Exhibit 10.37

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

EPICOR SOFTWARE CORPORATION

STELLAR ACQUISITION CORPORATION

SPECTRUM HUMAN RESOURCE SYSTEMS CORPORATION

ESTATE OF JAMES E. SPOOR, NANCY E. SPOOR AND SYBLL K. ROMLEY

AND WITH RESPECT TO SECTION 6.8(g)(iv) and ARTICLES VIII, IX AND X ONLY

SYBLL K. ROMLEY

AS SHAREHOLDER REPRESENTATIVE

AND

U.S. BANK NATIONAL ASSOCIATION

AS ESCROW AGENT

Dated as of December 13, 2010

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TABLE OF CONTENTS

 

         Page  

ARTICLE I THE MERGER

     2   

1.1

 

The Merger

     2   

1.2

 

Effective Time

     2   

1.3

 

Effect of the Merger

     2   

1.4

 

Articles of Incorporation and Bylaws

     2   

1.5

 

Directors and Officers

     3   

1.6

 

Effect of Merger on the Capital Stock of the Constituent Corporations

     3   

1.7

 

Dissenting Shares

     10   

1.8

 

Closing Working Capital Adjustment

     10   

1.9

 

Surrender of Certificates

     13   

1.10

 

No Further Ownership Rights in Company Capital Stock

     15   

1.11

 

Lost, Stolen or Destroyed Certificates

     15   

1.12

 

Withholding Taxes

     15   

1.13

 

Taking of Necessary Action; Further Action

     16   

ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS

     16   

2.1

 

Organization of the Company

     16   

2.2

 

Company Capital Structure

     17   

2.3

 

Subsidiaries

     18   

2.4

 

Authority

     18   

2.5

 

No Conflict

     19   

2.6

 

Consents

     19   

2.7

 

Company Financial Statements

     20   

2.8

 

Internal Controls

     20   

2.9

 

No Undisclosed Liabilities; No Material Adverse Effect; Ordinary Course

     20   

2.10

 

Tax Matters

     21   

2.11

 

Restrictions on Business Activities

     24   

2.12

 

Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment;
Customer Information

     24   

2.13

 

Intellectual Property

     26   

2.14

 

Agreements, Contracts and Commitments

     32   

2.15

 

Interested Party Transactions

     34   

 

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TABLE OF CONTENTS

(Continued)

 

         Page  

2.16

 

Company Authorizations

     34   

2.17

 

Litigation

     35   

2.18

 

Environmental Matters.

     35   

2.19

 

Accounts Receivable

     36   

2.20

 

Books and Records

     36   

2.21

 

Brokers’ and Finders’ Fees; Third Party Expenses

     36   

2.22

 

Employee Benefit Plans and Compensation

     37   

2.23

 

Insurance

     42   

2.24

 

Compliance with Laws

     42   

2.25

 

Export Control Laws

     43   

2.26

 

Foreign Corrupt Practices Act

     43   

2.27

 

Warranties; Indemnities

     43   

2.28

 

Complete Copies of Materials

     43   

2.29

 

Representations Complete

     43   

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS

     43   

3.1

 

Ownership of Company Capital Stock

     44   

3.2

 

Absence of Claims by the Principal Shareholders

     44   

3.3

 

Authority

     44   

3.4

 

No Conflict

     44   

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

     45   

4.1

 

Organization, Standing and Power

     45   

4.2

 

Authority

     45   

4.3

 

Consents

     45   

4.4

 

Capital Resources

     46   

4.5

 

Brokers’ and Finders’ Fees

     46   

ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME

     46   

5.1

 

Conduct of Business of the Company

     46   

5.2

 

No Solicitation

     49   

5.3

 

No Transfer

     50   

5.4

 

Procedures for Requesting Parent Consent

     50   

 

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TABLE OF CONTENTS

(Continued)

 

         Page  

ARTICLE VI ADDITIONAL AGREEMENTS

     51   

6.1

 

Shareholder Approval

     51   

6.2

 

Access to Information

     51   

6.3

 

Confidentiality

     52   

6.4

 

Expenses

     52   

6.5

 

Public Disclosure

     52   

6.6

 

Consents

     53   

6.7

 

FIRPTA Compliance

     53   

6.8

 

Tax Matters

     53   

6.9

 

Reasonable Efforts

     57   

6.10

 

Notification of Certain Matters

     57   

6.11

 

Additional Documents and Further Assurances

     58   

6.12

 

New Employment Arrangements

     58   

6.13

 

Employee Severance

     58   

6.14

 

Terminating Employees

     59   

6.15

 

Resignation of Officers and Directors

     59   

6.16

 

Proprietary Information and Inventions Assignment Agreement

     59   

6.17

 

Release of Liens

     59   

6.18

 

Payoff Letters

     59   

6.19

 

Spreadsheet

     59   

6.20

 

Non-Competition Agreements

     60   

6.21

 

Termination of Agreements

     60   

6.23

 

D&O Insurance

     61   

6.24

 

Nancy Spoor Insurance Policy

     61   

ARTICLE VII CONDITIONS TO THE MERGER

     61   

7.1

 

Conditions to Obligations of Each Party to Effect the Merger

     61   

7.2

 

Conditions to the Obligations of Parent and Sub

     61   

7.3

 

Conditions to Obligations of the Company and the Principal Shareholders

     64   

ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW

     65   

8.1

 

Survival of Representations, Warranties and Covenants

     65   

8.2

 

Indemnification

     65   

 

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TABLE OF CONTENTS

(Continued)

 

         Page  

8.3

 

Maximum Payments; Remedy

     67   

8.4

 

Claims for Indemnification; Resolution of Conflicts

     69   

8.5

 

Escrow Arrangements

     71   

8.6

 

Third Party Claims

     76   

8.7

 

Shareholder Representative

     77   

8.8

 

Tax Treatment

     80   

ARTICLE IX TERMINATION, AMENDMENT AND WAIVER

     80   

9.1

 

Termination

     80   

9.2

 

Effect of Termination

     80   

9.3

 

Amendment

     81   

9.4

 

Extension; Waiver

     81   

ARTICLE X GENERAL PROVISIONS

     81   

10.1

 

Notices

     81   

10.2

 

Interpretation

     83   

10.3

 

Counterparts

     83   

10.4

 

Entire Agreement; Assignment

     83   

10.5

 

Severability

     83   

10.6

 

Other Remedies

     83   

10.7

 

Governing Law

     83   

10.8

 

Rules of Construction

     84   

10.9

 

Resolution of Conflicts; Arbitration

     84   

 

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INDEX OF EXHIBITS

 

Exhibit

 

Description

Exhibit A-1

  Signatories to Voting Agreement and Irrevocable Proxy

Exhibit A-2

  Form of Voting Agreement and Irrevocable Proxy

Exhibit B-1

  Signatories to Non-Competition Agreements

Exhibit B-2

  Form of Non-Competition Agreement

Exhibit C

  Form of Statement of Merger

Exhibit D

  Form of Letter of Transmittal

Exhibit E

  Form of Legal Opinion of Counsel of the Company

Exhibit F

  Form of Statement of Target Working Capital

Exhibit G

  Escrow Agent Fee Schedule

 

Disclosure Schedule

          

Section 1

  -      Key Employees

Section 1.6(a)(xl)

  -      Terminating Employees

Section 2.1(b)

  -      Directors and Officers

Section 2.1(c)

  -      Business as a Foreign Corporation

Section 2.2(b)

  -      Company Capital Stock

Section 2.2(c)

  -      Compensation Plan and Company Options

Section 2.2(d)

  -      Company Capital Stock Commitments

Section 2.2(e)

  -      Voting Stock and Company Capital Stock Agreements

Section 2.3

  -      Subsidiaries

Section 2.6

  -      Consents

Section 2.7

  -      Company Financial Statements

Section 2.9

  -      No Undisclosed Liabilities; Ordinary Course

Section 2.10(b)

  -      Tax Matters

Section 2.11

  -      Restrictions on Business Activities

Section 2.12(a)

  -      Leased Real Property

Section 2.12(e)

  -      Equipment

Section 2.13(b)

  -      Company Products

Section 2.13(c)

  -      Technology

Section 2.13(d)

  -      Registered Intellectual Property

Section 2.13(f)

  -      Title to Company Intellectual Property

Section 2.13(g)

  -      Third Party Intellectual Property Rights

Section 2.13(h)(1)

  -      Standard Form IP Agreements

Section 2.13(h)(2)

  -      Company Intellectual Property and/or Technology Agreements

Section 2.13(h)(3)

  -      Infringement Indemnification

Section 2.13(j)

  -      Third Party Rights

Section 2.13(m)

  -      Employee Proprietary Information Agreement

Section 2.13(o)

  -      Open Source Software

Section 2.13(p)

  -      Source Code

Section 2.13(q)

  -      Privacy Policies

Section 2.13(r)

  -      Bugs

Section 2.13(s)

  -      Contaminants

 

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Section 2.14(a)

  -      Agreements, Contracts and Commitments

Section 2.14(c)

  -      Third Party Breach of Material Contract

Section 2.14(e)

  -      Indebtedness Prepayment Penalties

Section 2.15

  -      Interested Party Transactions

Section 2.16

  -      Company Authorizations

Section 2.17

  -      Litigation

Section 2.18(c)

  -      Environmental Matters

Section 2.20

  -      Books and Records

Section 2.21

  -      Brokers’ and Finders’ Fees and Third Party Expenses

Section 2.22(b)

  -      Company Employee Plan and Employee Agreements

Section 2.22(f)

  -      Self-Insured Plans

Section 2.22(h)

  -      Post-Employment Obligations

Section 2.22(j)

  -      Effect of Transaction

Section 2.22(k)

  -      Employee Termination Liability

Section 2.22(o)

  -      Employee Matters

Section 2.22(p)

  -      Independent Contractors

Section 2.23

  -      Insurance

Section 5.1

  -      Conduct of Business of the Company

Section 6.13

  -      Employee Severance

Section 7.2(f)

  -      Terminated Agreements

Section 7.2(g)

  -      Release of Liens

Section 7.2(t)

  -      Payoff Letters

Section 8.2(a)(vii)

  -      Indemnification Matters

Section 10.1

  -      Principal Shareholders’ Addresses

 

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THIS AGREEMENT AND PLAN OF MERGER (the “Agreement”) is made and entered into as
of December 13, 2010 by and among Epicor Software Corporation, a Delaware
corporation (“Parent”), Stellar Acquisition Corporation, a Colorado corporation
and a wholly-owned subsidiary of Parent (“Sub”), SPECTRUM Human Resource Systems
Corporation, a Colorado corporation (the “Company”), Estate of James E. Spoor,
Nancy E. Spoor and Sybll K. Romley (each, a “Principal Shareholder,” and
collectively the “Principal Shareholders”), with respect to Section 6.8(g)(iv),
Article VIII, Article IX and Article X hereof only, Sybll K. Romley as
shareholder representative (the “Shareholder Representative”), and U.S. Bank
National Association as escrow agent (the “Escrow Agent”).

RECITALS

A. The Boards of Directors of each of Parent, Sub and the Company believe it is
in the best interests of each corporation and its respective shareholders that
Parent acquire the Company through the merger of Sub with and into the Company
(the “Merger”) and, in furtherance thereof, have approved the Merger.

B. Pursuant to the Merger, among other things, and subject to the terms and
conditions of this Agreement all of the issued and outstanding capital stock and
options to purchase common stock of the Company shall be converted into the
right to receive the consideration set forth herein.

C. A portion of the consideration otherwise payable by Parent in connection with
the Merger shall be placed in escrow by Parent as security for the
indemnification obligations set forth in this Agreement.

D. The Company and the Principal Shareholders, on the one hand, and Parent and
Sub, on the other hand, desire to make certain representations, warranties,
covenants and other agreements in connection with the Merger.

E. As an inducement to the willingness of Parent and Sub to enter into this
Agreement, concurrently with the execution of this Agreement, each of the
Persons set forth on Exhibit A-1 hereto is entering into a voting agreement, in
the form attached hereto as Exhibit A-1 dated as of the date hereof, with
respect to their approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby.

F. Concurrently with the execution and delivery of this Agreement, and as a
condition and inducement to Parent to enter into this Agreement, (i) each of the
Persons listed on Exhibit B-1 has entered into and delivered to Parent a non
competition and non-solicitation agreement in the form attached hereto as
Exhibit B-2, to be effective as of the Closing Date (collectively, the “Non
Competition Agreements”) and (ii) each of the Persons listed on Section 1 of the
Disclosure Schedule (collectively, the “Key Employees”) has entered into “at
will” employment arrangements with Parent or a subsidiary thereof to be
effective as of the Closing Date pursuant to his or her execution and delivery
of an employment agreement in a form reasonably acceptable to the parties

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thereto and a proprietary information and inventions assignment agreement on
Parent’s standard form (collectively, the “Key Employee Employment Agreements”).

NOW, THEREFORE, in consideration of the mutual agreements, covenants and other
premises set forth herein, the mutual benefits to be gained by the performance
thereof, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereby
agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Colorado Business Corporation Act (“Colorado Law”),
Sub shall be merged with and into Company, the separate corporate existence of
Sub shall cease, and the Company shall continue as the surviving company and as
a wholly-owned subsidiary of Parent. The surviving corporation after the Merger
is sometimes referred to hereinafter as the “Surviving Corporation.”

1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 9.1 hereof, the closing of the Merger (the “Closing”) will take place as
promptly as practicable after the execution and delivery hereof by the parties
hereto, and following satisfaction or waiver of the conditions set forth in
Article VII hereof, at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California, unless
another time or place is mutually agreed upon in writing by Parent and the
Company. The date upon which the Closing actually occurs shall be referred to
herein as the “Closing Date.” On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing a Statement of Merger in
substantially the form attached hereto as Exhibit C, with the Secretary of State
of the State of Colorado (the “Statement of Merger”), in accordance with the
applicable provisions of Colorado Law (the time of acceptance by the Secretary
of State of the State of Colorado of such filing shall be referred to herein as
the “Effective Time”).

1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided in the applicable provisions of Colorado Law. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time,
except as otherwise agreed to pursuant to the terms of this Agreement, all of
the property, rights, privileges, powers and franchises of the Company and Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and Sub shall become the debts, liabilities and duties of the
Surviving Corporation.

1.4 Articles of Incorporation and Bylaws.

(a) Unless otherwise determined by Parent prior to the Effective Time, the
articles of incorporation of the Surviving Corporation shall be amended and
restated as of the Effective Time to be identical to the articles of
incorporation of Sub as in effect immediately prior to the Effective Time, until
thereafter amended in accordance with Colorado Law and as provided in such
articles of

 

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incorporation; provided, however, that at the Effective Time, Article First of
the articles of incorporation of the Surviving Corporation shall be amended and
restated in their entirety to read as follows: “The name of the corporation is
SPECTRUM Human Resource Systems Corporation.”

(b) Unless otherwise determined by Parent prior to the Effective Time, the
bylaws of the Surviving Corporation shall be amended and restated as of the
Effective Time to be identical to the bylaws of Sub, as in effect immediately
prior to the Effective Time, until thereafter amended in accordance with
Colorado Law and as provided in the articles of incorporation of the Surviving
Corporation and such bylaws.

1.5 Directors and Officers.

(a) Directors of Surviving Corporation. Unless otherwise determined by Parent
prior to the Effective Time, the directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation immediately
after the Effective Time, each to hold the office of a director of the Surviving
Corporation in accordance with the provisions of Colorado Law and the articles
of incorporation and bylaws of the Surviving Corporation until their successors
are duly elected and qualified.

(b) Officers of Surviving Corporation. Unless otherwise determined by Parent
prior to the Effective Time, the officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation immediately
after the Effective Time, each to hold office in accordance with the provisions
of the articles of incorporation and bylaws of the Surviving Corporation.

1.6 Effect of Merger on the Capital Stock of the Constituent Corporations.

(a) Definitions. For all purposes of this Agreement, the following terms shall
have the following respective meanings:

(i) “Accountant” shall mean a mutually agreeable certified public accountant at
a national or regionally recognized accounting firm that has no material
relationship with any of the parties to this Agreement.

(ii) “Aggregate Exercise Price” shall mean the aggregate exercise price of all
Company Options outstanding as of the Effective Time.

(iii) “Agreed Upon Loss” shall mean claims made in respect of (A) the Company
Indemnifying Parties’ portion of any Agent Interpleader Expenses or Agent
Indemnification Expenses pursuant to clauses (vi) and (vii) of Section 8.5(e)
hereof, (B) the matter set forth in Item 1 on Section 8.2(a)(vii) of the
Disclosure Schedule and (C) any Dissenting Share Payments to which the
Shareholder Representative has consented or which are made following the
issuance of a court order with respect to the final determination of any
appraisal rights under Colorado Law.

 

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(iv) “Business Day(s)” shall mean each day that is not a Saturday, Sunday or
holiday on which banking institutions located in San Francisco, California or
Denver, Colorado are authorized or obligated by Law or executive order to close.

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

(vi) “Company Capital Stock” shall mean the Company Common Stock, and any other
shares of capital stock, if any, of the Company, taken together.

(vii) “Company Common Stock” shall mean shares of common stock, par value $0.10
per share, of the Company.

(viii) “Company Material Adverse Effect” shall mean any change, event, fact,
circumstance or effect that is, or is reasonably likely to be, materially
adverse to the business, assets (whether tangible or intangible), condition
(financial or otherwise), results of operations or capitalization of the
Company, taken as a whole; provided, however, that none of the following shall
be deemed to constitute, in and of itself, or be taken into account in
determining whether there has been, a Company Material Adverse Effect: any such
adverse change, event, fact, circumstance or effect that results from
(1) general business or economic conditions in the United States or in the
global economy generally, (2) conditions (or changes in such conditions) in the
industries in which the Company and its subsidiaries conduct business, (3) acts
of terrorism or war, (4) changes in GAAP, or (5) the taking of actions which
Parent has approved, consented to or requested in writing, or the taking of any
action required by, this Agreement or the taking of any action required by this
Agreement; except to the extent any such change, event, fact, circumstance or
effect resulting from the matters described in clauses (1), (2) and (3) above
disproportionately affects the Company as compared to other companies that
conduct business in the industries in which the Company conducts business (in
which case, only the extent of such disproportionate effects (if any) shall be
taken into account when determining whether a “Company Material Adverse Effect”
has occurred or may, would or could occur).

(ix) “Company Optionholder” shall mean each holder of Company Options
immediately prior to the Effective Time.

(x) “Company Options” shall mean all issued and outstanding options (including
commitments to grant options) to purchase or otherwise acquire Company Capital
Stock (whether or not vested) held by any Person.

(xi) “Company Shareholder” shall mean any holder of Company Capital Stock
immediately prior to the Effective Time.

(xii) “Dollars” or “$” shall mean United States Dollars.

(xiii) “Escrow Agent” shall mean U.S. Bank National Association, or another
institution acceptable to Parent and the Shareholder Representative.

 

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(xiv) “Export Approvals” shall mean export and import licenses, license
exceptions and other consents, notices, waivers, approvals, orders,
authorizations, registrations, declarations and filings with any Governmental
Entity required for (i) the export, import and reexport of products, services,
software and technologies and (ii) releases of technologies and software to
foreign nationals located in the United States and abroad.

(xv) “Export and Import Control Laws” shall mean any U.S. or applicable non-U.S.
Law, regulation, or order governing (i) imports, exports, reexports, or
transfers of products, services, software, or technologies from or to the United
States or another country; (ii) any release of technology or software in any
foreign country or to any foreign Person (anyone other than a citizen or lawful
permanent resident of the United States, or a protected individual as defined by
8 U.S.C. § 1324b(a)(3)) located in the United States or abroad; (iii) economic
sanctions or embargoes; or (iv) compliance with unsanctioned foreign boycotts.

(xvi) “GAAP” shall mean United States generally accepted accounting principles
consistently applied.

(xvii) “Government Contract” shall mean (i) any Contract, bidded on, solicited,
or entered into by or on behalf of the Company with a Governmental Entity, or
(ii) any Contract or subcontract bidded on, solicited, or entered into by or on
behalf of the Company or any of its subsidiaries, which, by its terms, relates
to a Contract to which a Governmental Entity is a party.

(xviii) “Governmental Entity” shall mean any government, any governmental or
regulatory entity or body, department, commission, board, agency or
instrumentality, and any court, tribunal or judicial body, in each case whether
federal, state, county, provincial, and whether local or foreign.

(xix) “HIPAA” shall mean the Health Insurance Portability and Accountability Act
of 1996.

(xx) “Indebtedness” shall mean and include all Liabilities and obligations,
including any applicable fees, penalties (including with respect to any
prepayment thereof), interest and premiums: (i) for borrowed money;
(ii) evidenced by notes, bonds, debentures or similar instruments; (iii) for the
deferred purchase price of goods or services (other than trade payables or
accruals incurred in the ordinary course of business); (iv) under capital
leases; or (v) in the nature of guarantees of the obligations described in
clauses (i) through (iv) above of any other Person.

(xxi) “Indemnification Escrow Amount” shall mean an amount equal to Two Million
Four Hundred Thousand Dollars ($2,400,000.00).

(xxii) “Knowledge” or “Known” shall mean, (i) with respect to the Company, the
actual knowledge of Nancy E. Spoor, Sybll K. Romley, Joseph D. Romley, J. Mark
Sherock, Matthew N. Keitlen and Ryan N. Bergstrom, and (ii) with respect to any
Principal Shareholder, the actual knowledge of such Principal Shareholder.

 

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(xxiii) “Law” means any non-U.S. or U.S. federal, state or local law, statute,
rule, regulation, administrative ruling, order or process (including any zoning
or land use law, building code, environmental law, securities, stock exchange,
blue sky, civil rights, employment, labor or occupational health and safety law
or regulation or any law, order, rule or regulation applicable to federal
contractors).

(xxiv) “Liability” or “Liabilities” shall mean, with respect to any Person, all
liabilities of any kind (whether known or unknown, contingent, accrued, due or
to become due, secured or unsecured, matured or otherwise), including but not
limited to accounts payable, royalties payable, and other reserves, Taxes,
accrued bonuses, accrued vacation, employee expense obligations and all other
liabilities of such Person or any of its Subsidiaries, regardless of whether
such liabilities are required to be reflected on a balance sheet in accordance
with GAAP, including, with respect to the Company, Third Party Expenses.

(xxv) “Lien” shall mean any lien, pledge, charge, claim, mortgage, security
interest or other encumbrance of any sort.

(xxvi) “Parent Common Stock” shall mean the common stock of Parent, par value
$0.001 per share.

(xxvii) “Per Share Amount” shall mean the quotient obtained by dividing (x) the
Total Consideration less the amount of any outstanding Indebtedness of the
Company as of the Closing, other than Permitted Indebtedness, by (y) the Total
Outstanding Shares.

(xxviii) “Permitted Indebtedness” shall mean the outstanding capital lease
obligations and equipment term loans collectively identified as “capital lease
obligations” on the Company’s balance sheet as of December 31, 2009, which shall
be no greater than $272,000.

(xxix) “Permitted Lien” shall mean any Lien (i) reflected in the Current Balance
Sheet, (ii) Liens for Taxes not yet due and payable, (iii) mechanics’,
carriers’, workers’, repairers’ and other similar Liens imposed by applicable
Law and incurred in the ordinary course of business, (iv) pledges or deposits
made in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other social security registration, and
(v) which was incurred in the ordinary course of business since the date of
Current Balance Sheet and is immaterial in amount.

(xxx) “Person” shall mean an individual or entity, including a partnership,
limited liability company, a corporation, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization, or a Governmental
Entity.

(xxxi) “Pro Rata Portion” shall mean, with respect to each Company Indemnifying
Party, a percentage equal to the quotient of (x) the aggregate amount of Total
Consideration receivable by such Company Indemnifying Party at the Closing
pursuant to the terms of this Agreement with respect to Company Capital Stock
and Company Options held by such Company Indemnifying Party immediately prior to
the Effective Time, divided by (y) the aggregate

 

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amount of Total Consideration receivable by all Company Indemnifying Parties at
the Closing pursuant to this Agreement with respect to Company Capital Stock and
Company Options immediately prior to the Effective Time, in the case of both
clause (x) and (y), prior to giving effect to any applicable tax withholdings or
contributions to the Escrow Fund.

(xxxii) “Related Agreements” shall mean the Confidentiality Agreement, the
Non-Competition Agreements, and all other agreements entered into by Parent,
Sub, the Company and the Company Shareholders in connection with the
transactions contemplated herein.

(xxxiii) “SEC” shall mean the United States Securities and Exchange Commission.

(xxxiv) “Shareholder Pro Rata Portion” shall mean, with respect to each Company
Shareholder, a percentage equal to the quotient of (x) the aggregate amount of
Total Consideration receivable by such Company Shareholder at the Closing
pursuant to the terms of this Agreement with respect to Company Capital Stock
held by such Company Shareholder immediately prior to the Effective Time,
divided by (y) the aggregate amount of Total Consideration receivable by all
Company Shareholders at the Closing pursuant to this Agreement with respect
to Company Capital Stock as of the immediately prior to the Effective Time, in
the case of both clause (x) and (y), prior to giving effect to any applicable
tax withholdings or contributions to the Escrow Fund.

(xxxv) “Statement of Target Working Capital” shall mean the calculation of
Working Capital of the Company attached hereto as Exhibit F.

(xxxvi) “Subsidiary” of any Person shall mean, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner,
manager or managing member, (ii) such party or any Subsidiary of such party owns
in excess of a majority of the outstanding equity or voting securities or
interests or (iii) such party or any Subsidiary of such party has the right to
elect at least a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization.

(xxxvii) “Target Working Capital” shall mean negative one million fifty thousand
Dollars (-$1,050,000).

(xxxviii) “Tax Contest” has the meaning provided in Section 6.8(e)(vi) hereof.

(xxxix) “Tax Return” means any federal, state, local and non-U.S. form, return,
report or information statement, including K-1s, elections, declarations,
disclosures, schedules, estimates, claims for refund, and any attached
supporting information, filed or required to be filed by the Company or the
Surviving Corporation with respect to Taxes.

(xl) “Terminating Employee(s)” shall mean employee(s) of the Company set forth
on Section 1.6(a)(xl) of the Disclosure Schedule.

 

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(xli) “Total Consideration” shall mean an amount equal to sixteen million
Dollars ($16,000,000.00) plus or minus, as applicable, the Working Capital
Adjustment Amount (as provided in Section 1.8(a) hereof).

(xlii) “Total Outstanding Shares” shall mean the aggregate number of shares of
Company Capital Stock (including Company Options, and any other rights whether
vested or unvested convertible into, exercisable for or exchangeable for, shares
of Company Capital Stock on an as-converted, exercised or exchanged to Company
Capital Stock basis) issued and outstanding immediately prior to the Effective
Time, on an as converted to Company Common Stock basis.

