Exhibit 10.1
 

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AGREEMENT AND PLAN OF MERGER

by and among

NEAH POWER SYSTEMS, INC.,

NEAH POWER ACQUISITION CORP.,

SOLCOOL ONE, LLC, AND

MARK WALSH

Dated as of November 26th, 2008
 
 

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TABLE OF CONTENTS
 

       
Page
                   
ARTICLE I
THE MERGER
1
 
Section 1.1
 
The Merger
1
 
Section 1.2
 
Effect of the Merger; Closing
1
 
Section 1.3
 
Articles of Incorporation
2
 
Section 1.4
 
Bylaws
2
 
Section 1.5
 
Board of Directors and Officers
2
 
Section 1.6
 
Conversion of Membership Interests
2
 
Section 1.7
 
Surrender of Membership Interests; Transfer Books.
2
 
Section 1.8
 
The Financing
3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND MEMBERS
3
 
Section 2.1
 
Organization, Qualification and Corporation Power
3
 
Section 2.2
 
Membership Interests; Subsidiaries.
4
 
Section 2.3
 
Ownership of Membership Interests.
5
 
Section 2.4
 
Authority Relative to this Agreement
5
 
Section 2.5
 
No Conflict; Required Filings and Consents.
5
 
Section 2.6
 
Financial Statements; Debt.
6
 
Section 2.7
 
Absence of Certain Changes
7
 
Section 2.8
 
Tax Matters.
8
 
Section 2.9
 
Title to Properties
9
 
Section 2.10
 
Environmental Matters.
9
 
Section 2.11
 
Intellectual Property.
10
 
Section 2.12
 
Material Agreements.
11
 
Section 2.13
 
Insurance.
13
 
Section 2.14
 
Litigation.
14
 
Section 2.15
 
Employees.
14
 
Section 2.16
 
Employee Benefits.
15
 
Section 2.17
 
Permits
16
 
Section 2.18
 
Broker’s Fees
16
 
Section 2.19
 
Books and Records.
16

 
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Section 2.20
 
Banking Relationships and Investments
16
 
Section 2.21
 
Disclosure
17
 
Section 2.22
 
Investment Representations of Members
17
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER SUB
18
 
Section 3.1
 
Organization, Qualification and Corporation Power
18
 
Section 3.2
 
Authority Relative to this Agreement
18
 
Section 3.3
 
No Conflict; Required Filings and Consents.
19
 
Section 3.4
 
Broker’s Fees
19
 
Section 3.5
 
Section 3.25 Disclosure
19
ARTICLE IV
CONDITIONS OF MERGER
24
 
Section 4.1
 
Conditions to Obligations of Buyer and Buyer Sub to Effect the Merger
24
 
Section 4.2
 
Conditions to Obligations of the Company and the Members to Effect the Merger
25
ARTICLE V
FURTHER ASSURANCES AND COVENANTS
25
 
Section 5.1
 
Non-Competition and Other Covenants.
25
 
Section 5.2
 
Escrow of Series B Preferred Shares
26
 
Section 5.3
 
Adjustment for Dilutive Issuances
26
 
Section 5.4
 
Spin-off of the Company
27
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
27
 
Section 6.1
 
Survival of Representations
27
 
Section 6.2
 
Indemnification of Buyer and Buyer Sub
27
 
Section 6.3
 
Indemnification of Members and Company
28
 
Section 6.4
 
Limitations on Indemnity Obligations.
28
 
Section 6.5
 
Escrow
29
ARTICLE VII
COVENANTS OF THE COMPANY PRIOR TO CLOSING
29
 
Section 7.1
 
Access and Investigation
29
 
Section 7.2
 
Operation of the Business of Seller
29
 
Section 7.3
 
Negative Covenant
30

 
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Section 7.4
 
Notification
31
 
Section 7.5
 
No Negotiation
31
 
Section 7.6
 
Best Efforts
31
 
Section 7.7
 
Payment of Liabilities
31
ARTICLE VIII
GENERAL AND MISCELLANEOUS PROVISIONS
31
 
Section 8.1
 
Notices
31
 
Section 8.2
 
Expenses
32
 
Section 8.3
 
Amendment
32
 
Section 8.4
 
Entire Agreement
32
 
Section 8.5
 
Public Announcements
33
 
Section 8.6
 
No Third-Party Beneficiaries
33
 
Section 8.7
 
Assignment
33
 
Section 8.8
 
Severability
33
 
Section 8.9
 
Governing Law
33
 
Section 8.10
 
Consent to Jurisdiction
33
 
Section 8.11
 
Headings; Interpretation
34
 
Section 8.12
 
Construction
34
 
Section 8.13
 
Counterparts
34
 
Section 8.14
 
Confidentiality
34
 
Section 8.15
 
Termination
34

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of November 26th,
2008 (the “Closing Date”), is made by and among Neah Power Systems, Inc., a
Nevada corporation (“Buyer”), Neah Power Acquisition Corp., a Nevada
corporation, a direct and wholly owned subsidiary of Buyer (“Buyer Sub”),
SolCool One, LLC, a California limited liability company (the “Company”), and
Mark Walsh (“Walsh”), Manager and founder of the Company, and a resident of the
State of California.

WHEREAS, the Board of Directors of Buyer, Buyer Sub and the Company have
determined that it is in the best interests of their respective companies and
their stockholders and members, respectively, to consummate the business
combination transaction provided for herein in which the Company will, subject
to the terms and conditions set forth herein, merge with and into the Buyer Sub,
with the Buyer Sub being the surviving entity (the “Merger”); and

WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.

NOW, THEREFORE, in consideration of the premises and the mutual covenants,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:

ARTICLE I
The Merger
 
Section 1.1 The Merger. Subject to the terms and conditions of this Agreement,
in accordance with the General Corporation Law of the State of Nevada (the
“Nevada Law”) and the Beverly-Killea Limited Liability Company Act of the State
of California (the “California Law”), upon the execution of this Agreement and
concurrent with the filing of the Articles of Merger (the “Articles of Merger”)
with the Secretary of State of the State of Nevada and the Certificate of Merger
(the “Certificate of Merger”) with the Secretary of State of the State of
California (in accordance with the relevant provisions of Nevada Law and
California Law, respectively), the Company shall merge with and into the Buyer
Sub. The separate corporate existence of the Company will cease upon the filing
of the Articles of Merger and the Certificate of Merger (the “Effective Time”),
and the Buyer Sub will continue as the surviving corporation (hereinafter
sometimes referred to as the “Surviving Corporation”) in the Merger. The Buyer
Sub, as the surviving corporation after the Merger, will be governed by the laws
of the State of Nevada. 

For purposes of this Agreement, the actions taken in connection with the
execution of this Agreement and the filing of the Articles of Merger and the
Certificate of Merger shall be known as the “Closing.”
 
Section 1.2 Effect of the Merger; Closing. At and after the Effective Time, the
Merger shall have the effects set forth in this Agreement and the applicable
provisions of California Law and Nevada Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Buyer Sub will vest
in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Buyer Sub (including any personal guarantees of the Members executed
in the ordinary course of business prior to Closing and identified on Schedule
1.2) will become the debts, liabilities and duties of the Surviving
Corporation. 
 
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Section 1.3 Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of the Buyer Sub, as in effect immediately prior to the Effective
Time and set forth on Exhibit A, shall be the Articles of Incorporation of the
Surviving Corporation, provided, however, that Article I of the Articles of
Incorporation of the Surviving Corporation will be amended to reflect that the
name of the Surviving Corporation will be “SolCool, One One, Inc.”
 
Section 1.4 Bylaws. At the Effective Time, the bylaws of Buyer Sub, as in effect
immediately prior to the Effective Time and set forth on Exhibit B, shall be the
Bylaws of the Surviving Corporation, provided, however, that the bylaws of the
Surviving Corporation will be amended to reflect that the name of the Surviving
Corporation will be “SolCool, One One, Inc.”
 
Section 1.5 Board of Directors and Officers. The directors and corporate
officers of Buyer Sub immediately prior to the Effective Time, shall be the
directors and corporate officers of the Surviving Corporation. 
 
Section 1.6 Conversion of Membership Interests. At the Closing, by virtue of the
Merger and without any action on the part of the holder of any membership
interests of the Company, the Buyer shall issue to the Company the aggregate sum
of $500,000 in the form of Series B Preferred Stock, par value $.001 per share
(“Series B Preferred”), or 100,000 shares of Series B Preferred, at a price of
$5.00 per share (the “Series B Preferred Consideration” or the “Merger
Consideration”). Except as otherwise provided herein, the Series B Preferred
shall be convertible in according with the provisions thereof any time after the
second anniversary of its issuance date into shares of Buyer’s common stock (the
“Conversion Shares”), have a conversion price equal to the average of the
closing bid and asked prices of Buyer’s shares of common stock for four days
prior to the date of this Agreement.
 
Section 1.7 Surrender of Membership Interests; Transfer Books.

(a) At the Closing, the Members will surrender Members’ Certificate(s) to Buyer.
Until so surrendered, such Certificates will represent solely the right to
receive the Merger Consideration relating thereto.

(b) At the Effective Time, the transfer books of the Company will be closed and
there will not be any further registration of transfers of any membership
interests or options thereafter on the records of the Company. If, at or after
the Effective Time, Certificates are presented to the Surviving Corporation for
transfer, they will be canceled and exchanged for Merger Consideration as
provided in Section 1.6.

For purposes of this Agreement, the term “Person” shall mean any individual,
firm, corporation, partnership, limited liability company, trust, joint venture,
Governmental Entity or other entity.
 
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Section 1.8 The Financing. Buyer shall use its best efforts to obtain $1,200,000
in new capital (the “Financing”) and shall provide capital to the Surviving
Corporation based upon the Surviving Corporation achieving the following
milestones: $50,000 upon a financing arranged by Buyer for the Surviving
Corporation of not less than an initial $400,000, $150,000 upon a financing
arranged by Buyer for the Surviving Corporation of not less than an additional
$400,000 and $300,000 upon a financing arranged by Buyer for the Surviving
Corporation of not less than an additional $400,000. An additional $500,000
shall be reserved as a credit facility to finance production letters of credit
based upon a subsequent financing. The capital provided to the Surviving
Corporation under this Section 1.8 shall be administered by Buyer’s CFO and
shall be used by the Surviving Corporation to meet shipping commitments and
cover operating costs, including payments of salaries and other overhead items.
 

