company or indicated to a Citadel Party that such customer intends to terminate or reduce its agreement or relationship  with the Company other than in the Ordinary Course of Business or as contemplated by the terms of the applicable Business Contract related to such Large Customer.

(c)                          Set forth on Schedule 2.15(c) is a schedule of sales revenue by Product (as defined in Section 2.16(b) ) for the years ended December 31, 2004 and 2005, and for the interim period ending on the Latest Balance Sheet Date.

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2.16                            Intellectual Property Rights .

(a)                          Schedule 2.16(a) contains a complete and accurate list of all Patents owned by a Citadel Party (“ Seller Patents ”), Marks owned by a Citadel Party (“ Seller Marks ”) and Copyrights owned by a Citadel Party (“ Seller Copyrights ” and, with the Seller Patents and Seller Marks, the “ Listed Intellectual Property ”).  The Listed Intellectual Property together with all other intangible assets of any Citadel Party are, collectively, the “ Intellectual Property Assets. ”  Schedule 2.16(a) contains a complete and accurate list of all third-party licenses of intellectual property rights to the Citadel Parties for use in or with the Products (“ Intellectual Property Licenses-In ”).  Together the Intellectual Property Assets and the Intellectual Property Licenses-In constitute all of the intellectual property that is used in, a constituent part of, or used in the creation of any Product, and constitute all of the intellectual property that is necessary to carry on the Business as currently conducted.  The product entitled WinShield version 2.15 is not used in any Citadel Products or otherwise in Citadel’s Business.  Except as set forth on Schedule 2.16(a) :

(i)                                      a Seller exclusively owns or possesses adequate and enforceable rights to use, without payment to a third party, all of the Intellectual Property Assets and to use all Intellectual Property Licenses-In necessary for the operation of all material aspects of the Business as currently conducted, free and clear of all Liens other than Permitted Liens;

(ii)                                   all Seller Intellectual Property Assets are valid and enforceable, and all Seller Patents, Seller Marks and Seller Copyrights which have been issued by, or registered or the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or in any similar office or agency anywhere in the world are currently in compliance with formal legal requirements (including, as applicable, payment of filing, examination and maintenance fees, proofs of working or use, timely post-registration filing of affidavits of use and incontestability and renewal applications);

(iii)                                there are no pending, or, to the Knowledge of the Citadel Parties, threatened claims against a Citadel Party alleging that any of the operation of the Business, any activity by a Citadel Party or manufacture, sale and/or use of any Product infringes on or violates (or in the past infringed on or violated) the rights of others in or to any Intellectual Property Assets (“ Third Party IP Assets ”) or constitutes a misappropriation of (or in the past constituted a misappropriation of) any Intellectual Property Assets of any Person or entity or that any of the Seller Intellectual Property Assets is invalid or unenforceable;

(iv)                               neither the operation of the Business, nor any activity by a Citadel Party, nor manufacture, use and/or sale of any Product infringes on or violates (or in the past infringed on or violated) any Third Party IP Asset, or constitutes a misappropriation of (or in the past constituted a misappropriation of) any Third Party IP Asset, or infringes on or violates (or in the past infringed on or violated) the rights of any Person under any patent;

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(v)                                  each of the former and current employees, and the consultants and contractors of a Seller who have developed or have or have had access to the Sellers’ Intellectual Property Assets or other confidential information, a complete list of which is set forth in Schedule 2.16(a)(v) , have executed written instruments with a Seller that (x) assign to a Seller all of such Person’s rights, title and interest in and to any and all Seller Intellectual Property Assets and (y) include confidentiality provisions in favor of a Seller (copies of each such agreement have been provided to Parent) or are otherwise subject to a confidentiality requirement due to fiduciary obligations;

(vi)                               to the Knowledge of the Citadel Parties, (A) there is no, nor has there been any, infringement or violation by any Person of any of the Seller Intellectual Property Assets or a Seller’s rights therein or thereto and (B) there is no, nor has there been any, misappropriation by any Person of any of the Seller Intellectual Property Assets;

(vii)                            the Citadel Parties have taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all Trade Secrets owned by a Seller or used or held for use by a Seller in the Business (the “ Seller Trade Secrets ”), including requiring each Seller employee and consultant and any other Person, in each case with access to Seller Trade Secrets, to execute a binding confidentiality agreement or to otherwise be subject to a confidentiality requirement due to fiduciary obligations or professional responsibility in the case of providers of professional services, copies of which have been provided to Parent and, to the Knowledge of the Citadel Parties, there has not been any breach by any party to such confidentiality agreements;