(xliii) “Working Capital” shall mean (a) current assets of the Company, which
shall include the line items set forth under current assets in the Statement of
Target Working Capital less (b) the current Liabilities of the Company, which
shall include the line items set forth under current liabilities in the
Statement of Target Working Capital, in each case as determined in accordance
with GAAP, applied using the same accounting methods, practices, principles,
policies and procedures that were used in the preparation of the Interim
Financial Statements. For the avoidance of doubt, (x) current assets of the
Company shall include the Aggregate Exercise Price and (y) current Liabilities
of the Company shall (i) exclude deferred rent, whether or not classified as a
current Liability and all taxes for any period attributable to any change in
method of accounting arising in connection with or attributable to the Merger
and (ii) include, and the Statement of Working Capital or Parent Statement of
Working Capital, as applicable, shall reflect, all Taxes of the Company
attributable to the Pre-Closing Tax Period, including any employment or payroll
taxes with respect to any bonuses, cash-out of options or other compensatory
payments in connection with the transactions contemplated by this Agreement.
Working Capital shall disregard 50% of the premium for the D&O Tail. Current
Liabilities shall not be taken into account in calculating Working Capital to
the extent they are (i) repaid or terminated without further obligation before
Closing or (ii) to the extent they are repaid at Closing without further
obligation through the use of funds that are both (A) not included as cash in
the calculation of the Working Capital and (B) not provided by Parent on behalf
of the Company or any Company Shareholder.

(xliv) “Working Capital Escrow Amount” shall mean an amount equal to two hundred
thousand Dollars ($200,000.00).

(b) Effect on Capital Stock. At the Effective Time, by virtue of the Merger and
subject to Section 1.7 regarding Dissenting Shares, without any action on the
part of Sub, the Company or the holders of shares of Company Capital Stock, each
share of Company Capital Stock issued and outstanding immediately prior to the
Effective Time, other than Dissenting Shares, upon the terms and subject to the
conditions set forth in this Section 1.6(b) and throughout this Agreement,
including, without limitation, the escrow provisions set forth in Section 1.8
and Article VIII hereof, will be cancelled and extinguished and will be
converted automatically into the right to receive upon surrender of the
certificate representing such shares of Company Capital Stock (each a “Company
Stock Certificate”) in the manner provided in Section 1.9 hereof, the Per Share
Amount (without interest thereon).

 

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Notwithstanding the foregoing, each Company Shareholder’s Pro Rata Portion of
the Indemnification Escrow Amount and the Working Capital Escrow Amount shall be
withheld from the Per Share Amount and placed in escrow pursuant to the escrow
provisions of Section 1.8 and Article VIII hereof.

(c) Treatment of Outstanding Equity Awards.

(i) Effect on Company Options. No outstanding Company Options shall be assumed
by Parent. The Company shall take such action as may be necessary so that,
(i) immediately prior to the Effective Time, the vesting of each Company Option
that remains outstanding as of immediately prior to the Effective Time shall be
accelerated in full, (ii) each Company Option that remains outstanding as of
immediately prior to the Effective Time shall be cancelled and terminated as of
the Effective Time, and (iii) as of the Effective Time, each holder of a
cancelled and terminated Company Option with an exercise price per share less
than the Per Share Amount shall be entitled to receive from Parent, upon the
terms and subject to the conditions set forth in this Section 1.6(c) and
throughout this Agreement, including, without limitation, the escrow provisions
set forth in Section 1.8 and Article VIII hereof, an amount in cash, without
interest, with respect to each share of Company Common Stock subject thereto,
equal to the excess, if any, of the Per Share Amount over the per share exercise
price of such Company Option (such amount being hereinafter referred to as the
“Option Consideration”). The payment of the Option Consideration shall be
reduced by any income or employment tax withholding required under the Code or
any provision of state, local or foreign tax Law with respect to the making of
such payment (the “Withholding Amount”). To the extent that amounts are so
withheld, such withheld amounts shall be timely paid to the appropriate
Governmental Entity and shall be treated for all purposes of this Agreement as
having been paid to the holder of such Company Option. Notwithstanding the
foregoing, each Company Optionholder’s Pro Rata Portion of the Escrow Amount and
the Working Capital Escrow Amount shall be withheld and placed in escrow
pursuant to the escrow provisions of Section 1.8 and Article VIII hereof.

(ii) Necessary Actions. Prior to the Effective Time, and subject to the review
and approval of Parent, the Company shall take all actions necessary to effect
the transactions contemplated by this Section 1.6(c) under the Company’s 2000
Stock Option Plan, as amended (the “Plan”), all agreements evidencing Company
Options and any other plan or arrangement of the Company (whether written or
oral, formal or informal), including delivering all required notices and
obtaining any required consents, such that immediately prior to the Effective
Time the Company shall not have any outstanding equity interests other than
shares of Company Common Stock and Company Options.

(d) Capital Stock of Sub. Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of Common
Stock of the Surviving Corporation. Each stock certificate of Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.

 

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1.7 Dissenting Shares.

(a) Notwithstanding any other provisions of this Agreement to the contrary, any
shares of Company Capital Stock held by a holder who has not effectively
withdrawn or lost such holder’s appraisal rights under Title 7, Article 113 of
Colorado Law (the “Dissenting Shares”) shall not be converted into or represent
a right to receive the applicable consideration for Company Capital Stock set
forth in Section 1.6 hereof, but the holder thereof shall only be entitled to
such rights as are provided by Colorado Law.

(b) Notwithstanding the provisions of Section 1.7(a) hereof, if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) such holder’s appraisal rights under Colorado Law, then, as of the
later of the Effective Time and the occurrence of such event, such holder’s
shares shall automatically be converted into and represent only the right to
receive the consideration for Company Capital Stock, as applicable, set forth in
Section 1.6 hereof, without interest thereon, and subject to the provisions of
Section 1.8 and Section 8.5 hereof, upon surrender of the certificate
representing such shares.

(c) The Company shall give Parent (i) prompt notice of any written demand for
appraisal received by the Company pursuant to the applicable provisions of
Colorado Law, and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any such
demands or offer to settle or settle any such demands. Any communication to be
made by the Company to any Company Shareholder with respect to such demands
shall be submitted to Parent in advance and, unless required by applicable Law
shall not be presented to any Company Shareholder prior to the Company receiving
Parent’s consent, which shall not be unreasonably delayed or withheld.
Notwithstanding the foregoing, to the extent that Parent, the Surviving
Corporation or the Company (i) makes any payment or payments in respect of any
Dissenting Shares in excess of the consideration that otherwise would have been
payable in respect of such shares in accordance with this Agreement or
(ii) incurs any other costs or expenses, (including specifically, but without
limitation, attorneys’ fees, costs and expenses in connection with any action or
proceeding or in connection with any investigation) in respect of any Dissenting
Shares (excluding payments for such shares) (together “Dissenting Share
Payments”), Parent shall be entitled to recover under the terms of Article VIII
hereof the amount of such Dissenting Share Payments without regard to the
Deductible (as defined in Section 8.3(a) hereof), provided, that, if Parent or
the Surviving Corporation makes any Dissenting Share Payments without either
(i) the prior written consent of the Shareholder Representative, which consent
will not be unreasonably delayed or withheld, or (ii) a court order issued upon
conclusion of any action or proceeding with respect to the final determination
of any appraisal rights under Colorado Law, then the amount of the Dissenting
Share Payments shall not be determinative of the amount of Damages for purposes
of Article VIII.

1.8 Closing Working Capital Adjustment.

(a) No later than three (3) Business Days before the Closing Date, the Company
will deliver to Parent, a statement (the “Statement of Working Capital”) setting
forth the Working

 

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Capital as of the Closing (the “Closing Working Capital”). The Statement of
Working Capital will be prepared by the Company in accordance with this
Agreement and GAAP, applied using the same accounting methods, practices,
principles, policies and procedures, with consistent classifications that were
used in the preparation of the Statement of Target Working Capital. Upon
Parent’s receipt of the Statement of Working Capital, the Company will, upon
Parent’s reasonable request, make available during reasonable business hours to
Parent and its independent accountants (i) a copy of all workpapers and other
books and records utilized by the Company in the preparation of the Statement of
Working Capital and (ii) any employee of the Company that participated in the
preparation of the Statement of Working Capital. If Parent disputes the
Statement of Working Capital (or any portion thereof) prior to the Closing, then
Parent and the Company will negotiate in good faith to resolve any such dispute
at or prior to Closing, but the resolution of any such dispute is not a
condition to Closing. If the Closing Working Capital (x) is less than the Target
Closing Working Capital, then the Total Consideration shall be decreased by such
difference, or (y) is more than the Target Closing Working Capital, then the
Total Consideration shall be increased by such difference (with such adjustment
amount under (x) and (y) of this sentence being the “Working Capital Adjustment
Amount”).

(b) Promptly, but in any event within 60 days after the Closing Date, Parent
will prepare or cause the Surviving Corporation to prepare and deliver to the
Shareholder Representative a statement (the “Parent Statement of Working
Capital”) setting forth Parent’s calculation of the Working Capital as of the
Closing. The Parent Statement of Working Capital will be prepared in accordance
with this Agreement and GAAP, applied using the same accounting methods,
practices, principles, policies and procedures, with consistent classifications
that were used in the preparation of the Statement of Target Working Capital.

(c) The Shareholder Representative shall have a period of up to thirty (30) days
from the receipt of the Parent Statement of Working Capital from Parent to
dispute the Parent Statement of Working Capital. Upon the Shareholder
Representative’s receipt of the Parent Statement of Working Capital, Parent
will, upon the Shareholder Representative’s reasonable request, make available
during reasonable business hours to the Shareholder Representative and its
accountants (i) a copy of all workpapers and other books and records utilized by
Parent in the preparation of the Parent Statement of Working Capital and
(ii) any employee of Parent or the Surviving Corporation that participated in
the preparation of the Parent Statement of Working Capital. If, as a result of
such review, the Shareholder Representative disagrees with the Parent Statement
of Working Capital, the Shareholder Representative shall deliver a notice (a
“Notice of Objection”) in writing to Parent prior to the expiration of such
30-day review period. The Notice of Objection shall set forth in reasonable
detail the adjustments the Company proposes to make to the Parent Statement of
Working Capital and the basis therefor and shall be consistent with the
provisions of this Section 1.8. If (i) the Shareholder Representative agrees
with the Parent Statement of Working Capital or (ii) the Shareholder
Representative fails to deliver a Notice of Objection to Parent prior to the
expiration of such 30 day review period, then, in either case, the Parent
Statement of Working Capital as prepared by Parent on behalf of the Company
shall be final and binding on the parties.

 

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(d) If the Shareholder Representative delivers a Notice of Objection to Parent
in a timely manner pursuant to Section 1.8(c)) above, then Parent and the
Shareholder Representative shall attempt in good faith to resolve and finally
determine the amount of the Working Capital as of the Closing within fifteen
(15) days from the date of receipt of the Notice of Objection. If Parent and the
Shareholder Representative cannot reach agreement within such 15-day period (or
such longer period as Parent and the Shareholder Representative may mutually
agree in writing), the parties shall refer the matter to an Accountant for
binding resolution. Promptly upon referral of the dispute to the Accountant,
(i) Parent shall submit the Parent Statement of Working Capital and the
Shareholder Representative shall submit the Statement of Working Capital and the
Notice of Objection, in both cases together with all supporting documentation
and work papers, (ii) each party shall reasonably cooperate with the Accountant
and promptly respond to any requests for additional information or documents,
(iii) each party shall execute the Accountant’s standard form of engagement
letter, (iv) each party will be afforded the opportunity to present to the
Accountant any material relating to the determination of the matters in dispute
and to discuss such determination with the Accountant, and (v) to the extent
that a value has been assigned to any component of Working Capital that remains
in dispute, the Accountant shall not assign a value to such component of Working
Capital that is greater than the greatest value for such component of Working
Capital claimed by either party or less than the smallest value for such
component of Working Capital claimed by either party. The fees, costs and
expenses of the Accountant’s review and report shall be allocated to and borne
by Parent, on one hand, and the Company Indemnifying Parties through the Escrow
Fund in accordance with Section 8.2(a), on the other hand, based on the inverse
of the percentage that the Independent Accountant’s determination (before such
allocation) bears to the total amount of the total items in dispute as
originally submitted to the Accountant. For example, should the items in dispute
total in amount to one thousand Dollars ($1,000) and the Accountant awards six
hundred Dollars ($600) in favor of Shareholder Representative’s position, sixty
percent (60%) of the costs of its review would be borne by Parent and forty
percent (40%) of the costs would be borne by the Company Indemnifying Parties
through the Escrow Fund in accordance with Section 8.2(a).

(e) The Accountant shall calculate the components of Working Capital that are
the subject of the Notice of Objection in a manner consistent with this
Agreement, as promptly as may be reasonably practicable. The Accountant shall
deliver to Parent and the Shareholder Representative concurrently a written
opinion setting forth a final determination of the Working Capital as of the
Closing which shall be made up of (i) the line items set forth in the Parent
Statement of Working Capital delivered by Parent, to the extent that such line
items are not the subject of the Notice of Objection and (ii) the line items
determined by the Accountant with respect to line items that are the subject of
the Notice of Objection (the “Final Statement of Working Capital”). The
determination of the Accountant shall be final and binding on the parties,
effective as of the date the Accountant’s written opinion is received by Parent
and the Shareholder Representative, and shall constitute an arbitral award that
is final and binding on each of Parent and the Company Indemnifying Parties, and
no party shall seek further recourse to courts, other tribunals or otherwise,
other than to enforce the Accountant’s written opinion.

 

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(f) As used herein, the “Final Adjustment Amount” means an amount equal to the
difference of (x) the Working Capital as set forth on the Final Statement of
Working Capital; and (y) the Target Working Capital. To the extent that the
Final Adjustment Amount exceeds the Working Capital Adjustment Amount, Parent
(or the Paying Agent on behalf of Parent) will (i) pay to each Indemnifying
Party its Pro Rata Portion of such excess and (ii) instruct the Escrow Agent to
release to each Indemnifying Party its Pro Rata Portion of the Working Capital
Escrow Amount within two (2) Business Days of the final determination of the
Final Statement of Working Capital in accordance with this Section 1.8. To the
extent that the Final Adjustment Amount is less than the Working Capital
Adjustment Amount, (i) the Escrow Agent shall release the amount of such
deficiency (the “Excess Liabilities”) to Parent from the Working Capital Escrow
Amount held in the Escrow Fund and (ii) Parent will instruct the Escrow Agent to
release to each Indemnifying Party its Pro Rata Portion of any amounts of the
Working Capital Escrow Amount remaining in the Escrow Fund, if any, within two
(2) Business Days of the final determination of the Final Adjustment Amount. If
the Working Capital Escrow Amount is insufficient to cover the Excess
Liabilities, the Excess Liabilities shall be paid out of the Indemnification
Escrow Amount in accordance with Section 8.2(a).

1.9 Surrender of Certificates.

(a) Exchange Agent. Parent, U.S. Bank National Association or any other
institution selected by Parent may serve as the exchange agent (the “Exchange
Agent”) for the Merger. Parent will pay all fees and expenses of the Exchange
Agent, in its capacity as Exchange Agent, relating to the provision of the
services contemplated by this Agreement.

(b) Parent to Provide Cash. At the Effective Time, Parent shall (i) make
available to the Exchange Agent for exchange in accordance with this Article I
the cash payable pursuant to Section 1.6 hereof in exchange for outstanding
shares of Company Capital Stock and (ii) transfer to the Company’s third party
payroll agent, an amount equal to the cash payable pursuant to Section 1.6
hereof to Company Optionholders; provided, however, that, on behalf of the
Company Indemnifying Parties, Parent shall deposit into the Escrow Fund (as
defined in Section 8.5(a) hereof) cash equal to the Indemnification Escrow
Amount and the Working Capital Escrow Amount out of the aggregate cash Total
Consideration otherwise payable to the Company Shareholders and Company
Optionholders pursuant to Section 1.6 hereof. Each Company Shareholder and
Company Optionholder shall be deemed to have contributed his or her Pro Rata
Portion of the Indemnification Escrow Amount and the Working Capital Escrow
Amount to the Escrow Fund, rounded to the nearest cent (with amounts greater
than or equal to $0.005 rounded up). In addition, Parent will deposit cash equal
to the Gross-Up Amount with the Escrow Agent in accordance with
Section 6.8(g)(iv).

(c) Exchange Procedures.

(i) As soon as practicable, but no later than three Business Days following the
Effective Date, Parent shall pay or cause the Surviving Corporation to pay to
the Company Optionholders, the aggregate Option Consideration due to such
holders, less any applicable withholdings, such payment to be processed through
a special payroll run. The Company or the

 

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Surviving Corporation shall deduct the Withholding Amount and distribute the
remainder of such Option Consideration to the Company Optionholders in
accordance with the terms hereof. Any Withholding Amount so withheld pursuant to
Applicable Law in connection with the Company Options shall be treated for all
purposes of this Agreement as having been paid to the Company Optionholder in
respect of which such deduction and withholding was made.

(ii) No later than three (3) Business Days following the Effective Time, Parent
shall cause the Exchange Agent to mail or otherwise deliver to each Company
Shareholder a Shareholder letter of transmittal in substantially the form
attached hereto as Exhibit D (the “Letter of Transmittal”) to the address set
forth opposite such Company Shareholder’s name on the Spreadsheet. The Company
may also provide the Letter of Transmittal to any Company Shareholder prior to
the Closing. After receipt of such Letter of Transmittal and any other documents
that Parent or the Exchange Agent may reasonably require in order to effect the
exchange (the “Exchange Documents”), such Company Shareholder shall surrender
his or her Company Stock Certificates to the Exchange Agent for cancellation
together with duly completed and validly executed Exchange Documents. If a
Company Shareholder submits the Exchange Documents and his or her Company Stock
Certificates to the Exchange Agent prior to the Closing, the Exchange Agent will
hold such documents in escrow pending the Closing. Following the Closing, upon
surrender of the Company Stock Certificates and Exchange Documents, the holder
of such Company Stock Certificates shall be entitled to receive from the
Exchange Agent, by check or wire transfer of immediately available funds, the
cash constituting the portion of the Total Consideration to which such Company
Shareholder is entitled less any applicable Tax withholding. Parent shall use
reasonable best efforts to cause the Exchange Agent to pay the portion of the
Total Consideration to which a Company Shareholder is entitled less applicable
Tax withholding within three (3) Business Days of the Exchange Agent’s receipt
of such Company’s Shareholder’s Exchange Documents and Company Stock
Certificates in proper form, provided, that, if a Company Shareholder submits
the Exchange Documents and Company Stock Certificates in proper form at least
two (2) Business Days prior to the Closing, such Company Shareholder shall
receive payment on the Closing Date or as soon as practicable thereafter. The
Company Stock Certificates so surrendered shall be canceled. Until so
surrendered, after the Effective Time, subject to appraisal rights under
Colorado Law, each Company Stock Certificate will be deemed, for all corporate
purposes thereafter, to evidence only the right to receive the consideration
provided for in this Article I. No portion of the Total Consideration shall be
paid to any Company Shareholder unless and until the holder of record of such
Company Stock Certificate shall surrender such Company Stock Certificate and the
Exchange Documents pursuant hereto.

(d) Transfers of Ownership. If any cash amounts are to be disbursed pursuant to
Section 1.6 hereof to any person other than the person or entity whose name is
reflected on the Company Stock Certificate surrendered in exchange therefore, it
will be a condition of the issuance or delivery thereof that the certificate so
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange will have paid to Parent or any
agent designated by it any transfer or other taxes required by payment of any
portion of the Total Consideration in any name other than that of the registered
holder of the certificate surrendered, or

 

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established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.

(e) Return of the Exchange Fund. At any time following the last day of the
six (6) month period following the Effective Time, Parent shall be entitled to
require the Exchange Agent to deliver to Parent or its designated successor or
assign any portion of the consideration payable in respect of shares of Company
Capital Stock that has been deposited with the Exchange Agent pursuant to
Section 1.6 hereof, and not disbursed pursuant to Section 1.6 hereof, and
thereafter the Company Shareholders shall be entitled to look only to Parent
(subject to the terms of Section 1.9(f) hereof) as general creditors thereof
with respect to any and all cash amounts that may be payable to such Persons
pursuant to Section 1.6 hereof. No interest shall be payable for the cash
amounts delivered to Parent pursuant to the provisions of this Section 1.9(e)
and which are subsequently delivered to the Company Shareholders.

(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.8(a), neither the Exchange Agent, the Surviving Corporation, nor any
party hereto shall be liable to a holder of shares of Company Capital Stock for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar Law.

1.10 No Further Ownership Rights in Company Capital Stock. The cash amounts paid
or payable in respect of the surrender for exchange of shares of Company Capital
Stock in accordance with the terms hereof shall be deemed to be full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, Company
Stock Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.

1.11 Lost, Stolen or Destroyed Certificates. In the event any Company Stock
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed certificates, upon the
making of an affidavit of that fact by the holder thereof, such amount, if any,
as may be required pursuant to Section 1.6 hereof; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the Shareholder who is the owner of such lost, stolen or
destroyed certificates to either (i) deliver a bond in such amount as it may
reasonably direct or (ii) provide an indemnification agreement in a form and
substance acceptable to Parent, against any claim that may be made against
Parent or the Exchange Agent with respect to the certificates alleged to have
been lost, stolen or destroyed.

1.12 Withholding Taxes. Notwithstanding any other provision of this Agreement,
the Company and, on its behalf, Parent, the Surviving Corporation, the Exchange
Agent and the Escrow Agent shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement such
amounts as may be required to be deducted or withheld therefrom under any
provision of U.S. federal, state, local or non-U.S. Tax Law, and to request any
necessary Tax forms, including Internal Revenue Service Form W-9 or the
appropriate version of Form W-8, as applicable, or any similar information. To
the extent any such amounts are so

 

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deducted or withheld and timely remitted to the appropriate taxing authority,
such amounts shall be treated for all purposes under this Agreement as having
been paid to the Person to whom such amounts would otherwise have been paid.

1.13 Taking of Necessary Action; Further Action. If at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company, Parent, Sub, and the officers and directors of
the Company, Parent and Sub are fully authorized in the name of their respective
corporations to take, and will take, all such lawful and necessary action.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

AND THE PRINCIPAL SHAREHOLDERS

The Company and, severally and not jointly, each of the Principal Shareholders
hereby represent and warrant to Parent and Sub, subject to such exceptions as
are specifically disclosed in the disclosure schedule supplied by the Company
and the Principal Shareholders to Parent and Sub (the “Disclosure Schedule”) and
dated as of the date hereof, on the date hereof and (except where a
representation or warranty is made herein as of a specified date) as of the
Effective Time, as though made at the Effective Time, as follows:

2.1 Organization of the Company.

(a) The Company is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Colorado. The Company has the requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as currently conducted and as currently
contemplated to be conducted. The Company is duly qualified or licensed to do
business and in good standing as a foreign corporation in each jurisdiction in
which the character or location of its assets or properties (whether owned,
leased or licensed) or the nature of its business make such qualifications
necessary, except where the failure to so qualify or to be in good standing
would not reasonably be expected to be material to the Company. The Company has
delivered to Parent a true and correct copy of its articles of incorporation, as
amended to date (the “Articles of Incorporation”) and bylaws, as amended to
date, each in full force and effect on the date hereof (collectively, the
“Charter Documents”). The Company is not in violation of any of the provisions
of its Charter Documents. The Board of Directors of the Company has not approved
or proposed any amendment to any of the Charter Documents not reflected therein.

(b) Section 2.1(b) of the Disclosure Schedule lists the directors and officers
of the Company as of the date hereof. The operations now being conducted by the
Company are not now and have never been conducted by the Company under any other
name.

 

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(c) Section 2.1(c) of the Disclosure Schedule lists every state or foreign
jurisdiction in which the Company is qualified or licensed to do business as a
foreign corporation or has employees or facilities.

2.2 Company Capital Structure.

(a) The authorized capital stock of the Company consists of five million
(5,000,000) shares of Company Common Stock, of which three million, six
thousand, three hundred (3,006,300) shares are issued and outstanding.

(b) As of the date hereof, the Company Capital Stock is held by the Persons with
the domicile addresses and in the amounts set forth on Section2.2(b) of the
Disclosure Schedule which further sets forth for each such Person the number of
shares held by such Person, the applicable stock certificate number(s)
representing such shares, the number of shares subject to repurchase, whether
any such repurchase rights will lapse, in whole or in part, as a result of this
Agreement and the transactions contemplated hereby, and, to the extent such
shares are not fully vested, the vesting schedule for such shares and whether
any of such shares were eligible for an election under Section 83(b) of the
Code, including the date of issuance of such shares, and whether such election
under Section 83(b) of the Code was timely made. All outstanding shares of
Company Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and have been issued in accordance with the Charter Documents.
Except as set forth in Section 2.2(b) of the Disclosure Schedule, the
outstanding shares of Company Capital Stock are not subject to preemptive rights
created by statute, the Charter Documents, or any agreement to which the Company
is a party or by which it is bound. Except as set forth in Section 2.2(b) of the
Disclosure Schedule, there are no outstanding shares of Company Capital Stock
that constitute unvested restricted stock or that are otherwise subject to a
repurchase or redemption right. There are no declared or accrued but unpaid
dividends with respect to any shares of Company Capital Stock. Except as set
forth in Section 2.2(b) of the Disclosure Schedule, the Company has no other
capital stock authorized, issued or outstanding.

(c) Except for the Plan or as set forth in Section 2.2(c) of the Disclosure
Schedule, the Company has never adopted, sponsored or maintained any stock
option plan or any other plan or agreement providing for equity compensation to
any Person. The Company has reserved 700,000 shares of Company Common Stock for
issuance to employees and directors of, and consultants to, the Company upon the
issuance of stock or the exercise of options granted under the Plan, of which
(i) 372,000 shares are issuable upon the exercise of outstanding, unexercised
options granted under the Plan, (ii) no shares have been issued in the form of
restricted stock granted under the Plan and remain outstanding as of the date
hereof, and (iii) no shares remain available for future grant. Section 2.2(c) of
the Disclosure Schedule sets forth, as of the date hereof, for each outstanding
Company Option, the name of the holder of such option or warrant, the domicile
address of such holder (to the extent such address is contained in the stock
records of the Company), the type and number of shares of Company Capital Stock
issuable upon the exercise of such option, the exercise price of such option or
warrant, the date of grant of such option or warrant and whether such option is
a nonstatutory option or intended to qualify as an incentive stock option as
defined in

 

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Section 422 of the Code. True and complete copies of all agreements and
instruments relating to or issued under the Plan have been provided or made
available to Parent, and such agreements and instruments have not been amended,
modified or supplemented other than as provided in this Agreement, and there are
no agreements to amend, modify or supplement such agreements or instruments from
the forms thereof provided to Parent.

(d) Except as set forth in Section 2.2(d) of the Disclosure Schedule, there are
no options, warrants, calls, rights, convertible securities, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which the Company is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company or obligating the
Company to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or other similar rights with respect to the
Company. As a result of the Merger, upon the Effective Time, Parent will be the
sole record and beneficial holder of all issued and outstanding Company Capital
Stock and all rights to acquire or receive any shares of Company Capital Stock,
whether or not such shares of Company Capital Stock are outstanding.