ARTICLE II
Representations and Warranties of Company and Members

Except as set forth in the Company Disclosure Letter which is attached to and
incorporated into this Agreement for all purposes (the “Company Disclosure
Letter”), the Company and Walsh, jointly and severally, represent and warrant to
the Buyer as of the Closing Date as follows:
 
Section 2.1 Organization, Qualification and Corporation Power. The Company (a)
is a limited liability company duly formed, validly existing and in good
standing under the Laws of California and has the requisite power and authority
to own, operate or lease its properties and to carry on its business as is now
being conducted and proposed to be conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect (as defined below) on the Company, and (b) is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the failure so
to qualify or to be in good standing would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company. The
Company has furnished to Buyer true, correct and complete copies of its Articles
of Organization, Operating Agreement and bylaws.

For purposes of this Agreement, the term “Material Adverse Effect” when used in
connection with an entity means any change, event, circumstance or effect
whether or not such change, event, circumstance or effect is caused by or arises
in connection with a breach of a representation, warranty, covenant or agreement
of such entity in this Agreement that is or is reasonably likely to be
materially adverse to the business, assets (including intangible assets),
capitalization, financial condition, operations or results of operations,
employees or prospects of such entity taken as a whole with its subsidiaries,
except to the extent that any such change, event, circumstance or effect is
caused by results from (i) changes in general economic conditions, (ii) changes
affecting the industry generally in which such entity operates (provided that
such changes do not affect such entity in a substantially disproportionate
manner) or (iii) changes in the trading prices for such entity’s capital stock.

For purposes of this agreement, the term “Law” shall mean any applicable
foreign, federal, state or local law, statute, code, ordinance, regulation,
rule, principle of common law or other legally enforceable obligation imposed by
a court or other Governmental Entity (as defined in Section 2.5 below) in the
applicable jurisdiction.
 
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Section 2.2 Membership Interests; Subsidiaries. 
 
(a) The membership interest ownership of the Company (the “Membership
Interests”) is set forth on Schedule 2.2 (collectively, the “Members”). The
Members hold good and valid title to such Membership Interests, free and clear
of all liens, agreements, voting trusts, proxies and other arrangements or
restrictions of any kind whatsoever (other than normal restrictions on transfer
under applicable federal and state securities laws). All issued and outstanding
Membership Interests have been duly authorized and were validly issued, are
fully paid and nonassessable, are not subject to any right of rescission, are
not subject to preemptive rights by statute, the Articles of Organization,
Operating Agreement or bylaws of the Company, or any agreement or document to
which the Company is a party or by which it is bound and have been offered,
issued, sold and delivered by the Company in compliance with all registration or
qualification requirements (or applicable exemptions therefrom) of applicable
federal and state securities laws. The Company is not under any obligation to
register under the Securities Act of 1933, as amended (the “Securities Act”) or
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), any of its
presently outstanding Membership Interests or any securities that may be
subsequently issued. There is no liability for dividends or distribution of
profits accrued but unpaid with respect to the Company’s outstanding Membership
Interests. 

(b) There are no existing (i) options, warrants, calls, preemptive rights
(except for the claim by Michael Kinsey for 10% of any settlement payments made
by GreenCore Air, Inc .in the case styled SolCool One, LLC v. Green Core Air,
Inc., et al., Case No. CYRS 002866 in the Superior Court of the State of
California, County of San Bernardino, Rancho Cucamonga District), subscriptions
or other rights, convertible securities, agreements or commitments of any
character obligating the Company to issue, transfer or sell any membership
interests or other equity interest in, the Company or securities convertible
into or exchangeable for such membership interests or equity interests, (ii)
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any membership interests of the Company or (iii) voting trusts or
similar agreements to which the Company is a party with respect to the voting of
the membership interests of the Company.

(c) The Company does not have any direct or indirect Subsidiaries or any
interest, direct or indirect, in any corporation, partnership, joint venture or
other business entity.

For purposes of this Agreement, the term “Subsidiary” of a Person means any
corporation or other legal entity of which such Person (either alone or through
or together with any other Subsidiary) owns, directly or indirectly, more than
50% of the membership interests or other equity interests the holders of which
are generally entitled to vote for the election of the board of managers or
other governing body of such corporation or other legal entity.
 
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Section 2.3 Ownership of Membership Interests. 

(a) The Members are the record and beneficial owner of, and have good and valid
title to, all of the Membership Interests, which Membership Interests (i) are
free and clear of all liens, mortgages, encumbrances, pledges, claims, options,
charges, easements, restrictions, covenants, conditions of record,
encroachments, security interests and claims of every kind and character (each,
a “Lien”) and (ii) are free of any other restriction (including any restriction
on the right to vote, sell or otherwise dispose of such membership interests or
other ownership interests). Except for those Members’ Certificates surrendered
in accordance with Section 1.7 there are no other Members’ Certificates issued
or outstanding.

(b) There are no outstanding existing (i) options, warrants, calls, preemptive
rights, subscriptions or other rights, convertible securities, agreements or
commitments of any character to which such Members are a party obligating the
Members to issue, transfer or sell any Membership Interests or other equity
interest in the Company or securities convertible into or exchangeable for such
membership interests or equity interests or (ii) voting trusts, members’
agreements or similar agreements to which such Members are a party with respect
to the voting of the Membership Interests owned by such Members.
 
Section 2.4 Authority Relative to this Agreement. The Company has the necessary
power and authority to enter into this Agreement and, subject to the filing of
the Articles of Merger and the Certificate of Merger, to carry out its
obligations hereunder. The Members have the necessary competency, power and
authority to enter into this Agreement and carry out the obligations hereunder.
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of the Company and the Members and, subject
to the filing of the Articles of Merger and the Certificate of Merger, no other
corporate proceeding is necessary for the execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company and
the Members and, assuming the due authorization, execution and delivery of this
Agreement by Buyer and Buyer Sub, constitutes a legal, valid and binding
obligation of the Company and the Members, enforceable against them in
accordance with its terms, except that (a) the enforceability hereof may be
subject to applicable bankruptcy, insolvency or other similar Laws, now or
hereinafter in effect, affecting creditors’ rights generally, and (b) the
general principles of equity (regardless of whether enforceability is considered
at a proceeding at Law or in equity).
 
Section 2.5 No Conflict; Required Filings and Consents.

(a) The execution and delivery of this Agreement by the Company and the Members
does not, and the consummation by the Company and the Members of the
transactions contemplated hereby will not, (i) conflict with or violate any Law,
court order, judgment or decree applicable to the Company, its Subsidiaries or
the Members or by which any of their property is bound, (ii) violate or conflict
with the Articles of Organization, Operating Agreement or Bylaws (or comparable
organizational documents) of the Company or its Subsidiaries, or (iii) result in
any breach of or constitute a default (or an event which with notice or lapse of
time of both would become a default) under, or give to others any rights of
termination or cancellation of, or result in the creation of a Lien on any of
the properties or assets of the Company or its Subsidiaries pursuant to, any
contract, instrument, Permit or license to which the Company or its Subsidiaries
is a party or by which the Company or its Subsidiaries or any of their property
is bound, except in the case of clauses (i) and (iii) for conflicts, violations,
breaches or defaults which, individually or in the aggregate, would not have or
result in a Material Adverse Effect on the Company.
 
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(b) Except for the filing of the Articles of Merger and the Certificate of
Merger and applicable requirements, if any, under “takeover” or “blue sky” Laws
of various states, neither the Company nor any of its Subsidiaries is required
to submit any notice, report or other filing with any federal, state or local or
foreign government, political subdivision thereof, any court, administrative,
regulatory or other governmental agency, commission or authority or any
non-governmental United States or foreign self-regulatory agency, commission or
authority or any arbitral tribunal (each, a “Governmental Entity”) in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby the failure of which to
submit would, individually or in the aggregate, have or result in a Material
Adverse Effect on the Company. No waiver, consent, approval or authorization of
any Governmental Entity or any third party is required to be obtained or made by
the Company or its Subsidiaries in connection with its execution, delivery or
performance of this Agreement the failure of which to obtain or make,
individually or in the aggregate, would have or result in a Material Adverse
Effect on the Company.
 
Section 2.6 Financial Statements; Debt. 
 
(a) Attached as Section 2.6(a) of the Company Disclosure Letter are (i) the
Company’s unaudited balance sheet, and statement of cash flows and income
statement for the year ending December 31, 2007 and (ii) the Company’s unaudited
balance sheet (the “Company Balance Sheet”), statement of cash flows and income
statement each dated as of September 30 2008 (the “Balance Sheet Date”) (all
such financial statements being collectively referred to herein as the “Company
Financial Statements”). The Company Financial Statements (a) are in accordance
with the books and records of the Company and (b) fairly present the financial
condition of the Company at the date therein indicated and the results of
operation for the period therein specified.

(b) The Company has no material debt, liability or obligation of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due, that is not reflected or reserved against in the Company Financial
Statements in the ordinary course of its business, consistent with past practice
and that are material in amount either individually or collectively.
 
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Section 2.7 Absence of Certain Changes. Since the Balance Sheet Date, there has
not been with respect to the Company or any Subsidiary:

(a) any change in the financial condition, properties, assets, liabilities,
business or operations thereof which change by itself or in conjunction with all
other such changes, whether or not arising in the ordinary course of business,
has had or will have a material adverse effect thereon;
 
(b) any material loss of customers. Set forth on Section 2.7(b) of the Company
Disclosure Letter is a true, correct and complete list of all customers lost in
the preceding twelve (12) months, including the billing address and phone number
for the respective customer; 

(c) any notice of impending cancellation, or a material price increase, from any
supplier or vendor;

(d) any contingent liability incurred thereby as guarantor or otherwise with
respect to the obligations of others;

(e) any mortgage, encumbrance or lien placed on any of the properties thereof;

(f) any material obligation or liability incurred thereby other than obligations
and liabilities incurred in the ordinary course of business;

(g) any purchase or sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the
properties or assets thereof other than in the ordinary course of business;

(h) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, assets or business thereof;

(i) any declaration, setting aside or payment of any dividend on, or the making
of any other distribution in respect of, the membership interests thereof, any
split, combination or recapitalization of the membership interests thereof or
any direct or indirect redemption, purchase or other acquisition of the
membership interests thereof;

(j) any labor dispute or claim of unfair labor practices, any change in the
compensation payable or to become payable to any of its officers, employees or
agents, or any bonus payment or arrangement made to or with any of such
officers, employees or agents;

(k) any change with respect to the management, supervisory or other key
personnel thereof;

(l) any payment or discharge of a material lien or liability thereof which lien
was not either shown on the Company Balance Sheet or incurred in the ordinary
course of business thereafter; or
 
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(m) any obligation or liability incurred thereby to any of its officers,
managers or members or any loans or advances made thereby to any of its
officers, managers or members except normal compensation and expense allowances
payable to officers.
 