(viii)                         (A) no Citadel Party has directly or indirectly granted any rights, licenses or interests in the source code of the Products (as defined below), and (B) since a Seller developed the source code of the Products, no Citadel Party has provided or disclosed the source code of the Products to any Person or entity;

(ix)                                 the Products do not contain any “viruses”, “worms”, “time-bombs”, “key-locks” or any other devices that could disrupt or interfere with the operation of the Products or equipment upon which the Products operate, or the integrity of the data, information or signals the Products produce in a manner adverse to a Citadel Party or any customer, licensee or recipient;

(x)                                    Schedule 2.16(a)(x) identifies any and all software (in source or object code form) subject to a license commonly referred to as an open source, free software, copyleft or community source code license (including but not limited to any library or code licensed under the GNU General Public License, GNU Lesser General Public License or any other restrictive license arrangement) (“ Open Source Software ”) that is incorporated into, integrated or bundled with, linked to or otherwise used in or with, or used in the development of, the Products or any other Seller Intellectual Property (“ Seller Open Source Software ”);

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(xi)                                 Schedule 2.16(a)(xi) identifies (A) the name of any of the Open Source Software identified in Schedule 2.16(a)(x) , (B) a description of Seller’s past, present and intended future usage of such Open Source Software, (C) license type of such Open Source Software, (D) Products with which it interacts or effects, (E) a description of any distribution of any such Open Source Software, (F) Citadel’s reasonably detailed explanation of why such Open Source Software does not adversely affect any Seller Intellectual Property and (G) an indication of whether Citadel believes that its use of any such Open Source Software will subject any of Seller’s Intellectual Property to the terms of such Open Source Software and, if yes, a reasonably detailed explanation of the consequences thereof;

(xii)                              with respect to any such Seller Open Source Software, Schedule 2.16(a)(xii) sets forth the incorporation, linking, calling or other use by the Products or any other Seller Intellectual Property of any Seller Open Source Software does not obligate, nor would it obligate upon distribution, a Seller to make available, offer or deliver the source code of any Product or component thereof or any other such Seller Intellectual Property to any third party;

(xiii)                           no Citadel Party has (A) collected any personally identifiable information from any third parties, and (B) in connection with any collection of personally identifiable information described on Schedule 2.16(a)(xiii) , failed to comply with all applicable statutes, rules and regulations in all relevant jurisdictions and its publicly available privacy policy (if any) relating to the collection, storage and onward transfer of all personally identifiable information collected by a Citadel Party or by third parties having authorized access to a Citadel Party’s databases or other records;

(xiv)                          the Sellers have all rights necessary to transfer the Intellectual Property Assets to Buyer, including but not limited to all rights and permissions necessary to assign and transfer all third-party licenses; and

(xv)                             no Citadel Party has taken any action (or knowingly failed to take any action) that had the effect of impairing, limiting or waiving any of its rights with regard to any Intellectual Property Asset.

(b)                         For purposes of this Agreement, “ Products ” means those products and/or services and related documentation researched, designed, developed, manufactured, marketed, performed, licensed, sold and/or distributed by a Seller.  A complete list of the Products is provided on Schedule 2.16(b) attached hereto.

(c)                          All Seller Intellectual Property Assets related to or used in connection with Citadel’s Hercules product were developed by Citadel or CT Holdings Enterprises, Inc.

2.17                            Environmental Matters .

(a)                          Except as described in Schedule 2.17 :  (i) each Seller has conducted the Business in compliance with all applicable Environmental Laws (as defined below),

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including by having all Permits required under any Environmental Law in connection with any aspect of the operation of the Business; (ii) no Citadel Entity has received any written notices, demand letters or requests for information from any Governmental Body or other Person indicating that any Citadel Entity may be in violation of, or liable under, any Environmental Law; (iii) no Person or property has been exposed to any Hazardous Substance, and no Hazardous Substance has been disposed of, released or transported in violation of any applicable Environmental Law on, to or from any Real Property or as a result of any activity of any Citadel Entity; (iv) no Citadel Entity, nor any of the Assets is subject to any Liabilities or expenditures relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law; (v) each Citadel Entity has satisfied and is currently in compliance with all financial responsibility requirements applicable to the operation of the Business and imposed by any Governmental Body under any Environmental Laws and (vi) there are no facts or circumstances likely to prevent or delay the ability of any Citadel Entity to comply, when required, with the European Directive 2002/96/EC on waste electrical and electronic equipment, European Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment or other similar