(e) Except as set forth in Section 2.2(e) of the Disclosure Schedule and except
as contemplated hereby, there are no (i) voting trusts, proxies, or other
agreements or understandings with respect to the voting stock of the Company to
which the Company is a party or of which the Company has Knowledge and
(ii) agreements to which the Company is a party relating to the registration,
sale or transfer (including agreements relating to rights of first refusal, co
sale rights or “drag along” rights) of any Company Capital Stock.

2.3 Subsidiaries. The Company does not have and, except as set forth in
Section2.3 of the Disclosure Schedule, the Company has never had any
Subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, limited liability company,
partnership, association, joint venture or other business entity.

2.4 Authority. The Company has all requisite corporate power and authority to
enter into this Agreement and any Related Agreements to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and any Related Agreements to which the Company
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Company and no further action is required on the part of the Company to
authorize the Agreement and any Related Agreements to which it is a party and
the transactions contemplated hereby and thereby, subject only to the approval
of this Agreement by the Company Shareholders. The vote required to approve this
Agreement by the Company Shareholders is two-thirds (2/3) of the shares of
Company Common Stock issued and outstanding (such vote, the “Requisite
Shareholder Vote”). The Requisite Shareholder Vote is the only vote, approval or
consent of the holders of any class or series of Company Capital Stock or any
other securities of the Company that is necessary to

 

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adopt this Agreement and approve the transactions contemplated hereby. This
Agreement and the Merger have been unanimously approved by the Board of
Directors of the Company. This Agreement and each of the Related Agreements to
which the Company is a party has been duly executed and delivered by the Company
and assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of the Company
enforceable against it in accordance with their respective terms, except as such
enforceability may be subject to the Laws of general application relating to
bankruptcy, insolvency, fraudulent transfer and the relief of debtors and rules
of Law governing specific performance, injunctive relief, or other equitable
remedies.

2.5 No Conflict. Except as set forth in Section 2.6 of the Disclosure Schedule,
the execution and delivery by the Company of this Agreement and any Related
Agreement to which the Company is a party, and the consummation of the
transactions contemplated hereby and thereby, will not conflict with or result
in any violation of or default under (with or without notice or lapse of time,
or both) or give rise to any payment obligation, or a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a “Conflict”) (i) any provision of the Charter
Documents, as amended, (ii) any Material Contract, or (iii) any judgment, order,
decree, statute, Law, ordinance, rule or regulation applicable to the Company or
any of its properties (whether tangible or intangible) or assets.

2.6 Consents.

(a) No consent, notice, waiver, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity or under any
Material Contract (so as not to trigger any Conflict), is required by, or with
respect to, the Company or the Principal Shareholders in connection with the
execution and delivery of this Agreement and any Related Agreement to which the
Company or a Principal Shareholder is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
notices, waivers, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable securities Laws, (ii) the filing
of the Statement of Merger with the Secretary of State of the State of Colorado
and (iii) such notices, consents, waivers and approvals as are set forth in
Section 2.6 of the Disclosure Schedule. Following the Effective Time, the
Surviving Corporation will be permitted to exercise all of its rights under the
Material Contracts without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Company
would otherwise be required to pay pursuant to the terms of such Material
Contracts had the transactions contemplated by this Agreement not occurred.

(b) The Company is its own “Ultimate Parent Entity” as that term is defined
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
“HSR Act”), and the regulations promulgated thereunder. The Company regularly
prepares unaudited balance sheets and income statements on a monthly basis; in
its last such regularly-prepared balance sheet and related income statement
prior to the Closing, dated October 31, 2010, the Company had less than twelve
million seven hundred thousand Dollars ($12,700,000) in total assets or total
revenues.

 

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2.7 Company Financial Statements. Section 2.7 of the Disclosure Schedule sets
forth the Company’s (i) audited consolidated balance sheet as of December 31,
2009, and the related audited consolidated statements of income, cash flow and
shareholders’ equity for the twelve (12) month period then ended (the “2009
Annual Financials”), (ii) unaudited consolidated balance sheet as of October 31,
2010 (the “Balance Sheet Date”), and the related unaudited consolidated
statements of income, cash flow and shareholders’ equity for the ten (10) months
then ended (the “Interim Financials” and together with the 2009 Annual
Financials, the “Financials”) are true and correct in all material respects and
have been prepared in accordance with GAAP consistently applied throughout the
periods indicated and consistent with each other (except that the Interim
Financials do not contain footnotes and other presentation items that may be
required by GAAP and subject to, normal recurring year-end audit adjustments,
none of which individually or in the aggregate will be material in amount). The
Financials present fairly in all material respects the Company’s consolidated
financial condition, operating results and cash flows as of the dates and during
the periods indicated therein. The Company’s unaudited consolidated balance
sheet as of the Balance Sheet Date is referred to hereinafter as the “Current
Balance Sheet.” The Company has identified all uncertain tax positions contained
in all Tax Returns filed by the Company and has established adequate reserves
and made any appropriate disclosures in the Financials in accordance with the
requirements of Financial Interpretation No. 48 of FASB Statement No. 109.

2.8 Internal Controls.

(a) The Company maintains accurate Books and Records reflecting its assets and
Liabilities and maintains proper and adequate internal accounting controls that
provide assurance that (i) material transactions are executed with management’s
authorization, (ii) transactions are recorded as necessary to permit preparation
of the Company’s financial statements and to maintain accountability for the
Company’s assets, (iii) access to the Company’s material assets is permitted
only in accordance with management’s authorization, (iv) the reporting of the
Company’s assets is compared with existing assets at regular intervals and
(v) accounts, notes and other receivables and inventory are recorded accurately
in all material respects, and proper and adequate procedures are implemented to
effect the collection thereof on a timely basis.

(b) Neither the Company nor the Principal Shareholders nor, to the Knowledge of
the Company or the Principal Shareholders, any Company Representative has
received or otherwise had or obtained knowledge of any material complaint,
allegation, assertion or claim, whether written or oral, that the accounting or
auditing practices, procedures, methodologies or methods of the Company or its
internal accounting controls are faulty, improper, fraudulent, deficient or
questionable, including any material complaint, allegation, assertion or claim
that the Company has engaged in questionable accounting or auditing practices.

2.9 No Undisclosed Liabilities; No Material Adverse Effect; Ordinary Course.

(a) The Company does not have any Liability, expense, claim, deficiency,
guaranty or endorsement of any type, whether accrued, absolute, contingent,
matured, unmatured or other, except for (i) those which have been reflected in
the Current Balance Sheet, (ii) those which have arisen in the ordinary course
of business consistent with past practices since the Balance Sheet

 

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Date and prior to the date hereof and will be reflected in the Statement of
Working Capital, (iii) Liabilities set forth in Section 2.9 of the Disclosure
Schedule, or (iv) any Third Party Expenses.

(b) Except as set forth in Section 2.9 of the Disclosure Schedule, the Company
has no outstanding Indebtedness as of the date hereof. Since the Balance Sheet
Date, there has not occurred any event or condition of any character that has
had or would be reasonably likely to have, either individually or in the
aggregate with all such other events or conditions, a Company Material Adverse
Effect.

(c) Since the Balance Sheet Date and except as set forth in Section 2.9 of the
Disclosure Schedule, the Company has not taken any action outside the ordinary
course of business, including, for the avoidance of doubt, any item for which
Parent’s consent would be required under Section 5.1.

2.10 Tax Matters.

(a) Definition of Taxes. For the purposes of this Agreement, the term “Tax” or,
collectively, “Taxes” shall mean (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes as well as public imposts, fees and social security charges
(including but not limited to health, unemployment, workers’ compensation and
pension insurance), together with all interest, penalties and additions imposed
with respect to such amounts, (ii) any liability for the payment of any amounts
of the type described in clause (i) of this Section 2.10(a) as a result of being
a member of an affiliated, consolidated, combined or unitary group (including
any arrangement for group or consortium relief or similar arrangement), and
(iii) any liability for the payment of any amounts of the type described in
clauses (i) or (ii) of this Section 2.10(a) as a result of any express or
implied obligation to indemnify any other person or as a result of any
obligation under any agreement or arrangement with any other person with respect
to such amounts and including any liability for taxes of a predecessor entity or
transferor or otherwise by operation of Law.

(b) Tax Returns and Audits.

Except as set forth on Section 2.10(b) of the Disclosure Schedule:

(i) As of the Closing Date, the Company will have (a) prepared and timely filed
all required Tax Returns relating to any and all Taxes concerning or
attributable to the Company or its operations and such Tax Returns are or will
be true and correct and have been or will be completed in accordance with
applicable Law and (b) timely paid all Taxes it is required to pay.

(ii) As of the Closing Date, the Company will have withheld with respect to its
Employees and other third parties, all federal, state and non-U.S.income taxes
and social security charges and similar fees, Federal Insurance Contribution
Act, Federal Unemployment Tax

 

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Act and other Taxes required to be withheld, and will have timely paid or will
timely pay such taxes withheld over to the appropriate authorities.

(iii) The Company has not been delinquent in the payment of any material Tax,
nor is there any Tax deficiency outstanding, assessed or proposed against the
Company, nor has the Company executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any Tax.

(iv) No audit or other examination of any Return of the Company is presently in
progress, nor has the Company been notified of any request for such an audit or
other examination. No adjustment relating to any Tax Return filed by the Company
has been proposed by any Tax authority. No claim has been made by a taxing
authority that the Company is or may be subject to taxation by a jurisdiction
where it does not file Tax Returns.

(v) The Company does not have any liabilities for unpaid Taxes which have not
been adequately accrued or reserved on the Current Balance Sheet, whether
asserted or unasserted, contingent or otherwise, and the Company has not
incurred any liability for Taxes since the date of the Current Balance Sheet
other than in the ordinary course of business.

(vi) The Company has made available to Parent or its legal counsel copies of all
foreign, federal, state and local income, payroll and unemployment Returns, all
foreign value added (or similar) and all state and local property and sales and
use Tax Returns for the Company filed for all periods since January 1, 2006.

(vii) There are (and immediately following the Effective Time there will be) no
Liens on the assets of the Company relating to or attributable to Taxes other
than Liens for Taxes not yet due and payable. Neither the Company, nor any
Principal Shareholder has Knowledge of any basis for the assertion of any claim
relating or attributable to Taxes which, if adversely determined, would result
in any Lien on the assets of the Company.

(viii) None of the Company’s assets is treated as “tax-exempt use property,”
within the meaning of Section 168(h) of the Code.

(ix) The Company has (a) never been a member of an affiliated group (within the
meaning of Section 1504(a) of the Code) filing a consolidated federal income Tax
Return (other than a group the common parent of which was Company), (b) never
been a party to any Tax sharing, indemnification or allocation agreement, (c) no
liability for the Taxes of any person (other than Company) under Treasury
Regulation § 1.1502-6 (or any similar provision of state, local or foreign Law),
as a transferee or successor, by contract or agreement, or otherwise and
(d) never been a party to any joint venture, partnership or other arrangement
that could be treated as a partnership for Tax purposes.

(x) The Company’s tax basis in its assets for purposes of determining its future
amortization, depreciation and other income Tax deductions is accurately
reflected on the Company’s tax books and records.

 

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(xi) The Company has not been, at any time, a “United States Real Property
Holding Corporation” within the meaning of Section 897(c)(2) of the Code.

(xii) No adjustment relating to any Tax Return filed by the Company has been
proposed formally or, to the Knowledge of the Company or any Principal
Shareholder, informally by any tax authority to the Company or any
representative thereof.

(xiii) The Company has not constituted either a “distributing corporation” or a
“controlled corporation” in a distribution of stock intended to qualify for
tax-free treatment under Section 355 of the Code (x) in the two (2) years prior
to the date of this Agreement or (y) in a distribution which could otherwise
constitute part of a “plan” or “series of related transactions” (within the
meaning of Section 355(e) of the Code) in conjunction with the Merger.

(xiv) The Company has not participated in a reportable transaction under
Treasury Regulation § 1.6011-4(b), including a transaction that is the same as
or substantially similar to one of the types of transactions that the Internal
Revenue Service has determined to be a tax avoidance transaction and identified
by notice, regulation, or other form of published guidance as a listed
transaction, as set forth in Treasury Regulation § 1.6011-4(b)(2).

(xv) The Company will not be required to include any income or gain or exclude
any deduction or loss from taxable income for any taxable period or portion
thereof on or after the Closing as a result of any (1) change in method of
accounting made prior to or in connection with the Closing, (2) closing
agreement under Section 7121 of the Code executed prior to the Closing (or in
the case of each of (1) and (2), under any similar provision of applicable Law),
(3) installment sale or open transaction disposition consummated prior to the
Closing, or (4) prepaid amount received prior to the Closing.

(xvi) The Company uses the accrual method of accounting for tax purposes.

(xvii) The Company and any predecessor to the Company have each been an
S corporation within the meaning of the Code and for state Tax Law purposes
(except in those states which do not recognize S corporation status) at all
times for the past ten (10) years, and filed all forms and taken all actions
necessary to maintain such status. None of the Company, any predecessor to the
Company or any Company Shareholder has taken any action, or omitted to take any
action, which action or omission could result in the loss of S corporation
status or qualified subchapter S subsidiary within the meaning of
Section 1361(a) of the Code (or any comparable state Law) status prior to the
Closing.

(xviii) In the event the Section 338(h)(10) Elections are made, the Company will
not be liable for any Tax under Section 1374 of the Code. The Company has not in
the past ten (10) years (1) acquired assets from another corporation in a
transaction in which the tax basis of the acquired assets (or any other
property) was determined, in whole or in part, by reference to the tax basis of
the acquired assets (or any other property) in the hands of the transferor, or
(2) acquired the stock of any corporation.

 

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(c) Executive Compensation Tax. There is no contract, agreement, plan or
arrangement to which the Company is a party, including, without limitation, the
provisions of this Agreement, covering any Employee of the Company, which,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Sections 280G or 404 of the Code.

(d) Section 409A. Each nonqualified deferred compensation plan (as defined in
Section 409A(d)(1) of the Code) has complied in all material respects with
Section 409A of the Code and all applicable IRS guidance issued with respect
thereto. Each outstanding Company Option, stock appreciation right, or other
similar right to acquire Company Common Stock or other equity of the Company,
granted to or held by an individual or entity who is or may be subject to United
States taxation, (1) has an exercise price that that is not less than the fair
market value of the underlying equity as of the date such Company Option, stock
appreciation right or other similar right was granted, (2) has no feature for
the deferral of compensation other than the deferral of recognition of income
until the later of exercise or disposition of such Company Option, stock
appreciation right or other similar right, (3) to the extent it was granted
after December 31, 2004, was granted with respect to a class of stock of the
Company that is “service recipient stock” (within the meaning of Section 409A
and the proposed or final regulations or other IRS guidance issued with respect
thereto), and (4) has been properly accounted for in accordance with GAAP in the
Financials.

2.11 Restrictions on Business Activities. Except as set forth in Section 2.11 of
the Disclosure Schedule, there is no Contract (non-competition or otherwise),
commitment, judgment, injunction, order or decree to which the Company is a
party or otherwise binding upon the Company which has the effect of prohibiting
or impairing any business practice of the Company, any acquisition of property
(tangible or intangible) by the Company, the conduct of business by the Company,
or otherwise limiting the freedom of the Company to engage in any line of
business or to compete with any Person. Without limiting the generality of the
foregoing, the Company has not entered into any Contract under which the Company
is restricted from selling, licensing, manufacturing or otherwise distributing
any of its Technology or the Company Products or from providing services to
customers or potential customers or any class of customers, in any geographic
area, during any period of time, or in any segment of the market, or, without
limiting the generality of the foregoing, except for those agreements entered
into in the ordinary course of the Company’s business, including, without
limitation, non-disclosure agreements, from hiring or soliciting potential
employees, consultants or independent contractors.

2.12 Title to Properties; Absence of Liens and Encumbrances; Condition of
Equipment; Customer Information.

(a) The Company does not own any real property, nor has the Company ever owned
any real property. Section 2.12(a) of the Disclosure Schedule sets forth a list
of all real property currently leased, subleased or licensed by or from the
Company or otherwise used or occupied by the Company for the operation of its
business (the “Leased Real Property”), the name of the lessor, licensor,
sublessor, master lessor and/or lessee the date and term of the lease, license,

 

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sublease or other occupancy right and each amendment thereto and, with respect
to any current lease, license, sublease or other occupancy right the aggregate
annual rental payable thereunder.

(b) The Company has provided or made available to Parent true, correct and
complete copies of all leases, lease guaranties, subleases, agreements for the
leasing, use or occupancy of, or otherwise granting a right in or relating to
the Leased Real Property, including all amendments, terminations and
modifications thereof (“Lease Agreements”). To the Company’s Knowledge, all such
Lease Agreements are valid and effective in accordance with their respective
terms, and there is not, under any of such Lease Agreements, any existing
default, no rentals are past due (taking into account any applicable cure
period), or event of default. The Company has not received any notice of a
default, alleged failure to perform, or any offset or counterclaim with respect
to any such Lease Agreement, which has not been fully remedied and withdrawn.
The Closing will not affect the enforceability against any person of any such
Lease Agreement or the rights of the Company or the Surviving Corporation to the
continued use and possession of the Leased Real Property for the conduct of
business as presently conducted. The Company currently occupies all of the
Leased Real Property for the operation of its business. There are no other
parties occupying, and to the Company’s Knowledge, there are no parties with a
right to occupy, the Leased Real Property. The Company does not owe brokerage
commissions or finders fees with respect to any such Leased Real Property or
would owe any such fees if any existing Lease Agreement were renewed pursuant to
any renewal options contained in such Lease Agreements.

(c) To the Knowledge of the Company, the Leased Real Property is in good
operating condition and repair, free from structural, physical and mechanical
defects, is maintained in a manner consistent with standards generally followed
with respect to similar properties used for similar purposes in the same
geographic market, and is structurally sufficient and otherwise suitable for the
conduct of the business as presently conducted. Neither the operation of the
Company on the Leased Real Property nor, to the Company’s Knowledge, such Leased
Real Property, including the improvements thereon, violate in any material
respect any applicable building code, zoning requirement or statute relating to
such property or operations thereon, and any such non-violation is not dependent
on so-called non-conforming use exceptions.

(d) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except for Permitted Liens.

(e) Section 2.12(e) of the Disclosure Schedule lists all material items of
equipment (the “Equipment”) owned or leased by the Company, and such Equipment
is (i) adequate for the conduct of the business of the Company as currently
conducted and as currently contemplated to be conducted, and (ii) in good
operating condition, regularly and properly maintained, subject to normal wear
and tear.

(f) The Company has sufficient right to possess and use, and to the extent
applicable, sole and exclusive ownership of, free and clear of any Liens, other
than Permitted Liens, all customer lists, customer contact information, customer
correspondence and customer licensing and purchasing histories relating to its
current and former customers (the “Customer

 

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Information”). Other than the customers, no person other than the Company
possesses any claims or rights with respect to use of the Customer Information
in any manner that would diminish or interfere with the Company’s right to use
the Customer Information.

2.13 Intellectual Property.

(a) Definitions. For all purposes of this Agreement, the following terms shall
have the following respective meanings:

(i) “Company Intellectual Property” shall mean any and all Intellectual Property
Rights that are owned or purported by the Company to be owned by the Company.

(ii) “Company Products” shall mean all products and subscription services
developed (including products and subscription services for which development is
substantially completed), manufactured, made commercially available, marketed,
distributed, sold, imported for resale or licensed out by or on behalf of the
Company (x) during the five-year period immediately preceding the date hereof,
(y) which are currently under development by the Company or (z) which the
Company continues to support.

(iii) “Intellectual Property Rights” shall mean worldwide (i) patents and patent
applications, (ii) copyrights, copyright registrations and applications for
copyright registration, “moral” rights and mask work rights, (iii) trade
secrets, (iv) trademarks, trade names and service marks, (v) divisions,
continuations, renewals, reissuances and extensions of the foregoing (as
applicable) and (vi) analogous rights to those set forth above.

(iv) “Registered Intellectual Property” shall mean patents, trademark
registrations, copyright registrations and applications, registrations and
filings for the foregoing or for any other Intellectual Property Rights.

(v) “Shrink-Wrap Code” means any generally commercially available software in
executable code form (other than development tools and development environments)
that is available for a cost of not more than one thousand dollars ($1,000) for
a perpetual license for a single user or work station, and not more than fifty
thousand dollars ($50,000) in the aggregate for all users and work stations.

(vi) “Technology” shall mean any or all of the following (i) works of authorship
including computer programs, whether in source code or in executable code form,
architecture and documentation, (ii) inventions (whether or not patentable),
discoveries and improvements, (iii) proprietary and confidential information,
trade secrets and know how, (iv) databases, data compilations and collections
and technical data, (v) logos, trade names, trade dress, trademarks and service
marks, (vi) domain names, web addresses and sites, (vii) methods and processes,
and (viii) devices, prototypes, designs and schematics.

(b) Company Products. Section 2.13(b) of the Disclosure Schedule lists all
Company Products by name and latest version number.

 

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(c) Technology. Section 2.13(c) of the Disclosure Schedule lists all material
Technology (except for Shrink-Wrap Code) that is used in or necessary to the
conduct of the business of the Company as currently conducted by the Company and
specifies whether such Technology was developed internally by the Company or
provided by third parties (and if provided by a third party, specifies the
license or other agreement under which such Technology was provided), and
specifies whether such Technology is incorporated into or necessary to develop
or commercially exploit any Company Products (and if so, which Company
Products).

(d) Registered Intellectual Property. Section 2.13(d) of the Disclosure Schedule
(i) lists all Registered Intellectual Property that is part of Company
Intellectual Property (“Company Registered Intellectual Property”), all domain
names registered in the name of the Company and applications and registrations
therefor and all unregistered trademarks used by the Company with respect to
Company Products, (ii) lists any actions that must be taken by the Company
within sixty (60) days of the Closing Date with respect to any of the foregoing,
including the payment of any registration, maintenance or renewal fees or the
filing of any documents, applications or certificates, and (iii) lists any
proceedings or actions currently pending before any court or tribunal (including
the United States Patent and Trademark Office (the “PTO”) or equivalent
authority anywhere in the world) to which the Company is a party and in which
claims are raised relating to the validity, enforceability, scope, ownership or
infringement of any of the Company Registered Intellectual Property. All
necessary registration, maintenance and renewal fees in connection with such
Company Registered Intellectual Property that are or will be due for payment on
or before the Closing Date have been or will be timely paid and all necessary
documents and certificates in connection with such Company Registered
Intellectual Property that are or will be due for filing on or before the
Closing Date have been or will be timely filed with the PTO or other relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Company Registered Intellectual Property.

(e) Transferability of Company Intellectual Property. All Company Intellectual
Property will be fully transferable, alienable and licensable by Surviving
Corporation and/or Parent without restriction and without payment of any kind to
any third party.

(f) Title to Company Intellectual Property. The Company is the sole and
exclusive owner of each item of Company Intellectual Property, free and clear of
any Liens other than Permitted Liens, licenses granted to customers and
contractors in the ordinary course of business and those set forth on
Section 2.13(f) of the Disclosure Schedule. The Company has the sole and
exclusive right to bring a claim or suit against a third party for infringement
or misappropriation of the Company Intellectual Property. Except for trade
secrets that lost their status as trade secrets upon the release of a new
Product, upon the issuance of a patent or publication of a patent application,
or as a result of a good faith business decision to disclose such trade secret,
and except for trademarks, trade names and service marks that the Company made a
good faith business decision to stop using, the Company has not (i) transferred
ownership of, or granted any exclusive license with respect to, any Intellectual
Property Rights that are or, as of the time of such transfer or exclusive
license, were material to the Company, to any other Person or (ii) permitted the
rights of

 

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the Company in any Company Intellectual Property that is or was at the time
material to the Company to enter into the public domain.

(g) Third Party Intellectual Property Rights. Other than Intellectual Property
Rights licensed to the Company under (i) licenses for the Open Source Software
listed in Section 2.13(o) of the Disclosure Schedule, (ii) licenses for
Shrink-Wrap Code, (iii) licenses for Technology designated as “3rd Party
Technology” set forth in Schedule 2.13(c) of the Disclosure Schedule and
(iv) the licenses set forth in Section 2.13(g) of the Disclosure Schedule, the
Company Intellectual Property includes all Intellectual Property Rights that are
used in or necessary to the conduct of the business of the Company as it
currently is conducted by the Company, including the design, development,
manufacture, use, marketing, import for resale, distribution, licensing out and
sale of any Company Product. The Company owns or possesses licenses to use all
Technology that is used in or necessary to the conduct of the business of the
Company as currently conducted by the Company. The consummation of the
transactions contemplated by this Agreement will not require the consent of the
licensor with respect to any licenses set forth in Section 2.13(g) of the
Disclosure Schedule.

(h) IP Agreements. Copies of the Company’s standard form(s), including
attachments, of non-exclusive licenses of the Company Products to end-users
(collectively, the “Standard Form Agreements”) are attached to
Section 2.13(h)(1) of the Disclosure Schedule. Other than (i) non-disclosure
agreements and (ii) non-exclusive licenses of the Company Products to end-users
(in each case of (i) and (ii), pursuant to any agreement that has been entered
into in the ordinary course of business, and in the case of (ii) in a form that
does not materially differ in substance from the Standard Form Agreements)),
Section 2.13(h)(2) of the Disclosure Schedule lists all contracts, licenses and
agreements to which the Company is a party and under which the Company has
granted, licensed or provided any Company Intellectual Property and/or
Technology owned by the Company to third parties (other than rights granted to
contractors or vendors to use Company Intellectual Property and Technology for
the sole benefit of the Company). The Company has not entered into any agreement
to indemnify, hold harmless or defend any other Person with respect to any
assertion of Infringement, other than indemnification provisions used in
transactions arising in the ordinary course of business that do not materially
differ in substance from the indemnification provisions set forth in
Section 2.13(h)(3) of the Disclosure Schedule. To the Company’s Knowledge, no
event or circumstance has occurred or exists (including the authorization,
execution or delivery of this Agreement or the consummation of any of the
transactions contemplated hereby) that would result in a material breach or
violation of any license, sublicense or other agreement required to be listed in
Section 2.13(h)(3) or Section 2.13(g) of the Disclosure Schedule or of any
license to Shrink Wrap Code or any Standard Form Agreement to which the Company
is a party.

(i) No Infringement by the Company. The operation of the business of the Company
as it is currently conducted or is currently contemplated to be conducted by the
Company, including the design, development, use, import, branding, advertising,
promotion, marketing, manufacture, sale and licensing out of any Company
Product, does not infringe or misappropriate and will not infringe or
misappropriate when conducted in substantially the same manner by Parent

 

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and/or Surviving Corporation following the Closing, any Intellectual Property
Rights of any Person, violate any right of any Person (including any right to
privacy or publicity), or constitute unfair competition or trade practices under
the Laws of any jurisdiction. In the ten-year period prior to the date of this
Agreement, or in the case of trademarks, trade names and service marks, in the
five-year period prior to the date of this Agreement, the Company has not
received notice from any Person claiming that such operation or any act, any
Company Product, any Technology used by the Company or any Company Intellectual
Property infringes or misappropriates any Intellectual Property Rights of any
Person or constitutes unfair competition or trade practices under the Laws of
any jurisdiction (nor does the Company have Knowledge of any basis therefor).