Section 2.8 Tax Matters. 

(a) The Company and its Subsidiaries have timely filed all Tax Returns that they
were required to file, and all such Tax Returns were correct and complete in all
material respects. All Tax liabilities of the Company and its Subsidiaries for
all taxable periods or portions thereof ending on or prior to the Effective Time
have been, or will be prior to the Effective Time, timely paid or are adequately
reserved for in the Company Financial Statements, other than such Tax
liabilities as are being contested in good faith by the Company or its
Subsidiaries. There are no ongoing federal, state, local or foreign audits or
examination of any Tax Return of the Company or its Subsidiaries. Neither the
Company nor its Subsidiaries has waived any statute of limitations in respect of
Taxes or agreed to any extension of time, nor has any such waiver or extension
been required with respect to a Tax assessment or deficiency. No claim has ever
been made by an authority in a jurisdiction where the Company and its
Subsidiaries do not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Liens on any of the assets of the Company or its
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.

(b) The Company and its Subsidiaries have withheld or collected and paid or
deposited in accordance with law all Taxes required to have been withheld or
collected and paid or deposited by the Company or its Subsidiaries in connection
with amounts paid or owing to any employee, independent contractor, creditor,
members, or other third party.

(c) There is no dispute or claim concerning any Tax liability of the Company or
its Subsidiaries either (i) claimed or raised by any authority in writing or
(ii) as to which the Company has Knowledge.

(d) For purposes of this Agreement:
 
(i) “Knowledge” or words of similar import means all information that is
actually known, following reasonable investigation, and in the case of the
Company by the individuals set forth on Section 2.15 of the Company Disclosure
Letter.

(ii) “Taxes” means all taxes, charges, fees, levies or other similar assessments
or liabilities, including income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property, sales, use, transfer,
withholding, employment, payroll and franchise taxes imposed by a Governmental
Entity, and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any tax or any
contest or dispute thereof, and any amounts of Taxes of a third Person that a
Person or any Subsidiary of such Person is liable to pay by law or otherwise;
and
 
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(iii) “Tax Returns” means all reports, returns, declarations, statements or
other information supplied or required to be supplied to a taxing authority in
connection with Taxes including any schedules, attachments or amendments
thereto.
 
Section 2.9 Title to Properties. The Company has good and marketable title to
all of its assets as shown on the Company Balance Sheet, free and clear of all
liens, charges, restrictions or encumbrances (other than for Taxes not yet due
and payable). All machinery and equipment included in such properties is in good
condition and repair, normal wear and tear excepted, and all leases of real or
personal property to which Company or any its Subsidiaries is a party are fully
effective and afford Company or its Subsidiaries peaceful and undisturbed
possession of the subject matter of the lease. Neither Company nor any of its
Subsidiaries is in violation of any zoning, building, safety or environmental
ordinance, regulation or requirement or other law or regulation applicable to
the operation of owned or leased properties (the violation of which would have a
material adverse effect on its business), or has received any notice of
violation with which it has not complied.
 
Section 2.10 Environmental Matters. 

(a) During the period that the Company has leased or owned its properties or
owned or operated any facilities, there have been no disposals, releases or
threatened releases of Hazardous Materials (as defined below) on, from or under
such properties or facilities. The Company has no Knowledge of any presence,
disposals, releases or threatened releases of Hazardous Materials on, from or
under any of such properties or facilities, which may have occurred prior to the
Company having taken possession of any of such properties or facilities. For the
purposes of this Agreement, the terms “disposal,” “release,” and “threatened
release” shall have the definitions assigned thereto by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601
et seq., as amended (“CERCLA”). For the purposes of this Agreement “Hazardous
Materials” shall mean any hazardous or toxic substance, material or waste which
is or becomes prior to the Closing regulated under, or defined as a “hazardous
substance,” “pollutant,” “contaminant,” “toxic chemical,” “hazardous materials,”
“toxic substance” or “hazardous chemical” under (1) CERCLA; (2) any similar
federal, state or local law; or (3) regulations promulgated under any of the
above laws or statutes.

(b) None of the properties or facilities of the Company is in violation of any
federal, state or local law, ordinance, regulation or order relating to
industrial hygiene or to the environmental conditions on, under or about such
properties or facilities, including, but not limited to, soil and ground water
condition. During the time that the Company has owned or leased its properties
and facilities, to the Company’s Knowledge, no third party, has used, generated,
manufactured or stored on, under or about such properties or facilities or
transported to or from such properties or facilities any Hazardous Materials.

(c) During the time that the Company has owned or leased its properties and
facilities, there has been no litigation brought or threatened against the
Company by, or any settlement reached by the Company with, any party or parties
alleging the presence, disposal, release or threatened release of any Hazardous
Materials on, from or under any of such properties or facilities.
 
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Section 2.11 Intellectual Property.

(a) The term “Intellectual Property” means any (i) patents, (ii) trademarks,
service marks, trade names, brand names, trade dress, slogans, logos and
internet domain names, (iii) inventions, discoveries, ideas, processes,
formulae, designs, models, industrial designs, know-how, proprietary
information, trade secrets, and confidential information (including customer
lists, training materials and related matters, research and marketing and sales
plans), whether or not patented or patentable, (iv) copyrights, writings and
other copyrightable works and works in progress, databases and software, (v) all
other intellectual property rights and foreign equivalent or counterpart rights
and forms of protection of a similar or analogous nature or having similar
effect in any jurisdiction throughout the world, (vi) all registrations and
applications for registration of any of the foregoing, (vii) all common law
trademarks and service marks used by the Company or its Subsidiaries and (viii)
any renewals, extensions, continuations, divisionals, reexaminations or reissues
or equivalent or counterpart of any of the foregoing in any jurisdiction
throughout the world. The term “Company IP” means any Intellectual Property used
or held for use by the Company or its Subsidiaries, in the conduct of their
businesses as currently conducted and currently proposed to be conducted.
 
(b) Section 2.11(b) of the Company Disclosure Letter sets forth a true, correct
and complete list (including, the owner, title, registration or application
number and country of registration or application, as applicable) of all of the
following Company IP: (i) registered trademarks, (ii) applications for trademark
registration, (iii) domain names, (iv) patents, (v) applications for patents,
(vi) registered copyrights (vii) applications for copyright registration and
(viii) licenses of all Intellectual Property (other than off-the-shelf business
productivity software that is the subject of a shrink wrap or click wrap
software license agreement (“Desktop Software”)) to or from the Company. The
Company has delivered or made available to Buyer prior to the execution of this
Agreement true, complete and correct copies of all licenses of Company IP both
to and from the Company and its Subsidiaries, except Desktop Software.
 
(c) The Company IP set forth on Section 2.11(b) of the Company Disclosure Letter
constitutes all of the Intellectual Property used by and necessary for the
Company and its Subsidiaries to operate their respective business as currently
conducted and currently proposed to be conducted. The Company or its
Subsidiaries owns all legal and beneficial right, title and interests in the
Company IP, and the Company or its Subsidiaries has the valid, sole and
exclusive right to use, assign, transfer and license all such Company IP for the
life thereof for any purpose, free from (i) any Liens, and (ii) any requirement
of any past, present or future royalty payments, license fees, charges or other
payments, or conditions or restrictions whatsoever.

(d) All patent, trademark, service mark, copyright, patent and domain name
registrations or applications set forth on Section 2.11(b) of the Company
Disclosure Letter are in full force and effect and have not been abandoned,
dedicated, disclaimed or allowed to lapse for non-payment of fees or taxes or
for any other reason.
 
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(e) None of the Company IP owned by the Company or its Subsidiaries has been
declared or adjudicated invalid, null or void, unpatentable or unregistrable in
any judicial or administrative proceeding. To the Knowledge of the Company, none
of the Company IP used (but not owned) by the Company or its Subsidiaries has
been declared or adjudicated invalid, null or void, unpatentable or
unregistrable in any judicial or administrative proceeding.
 
(f) Neither the Company nor its Subsidiaries has received any written notices
of, or has Knowledge of, any infringement or misappropriation by or of, or
conflict with, any third party with respect to the Company IP or Intellectual
Property owned by any third party. Neither the Company nor its Subsidiaries has
infringed, misappropriated or otherwise violated or conflicted with any
Intellectual Property of any third party. The operation of the Company and its
Subsidiaries does not, as currently conducted and currently proposed to be
conducted, infringe, misappropriate or otherwise violate or conflict with the
Intellectual Property of any third party.

(g) The transactions contemplated by this Agreement will not affect the right,
title and interest of the Company or its Subsidiaries in and to the Company IP,
and each of the Company and its Subsidiaries has taken all necessary action to
maintain and protect the Company IP set forth on Section 2.11(b) of the Company
Disclosure Letter and, until the Effective Time, will continue to maintain and
protect such Company IP so as to not materially adversely affect the validity or
enforceability of such Company IP.

(h) To the Knowledge of the Company, no officer, employee or manager or the
Company or its Subsidiaries is obligated under any contract (including any
license, covenant or commitment of any nature) or other agreement, or subject to
any judgment, decree or order of any court or administrative agency, that would
conflict or interfere with the performance of such person’s duties as an
officer, employee or manager of the Company or its Subsidiaries, the use of such
person’s best efforts to promote the interests of the Company and its
Subsidiaries or the Company’s or its Subsidiary’s business as conducted or as
currently proposed to be conducted by the Company and its Subsidiaries. No prior
employer of any current or former employee of the Company or its Subsidiaries
has any right, title or interest in the Company IP and to the Knowledge of the
Company, no person or entity has any right, title or interest in any Company IP.
It is not and will not be with respect to the business as currently proposed to
be conducted necessary for the Company or its Subsidiaries to use any inventions
of any of its employees made prior to their employment by the Company or its
Subsidiaries.
 
Section 2.12 Material Agreements.