(j) Third Party Rights. Except as set forth in Section 2.13(j) of the Disclosure
Schedule, no third party that has licensed Intellectual Property Rights or
provided any Technology to the Company has retained sole ownership of or
exclusive license rights under any Intellectual Property Rights in any
improvements or derivative works made solely or jointly by the Company under
such license.

(k) Restrictions on Business. Neither this Agreement nor the transactions
contemplated by this Agreement, including the assignment to Parent by operation
of Law or otherwise of any contracts or agreements to which the Company is a
party, will cause: (i) Parent, any of its Subsidiaries or the Surviving
Corporation to grant to any third party any right to or with respect to any
Intellectual Property Rights owned by, or licensed to, any of Parent, any of its
Subsidiaries or the Surviving Corporation (other than rights granted by the
Company on or prior to the Closing Date under Intellectual Property Rights owned
by the Company as of the Closing Date and consistent with the rights described
in the Standard Form Agreements), (ii) Parent, any of its Subsidiaries or the
Surviving Corporation, to be bound by, or subject to, any non-compete or other
material restriction on the operation or scope of their respective businesses
(excluding any non-compete or other material restriction that arises from any
agreement to which the Company is not a party), or (iii) Parent, any of its
Subsidiaries or the Surviving Corporation to be obligated to pay any royalties
or other license fees with respect to Intellectual Property Rights of any third
party in excess of those payable by the Company in the absence of this Agreement
or the transactions contemplated hereby.

(l) No Third Party Infringement. To the Knowledge of the Company, no Person is
infringing or misappropriating any Company Intellectual Property in any material
respect.

(m) Proprietary Information Agreements. Copies of the Company’s standard form of
proprietary information, confidentiality and assignment agreement for employees
(the “Employee Proprietary Information Agreement”) is attached to
Section 2.13(m) of the Disclosure Schedule. Except as set forth in
Section 2.13(m) of the Disclosure Schedule, all current and former employees of
the Company have executed the Employee Proprietary Information Agreement, and
all current and former consultants of the Company who have been involved in the
creation or development of Technology, have executed an agreement containing
appropriate proprietary information, confidentiality and assignment provisions.
The Company has taken commercially reasonable steps to protect the
confidentiality of confidential information and trade

 

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secrets of the Company and of any third party that has provided any confidential
information or trade secrets to the Company.

(n) No Government Funding. No government funding, facilities or resources of a
university, college, other educational institution, multi-national, bi-national
or international organization or research center was used in the development of
the Company Intellectual Property or any Technology for the Company.

(o) Open Source Software. Section 2.13(o) of the Disclosure Schedule lists all
software that is distributed as “open source software” or under a similar
licensing or distribution model (including but not limited to the GNU General
Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public
License (MPL), BSD licenses, the Artistic License, the Netscape Public License,
the Sun Community Source License (SCSL), the Sun Industry Standards License
(SISL) and the Apache License) (collectively, “Open Source Software”) that has
been incorporated into or integrated or linked with any Company Product in any
way and describes the manner in which such Open Source Software was
incorporated, integrated or linked (such description shall include, without
limitation, whether (and, if so, how) the Open Source Software was modified
and/or distributed by the Company and whether (and if so, how) such Open Source
Software was in incorporated into or integrated or linked with any Company
Product). The Company has not used Open Source Software in any manner that would
or could (i) require the disclosure or distribution in source code form of any
Company Product, (ii) require the licensing of any Company Product for the
purpose of making derivative works, (iii) impose any restriction on the
consideration to be charged for the distribution of any Company Product,
(iv) create, or purport to create, obligations for the Company with respect to
Intellectual Property Rights owned by the Company or grant, or purport to grant,
to any third party, any rights or immunities under Intellectual Property Rights
owned by the Company or (v) impose any other material limitation, restriction,
or condition on the right of the Company to use or distribute any Company
Product. With respect to any Open Source Software that is or has been used by
the Company in any way, the Company has been and is in compliance in all
material respects with all applicable licenses with respect thereto, complete
copies of which have been provided or made available to Parent.

(p) Source Code. Except as set forth in Section 2.13(p) to the Disclosure
Schedule, neither the Company, nor any other Person acting on its behalf has
disclosed, delivered or licensed to any Person, agreed to disclose, deliver or
license to any Person, or permitted the disclosure or delivery to any escrow
agent or other Person of, any source code for any Company Product except for
disclosures to employees, contractors or consultants under agreements that
prohibit use or disclosure except in the performances of services to the
Company. Neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent (by operation of Law or otherwise)
of any Contract to which the Company is a party, will result in the release of
such source code to any third party, or the right of any third party to obtain
access or rights to any such source code, whether from the Company or an escrow
agent or similar Person.

(q) Privacy and Protection of Personal Information. The Company has complied
with all applicable Laws (including the contractual and fiduciary obligations,
and its internal privacy

 

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policies relating to HIPAA) regarding (i) the Company Products, and the privacy
of users of Internet websites owned, maintained or operated by the Company
(“Company Sites”) and of the Company Products, and (ii) the collection, storage,
transfer and other processing of any Personally Identifiable Information, or
Protected Health Information as such term is defined in HIPAA, collected or used
by or on behalf of the Company, or by any Company Site or any Company Product in
any manner, or maintained by third parties authorized by the Company to have
access to such information (the “Company PII”). The execution, delivery and
performance of this Agreement and the transactions contemplated by this
Agreement, including the disclosure and/or transfer to Parent (by operation of
Law or otherwise) of the Company PII, complies in all material respects with all
applicable Laws relating to privacy (including HIPAA) and with the Company’s
privacy policies. Copies of all current privacy policies of the Company that
apply to the Company Sites or the Company Products are attached to
Section 2.13(q) of the Disclosure Schedule. The Company has taken commercially
reasonable steps (including, without limitation, implementing and monitoring
compliance with adequate measures with respect to technical and physical
security) to protect the Company PII against loss and against unauthorized
access, use, modification, disclosure or other misuse, and there has been no
material unauthorized access to or other misuse of the Company PII. The Company
is not in material violation of HIPAA or regulations promulgated to implement
HIPAA, including the regulations implementing the Privacy Rule codified at 45
CFR parts 160 and 164, Subparts A and E, and the Standards for Security for the
Protection of Electronic Protected Health Information, codified at 45 CFR parts
160 and 164, Subpart C, or any similar state Law or regulation; nor is the
Company in breach, violation or default of any terms or provisions of contracts
or other business arrangements, including Business Associate Agreements, that
require compliance with HIPAA or its implementing regulations. Neither the
Company nor, to the Knowledge of the Company, any officer, key employee or agent
of the Company, has been convicted of any crime or engaged in any conduct that
would reasonably be expected to result in exclusion under 42 U.S.C.
Section 1320a-7 or any similar state Law or regulation.

(r) Bugs. Section 2.13(r) of the Disclosure Schedule sets forth the Company’s
current (as of the date immediately preceding the date hereof) list of known
bugs maintained by its development or quality control groups with respect to any
Company Products that the Company currently makes commercially available or for
which the Company provides or makes available support or maintenance through
active contracts.

(s) Contaminants. Except as set forth in Section 2.13(s) of the Disclosure
Schedule, all Company Products (and all parts thereof) are free of any and all
“back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead device,” “virus” or
other software routines or hardware components that permit unauthorized access
or the unauthorized disablement or erasure of such Company Product (or all parts
thereof) or data or other software of users (“Contaminants”), other than those
mechanisms disclosed to customers in the Company’s end user product
documentation. The Company endeavors to prevent the introduction of Contaminants
into Company Products from software licensed from third parties using the
procedures specified in Section 2.13(s) of the Disclosure Schedule.

 

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(t) Security Measures. The Company has taken commercially reasonable steps
consistent with similarly situated companies in its industry, to protect the
information technology systems used in connection with the operation of the
Company from Contaminants. There have been no material unauthorized intrusions
or breaches of the security of information technology systems.

2.14 Agreements, Contracts and Commitments.

(a) Except as set forth in Section 2.14(a) of the Disclosure Schedule
(specifying the appropriate paragraph, provided, that the failure to properly
identify the correct paragraph or each paragraph that may be applicable, alone,
shall not affect the accuracy or correctness of this representation or
warranty), the Company is not a party to, nor is it bound by:

(i)(A) any employment, contractor or consulting agreement, Contract or
commitment with an Employee or salesperson, (B) any agreement, Contract or
commitment to grant any severance or termination pay (in cash or otherwise) to
any Employee, or (C) any consulting or sales agreement, contract, or commitment
with a firm or other organization;

(ii) any agreement or plan, including any stock option plan, stock appreciation
rights plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of benefits of which will be accelerated or may 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;

(iii) any fidelity or surety bond or completion bond;

(iv) any lease of personal property requiring future payments in excess of
$5,000 annually or $50,000 in the aggregate;

(v) any Lease Agreements;

(vi) any agreement of indemnification or guaranty of performance, except for
indemnities that do not materially differ in substance from the indemnification
provisions that are typical and in the ordinary course of business of companies
in the same industry as the Company;

(vii) any Contract relating to capital expenditures and requiring future
payments in excess of $25,000 in the aggregate;

(viii) any agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise;

(ix) any mortgages, indentures, guarantees, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit;

 

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(x) any purchase order or contract for the purchase of materials involving
payments in excess of $15,000 individually or $50,000 in the aggregate;

(xi) any construction contracts;

(xii) any hedging, swap, derivative, International Swaps and Derivatives
Association or similar Contract;

(xiii) any dealer, distribution, joint marketing, strategic alliance, affiliate
or development agreement;

(xiv) any agreement, contract or commitment to alter the Company’s interest in
any corporation, association, joint venture, partnership or business entity in
which the Company directly or indirectly holds any interest;

(xv) any joint venture or joint development arrangement;

(xvi) any Contract pursuant to which the Company or any of its subsidiaries is
bound to or has committed to provide any product or service to any third party
on a most favored nation (MFN) basis or similar terms;

(xvii) any nondisclosure, confidentiality or similar agreement, other than
nondisclosure agreements entered into in the ordinary course of business or
non-disclosure or confidentiality provisions contained in Contracts otherwise
disclosed in Section 2.14(a) of the Disclosure Schedule;

(xviii) any sales representative, original equipment manufacturer,
manufacturing, value added, remarketer, reseller, or independent software
vendor, or other agreement for use or distribution of the products, technology
or services of the Company; or

(xix) any other agreement, contract or commitment that involves $15,000
individually or $50,000 in the aggregate or more and is not cancelable without
penalty within thirty (30) days.

(b) The Company has delivered or made available to Parent true and complete
copies of each Contract required to be disclosed pursuant to Section 2.2,
Sections 2.13(c), 2.13(g), 2.13(h) (including, for the avoidance of doubt, each
Contract entered into on a Standard Form Agreement), 2.13(j), 2.13(o),
Section 2.14 and the Lease Agreements (each a “Material Contract” and
collectively, the “Material Contracts”) and each of the other documents listed
on the Disclosure Schedule.

(c) Each Material Contract to which the Company is a party or any of its
properties or assets (whether tangible or intangible) is subject is a valid and
binding agreement of the Company, and, to the Knowledge of the Company, each
other party thereto, enforceable against the Company, and, to the Knowledge of
the Company, each other party thereto, in accordance with its

 

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terms, and is in full force and effect with respect to the Company and, to the
Knowledge of the Company, each other party thereto, subject to (i) Laws of
general application relating to bankruptcy, insolvency fraudulent conveyance,
reorganization, moratorium and other similar Laws relating to or affecting
creditors’ rights generally, and (ii) general principles of equity. Except as
set forth in Section 2.14(c) of the Disclosure Schedule, the Company is in
compliance in all material respects with and has not materially breached,
violated or defaulted under, or received notice that it has materially breached,
violated or defaulted under, any of the terms or conditions of any Material
Contract, nor to the Knowledge of the Company is any party obligated to the
Company pursuant to any Material Contract subject to any material breach,
violation or default thereunder, nor does the Company have Knowledge of any
presently existing facts or circumstances that, with the lapse of time, giving
of notice, or both would constitute such a material breach, violation or default
by the Company or any such other party. As of the date hereof, other than in
connection herewith, there are no new Contracts being actively negotiated that
would be required to be listed in Section 2.14(a).

(d) The Company has fulfilled all material obligations required to have been
performed by the Company pursuant to each Material Contract.

(e) Except as set forth in Section 2.14(e) of the Disclosure Schedule, all
outstanding Indebtedness of the Company may be prepaid without penalty.

2.15 Interested Party Transactions.

(a) Other than employment arrangements with the Company disclosed in the
Disclosure Schedule or as set forth in Section 2.15 of the Disclosure Schedule,
no officer or director of the Company or, to the Knowledge of the Company or the
Principal Shareholders, Company Shareholder (nor, to the Knowledge of the
Company, any “immediate family” (as such term is defined in Rule 12b-2 and
Rule 16a-1 of the Securities Exchange Act of 1934, as amended) of any of such
Persons, or any trust, partnership or corporation in which any of such Persons
has or has had an interest) (each, an “Interested Party”), has or has had,
directly or indirectly, (i) any interest in any Person which furnished or sold,
or furnishes or sells, services, products, or technology that the Company
furnishes or sells, or proposes to furnish or sell, or (ii) any interest in any
Person that purchases from or sells or furnishes to the Company, any goods or
services, or (iii) any interest in, or is a party to, any Contract to which the
Company is a party; provided, however, that ownership of no more than two
percent (2%) of the outstanding voting stock of a publicly traded corporation
shall not be deemed to be an “interest in any Person” for purposes of this
Section 2.15.

(b) All transactions pursuant to which any Interested Party has purchased any
services, products, or technology from, or sold or furnished any services,
products or technology to, the Company that were entered into on or after the
incorporation of the Company have been on an arms length basis on terms no less
favorable to the Company than would be available from an unaffiliated party.

2.16 Company Authorizations. Section 2.16 of the Disclosure Schedule sets forth
each material consent, license, permit, grant or other authorization
(i) pursuant to which the Company currently operates or holds any interest in
any of its properties, or (ii) which is required for the

 

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operation of the Company’s businesses as currently conducted or the holding of
any such interest (collectively, “Company Authorizations”). All of the Company
Authorizations have been issued or granted to the Company, are in full force and
effect and constitute all material consents, licenses, permits, grants or other
authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties, rights or assets.

2.17 Litigation. Except as set forth in Section 2.17 of the Disclosure Schedule,
there is no action, suit, claim or proceeding of any nature pending, or to the
Knowledge of the Company or the Principal Shareholders, threatened, against the
Company, its properties (tangible or intangible) or any of the Company’s
officers or directors (in their capacities as such). There is no investigation,
audit or other proceeding pending or, to the Knowledge of the Company or the
Principal Shareholders, threatened, against the Company, its properties
(tangible or intangible) or any of the Company’s officers or directors (in their
capacities as such) by or before any Governmental Entity. No Governmental Entity
has at any time challenged or questioned the legal right of the Company to
conduct its operations as presently or previously conducted. There is no action,
suit, claim or proceeding of any nature pending or, to the Knowledge of the
Company or the Principal Shareholder, threatened, against any Person who has a
contractual right or a right pursuant to laws of the State of Colorado to
indemnification from the Company related to facts and circumstances existing
prior to the Effective Time.

2.18 Environmental Matters.

(a) No amount of any substance that has been designated by any Governmental
Entity or by applicable federal, foreign, state or local Law to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment, including PCBs, asbestos, petroleum, and urea formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said Laws (a “Hazardous Material”) is present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased (excluding
office and janitorial supplies properly and safely maintained).

(b) The Company has not exposed its employees or others to Hazardous Materials
in violation of any Law or in a manner that would result in Liability to the
Company, nor has the Company disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (any or all of the foregoing being
collectively referred to herein as “Hazardous Materials Activities”) in
violation of any rule, regulation, license, permit, treaty or statute
promulgated by any Governmental Entity to prohibit, regulate or control
Hazardous Materials or any Hazardous Materials Activities.

(c) The Company does not have, and is not required to have any environmental
approvals, permits, licenses, clearances or consents in connection with its
business or facilities. Other than the Lease Agreements and as set forth on
Section 2.18(c) of the Disclosure Schedule, the Company has not entered into any
agreement that may require it to guarantee, reimburse, pledge,

 

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defend, hold harmless or indemnify any other party with respect to Liabilities
arising out of or relating to the Hazardous Materials Activities of the Company
or any third party.

(d) The Company is not in material violation of any applicable statute, Law, or
regulation relating to the environment or occupational health and safety, and to
the Knowledge of the Company, no material expenditures are or will be required
in order to comply with any such existing statute, Law or regulation.

2.19 Accounts Receivable.

(a) The Company has made available to Parent a list of all accounts receivable
of the Company as of the Balance Sheet Date, together with an aging schedule
indicating a range of days elapsed since invoice.

(b) All of the accounts receivable of the Company arose in the ordinary course
of business, are carried at values determined in accordance with GAAP
consistently applied. No person has any Lien, other than a Permitted Lien, on
any accounts receivable of the Company and no request or agreement for deduction
or discount has been made with respect to any accounts receivable of the
Company, except as adequately reflected in reserves set forth in the Current
Balance Sheet.

2.20 Books and Records. Except as set forth in Section 2.20 of the Disclosure
Schedule, the minute books of the Company, all of which have been made available
to Parent, contain true, correct and complete records of all formal meetings
held of, and corporate action taken by, the Company Shareholders, the Board of
Directors and committees of the Board of Directors of the Company, and no
meeting of any such Company Shareholders, Board of Directors or committee has
been held for which minutes have not been prepared or that are not contained in
such minute books. The Company and its subsidiaries have made and kept business
records, financial books and records, personnel records, ledgers, sales
accounting records, tax records and related work papers and other books and
records of the Company and its subsidiaries (collectively, the “Books and
Records”) that are true, correct and complete and accurately and fairly reflect,
in all material respects, the business activities of the Company and its
subsidiaries. Neither the Company nor any of its subsidiaries has engaged in any
transaction, maintained any bank account or used any corporate funds except as
reflected in its normally maintained Books and Records. At the Closing, the
minute books and other Books and Records of the Company and each of its
subsidiaries will be in the possession of the Company.

2.21 Brokers’ and Finders’ Fees; Third Party Expenses. Except as set forth in
Section 2.21 of the Disclosure Schedule, the Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders’ fees
or agents’ commissions, fees related to investment banking or similar advisory
services or any similar charges in connection with the Agreement or any
transaction contemplated hereby. Copies of any agreement, written or oral, with
respect to such fees has been provided or made available to Parent.

 

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2.22 Employee Benefit Plans and Compensation.

(a) Definitions. For all purposes of this Agreement, the following terms shall
have the following respective meanings:

(i) “Affiliate” shall mean any other person or entity under common control with
the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code,
and the regulations issued thereunder.

(ii) “Company Employee Plan” shall mean any plan, program, policy, practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including without limitation, each “employee benefit plan,” within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee, or with respect to which the Company or any Affiliate has or
may have any liability or obligation and any International Employee Plan.

(iii) “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.

(iv) “DOL” shall mean the United States Department of Labor.

(v) “Employee” shall mean any current or former employee, operational
consultant, independent contractor or director of the Company or any Affiliate.

(vi) “Employee Agreement” shall mean each management, employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, or contract (including, without limitation, any offer letter or any
other agreement providing for compensation or benefits) between the Company or
any Affiliate and any Employee which is currently in effect.

(vii) “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

(viii) “FMLA” shall mean the Family Medical Leave Act of 1993, as amended.

(ix) “International Employee Plan” shall mean each Company Employee Plan or
Employee Agreement that has been adopted or maintained by the Company or any
Affiliate, whether formally or informally or with respect to which the Company
or any Affiliate will or may have any liability with respect to Employees who
perform services outside the United States.

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

 

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(xi) “PBGC” shall mean the United States Pension Benefit Guaranty Corporation.

(xii) “Pension Plan” shall mean each Company Employee Plan that is an “employee
pension benefit plan,” within the meaning of Section 3(2) of ERISA.

(xiii) “WARN” shall mean the Worker Adjustment and Retraining Notification Act.

(b) Schedule. Section 2.22(b) of the Disclosure Schedule contains an accurate
and complete list of each Company Employee Plan and each Employee Agreement. The
Company has not made any plan or commitment to establish any new Company
Employee Plan or Employee Agreement, to modify any Company Employee Plan or
Employee Agreement (except to the extent required by Law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable Law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement.

(c) Documents. The Company has provided or made available to Parent (i) correct
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including, without limitation, all amendments thereto
and all related trust documents, (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Company
Employee Plan, (iii) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets, (iv) the most
recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan, (v) all material written agreements and contracts relating to
each Company Employee Plan, including, without limitation, administrative
service agreements and group insurance contracts, (vi) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
liability to the Company, (vii) all correspondence to or from any governmental
agency relating to any Company Employee Plan, (viii) all COBRA forms and related
notices, (ix) all policies pertaining to fiduciary liability insurance covering
the fiduciaries for each Company Employee Plan, (x) all discrimination tests for
each Company Employee Plan for the three (3) most recent plan years, (xi) all
registration statements, annual reports (Form 11-K and all attachments thereto)
and prospectuses prepared in connection with each Company Employee Plan, and
(xii) the most recent IRS determination or opinion letter issued with respect to
each Company Employee Plan.

(d) Employee Plan Compliance. The Company has performed all obligations required
to be performed by them under, is not in default or violation of, and the
Company has no Knowledge of any default or violation by any other party to, any
Company Employee Plan, and each Company Employee Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
Laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code. Any Company Employee Plan intended to be qualified under
Section 401(a)

 

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of the Code has obtained a favorable determination letter (or opinion letter, if
applicable) as to its qualified status under the Code. No “prohibited
transaction,” within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Company Employee Plan. There are no actions, suits or claims
pending or, to the Knowledge of the Company or the Principal Shareholders,
threatened or reasonably anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan. Each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent or the Company (other than ordinary administration
expenses). There are no audits, inquiries or proceedings pending or to the
Knowledge of the Company or the Principal Shareholders, threatened by the IRS,
DOL, or any other Governmental Entity with respect to any Company Employee Plan.
The Company is not subject to any penalty or tax with respect to any Company
Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the
Code. The Company has made all contributions and other payments required by and
due under the terms of each Company Employee Plan.

(e) No Pension Plans. Neither the Company nor any Affiliate has ever maintained,
established, sponsored, participated in, or contributed to, any Pension Plans
subject to Title IV of ERISA.

(f) No Self-Insured Plans. Except as set forth in Section 2.22(f) of the
Disclosure Schedule, the Company has not maintained, established sponsored,
participated in or contributed to any self-insured plan that provides benefits
to employees (including, without limitation, any such plan pursuant to which a
stop-loss policy or contract applies).

(g) Collectively Bargained, Multiemployer and Multiple-Employer Plans. At no
time has the Company or any Affiliate contributed to or been obligated to
contribute to any Multiemployer Plan. Neither the Company nor any Affiliate has
maintained, established, sponsored, participated in or contributed to any
multiple employer plan or to any plan described in Section 413 of the Code.

(h) No Post-Employment Obligations. Except as set forth in Section 2.22(h) of
the Disclosure Schedule, no Company Employee Plan or Employment Agreement
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
person for any reason, except as may be required by COBRA or other applicable
statute, and the Company has never represented, promised or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree employee
welfare benefits, except to the extent required by statute.

(i) COBRA; FMLA; HIPAA. The Company has, prior to the Effective Time, complied
in all material respects with COBRA, FMLA, HIPAA, the Women’s Health and Cancer
Rights Act of 1998, the Newborns’ and Mothers’ Health Protection Act of 1996,
and any similar provisions of state Law applicable to its Employees. The Company
has no unsatisfied obligations to

 

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any Employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state
Law governing health care coverage or extension.

(j) Effect of Transaction. Except as set forth in Section 2.22(j) of the
Disclosure Schedule, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits or be deemed a “parachute payment” under Section 280G of the Code with
respect to any Employee. There is no contract, agreement, plan or other
arrangement by which the Company is bound to compensate any Employee for excise
taxes paid pursuant to Section 4999 of the Code.

(k) Employment Matters. The Company is in material compliance with all
applicable foreign, federal, state and local Laws, rules and regulations,
collective bargaining agreements and arrangements, extension orders and binding
customs respecting employment, employment practices, terms and conditions of
employment, worker classification, tax withholding, prohibited discrimination,
equal employment, fair employment practices, meal and rest periods, immigration
status, employee safety and health, wages and hours (including overtime wages),
compensation and hours of work, and in each case, with respect to Employees:
(i) has withheld and reported all amounts required by Law or by agreement to be
withheld and reported with respect to wages, salaries and other payments to
Employees, (ii) is not liable for any arrears of wages, severance pay or any
Taxes or any penalty for failure to comply with any of the foregoing, and
(iii) is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no actions,
suits, claims or administrative matters pending or, to the Knowledge of the
Company and the Principal Shareholders, threatened against the Company or any of
its Employees relating to any Employee, Employee Agreement or Company Employee
Plan. There are no pending or, to the Knowledge of the Company or the Principal
Shareholders, threatened claims or actions against Company or any Company
trustee under any worker’s compensation policy or long term disability policy.
The Company is not a party to a conciliation agreement, consent decree or other
agreement or order with any federal, state, or local agency or governmental
authority with respect to employment practices. The services provided by the
Company’s and its Affiliates’ Employees are terminable at the will of the
Company and its Affiliates and any such termination would result in no Liability
to the Company or any Affiliate other than claims for severance pay and benefits
as set forth below. Section 2.22(k) of the Disclosure Schedule lists all
Liabilities of the Company to any Employee that result from the termination by
the Company or Parent of such Employee’s employment or provision of services, a
change of control of the Company, or a combination thereof. The Company has no
liability with respect to any misclassification of: (a) any Person as an
independent contractor rather than as an employee, (b) any employee leased from
another employer, or (c) any employee currently or formerly classified as exempt
from overtime wages.

 

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(l) Labor. No strike, labor dispute, slowdown, concerted refusal to work
overtime, or work stoppage against the Company is pending or, to the Knowledge
of the Company or the Principal Shareholders, threatened. The Company does not
have Knowledge of any activities or proceedings of any labor union to organize
any current employees. There are no actions, suits, claims, labor disputes or
grievances pending or, to the Knowledge of the Company or the Principal
Shareholders, threatened or reasonably anticipated relating to any labor matters
involving any current employee, including charges of unfair labor practices. The
Company has not engaged in any unfair labor practices within the meaning of the
National Labor Relations Act. The Company is not presently, nor has it been in
the past, a party to, or bound by, any collective bargaining agreement or
arrangement or union contract with respect to Employees, and no collective
bargaining agreement is being negotiated by the Company. The Company has not
taken any action that would constitute a “plant closing” or “mass layoff” within
the meaning of the WARN Act or similar state or local Law, issued any
notification of a plant closing or mass layoff required by the WARN Act or
similar state or local Law, or incurred any liability or obligation under WARN
or any similar state or local Law that remains unsatisfied. No terminations
prior to the Closing would trigger any notice or other obligations under the
WARN Act or similar state or local Law.

(m) No Interference or Conflict. To the Knowledge of the Company, no greater
than five percent (5%) shareholder, director, officer, or employee of the
Company is obligated under any contract or agreement, subject to any judgment,
decree, or order of any court or administrative agency that would interfere with
such Person’s efforts to promote the interests of the Company or that would
interfere with the Company’s business. Neither the execution nor delivery of
this Agreement, nor the carrying on of the Company’s business as presently
conducted or proposed to be conducted nor any activity of such officers,
directors, or employees in connection with the carrying on of the Company’s
business as presently conducted or proposed to be conducted will, to the
Knowledge of the Company, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract or
agreement under which any of such officers, directors, or employees is now
bound.

(n) No International Employee Plan. The Company has not maintained, established,
sponsored, participated in, or contributed to, any International Employee Plan.

(o) Certain Employee Matters. Section 2.22(o) of the Disclosure Schedule
contains a complete and accurate list of the current employees of the Company as
of the date hereof and shows with respect to each such employee (i) the
employee’s name, position held, base salary or hourly wage rate, as applicable,
including each employee’s designation as either exempt or non-exempt from the
overtime requirements of the Fair Labor Standards Act, and all other
remuneration payable and other benefits provided or which the Company is bound
to provide (whether at present or in the future) to each such employee, or any
Person connected with any such person, and includes, if any, particulars of all
profit sharing, incentive and bonus arrangements to which the Company is a
party, whether legally binding or not, (ii) the date of hire, (iii) vacation
eligibility for the current calendar year (including accrued vacation from prior
years), (iv) leave status (including type of leave, expected return date for non
disability related leaves and expiration dates for disability leaves), (v) visa
status, (vi) accrued sick days for current calendar year,

 

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(viii) relevant prior notice period required in the event of termination, as
applicable, (ix) eligibility to Company car or travel expenses, and (x) any
severance or termination payment (in cash or otherwise) to which any employee
could be entitled, as applicable. To the Knowledge of the Company, no employee
listed on Section 2.22(o) of the Disclosure Schedule intends to terminate his or
her employment for any reason, other than in accordance with the employment
arrangements provided for in this Agreement.

(p) Section 2.22(p) of the Disclosure Schedule lists (i) all current independent
contractors and operational consultants to the Company and those independent
contractors and operational consultants that have provided services to the
Company in the two years prior to the date of this Agreement, (ii) the location
at which such independent contractors and operational consultants have been or
are providing services; (iii) the rate of all regular, bonus or any other
compensation payable to such independent contractors and operational
consultants; and (iv) the start and termination date of any agreement binding
any Person that has an operational consulting relationship with the Company or
has served as an independent contractor. Except as set forth on Section 2.22(p)
of the Disclosure Schedule, all independent contractors, operational consultants
and advisors to the Company can be terminated immediately and without notice or
Liability on the part of the Company subject to payment of amounts due for
services rendered.

2.23 Insurance. Section 2.23 of the Disclosure Schedule lists all insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company,
including the type of coverage, the carrier, the amount of coverage, the term
and the annual premiums of such policies. There is no claim by the Company
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed or that the Company has a reason to believe will
be denied or disputed by the underwriters of such policies or bonds. In
addition, there is no pending claim for which its total value (inclusive of
defense expenses) the Company expects to exceed the policy limits. All premiums
due and payable under all such policies and bonds have been paid, (or if
installment payments are due, will be paid if incurred prior to the Closing
Date), and the Company is otherwise in material compliance with the terms of
such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). Except as set forth in Section 2.23 of the
Disclosure Schedule, such policies and bonds (or other policies and bonds
providing substantially similar coverage) have been in effect for the past two
(2) years and remain in full force and effect and such policies and bonds
satisfy all requirements and obligations of the Company with respect to
insurance under the Contracts. The Company does not have Knowledge or have
reason to believe that such policies will be terminated or that the premiums
with respect to such policies will be increased other than increases in premiums
in the ordinary course. Except as set forth in Section 2.23 of the Disclosure
Schedule, the Company has never maintained, established, sponsored, participated
in or contributed to any self insurance plan.

2.24 Compliance with Laws. The Company has complied in all material respects
with, is not in material violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, Law or
regulation, including any applicable licenses and permits for the export of the
Company products.

 

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2.25 Export Control Laws.

(a) The Company has conducted its export transactions in all material respects
in accordance with all applicable Export and Import Control Laws, including, but
not limited to (i) all applicable U.S. export and reexport controls, including
the United States Export Administration Act and Regulations and Foreign Assets
Control Regulations and (ii) all other applicable import/export controls in
other countries in which the Company conducts business.

2.26 Foreign Corrupt Practices Act. Neither the Company, nor any of its
officers, directors, employees, or to the Company’s Knowledge, stockholders,
agents or representatives, nor any Person acting for or on behalf of the
Company, have directly or indirectly (a) made or attempted to make any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of what form, whether in
money, property, or services (i) to obtain favorable treatment for business or
Contracts secured by the Company, (ii) to pay for favorable treatment for
business or Contracts secured by the Company, (iii) to obtain special
concessions or for special concessions already obtained, or (iv) in violation of
any requirement of applicable Law (including the Foreign Corrupt Practices Act),
or (b) established or maintained any fund or asset that has not been recorded in
the Books and Records. The Company has established sufficient internal controls
and procedures to ensure compliance with the Foreign Corrupt Practices Act and
has made available all of such documentation to Parent or its counsel.

2.27 Warranties; Indemnities. Except for warranties and indemnities that are
typical and in the ordinary course of business of companies in the same industry
as the Company, or that are implied by Law, the Company has not given any
warranties or indemnities relating to products or technology sold or services
rendered by the Company.

2.28 Complete Copies of Materials. The Company has delivered or made available
to Parent true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.

2.29 Representations Complete. None of the representations or warranties made by
the Company or the Principal Shareholders (as modified by the Disclosure
Schedule) in this Agreement, and none of the statements made in any exhibit,
schedule or certificate furnished by the Company or the Principal Shareholders
pursuant to this Agreement contains, or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS

Each of the Principal Shareholders, severally and not jointly, hereby represents
and warrants to Parent and Sub, subject to such exceptions as are specifically
disclosed in the Disclosure

 

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Schedule, on the date hereof and (except where a representation or warranty is
made herein as of a specified date) as of the Effective Time, as though made at
the Effective Time, as follows:

3.1 Ownership of Company Capital Stock. Each Principal Shareholder is the sole
record and beneficial owner of the Company Capital Stock designated as being
owned by such Principal Shareholder opposite such Principal Shareholder’s name
in Section 2.2(a) of the Disclosure Schedule, except as otherwise noted in
Section 2.2(a) of the Disclosure Schedule. Such Company Capital Stock is not
subject to any Liens or to any rights of first refusal of any kind, and such
Principal Shareholder has not granted any rights to purchase such Company
Capital Stock to any other person or entity, except as set forth in the Charter
Documents. Each Principal Shareholder has the sole right to transfer such
Company Capital Stock to Parent in connection with the Merger. Such Company
Capital Stock constitutes all of the Company Capital Stock owned, beneficially
or of record, by such Principal Shareholder, and such Principal Shareholder has
no options, warrants or other rights to acquire Company Capital Stock, except as
indicated on Section 2.2(a) of the Disclosure Schedule. Upon the Effective Time,
in exchange for the consideration paid pursuant to Section 1.6 hereof, Parent
will receive good title to such Company Capital Stock, free of any Liens.

3.2 Absence of Claims by the Principal Shareholders. No Principal Shareholder
has any claim against the Company whether present or future, contingent or
unconditional, fixed or variable under any contract or on any other basis
whatsoever, whether in equity or at Law.

3.3 Authority. Each Principal Shareholder that is in an entity has all requisite
power and authority and each Principal Shareholder that is an individual has
capacity to enter into this Agreement and any Related Agreements to which it or
he, as the case may be, is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Related Agreements to which such Principal Shareholder is a party and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of such Principal
Shareholder and no further action is required on the party of such Principal
Shareholder to authorize the Agreement and any Related Agreements to which it is
a party and the transactions contemplated hereby and thereby. This Agreement and
each of the Related Agreements to which such Principal Shareholder is a party
have been duly executed and delivered to such Principal Shareholder, and
assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of such
Principal Shareholder, enforceable against each such party in accordance with
their respective terms, except as such enforceability may be subject to the Laws
of general application relating to bankruptcy, insolvency, and the relief of
debtors and rules of Law governing specific performance, injunctive relief or
other equitable remedies.

3.4 No Conflict. The execution and delivery by each Principal Shareholder of
this Agreement and any Related Agreement to which it is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
conflict with (i) any provision of the charter documents of such Principal
Shareholder if such Principal Shareholder is an entity, (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which such Principal Shareholder or any of
its properties or assets is subject, or (iii) any

 

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judgment, order, decree, statute, Law, ordinance, Rule or regulation applicable
to such Principal Shareholder or its properties or assets.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

Parent and Sub, jointly and severally, hereby represent and warrant to the
Company and the Principal Shareholders on the date hereof and as of the
Effective Time as follows:

4.1 Organization, Standing and Power. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Sub is a corporation duly organized, validly existing and in good standing under
the laws of Colorado. Parent is not in violation of any of the provisions of its
certificate of incorporation or bylaws (the “Parent Charter Documents”) which
violation would have a material adverse effect on, or materially delay, Parent’s
ability to consummate the transactions contemplated by this Agreement. The board
of directors of Parent has not approved or proposed any amendment to the Parent
Charter Documents that would have a have a material adverse effect on, or
materially delay, Parent’s ability to consummate the transactions contemplated
by this Agreement. Sub is not in material violation of any of the provisions of
its articles of incorporation or bylaws (the “Sub Charter Documents”). The board
of directors of Sub have not approved or proposed any amendment to any of the
Sub Charter Documents not reflected therein.

4.2 Authority. Each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and any Related Agreements to which it is
a party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related Agreements to which it
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Parent and Sub. This Agreement and any Related Agreements to which Parent and
Sub are parties have been duly executed and delivered by Parent and Sub and
assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of Parent and
Sub enforceable against each of them in accordance with their respective terms,
except as such enforceability may be subject to the Laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and rules of Law
governing specific performance, injunctive relief, or other equitable remedies.

4.3 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement and any Related Agreements to which
Parent or Sub is a party or the consummation of the transactions contemplated
hereby and thereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable securities Laws; (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings which, if not obtained
or made, would not have a material adverse effect on the business, assets
(including

 

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intangible assets), condition (financial or otherwise), results of operations or
capitalization of Parent; and (iii) the filing of the Statement of Merger with
the Secretary of State of the State of Colorado.

4.4 Capital Resources. Parent has sufficient capital resources to pay the Total
Consideration and to consummate all of the transactions contemplated by this
Agreement and the Related Agreements.

4.5 Brokers’ and Finders’ Fees. Neither Parent nor Sub has incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders’ fees or
agents’ commissions, fees related to investment banking or similar advisory
services or any similar charges in connection with the Agreement or any
transaction contemplated hereby for which the Company, the Principal
Shareholders or the Company Indemnifying Parties will have any obligation or
liability.

ARTICLE V

CONDUCT PRIOR TO THE EFFECTIVE TIME

5.1 Conduct of Business of the Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, the Company shall operate its business in the ordinary
course of business consistent with past practices, except (A) as specifically
disclosed in Section 5.1 of the Disclosure Schedule, (B) with the prior written
consent of Parent (the decision with respect to which will not be unreasonably
delayed) or (C) as specifically contemplated by this Agreement. Without limiting
the generality of the foregoing, the Company agrees to pay Indebtedness for
borrowed money and Taxes of the Company when due (subject to the right of Parent
to review and approve, which approval shall not be unreasonably withheld, any
Tax Returns in accordance with Section 5.1(e)), to use commercially reasonable
efforts to pay or perform other obligations when due. Notwithstanding the
foregoing, except as set forth in clauses (A), (B) and (C) above, the Company
shall not from and after the date of this Agreement:

(a) cause or permit any amendments to the Charter Documents;

(b) other than as expressly contemplated by any Material Contract, make any
expenditures or enter into any commitment or transaction exceeding twenty-five
thousand Dollars ($25,000) individually or one hundred thousand Dollars
($100,000) in the aggregate;

(c) pay, discharge, waive or satisfy, in an amount in excess of twenty-five
thousand Dollars ($25,000) in any one case, or one hundred thousand Dollars
($100,000) in the aggregate, any claim, liability, right or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Current Balance Sheet;

(d) adopt or change accounting methods or practices (including any change in
depreciation or amortization policies) other than as required by GAAP or
applicable Law;

 

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(e)(i) make or change any election in respect of Taxes, (ii) adopt or change any
accounting method in respect of Taxes, (iii) enter into any closing agreement in
respect of Taxes, (iv) settle any claim or assessment in respect of Taxes,
(v) consent to any extension or waiver of the limitation period applicable to
any claim or assessment in respect of Taxes, or (vi) file any income or other
material Tax Return or amend any Tax Return unless a copy of such Tax Return or
amended Tax Return has been delivered to Parent for review a reasonable time
prior to filing and Parent has approved such Tax Return or amended Tax Return in
writing, which approval may not be unreasonably delayed or withheld;

(f) revalue any of its assets (whether tangible or intangible), including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business consistent
with past practice;

(g) declare, set aside, or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any Company Capital Stock, or
split, combine or reclassify any Company Capital Stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Company Capital Stock, or directly or indirectly repurchase,
redeem or otherwise acquire any shares of Company Capital Stock (or options,
warrants or other rights convertible into, exercisable or exchangeable for
Company Common Stock);

(h) increase or otherwise change the salary or other compensation payable or to
become payable to any officer, director, or Employee, or make any declaration,
payment or commitment or obligation of any kind for the payment (whether in cash
or equity) of a severance payment, termination payment, bonus or other
additional salary or compensation to any such person;

(i) sell, lease, license or otherwise dispose of or grant any security interest
in any of its properties or assets, including without limitation the sale of any
accounts receivable of the Company, except properties or assets (whether
tangible or intangible) which are not Intellectual Property and only in the
ordinary course of business and consistent with past practices;

(j) make any loan to any person or entity or purchase debt securities of any
person or entity or amend the terms of any outstanding loan agreement;

(k) incur any indebtedness or guarantee any indebtedness of any person or entity
or issue or sell any debt securities, or guarantee any debt securities of any
person or entity;

(l) waive or release any right or claim of the Company, including any write-off
or other compromise of any account receivable of the Company, other than in the
ordinary course of business consistent with past practice;

(m) commence or settle any lawsuit, threat of any lawsuit or proceeding or other
investigation against the Company or its affairs;

(n) issue, grant, deliver or sell or authorize or propose the issuance, grant,
delivery or sale of, or purchase or propose the purchase of, any Company Capital
Stock or any

 

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securities convertible into, exercisable or exchangeable for, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue or purchase any such shares or other
convertible securities, except for the issuance of Company Common Stock pursuant
to the exercise of outstanding Company Options;

(o)(i) sell, lease, license or transfer to any person or entity any rights to
any Company Intellectual Property or enter into any agreement or modify any
existing agreement with respect to any Company Intellectual Property with any
person or entity or with respect to any Intellectual Property of any person or
entity, other than non-exclusive licenses of the Company Intellectual property
in connection with the sale of Company Products to end user customers in the
ordinary course of business consistent with past practices, (ii) purchase or
license any Intellectual Property or enter into any agreement or modify any
existing agreement with respect to the Intellectual Property of any person or
entity, (iii) enter into any agreement or modify any existing agreement with
respect to the development of any Intellectual Property with a third party, or
(iv) change pricing or royalties set or charged by the Company to its customers
or licensees, or the pricing or royalties set or charged by persons who have
licensed Intellectual Property to the Company;

(p) enter into or amend any Contract pursuant to which any other party is
granted marketing, distribution, development, manufacturing or similar rights of
any type or scope with respect to any Company Products or Technology of the
Company;

(q) enter into any agreement to purchase or sell any interest in real property,
grant any security interest in any real property, enter into any lease,
sublease, license or other occupancy agreement with respect to any real property
or alter, amend, modify or terminate any of the terms of any Lease Agreements;
or

(r) amend or otherwise modify (or agree to do so), or violate the terms of, any
of the Contracts set forth or described in the Disclosure Schedule;

(s) acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material or any equity securities, individually or in the
aggregate, to the business of the Company;

(t) grant any severance or termination pay (in cash or otherwise) to any
Employee, including any officer, except payments made pursuant to written
agreements existing on the date hereof and disclosed in the Disclosure Schedule;

(u) adopt or amend any Company Employee Plan or Employee Agreement, enter into
any employment contract, pay or agree to pay any bonus or special remuneration
to any director or Employee, or increase or modify the salaries, wage rates, or
other compensation (including, without limitation, any equity-based
compensation) of its Employees except payments made

 

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pursuant to written agreements outstanding on the date hereof and disclosed in
the Disclosure Schedule to meet the requirements of applicable Law or as
required by this Agreement;

(v) enter into any strategic alliance, affiliate agreement or joint marketing
arrangement or agreement;

(w) hire or terminate any Employees, or encourage or otherwise cause any
Employees to resign from the Company;

(x) promote, demote or terminate any employees or change the employment status
or titles of any of the employees of the Company;

(y) alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in which
the Company directly or indirectly holds any interest;

(z) cancel, amend or renew any insurance policy; or

(aa) take, commit, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through 5.1(z) hereof.

5.2 No Solicitation.

(a) Until the earlier of (i) the Closing, or (ii) the date of termination of
this Agreement pursuant to the provisions of Section 9.1 hereof, the Company
shall not, and the Company and the Principal Shareholders shall direct its
officers, directors, employees, shareholders, agents, affiliates, and advisors
(each, a “Company Representative”) not to (and shall not authorize or knowingly
permit them to), directly or indirectly, take any of the following actions with
any party other than Parent and its designees: (A) solicit, initiate,
participate or knowingly encourage any negotiations or discussions with respect
to any offer or proposal to acquire all or any portion of the Company’s business
or properties, or any equity interest in the Company or shares of Company
Capital Stock or any rights to acquire any shares of Company Capital Stock or
other equity interests in the Company, regardless of the form of transaction (a
“Competing Transaction”), or effect any such Competing Transaction, (B) disclose
any information to any Person concerning the business or properties of the
Company, or afford to any Person access to the Company’s properties, books or
records other than in the ordinary course of business or in connection with the
negotiation, execution and performance of this Agreement, (C) assist or
cooperate with any Person to make any proposal regarding a Competing
Transaction, or (D) enter into any agreement with any Person providing for a
Competing Transaction. In the event that the Company or any Company
Representative shall receive, prior to the Closing or the termination of this
Agreement in accordance with Section 9.1 hereof, any offer, proposal, or
request, directly or indirectly, of the type referenced in clause (A), (C) or
(D) above, or any request for disclosure or access as referenced in clause (B)
above, the Company shall, or shall cause such Company Representative to,
immediately (x) terminate, suspend or otherwise discontinue any and all
discussions or other negotiations with such Person with regard to

 

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such offers, proposals, or requests and (y) notify Parent thereof, including the
terms and conditions of such proposal or inquiry, in reasonable detail .

(b) The parties hereto agree that irreparable harm would occur in the event that
the provisions of Section 5.2(a) were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed by the
parties hereto that Parent shall be entitled to an immediate injunction or
injunctions, without the necessity of proving the inadequacy of money damages as
a remedy and without the necessity of posting any bond or other security, to
prevent breaches of the provisions of Section 5.2(a) and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which Parent
may be entitled at Law or in equity. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in Section 5.2(a) by
(i) any Principal Shareholder, or any agent, representative or affiliate of such
Principal Shareholder or (ii) any officer, director, agent, representative or
affiliate of the Company shall be deemed to be a breach of this Agreement by the
Company.

5.3 No Transfer. No Principal Shareholder shall sell, transfer, assign or
hypothecate the shares of Company Capital Stock held by it (except to Parent
pursuant to the terms hereof) without the prior written consent of Parent.

5.4 Procedures for Requesting Parent Consent. If the Company desires to take an
action which would be prohibited pursuant to Section 5.1 of this Agreement
without the written consent of Parent, prior to taking such action the Company
may request such written consent by sending an e mail or facsimile to both of
the following individuals:

 

  (a) John Hiraoka

Telephone: (949) 585-4620

Facsimile: (949) 341-4620

E mail address: jhiraoka@epicor.com

With a copy to:

John Ireland

Telephone: (949) 585-4225

Facsimile: (949) 341-4225

Email address: jireland@epicor.com

 

  (b) Malcolm Fox

Telephone: (949) 585-4290

Facsimile: (949) 341-4290

E mail address: mfox@epicor.com

The consent of any of such individuals shall constitute the required consent
under Section 5.1 of this Agreement.

 

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ARTICLE VI

ADDITIONAL AGREEMENTS

6.1 Shareholder Approval.

(a) As soon as practicable following the execution of this Agreement, but in no
event later than seventy-two (72) hours following the execution of this
Agreement, the Company shall provide notice of a meeting (the “Meeting Notice”)
of the Company Shareholders for the purpose of obtaining the approval of the
Company Shareholders to adopt and consummate this Agreement, the Merger and the
transactions contemplated hereby, such meeting to occur no later than ten
(10) Business Days following the date of the Meeting Notice.

(b) Promptly following the execution of this Agreement, the Company shall have
prepared, subject to Parent’s review, an information statement to be distributed
to the Company Shareholders in connection with the matters described in the next
sentence (the “Information Statement”), which Information Statement shall comply
with the provisions set forth in this Section 6.1. The Company shall provide the
notice to Company Shareholders required by applicable Law that dissenters’
and/or appraisal rights may be available to Company Shareholders in accordance
with Colorado Law.

(c) The materials to be submitted to the Company Shareholders in connection with
the Merger and this Agreement, including the Information Statement (the
“Soliciting Materials”), include information regarding the Company, the terms of
the Merger and this Agreement, and, subject to the fiduciary duty of the Board
of Directors, the recommendation of the Board of Directors of the Company in
favor of the Merger and this Agreement. The Company shall provide Parent (which
term shall include Parent’s counsel) with reasonable opportunity to review and
comment on the Soliciting Materials in advance of their submission to the
Company Shareholders. Each party will promptly notify the other in writing if at
any time prior to the Closing such party discovers any facts that might make it
necessary or appropriate to amend or supplement the Soliciting Materials in
order to make statements contained or incorporated by reference therein not
misleading or to comply with applicable Law. Anything to the contrary contained
herein notwithstanding, the Company shall not include in the Soliciting
Materials any information with respect to Parent or its affiliates or
associates, the form and content of which shall not have been consented to in
writing by Parent prior to such inclusion (which consent shall not be
unreasonably withheld), except as required pursuant to applicable Law.

6.2 Access to Information. The Company shall afford Parent and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period from the date hereof and prior to the Effective Time to
(i) all of the properties, books, contracts, commitments and records of the
Company, including the Company’s source code, all Company Intellectual Property
and Technology used by the Company, (ii) all other information concerning the
business, properties and personnel (subject to restrictions imposed by
applicable Law) of the Company as Parent may reasonably request, and (iii) all
Employees of the Company as identified by Parent to the Company. Within twenty
(20) days of the end of each month from the date hereof until

 

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the Closing, the Company agrees to deliver monthly unaudited financial
statements prepared in accordance with GAAP consistent with the Interim
Financials and such supporting documentation as Parent shall reasonably request.
No information or knowledge obtained in any investigation pursuant to this
Section 6.2 or otherwise shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the parties
to consummate the Merger in accordance with the terms and provisions hereof.

6.3 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 6.2 hereof, or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Confidentiality Agreement effective as of February 24, 2010 (the
“Confidentiality Agreement”), between the Company and Parent. In this regard,
the Company acknowledges that the Parent Common Stock is publicly traded and
that any information obtained during the course of its due diligence could be
considered to be material non-public information within the meaning of federal
and state securities Laws. Accordingly, the Company and the Principal
Shareholders acknowledge and agree not to engage in any discussions,
correspondence or transactions in the Parent Common Stock in violation of
applicable securities Laws.

6.4 Expenses. Whether or not the Merger is consummated, subject to Section 9.2
and the exceptions described in Section 6.8 all fees and expenses incurred in
connection with the Merger (whether prior to or following Closing) including all
legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties incurred by a party (including the Company
Indemnifying Parties) in connection with the negotiation and effectuation of the
terms and conditions of this Agreement and the transactions contemplated hereby,
including, but not limited to, any payments made or anticipated to be made by
such party as a brokerage or finders’ fee, agents’ commission or any similar
charge, in connection with the Merger, whenever incurred (“Third Party
Expenses”), shall be the obligation of the respective party incurring such fees
and expenses. The Company shall provide Parent with a statement of Estimated
Third Party Expenses showing detail of both the paid and unpaid Third Party
Expenses incurred and expected to be incurred by the Company (including any
Third Party Expenses anticipated to be incurred after the Closing) not less than
three (3) Business Days prior to the Closing Date in form reasonably
satisfactory to Parent (the “Statement of Expenses”). Any Third Party Expenses
incurred by the Company that are not reflected on the Statement of Expenses, and
thus were not included as part of the calculation of the Closing Working Capital
and, if included in the calculation of the Closing Working Capital, would have
reduced the amount of the Estimated Closing Working Capital (“Excess Third Party
Expenses”), shall be paid out of the Escrow Fund in accordance with
Section 8.2(a).

6.5 Public Disclosure. No party hereto shall issue any statement or
communication to any third party (other than their respective agents that are
bound by confidentiality restrictions) regarding the subject matter of this
Agreement or the transactions contemplated hereby, including, if applicable, the
termination of this Agreement and the reasons therefor, without the consent of
the other party, except that this restriction shall be subject to Parent’s
obligation to comply with applicable securities Laws and the rules of the Nasdaq
Stock Market. Notwithstanding the foregoing, this Section 6.5 shall not prevent
Parent from issuing any statement or communication that is

 

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reasonably necessary in response to an inquiry by or a public statement or
announcement made by any third Person with respect to the transactions
contemplated by this Agreement; provided Parent shall provide the Company with
reasonable advance notice thereof.

6.6 Consents. The Company shall use reasonable best efforts obtain all necessary
consents, waivers and approvals of any parties to any Material Contract as are
required thereunder in connection with the Merger or for any such Material
Contracts to remain in full force and effect, all of which are listed in
Section 2.6 of the Disclosure Schedule, so as to preserve all rights of, and
benefits to, the Company under such Material Contract from and after the
Effective Time. Such consents, waivers and approvals shall be in a form
reasonably acceptable to Parent. In the event that the other parties to any such
Material Contract, including lessor or licensor of any Leased Real Property,
conditions its grant of a consent, waiver or approval (including by threatening
to exercise a “recapture” or other termination right) upon the payment of a
consent fee, “profit sharing” payment or other consideration, including
increased rent payments or other payments under the Material Contract, the
Company shall be responsible for making all payments required to obtain such
consent, waiver or approval and shall indemnify, defend, protect and hold
harmless Parent from all losses, costs, claims, liabilities and damages arising
from the same and shall reflect such payment or consideration on the Statement
of Working Capital.