(a) Section 2.12 of the Company Disclosure Letter sets forth a true, correct and
complete list of the following agreements (whether written or oral and including
all amendments thereto) to which the Company or its Subsidiaries is a party or a
beneficiary or by which the Company or its Subsidiaries or any of their
respective assets are bound (collectively, the “Material Agreements”):
 
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(i) any real estate leases;

(ii) any other agreement for the provision of services by the Company or its
Subsidiaries that have accounted for revenues of more than $5,000.00 per annum
during any month since the Balance Sheet Date;

(iii) any agreement creating, evidencing, securing, assuming, guaranteeing or
otherwise relating to any debt for which the Company or its Subsidiaries is
liable or under which it has imposed (or may impose) a Lien on any of the
assets, tangible or intangible, of the Company or its Subsidiaries;

(iv) any capital or operating leases or conditional sales agreements relating to
personal property of the Company or its Subsidiaries;

(v) any supply or manufacturing agreements or arrangements pursuant to which the
Company or its Subsidiaries is entitled or obligated to acquire any assets from
a third party with a fair market value in excess of $5,000;

(vi) any insurance policies;

(vii) any employment, consulting, noncompetition, or separation agreements or
arrangements;

(viii) any agreement with or for the benefit of any Members, officer, manager or
employee of the Company, or any Affiliate of the Company, or any Person
controlled by such individual or family member thereof;

(ix) any license to which the Company or its Subsidiaries is a party;

(x) any agreement in which the Company or its Subsidiaries has granted rights to
license, sublicense or copy, “most favored nation” pricing provisions or
exclusive marketing or distribution rights relating to any products or territory
or has agreed to purchase a minimum quantity of goods or services or has agreed
to purchase goods or services exclusively from a certain party;

(xi) any written arrangement establishing a partnership or joint venture;

(xii) a list of all parties to any written arrangement concerning
confidentiality, non-disclosure or noncompetition;

(xiii) any written arrangement under which the consequences of a default or
termination could have a Material Adverse Effect on the Company; and

(xiv) any other agreement or arrangement pursuant to which the Company or its
Subsidiaries could be required to make or entitled to receive aggregate payments
in excess of $5,000.00 or entered into outside of the ordinary course of
business.
 
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For purposes of this Agreement, “Affiliate” means another Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, any Person.
 
(b) The Company has delivered to or made available to Buyer a true, correct and
complete copy of each Material Agreement and a written summary of each oral
Material Agreement. With respect to each Material Agreement:

(i) each Material Agreement is legal, valid, binding and enforceable and in full
force and effect with respect to the Company or its Subsidiaries and, to the
Knowledge of the Company, the written arrangement is legal, valid, binding and
is enforceable and in full force and effect with respect to each other party
thereto (in each case except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws affecting the enforcement of creditor’s rights generally, and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought);

(ii) each Material Agreement will continue to be legal, valid, binding and
enforceable and in full force and effect against the Company, and to the
Knowledge of the Company against each other party thereto, immediately following
the Closing in accordance with the terms thereof (in each case except as
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement of
creditor’s rights generally, and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought) as in effect prior to
the Closing; and

(iii) neither the Company nor its Subsidiaries is in breach or default, and, to
the Knowledge of the Company, no other party thereto is in breach or default,
and no event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration, under
the written arrangement.
 
Section 2.13 Insurance. 

(a) Section 2.13 of the Company Disclosure Letter sets forth a true, correct and
complete list of each insurance policy (including fire, theft, casualty, general
liability, director and officer, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and
surety arrangements) to which the Company is a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past year. Section
2.13 of the Company Disclosure Letter sets forth a true, correct and complete
list of each person or entity required to be listed as an additional insured
under each such policy. Each such policy is in full force and effect and by its
terms and with the payment of the requisite premiums thereon will continue to be
in full force and effect following the Closing.
 
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(b) The Company is not in breach or default, and does not anticipate being in
breach or default after Closing (including with respect to the payment of
premiums or the giving of notices) under any such policy, and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default or permit termination, modification or acceleration, under such
policy; and the Company has not received any written notice or, to the Knowledge
of the Company, oral notice, from the insurer disclaiming coverage or reserving
rights with respect to a particular claim or such policy in general. The Company
has not incurred any material loss, damage, expense or liability covered by any
such insurance policy for which it has not properly asserted a claim under such
policy.
 
Section 2.14 Litigation. 

(a) Except as set forth and described Section 2.14 of the Company Disclosure
Letter, there are no claims, actions, suits, proceedings or investigations of
any nature pending or, to the Knowledge of the Company, threatened against the
Company or any properties or rights of the Company, before any court,
administrative, governmental or regulatory authority or body. The Company is not
subject to any order, judgment, injunction or decree.

(b) There are no agreements or other documents or instruments settling any
material claim, complaint, action, suit or other proceeding against the Company.
 
Section 2.15 Employees.
 
(a) Set forth on Section 2.15(a) of the Company Disclosure Letter is a true,
correct and complete list of all current employees of Company and its
Subsidiaries, including date of employment, current title and compensation
(including commissions, bonus and other compensation), and date and amount of
last increase in compensation. None of the Company’s employees are members of a
labor union. The Company is not a party to 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 Company,
there is no organization effort currently being made by or on behalf of any
labor union with respect to employees of the Company or its Subsidiaries. The
Company has not experienced, and to the Knowledge of the Company, there is no
basis for, any strike, grievances, claims of unfair labor practices, material
labor trouble, work stoppage, slow down or other interference with or impairment
of the business of Company.

(b) To the Knowledge of the Company, no employee has any plans to terminate
employment with the Company within six months of the date hereof.

(c) The Company is in compliance in all material respects with all currently
applicable laws and regulations respecting wages, hours, occupational safety, or
health, fair employment practices, and discrimination in employment terms and
conditions, and is not engaged in any unfair labor practice. There are no
pending claims against the Company under any workers compensation plan or policy
or for long term disability. There are no proceedings pending or, to the
Knowledge of the Company, threatened, between the Company and its employees.
 
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(d) Section 2.15(d) of the Company Disclosure Letter sets forth a true, correct
and complete list of Persons whose employment has been terminated by the Company
in the 90 days prior to Closing.
 
Section 2.16 Employee Benefits. 

(a) Neither the Company, its Subsidiaries nor any predecessor in interest
thereof has maintained, or currently maintain, any Employee Benefit Plan. At no
time has the Company, its Subsidiaries or any ERISA Affiliate been obligated to
contribute to any “multi-employer plan” (as defined in Section 4001(a)(3) of
ERISA). Neither the Company its Subsidiaries nor any predecessor in interest
thereof has any liabilities or obligations with respect to any Employee Benefit
Plan.
 
(b) Section 2.16(b) of the Company Disclosure Letter discloses each:
(i) agreement with any manager, executive officer or other key employee of the
Company or its Subsidiaries, including (A) the benefits of which are contingent,
or the terms of which are altered, upon the occurrence of a transaction
involving the Company or its Subsidiaries of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such manager, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or its Subsidiaries that may be
subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the “Code”) or included in the determination of such person’s
“parachute payment” under Section 280G(b)(1) of the Code; and (iii) agreement or
plan binding the Company or its Subsidiaries, including any option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan, or any Employee Benefit Plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.

(c) For purposes of this Agreement:

(i) “Employee Benefit Plan” means any “employee pension benefit plan” (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended), any “employee welfare benefit plan” (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or arrangement involving
direct or indirect compensation, including insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, options, or other
forms of incentive compensation or post-retirement compensation; and
 
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(ii) “ERISA Affiliate” means any entity which is a member of (i) a controlled
group of corporations (as defined in Section 414(b) of the Code), (ii) a group
of trades or businesses under common control (as defined in Section 414(c) of
the Code), or (iii) an affiliated service group (as defined under Section 414(m)
of the Code or the regulations under Section 414(o) of the Code), any of which
includes the Company or its Subsidiaries.
 
Section 2.17 Permits. Section 2.17 of the Company Disclosure Letter sets forth a
true, correct and complete list of all material permits, licenses,
registrations, certificates, orders or approvals from any Governmental Entity
(including those issued or required under applicable export laws or regulations)
(“Permits”) issued to or held by the Company and its subsidiaries. Such listed
Permits are the only Permits that are required for the Company and its
subsidiaries to conduct their business as presently conducted. Each such Permit
is in full force and effect and to the Knowledge of the Company, no suspension
or cancellation of such Permit is threatened and there is no basis for believing
that such Permit will not be renewable upon expiration. Each such Permit will
continue in full force and effect following the Closing.
 
Section 2.18 Broker’s Fees. Neither the Company nor any of its subsidiaries has
any liability or obligation to pay any fees or commissions to any broker,
investment banking firm, finder or agent with respect to the transactions
contemplated by this Agreement other than to Jack Dowling pursuant to his
Consulting Agreement. 
 
Section 2.19 Books and Records. 

(a) The books, records and accounts of the Company (a) are in all material
respects true, complete and correct, (b) have been maintained in accordance with
good business practices on a basis consistent with prior years, (c) are stated
in reasonable detail and accurately and fairly reflect the transactions and
dispositions of the assets of the Company, and (d) accurately and fairly reflect
the basis for the Financial Statements.

(b) The Company has devised and maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (a) transactions are
executed in accordance with management’s general or specific authorization;
(b) transactions are recorded as necessary (i) to permit preparation of
financial statements in conformity with generally accepted accounting principles
or any other criteria applicable to such statements, and (ii) to maintain
accountability for assets, and (c) the amount recorded for assets on the books
and records of the Company is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
 
Section 2.20 Banking Relationships and Investments. Section 2.20 of the Company
Disclosure Letter sets forth sets forth a true, correct and complete list of all
banks and financial institutions in which the Company has an account, deposit,
safe-deposit box or borrowing relationship, factoring arrangement or other loan
facility or relationship, including the names of all persons authorized to draw
on those accounts or deposits, or to borrow under loan facilities, or to obtain
access to such boxes. Section 2.20 of the Company Disclosure Letter sets forth a
true, correct and complete list of all certificates of deposit, debt or equity
securities and other investments owned, beneficially or of record, by the
Company (the “Investments”). The Company has good and legal title to all
Investments.
 
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Section 2.21 Disclosure. No representation or warranty by the Company contained
in this Agreement, including any statement contained in the Company Disclosure
Letter or any document delivered in connection herewith, contains any untrue
statement of a material fact or omits to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein not misleading.
 