6.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver to Parent
a properly executed statement (a “FIRPTA Compliance Certificate”) in a form
reasonably acceptable to Parent establishing that no withholding is required
pursuant to Section 1445 of the Code.

6.8 Tax Matters.

(a) Tax Returns.

(i) S Corporation Tax Return.

(1) The Company shall, if available, obtain extensions of time to file the
federal and state income Tax Returns of the Company with respect to any taxable
period that ends on or prior to the Closing Date (the “S Corporation Tax
Returns”).

(2) The Shareholder Representative will prepare, or cause to be prepared, for
the Company the S Corporation Tax Returns required to be filed by or with
respect to the Company. The S Corporation Tax Returns shall be prepared in a
manner consistent with past practice of the Company in preparing its Tax Returns
unless required by applicable law. The S Corporation Tax Returns shall be
delivered to the Company by the Shareholder Representative no later than sixty
(60) days prior to the due date thereof (taking into account the extension of
time for filing). The cost of preparing the S Corporation Tax Returns shall be
borne by the Company Shareholders.

(3) Parent and the Company shall be entitled to review and comment on such S
Corporation Tax Returns, but shall be entitled to revise the S Corporation Tax

 

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Returns prepared by the Shareholder Representative only with respect to any
position taken by the Shareholder Representative that is not more likely than
not to be ultimately sustained on the merits by a court of law. The Company
shall timely file the S Corporation Tax Returns.

(ii) Other Tax Returns. The Company will prepare and file, or cause to be
prepared and filed, all Tax Returns for the Company that are required to be
filed following the Closing Date, other than the S Corporation Tax Returns. To
the extent such Tax Returns relate to a taxable period or portion thereof ending
on or before the Closing Date, the Company shall provide such Tax Return to the
Shareholder Representative for her review and comment at least five (5) days
prior to the filing of such Tax Return. The Company shall pay or cause to be
paid all Taxes required to be shown on such Tax Returns, subject to the right to
recover such Taxes attributable to Pre-Closing Tax Periods in accordance with
paragraph (iv) below.

(iii) Amended Tax Returns. Parent covenants that without the prior written
consent of the Shareholder Representative, which shall not be unreasonably
withheld or delayed, it will not make or change any Tax election, amend any Tax
Return or take any position on any Tax Return, in each case, for any Pre-Closing
Tax Period (as defined below), that would result in any increased Tax liability
for the Company Shareholders, whether under applicable law or under this
Agreement, unless such action is required by applicable law.

(iv) Notwithstanding anything to the contrary in this Agreement, the Company
Shareholders shall be solely responsible (without duplication) for and shall
timely pay (A) any and all Taxes imposed on the Company for any taxable period
or portion thereof ending on or prior to the Closing Date (the “Pre-Closing Tax
Period”), and (B) any Taxes of the Company Shareholders for any taxable period
or portion thereof, and such Taxes of the Company shall be reflected as a
“current liability” on the Statement of Working Capital. To the extent such
Taxes are not reflected as a “current liability” on the Statement of Working
Capital, the Company Shareholders shall pay all such Taxes to Parent. For the
avoidance of doubt, any employment or payroll taxes with respect to any bonuses,
cash out of options or other compensatory payments in connection with the
transactions contemplated by this Agreement shall be treated as arising in the
Pre-Closing Tax Period and reflected as a Liability on the Statement of Working
Capital. To the extent that the party responsible pursuant to this Agreement for
filing a Tax Return (the “Filing Party”) is required to remit any Taxes that the
other party is responsible pursuant to this Agreement to pay (the “Paying
Party”), the Paying Party shall pay to the Filing Party any such Taxes within
ten (10) days after receipt of reasonably satisfactory evidence of the amount of
such Taxes. In the case of any taxable period that includes but does not end on
the Closing Date (each, a “Straddle Period”), the real, personal and intangible
property Taxes (“Property Taxes”) imposed upon the Company allocable to the
Pre-Closing Tax Period shall be equal to the amount of such Property Taxes for
the entire Straddle Period multiplied by a fraction, the numerator of which is
the number of days during the Straddle Period that are in the Pre-Closing Tax
Period and the denominator of which is the number of days in the Straddle
Period; and the Taxes (other than Property Taxes) imposed upon the Company
allocable to the Pre-Closing Tax Period shall be computed as if such taxable
period ended on the Closing Date, provided, that exemptions, allowances or
deductions that are calculated on an annual basis (including depreciation and
amortization deductions), other than with respect to

 

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property placed in service after the Closing, shall be allocated between the
Pre-Closing Tax Period and the period after the Closing Date in proportion to
the number of days in each period.

(v) The obligations set forth in this Section 6.8 and any claim for breach of
Section 2.10 hereof shall terminate at the close of business on the thirtieth
(30th) day following the expiration of the applicable statute of limitations
with respect to the Tax liabilities in question (giving effect to any waiver,
mitigation or extension thereof), and shall not be subject to any of the
limitations on indemnification set forth in Section 8.3 hereof. To the extent of
any conflict between this Section 6.8 and any other provision of this Agreement,
this Section 6.8 shall govern.

(b) Refunds. The Company shall pay to the Shareholder Representative for
distribution among the Company Shareholders all refunds of Taxes paid by the
Company prior to the Closing Date received by the Company, except to the extent
that such refunds are identified as an asset on the Statement of Working Capital
pursuant to Section 1.8, in which case such refunds shall be paid to and
retained by Company. Any payment pursuant to this Section 6.8(b) shall be made
to the Shareholder Representative within ten (10) days of receipt of the refund
by the Company or its affiliates from a taxing authority.

(c) Transfer Taxes. Notwithstanding any other provisions of this Agreement to
the contrary, all transfer, documentary, sales, use, stamp duty, registration,
and other such Taxes and fees (including any penalties and interest) incurred as
a direct result of the transactions described in this Agreement (“Transfer
Taxes”) shall be borne by the Company Shareholders.

(d) Tax Contests.

(i) In the event (A) Company or its affiliates or (B) the Shareholder
Representative receives notice of any pending or threatened Tax audits or
assessments or other disputes concerning Taxes with respect to which the other
party may incur liability (including with respect to the S Corporation Tax
Returns), the party in receipt of such notice shall promptly notify the other
party of such matter in writing.

(ii) The Shareholder Representative, at her own expense except as provided in
Section 6.8(g), shall have the right to represent the interests of the Company
and the Company Shareholders in any Tax Contest with respect to an S Corporation
Tax Return; provided that the Shareholder Representative shall not settle any
such Tax Contest without the prior written consent of the Company, which shall
not be unreasonably withheld or delayed. The Company shall control any other Tax
Contest, provided that it shall not settle any such Tax Contest without the
prior written approval of the Shareholder Representative, which shall not be
unreasonably withheld. The Company and the Shareholder Representative shall
cooperate in connection with any Tax Contest. A “Tax Contest” is any audit,
claim for refund or administrative or judicial proceeding relating to a
Pre-Closing Tax Period.

(e) Preservation of Records and Cooperation. From and after the Closing, the
Company shall preserve and keep all records held by the Company at the Closing
Date, or any Tax-related records related to the period prior to the Closing that
are created or held by them during the

 

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two (2) years after the Closing Date, until at least the seventh
(7th) anniversary of the filing of the last Tax Return to which such records
relate, and shall retain such records for such longer period of time as is
required with respect to any books or records that may reasonably be required in
connection with any claim, audit, proceeding or investigation related to the
transactions described in this Agreement. The Company and the Shareholder
Representative agree to furnish or cause to be furnished to each other, upon
written request, as promptly as practicable, such information (including access
to books and records) and assistance relating to the Company as is reasonably
necessary for the filing of any Tax Return, for the preparation for any audit,
and for the prosecution or defense of any claim, suit or proceeding relating to
any proposed adjustment pertaining to the Company. The Company and the
Shareholder Representative shall cooperate with each other in the conduct of any
audit or other proceedings involving the Company for any Tax purposes.

(f) S Corporation Status. None of the Company or any Company Shareholder has
taken (or will take) or has omitted (or will omit) to take any action, or knows
of any fact or circumstances, which action, omission, fact or circumstance could
result in the loss by the Company of its status as an S corporation within the
meaning of Section 1361(a) of the Code (or any comparable state law). Each of
the Company Shareholders jointly and severally indemnifies and holds Parent and
the Company harmless against any damages, including the loss of any tax benefit
that would have been generated, utilized or recognized in any taxable period
ending after the Closing Date as a result of the Section 338(h)(10) Elections
resulting from the failure of the Company to qualify as an S corporation within
the meaning of the Code (or any comparable state law).

(g) Section 338(h)(10) Election.

(i) At the election of Parent, the Company Shareholders and Parent shall make a
timely, irrevocable and effective election under Section 338(h)(10) of the Code
and any similar election under any applicable state, local or foreign income Tax
law (collectively, the “Section 338(h)(10) Elections”) with respect to Parent’s
purchase of the Company Capital Stock pursuant to the Merger. In connection with
the Section 338(h)(10) Elections, Parent shall pay to each Company Shareholder
an amount equal to such Company Shareholder’s ratable share of $500,000 (the
“Gross-Up Amount”).

(ii) To facilitate the Section 338(h)(10) Elections, Parent shall deliver to the
Company Shareholders, at least ten (10) days prior to Closing, copies of
Internal Revenue Service Form 8023 and any similar forms under applicable state,
local and foreign income Tax law (collectively, the “Forms”) properly completed
to the extent pertaining to Parent and the transactions contemplated by this
Agreement. The Forms shall be properly completed by the Company Shareholders to
the extent pertaining to the Company Shareholders and duly executed by each
Company Shareholder and an authorized person for Parent at the Closing. In the
event that Parent elects to make the Section 338(h)(10) Elections, Parent shall
duly and timely file the Forms as prescribed by Treasury Regulations
Section 1.338(h)(10)-1 or the corresponding provisions of applicable state,
local or foreign income Tax law.

(iii) In connection with the Section 338(h)(10) Elections, Parent shall provide
the Shareholder Representative with a draft of Internal Revenue Service
Form 8883

 

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(including the proposed allocation of the Aggregate Deemed Sales Price in a
manner consistent with the requirements of Section 338 and the Treasury
Regulations promulgated thereunder). If the Section 338(h)(10) Elections are
made, each of Parent, the Company and the Company Shareholders shall prepare and
file all Tax Returns consistent with, and shall not take any Tax position
inconsistent with, the Form 8883.

(iv) If the Forms are not received from all Company Shareholders at the Closing,
no later than one (1) Business Day following the day on which the Effective Time
occurs, Parent will deposit the Gross-Up Amount with the Escrow Agent. The
Gross-Up Amount will not become part of the Escrow Fund, but will be held in by
the Escrow Agent in accordance with the terms of Sections 8.5(d) – 8.5(h).
Within three (3) Business Days of receipt of the Forms from all Company
Shareholders, Parent shall instruct the Escrow Agent to release the Gross-Up
Amount to the Company Shareholders in proportion to the Company Shareholders’
respective Shareholder Pro Rata Portion. Upon the release of the Gross-Up Amount
to the Shareholder Representative pursuant to this Section 6.8(g)(iv), Parent’s
obligations under Section 6.8(g)(i) shall be deemed to be satisfied. If (x) the
Forms of all Company Shareholders are not received by Parent by the eight
(8) month anniversary of the date of this Agreement or (y) Parent provides
written notice to the Shareholder Representative (with a copy to the Escrow
Agent) prior to the eight (8) month anniversary of the date of this Agreement
that they have not made, and will not make, the Section 338(h)(10) Elections,
the Escrow Agent shall release the Gross-Up Amount and any interest thereon to
Parent.

6.9 Reasonable Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use reasonable efforts to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable Laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals and to effect
all necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided, however, that Parent shall not be required to agree to any divestiture
by Parent or the Company or any of Parent’s Subsidiaries or Affiliates, of
shares of capital stock or of any business, assets or property of Parent or its
Subsidiaries or Affiliates, or of the Company, its Affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.

6.10 Notification of Certain Matters. The Company and the Principal Shareholders
on the one hand and Parent on the other hand, shall give prompt notice to Parent
or the Company, respectively, of: (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of the Company, any Principal Shareholder or Parent,
respectively and as the case may be, contained in this Agreement to be untrue or
inaccurate at the Effective Time, and (ii) any failure of the Company, any
Principal Shareholder or Parent, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice

 

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pursuant to this Section 6.10 shall not (a) limit or otherwise affect any
remedies available to the party receiving such notice or (b) constitute an
acknowledgment or admission of a breach of this Agreement; provided, further,
that a party’s unintentional failure to give notice under this Section 6.10
shall not be deemed a covenant breach, but if such breach remains uncured as of
the Closing, shall constitute only a breach of the underlying representation or
warranty, or covenant, condition or agreement, as the case may be. No disclosure
by the Company or the Principal Shareholders pursuant to this Section 6.10,
however, shall be deemed to amend or supplement the Disclosure Schedule or
prevent or cure any misrepresentations, breach of warranty or breach of
covenant.

6.11 Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the Merger and the
transactions contemplated hereby (including, without limitation, the Principal
Shareholders’ participation in the Company’s future financial audits as
reasonably necessary).

6.12 New Employment Arrangements. Except for Terminating Employees and subject
to Section 6.13, all Employees employed by the Company immediately prior to the
Effective Time will remain “at will” Employees of the Surviving Corporation
immediately following the Effective Time or be offered at-will employment with
Parent immediately following the Effective Time, in each case, subject to proof
of each Employee’s legal right to work in the United States (each a “Continuing
Employee” and together, the “Continuing Employees”). Such “at will” employment
immediately following the Effective Time with either the Parent or the Surviving
Corporation will: (i) be set forth in welcome letters on Parent’s standard form
(each, a “Welcome Letter”), (ii) be subject to and in compliance with Parent’s
applicable policies and procedures, including, the execution of an employee
proprietary information agreement, governing employment conduct and performance,
(iii) have terms, including the position and salary, which will be determined by
Parent, and (iv) supersede any prior express or implied employment agreements,
arrangement or offer letter in effect prior to the Effective Time. Continuing
Employees shall be eligible to receive benefits consistent with Parent’s
applicable human resources policies and which are substantially the same
benefits in the aggregate as those provided to similarly situated employees of
Parent. Parent will or will cause the Surviving Corporation or appropriate
Subsidiary of Parent to give Continuing Employees full credit under such
policies for prior service at the Company for purposes of eligibility, benefit
accrual, and determination of the level of benefits under Parent’s benefit
plans, programs or policies; provided that such credit does not result in
duplication of benefits and such credit shall not apply to equity awards, if
any, granted to such Employees.

6.13 Employee Severance. In the event that Parent, the Surviving Corporation or
any of their respective Affiliates terminate the employment of any Employee
listed in Section 6.13 of the Disclosure Schedule (each, a “Severed Employee”)
without cause following the Effective Time, Parent shall pay, or shall cause the
Surviving Corporation or any other of its Affiliates to pay, to such Severed
Employee a severance payment and a Stay Bonus not less than the amount set forth
in Section 6.13 of the Disclosure Schedule. Notwithstanding any change made by
Parent or otherwise with respect to any Severed Employee’s title, duties or
responsibilities following the

 

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Effective Time, each Severed Employee terminated by Parent, the Surviving
Corporation or any of their respective Affiliates following the Effective Time
shall be entitled to a severance payment consistent with such Severed Employee’s
current employment title and responsibilities with the Company as set forth in
Section 6.13 of the Disclosure Schedule. The Company Indemnifying Parties shall
have no responsibility for any severance payments that are due and owing to any
Severed Employee relating to a termination of employment following the Effective
Time. Notwithstanding anything to the contrary contained herein, in the event
that any Severed Employee voluntarily terminates his or her employment with
Parent or the Surviving Corporation or any of their respective Affiliates, or
his or her employment is terminated by Parent or the Surviving Corporation for
cause, prior to the Termination Date set forth in Section 6.13 of the Disclosure
Schedule, such Severed Employee will not be entitled to the Stay Bonus set forth
in Section 6.13 of the Disclosure Schedule and the portion of the severance
payment that is based on such Severed Employee’s tenure will be calculated based
on such Severed Employee’s tenure at the date such Severed Employee actually
terminated his or her employment.

6.14 Terminating Employees. Prior to the Effective Time, the Company will
provide notice of termination of employment to each of the Terminating
Employees. The Company shall use its reasonable efforts to obtain valid general
release of claims and separation agreements from each Terminating Employee.

6.15 Resignation of Officers and Directors. The Company shall cause the
resignations of all officers and directors of the Company from their positions
as such effective as of the Effective Time, provided, that such resignations
shall not, in and of themselves, constitute a resignation from employment.

6.16 Proprietary Information and Inventions Assignment Agreement. Prior to the
Closing, each current employee and contractor of the Company shall have entered
into and executed, and each employee and contractor hired by the Company prior
to the Closing shall be required to enter into and execute, a proprietary
information and inventions assignment agreement with the Company effective as of
such employee’s or contractor’s first date of employment or service in a form
acceptable to Parent, a true and correct copy of which has been delivered to
Parent and is set forth in Schedule 2.13(m) of the Disclosure Schedule.

6.17 Release of Liens. The Company shall file, or shall cause to be filed, all
agreements, instruments, certificates and other documents, in form and substance
reasonably satisfactory to Parent, that are necessary or appropriate to effect
the release of all Liens set forth in Schedule 7.2(g) to this Agreement).

6.18 Payoff Letters. The Company shall use its reasonable best efforts to obtain
a payoff letter in a form acceptable to Parent in its reasonable discretion from
each holder of Indebtedness of the Company other than the Permitted
Indebtedness.

6.19 Spreadsheet. The Company shall deliver to Parent three (3) Business Days
prior to the Closing Date a spreadsheet (the “Spreadsheet”) in a form reasonably
acceptable to Parent, which shall include, among other things, as of the
Closing:

 

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(a) with respect to each Company Shareholder, (i) such Person’s address and, if
available to the Company, social security number (or tax identification number,
as applicable), (ii) the number of shares of Company Capital Stock held by such
Person, (iii) the respective certificate number(s) representing such shares,
(iv) the respective date(s) of acquisition of such shares, (v) the Pro Rata
Portion applicable to such Person, (vi) the Shareholder Pro Rata Portion
applicable to such Person (vii) the aggregate amount of cash to be paid to such
Person at the Closing in respect of such shares, (viii) the amount of cash to be
deposited into the Escrow Fund on behalf of such Person in respect of the
Indemnification Escrow Amount, (viii) the amount of cash to be deposited into
the Escrow Fund on behalf of such Person in respect of the Working Capital
Escrow Amount, (ix) the amount of cash to be paid to the Shareholder
Representative on behalf of such Person in respect of the Holdback Amount,
(x) whether any amounts required to be withheld and if so, the amount of such
withholdings, and (xi) the identification of any shares that were eligible for
an election under Section 83(b) of the Code, including the date of issuance of
such shares, and whether such election under Section 83(b) of the Code was
timely made; and

(b) with respect to each holder of a Company Option, (i) such Person’s address
and, if available to the Company, social security number (or tax identification
number, as applicable), (ii) the number of shares of Company Capital Stock
underlying each Company Option held by such Person, (iii) the respective grant
date(s) of such Company Options, (iv) the respective exercise price(s) per share
of such Company Options, (v) whether such Company Options are incentive stock
options or non-qualified stock options, (vi) the Pro Rata Portion applicable to
such Person, (vii) the amount of cash to be deposited into the Escrow Fund in
respect of the Indemnification Escrow Amount, (viii) the amount of cash to be
deposited into the Escrow Fund on behalf of such Person in respect of the
Working Capital Escrow Amount, (ix) the amount of cash to be paid to the
Shareholder Representative on behalf of such Person in respect of the Holdback
Amount, (x) the aggregate amount of cash to be paid to such Person at the
Closing in respect of such Company Option, and (xi) whether any amounts are
required to be withheld and if so, the amount of such withholdings.

6.20 Non-Competition Agreements. Prior to or concurrent with execution of this
Agreement, each of the Persons on Exhibit B-1 hereto shall have executed and
delivered to Parent a Non-Competition Agreement in the form attached hereto as
Exhibit B-2.

6.21 Termination of Agreements. The Company shall have terminated each of the
agreements listed on Schedule 7.2(f) hereof (the “Terminated Agreements”),
concurrent with or prior to Closing, such that each such agreement shall be of
no further force or effect. Prior to Closing, the Company shall have paid all
amounts owed under the Terminated Agreements (as a result of the termination of
the Terminated Agreements or otherwise), and the Surviving Corporation will not
incur any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise) under any Terminated Agreement following
the Closing Date.

6.22 Release of Guarantees. After the Effective Time, Parent shall use
reasonable best efforts to obtain and deliver to the applicable Company
Indemnifying Parties duly executed releases

 

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of all guarantees executed by any such Company Indemnifying Party in respect of
any Indebtedness or other obligations of the Company.

6.23 D&O Insurance. Prior to the Effective Time, the Company shall purchase an
extended reporting period endorsement under the Company’s existing directors’
and officers’ liability insurance coverage, including EPLI and fiduciary
insurance (the “D&O Tail”) for the Company’s directors and officers in a form
mutually acceptable to the Company and Parent which shall provide such directors
and officers with coverage for three (3) years following the Effective Time of
not less than the existing coverage under, and have other terms not materially
less favorable to, the insured persons than the directors’ and officers’
liability insurance coverage presently maintained by the Company.

6.24 Nancy Spoor Insurance Policy. In the event that the Surviving Corporation
receives any proceeds under the Genworth Financial life insurance policy in the
name of Nancy Spoor (policy number: 5402707), such proceeds shall be promptly
distributed to the Indemnifying Parties in accordance with their Pro Rata
Portion.

ARTICLE VII

CONDITIONS TO THE MERGER

7.1 Conditions to Obligations of Each Party to Effect the Merger. The respective
obligations of the Company, Parent and Sub to effect the Merger shall be subject
to the satisfaction, at or prior to the Effective Time, of the following
conditions:

(a) No Order. No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, Rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.

(b) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by a Governmental Entity, seeking any of the foregoing be threatened or pending.

(c) Regulatory Approvals/HSR Act. If applicable, all waiting periods under the
HSR Act relating to the transactions contemplated hereby will have expired or
terminated early, and all material foreign antitrust approvals required to be
obtained prior to the Merger in connection with the transactions contemplated
hereby have been obtained.

7.2 Conditions to the Obligations of Parent and Sub. The obligations of Parent
and Sub to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by Parent and Sub:

 

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(a) Representations, Warranties and Covenants. (i) The respective
representations and warranties of the Company and the Principal Shareholders in
this Agreement (other than the representations and warranties of the Company and
the Principal Shareholders as of a specified date, which shall be true and
correct as of such date) shall have been true and correct on the date they were
made and shall be true and correct in all material respects (without giving
effect to any limitation as to “materiality” or “Material Adverse Effect” set
forth therein) on and as of the Closing Date as though such representations and
warranties were made on and as of such time, and (ii) the Company and the
Principal Shareholders shall have performed and complied in all material
respects with all covenants and obligations under this Agreement required to be
performed and complied with by such parties as of the Closing.

(b) Governmental Approval. Approvals from any court, administrative agency,
commission, or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency, or commission (if any) deemed appropriate or
necessary by Parent shall have been timely obtained.

(c) Unanimous Board Approval. This Agreement shall have been unanimously
approved by the Board of Directors of the Company, which unanimous approval
shall not have been altered, modified, changed or revoked.

(d) Litigation. There shall be no action, suit, claim, order, injunction or
proceeding of any nature pending, or overtly threatened, against Parent or the
Company, their respective properties or any of their respective officers or
directors arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement.

(e) Third Party Consents. Company shall have delivered to Parent all necessary
consents, waivers and approvals of parties to any Material Contract (including
Lease Agreements) set forth on Section 2.6 of the Disclosure Schedule as are
required thereunder in connection with the Merger, or for any such Material
Contract to remain in full force and effect without limitation, modification or
alteration after the Effective Time.

(f) Termination of Agreements. The Company shall have terminated each of those
agreements listed on Schedule 7.2(f) hereto and each such agreement shall be of
no further force or effect.

(g) Release of Liens. Parent shall have received from the Company a duly and
validly executed copy of all agreements, instruments, certificates and other
documents, in form and substance reasonably satisfactory to Parent, that are
necessary or appropriate to evidence the release of all Liens set forth in
Schedule 7.2(g) to this Agreement.

(h) No Material Adverse Effect. There shall not have occurred any event or
condition that has had or is reasonably likely to have a Company Material
Adverse Effect since the date of this Agreement.

 

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(i) Resignation of Officers and Directors. Parent shall have received a written
resignation from each of the officers and directors of the Company in accordance
with Section 6.13 effective as of the Effective Time.

(j) Legal Opinion. Parent shall have received a legal opinion from legal counsel
to the Company, substantially in the form attached hereto as Exhibit E.

(k) Shareholder Approval. Company Shareholders holding 90% of the Total
Outstanding Shares shall have approved this Agreement, the Merger, and the
transactions contemplated hereby and thereby, including the appointment of the
Shareholder Representative, and the deposit of the Indemnification Escrow Amount
and the Working Capital Escrow Amount into the Escrow Fund.

(l) Certificate of the Company. Parent shall have received a certificate,
validly executed by the Chief Executive Officer or Chief Financial Officer of
the Company for and on the Company’s behalf, to the effect that, as of the
Closing the conditions set forth in Section 7.2(a) (to the extent relating to
the representations, warranties and covenants of the Company) and Section 7.2(h)
have been satisfied.

(m) Certificate of the Principal Shareholders. Parent shall have received a
certificate from each Principal Shareholder, validly executed by such Principal
Shareholder, to the effect that, as of the Closing the conditions set forth in
Section 7.2(a) (to the extent relating to the representations, warranties and
covenants of the Principal Shareholders) have been satisfied.

(n) Certificate of Secretary of Company. Parent shall have received a
certificate, validly executed by the Secretary of the Company, certifying as to
(i) the terms and effectiveness of the Charter Documents, and (ii) the valid
adoption of resolutions of the Board of Directors of the Company (whereby the
Merger and the transactions contemplated hereunder were unanimously approved by
the Board of Directors) and (iii) that the Company Shareholders constituting the
Requisite Shareholder Vote have adopted and approved the Merger, this Agreement
and the consummation of the transactions contemplated hereby.

(o) Certificates of Good Standing. Parent shall have received a certificate of
good standing from the Secretary of State of the State of Colorado which is
dated within five (5) Business Days prior to the Closing with respect to the
Company. Parent shall have received a Certificate of Status of Foreign
Corporation of the Company issued by the Secretary of State of the States of
California and New Jersey dated within ten (10) Business Days prior to the
Closing.