Section 2.22 Investment Representations of Members. Each Member hereby
represents and warrants only with respect to himself:

(a) The Series B Preferred, the Conversion Shares issuable upon conversion of
the Series B Preferred (collectively, the “Issuable Securities”) will be
acquired for investment for Member’s own account in accordance with the
percentage ownership set forth in Schedule 2.22, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and the
Member has no present intention of selling, granting any participation in, or
otherwise distributing the same. The Member does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation in any of the Securities to such person or to any third person.

(b) The Investor has had an opportunity to ask questions and receive answers
from Buyer regarding the terms and conditions of the offering and sale of the
Securities.

(c) The Member acknowledges that he has (i) such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the investment in the Securities, (ii) had such risks explained to him
and has determined that such investment is suitable for him in view of his
financial circumstances and available investment opportunities, (iii) sufficient
net worth and income to bear the economic risk of this investment, and (iv) no
need for liquidity of the investment and no reason to anticipate any change in
the his financial circumstances which may cause or require any sale, transfer or
other distribution of the Securities.

(d) The Member is an “accredited investor” within the meaning of the Securities
and Exchange Rule 501(a) of Regulation D, as presently in effect.

(e) The Member understands that the Securities it is acquiring are characterized
as “restricted securities” under the federal securities laws inasmuch as they
are being acquired from Buyer in a transaction not involving a public offering
and that, under such laws and applicable regulations, such securities may be
resold without registration under the Securities Act only in certain limited
circumstances. In this connection, the Member is familiar with Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. The Member understands that reliance by Buyer on such
exemptions is predicated in part on the Member’s representations contained in
this Agreement.
 
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(f) The Member understands and agree that the certificates evidencing the
Securities may bear a one or all of the following legends:

(i) A legend in substantially the following form:

(ii) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS COVERED BY
AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM
SUCH REGISTRATION.”

(iii) Any additional legend required by the laws of the State of California or
any other applicable state.

ARTICLE III
Representations and Warranties of Buyer and Buyer Sub

Except as set forth in the Buyer Disclosure Letter which is attached to and
incorporated into this Agreement for all purposes (the “Buyer Disclosure
Letter”), Buyer and Buyer Sub, jointly and severally, represent and warrant to
the Company and the Members as of the Closing Date as follows:
 
Section 3.1 Organization, Qualification and Corporation Power. Each of Buyer and
Buyer Sub as of the Effective Time (a) is a corporation duly organized, validly
existing and in good standing under the Laws of the jurisdiction in which it is
organized and has the requisite corporate power and authority and any necessary
governmental authority to own, operate or lease the properties that it purports
to own, operate or lease and to carry on its business as it is now being
conducted and proposed to be conducted, and (b) is duly qualified as a foreign
corporation to do business, and is in good standing, in each other jurisdiction
where the character of its properties owned, operated or leased or the nature of
its activities makes such qualification necessary, except in the case of
clause (b) for failures which, when taken together with all other such failures,
would not have a Material Adverse Effect on Buyer. Buyer Sub is a wholly owned
Subsidiary of Buyer.
 
Section 3.2 Authority Relative to this Agreement. Each of Buyer and Buyer Sub
has the necessary corporate power and authority to enter into this Agreement
and, subject to the filing of the Articles of Merger and the Certificate of
Merger, to carry out its obligations hereunder. The execution and delivery of
this Agreement by Buyer and Buyer Sub and the consummation by them of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer and Buyer Sub and, subject to the filing
of the filing of the Articles of Merger and the Certificate of Merger, no other
corporate proceeding is necessary for the execution and delivery of this
Agreement by Buyer and Buyer Sub, the performance by them of their respective
obligations hereunder and the consummation by them of the transactions
contemplated hereby. As of the Effective Time this Agreement has been duly
executed and delivered by Buyer and Buyer Sub and, assuming the due
authorization, execution and delivery of this Agreement by the Company and the
Members, constitutes a legal, valid and binding obligation of each of Buyer and
Buyer Sub, enforceable against each in accordance with its terms, except that
(a) the enforceability hereof may be subject to applicable bankruptcy,
insolvency or other similar Laws, now or hereinafter in effect, affecting
creditors’ rights generally, and (b) the general principles of equity
(regardless of whether enforceability is considered at a proceeding at Law or in
equity).
 
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Section 3.3 No Conflict; Required Filings and Consents.

(a) The execution and delivery of this Agreement by each of Buyer and Buyer Sub
do not, and the consummation by each of them of the transactions contemplated
hereby will not, (i) conflict with or violate any Law, court order, judgment or
decree applicable to Buyer or Buyer Sub or by which any of their respective
property is bound, (ii) violate or conflict with the Articles of Incorporation
or Bylaws (or comparable organizational documents) of either Buyer or Buyer Sub,
or (iii) result in any breach of, or constitute a default (or an event which
with notice or lapse of time of both would become a default) under, or give to
others any rights of termination or cancellation of, or result in the creation
of a Lien on any of the properties or assets of Buyer or any of its Subsidiaries
pursuant to, any contract, instrument, Permit or license to which Buyer or any
of its Subsidiaries is a party or by which Buyer or any of its Subsidiaries or
their respective property is bound, except in the case of clauses (i) and (iii)
for conflicts, violations, breaches or defaults which, individually or in the
aggregate, would not have or result in a Material Adverse Effect on Buyer.

(b) Except for the filing of the Articles of Merger and the Certificate of
Merger, and applicable requirements, if any, under “takeover” or “blue sky” Laws
of various states, neither Buyer nor Buyer Sub is required to submit any notice,
report or other filing with any Governmental Entity in connection with the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby the failure of which to submit would,
individually or in the aggregate, have or result in a Material Adverse Effect on
Buyer. No waiver, consent, approval or authorization of any Governmental Entity
or any third party is required to be obtained or made by Buyer or Buyer Sub in
connection with its execution, delivery or performance of this Agreement the
failure of which to obtain or make, individually or in the aggregate, would have
or result in a Material Adverse Effect on Buyer.
 
Section 3.4 Broker’s Fees. Neither Buyer nor Buyer Sub has any liability or
obligation to pay any fees or commissions to any broker, investment banking
firm, finder or agent with respect to the transactions contemplated by this
Agreement other than fees and commissions to Jesup & Lamont Securities
Corporation in connection with the Financing.

Section 3.5 Issuance of the Issuable Securities. The Issuable Securities are
duly authorized and, when issued and paid for in accordance with the terms
hereof and thereof, will be duly and validly issued, fully paid and
nonassessable, free and clear of all liens other than restrictions on transfer
provided for in this Agreement or the Escrow Agreement or imposed by applicable
securities laws and shall not be subject to preemptive or similar rights of
stockholders. Assuming the accuracy of the representations and warranties of the
Purchasers, the Issuable Securities will be issued in compliance with all
applicable federal and state securities laws. The issue and sale of the Issuable
Securities will not, immediately or with the passage of time, obligate the Buyer
to issue shares of its securities to any person other than the Purchasers and
will not result in a right of any holder of Buyer’s securities to adjust the
exercise, conversion, exchange or reset price under such securities.
 
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Section 3.6 Capitalization. The approximate aggregate number of shares and type
of all authorized, issued and outstanding classes of capital stock, options and
other securities of the Buyer (whether or not presently convertible into or
exercisable or exchangeable for shares of capital stock of the Buyer) is
specified in the SEC Reports (as defined below). Except as specified in the SEC
Reports, no securities of the Buyer are entitled to preemptive or similar
rights, and no person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated hereby; except as specified in the SEC Reports, the Buyer has not
issued any other options, warrants or scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or entered into any agreement
giving any person any right to subscribe for or acquire, any shares of Common
Stock or Series B Preferred Stock; except as specified in the SEC Reports, there
are no contracts, commitments, understandings, or arrangements by which the
Buyer is or may become bound to issue additional shares of the capital stock of
the Buyer or options, securities or rights convertible into shares of capital
stock of the Buyer; except for customary adjustments as a result of stock
dividends, stock splits, combination of shares, reorganizations,
recapitalizations, reclassifications or other similar events, there are no
anti-dilution or price adjustment provisions contained in any security issued by
Buyer (or in any agreement providing rights to security holders) and the
issuance and sale of the Shares will not obligate Buyer to issue securities to
any person (other than the Purchasers) and will not result in a right of any
holder of securities to adjust the exercise, conversion, exchange or reset price
under such securities; Buyer is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of Buyer.

Section 3.7 SEC Reports. The Common Stock of Buyer is registered pursuant to
Section 12(g) of the Exchange Act. Buyer has filed all reports required to be
filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the calendar year prior to the Closing Date (the foregoing
materials being collectively referred to herein as the “SEC Reports” and
together with this Agreement, the “Disclosure Materials”). As of their
respective dates, or to the extent corrected by a subsequent restatement, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

Section 3.8 Financial Statements. The financial statements of Buyer included in
the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing (or to he extent corrected by a
subsequent restatement). Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of Buyer and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, year-end audit
adjustments.
 
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Section 3.9 Tax Matters. Buyer (i) has accurately and timely prepared and filed
all foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all material taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith, with respect to which
adequate reserves have been set aside on the books of Buyer and (iii) has set
aside on its books provision reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of Buyer
know of no basis for such claim. Buyer has not waived or extended any statute of
limitations at the request of any taxing authority. There are no outstanding tax
sharing agreements or other such arrangements between Buyer and any other
corporation or entity and Buyer is not presently undergoing any audit by a
taxing authority.

Section 3.10 Environmental Matters. To Buyer’s knowledge, Buyer (i) is not in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), (ii) does not own or
operate any real property contaminated with any substance in violation of any
Environmental Laws, (iii) is not liable for any off-site disposal or
contamination pursuant to any Environmental Laws, and (iv) is not subject to any
claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or, to
Buyer’s knowledge, threatened investigation that might lead to such a claim.

Section 3.11 Litigation. There is no pending action which adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Shares.

Section 3.12 Employment Matters. To Buyer’s knowledge, Buyer is in compliance
with all federal, state, local and foreign laws and regulations respecting
labor, employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. Buyer is not a party to any collective
bargaining agreement.

Section 3.13 Compliance. Buyer, except in each case as, individually or in the
aggregate, has not and could not reasonably be expected to result in a Material
Adverse Effect (i)  is in violation of any order of any court, arbitrator or
governmental body having jurisdiction over Buyer or its properties or assets, or
(ii) to Buyer’s knowledge, is or has been in violation of any statute, rule or
regulation of any governmental authority applicable to Buyer.
 