(p) FIRPTA Certificate. Parent shall have received a copy of the FIRPTA
Compliance Certificate, validly executed by a duly authorized officer of the
Company.

(q) Proprietary Information and Inventions Assignment Agreement. The Company
shall have provided evidence satisfactory to Parent that each current and former
Employee and contractor of the Company has entered into and executed a
Proprietary Information Agreement.

 

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(r) Non-Competition Agreements. Each of the Persons listed on Exhibit B-1 hereto
shall have entered into a Non-Competition Agreement with Parent in the form
attached hereto as Exhibit B-2 and such Non-Competition Agreement shall remain
in full force and effect.

(s) Employment Agreements. Each of the Key Employees shall have entered into the
Key Employee Employment Agreements and such Key Employee Employment Agreements
shall remain in full force and effect.

(t) Payoff Letters. Parent shall have received an executed payoff letter in a
form acceptable to Parent in its reasonable discretion from each holder of
Indebtedness of the Company set forth in Section 7.2(t) of the Disclosure
Schedule.

(u) Statement of Expenses. Parent shall have received from the Company not less
than three (3) Business Days prior to the Closing Date the Statement of Expenses
pursuant to Section 6.4.

(v) Spreadsheet. The Company shall have delivered the Spreadsheet at least three
(3) Business Days prior to the Closing Date to Parent and the Exchange Agent.

(w) Statement of Working Capital. Parent shall have received the Statement of
Working Capital from the Company not less than three (3) Business Days prior to
the Closing Date pursuant to Section 1.8.

7.3 Conditions to Obligations of the Company and the Principal Shareholders. The
obligations of the Company and each of the Principal Shareholders to consummate
and effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by the
Company:

(a) Representations, Warranties and Covenants. (i) The representations and
warranties of Parent and Sub in this Agreement (other than the representations
and warranties of Parent and Sub as of a specified date, which shall be true and
correct as of such date) shall have been true and correct when made and shall be
true and correct in all material respects (without giving effect to any
limitation as to “materiality” or “material adverse effect” set forth therein)
on and as of the Closing Date as though such representations and warranties were
made on and as of such time, and (ii) each of Parent and Sub shall have
performed and complied in all material respects with all covenants and
obligations under this Agreement required to be performed and complied with by
such parties as of the Closing Date.

(b) Certificate of Parent. Company shall have received a certificate executed on
behalf of Parent by a Vice President or higher level officer for and on its
behalf to the effect that, as of the Closing, the conditions set forth in
Section 7.3(a) have been satisfied.

(c) Shareholder Approval. Company Shareholders constituting the Requisite
Shareholder Vote shall have approved this Agreement, the Merger, and the
transactions

 

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contemplated hereby and thereby, including the appointment of the Shareholder
Representative, and the deposit of the Indemnification Escrow Amount and the
Working Capital Escrow Amount into the Escrow Fund.

(d) James Spoor Insurance Proceeds. The Company Shareholders shall have received
their Pro Rata Portion of the proceeds from the Reassure America life insurance
policies in the name of James Spoor (policy numbers: 0221694, 0207868).

ARTICLE VIII

SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW

8.1 Survival of Representations, Warranties and Covenants. The representations
and warranties of the Company, the Principal Shareholders, Parent, Sub and any
other Person contained in this Agreement, Related Agreements or in any
certificate or other instruments delivered pursuant to this Agreement, shall
survive until January 31, 2012 (the “Survival Date”); provided, however, that
the representations and warranties of the Company, the Principal Shareholders,
Parent and Sub contained in (i) Section 2.2 (Company Capital Structure),
Section 2.4 (Authority), Section 3.1 (Ownership of Company Capital Stock),
Section 3.3 (Authority) and Section 4.2 (Authority) hereof shall survive
indefinitely, (ii) Section 2.10 (Tax Matters) and Section 2.22 (Employee
Benefits Matters) hereof shall survive until the expiration of the applicable
statute of limitations and (iii) Section 2.13 (Intellectual Property) shall
survive until the fourth anniversary of the Closing Date. The representations
and warranties referenced in (i) – (iii) of the foregoing sentence, are referred
to herein as the “Surviving Representations.” The covenants and other agreements
of the parties contained in this Agreement shall survive the Closing Date until
they are otherwise terminated in accordance with their respective terms.
Notwithstanding any other provision of this Agreement, it is the intention of
the parties hereto that the foregoing survival periods and termination dates
supersede any applicable statute of limitations applicable to such
representations and warranties.

8.2 Indemnification.

(a) By virtue of the Merger, the Company Shareholders (including the Principal
Shareholders) and the Company Optionholders (collectively, the “Company
Indemnifying Parties”) agree to severally and not jointly, based on their
respective Pro Rata Portions, indemnify and hold harmless Parent and its
officers, directors, affiliates, employees, agents and representatives,
including the Surviving Corporation (the “Indemnified Parties”), against all
claims, losses, Liabilities, damages, Taxes, costs, interest, awards, judgments,
penalties and expenses, including reasonable attorneys’ and consultants’ fees
and expenses and including any such reasonable out-of-pocket expenses incurred
in connection with investigating, defending against or settling any of the
foregoing (hereinafter individually a “Loss” and collectively “Losses”) incurred
or sustained by the Indemnified Parties, or any of them (including the Surviving
Corporation) as a result of any of the following (collectively, “Indemnifiable
Matters”):

 

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(i) any breach or inaccuracy of a representation or warranty of the Company, the
Principal Shareholders contained in this Agreement (except for those
representations and warranties made by the Principal Shareholders in Article III
of this Agreement), Related Agreement or in any certificate or other instruments
delivered pursuant to this Agreement,

(ii) any failure by the Company, the Principal Shareholders or any other Company
Indemnifying Party to perform or comply with any covenant applicable to any of
them contained in this Agreement, Related Agreement or in any certificate or
other instruments delivered pursuant to this Agreement,

(iii) any Dissenting Share Payments;

(iv) any Excess Liabilities, including expenses of the Accountant, if any,
attributable to the Company Indemnifying Parties;

(v) any inaccuracy or omission in the Spreadsheet, including any amounts set
forth therein that are paid to a Person in excess of the amounts such Person is
entitled to receive pursuant to the terms of this Agreement or any amounts a
Person was entitled to receive pursuant to the terms of this Agreement that was
omitted from the Spreadsheet (collectively, “Spreadsheet Losses”);

(vi) any Agreed Upon Losses; and

(vii) any of the matters disclosed on Schedule 8.2(a)(vii) hereto.

(b) By virtue of the Merger, each Principal Shareholder agrees to severally
indemnify and hold harmless the Indemnified Parties against all Losses incurred
or sustained by the Indemnified Parties, or any of them, as a result of the
following:

(i) any breach or inaccuracy of a representation or warranty of such Principal
Shareholder contained in Article III of this Agreement.

(c) Notwithstanding Section 8.2(a), any Company Indemnifying Party, including
any Principal Shareholder, committing, or being aware of, any fraud, intentional
or willful breach of this Agreement, in the Certificates or in the Spreadsheet
shall indemnify, and hold the Indemnified Parties harmless for, any Losses
incurred or sustained by the Indemnified Parties, or any of them (including the
Company), as a result of such fraud, intentional or willful breach.

(d) For the purposes of this Article VIII only, solely when determining the
amount of Losses suffered by an Indemnified Party as a result of any breach,
inaccuracy or failure, any representation, warranty, covenant or agreement given
or made by the Company or any Principal Shareholder that is qualified or limited
in scope as to materiality or Material Adverse Effect (including the definition
of Material Contracts), such representation, warranty, covenant or agreement
shall be deemed to be made or given without such qualification or limitation.

 

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(e) The Company Indemnifying Parties shall not have any right of contribution,
indemnification or right of advancement from the Company, the Surviving
Corporation or Parent with respect to any Loss claimed by an Indemnified Party.

(f) Nothing in this Agreement shall limit the right of Parent or any other
Indemnified Party to pursue remedies under any Related Agreement (other than the
Certificates) against the parties thereto. Absent specific additional remedies
provided for in any Related Agreement and except in the case of fraud or
intentional or willful breach of this Agreement, the indemnification provisions
of this Article VIII shall be the sole and exclusive remedy with respect to any
claim relating to the subject matter of this Agreement and any Related
Agreement.

8.3 Maximum Payments; Remedy.

(a) Notwithstanding the foregoing, except as set forth in the second sentence of
this Section 8.3(a), an Indemnified Party may not recover any Losses under
Section 8.2(a)(i) or Section 8.2(b)(i) hereof unless and until one or more
Officer’s Certificates identifying such Losses under Section 8.2(a)(i) or
8.2(b)(i) hereof in excess of one hundred thousand Dollars ($100,000) in the
aggregate (the “Deductible”) has or have been delivered to the Shareholder
Representative as provided in Section 8.4(a) hereof, and such amount is payable
in accordance with this Article VIII, at which time such Indemnified Party shall
be entitled to recover all Losses so identified in excess of (but not including)
the Deductible except as otherwise set forth herein. The provisions of this
Section 8.3(a) shall not apply to any and all claims or payments made with
respect to all Losses (i) incurred pursuant to Section 8.2(a)(i) for any breach
or inaccuracy of any Surviving Representation, (ii) incurred pursuant to clauses
(ii) through (vii) of Section 8.2(a) hereof, or (iii) incurred pursuant to
Section 8.2(c) hereof.

(b) Except as otherwise set forth in this Section 8.3(b) and Section 8.3(c)
below, the maximum amount that the Indemnified Parties may recover from the
Company Indemnifying Parties for Losses incurred pursuant to Section 8.2(a)(i)
and Section 8.2(b)(i) shall be Two Million Four Hundred Thousand Dollars
($2,400,000) (the “Cap”) and the liability of the Company Indemnifying Parties
shall be determined based on the Company Indemnifying Parties’ respective Pro
Rata Portions. Except as otherwise set forth in this Section 8.3(b) and
Section 8.3(c) below, the sole recourse of the Indemnified Parties for Losses
pursuant to Section 8.2(a)(i) and Section 8.2(b)(i) shall be claims against the
Escrow Fund pursuant to this Agreement and the aggregate liability of the
Company Indemnifying Parties to the Indemnified Parties for Losses pursuant to
Section 8.2(a)(i) and Section 8.2(b)(i) shall at all times be limited to the
amount remaining of the Escrow Fund. Notwithstanding the foregoing, the
Indemnified Parties shall not be limited to the Escrow Fund and the Cap shall
not apply in respect of Losses incurred pursuant to Section 8.2(a)(i) or
Section 8.2(b)(i) for any breach or inaccuracy of any Surviving Representations,
provided, that, the maximum amount that the Indemnified Parties may recover from
the Company Indemnifying Parties in respect of such Losses shall be limited to
an amount equal to the Total Consideration and the liability of the Company
Indemnifying Parties shall be determined based on the Company Indemnifying
Parties’ respective Pro Rata Portions.

 

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(c) Notwithstanding anything to the contrary set forth in this Agreement,
nothing in this Agreement shall limit the liability of any Company Indemnifying
Party, and neither the Escrow Fund nor the Total Consideration shall be the
exclusive remedy, in respect of Losses arising out any of the Indemnifiable
Matters described in clauses (ii) through (vii) of Section 8.2(a) hereof, or
incurred pursuant to Section 8.2(c) hereof, provided, however, that the
liability of the Company Indemnifying Parties for the Indemnifiable Matters
described in clauses (ii) through (vii) of Section 8.2(a), or incurred pursuant
to Section 8.2(c) hereof shall be determined on a several, and not joint, basis
based on such Company Indemnifying Party’s Pro Rata Portion.

(d) Nothing in this Article VIII shall limit the liability of any party hereto
for any breach of any representation or warranty contained in this Agreement,
any Related Agreement or any Certificate or other instrument delivered pursuant
to this Agreement if the Merger does not close.

(e) Each Indemnified Party shall take commercially reasonable steps to mitigate
all Losses after becoming aware of any event or condition which could reasonably
be expected to give rise to any Losses that are indemnifiable hereunder.

(f) The amount of the Losses that the Company Indemnifying Parties are or may be
required to pay to any Indemnified Party in respect of an indemnity claim
pursuant to this Article VIII shall be reduced (retroactively, if necessary) by
the amount of any payment actually received by an Indemnified Party in respect
of the Losses that gave rise to the indemnity claim from any insurance policy
net of any deductibles or other amounts payable with respect thereto, including
premium increases attributable to the claim or other costs incurred (including
attorneys’ fees and the Indemnified Party’s general overhead expenses related to
any such insurance claim) (the “Net Insurance Proceeds”). If an Indemnified
Party shall have received the payment required by this Agreement from the Escrow
Fund (or in the case of recovery directly from a Company Indemnifying Party or
Parties, from the Company Indemnifying Party or Parties) in respect of a Loss
and shall subsequently receive insurance proceeds, in respect of such Loss, then
such Indemnified Party shall promptly return to the Escrow Fund or, following
the Escrow Period, pay to the Shareholder Representative (on behalf of the
Company Indemnifying Parties), or in the case that indemnification was sought
hereunder directly from a Company Indemnifying Party or Parties, to such Company
Indemnifying Party or Parties, a sum equal to the Net Insurance Proceeds
received in respect of the Loss. No Indemnified Party shall be obligated to make
a claim for insurance recovery if there is a reasonable risk that such
Indemnified Party will become uninsurable for any risks as a result of such
claim. The Shareholder Representative and the Company Indemnifying Parties waive
any rights to claim subrogation to any rights of any and all Indemnified
Parties. Notwithstanding the foregoing or anything to the contrary contained
herein, but subject to Section 8.3(e), in no event shall an Indemnified Party be
required to pursue any insurer or other third party with indemnification
obligations or any other person responsible therefor as a condition to an
Indemnified Party’s right to receive its indemnification benefit under this
Article VIII.

(g) The Company Indemnifying Parties shall not be liable under this Article VIII
for any Losses for which the Indemnified Party has otherwise been fully
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the adjustments to the amount of the Total Consideration, including without
limitation the Working Capital Adjustment Amount and the Final Adjustment
Amount.

8.4 Claims for Indemnification; Resolution of Conflicts.

(a) Making a Claim for Indemnification; Officer’s Certificate.

(i) An Indemnified Party may seek recovery of Losses pursuant to this
Article VIII by delivering to the Shareholder Representative (and, in the case
of recovery sought directly from one or more Company Indemnifying Parties
directly, delivering to such Company Indemnifying Party or Parties), with a copy
simultaneously provided to the Escrow Agent, an Officer’s Certificate in respect
of such claim. The date of such delivery of an Officer’s Certificate is referred
to herein as the “Claim Date” of such Officer’s Certificate (and the claims for
indemnification contained therein). For purposes hereof, “Officer’s Certificate”
shall mean a certificate signed by any officer of Parent: (A) stating that an
Indemnified Party has paid, sustained, incurred or accrued, or reasonably
anticipates that it will have to pay, sustain, incur or accrue Losses and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid, sustained, incurred, or
accrued, or the basis for such anticipated Losses, and the nature of the
Indemnifiable Matter to which such item is related.

(ii) In the event that an Indemnified Party pursues a claim directly against any
Company Indemnifying Party and the Company Indemnifying Party has not delivered
an Objection Notice by the Objection Deadline in accordance with Section 8.4(b),
subject to the provisions of Section 8.3, Section 8.4(b), Section 8.4(c) and
Section 10.9 hereof, each Company Indemnifying Party shall promptly, and in no
event later than 30 days after delivery of an Officer’s Certificate to such
Company Indemnifying Party, wire transfer to the Indemnified Party an amount of
cash equal to the amount of the Loss.

(iii) Upon receipt by the Escrow Agent at any time on or before termination of
the Escrow Period (as defined in Section 8.5(b) below) of an Officer’s
Certificate in accordance with this Section 8.4(a), the Escrow Agent shall,
subject to the provisions of this Section 8.4, including, without limitation,
the ability of the Shareholder Representative or the Company Indemnifying Party,
as applicable, to deliver an Objection Notice in accordance with Section 8.4(b),
deliver to Parent as promptly as practicable cash from the Escrow Fund equal to
such Loss as stated in the Officer’s Certificate, provided, that, for a period
of thirty (30) days after delivery of the Officer’s Certificate to the Escrow
Agent by Parent, the Escrow Agent shall make no delivery to Parent of any cash
from the Escrow Fund pursuant to this Section 8.4(a)(iii) unless the Escrow
Agent shall have received written authorization from the Shareholder
Representative to make such delivery.

(b) Objecting to a Claim for Indemnification.

(i) The Shareholder Representative (or, in the case of a claim directly against
one or more Company Indemnifying Parties, such Company Indemnifying Parties) may
object to a claim for indemnification set forth in an Officer’s Certificate by
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Indemnified Party seeking indemnification (and, in the case of a claim against
the Escrow Fund, to the Escrow Agent) a written statement of objection to the
claim made in the Officer’s Certificate (an “Objection Notice”), provided that,
to be effective, such Objection Notice must (i) be delivered to the Indemnified
Party (and, in the case of a claim for recourse against the Escrow Fund, to the
Escrow Agent) prior to midnight (California time) on the 30th day following the
receipt of the Officer’s Certificate (such deadline, the “Objection Deadline”
for such Officer’s Certificate and the claims for indemnification contained
therein) and (ii) set forth in reasonable detail the nature of the objections to
the claims in respect of which the objection is made. Notwithstanding the
foregoing, the Shareholder Representative and each Company Indemnifying Party
hereby waive the right to object to any claims against the Escrow Fund or
otherwise in respect of any Agreed Upon Loss.

(ii) If the Shareholder Representative (or the Company Indemnifying Party, in
the event that indemnification is being sought hereunder directly from a Company
Indemnifying Party) does not object in writing (as provided in
Section 8.4(b)(i)) to the claims contained in an Officer’s Certificate prior to
the Objection Deadline for such Officer’s Certificate, such failure to so object
shall be an irrevocable acknowledgment by the Shareholder Representative and the
Company Indemnifying Party, as applicable, that the Indemnified Party is
entitled to the full amount of the claims for Losses set forth in such Officer’s
Certificate (and such entitlement shall be conclusively and irrefutably
established) (any such claim, an “Unobjected Claim”), and the Escrow Agent shall
make distributions from the Escrow Fund in accordance with the terms thereof.
The Shareholder Representative hereby authorizes the Escrow Agent to deliver an
amount of cash from the Escrow Fund equal to the amount of Losses claimed in any
Officer’s Certificate in respect of any Agreed-Upon Loss upon receipt of such
Officer’s Certificate without regard to the 30-day period set forth in
Section 8.4(a)(iii).

(c) Resolution of Conflicts; Arbitration.

(i) In case the Shareholder Representative (or the Company Indemnifying Parties
in the case of a claim for indemnification sought directly from a Company
Indemnifying Party) timely delivers an Objection Notice in accordance with
Section 8.4(b)(i) hereof (other than in connection with Agreed Upon Losses as
defined in Section 8.4(c)(v) hereof), the Shareholder Representative (or such
objecting Company Indemnifying Party) and Parent shall attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
claims. Either party may, but shall not be obligated to, initiate non binding
mediation of the dispute with the assistance of a neutral arbitrator belonging
to and under the rules of the American Arbitration Association. The party
requesting the mediation shall arrange for mediation services, subject to the
approval of the other party, which shall not be unreasonably withheld. Such
mediation shall take place in Denver, Colorado and shall occur during reasonable
business hours and upon reasonable advance notice. Mediation may be scheduled to
begin at any time, but with at least ten (10) Business Days’ written notice to
all parties. If one party initiates mediation, the parties (i) shall participate
in the mediation in good faith and shall devote reasonable time and energy to
the mediation so as to promptly resolve the dispute or conclude that they cannot
resolve the dispute and (ii) shall not pursue other remedies while such
mediation is proceeding. If the Shareholder Representative (or the objecting
Company Indemnifying Parties) and Parent reach an agreement, a memorandum
setting

 

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forth such agreement shall be prepared and signed by both parties and, in the
case of a claim against the Escrow Fund, shall be furnished to the Escrow Agent
and, in the case of a claim directly against the Company Indemnifying Parties,
to the Company Indemnifying Parties. The Escrow Agent shall be entitled to rely
on any such memorandum and make distributions from the Escrow Fund in accordance
with the terms thereof.

(ii) If no such agreement can be reached after good faith negotiation (and, if
applicable, mediation) prior to forty-five (45) days after delivery of an
Objection Notice, either Parent or the Shareholder Representative (or the
objecting Company Indemnifying Party) may demand arbitration of the matter
unless the amount of the Loss that is at issue is the subject of a pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration, and in
either such event the matter shall be settled by arbitration conducted pursuant
to Section 10.9.

(iii) Except as set forth in Section 8.4(c)(v) hereof, arbitration under
Section 10.9 shall apply to any dispute among the Company Indemnifying Parties
and the Indemnified Parties under this Article VIII, whether relating to claims
upon the Escrow Fund or to the other indemnification obligations set forth in
this Article VIII.

(iv) The decision of the arbitrator or a majority of the three arbitrators, as
the case may be, as to the validity and amount of any claim in such Officer’s
Certificate shall be final, binding, and conclusive upon the parties to this
Agreement and the Company Indemnifying Parties. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrator(s), and
the Escrow Agent shall be entitled to rely on, and make distributions from the
Escrow Fund in accordance with, the terms of such award, judgment, decree or
order as applicable. Within 30 days of a decision of the arbitrator(s) requiring
payment by one party to another, such party shall make the payment to such other
party, including any distributions out of the Escrow Fund, as applicable.

(v) Arbitration under Section 10.9 shall not apply to claims made in respect of
an Agreed Upon Loss. Claims against the Escrow Fund made in respect of any
Agreed Upon Loss shall be resolved in the manner described in Section 8.4(b)(ii)
hereof and shall be considered an Unobjected Claim thereunder.

8.5 Escrow Arrangements.

(a) Escrow Fund. By virtue of this Agreement and as partial security for the
indemnity obligations provided for in Section 8.2 hereof, at the Effective Time
Parent will deposit with the Escrow Agent the Indemnification Escrow Amount and
the Working Capital Escrow Amount (together, the “Total Escrow Amount”) without
any act of the Company Indemnifying Parties in accordance with Section 1.6(b),
such deposit of the Total Escrow Amount to constitute an escrow fund to be
governed by the terms set forth herein. The Total Escrow Amount (plus any
interest paid on such Total Escrow Amount in accordance with Section 8.5(d)(ii)
hereof) (collectively, the “Escrow Fund”) shall be available to compensate the
Indemnified Parties for any claims by such parties for any Losses suffered or
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recovery under this Article VIII, provided, that, the Working Capital Escrow
Amount shall only be available to compensate the Indemnified Parties for any
claims by such parties for any Losses suffered or incurred by them and for which
they are entitled to recovery under Section 1.8 and Section 8.2(a)(iv) hereof.
The Escrow Agent may execute this Agreement following the date hereof and prior
to the Closing, and such later execution, if so executed after the date hereof,
shall not affect the binding nature of this Agreement as of the date hereof
between the other signatories hereto.

(b) Escrow Period; Distribution upon Termination of Escrow Periods. Subject to
the following requirements, the Escrow Fund shall be in existence immediately
following the Closing and shall terminate at 5:00 p.m., local time at Parent’s
corporate headquarters in California, on the Survival Date (the “Escrow Period”)
and the Escrow Agent shall distribute the funds in the Escrow Account to the
Company Indemnifying Parties following such termination; provided, however, that
the Escrow Fund shall not terminate with respect to any amount in respect of any
unsatisfied claims specified in any Officer’s Certificate (“Unresolved Claims”)
delivered to the Escrow Agent and the Shareholder Representative prior to the
Survival Date, and any such amount shall not be distributed to the Company
Indemnifying Parties at such time. As soon as all such claims have been
resolved, the Escrow Agent shall deliver to the Company Indemnifying Parties the
remaining portion of the Escrow Fund, if any, not required to satisfy such
Unresolved Claims; provided, however, that any funds to be distributed that were
contributed to the Escrow Fund by a Company Optionholder, which are subject to
applicable tax withholding shall be returned to Parent before distribution to
such Company Optionholder, and Parent will then deduct the appropriate tax
withholding amounts and distribute net funds to such Company Optionholder.
Deliveries of the Indemnification Escrow Amount and the Working Capital Escrow
Amount, as applicable, out of the Escrow Fund to the Company Indemnifying
Parties pursuant to this Section 8.5(b) shall be made in proportion to their
respective Pro Rata Portions of the remaining amounts in the Escrow Fund (or in
the case of the Working Capital Escrow Amount, in proportion to their respective
Pro Rata Portions of any portion of the Working Capital Escrow Amount not due to
Parent pursuant to Section 1.8 hereof), with the amount delivered to each
Company Indemnifying Party rounded to the nearest one hundredth (0.01) (with
amounts 0.005 and above rounded up). If the sum of the Pro Rata Portions, each
rounded to the nearest one hundredth (0.01) (with amounts 0.005 and above
rounded up), does not equal the remaining amounts in the Escrow Fund, then the
appropriate amount will be added to or subtracted from the Company Indemnifying
Party with the greatest Pro Rata Portion such that the sum of the rounded Pro
Rata Portions does equal the remaining amount in the Escrow Fund.

(c) Tax Reporting Documentation Parent and each of the Company Indemnifying
Parties agrees to provide the Escrow Agent with its certified tax identification
number by furnishing the Escrow Agent with Internal Revenue Service Form W-9 (or
Form W-8, in the case of a non-U.S. person) and any other forms and documents
that the Escrow Agent may reasonably request (collectively, “Tax Reporting
Documentation”) prior to the Closing. The parties hereto understand that, if
such Tax Reporting Documentation is not so furnished to the Escrow Agent, the
Escrow Agent shall be required by the Code to withhold a portion of any interest
or other income earned on the investment of monies or other property held by the
Escrow Agent pursuant to this Agreement, and to immediately remit such
withholding to the IRS.

 

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(d) Protection of Escrow Fund.

(i) The Total Escrow Amount shall be invested in the Escrow Agent’s Money Market
Deposit Account, and any interest paid on such Total Escrow Amount shall be
added to the Escrow Fund and become a part thereof. The Escrow Agent shall hold
and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as
a trust fund in accordance with the terms of this Agreement and shall hold and
dispose of the Escrow Fund only in accordance with the terms of this
Article VIII. Except pursuant to a will or other estate planning instrument or
pursuant to the applicable laws of descent and distribution, the interests of
the Company Indemnifying Parties in the Escrow Fund shall not be transferable
without the prior written consent of Parent, which shall not be unreasonably
withheld or delayed.

(ii) The parties hereto agree that Parent is the owner of any cash in the Escrow
Fund, and that all interest on or other taxable income, if any, earned from the
investment of such cash pursuant to this Agreement shall be treated for tax
purposes as earned by Parent. The Escrow Agent is hereby directed to pay to
Parent out of the Escrow Fund, as soon as reasonably practicable following the
reporting of any such income to Parent, but not more often than quarterly, a
distribution equal to 20% of the amount of such net income reported to Parent.
The parties intend the Total Escrow Amount contributed in respect of Company
Capital Stock to qualify for installment sale reporting under Section 453 of the
Code.