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Section 3.14 Regulatory Permits. To Buyer’s knowledge, Buyer possesses all
certificates, authorizations and permits issued by the federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits, individually or in the aggregate, has not and could not reasonably be
expected to result in a Material Adverse Effect (“Material Permits”), and Buyer
has not received any notice of proceedings relating to the revocation or
modification of any such Material Permit.

Section 3.15 Title to Assets. Buyer has good and marketable title in all
personal property owned by it that is material to the business of Buyer, in each
case free and clear of all Liens, except for Liens that do not, individually or
in the aggregate, have or result in a Material Adverse Effect.

Section 3.16 Patents and Trademarks. To Buyer’s knowledge, Buyer owns,
possesses, licenses or has other rights to use all foreign and domestic patents,
patent applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets,
technology, Internet domain names, know-how and other intellectual property
(collectively, the “Intellectual Property”) necessary for the conduct of its
business as now conducted or as proposed to be conducted; except as set forth in
the SEC Reports and except where such violations or infringements would not
reasonably be expected to result in a Material Adverse Effect, and (a) to
Buyer’s knowledge, there are no rights of third parties to any such Intellectual
Property; (b) to Buyer’s knowledge, there is no infringement by third parties of
any such Intellectual Property; (c) there is no pending or, to Buyer’s
knowledge, threatened action, suit, proceeding or claim by others challenging
Buyer’s rights in or to any such Intellectual Property, and Buyer is unaware of
any facts which would form a reasonable basis for any such claim; (d) there is
no pending or, to Buyer’s knowledge, threatened action, suit, proceeding or
claim by others challenging the validity or scope of any such Intellectual
Property; and (e) there is no pending or, to Buyer’s knowledge, threatened
action, suit, proceeding or claim by others that Buyer infringes or otherwise
violates any patent, trademark, copyright, trade secret or other proprietary
rights of others, and Buyer is unaware of any other fact which would form a
reasonable basis for any such claim. All of the licenses and sublicenses and
consent, royalty or other agreements concerning Intellectual Property which are
necessary for the conduct of Buyer’s business as currently conducted to which
Buyer is a party or by which any of its material assets are bound (other than
generally commercially available, non-custom, off the shelf software application
programs having a retail acquisition price of less than $10,000 per license)
(collectively, “License Agreements”) are valid and binding obligations of Buyer
and, to Buyer’s knowledge, the other parties thereto, enforceable in accordance
with their respective terms, except to the extent that enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting the enforcement of
creditors’ rights generally, and there exists no event or condition which will
result in a material violation or breach of or constitute (with or without due
notice or lapse of time or both) a default by Buyer under such License
Agreement.
 
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Section 3.17 Insurance. Buyer is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses and location in which Buyer is engaged. To
Buyer’s knowledge, it will be able to renew existing insurance coverage for
Buyer as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

Section 3.18 Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports made on or prior to the date hereof, none of the officers or
directors of Buyer and, to Buyer’s knowledge, none of the employees of Buyer is
presently a party to any transaction with Buyer or to a presently contemplated
transaction (other than for services as employees, officers and directors) that
would be required to be disclosed pursuant to Item 404 of Regulation S-K
promulgated under the Securities Act.

Section 3.19 Sarbanes Oxley Act. Buyer is in compliance with applicable
requirements of the Sarbanes Oxley Act of 2002 and applicable rules and
regulations promulgated by the Commission thereunder, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.

Section 3.20 Private Placement. Assuming the accuracy of the Members’
representations and warranties set forth in Section 2, no registration under the
Securities Act is required for the offer and sale of the Issuable Securities by
Buyer to the Purchasers hereunder and thereunder. Buyer’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and Buyer has taken no
action designed to, or which to its knowledge is likely to have the effect of
terminating the registration of Buyer’s Common Stock under the Exchange Act, nor
has Buyer received any notification that the Commission is contemplating
terminating such registration.

Section 3.21 No Directed Selling Efforts or General Solicitation. Neither Buyer
nor any of its affiliates, nor any person acting on its or their behalf has
conducted any “general solicitation” or “general advertising” (as those terms
are used in Regulation D) in connection with the offer or sale of any of the
Shares.

Section 3.22 Investment Company. Buyer is not required to be registered as, and
is not an affiliate of, and immediately following the Closing will not be
required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

Section 3.23 Questionable Payments. Neither Buyer nor, to Buyer’s knowledge,
directors, officers, employees, agents or other persons acting on behalf of
Buyer has, in the course of its actions for, or on behalf of, Buyer: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to foreign or domestic political activity; (b) made
any direct or indirect unlawful payments to any foreign or domestic governmental
officials or employees from corporate funds; (c) violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as amended
or (d) made any other unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
 
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Section 3.24 Application of Takeover Protections. Except as described in the SEC
Reports, there is no control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under Buyer’s charter documents or the laws of the State
of Nevada that is or could reasonably be expected to become applicable to
Purchasers as a result of the parties fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
Buyer’s issuance of the Shares and the Purchaser’s ownership of the Shares.
 
Section 3.25 Disclosure. No representation or warranty by Buyer or Buyer Sub
contained in this Agreement, including any statement contained in the Buyer
Disclosure Letter or any document delivered in connection herewith, contains any
untrue statement of a material fact or omits to state any material fact
necessary, in light of the circumstances under which it was made, in order to
make the statements herein not misleading.

ARTICLE IV
Conditions of Merger
 
Section 4.1 Conditions to Obligations of Buyer and Buyer Sub to Effect the
Merger. The obligations of Buyer and Buyer Sub to effect the Merger will be
subject to the satisfaction or waiver of the following conditions prior to the
Effective Time: 

(a) Representations and Warranties. Those representations and warranties of the
Company and the Members set forth in this Agreement will be true and correct as
of the Closing Date (except to the extent such representations and warranties
expressly relate to a specific date in which case such representations and
warranties will be true and correct as of such date). Buyer shall receive a
certificate to such effect executed by the Company’s Manager.

(b) Agreements and Covenants. The Company and the Members shall have performed
in all material respects all obligations and complied in all material respects
with all of their respective agreements and covenants required to be performed
or complied with under this Agreement. The Buyer shall receive a certificate to
such effect executed by the Company’s Manager.

(c) Certificate of Secretary. Buyer will have received from the Company’s
Secretary or another authorized officer or manager of the Company, a certificate
(i) certifying the Company’s Articles of Organization, (ii) certifying the
Company’s Operating Agreement, (iii) certifying the bylaws of the Company, (iv)
certifying the resolutions of the board of managers of the Company, (v)
certifying the resolutions of the Members and (vi) attesting to the incumbency
of the officers of the Company.

(d) Required Consents. Any consent, authorization, order or approval of (or
filing or registration with) any third party identified by Buyer on Schedule
4.1(d) will have been obtained or made.

(e) Legal Opinion. Buyer will have received an opinion, dated the Closing Date,
of counsel to the Company, in substantially the form of Exhibit D attached
hereto.
 
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(f) Employment Agreements. The Members shall have entered into the Employment
Agreements attached hereto as Exhibits E-1, E-2, E-3, E-4 and E-5.
 
Section 4.2 Conditions to Obligations of the Company and the Members to Effect
the Merger. The obligations of the Company and the Members to effect the Merger
will be further subject to the satisfaction or waiver of the following
conditions prior to the Effective Time:

(a) Representations and Warranties. Those representations and warranties of
Buyer and Buyer Sub set forth in this Agreement will be true and correct as of
the Closing Date (except to the extent such representations and warranties
expressly relate to a specific date in which case such representations will be
true and correct as of such date). The Company shall receive a certificate to
such effect executed by the Buyer’s Chief Executive Officer.

(b) Agreements and Covenants. Buyer and Buyer Sub shall have performed in all
material respects all obligations and complied in all material respects with all
agreements and covenants of Buyer and Buyer Sub required to be performed or
complied with by them under this Agreement. The Company shall receive a
certificate to such effect executed by the Buyer’s Chief Executive Officer.

(c) Certificate of Secretary. The Company will have received from the corporate
secretary of each of Buyer and Buyer Sub a certificate (i) certifying Buyer’s
and Buyer Sub’s Articles of Incorporation and Articles of Incorporation,
respectively, (ii) certifying the bylaws of Buyer and Buyer Sub, (iii)
certifying the resolutions of the board of directors of Buyer and Buyer Sub, and
(iv) certifying the resolutions of the stockholder of Buyer Sub.

(d) Required Consents. Any consent, authorization, order or approval of (or
filing or registration with) any third party identified by the Company on
Schedule 4.2(d) will have been obtained or made.

ARTICLE V
Further Assurances and Covenants
 
Section 5.1 Non-Competition and Other Covenants. 

(a) Agreement Not to Compete. For a period of two (2) years after the Closing
Date none of the Members shall be engaged or interested in any business which
distributes energy efficient equipment. Each of the Members shall be deemed to
be interested in a business if he or she is engaged or interested in that
business as a member, stockholder, manager, director, officer, employee,
salesman, sales representative, agent, partner, individual proprietor,
consultant or otherwise, but not if such interest is limited solely to ownership
of 2% or less of the equity or debt securities of any class of a corporation
whose shares are listed for trading on a national securities exchange or traded
in the over the counter market.
 
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(b) Non-solicitation. For a period of five (5) years after the Closing Date,
none of the Members shall, directly or indirectly, (a) cause or attempt to cause
any customer, client, account or vendor, or prospective customer, client,
account or vendor to divert, terminate, limit or in any manner modify or fail to
enter into any actual or potential business relationship with the Surviving
Corporation, or (b) divert, solicit or employ, or attempt to divert, solicit or
employ, any employees of the Surviving Corporation except for those individuals
identified on Schedule 5.2(b). For purposes of this Section 5.2, a prospective
customer, client, account or vendor shall mean any customer, client, account or
vendor that any Member was involved with or had Knowledge of in his or her
position with the Company for the twelve month period prior to the Closing Date.

(c) Necessary and Reasonable. Each Member agrees that the covenants provided for
in Section 5.2 hereof are necessary and reasonable in order to protect the
Surviving Corporation in the conduct of its business, to protect the trade
secrets and other proprietary information of the Surviving Corporation and to
protect the Surviving Corporation in the utilization of the assets, tangible and
intangible, including the goodwill of the Surviving Corporation.
 
Section 5.2 Escrow of Series B Preferred Shares. The Series B Preferred Shares
shall be placed by Buyer with Seyfarth Shaw LLP to secure Seller’s
indemnification obligations under this Agreement and any damages arising from
litigation between Seller and Green Core Technology as set forth in the Company
Disclosure Letter. The escrow agreement shall be in the form attached hereto as
Exhibit F (the “Escrow Agreement”). The escrow shall be for a period of two
years from the date of this Agreement.
 
Section 5.3 Adjustment for Dilutive Issuances. If Buyer, at any time prior to
conversion of the Series B Preferred Shares, shall issue any shares of Common
Stock or securities of Buyer convertible into shares of Common Stock at a price
per share of Common Stock less than $0.50 per share, other than an Excluded
Issuance (as hereinafter defined), then, and in each such case, the Members
shall be entitled to participate on the same terms in such additional issuance
of securities.

The following shall be deemed “Excluded Issuances” for the purpose of this
Section 5.3:
 
Buyer’s granting of stock options, and/or issuance of Common Stock upon exercise
thereof, to directors, officers, employees or consultants of Buyer pursuant to
any benefit plan approved by the holders of a majority of the shares of Common
Stock;

The issuance or sale of shares of Common Stock issuable upon the exercise of
outstanding securities of the Buyer; and

The issuance of shares of Common Stock or securities convertible into or
exchangeable or exercisable for shares of Common Stock (and the shares of Common
Stock issuable upon the conversion, exercise or exchange thereof) in connection
with any future acquisition, merger or other business combination, purchase of
assets or of all or a portion of a business or other strategic relationship
entered, by the Company or any of its subsidiaries.
 
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Section 5.4 Spin-off of the Company. The Members of the Company may choose to
either convert their Series B Preferred Shares or to take the Company public
through a firm commitment underwritten initial public offering (“IPO”) under the
Securities Act. In the event that the bid price of Buyer’s shares of Common
Stock is less or unchanged from the date of this Agreement until the date of the
IPO, Buyer shall retain 50% of the Company’s common stock that is not
distributed to the public. In the event that the bid price of Buyer’s shares of
Common Stock increases 200% or more from the date of this Agreement until the
date of the IPO, Buyer shall retain 75% of the Company’s common stock that is
not distributed to the public. In the event that the bid price of Buyer’s shares
of Common Stock is greater than the bid price of the Buyer’s Common Stock on the
date of this Agreement but less than 200% more than the bid price of Buyer’s
Common Stock on the date of this Agreement, then Buyer shall receive an
additional 5% of the Company’s common stock that is not distributed to the
public for each 20% increase in Buyer’s Common Stock bid price.

ARTICLE VI
Survival and Indemnification
 
Section 6.1 Survival of Representations. All representations, warranties and
covenants of the parties contained in this Agreement will remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of the other parties to this Agreement, until the earlier of the termination of
this Agreement or two (2) years after the Closing Date (the “Survival Period”),
whereupon such representations, warranties and covenants will expire (except for
covenants that by their terms survive for a longer period). The parties’
post-closing remedies for a breach are not limited by the pre-closing discovery
of a breach.
 
Section 6.2 Indemnification of Buyer and Buyer Sub. Subject to the limitations
set forth in this ARTICLE VI, the Company and the Members agree to jointly and
severally indemnify and hold harmless Buyer, Buyer Sub and their respective
officers, directors, agents and employees, and each Person, if any, who controls
or may control Buyer within the meaning of the Securities Act (hereinafter
referred to individually as an “Indemnified Person” and collectively as
“Indemnified Persons”) from and against any and all third party claims, demands,
actions, causes of actions, losses, costs, damages, liabilities and expenses
including, without limitation, reasonable legal fees (hereinafter referred to as
“Damages”):

(a) Arising out of any misrepresentation or breach of or default in connection
with any of the representations, warranties and covenants given or made by the
Company or any Member in this Agreement or any certificate, document or
instrument delivered by or on behalf of the Company or any Member pursuant
hereto (other than with respect to changes in the truth or accuracy of the
representations and warranties of the Company or any Member under this Agreement
after the date hereof if the Company or such Member has advised Buyer and Buyer
Sub of such changes in an update to the Company’s Disclosure Letter delivered
prior to the Closing and Buyer and Buyer Sub have nonetheless proceeded with the
Closing); or

(b) Resulting from any failure of any Member to have good, valid and marketable
title to the issued and outstanding Membership Interests held by such Member,
free and clear of all liens, claims, pledges, options, adverse claims,
assessments or charges of any nature whatsoever, or to have full right, capacity
and authority to vote such Membership Interests in favor of the Merger and the
other transactions contemplated by the Agreement.
 
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Section 6.3 Indemnification of Members and Company. Subject to the limitations
set forth in this ARTICLE VI, the Buyer and Buyer Sub agree to jointly and
severally indemnify and hold harmless the Members and their respective heirs,
successors and assigns, and the Company and its officers, managers, agents and
employees, from and against any and all Damages: 

(a) Arising out of any misrepresentation or breach of or default in connection
with any of the representations, warranties and covenants given or made by the
Buyer or Buyer Sub in this Agreement or any certificate, document or instrument
delivered by or on behalf of the Buyer or Buyer Sub pursuant hereto (other than
with respect to changes in the truth or accuracy of the representations and
warranties of the Buyer or Buyer Sub under this Agreement after the date hereof
if the Buyer or Buyer Sub has advised the Members and Company of such changes in
an update to the Buyer Disclosure Letter delivered prior to the Closing and the
Members and Company have nonetheless proceeded with the Closing);

(b) Resulting from any breach of any covenant, agreement or obligation of Buyer
or Buyer Sub in this Agreement or any certificate, document or instrument
delivered by or on behalf of the Buyer and Buyer Sub hereto (except where the
breach has resulted from an act or omission of the Company or the Members before
the Closing); or
 
(c) In connection with any personal guarantees of the Members executed in the
ordinary course of business prior to Closing and identified on Schedule 1.2.
 
Section 6.4 Limitations on Indemnity Obligations.

(a) Notwithstanding anything to the contrary herein, in no event shall a party
or person having the indemnity obligation under this ARTICLE VI (“Indemnifying
Party”) have any liability for an indemnity obligation under this ARTICLE VI
unless and until the Damages relating to the party’s indemnity claims exceed
$10,000 in the aggregate. From and after the time the aggregate Damages for an
Indemnified Party’s indemnity claims exceed $10,000, the limitation set forth in
this Section 6.4 shall be of no further force and effect and the Indemnifying
Party shall be liable for the entire amount of the Damages, subject to the
liability limitations set forth below;

(b) No Indemnified Person shall be entitled to seek indemnification from any
Indemnifying Party pursuant to this ARTICLE VI with respect to any claim or
demand unless the Indemnified Party notifies such Indemnifying Party of such
claim or demand in writing within two years after the Closing Date; and

(c) Notwithstanding anything to the contrary herein, in no event will the
Member’s indemnity obligations under this ARTICLE VI exceed the aggregate amount
of $500,000, (the amount of the value of the Merger Consideration as of the
Closing Date). In no event will the Buyer’s indemnity obligation under this
ARTICLE VI exceed the aggregate amount of $500,000.
 
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Section 6.5 Escrow. Upon notice to the Members specifying in reasonable detail
the basis therefor, Buyer may give notice of a claim in such amount under the
Escrow Agreement. Neither the exercise of nor the failure to give a notice of a
claim under the Escrow Agreement will constitute an election of remedies or
limit Buyer in any manner in the enforcement of any other remedies that may be
available to it.

ARTICLE VII
Covenants of The Company Prior to Closing
 
Section 7.1 Access and Investigation. Between the date of this Agreement and the
Closing, and upon reasonable advance notice received from Buyer, the Company
shall (and the Members shall cause the Company to):

(a) afford Buyer and its representatives and prospective lenders and their
representatives (collectively, “Buyer Group”) full and free access, during
regular business hours, to the Company’s personnel, properties (including
subsurface testing), contracts, Permits, books and records and other documents
and data, such rights of access to be exercised in a manner that does not
unreasonably interfere with the operations of the Company; (b) furnish Buyer
Group with copies of all such contracts, Permits, books and records and other
existing documents and data as Buyer may reasonably request; (c) furnish Buyer
Group with such additional financial, operating and other relevant data and
information as Buyer may reasonably request; and

(b) otherwise cooperate and assist, to the extent reasonably requested by Buyer,
with Buyer’s investigation of the properties, assets and financial condition
related to the Company.
 
Section 7.2 Operation of the Business of Seller. Between the date of this
Agreement and the Closing, the Company shall (and the Members shall cause the
Company to):

(a) conduct its business only in the ordinary course of business, consistent
with past practice;

(b) except as otherwise directed by Buyer in writing, and without making any
commitment on Buyer’s behalf, use its best efforts to preserve intact its
current business organization, keep available the services of its officers,
employees and agents and maintain its relations and good will with suppliers,
customers, landlords, creditors, employees, agents and others having business
relationships with it;

(c) confer with Buyer prior to implementing operational decisions of a material
nature;

(d) otherwise report periodically to Buyer concerning the status of its
business, operations and finances;
 
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(e) make no material changes in management personnel without prior consultation
with Buyer;

(f) maintain its assets in a state of repair and condition that complies with
Laws and is consistent with the requirements and normal conduct of the Company’s
business;

(g) keep in full force and effect, without amendment, all material rights
relating to the Company’s business;

(h) comply with all Laws and contractual obligations applicable to the
operations of the Company’s business;

(i) continue in full force and effect the insurance coverage under the policies
set forth in Schedule 2.13 or substantially equivalent policies;

(j) except as required to comply with ERISA or to maintain qualification under
Section 401(a) of the Code, not amend, modify or terminate any Employee Benefit
Plan without the express written consent of Buyer, and except as required under
the provisions of any Employee Benefit Plan, not make any contributions to or
with respect to any Employee Benefit Plan without the express written consent of
Buyer, provided that the Company shall contribute that amount of cash to each
Employee Benefit Plan necessary to fully fund all of the benefit liabilities of
such Employee Benefit Plan on a plan-termination basis as of the Closing;

(k) upon request from time to time, execute and deliver all documents, make all
truthful oaths and do all other acts that may be reasonably necessary or
desirable in the opinion of Buyer to consummate the transactions contemplated by
this Agreement, all without further consideration; and

(l) maintain all books and records of the Company relating to the Company’s
business in the ordinary course of business, consistent with past practice.
 
Section 7.3 Negative Covenant. Except as otherwise expressly permitted herein,
between the date of this Agreement and the Closing Date, the Company shall not,
and the Members shall not permit the Company to, without the prior written
consent of Buyer:

(a) take any affirmative action, or fail to take any reasonable action within
its control, the result of which would be likely constitute a Material Adverse
Effect on the Company;

(b) make any modification to any material contract or Permit; or

(c) enter into any compromise or settlement of any litigation, proceeding or
governmental investigation relating to the business of the Company or its
assets, liabilities or properties.
 
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Section 7.4 Notification. Between the date of this Agreement and the Closing,
the Company and the Members shall promptly notify Buyer in writing if any of
them becomes aware of (a) any fact or condition that causes or constitutes a
breach of any of the Company’s or such Member’s representations and warranties
made as of the date of this Agreement or (b) the occurrence after the date of
this Agreement of any fact or condition that would or be reasonably likely to
(except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had that representation or
warranty been made as of the time of the occurrence of, or the Company’s or such
Member’s discovery of, such fact or condition. Should any such fact or condition
require any change to the Company Disclosure Letter, the Company and the Members
shall promptly deliver to Buyer a supplement to the Company Disclosure Letter
specifying such change. Such delivery shall not affect any rights of Buyer under
this Agreement. During the same period, the Company and the Members also shall
promptly notify Buyer of the occurrence of any breach of any covenant of the
Company or such Member or of the occurrence of any event that may make the
satisfaction of the conditions to Closing impossible or unlikely.
 
Section 7.5 No Negotiation. Until such time as this Agreement shall be
terminated pursuant to the terms hereof, neither the Company nor any Member
shall directly or indirectly solicit, initiate, encourage or entertain any
inquiries or proposals from, discuss or negotiate with, provide any nonpublic
information to or consider the merits of any inquiries or proposals from any
Person (other than Buyer) relating to any business combination transaction
involving the Company, including the sale by Members of the Membership
Interests, the merger or consolidation of the Company or the sale of the
Company’s business or any of the the Company’s assets (other than in the
ordinary course of business). The Company and the Members shall notify Buyer of
any such inquiry or proposal within twenty-four (24) hours of receipt or
awareness of the same.
 
Section 7.6 Best Efforts. The Company and the Members shall use their best
efforts to cause the conditions in Section 4.1 to be satisfied.
 
Section 7.7 Payment of Liabilities. The Company shall pay or otherwise satisfy
in the ordinary course of business, consistent with past practice, all of its
liabilities and obligations.

ARTICLE VIII
General and Miscellaneous Provisions
 
Section 8.1 Notices. All notices and other communications given or made pursuant
hereto will be in writing and will be deemed to have been duly given or made
(a) as of the date delivered, if delivered personally or by overnight courier,
(b) on the third Business Day after deposit in the U.S. mail, if mailed by
registered or certified mail (postage prepaid, return receipt requested), or (c)
when successfully transmitted by facsimile (with a confirming copy of such
communication to be sent as provided in clauses (a) or (b) above), and, in each
case to the parties at the following addresses or facsimile number (or at such
other address for a party as will be specified by like notice, except that
notices of changes of address will be effective upon receipt):
 
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(a)
If to Buyer or Buyer Sub:

Neah Power Systems, Inc.
222118 20th Avenue
Suite 142
Bothell, Washington 98021
Attention: Gerard C. D’Couto, President and CEO
Facsimile: (425) 483-8454

With a copy (which will not constitute notice) to:

Seyfarth Shaw LLP
815 Connecticut Ave., N.W., Suite 500
Washington, D.C. 20006
Attention: Ernest M. Stern, Esq.
Facsimile: (202) 641-9260

(b)
If to the Company or to the Members (prior to the Closing Date):

SolCool One, LLC
525 Amigos Drive
Suite “5”
Redlands, California 92373
Attention: Mark Walsh, Managing Member
Facsimile: (909) 747-0311

With a copy (which will not constitute notice) to:

Anker, Reed, Hymes, Schreiber & Cohen
1901 Avenue of the Stars, 11th Floor
Los Angeles, CA 90067
Attention: Martin S. Reed, Esq.
Facsimile: (310) 286-7120

For purposes of this Agreement, a “Business Day” shall mean any day that is not
a Saturday, a Sunday or other day on which banking organizations in Washington,
D.C. are authorized or required by law to close.
 
Section 8.2 Expenses. All fees, costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby will be paid by the
party incurring such fees, costs and expenses.
 
Section 8.3 Amendment. This Agreement may not be amended except by an instrument
in writing signed by the parties hereto.
 
Section 8.4 Entire Agreement. This Agreement and the schedules and exhibits
attached hereto, constitute the entire agreement and supersede any and all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof. 
 
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Section 8.5 Public Announcements. Buyer and the Company will consult with each
other before holding any press conferences, analyst calls or other meetings or
discussions and before issuing any press release or other public announcements
with respect to the transactions contemplated by this Agreement, including the
Merger. The parties will provide each other the opportunity to review and
comment upon any press release or other public announcement or statement with
respect to the transactions contemplated by this Agreement, including the
Merger, and will not issue any such press release or other public announcement
or statement prior to such consultation, except as may be required by applicable
Law, court process or by obligations pursuant to any listing agreement with any
national securities exchange. The parties agree that the initial press release
or releases to be issued with respect to the transactions contemplated by this
Agreement will be mutually agreed upon prior to the issuance thereof. In
addition, the Company will, and will cause its Subsidiaries to consult with
Buyer regarding communications with customers, members and employees relating to
the transactions contemplated by this Agreement.
 
Section 8.6 No Third-Party Beneficiaries. Except for the parties hereto, this
Agreement is not intended to confer upon any other Person any rights or remedies
hereunder.
 
Section 8.7 Assignment. This Agreement will not be assigned by operation of Law
or otherwise, except that Buyer and Buyer Sub may assign all or any of their
rights hereunder to any Affiliate of Buyer; provided, however, that no such
assignment will relieve the assigning party of its obligations hereunder. This
Agreement will be binding upon, and will be enforceable by and inure to the
benefit of the parties hereto and their respective successors and assigns.
 
Section 8.8 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law, or public
policy, all other conditions and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto will negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the maximum extent possible.
 
Section 8.9 Governing Law. This Agreement will be governed by, and construed in
accordance with, the Laws of the State of Washington applicable to contracts
executed in and to be performed entirely within that State. 
 
Section 8.10 Consent to Jurisdiction. Any dispute arising under this Agreement
shall be submitted to arbitration administered by JAMS pursuant to its
Comprehensive Arbitration Rules and Procedures before a single arbitrator in
Bothell, Washington in the event that both Buyer and the Company agree to submit
such dispute to binding arbitration. Judgment on the Award may be entered in any
court having jurisdiction. Submission of a dispute under this Agreement shall
not preclude Buyer and the Company from seeking provisional remedies in aid of
arbitration from a court of appropriate jurisdiction. In the event that the
parties do not agree to submit such dispute to arbitration, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any federal
court located in the State of Washington or any Washington state court in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement; (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court; and (c) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any court
other than a federal court sitting in the State of Washington or a Washington
state court.
 
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Section 8.11 Headings; Interpretation. The headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they will be understood to be followed
by the words “without limitation.” 
 
Section 8.12 Construction. In the event of an ambiguity or question of intent or
interpretation arises, this Agreement will be construed as if drafted jointly by
the parties and no presumption or burden of proof will arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
 
Section 8.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which will
constitute one and the same agreement.
 
Section 8.14 Confidentiality. The Company, Buyer and Buyer Sub each recognize
that they have received and will receive confidential information concerning the
other during the course of the Merger negotiations and preparations.
Accordingly, the Company, Buyer and Buyer Sub each agree (a) to use its
respective best efforts to prevent the unauthorized disclosure of any
confidential information concerning the other that was or is disclosed during
the course of such negotiations and preparations, and is clearly designated in
writing as confidential at the time of disclosure, and (b) to not make use of or
permit to be used any such confidential information other than for the purpose
of effectuating the Merger and related transactions. The obligations of this
section will not apply to information that (i) is or becomes part of the public
domain, (ii) is disclosed by the disclosing party to third parties without
restrictions on disclosure, (iii) is received by the receiving party from a
third party without breach of a nondisclosure obligation to the other party or
(iv) is required to be disclosed by law.
 
Section 8.15 Termination. This Agreement may be terminated either (i) by the
Company in the event that Buyer fails to meet the funding obligation in Section
1.8 or (ii) by Buyer or the Company upon written notice to the other, if the
Closing has not been consummated on or prior to 5:00 p.m. (Pacific time) on
November 26th, 2008; provided, however, that the right to terminate this
Agreement under this Section 8.15 shall not be available to any party whose
failure to comply with its obligations under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or before such time.
Nothing in this Section 8.15 shall be deemed to release any party from any
liability for any breach by such party of the terms and provisions of this
Agreement or the other Transaction Documents or to impair the right of any party
to compel specific performance by any other party of its obligations under this
Agreement or the other Transaction Documents.

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IN WITNESS WHEREOF, Buyer, Buyer Sub, the Company and the Members have executed
this Agreement as of the date first written above.
 

 
NEAH POWER SYSTEMS, INC.
           
By:
/s/ Gerard C. D’Couto
   
Name:
Gerard C. D’Couto
   
Title:
President
                   
NEAH POWER ACQUISITION CORP.
           
By:
/s/ Gerard C. D’Couto
   
Name:
Gerard C. D’Couto
   
Title:
President
           
SOLCOOL ONE, LLC
           
By:
/s/ Mark Walsh
   
Name:
Mark Walsh
   
Title:
Managing Member
           
MEMBER:
           
/s/ Mark Walsh
   
Mark Walsh
                         

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EXHIBIT A

Buyer Sub Articles of Incorporation

A-1

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EXHIBIT B

Buyer Sub Bylaws

B-1

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EXHIBIT C

Form of Acquisition Warrant

C-1

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EXHIBIT D

Legal Opinion
 
 
D-1

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EXHIBIT E-1 through E-5

Employment Agreements
 
 
E-1

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EXHIBIT F

Form of Escrow Agreement
 
 
F-1

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