(e) Escrow Agent’s Duties.

(i) The Escrow Agent shall be obligated only for the performance of such duties
as are specifically set forth herein, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of legal counsel shall be
conclusive evidence of such good faith.

(ii) The Escrow Agent is hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other Person, excepting
only orders or process of courts of Law, and is hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court. In case the
Escrow Agent obeys or complies with any such order, judgment or decree of any
court, the Escrow Agent shall not be liable to any of the parties hereto or to
any other Person by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.

(iii) The Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.

 

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(iv) The Escrow Agent shall not be liable for the expiration of any rights under
any statute of limitations with respect to this Agreement or any documents
deposited with the Escrow Agent.

(v) In performing any duties under this Agreement, the Escrow Agent shall not be
liable to any party for damages, losses or expenses, except for gross negligence
or willful misconduct on the part of the Escrow Agent. Subject to the foregoing
sentence, the Escrow Agent shall not incur any such liability for (A) any act or
failure to act made or omitted in good faith, or (B) any action taken or omitted
in reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with legal counsel in connection with
performing the Escrow Agent’s duties under this Agreement and shall be fully
protected in any act taken, suffered, or permitted by him/her in good faith in
accordance with the advice of counsel. The Escrow Agent is not responsible for
determining and verifying the authority of any Person acting or purporting to
act on behalf of any party to this Agreement.

(vi) If any controversy arises between the parties to this Agreement, or with
any other party, concerning the subject matter of this Agreement, its terms or
conditions, the Escrow Agent will not be required to determine the controversy
or to take any action regarding it. The Escrow Agent may hold all documents and
the Total Escrow Amount remaining in the Escrow Fund and may wait for settlement
of any such controversy by final appropriate legal proceedings or other means
as, in the Escrow Agent’s discretion, may be required, despite what may be set
forth elsewhere in this Agreement. In such event, the Escrow Agent will not be
liable for damages. Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and the Total Escrow Amount held in the Escrow
Fund, except all costs, expenses, charges and reasonable attorney fees incurred
by the Escrow Agent due to the interpleader action (the “Agent Interpleader
Expenses”) and which the parties agree to pay as follows: 50% to be paid by
Parent and 50% to be paid by the Company Indemnifying Parties on the basis of
the Company Indemnifying Parties’ respective Pro Rata Portions; provided,
however, that in the event any Company Indemnifying Party fails to timely pay
his, her or its Pro Rata Portion of the Agent Interpleader Expenses, the parties
agree that Parent may at its option pay such Company Indemnifying Party’s Pro
Rata Portion of the Agent Interpleader Expenses and recover an equal amount
(which shall be deemed an Agreed Upon Loss) from such Company Indemnifying
Party’s Pro Rata Portion of the Escrow Fund. Upon initiating such action, the
Escrow Agent shall be fully released and discharged of and from all obligations
and Liability imposed by the terms of this Agreement.

(vii) The parties and their respective successors and assigns agree jointly and
severally to indemnify and hold Escrow Agent harmless against any and all
losses, claims, damages, Liabilities and expenses, including reasonable costs of
investigation, counsel fees, including allocated costs of in house counsel and
disbursements that may be imposed on Escrow

 

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Agent or incurred by Escrow Agent in connection with the performance of its
duties under this Agreement, including but not limited to any litigation arising
from this Agreement or involving its subject matter, other than those arising
out of the negligence or willful misconduct of the Escrow Agent (the “Agent
Indemnification Expenses”). The Parent and the Company Indemnifying Parties
agree that any payments made to the Escrow Agent under this Section 8.5(e)(vii),
whether made by Parent, the Company Indemnifying Parties or any of them, are to
be borne 50% by Parent and 50% by the Company Indemnifying Parties on the basis
of the Company Indemnifying Parties Pro Rata Portions; provided that, this
sentence shall not effect the joint and several obligations of Parent and the
Company Indemnifying Parties under this Section 8.5(e)(vii); provided, further,
however, that in the event any Company Indemnifying Party fails to timely pay
his, her or its Pro Rata Portion of the Agent Indemnification Expenses, the
parties agree that Parent may recover an amount equal to such Company’
Indemnifying Party’s Pro Rata Portion of the Agent Indemnification Expenses
(which shall be deemed an Agreed Upon Loss) from such Company Indemnifying
Party’s Pro Rata Portion of the Escrow Fund.

(viii) The Escrow Agent may resign at any time upon giving at least thirty
(30) days written notice to Parent and the Shareholder Representative; provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent which shall be accomplished as follows: Parent and
the Shareholder Representative shall use their commercially reasonable efforts
to mutually agree on a successor escrow agent within thirty (30) days after
receiving such notice. If the parties fail to agree upon a successor escrow
agent within such time, the Escrow Agent shall have the right to appoint a
successor escrow agent authorized to do business in the State of California. The
successor escrow agent shall execute and deliver an instrument accepting such
appointment and it shall, without further acts, be vested with all the estates,
properties, rights, powers, and duties of the predecessor escrow agent as if
originally named as escrow agent. Upon appointment of a successor escrow agent,
the Escrow Agent shall be discharged from any further duties and Liability under
this Agreement.

(f) Fees. All fees of the Escrow Agent for performance of its duties hereunder
shall be paid by Parent in accordance with the fee schedule of the Escrow Agent
attached hereto as Exhibit G. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered compensation
for ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms, or if any controversy arises,
or if the Escrow Agent is made a party to, or intervenes in, any litigation
pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney’s fees, including allocated costs of in house counsel, and
expenses occasioned by such default, delay, controversy or litigation.

(g) Successor Escrow Agents. Any corporation into which the Escrow Agent in its
individual capacity may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
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business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.

(h) U.S.A. Patriot Act Information. To help the government fight the funding of
terrorism money laundering activities, federal law requires all financial
institutions to obtain, verify and record information that identifies each
person who opens an account. For a non-individual person such as a business
entity, a charity, a trust or other legal entity, the Escrow Agent will ask for
documentation to verify its formation and existence as a legal entity. The
Escrow Agent may also ask to see financial statements, licenses, identification
and authorization documents from individuals claiming authority to represent the
entity or other relevant documentation. The parties each agree to provide all
such information and documentation as to themselves as requested by Escrow Agent
to ensure compliance with federal law.

8.6 Third Party Claims.

(a) In the event Parent becomes aware of a third party claim (other than a claim
that is the subject of an Agreed Upon Loss) (a “Third Party Claim”) which Parent
reasonably believes may result in a demand against the Escrow Fund or for other
indemnification pursuant to this Article VIII, Parent shall notify the
Shareholder Representative (or, in the event indemnification is being sought
hereunder directly from a Company Indemnifying Party, such Company Indemnifying
Party) of such claim; provided, however, that the failure to give prompt notice
shall not affect the indemnification provided hereunder except to the extent the
Shareholder Representative, on behalf of the Company Indemnifying Parties, has
been actually prejudiced as a result of such failure. The notice of Third Party
Claim shall include, based on the information then available to Parent, a
summary in reasonable detail of the basis for the Third Party Claim and a
reasonable estimate of the Losses.

(b) The Shareholder Representative may, at her election, undertake and conduct
the defense of such Third Party Claim, provided that the Shareholder
Representative, on behalf of the Company Indemnifying Parties, fully
acknowledges in writing its indemnification obligations to the Indemnified
Party. In such case, the Indemnified Party may continue to participate in the
defense of such Third Party Claim at its own expense (provided, that if (A) the
employment of separate counsel will have been authorized in writing by the
Shareholder Representative in connection with the defense of such Third Party
Claim; (B) the Shareholder Representative has not employed counsel reasonably
satisfactory to the Indemnified Party to have charge of such Third Party Claim;
(C) the Indemnified Party will have reasonably concluded that there may be
defenses available to such Indemnified Party that are different from or
additional to those available to the Company Indemnifying Parties; or (D) the
Indemnified Party has been advised by counsel that the Company Indemnifying
Parties and the Indemnified Party have conflicting interests that would
constitute a conflict of interest under applicable standards of professional
conduct, in which case the reasonable fees and expenses of counsel to the
Indemnified Party (including local counsel) will be paid out of the Escrow
Fund).

(c) Notwithstanding anything to the contrary contained herein, the Shareholder
Representative shall not be entitled to undertake and conduct the defense of any
Third Party Claim if

 

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(i) the Shareholder Representative has failed to assume the defense of such
Third Party Claim within thirty (30) days of the delivery of notice of such
Third Party Claim to the Shareholder Representative, (ii) the amounts reasonably
expected to be incurred in connection with such Third Party Claim and all other
outstanding claims on the Escrow Fund exceed the amount remaining in the Escrow
Fund, (iii) the Third Party Claim includes a claim for injunctive relief, (iv) a
conflict between the Indemnified Party and the Company Indemnifying Party
arises; or (v) the litigation or outcome of such Third Party Claim could
reasonably be expected to adversely impact Parent’s or the Surviving Company’s
business in addition to the monetary damages paid in the claims (including,
without limitation, any claim involving the Company Intellectual Property
Rights).

(d) The Indemnified Party and the Shareholder Representative will render to each
other such assistance as may reasonably be required of each other in order to
insure proper and adequate defense of any Third Party Claim subject to this
Section 8.6. To the extent that the Indemnified Party or the Shareholder
Representative does not participate in the defense of a particular Third Party
Claim, the party so proceeding with such Third Party Claim shall keep the other
party informed of all material developments and events relating to such Third
Party Claim.

(e) No Third Party Claim subject to this Section 8.6 shall be settled, adjusted
or compromised without the written consent of both the Indemnified Party and the
Shareholder Representative, which consent shall not be unreasonably withheld,
conditioned or delayed, provided, that, in the event that Parent controls the
defense of such Third Party Claim, Parent may settle such Third Party Claim in
its sole discretion, provided, further, however, that except with the consent of
the Shareholder Representative (or, in the event indemnification is being sought
hereunder directly from a Company Indemnifying Party, such Company Indemnifying
Party), no settlement of any such Third Party Claim with third party claimants
shall be determinative of the amount of Losses relating to such matter. In the
event that the Shareholder Representative has consented to any such settlement,
the Company Indemnifying Parties shall have no power or authority to object
under any provision of this Article VIII to the amount of any Third Party Claim
by Parent against the Escrow Fund, or against the Company Indemnifying Parties
directly, as the case may be, with respect to such settlement.

(f) The Escrow Agent shall not disburse any portion of the Escrow Fund to any
third party except in accordance with joint written instructions received from
Parent and the Shareholder Representative.

(g) Notwithstanding anything in this Agreement to the contrary, this Section 8.6
shall not apply to any third party claim that is the subject of an Agreed Upon
Loss. Claims against the Escrow Fund made in respect of any Agreed Upon Loss
shall be resolved in the manner described in Section 8.4(b)(ii) above.

8.7 Shareholder Representative.

(a) Sybll K. Romley is hereby appointed as the agent and attorney in fact of the
Company Indemnifying Parties as the Shareholder Representative for and on behalf
of the Company Indemnifying Parties to give and receive notices and
communications, to authorize payment to

 

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Parent from the Escrow Fund in satisfaction of claims by Parent, to object to
such payments, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all other actions that are
either (i) necessary or appropriate in the judgment of the Shareholder
Representative for the accomplishment of the foregoing or (ii) specifically
mandated by the terms of this Agreement. Such agency may be changed by the
Company Indemnifying Parties from time to time upon not less than ten (10) days
prior written notice to Parent; provided, however, that the Shareholder
Representative may not be removed unless holders of a majority-in-interest of
the Escrow Fund agree to such removal and to the identity of the substituted
agent. A vacancy in the position of Shareholder Representative may be filled by
the holders of a majority-in-interest of the Escrow Fund. No bond shall be
required of the Shareholder Representative. Notices or communications to or from
the Shareholder Representative shall constitute notice to or from the Company
Indemnifying Parties.

(b) The Shareholder Representative shall not be paid any fee for services to be
rendered hereunder. All reasonable fees and expenses incurred by the Shareholder
Representative in performing her duties hereunder or under the Escrow Agreement
shall be borne severally by the Company Indemnifying Parties, based on their Pro
Rata Portion; provided, however, that, to the extent practical, the Shareholder
Representative shall deduct such fees and expenses from the amounts otherwise
distributable to the Company Indemnifying Parties under this Agreement. In
particular and without limitation, the Shareholder Representative shall hold
back the sum of seventy-five thousand Dollars ($75,000) from amounts otherwise
distributable to the Company Indemnifying Parties under this Agreement (the
“Holdback Amount”), which may be used to pay transaction and other
administrative expenses, in addition to other fees and expenses incurred in her
performance of her duties and responsibilities hereunder. At such time that the
Shareholder Representative believes, in her sole discretion, that all or any
portion of the Holdback Amount is no longer required for the above uses, the
Shareholder Representative shall distribute such portion of the Holdback Amount
to the Company Indemnifying Parties based on their Pro Rata Portion.

(c) The Shareholder Representative shall not have any duties or responsibilities
except those expressly set forth in this Agreement, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or shall otherwise exist against the Shareholder
Representative. Each of the Company Indemnifying Parties agrees that the
Shareholder Representative shall have the full power, authority and right to
perform, do and take any and all actions it deems necessary or advisable to
carry out the purposes of this Agreement. In particular, but not by way of
limitation, the Shareholder Representative has the power to (i) make and carry
out decisions under this Agreement on behalf of each Shareholder and to sign
documents and make filings on behalf of each Company Indemnifying Parties as if
such Company Indemnifying Parties had itself signed or filed such document,
(ii) retain attorneys, accountants and other professional service providers to
assist and advise it with respect to its duties hereunder, (iii) give and
receive any notices and settle any disputes under this Agreement, (iv) agree to,
negotiate and enter into settlements and compromises, demand dispute resolution,
and comply with orders of courts and awards of arbitrators with respect to this
Agreement, and (v) give consents and instructions or contest any claims with
respect to this Agreement.

 

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(d) The Shareholder Representative shall be entitled to rely, and shall be fully
protected in relying, upon any statements furnished to it by any Company
Shareholder, Company Optionholder, Parent, Sub, or any other evidence deemed by
the Shareholder Representative to be reliable. The Shareholder Representative
shall be fully justified in failing or refusing to take any action under this
Agreement unless it shall have received such advice or concurrence of the
Company Indemnifying Parties as it deems appropriate or unless it shall have
been expressly indemnified to its satisfaction by the Shareholders severally
based on their Pro Rata Portion against any and all liability and expense that
it may incur by reason of taking or continuing to take any such action.

(e) The Shareholder Representative shall not be liable for any error of
judgment, or any action taken or omitted to be taken hereunder, except in the
case of its bad faith, gross negligence or willful misconduct, as determined by
a court of competent jurisdiction. The Shareholder Representative shall be
entitled to consult with counsel of its choosing and shall be fully protected in
any act taken, suffered or permitted by it in good faith in accordance with the
advice of counsel. The Company Indemnifying Parties on whose behalf the Escrow
Amount was contributed to the Escrow Fund, severally based on their Pro Rata
Portion, shall indemnify the Shareholder Representative and hold the Shareholder
Representative harmless against any loss, Liability or expense incurred without
gross negligence, bad faith or willful misconduct on the part of the Shareholder
Representative and arising out of or in connection with the acceptance or
administration of the Shareholder Representative’s duties hereunder, including
the reasonable fees and expenses of any legal counsel retained by the
Shareholder Representative (“Shareholder Representative Expense”). Following the
termination of the Escrow Period and the resolution of all pending claims made
by the Indemnified Parties for Losses, the Shareholder Representative shall have
the right to recover the Shareholder Representative Expenses from any remaining
portion of the Escrow Fund prior to any distribution to the Company Indemnifying
Parties and prior to any such distribution, shall deliver to the Escrow Agent a
certificate setting forth the Shareholder Representative Expenses actually
incurred. Upon receipt of such certificate, the Escrow Agent shall pay such
Shareholder Representative Expenses to the Shareholder Representative. Parent
agrees to consent in writing to the distribution, to the extent permitted
herein, if so requested by the Escrow Agent. Notwithstanding the foregoing, the
Shareholder Representative’s right to recover Shareholder Representative
Expenses shall not prejudice Parent’s right to recover the full amount of
indemnifiable Losses that Parent is entitled to recover from the Escrow Fund.

(f) A decision, act, consent or instruction of the Shareholder Representative,
including but not limited to an amendment, extension or waiver of this Agreement
pursuant to Section 9.3 and Section 9.4 hereof, shall constitute a decision of
the Company Indemnifying Parties and shall be final, binding and conclusive upon
the Company Indemnifying Parties; and the Escrow Agent and Parent may rely upon
any such decision, act, consent or instruction of the Shareholder Representative
as being the decision, act, consent or instruction of the Company Indemnifying
Parties. The Escrow Agent and Parent are hereby relieved from any Liability to
any Person for any acts done by them in accordance with such decision, act,
consent or instruction of the Shareholder Representative.

 

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8.8 Tax Treatment. Any payment under Article VIII of this Agreement shall be
treated by the parties for U.S. federal, state, local and non-U.S. income Tax
purposes as a purchase price adjustment unless otherwise required by applicable
Law.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

9.1 Termination. Except as provided in Section 9.2 hereof, this Agreement may be
terminated and the Merger abandoned at any time prior to the Closing:

(a) by mutual agreement of the Company and Parent;

(b) by Parent or the Company if the Closing Date shall not have occurred by
January 31, 2011; provided, however, that the right to terminate this Agreement
under this Section 9.1(b) shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes breach of this Agreement;

(c) by Parent or the Company if: (i) there shall be a final non-appealable order
of a federal or state court in effect preventing consummation of the Merger, or
(ii) there shall be any statute, Rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Closing by any Governmental Entity that
would make consummation of the Closing illegal;

(d) by Parent if it is not in material breach of its obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement of the Company or the Principal Shareholders contained in this
Agreement such that the conditions set forth in Section 7.2(a) hereof would not
be satisfied and such breach has not been cured within fifteen(15) calendar days
after written notice thereof to the Company and the applicable Principal
Shareholder; provided, however, that no cure period shall be required for a
breach which by its nature cannot be cured; or

(e) by the Company if none of the Company, or the Principal Shareholders is in
material breach of their respective obligations under this Agreement and there
has been a breach of any representation, warranty, covenant or agreement of
Parent contained in this Agreement such that the conditions set forth in
Section 7.3(a) hereof would not be satisfied and such breach has not been cured
within fifteen(15) calendar days after written notice thereof to Parent;
provided, however, that no cure period shall be required for a breach which by
its nature cannot be cured.

9.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 9.1 hereof, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Parent, the Company or
the Principal Shareholders, or their respective officers, directors or
shareholders, if applicable; provided, however, that each party hereto and each
Person shall remain liable for any breaches of this Agreement, Related
Agreements or in any certificate or other instruments delivered pursuant to this
Agreement prior to its termination; and

 

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provided further, however, that, the provisions of Sections 6.3
(Confidentiality), 6.4 (Expenses), 6.5 (Public Disclosure) and 8.3 (Maximum
Payments; Remedy) hereof, Article X hereof and this Section 9.2 shall remain in
full force and effect and survive any termination of this Agreement pursuant to
the terms of this Article IX.

9.3 Amendment. This Agreement may be amended by the parties hereto at any time
by execution of an instrument in writing signed on behalf of the party against
whom enforcement is sought. For purposes of this Section 9.3, the Company
Shareholders (including the Principal Shareholders) agree that any amendment of
this Agreement signed by the Shareholder Representative shall be binding upon
and effective against the Company Shareholders whether or not they have signed
such amendment.

9.4 Extension; Waiver. At any time prior to the Closing, Parent, on the one
hand, and the Company and the Shareholder Representative, on the other hand,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
covenants, agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. For purposes of this Section 9.4, the Company Shareholders
(including the Principal Shareholders) agree that any extension or waiver signed
by the Shareholder Representative shall be binding upon and effective against
all Company Shareholders whether or not they have signed such extension or
waiver.

ARTICLE X

GENERAL PROVISIONS

10.1 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by commercial messenger or
courier service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice or by email as provided in Section 5.4);
provided, however, that notices sent by mail will not be deemed given until
received:

 

  (a) if to Parent or Sub, to:

Epicor Software Corporation

18200 Von Karman Avenue, Suite 1000

Irvine, California 92612

Attention: John D. Ireland

Facsimile No.: (949) 341-4225

 

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with a copy to:

Wilson Sonsini Goodrich & Rosati

Professional Corporation

650 Page Mill Road

Palo Alto, California 94304

Attention: Katharine A. Martin

Facsimile No.: (650) 493-6811

 

  (b) if to the Company or the Shareholder Representative, to:

SPECTRUM Human Resource Systems Corporation

707 Seventeenth Street, Suite 3800

Denver, Colorado 80202

Attention: Sybll K. Romley

Facsimile No.: (303) 592-3233

with a copy to:

Davis Graham & Stubbs LLP

1550 Seventeenth Street

Suite 500

Denver, Colorado 80202

Attention: Ronald R. Levine, II

Facsimile No.: (303)892-7400

 

  (c) If to the Principal Shareholders, to the addresses set forth in
Section 10.1 of the Disclosure Schedule

with a copy to:

Davis Graham & Stubbs LLP

1550 Seventeenth Street

Suite 500

Denver, Colorado 80202

Attention: Ronald R. Levine, II

Facsimile No.: (303) 892-7400

 

  (d) If to the Escrow Agent, to:

 

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U.S. Bank National Association

Corporate Trust Services

633 West Fifth Street, 24th Floor

Los Angeles, California 90071

Attention: Paula Oswald

Facsimile No.: (213) 615-6197

10.2 Interpretation. The words “include,” “includes” and “including” when used
herein shall be deemed in each case to be followed by the words “without
limitation.” The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

10.3 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.

10.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
Disclosure Schedule, the Confidentiality Agreement, and the documents and
instruments and other agreements among the parties hereto referenced herein:
(i) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings both
written and oral, among the parties with respect to the subject matter hereof,
(ii) are not intended to confer upon any other person any rights or remedies
hereunder, and (iii) shall not be assigned by operation of Law or otherwise,
except that Parent may assign its rights and delegate its obligations hereunder
to its affiliates as long as Parent remains ultimately liable for all of
Parent’s obligations hereunder.

10.5 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.

10.6 Other Remedies. Except as otherwise set forth herein, including as set
forth in Article VIII, any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by Law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
Without prejudice to remedies at law, the parties shall be entitled to seek
specific performance in the event of a breach or threatened breach of this
Agreement.

10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the Laws that
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applicable principles of conflicts of Laws thereof. Subject to Section 1.8,
Section 8.4(c) and Section 10.9, each of the parties hereto irrevocably consents
to the exclusive jurisdiction and venue of any court within County of Denver,
State of Colorado, in connection with any matter based upon or arising out of
this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of Delaware
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction, venue and such process.

10.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any Law, regulation, holding or Rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.

10.9 Resolution of Conflicts; Arbitration. Subject to Section 1.8,
Section 8.4(c) and Section 10.9(d), any claim or dispute arising out of or
related to this Agreement, or the interpretation, making, performance, breach or
termination thereof, shall (except as specifically set forth in this Agreement)
be finally settled by binding arbitration in the County of Denver, State of
Colorado in accordance with the then current Commercial Arbitration Rules of the
American Arbitration Association and judgment upon the award rendered may be
entered in any court having jurisdiction thereof. The arbitrator(s) shall have
the authority to grant any equitable and legal remedies that would be available
in any judicial proceeding instituted to resolve a dispute.

(a) Selection of Arbitrators. Such arbitration shall be conducted by a single
arbitrator chosen by mutual agreement of Parent and the Shareholder
Representative (or the Company, if such arbitration occurs prior to the
Closing). Alternatively, at the request of either party before the commencement
of arbitration, the arbitration shall be conducted by three independent
arbitrators, none of whom shall have any competitive interests with Parent or
Shareholder Representative (or the Company, if such arbitration occurs prior to
the Closing). Parent and Shareholder Representative (or the Company, if such
arbitration occurs prior to the Closing) shall each select one arbitrator. The
two arbitrators so selected shall select a third arbitrator.

(b) Discovery. The arbitrator or arbitrators, as the case may be, shall set a
limited time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator or majority of the three arbitrators, as the
case may be, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrator, or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions for discovery abuses,
including attorneys’ fees and costs, to the same extent as a competent court of
law or equity, should the arbitrators or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification.

(c) Decision. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
an Officer’s Certificate shall be final, binding, and conclusive upon the
parties to this Agreement. Such decision shall be written and

 

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shall be supported by written findings of fact and conclusions which shall set
forth the award, judgment, decree or order awarded by the arbitrator(s). Within
thirty (30) days of a decision of the arbitrator(s) requiring payment by one
party to another, such party shall make the payment to such other party,
including any distributions out of the Escrow Fund, as applicable.

(d) Other Relief. The parties to the arbitration may apply to a court of
competent jurisdiction for a temporary restraining order, preliminary injunction
or other interim or conservatory relief, as necessary, without breach of this
arbitration provision and without abridgement of the powers of the
arbitrator(s).

(e) Costs and Expenses. The parties agree that each party shall pay its own
costs and expenses (including counsel fees) of any such arbitration, and each
party waives its right to seek an order compelling the other party to pay its
portion of its costs and expenses (including counsel fees) for any arbitration.

(f) Confidentiality. The parties agree that any claim or dispute arising out of
or related to this Agreement, or the interpretation, making, performance, breach
or termination thereof, shall be treated as “Confidential Information” in
accordance with, and as defined by, the terms set forth in the Confidential
Disclosure Agreement.

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IN WITNESS WHEREOF, Parent, Sub, the Company, the Principal Shareholders, the
Escrow Agent and the Shareholder Representative have caused this Agreement to be
signed, all as of the date first written above.

 

EPICOR SOFTWARE CORPORATION

By:

 

/s/ Vincent Lowder

Name:

  Vincent Lowder

Title:

  VP, Assistant General Counsel

STELLAR ACQUISITION

CORPORATION

By:

 

/s/ John Ireland

Name:

  John Ireland

Title:

  President

SPECTRUM HUMAN RESOURCE

SYSTEMS CORPORATION

By:

 

/s/ Sybll K. Romley

Name:

  Sybll K. Romley

Title:

  President & CEO

SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER

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PRINCIPAL SHAREHOLDERS

/s/ Nancy E. Spoor

Nancy E. Spoor as Personal Representative of

the Estate of James E. Spoor

/s/ Nancy E. Spoor

Nancy E. Spoor

/s/ Sybll K. Romley

Sybll K. Romley

ESCROW AGENT

U.S. BANK NATIONAL ASSOCIATION

By:  

/s/ Paula Oswald

Name:   Paula Oswald Title:   Vice President SHAREHOLDER REPRESENTATIVE

/s/ Sbyll K. Romley

Sybll K. Romley

SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER