Document:

Exhibit 4.1

 

FIFTH AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT

 

THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT (this “Amendment”) effective as of November 5, 2007, by and
among BLOUNT, INC., a Delaware corporation (“Blount, Inc.”), GEAR
PRODUCTS, INC., an Oklahoma corporation (“Gear”), OMARK PROPERTIES,
INC., an Oregon corporation (“Omark”), WINDSOR FORESTRY TOOLS LLC, a
Tennessee limited liability company (“Windsor”) (Gear, Omark, Windsor
and Blount, Inc. are sometimes collectively referred to herein as “Borrowers”
and individually as “Borrower”); the other Credit Parties signatory
hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its
individual capacity, “GE Capital”), for itself, as a Lender and as
Agent, with the other Lenders party hereto.

W
I T N E S S E T H:

WHEREAS, Borrowers, the other Credit Parties signatory
thereto, Lenders and Agent are parties to that certain Amended and Restated
Credit Agreement dated as of August 9, 2004, as amended pursuant to that
certain First Amendment dated as of December 1, 2004, as further amended
pursuant to that certain Second Amendment dated as of June 10, 2005, as further
amended pursuant to that certain Third Amendment dated as of March 23, 2006, as
further amended pursuant to that certain Fourth Amendment dated as of March 23,
2006 (as further amended, restated, supplemented or otherwise modified from
time to time, the “Credit Agreement”); and

WHEREAS, Borrowers and the other
Credit Parties have requested that Requisite Lenders amend certain terms under
the Credit Agreement;
and

WHEREAS, Borrowers and Requisite Lenders have agreed
to the requested amendments on the terms and subject to the conditions set
forth herein;

NOW THEREFORE, in consideration of the foregoing
premises and other good and valuable consideration paid by each party to the
other, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree that all capitalized terms not otherwise defined herein
(including the recitals and preamble hereof) shall have the meanings ascribed
to such terms in the Credit Agreement and further agree as follows:

1.             Amendments to the Credit Agreement.

(a)           Section 6.1 of the Credit
Agreement, Mergers, Subsidiaries, Etc., is hereby amended and modified
by deleting subsection (b)(v) in its entirety and inserting in lieu thereof the
following:

“(v)         the
sum of all amounts payable in connection with all Permitted Acquisitions
(including all transaction costs and all Indebtedness, liabilities and
contingent obligations incurred or assumed in connection therewith or otherwise
reflected in a consolidated balance sheet of Borrowers and Target) shall not
exceed $100,000,000 per acquisition and $200,000,000 in the aggregate during
the term of this Agreement plus the amount of Stock issued by Holdings to any
seller in connection with, and as the purchase price or portion of the purchase
price for, any Permitted Acquisition;”

 

 

(b)           Section 6.8 of the Credit
Agreement, Sale of Stock and Assets, is hereby amended and modified by
deleting such Section in its entirety and inserting in lieu thereof the
following:

“6.8         Sale of Stock and
Assets.  No Credit Party shall, or
shall permit any Subsidiary of any Credit Party to, sell, transfer, convey,
assign or otherwise dispose of any of its properties or other assets, including
the Stock of any of its Subsidiaries (whether in a public or a private offering
or otherwise) or any of its Accounts, other than (a) the sale of Inventory,
license of Intellectual Property or the use of cash or cash equivalents, in
each case, in the ordinary course of business, and (b) the sale, transfer,
conveyance or other disposition by a Credit Party or any Foreign Subsidiary of
Equipment or Fixtures that are obsolete or no longer used or useful in such Credit
Party’s or such Foreign Subsidiary’s business; (c) the sale of all of the Stock
or substantially all of the assets of Gear so long as (i) no Default or Event
of Default exists or would be caused thereby or (ii) Requisite Lenders
otherwise consent to such sale; (d) other assets having a value not exceeding
$5,000,000 in the aggregate in any Fiscal Year; (e) leases and subleases of
Real Estate not materially interfering with the ordinary conduct of business of
the applicable Credit Parties and otherwise consented to by Agent which consent
will not be unreasonably withheld; and (f) the sale of all or substantially all
of the assets of the Forestry Division so long as (i) no Default or Event of
Default exists or would be caused thereby, (ii) Borrowers have delivered
updated Projections after giving Pro Forma effect to such disposition, in form
and substance satisfactory to Agent, which shall be substantially similar to
the Pro Forma Projections delivered to Agent prior to the Fifth Amendment
Effective Date, (iii) the disposition is on terms and conditions, and subject
to documentation, reasonably acceptable to Agent which shall be on terms and
conditions substantially similar to the terms and conditions contained in the
draft purchase agreement delivered to Agent prior to the Fifth Amendment
Effective Date, (iv) net cash proceeds of the disposition is not less than
$40,000,000, and (v) Borrowers shall either reinvest and/or prepay the
Obligations with such net cash proceeds in accordance with Section 1.3(b).  With respect to any disposition of assets or
other properties permitted pursuant to clauses (b), (c), (d)
or (f) above, subject to Section 1.3(b), Agent agrees on
reasonable prior written notice to release its Lien on such assets or other
properties in order to permit the applicable Credit Party to effect such
disposition and shall execute and deliver to Borrowers, at Borrowers’ expense,
appropriate UCC-3 termination statements, PPSA financing change statements and
other releases as are reasonably requested by Borrowers.”

(c)           Section 9 of the Credit Agreement, Assignment
and Participations; Appointment of Agent and Canadian Agent, is hereby amended
and modified by adding the following Section 9.12 immediately following Section
9.11.

 

2

 

9.12         Distribution of
Materials to Lenders and L/C Issuers.

(a)           Each Borrower
acknowledges and agrees that the Loan Documents and all reports, notices,
communications and other information or materials provided or delivered by, or
on behalf of, the Borrowers hereunder (collectively, the “Borrower Materials”)
may be disseminated by, or on behalf of, Agent, and made available, to the
Lenders and the L/C Issuers by posting such Borrower Materials on Intralinks®
or a similar E-System (the “Borrower Workspace”).  Each Borrower authorizes Agent to download
copies of its logos from its website and post copies thereof on the Borrower
Workspace.

(b)           Each Borrower hereby
agrees that if either it or Holdings or any Subsidiary of Holdings has publicly
traded equity or debt securities in the United States of America (U.S.), it
shall (and shall cause any such Person, as the case may be, to) (i) identify in
writing, and (ii) to the extent reasonably practicable, clearly and
conspicuously mark such Borrower Materials that do not contain any information
that is (x) not publicly available with respect to the Borrowers (or Holdings
or any Subsidiary of Holdings, as the case may be) and (y) is material with
respect to the Borrowers (or Holdings or any Subsidiary of Holdings, as the
case may be) or their securities for purposes of U.S. federal and state
securities laws as “PUBLIC”.  Each
Borrower agrees that by identifying such Borrower Materials pursuant to clause
(i) of the preceding sentence and/or marking the Borrower Materials as “PUBLIC”
pursuant to clause (ii) of the preceding sentence and/or publicly filing such
Borrower Materials with the Securities and Exchange Commission, then Agent, the
Lenders and the L/C Issuers shall be entitled to treat such Borrower Materials
as not containing any material non-public information (“MNPI”) with respect to
the Borrowers (or Holdings or any Subsidiary of Holdings, as the case may be)
for purposes of U.S. federal and state securities laws.  Each Borrower further represent, warrant,
acknowledges and agrees that the following documents and materials shall be
deemed to be PUBLIC, whether or not so marked, and do not contain any MNPI: (A)
the Loan Documents, including the schedules and exhibits attached thereto, and
(B) administrative materials of a customary nature prepared by the Borrowers or
Agent (including, notice of borrowings or conversions, L/C and swingline
requests).  Before distribution of any
Borrower Materials to prospective Lenders and at the request of Agent, each
Borrower agrees (and agrees to cause Holdings or any Subsidiary of Holdings, as
the case may be) to execute and deliver to Agent a letter in which you
authorize distribution of the evaluation materials to prospective Lenders and
their employees willing to receive material non-public information, and a
separate letter in which you authorize distribution of evaluation material that
does not contain material non-public information and represent that no material
non-public information is contained therein.

(c)           Each Lender and L/C
Issuer represents, warrants, acknowledges and agrees that (i) the Borrower
Materials may contain MNPI concerning the Borrowers, their Affiliates or their
securities, (ii) it has developed compliance policies and procedures regarding
the handling and use of 

 

3

 

MNPI, and (iii) it shall use any such Borrower Materials in accordance
with Section 11.8 and any applicable laws and regulations, including federal
and state securities laws and regulations.

(d)           If any Lender or L/C
Issuer has elected to abstain from receiving MNPI concerning the Borrowers,
their Affiliates or their securities, such Lender or L/C Issuer acknowledges
that, notwithstanding such election, Agent and/or the Borrowers will, from time
to time, make available syndicate-information (which may contain MNPI) as
required by the terms of, or in the course of administering, the credit
facilities, including this Agreement and the other Loan Documents, to the
credit contact(s) identified for receipt of such information on the Lender’s
administrative questionnaire who are able to receive and use all
syndicate-level information (which may contain MNPI) in accordance with such
Lender’s compliance policies and contractual obligations and applicable law,
including federal and state securities laws; provided that if such contact is
not so identified in such questionnaire, the relevant Lender or L/C Issuer
hereby agrees to promptly (and in any even within one Business Day) provide
such a contact to Agent and the Borrowers upon oral or written request therefor
by Agent or Borrowers.  Notwithstanding
such Lender’s or L/C Issuer’s election to abstain from receiving MNPI, such
Lender or L/C Issuer acknowledges that if such Lender or L/C Issuer chooses to
communicate with Agent, it assumes the risk of receiving MNPI concerning the
Borrowers, their Affiliates or their securities.”

(d)           The definition of “EBITDA” contained
in Annex A to the Credit Agreement, Definitions, is hereby
modified and amended by (i) deleting “and” after clause (ix) thereof, (ii)
inserting “, and” immediately after clause (x) thereof, and (iii) inserting the
following clause (xi) immediately after such clause (x):

“(xi) restructuring expenses and related charges incurred
during the Fiscal Quarters ended on or prior to December 31, 2008 in connection
with the Forestry Division sale and related consolidation of corporate and
divisional infrastructure in an amount not to exceed $5,000,000,”

(e)           Annex A to the Credit Agreement,
Definitions, is hereby further modified and amended to delete the
definition of Fixed Charges in its entirety and inserting the following in lieu
thereof:

“Fixed Charges” means, with respect to any Person for any fiscal
period, (a) the aggregate of all Interest Expense paid during such period
(excluding all non-cash Interest Expense), plus (b) scheduled payments of
principal with respect to Indebtedness during such period, plus (c) Capital
Expenditures during such period, plus (d) the greater of (i) cash payments of
income taxes and capital taxes (net of tax refunds received during such
period), and (ii) zero, plus (e) Restricted Payments made pursuant to Section
6.14(h), minus (f) cash taxes payable for the Fiscal Year ended 2007 in
connection with the Forestry Division sale in an amount not to exceed
$20,000,000.”

 

4

 

(f)            Annex A to the Credit
Agreement, Definitions, is hereby further modified and amended by
inserting the following definition in the appropriate alphabetical order:

“Fifth Amendment
Effective Date” means November        ,
2007.

“Forestry Division” means the Borrowers’ Industrial
and Power Equipment Group — Forestry Division, other than the Borrowers’ real
and personal property and facilities located in Menominee, Michigan.”

(g)           Annex E to the Credit Agreement, Financial
Statements and Projections — Reporting, is hereby amended and
restated as of the Fifth Amendment Effective Date by deleting such annex in its
entirety and inserting in lieu thereof the Annex E attached hereto.

(h)           Annex F to the Credit Agreement, Collateral
Reports, is hereby modified and amended to delete subsection (a) therein
and to substitute the following therefore:

“(a)         To
Agent, at the time of delivery of each of the monthly Financial Statements
delivered pursuant to clause (a) of Annex E, or if such Financial
Statements are not required, then along with the quarterly Financial Statements
delivered pursuant to clause (b) of Annex E, a reconciliation of the
outstanding Loans as set forth in the monthly Loan Account statement for the
period then ended provided by Agent to US Borrowers’ general ledger and monthly
or quarterly, as the case may be, Financial Statements delivered pursuant to Annex
E, in each case accompanied by such supporting detail and documentation as
shall be requested by Agent in its reasonable discretion.”

(i)            Annex G to the Credit Agreement, Financial
Covenants, is hereby modified and amended to delete the table set forth in
clause (e) therein and to substitute the following therefore:

	
  “Period:

  	
   

  	
  Maximum First Lien Credit

  Facilities Leverage Ratio:

  
	
   

  	
   

  	
   

  
	
  Closing Date through December 30, 2005

  	
   

  	
  3.50 to 1.00

  
	
   

  	
   

  	
   

  
	
  December 31, 2005 through the date immediately preceding the Third
  Amendment Effective Date

  	
   

  	
  3.25 to 1.00

  
	
   

  	
   

  	
   

  
	
  Third Amendment Effective Date through the date immediately preceding
  the Fifth Amendment Effective Date

  	
   

  	
  2.75 to 1.00

  
	
   

  	
   

  	
   

  
	
  Fifth Amendment Effective Date and thereafter

  	
   

  	
  2.50 to 1.00”

  

 

5

 

 

2.             No Other Amendments.  Except as otherwise expressed herein, the
execution, delivery and effectiveness of this Amendment shall not operate as a
waiver of any right, power or remedy of Agent and Lenders under the Credit
Agreement or any of the other Loan Documents, nor constitute a waiver of any
provision of the Credit Agreement or any of the other Loan Documents.  Except for the amendments set forth above,
the text of the Credit Agreement and all other Loan Documents shall remain
unchanged and in full force and effect and each Credit Party hereby ratifies
and confirms its obligations thereunder. 
This Amendment shall not constitute a modification of the Credit
Agreement or any other Loan Document or a course of dealing between Borrowers
and the other Credit Parties, on the one hand, and Lenders, on the other hand,
at variance with the Credit Agreement or any other Loan Document such as to
require further notice by Lenders to Borrowers or such Credit Parties to
require strict compliance with the terms of the Credit Agreement and the other
Loan Documents in the future, except as expressly set forth herein. Each
Borrower and each other Credit Party acknowledges and expressly agrees that
Lenders reserve the right to, and do in fact, require strict compliance with
all terms and provisions of the Credit Agreement and the other Loan
Documents.  Neither any Borrower nor any
other Credit Party has knowledge of any challenge to Lenders’ claims arising
under the Loan Documents or the effectiveness of the Loan Documents.

3.             Conditions Precedent to Effectiveness.  This Amendment shall be effective as of the
date first written above upon satisfaction of the following:

(a)           Agent’s receipt of a counterpart
hereof duly executed by Borrowers and each Requisite Lender;

(b)           The representations and warranties of
Borrowers and other Credit Parties contained in this Amendment shall be true
and accurate in all respects; and

(c)           Agent’s receipt of an amendment fee,
on behalf of the Lenders, in an amount equal to twenty (20) basis points
(0.20%) of the aggregate Commitments (or if such commitments have terminated,
the outstanding Loans) of the Lenders and will be payable based on each Lender’s
portion of the Commitments and outstanding Loans.

4.             Representations and Warranties of Borrowers and Other
Credit Parties.  The Credit Parties
executing this Amendment, jointly and severally, make the following
representations and warranties to Agent and each Lender with respect to all
Credit Parties, each and all of which shall survive the execution and delivery
of this Amendment:

(a)           This
Amendment has been executed and delivered by duly authorized representatives of
each Credit Party, and the Credit Agreement, as modified and amended by this
Amendment, constitutes a legal, valid and binding obligation of each Credit
Party, and is enforceable against each Credit Party in accordance with its
terms;

(b)           No
Default or Event of Default has occurred or is continuing; and

(c)           All
of the representations and warranties of each Credit Party contained in the
Credit Agreement continue to be true and correct in all material respects as of
the date hereof as though made on and as of such date, except to the extent
that such representation or warranty expressly relates to an earlier date or
except for changes therein expressly permitted or expressly contemplated by the
Credit Agreement, as amended hereby.

 

6

 

5.             Effect on the Credit Agreement and other Loan
Documents.  Except as specifically
provided herein, the Credit Agreement and the other Loan Documents shall remain
in full force and effect, and are hereby ratified, reaffirmed and confirmed.
This Amendment shall be deemed to be a Loan Document for all purposes.

6.             Costs and Expenses.  Each Borrower, jointly and severally, agrees
to pay on demand all fees, costs and expenses incurred in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees, costs and expenses of
counsel for Agent with respect thereto and with respect to advising Agent as to
its rights and responsibilities hereunder and thereunder.

7.             Counterparts. 
This Amendment may be executed in any number of separate counterparts
and by the different parties hereto on separate counterparts, each of which
shall be deemed an original and all of which, taken together, shall be deemed
to constitute one and the same instrument. In proving this Amendment in any
judicial proceedings, it shall not be necessary to produce or account for more
than one such counterpart signed by the party against whom such enforcement is
sought. Any signatures delivered by a party by facsimile or electronic transmission
shall be deemed an original signature hereto.

8.             GOVERNING LAW. 
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AMENDMENT, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
AMENDMENT AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA.  EACH CREDIT
PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT
AND LENDERS PERTAINING TO THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR
TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AMENDMENT OR ANY OF THE OTHER
LOAN DOCUMENTS; PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK COUNTY; PROVIDED  FURTHER,  THAT NOTHING IN THIS AMENDMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT, AND CREDIT PARTIES MAY MAKE ANY COUNTERCLAIMS RELATING TO THE
SAME MATTER, REQUESTS FOR EQUITABLE RELIEF RELATING TO THE SAME MATTER OR
AFFIRMATIVE DEFENSES IN CONNECTION THEREWITH. 
EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH CREDIT
PARTY HEREBY WAIVES ANY OBJECTION THAT SUCH CREDIT PARTY MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM  NON  CONVENIENS
AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR 

 

7

 

EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT.  EACH CREDIT PARTY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT
PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THE CREDIT AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH CREDIT
PARTY’S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE UNITED STATES
MAILS, PROPER POSTAGE PREPAID.

[The remainder of the
page is intentionally blank.]

 

8

 

IN WITNESS WHEREOF, the parties hereto have executed
this Amendment or caused it to be executed under seal by their duly authorized
officers, as of the day and year first written above.

	
  BORROWERS:

  	
   

  
	
   

  	
   

  
	
  BLOUNT,
  INC., a
  Delaware corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Calvin E.
  Jenness

  
	
  Name:

  	
  Calvin E.
  Jenness

  
	
  Title:

  	
  Senior Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  GEAR PRODUCTS, INC., an Oklahoma

  corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Calvin E. Jenness

  
	
  Name:

  	
  Calvin
  E. Jenness

  
	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  OMARK
  PROPERTIES, INC., an
  Oregon

  corporation

  
	
   

  	
   

  
	
  By:

  	
  /s/ Calvin E.
  Jenness

  
	
  Name:

  	
  Calvin E.
  Jenness

  
	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  WINDSOR
  FORESTRY TOOLS LLC,
  a

  Tennessee limited liability company

  
	
   

  	
   

  
	
  By: Blount,
  Inc., its sole member

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Calvin E.
  Jenness

  
	
  Name:

  	
  Calvin E.
  Jenness

  
	
  Title:

  	
  Senior Vice
  President

  
			

 

 

 

	
  AGENT AND LENDERS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GENERAL ELECTRIC CAPITAL

  	
   

  	
  BOSTON HARBOR CLO 2004-1, Ltd.

  
	
  CORPORATION, as Agent and a Lender

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Beth Mazor

  
	
  By:

  	
  /s/
  Jennifer L. Riffin

  	
   

  	
  Name:

  	
  Beth
  Mazor

  
	
  Name:

  	
  Jennifer
  L. Riffin

  	
   

  	
  Title:

  	
  V.P.

  
	
  Title:

  	
  Duly
  Authorized Signatory

  	
   

  	
   

  
	
   

  	
   

  	
  Bushnell CBNA Loan Funding LLC, for

  
	
  Azure Funding North America 1, as Agent 

  	
   

  	
  itself
  or as agent for Bushnell CFPI Loan 

  
	
  and
  a Lender

  	
   

  	
  Funding
  LLC

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Daniel Schrupp

  	
   

  	
  By:

  	
  /s/
  Pam Gwin

  
	
  Name:

  	
  Daniel
  Schrupp

  	
   

  	
  Name:

  	
  Pam
  Gwin

  
	
  Title:

  	
  Authorized
  Signatory

  	
   

  	
  Title:

  	
  Attorney-in-fact

  
	
   

  	
   

  	
   

  
	
  Ballyrock CLO II Limited, as a Lender

  	
   

  	
  CoLTS 2005-1 LTD., a Cayman Island 

  
	
  BALLYROCK Investment Advisors LLC, 

  	
   

  	
  exempted company

  
	
  as
  Collateral Manager

  	
   

  	
  By:  Wachovia Bank, National
  Association, 

  
	
   

  	
   

  	
  as
  Servicer

  
	
  By:

  	
  /s/
  Lisa B. Rymut

  	
   

  	
   

  
	
  Name:

  	
  Lisa
  B. Rymut

  	
   

  	
  By:

  	
  /s/
  John Trainor

  
	
  Title:

  	
  Assistant
  Treasurer

  	
   

  	
  Name:

  	
  John
  Trainor

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Director

  
	
  BlackRock Global Floating Rate Income 

  	
   

  	
   

  
	
  Trust; BlackRock Limited Duration 

  	
   

  	
  Denali Capital LLC, managing member of 

  
	
  Income Trust; Black Rock Senior Income 

  	
   

  	
  DC Funding Partners LLC, portfolio 

  
	
  Series; BlackRock Senior Income Series II;

  	
   

  	
  manager for Denali Capital CLO IV, LTD. 

  
	
  BlackRock Senior Income Series IV; 

  	
   

  	
  or an affiliate, as a Lender

  
	
  BlackRock Floating Rate Income

  	
   

  	
   

  
	
  Strategies Fund II, Inc.; Magnetite Asset

  	
   

  	
  By:

  	
  /s/
  John P. Thacker

  
	
  Investors III L.L.C.; Magnetite V CLO, 

  	
   

  	
  Name:

  	
  John
  P. Thacker

  
	
  Limited; Senior Loan Portfolio, as Lender

  	
   

  	
  Title:

  	
  Chief
  Credit Officer

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  AnnMarie Smith

  	
   

  	
  Denali Capital LLC, managing member of 

  
	
  Name:

  	
  AnnMarie
  Smith

  	
   

  	
  DC Funding Partners LLC, portfolio

  
	
  Title:

  	
  Authorized
  Signatory

  	
   

  	
  manager for Denali Capital CLO VI, LTD.

  
	
   

  	
   

  	
   

  	
  or an affiliate, as a Lender

  
	
  BNP Paribas, as Lender

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  John P. Thacker

  
	
  By:

  	
  /s/
  Cecile Scherer

  	
   

  	
  Name:

  	
  John
  P. Thacker

  
	
  Name:

  	
  Cecile
  Scherer

  	
   

  	
  Title:

  	
  Chief
  Credit Officer

  
	
  Title:

  	
  Director
  - Merchant Banking Group

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Kandice Gu

  	
   

  	
  Denali Capital LLC, managing member of 

  
	
  Name:

  	
  Kandice
  Gu

  	
   

  	
  DC Funding Partners LLC, portfolio 

  
	
  Title:

  	
  Vice
  President

  	
   

  	
  manager for Denali Capital CLO VII, 

  
	
   

  	
   

  	
   

  	
  LTD. or an affiliate, as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/
  John P. Thacker

  
	
   

  	
   

  	
   

  	
  Name:

  	
  John
  P. Thacker

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Chief
  Credit Officer

  

 

 

	
  Denali Capital LLC, managing member of

  	
   

  	
  Galaxy CLO 2003-1, Ltd.

  
	
  DC Funding Partners LLC, portfolio

  	
   

  	
  By: AIG Global Investment Corp., Its 

  
	
  manager for Denali Capital CLO VIII,

  	
   

  	
  Collateral Manager, as a Lender

  
	
  LTD. or an affiliate, as a Lender

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  John G. Lapham, III

  
	
  By:

  	
  /s/
  John P. Thacker

  	
   

  	
  Name:

  	
  John
  G. Lapham, III

  
	
  Name:

  	
  John
  P. Thacker

  	
   

  	
  Title:

  	
  Managing
  Director

  
	
  Title:

  	
  Chief
  Credit Officer

  	
   

  	
   

  
	
   

  	
   

  	
  JPMorgan Chase Bank, N.A., as a Lender

  
	
  ENDURANCE CLO 1, LTD.

  	
   

  	
   

  
	
  c/o ING Capital Advisors LLC, as

  	
   

  	
  By:

  	
  /s/
  Kathryn A. Duncan

  
	
  Collateral
  Manager

  	
   

  	
  Name:

  	
  Kathryn
  A. Duncan

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Director

  
	
  By:

  	
  /s/
  Robert Cohen

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Robert
  Cohen

  	
   

  	
  NAVIGATOR CDO 2003, LTD., as a

  
	
  Title:

  	
  Senior
  Credit Analyst

  	
   

  	
  Lender
  By:  Antares Asset Management Inc.,

  
	
   

  	
   

  	
  as
  Collateral Manager

  
	
  ARCHIMEDES FUNDING III, LTD.

  	
   

  	
   

  
	
  BY: ING Capital Advisors LLC, as

  	
   

  	
  By:

  	
  /s/
  Kathleen Brooks

  
	
  Collateral
  Manager

  	
   

  	
  Name:

  	
  Kathleen
  Brooks

  
	
   

  	
   

  	
  Title:

  	
  Authorized
  Signatory

  
	
  By:

  	
  /s/
  Robert Cohen

  	
   

  	
   

  
	
  Name:

  	
  Robert
  Cohen

  	
   

  	
  NAVIGATOR CDO 2004, LTD., as a

  
	
  Title:

  	
  Senior
  Credit Analyst

  	
   

  	
  Lender

  
	
   

  	
   

  	
   

  	
  By: 
  Antares Asset Management Inc., as

  
	
  OCEAN TRAILS CLO I BY: West Gate

  	
   

  	
  Collateral
  Manager

  
	
  Horizons Advisors LLC, as Collateral

  	
   

  	
   

  	
   

  
	
  Manager

  	
   

  	
  By:

  	
  /s/
  Kathleen Brooks

  
	
   

  	
   

  	
  Name:

  	
  Kathleen
  Brooks

  
	
  By:

  	
  /s/
  Robert Cohen

  	
   

  	
  Title:

  	
  Authorized
  Signatory

  
	
  Name:

  	
  Robert
  Cohen

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Senior
  Credit Analyst

  	
   

  	
  ANTARES FUNDING, L.P.

  
	
   

  	
   

  	
   

  	
  By:  The
  Bank of New York Trust 

  
	
  Fidelity Advisor Series II: Fidelity Advisor 

  	
   

  	
  Company, N.A., as Trustee of the Antares

  
	
  Floating Rate High Income Fund, as a

  	
   

  	
  Funding Trust created under the Trust 

  
	
  Lender

  	
   

  	
  Agreement dated as of November 30, 1999,

  
	
   

  	
   

  	
  as a
  Lender

  
	
  By:

  	
  /s/
  Peter L. Lydecker

  	
   

  	
   

  
	
  Name:

  	
  Peter
  L. Lydecker

  	
   

  	
  By:

  	
  /s/
  Leslie Huntley

  
	
  Title:

  	
  Assistant
  Treasurer

  	
   

  	
  Name:

  	
  Leslie
  Huntley

  
	
   

  	
   

  	
   

  	
  Title:

  	
  AVP

  
	
  Galaxy III CLO, Ltd.

  	
   

  	
   

  
	
  By: AIG Global Investment Corp., Its

  	
   

  	
   

  
	
  Collateral Manager, as a Lender

  	
   

  	
  PUTNAM BANK LOAN FUND

  
	
   

  	
   

  	
  CAYMAN) MASTER FUND, a series of 

  
	
  By:

  	
  /s/
  John G. Lapham, III

  	
   

  	
  the PUTNAM OFFSHORE MASTER

  
	
  Name:

  	
  John
  G. Lapham, III

  	
   

  	
  SERIES TRUST

  
	
  Title:

  	
  Managing
  Director

  	
   

  	
  By: The Putnam Advisory Company, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/
  Angela Patel

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Angela
  Patel

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice
  President

  

 

 

	
  PUTNAM FLOATING RATE INCOME 

  
	
  FUND

  
	
   

  
	
  By:

  	
  /s/
  Beth Mazor

  	
   

  
	
  Name:

  	
  Beth
  Mazor

  	
   

  
	
  Title:

  	
  V.P.

  	
   

  
	
   

  
	
  Stedman CBNA Loan Funding LLC, for

  
	
  itself or as agent for Stedman CFPI Loan

  
	
  Funding LLC., as a Lender

  
	
   

  
	
  By:

  	
  /s/
  Pam Gwin

  	
   

  
	
  Name:

  	
  Pam
  Gwin

  	
   

  
	
  Title:

  	
  Attorney-in-fact

  	
   

  
	
   

  
	
  SunAmerica Life Insurance Company

  
	
  By: AIG Global Investment Corp., Inc. Its

  
	
  Investment Advisor, as a Lender

  
	
   

  
	
  By:

  	
  /s/
  John G. Lapham, III

  	
   

  
	
  Name:

  	
  John
  G. Lapham, III

  	
   

  
	
  Title:

  	
  Managing
  Director

  	
   

  
	
   

  
	
  The Hartford Mutual Funds, Inc., on

  
	
  behalf of The Hartford Floating Rate Fund

  
	
  By: Hartford Investment Management

  
	
  Company, its Sub-advisor, as a Lender

  
	
   

  
	
  By:

  	
  /s/
  William P. Meaney

  	
   

  
	
  Name:

  	
  William
  P. Meaney

  	
   

  
	
  Title:

  	
  Managing
  Director

  	
   

  
	
   

  
	
  Whitney CLO, LLC, as a Lender

  
	
   

  
	
  By:

  	
  /s/
  John Casparian

  	
   

  
	
  Name:

  	
  John
  Casparian

  	
   

  
	
  Title:

  	
  Co-President

  	
   

  
	
   

  
	
  Wind River CLO I LTD.

  
	
  By: McDonnell Investment Management,

  
	
  LLC, as Manager

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Kathleen A. Zarn

  	
   

  
	
  Name:

  	
  Kathleen
  A. Zarn

  	
   

  
	
  Title:

  	
  Vice
  President

  	
   

  
	
   

  
	
  Yorkville CBNA Loan Funding LLC, for

  
	
  itself or as agent for Yorkville CFPI Loan 

  
	
  Funding LLC, as a Lender

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Richard Newcomb

  	
   

  
	
  Name:

  	
  Richard
  Newcomb

  	
   

  
	
  Title:

  	
  Attorney-in-fact

  	
   

  

 

 

	
   

  	
   

  
	
  The following
  Persons are signatories to this

  Agreement in their capacity as Credit Parties and

  not as Borrowers.

  
	
   

  
	
  CREDIT
  PARTIES:

  	
   

  
	
   

  	
   

  
	
  BLOUNT
  INTERNATIONAL, INC., a Delaware

  corporation

  
	
   

  
	
  By:

  	
  /s/ Richard H.
  Irving, III

  
	
  Name:

  	
  Richard H.
  Irving, III

  
	
  Title:

  	
  Senior Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  BI,
  L.L.C., a
  Delaware limited liability company

  
	
   

  
	
  By: Blount,
  Inc., its managing member

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Richard H.
  Irving, III

  
	
  Name:

  	
  Richard H.
  Irving, III

  
	
  Title:

  	
  Senior Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  4520
  CORP., INC., a
  Delaware corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Richard H.
  Irving, III

  
	
  Name:

  	
  Richard H.
  Irving, III

  
	
  Title:

  	
  Vice PresidentExhibit 10.1

 

AGREEMENT AND PLAN OF
MERGER

 

This AGREEMENT AND PLAN OF MERGER (this “Agreement”)
is made and entered into as of November 7, 2007, by and among Shea Development
Corp., a Nevada corporation (“Parent”),
Shea Development Acquisition No. 4 Corp., a Nevada corporation and a
wholly-owned subsidiary of Parent (“Merger Sub”),
CRI Advantage, Inc., an Idaho corporation (the “Company”),
and certain holders of the majority of the outstanding capital stock of the
Company, as listed on Schedule 1 hereto (“Certain
Company Shareholders”). Holders of capital stock of the Company
are collectively referred to herein as the “Company
Shareholders,” and individually as a “Company
Shareholder”. Capitalized terms used and not otherwise defined
herein have the meanings set forth in Article 10.

 

RECITALS

 

A.                                   The
respective Boards of Directors of Parent, Merger Sub and the Company each have
approved and declared advisable this Agreement and the merger of Merger Sub
with and into the Company (the “Merger”),
upon the terms and subject to the conditions set forth in this Agreement,
whereby each issued and outstanding share of Class A Common Stock, no par value
and Class B Common Stock, no par value, (collectively “Common Stock”)  (“Company Common Stock”),
will be converted into the right to receive common stock, par value $.001 per
share, of Parent (“Parent Common Stock”)
and cash as provided herein.

 

B.                                     The
respective shareholders of Parent, Merger Sub and the Company have, or will
have, prior to the Closing Date, by the legally required vote, approved and
adopted the Merger.

 

C.                                     In
connection with the Merger, the parties desire to make certain representations,
warranties, covenants and agreements and also to prescribe various conditions
to the Merger, upon the terms and subject to the conditions contained herein.

 

NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and
valuable consideration, intending to be legally bound hereby the parties agree
as follows:

 

ARTICLE 1

THE MERGER

 

1.1                                 Merger.
At the Effective Time as defined below, in accordance with this Agreement and
applicable law, Merger Sub will be merged with and into the Company, the
separate corporate existence of Merger Sub will cease and the Company will
continue as the surviving corporation in the Merger and shall become a
wholly-owned Subsidiary of Parent. The Company, as the surviving corporation
after the Merger, is sometimes referred to herein as the “Surviving
Corporation.”

 

 

1.2                                 Closing.
Subject to the terms and conditions of this Agreement, the closing of the
Merger (the “Closing”) will take place at
the offices of Dunnington, Bartholow & Miller, LLP located at 477 Madison
Avenue, New York, NY 10022 or at such other place as Parent and the Company
mutually agree, at 10:00 a.m. local time on December 15, 2007 or the second
Business Day after the day on which the last of the closing conditions set
forth in Article 6 below has been satisfied or waived, or such other date as
Parent and the Company mutually agree upon in writing (the “Closing Date”). On the Closing
Date: (a) the parties hereto will cause the Merger to be consummated by filing
with the Secretaries of State of the State of Idaho and the State of Nevada a
certificate of merger and any required related documents, in such form or forms
as are required by, and executed in accordance with, applicable law (the date
and time of such filing being the “Effective Time”
and the date upon which the Effective Time occurs, being the “Effective Date”); (b) Parent will
deliver the merger consideration to the Company Shareholders in accordance with
Section 1.6; and (c) Merger Sub, Company and Parent will cross-deliver the
certificates and other documents and instruments to be cross-delivered pursuant
to Article 6 below.

 

1.3                                 Effect
of the Merger. At the Effective Time, the effect of the Merger will be as
provided in this Agreement and under applicable law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of Merger Sub and the
Company will vest in the Surviving Corporation, and all debts, liabilities and
duties of Merger Sub and the Company will become the debts, liabilities and
duties of the Surviving Corporation. As of the Effective Time, the Surviving
Corporation will be a wholly-owned subsidiary of Parent.

 

1.4                                 Effect
of Merger on Capital Stock of the Parent. Each share of capital stock of
Parent issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding from and after the Effective Time.

 

1.5                                 Effect
of Merger on Capital Stock of Merger Sub. At the Effective Time, each share
of common stock, par value $.001 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holders thereof, be converted
into and become one validly issued, fully paid and non-assessable share of
Class A and Class B Common Stock, no par value, of the Surviving Corporation.

 

1.6                                 Effect
of Merger on Capital Stock of Company.

 

(a)                                  Company Common Stock. At the Effective Time, each
Participating Company Share shall, by virtue of the Merger and without any
action on the part of the holders thereof, be converted into the right to
receive the following (the “Merger
Consideration”):

 

(i)                                     a
pro rata share of 5,900,000 shares of Parent Common Stock (referred to
collectively herein as the “Parent’s
Shares”) as set forth on Schedule 1.6(a)(i), which shares
shall not have been registered under the Securities Act and shall be “restricted
securities” as that term is defined in Rule 144 under the Securities Act.

 

(ii)                                  a
pro rata share of $3,500,000 payable in cash as set forth on Schedule
1.6(a)(ii) by wire transfer of same day funds to the account designated by
each holder of

 

2

 

Participating Company Shares post the payment
made to the IRS and State of Idaho for all past tax liabilities, penalties and interest
due at time of Closing.

 

(iii)                               At
the Effective Date, there will be withheld and held in escrow with First
American Title, Boise, Idaho (“escrow agent”), as outlined in Schedule 1.6
(a)(iii), $350,000 in cash and 1,500,000 shares of Parent Common Stock. Such
escrowed cash and shares will be released after Closing to the Company
shareholders no later than January 31, 2009 based on 2008 EBITDA achievement as
follows:

 

(A)                              If the Surviving
Corporation EBITDA is less than $1,400,000 (the “2008 Floor”) for calendar year
2008 (Jan-Dec), then the escrow agent will release all escrowed cash and stock
to the Parent.

 

(B)                                If the Surviving
Corporation EBITDA is $1,400,000 or more but less than $1,800,000 (the “2008
Target”) for calendar year 2008 (Jan-Dec), then the escrow agent will release
to the Company shareholders fifty cents ($.50) and 2.00 shares for each dollar
($1.00) the Surviving Corporation’s 2008 EBITDA exceeds $1,400,000. All other
escrow cash and stock will be returned to the Parent.

 

(C)                                If
the If the Surviving Corporation EBITDA is $1,800,000 or more for calendar year
2008 (Jan-Dec), then the escrow agent will release to the Company shareholders
all of the escrow cash and stock.

 

(b)                                 Company Options. At the Effective Time, each outstanding
option to purchase shares of Company Class A Common Stock granted under the
Company’s Stock Option Plan (“Option Plan”), which has not previously expired
or been exercised in full (each such option, an “Eligible Option”), whether or
not vested or exercisable on the Closing Date, shall be deemed to have been
exercised immediately prior to the Effective Time for the number of shares of
Company Class A Common Stock issuable upon exercise of such Eligible Option and
shall be exchanged for the right to receive the Merger Consideration for each
resulting Participating Company Share pursuant to Section 1.6(a), subject to
the deduction of applicable withholding Taxes and provided the cash portion of
the Merger Consideration payable with respect to each such Participating
Company Shares pursuant to Section 1.6(a)(ii) shall be reduced by an amount
equal to (x) the per share exercise price of such Eligible Option multiplied by
(y) the number of shares of Company Common Stock issuable under such Eligible
Option. No payment of Merger Consideration with respect to an Eligible Option
shall be made to the holder of such Eligible Option until receipt by the Parent
of an Option Cancellation Agreement, substantially in the form set forth at
Exhibit A (“Option Cancellation Agreement”), with respect to all Eligible
Options signed by the holder of such Eligible Option. The Parent shall deliver
to the Surviving Corporation all such executed Option Cancellation Agreements
promptly after receipt.

 

(c)                                  As
a result of the Merger and without any action on the part of the holders of
Company Common Stock, at the Effective Time, all shares of Company Common Stock
shall cease to be outstanding and shall be cancelled and retired and shall
cease to exist, and each holder of a share of Company Common Stock (other than
the Company, the Parent, and the Merger Sub) shall thereafter cease to have any
rights with respect to such shares of Company Common Stock, except

 

3

 

that holders
of Participating Company Shares shall have the right to receive, without
interest, the Merger Consideration in accordance with Section 1.6(a) upon the
surrender of the certificate or certificates representing such shares of
Company Common Stock, or an Option Cancellation Agreement, if applicable, .

 

(d)                                 At
the Effective Time, each share of Company Common Stock held by the Parent or
the Merger Sub or held in the Company’s treasury at the Effective Time, if any,
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding and shall be cancelled and retired without
payment of any Merger Consideration or any other consideration therefor.

 

(e)                                  At
or prior to the Effective Time,  the
Company Stock Option Plan shall be terminated and all Company Options and
agreements or certificates representing Company Options, if any, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a Company Option (and of a certificate
representing a Company Option, if any) shall cease to have any rights with
respect thereto, other than and subject to the rights of holders of Eligible
Options to receive the Merger Consideration pursuant to Section 1.6(b).

 

1.7                                 Delivery
of Certificates and Option Cancellation Agreements. At or prior to and
after the Effective Time, Parent will make available, and each holder of
Participating Company Shares will be entitled to receive, (i) upon surrender to
Parent or its representatives of any certificates evidencing Company Common
Stock (the “Certificates”) for
cancellation and a letter of transmittal or assignment separate from
certificate in customary form and as agreed to by the Company Shareholder
(which will be in such form and have such other provisions as Parent will
reasonably specify) (the “Transmittal Letter”);
or (ii) delivery to Parent or its representatives of Option Cancellation
Agreements, the pro-rata Merger Consideration into which such Participating
Company Shares have been converted into pursuant to the Merger, and upon such
surrender of each Certificate and/or Option Cancellation Agreement and delivery
by Parent of the aggregate Merger Consideration in exchange therefor, such
Participating Company Shares will forthwith be cancelled. Until surrendered or
delivered as contemplated by this Section 1.7, each Certificate or Option
Cancellation Agreement, as applicable, will be deemed at any time after the
Effective Time for all purposes to evidence only the right to receive upon such
surrender the corresponding pro rata portion of the Merger Consideration.

 

1.8                                 Stock
Transfer Books. From and after the Effective Time, the stock transfer books
of the Company will be closed, and there will be no further registration or
transfers of capital stock thereafter on the records of the Company.

 

1.9                                 No
Further Ownership Rights. The Merger Consideration delivered upon the
surrender for exchange of Certificates or the delivery of Option Cancellation
Agreements in accordance with the terms hereof will be deemed to have been
issued in full satisfaction of all rights pertaining to such Participating
Company Shares, and there will be no further registration of transfers of such
shares which were outstanding immediately prior to the Effective Time on the
records of the Surviving Corporation. If, after the Effective Time,
Certificates or Option Cancellation Agreements are presented to the Surviving
Corporation, they will be cancelled and exchanged as provided in this Article
1.

 

4

 

1.10               Lost,
Stolen or Destroyed Certificates. In the event any Certificates are lost,
stolen or destroyed, Parent will issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof and the other deliveries required above, the applicable Merger
Consideration; provided, however, that the Surviving Corporation may, in its
sole discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver an
indemnity or bond in such sum as it may reasonably direct as indemnity against
any claim that may be made against it with respect to the Certificates alleged
to have been lost, stolen or destroyed.

 

1.11                           Charter
Documents; Directors and Officers. Unless otherwise agreed by the Company
and Parent prior to the Closing, at and as of the Effective Time, without any
further action on the part of Parent, Merger Sub or the Company: (i) the
Articles of Incorporation and the Bylaws of the Company as in effect
immediately prior to the Effective Time will be the Articles of Incorporation
and Bylaws of the Surviving Corporation at and after the Effective Time until
thereafter amended as provided by applicable law; (ii) the directors and officers
of the Company immediately prior to the Effective Time shall serve as directors
and officers of the Surviving Corporation from and after the Effective Time,
until their successors are elected or appointed and qualified or until their
resignation or removal. Prior to the Effective Time, the Company Shareholders
will elect Francis E. Wilde to the Surviving Corporation’s Board of Directors.
The Board of Directors of the Company will as of the Effective Time electing E.
Joseph Vitetta, Jr. as Secretary of the Surviving Corporation.

 

1.12                           Employment
Agreements. At the Effective Time, the Surviving Corporation will offer
employment to and will employ the senior management team listed in Schedule
1.12 Part I (the “Senior Management Team”)
under the terms and conditions of agreements set forth at Schedule 1.12 Part
II, such employment agreement to be accepted and executed respectively
concurrently with the Closing.

 

1.13                           Stock
Options.  Parent established the 2007 Stock Option and Performance
Awards Plan in which employees of the Surviving Corporation will be eligible to
participate (the “Stock Award Plan”).
The attached Schedule 1.13 lists the Certain Company Shareholders’ and
eligible Company employees that will be eligible to participate in the Stock
Award Plan.  It is understood by the parties that the timing, quantity,
exercise price, vesting schedules and all other terms and conditions of any
stock award are at the sole discretion and approval of the Parent’s Board of
Directors and that the Parent’s Board of Directors shall, in its sole
discretion, finally determine those Surviving Corporation employees to whom
stock awards may be granted.  The Parent’s Board of Directors will also
have sole discretion to determine the type of award that may be granted including
stock options, restricted stock or other types of awards authorized under the
Stock Award Plan.

 

1.14                           Company
Tax Liability. As set forth on Schedule 1.14, the Company currently owes
for the years 2006 and 2007 (a) the Internal Revenue Service $336,184.84 and
(b) the Idaho State Tax Commission $238,259.08 for unpaid withholding and
payroll taxes (“Tax Liability”). All such amounts, plus any additional
penalties and interest, due at Closing will be paid by the Company  contemporaneously with Closing. Other than as
set forth in this Section 1.14 the Company will have no outstanding tax
liability at Closing for Calendar years 2004, 2005 and 2006.

 

5

 

1.15                           Taking
of Necessary Action; Further Action. Each of Parent, Merger Sub and the
Company will take all such reasonable lawful action as may be necessary or
appropriate in order to effect the Merger in accordance with this Agreement as
promptly as practicable. If, at any time after the Effective Time, any such
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 the property, rights, privileges, power and franchises of the
Company and Merger Sub, the officers and directors of the Company and Merger
Sub immediately prior to the Effective Time are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF THE

COMPANY AND CERTAIN COMPANY SHAREHOLDERS

 

The Company and each of the Certain Company Shareholders hereby
represent and warrant, jointly and severally, to Parent subject to such
exceptions as are disclosed in the corresponding Schedules with respect to
specific sections of this Article 2 and subject to the right of the Company and
the Certain Company Shareholders to update, revise, supplement and/or correct
such Schedules through the Closing Date, as follows:

 

2.1                                 Organization
and Qualification. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Idaho, and has
full corporate power and authority to conduct its business as now conducted and
to own, use, license and lease its Assets and Properties. The Company has no
Subsidiaries. The Company is duly qualified, licensed or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use, licensing or leasing of its Assets and Properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary, except for such jurisdictions in which the failure to be so
qualified would not have a Material Adverse Effect on the Company. Schedule
2.1(a) sets forth each jurisdiction where the Company is so qualified,
licensed or admitted to do business.

 

2.2                                 Authority
Relative to this Agreement. The Company has full corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby, and the performance by the
Company of its obligations hereunder, have been duly and validly authorized by
all necessary action by the Board of Directors of the Company, and no other
action on the part of the Board of Directors of the Company is required to
authorize the execution, delivery and performance of this Agreement and the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by Parent and
Merger Sub, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws relating to the
enforcement of creditors’ rights generally and by general principles of equity.

 

6

 

2.3                                 Capital
Stock. As of the date hereof, the authorized capital stock of the Company
consists of five million (5,000,000) shares of Class A Common Stock and twenty
million (20,000,000) shares of Class B Common Stock, both without par value, of
which 20,000,000 Class B shares are issued and outstanding. There are options
exercisable or convertible into 3,023,933 Class A shares of Company Common
Stock (“Company Options”), the holders
of which are set forth on Schedule 2.3 (the “Company
Option Holders”).] All of the issued and outstanding shares of
Company Common Stock are validly issued, fully paid and nonassessable, and have
been issued in compliance with all applicable federal, state and foreign
securities Laws. No shares of Company Common Stock are held as treasury stock. Schedule
1 lists the name and state of residence of each holder of Company Common
Stock provided to the Company by such holder and the number of shares of
Company Common Stock held by each such holder. Except for the Company Options,
there are no Equity Equivalents, commitments or agreements of any character
(whether created by statute, the Articles of Incorporation or Bylaws of the
Company, or any agreement or otherwise) to which the Company is a party or by
which it 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 capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price or otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. Except as
set forth in Schedule 2.3(a), the Company is not a party or subject to
any agreement or understanding, and, to the Company’s knowledge, there is no
agreement, arrangement or understanding between or among any Persons, which
affects, restricts or relates to voting, giving of written consents, dividend
rights or transferability of shares with respect to the shares of Company
Common Stock, including without limitation any voting trust agreement or proxy.

 

2.4                                 No
Conflicts. Except as set forth in Schedule 2.4, the execution and
delivery by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby do not and will not:

 

(a)                                  conflict
with or result in a violation or breach of any terms, conditions or provisions
of the Articles of Incorporation or Bylaws, as amended, or equivalent documents
of the Company except for any of the foregoing which would not
reasonably be expected to give rise to a Material Adverse Effect;

 

(b)                                 conflict
with or result in a violation or breach of any Law or Order applicable to the
Company or by which any of its Assets and Properties is bound or affected, except
for any of the foregoing which would not reasonably be expected to give rise to
a Material Adverse Effect; or

 

(c)                                  (i)
conflict with or result in a violation or breach of, (ii) constitute a default
(or an event that, with or without notice or lapse of time or both, would
constitute a default) under, (iii) require the Company to obtain any consent,
approval or action of, make any filing with or give any notice to any Person as
a result or under the terms of, (iv) result in or give to any Person any right
of termination, cancellation, acceleration or modification in or with respect
to, (v) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments or performance under,
(vi) result in the creation or imposition of (or the obligation to create or
impose) any Lien upon the Company or any of its Assets and Properties under or
(vii) result in the loss of a material benefit under, any of the terms,
conditions or provisions of any Contract or License to which the Company is a
party or by which the Company or its Assets

 

7

 

and Properties
is bound or affected, except (x) where the Company has obtained or will
obtain prior to the Closing the necessary written agreements, waivers or
consents of the other parties to any Company Contracts or Licenses to avoid,
release or waive any such default, conflict, breach, violation, termination,
right to terminate or accelerate, or triggering of payment with respect to such
Company Contracts or Licenses, or (y) where any such default, conflict, breach,
violation, termination, right to terminate or accelerate, or triggering of
payment with respect to such Company Contracts or Licenses would not constitute
a Material Adverse Effect.

 

2.5                                 Books
and Records; Organizational Documents. The minute books, including the
share registers, and other similar records of the Company that have been
provided or made available to Parent, its representatives or its counsel prior
to the execution of this Agreement, are complete and correct in all material
respects and have been maintained in accordance with sound business practices. Such
minute books contain a true and complete record of all material actions taken
at all meetings and by all written consents in lieu of meetings of the
directors, shareholders and committees of the Board of Directors of the Company
through the date hereof. The Company has delivered a true, correct and complete
copy of its Articles of Incorporation, as set forth in Schedule 2.5(a),
and its Bylaws, as set forth in Schedule 2.5(b), or other charter
documents, as applicable, of the Company as amended to date, to Parent. To
Company’s knowledge, the Company is not in violation of any provisions of its
Articles of Incorporation or equivalent documents.

 

2.6                                 Company
Financial Statements.

 

The Company Financials, as set forth in Schedule 2.6(a), have
been delivered to the Parent. The Company Financials for the 2005 and 2006
fiscal years delivered to Parent will have been audited on or before December
30, 2007 and, to Company’s knowledge, were correct and complete in all material
respects as at the dates thereof.  The Company’s financial statements for
the nine months ended September 30, 2007 will have been reviewed by an
independent registered and certified public accountant to insure that the
financial statement for the nine months ended September 30, 2007 are prepared
on a consistent basis with the Company Financials for the fiscal years 2005 and
2006. The Company Financials present fairly and accurately the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject, in the case of any interim financial
statements, to normal year-end adjustments, which adjustments will not be
material in amount or significance and except that any interim financial
statements may not contain footnotes. Except as set forth in Schedule 2.6(b),
since the Financial Statement Date, there has been no change in any accounting
policies, principles, methods or practices, including any change with respect
to reserves (whether for bad debts, contingent liabilities or otherwise), of
the Company that would be likely to have a Material Adverse Effect.

 

(b)                                 Neither
the Company nor, to the knowledge of Company, the Company’s independent
accountants has identified or been made aware of (i) any fraud, whether or not
material, that involves the management of the Company or other employees of the
Company who have a role in the preparation of financial statements or the
internal accounting controls utilized by the Company or (ii) any claim or
allegation regarding any of the foregoing.

 

(c)                                  The
Company has maintained and utilized an information system and set of financial
and accounting tools that have substantiated the information gathered in
connection with

 

8

 

the preparation of the Company Financials in accordance with GAAP,
including policies and procedures that the Company deems appropriate for a
company of its size that:  a) require the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and disposition of the assets of the company, b) provide
reasonable assurances that the transactions are recorded as necessary to permit
the preparation of financial statements in accordance with GAAP, and that
receipts and expenditures of the Company are being made with appropriate authorizations
of management and the Board of Directors of the Company and c) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the assets of the Company, except where the
failure to maintain or utilize any of the foregoing would not reasonably be
expected to give rise to a Material Adverse Effect.

 

2.7                                 Absence
of Changes. Since the Financial Statement Date, there has not been any
Material Adverse Change in the Business or Condition of the Company or any
occurrence or event, which, individually or in the aggregate could be
reasonably expected to have any Material Adverse Change in the Business or
Condition of the Company. In addition, without limiting the foregoing, except
as expressly contemplated hereby, there has not occurred, on the part of the
Company, during the period commencing on the Financial Statement Date and
terminating on the date hereof:

 

(a)                                  the
entering into of any Contract in connection with any transaction involving a
Business Combination other than this Agreement and the transactions related to
the Merger;

 

(b)                                 the
alteration, or entering into of any Contract or other commitment to alter, its
interest in any Person in which the Company directly or indirectly holds a
greater than 1% interest on the date hereof;

 

(c)                                  the
entering into of any strategic alliance, joint development or joint marketing
Contract other than joint marketing or development efforts in the ordinary
course of business consistent with the Company’s past practice;

 

(d)                                 any
material amendment or other modification (or agreement to do so), except in the
ordinary course of business consistent with the Company’s past practice, or
violation of a material term of, any of the Contracts set forth or described
herein;

 

(e)                                  the
entering into of any material transaction with any officer, director,
shareholder, Affiliate or Associate of the Company, other than pursuant to any
Contract in effect on the Financial Statement Date and disclosed to Parent
pursuant to the Schedules or otherwise contemplated by this Agreement or any
agreement or instrument related to this Agreement;

 

(f)                                    the
entering into or amendment of any Contract pursuant to which any other Person
is granted manufacturing, marketing, distribution, licensing or similar rights
of any type or scope with respect to any products of the Company or Company
Intellectual Property other than as contemplated by the Contracts or Licenses
of the Company disclosed herein or otherwise in the ordinary course of business
consistent with the Company’s past practice or which would not have a Material
Adverse Effect;

 

9

 

(g)                                 to
the Company’s knowledge, the commencement of any Action or Proceeding;

 

(h)                                 except
as set forth in Schedule 2.7(h), the declaration, setting aside or
payment of any dividends on or making of any other distributions (whether in
cash, stock or property) in respect of any Company Common Stock, or any split,
combination or reclassification of any shares of Company Common Stock or
issuance or authorization of the issuance of any other securities in respect
of, in lieu of or in substitution for shares of Company Common Stock, or the
repurchase, redemption or other acquisition, directly or indirectly, of any
shares of Company Common Stock by the Company;

 

(i)                                     except
as set forth in Schedule 2.7(i), the issuance, grant, delivery, sale or
authorization of or proposal to issue, grant, deliver or sell, or purchase or
proposal to purchase, any shares of Company Common Stock or modification or
amendment of the rights of any holder of any outstanding shares of Company
Common Stock, nor have there been any agreements, arrangements, plans or
understandings with respect to any such modification or amendment except as
contemplated by this Agreement;

 

(j)                                     except
as set forth in Schedule 2.7(j), any amendments to the Company’s
Articles of Incorporation or Bylaws;

 

(k)                                  any
transfer (by way of a License or otherwise) to any Person of rights to any
Company Intellectual Property other than non-exclusive transfers to the Company’s
customers, distributors or other licensees in the ordinary course of business
consistent with the Company’s past practice;

 

(l)                                     to
the Company’s knowledge, any disposition or sale of, waiver of rights to,
license or lease of, or incurrence of any Lien on, any Assets and Properties
(other than Company Intellectual Property) of the Company, other than
dispositions of inventory, or licenses of products to Persons in the ordinary
course of business of the Company consistent with the Company’s past practice;

 

(m)                               any
purchase or lease of any Assets and Properties of any Person or the making of
any capital expenditures, lease commitments or other capital commitments by the
Company other than in the ordinary course of business of the Company,
consistent with Company’s past practice and in an amount not in excess of fifty
thousand dollars ($50,000) unless otherwise approved by Parent;

 

(n)                                 the
making of any capital expenditures or commitments by the Company for additions
to property, plant or equipment of the Company constituting capital assets
individually or in the aggregate in an amount exceeding twenty-five thousand
dollars ($25,000) except in the ordinary course of business consistent with the
Company’s past practice;

 

(o)                                 except
as set forth in Schedule 2.7(o), the write-off or write-down or making
of any determination to write off or write-down, or revalue, any of the Assets
and Properties of the Company, or change in any reserves or liabilities
associated therewith;

 

10

 

(p)                                 except
as set forth in Schedule 2.7(p), the payment, discharge or satisfaction
of any material claim or Liability, other than the payment, discharge or
satisfaction in the ordinary course of business of Liabilities reflected or
reserved against in the Company Financials or incurred in the ordinary course
of the Company’s business since the Financial Statement Date;

 

(q)                                 except
as set forth in Schedule 2.7(q), the failure to pay or otherwise satisfy
material Liabilities of the Company or its Subsidiaries when due;

 

(r)                                    the
incurrence of any Indebtedness or guarantee of any such Indebtedness or
issuance or sale of any debt securities of the Company or guarantee of any debt
securities of others, except as otherwise incurred in the ordinary course of
the Company’s business;

 

(s)                                  the
grant of any severance or termination pay to any director, officer employee or
consultant, except payments made as required by Law or pursuant to written
Contracts outstanding on the date hereof,

 

(t)                                    except
as set forth in Schedule 2.7(t), a change to salary, rate of
commissions, rate of consulting fees or any other compensation of any current
officer, director, shareholder, employee, independent contractor or consultant
of the Company except in the ordinary course of business consistent with the
Company’s past practice;

 

(u)                                 except
as set forth in Schedule 2.7(u), the payment of any consideration of any
nature whatsoever (other than, in the ordinary course of business, salary,
bonus, commissions or consulting fees and customary benefits and out of pocket
expenses paid to any current or former officer, director, shareholder, employee
or consultant of the Company) to any current or former officer, director,
shareholder, employee, independent contractor or consultant of the Company;

 

(v)                                 the
establishment or modification of (i) targets, goals, pools or similar
provisions under any employment Contract or other employee compensation arrangement
or independent contractor Contract or other compensation arrangement or (ii)
salary ranges, increased guidelines or similar provisions in respect of any
employment Contract or other employee compensation arrangement or independent
contractor Contract or other compensation arrangement, except for those made in
the ordinary course of the Company’s business;

 

(w)                               the
adoption, entering into, amendment, modification or termination (partial or
complete) of any Benefit Plan;

 

(x)                                   the
payment of any discretionary or stay bonus except in the ordinary course of
business consistent with the Company’s past practice;

 

(y)                                 to
Company’s knowledge, any action which would be reasonably likely to interfere
in a material way with Parent’s ability to account for or complete the
transactions contemplated hereby;

 

(z)                                   the
making or changing of any election in respect of Taxes, adoption or change in
any accounting method in respect of Taxes, the entering into of any tax
allocation agreement, tax sharing agreement, tax indemnity agreement or closing
agreement, settlement or compromise of any claim or assessment in respect of
Taxes, or consent to any extension or waiver

 

11

 

of the
limitation period applicable to any claim or assessment in respect of Taxes
with any Taxing Authority or otherwise, except for any of the foregoing
which would not reasonably be expected to give rise to a Material Adverse
Effect;

 

(aa)                            Except
as set forth in Schedule 2.7(aa), the making of any change in the
accounting policies, principles, methods, practices or procedures of the
Company (including without limitation for bad debts, contingent liabilities or
otherwise, respecting capitalization or expense of research and development
expenditures, depreciation or amortization rates or timing of recognition of
income and expense), except for any of the foregoing which would not
reasonably be expected to give rise to a Material Adverse Effect;

 

(bb)                          other
than in the ordinary course of the Company’s business, the making of any
representation or proposal to, or engagement in substantive discussions with,
any of the holders (or their representatives) of any Indebtedness, or to or
with any party which has issued a letter of credit which benefits the Company;

 

(cc)                            the
commencement or termination of, or change in, any line of business of the
Company other than in the ordinary course of business;

 

(dd)                          the
cancellation, amendment or failure to renew any insurance policy other than in
the ordinary course of business consistent with past practice, or failure to
use commercially reasonable efforts to give all notices and present all claims
under all such policies in a timely fashion, except for any of the
foregoing which do not give rise to a Material Adverse Effect;

 

(ee)                            any
amendment, failure to renew, or failure to use commercially reasonable efforts
to maintain, its existing Approvals or failure to observe any Law or Order
applicable to the conduct of the business of the Company or the Assets and
Properties of the Company, except for any of the foregoing which would
not reasonably be expected to give rise to a Material Adverse Effect;

 

(ff)                                to
Company’s knowledge, any failure to pay or otherwise satisfy any obligations to
procure, maintain, renew, extend or enforce any Company Intellectual Property,
including, but not limited to, submission of required documents or fees during
the prosecution of patent, trademark or other applications for Registered
Intellectual Property rights other than in the ordinary course of business or
which would not reasonably be expected to give rise to a Material Adverse
Effect;

 

(gg)                          any
physical damage, destruction or other casualty loss (whether or not covered by
insurance) affecting any of the real or personal property or equipment of the
Company individually or in the aggregate in an amount exceeding fifteen
thousand dollars ($15,000);

 

(hh)                          the
repurchase, cancellation or modification of the terms of any Company Common
Stock, or other financial instrument that derives the majority of its value
from its convertibility into Company Common Stock, other than transactions
entered into in the ordinary course of business and pursuant to contractual
provisions in effect at the date of this Agreement; or

 

(ii)                                  any
entering into any agreement to do any of the foregoing.

 

12

 

2.8                                 No
Undisclosed Liabilities. Except as set forth in Schedule 2.8, the
Company has no obligations or liabilities of any nature (matured or unmatured,
fixed or contingent) other than (i) those set forth or reserved against in the
Company Financials, (ii) those incurred in connection with this Agreement or
the transactions contemplated hereby, (iii) those incurred in the ordinary
course of business consistent with the Company’s past practice, and (iv) those
set forth in this Agreement or the Schedules hereto.

 

2.9                                 Restrictions
on Business Activities. Except as set forth in Schedule 2.9, there
is no agreement or Order binding upon the Company, or any of its assets or
properties which has had or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of the
Company, any acquisition of property by the Company or the conduct of business
by the Company as currently conducted or as proposed to be conducted by the
Company other than in the ordinary course of business or which would not
reasonably be expected to give rise to a Material Adverse Effect.

 

2.10                     Taxes. 
Subject to Section 1.14 as it relates to the Tax Liability:

 

(a)                                  Subject
to Section 1.14 and Section 2.10(p) below, at Closing, the Company will have
timely filed and paid any and all Federal, State, Local and Foreign taxes due,
assessed or estimated for  any open tax return years due through the Tax
year ended December 31, 2006 and through the Closing Date.  The Company
has prepared and maintained adequate records so as to facilitate the prompt
filing of Tax Returns when they become due

 

(b)                                 Subject
to Section 2.10(p) below, the Company has not incurred any material liability
for Taxes other than as reflected on the Company Financials pursuant to
GAAP.  The unpaid Taxes of the Company (i) did not, through the Closing
Date exceed by any material amount the reserve for liability for Income Tax
(other than the reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Company’s
most recent balance sheet and (ii) will not, to Company’s knowledge, exceed by
any material amount that reserve as adjusted for operations and transactions
through the Closing Date.

 

(c)                                  Except
as disclosed in Schedule 2.10(c), the Company is not presently a party
to any agreement extending the time within which to file any Tax Return. 
To Company’s knowledge, no claim has ever been made by a Taxing Authority of
any jurisdiction in which the Company does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction.

 

(d)                                 Subject
to Section 2.10(p) below, to Company’s knowledge, the Company or its agents, if
applicable at Closing, have collected or withheld all amounts required to be
collected or withheld by it on account of Taxes or otherwise, and have remitted
the same to the appropriate governmental authority in the manner and within the
time required under any applicable legislation or, if it is not yet due, have
set it aside in appropriate accounts for payment when due.

 

(e)                                  Subject
to Section 2.10(p) below, except as disclosed in Schedule 2.10(e), the Company
does not have knowledge of any actions by any Taxing Authority in connection
with assessing a material amount of additional Taxes against and in respect of
the Company for any past period.  Subject to Section 2.10(p) below, there
is no dispute or claim concerning any Tax liability of the Company (i) threatened,
claimed or raised by any Taxing Authority and (ii) of which the

 

13

 

Company is
aware.  Subject to Section 2.10(p) below, there will be no Liens for Taxes
upon the Assets and Properties of the Company other than liens for Taxes not
yet due or which are being contested by the Company in good faith. There are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Tax Returns required to be filed by, or which include or are
treated as including, the Company with respect to any Tax assessment or
deficiency affecting the Company.

 

(f)                                    The
Company has not received any written ruling related to Taxes or subject to
Section2.10(p) below entered into any agreement with a Taxing Authority
relating to Taxes.

 

(g)                                 The
Company has no material liability for the Taxes of any Person other than the
Company or (i) as a transferee or successor, or (ii) by Contract or (iii)
otherwise.

 

(h)                                 The
Company has not agreed to make and is not required to make any adjustment under
Section 481 or 263A of the Code or any comparable provision under state laws by
reason of a change in accounting method or as a result of transactions or
events prior to the date hereof.

 

(i)                                     The
Company is not a party to or bound by any obligations under any Tax sharing,
Tax allocation, Tax indemnity or similar agreement or arrangement.

 

(j)                                     The
Company is not involved in, subject to, or a party to any joint venture,
partnership, Contract or other arrangement that is treated as a partnership for
federal, state, local or foreign Income Tax purposes.

 

(k)                                  The
Company was not included and is not includible in the Tax Return of any parent
corporation other than such a return of which the Company is the common parent
corporation.

 

(l)                                     Except
as set forth in Schedule 2.10(l), the Company has not:

 

(i)                                     acquired
or had the use of any property from a Person with whom it was not dealing at
arm’s length other than at fair market value; or

 

(ii)                                  disposed
of any material asset to a Person with whom it was not dealing at arm’s length
for proceeds less than the fair market value thereof.

 

(m)                               The
Company is not nor has it ever been a United States real property holding
corporation within the meaning of Section 897(c)(1)(A)(ii) of the Code.

 

(n)                                 The
Company is not a personal holding company.

 

(o)                                 To
Company’s knowledge, the Company is in full compliance with all terms and
conditions of any Tax exemptions or other Tax-sharing agreement or Order of a
foreign government and the consummation of the transactions contemplated hereby
will not have any Material Adverse Effect on the continued validity and
effectiveness of any such Tax exemptions or other Tax-sharing agreement or
Order.

 

14

 

(p)                                 Outstanding
Tax Liabilities.

 

(i)                               Notwithstanding
any contrary representation and/or warranty in this Section 2.10, the Internal
Revenue Service (“IRS”) has issued notices of deficiency to the Company and has
an unrecorded, general tax lien for certain unpaid IRS Form 941 employment
taxes, interest and penalties assessed against the Company for tax periods
Third Quarter 2006, Fourth Quarter 2006 and First Quarter 2007 (“Federal Tax
Liability”). The Company and the IRS have entered into an Installment Agreement
dated April 23, 2007 whereby the Company has agreed to pay the IRS $4,000 per
week commencing April 27, 2007 and continuing each week thereafter until the
2006 Tax Liability is paid in full. The Company has been in full compliance
with said Installment Agreement, contemporaneous with Closing, the Federal Tax
Liability will be paid in full by the Company. Other than the specific taxes
identified in this Section 2.10(p), all other taxes including payroll and
withholding amounts have been paid and are current through the date of closing.

 

(ii)                            Notwithstanding any
contrary representation and/or warranty of this Section 2.10, as disclosed on
Schedule 1.14, the State of Idaho (“State”) has issued notices of deficiency to
the Company and has an recorded tax lien for certain unpaid taxes, interest and
penalties assessed against the Company (“State Tax Liability”). Contemporaneous
with Closing, the State Tax Liability will be paid in full by the Company.

 

2.11               Legal
Proceedings.

 

(a)                                  Except
as set forth in Schedule 2.11:

 

(i)                                     there
are no Actions or Proceedings brought or, to the knowledge of the Company,
pending or threatened against the Company or its Assets and Properties;

 

(ii)                                  there
are no facts or circumstances known to the Company that could reasonably be
expected to give rise to any material Action or Proceeding against the Company;
and

 

(iii)                               the
Company has not received notice of, and does not otherwise have knowledge of,
any Orders outstanding against the Company.

 

(b)                                 Prior
to the execution of this Agreement, the Company has delivered to Parent upon
Parent’s written request, all responses of counsel for the Company to auditor’s
requests for information (together with any updates provided by such counsel)
for the last three (3) years regarding Actions or Proceedings pending or, to
the knowledge of the Company, threatened against, relating to or affecting the
Company. Schedule 2.11 sets forth all Actions or Proceedings against or
by the Company during the last three (3) years.

 

2.12                           Compliance
With Laws and Orders. To Company’s knowledge, the Company has not violated,
and is not currently in violation or default under, any material Law or Order
applicable to the Company or any of its Assets and Properties.

 

2.13                           Benefit
Plans. The Company has provided to the Parent summary information regarding
its Benefit Plans as set forth in Schedule 2.13.

 

15

 

2.14                           Title
to Property. At Closing, the Company will have good and marketable title to
all of its properties, interests in properties and assets, real and personal,
reflected in the Company Financials or acquired after the Financial Statement
Date (except properties, interests in properties and assets sold or otherwise
disposed of since the Financial Statement Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current Taxes not
yet due and payable or which are being contested by the Company in good faith,
(ii) such imperfections of title, liens and easements as do not and will not
materially detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair business operations
involving such properties, (iii) liens securing debt which is reflected on the
Company Financials and (iv) Liens listed on Schedule 2.14. The property
and equipment of the Company that are used in the operations of its business
are in good operating condition subject to normal wear and tear. All material
properties used in the operations of the Company are reflected in the Company
Financials. The Company owns no real property.

 

2.15                           Intellectual
Property.

 

(a)                                  Except
as set forth on Schedule 2.15(a), the Company owns, or is licensed or
otherwise possesses legally enforceable rights to use, all Intellectual
Property that is used or currently proposed to be used in the business of the
Company as currently conducted or as presently proposed by the Company to be
conducted in the immediate future.

 

(b)                                 Except
as set forth in Schedule 2.15(b), the Company has not (i) licensed any
Company Intellectual Property in source code form to any third party or (ii)
entered into any exclusive agreements relating to any Company Intellectual
Property with any third party.

 

(c)                                  Schedule
2.15(c) lists (i) all patents and patent applications and all registered
trademarks, trade names and service marks, registered copyrights, domain names,
and maskworks, included in the Company Intellectual Property, including the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, (ii) all licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which any other Person is authorized to use
any Intellectual Property, and (iii) all licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any third-party Intellectual Property (“Third Party Intellectual Property Rights”)
which are incorporated in, are, or form a part of any Company product or which
are otherwise used (or currently proposed to be used) by the Company in the
business of the Company as currently conducted or as proposed to be conducted
by the Company, other than off-the-shelf software programs licensed under
standard Shrink Wrap License Agreements.

 

(d)                                 To
Company’s knowledge, no Person (including employees and former employees of the
Company) is infringing, misappropriating or otherwise making any unauthorized
use or disclosure of any Intellectual Property rights of the Company or any
Third Party Intellectual Property Rights to the extent licensed by or through
the Company. The Company has not entered into any agreement to indemnify any
other Person against any charge of infringement of any Company Intellectual
Property, except as set forth in Schedule 2.15(d).

 

16

 

(e)                                  To
Company’s knowledge, the Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Company Intellectual Property or Third Party Intellectual
Property Rights.

 

(f)                                    To
Company’s knowledge, all patents, registered trademarks, domain names, service
marks and copyrights held by the Company are valid and subsisting, and the
manufacturing, marketing, licensing or sale of its products, to the knowledge
of the Company, does not infringe any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party. Except
as set forth on Schedule 2.15(f), during the last three (3) years, the
Company (i) has not been sued in any suit, action or proceeding which involves
a claim of infringement of any patents, trademarks, service marks, copyrights
or violation of any trade secret or other proprietary right of any third party;
and (ii) has not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.

 

(g)                                 The
Company has secured valid written assignments and waiver of any moral rights
from consultants and employees who contributed to the creation or development
of Company Intellectual Property of the rights to such contributions that the
Company does not already own by operation of law.

 

(h)                                 The
Company has taken reasonably necessary and appropriate steps to protect and
preserve the confidentiality of all Company Intellectual Property not otherwise
protected by patents, patent applications or copyright (“Confidential Information”). All use,
disclosure or appropriation of Confidential Information by the Company by or to
a third party has been pursuant to the terms of a written agreement between the
Company and such third party, except where the failure to do so would
not constitute a Material Adverse Effect.

 

2.16                           Contracts.

 

(a)                                  Schedule
2.16(a) contains a true and complete list of each of the material Contracts
(true and complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all continuing waivers of any material terms thereof, have been made available
to Parent prior to the execution of this Agreement) of the Company. Schedule
2.16(a) contains a true and complete list of each Contract (denoted with an
asterisk) of the Company not terminable by the Company upon 30 days (or less)
notice by the Company without penalty or obligation to make payments based on
such termination.

 

(b)                                 Each
Contract disclosed in Schedule 2.16(a), unless otherwise stated therein,
is in full force and effect and constitutes, to Company’s knowledge, a legal,
valid and binding agreement, enforceable in accordance with its terms, and, to
the knowledge of the Company, no party to such Contract is, nor has received notice
that it is, in violation or breach of or default under any such Contract (or
with notice or lapse of time or both, would be in violation or breach of or
default under any such Contract).

 

17

 

(c)           Except as set forth on Schedule
2.16(c), the Company is not a party to or bound by any Contract that (i)
automatically terminates or allows termination by the other party thereto upon
consummation of the transactions contemplated by this Agreement or (ii)
contains any covenant or other provision which limits the ability of the
Company to compete with any Person in any line of business or in any area or
territory.

 

2.17         Insurance. The Company’s current
insurance policies, if any, are listed on Schedule 2.17.

 

2.18         Affiliate Transactions.

 

(a)           Except as disclosed in Schedule
2.18(a) or as otherwise disclosed or discussed herein or contemplated
hereby, (i) there are no Contracts or Liabilities between the Company, on the
one hand, and (1) any current or former officer, director, shareholder, or to
the knowledge of the Company, any Affiliate or Associate of the Company or (2)
any Person who, to the knowledge of the Company, is an Associate of any such
officer, director, shareholder or Affiliate, on the other hand, (ii) the
Company does not provide or cause to be provided any assets, services or
facilities to any current or former officer, director, shareholder, Affiliate
or Associate of the Company, (iii) no current or former officer, director,
shareholder, Affiliate or Associate of the Company provides or causes to be
provided any assets, services or facilities to the Company and (iv) the Company
does not beneficially own, directly or indirectly, any Investment Assets of any
current or former officer, director, shareholder, Affiliate or Associate of the
Company.

 

(b)           Each of the Contracts and Liabilities
listed in Schedule 2.18(a), if any, was entered into or incurred, as the
case may be, on terms no less favorable to the Company (in the reasonable
judgment of the Company) than if such Contract or Liability was entered into or
negotiated on an arm’s length basis on competitive terms. Any Contract to which
the Company is a party and in which any director of the Company has a financial
interest in such Contract was approved in accordance with applicable law.

 

2.19         Employees; Labor Relations.

 

(a)           To Company’s knowledge, the Company
is in compliance in all material respects with all currently applicable laws
and regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any material respect in any unfair
labor practice except where non-compliance with any of the foregoing by the Company
will not constitute a Material Adverse Effect. To Company’s knowledge, the at
Closing, the Company is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to employment
insurance, social security, workers compensation, health 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 pending
claims against the Company under any workers compensation plan or policy or for
long term disability which constitutes a Material Adverse Effect. There are no
controversies pending or, to the knowledge of the Company, threatened, between
the Company and any of its employees, which controversies have or could
reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal, foreign or
domestic, which, in any of the foregoing cases,

 

18

 

constitutes a
Material Adverse Effect. The Company is not a party to any collective
bargaining agreement or other labor union Contract nor does the Company know of
any activities or proceedings of any labor union to organize any such employees.
To the best of the Company’s knowledge, no employees of the Company are in
violation of any term of any employment Contract, patent disclosure agreement,
non-competition agreement, or any restrictive covenant to a former employer
relating to the right of any such employee to be employed by the Company
because of the nature of the business conducted or proposed to be conducted by
the Company or to the use of trade secrets or proprietary information of others.
No employees of the Company have given notice to the Company, nor is the
Company otherwise aware, that any such employee intends to terminate his or her
employment with the Company.

 

(b)           Except as set forth in Schedule
2.19(b), all employees of the Company are terminable by the Company upon
reasonable notice in accordance with applicable Law, copies of which have been
provided to Parent. Schedule 2.19(b) sets forth, individually and by
category, the name of each officer, employee and consultant, together with such
person’s position or function, annual base salary or wage and any incentive,
severance or bonus arrangements with respect to such person. The completion of
the transactions contemplated by this Agreement will not result in any payment
or increased payment becoming due from the Company to any officer, director, or
employee of, or consultant to, the Company other than as set forth in Article 1
hereof. To Company’s knowledge, the Company is not a party to any agreement for
the provision of labor from any outside agency that would result in treatment
of such providers of labor as an employee of the Company. To Company’s
knowledge, there have been no claims by employees of such outside agencies, if
any, with regard to employees assigned to work for the Company, and no claims
by any governmental agency with regard to such employees.

 

(c)           Except as disclosed on Schedule
2.19(c), during the last three (3) years, there have been no federal or
state claims based on employment equity, sex, sexual or other harassment, age,
disability, race or other discrimination or common law claims, including claims
of wrongful dismissal, severance pay, payment in lieu of notice or bad faith
termination, by any employees of the Company or by any of the employees
performing work for the Company but provided by an outside employment agency,
and there are no facts or circumstances known to the Company that could
reasonably be expected to give rise to such complaint or claim.

 

(d)           The Company has written employment
policies and/or employee handbooks or manuals to the extent required by Law. To
the knowledge of the Company, no officer, employee or consultant of the Company
is obligated under any Contract or other agreement or subject to any Order or
Law that would interfere with the Company’s business as currently conducted.

 

2.20         Environmental Matters. The
Company does not now own, and has never owned, any fee simple interest in real
property.

 

2.21         Substantial Customers and Suppliers.
Schedule 2.21 lists the 15 largest customers of the Company,
collectively, on the basis of revenues collected or accrued for the most recent
completed fiscal year. Schedule 2.21 also lists the 15 largest suppliers
of the Company on the basis of cost of goods or services purchased for the most
recent fiscal year ended. To the knowledge of the Company, no such customer or
supplier is threatened with bankruptcy or insolvency.

 

19

 

2.22         Accounts Receivable. To Company’s
knowledge, except as set forth in Schedule 2.22 the accounts and notes
receivable of the Company reflected on the Company Financials, and all accounts
and notes receivable arising subsequent to the Financial Statement Date, (a)
arose from bona fide sales transactions in the ordinary course of business,
consistent with past practice, and are payable on ordinary trade terms, (b) are
legal, valid and binding obligations of the respective debtors enforceable in
accordance with their respective terms, (c) are not subject to any valid
set-off or counterclaim and (d) do not represent obligations for goods sold on
consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement.

 

2.23         Inventory. The Company maintains
no inventory. The Company maintains small quantities of immaterial office
supplies inventory in its offices in Boise, Idaho at the Company’s
headquarters.

 

2.24         Other Negotiations; Brokers; Third
Party Expenses. Except as set forth in Schedule 2.24, neither the
Company nor, to the knowledge of the Company, any of its Affiliates (nor any
investment banker, financial advisor, attorney, accountant or other Person
retained by, and in connection with its actions, for or on behalf of the
Company or any such Affiliate) (i) has entered into any Contract that conflicts
with any of the transactions contemplated by this Agreement or (ii) has entered
into any Contract or had any discussions with any Person regarding any
transaction involving the Company which could result in the Company’s being
subject to any claim for liability to said Person as a result of entering into
this Agreement or consummating the transactions contemplated hereby. Without
limiting the foregoing, except as set forth in Schedule 2.24, no finder,
broker, agent, financial advisor, or other intermediary has acted on behalf of
the Company in connection with the Merger or the negotiation or consummation of
this Agreement or any of the transactions contemplated hereby. Schedule 2.24
sets forth a reasonable estimate of all Third Party Expenses expected to be
incurred by the Company through the Closing Date in connection with the
negotiation of the terms and conditions of this Agreement and the Closing of
the transactions contemplated hereby.

 

2.25         Warranty Obligations; Maintenance
Contracts.

 

(a)           Schedule 2.25 sets forth (a) a
list of all forms of written warranties, guarantees and written warranty
policies of the Company in respect of any of the Company’s products and
services, which are currently in effect (the “Warranty Obligations”), and the duration of each such
Warranty Obligation, (b) each of the Warranty Obligations which is subject to
any dispute or, to the knowledge of the Company, threatened dispute and (c) a
brief description of any claims during the last three (3) years made under or
with respect to warranties, guarantees and warranty policies of or relating to
the Company’s products and services. True and correct copies of the Warranty
Obligations have been delivered to Parent prior to the execution of this
Agreement. To Company’s knowledge, there have not been any material deviations
from the Warranty Obligations, and salespersons, employees and agents of the
Company are not authorized to undertake obligations to any customer or other
Person in excess of such Warranty Obligations. All products manufactured,
designed, licensed, leased, rented or sold by the Company (i) were, when sold
by the Company, free from material defects in construction and design and (ii)
satisfy any and all Contract or other specifications related thereto to the
extent stated in writing in such Contracts or specifications, in each case, in
all material respects, in each case other than as a result of software “bugs”
that are remediable in the ordinary course without material cost to the
Company.

 

20

 

(b)           The Company has no prepaid
maintenance contracts.

 

2.26         Foreign Corrupt Practices Act. Neither
the Company, nor to the knowledge of the Company, any agent, employee or other
Person acting on behalf of the Company has, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made any unlawful payment to
any government official or employee or to any political party or campaign from
corporate funds, violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or made any bribe, rebate, payoff, influence payment,
kickback or other similar unlawful payment which will would reasonably be
expected to give rise to a Material Adverse Effect.

 

2.27         Financial Projections. Any and
all financial projections discussed in presentations to investors, bankers and
Parent, if any, made by the Company with respect to the Company’s business were
prepared for internal use only.

 

2.28         Approvals.

 

(a)           No Approvals of Governmental or
Regulatory Authorities relating to the business conducted by the Company are
required to be given to or obtained by the Company from any and all
Governmental or Regulatory Authorities in connection with the consummation of
the transactions contemplated by this Agreement, except (i) Approvals
related to the filings contemplated by Section 1.2 or (ii) where the failure to
obtain such Approval would not constitute a Material Adverse Effect.

 

(b)           Except as set forth in Schedule
2.28(b), no non-Governmental or Regulatory Authority Approvals are required
to be given to or obtained by the Company from any third parties in connection
with the consummation of the transactions contemplated by this Agreement, except
where the failure to obtain such Approvals would not constitute a Material
Adverse Effect.

 

(c)           To Company’s knowledge, the Company
has obtained all Approvals from Governmental or Regulatory Authorities
necessary to conduct the business conducted by the Company in the manner as it
is currently being conducted, except where the failure to obtain such Approvals
would not constitute a Material Adverse Effect, and, during the last three (3)
years, there has been no written notice received by the Company of any
violation or non-compliance with any such Approvals. All Approvals from
Governmental or Regulatory Authorities necessary to conduct the business
conducted by the Company as it is currently being conducted are set forth in Schedule
2.28(c).

 

2.29         Leases in Effect. The Company
has real property leases or subleases as set forth in Schedule 2.29
relating to premises which accommodate not less than 67 employees in the Boise,
Idaho facility and 2 employees in the Idaho Falls facility.

 

2.30         Disclosure. No representation or
warranty contained in this Agreement or any related Schedule or in any
certificate, list or other writing furnished to Parent pursuant to any
provision of this Agreement (including the Company Financials and the notes
thereto) contains any untrue statement of a material fact or omits a material
fact necessary in order to make the statements herein or therein, in the light
of the circumstances under which they were made, not misleading.

 

21

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

Parent and Merger Sub hereby represent and warrant to the Company and
the Company Shareholders, subject to such exceptions as are disclosed in the
corresponding Schedules with respect to specific sections of this Article 3,
and subject to the right of the Parent and Merger Sub to update, revise,
supplement and/or correct such Schedules through the Closing Date, as follows:

 

Parent represents and warrants and Merger Sub represents and warrants
to the Company as follows:

 

3.1           Organization and Good
Standing. Each of the Parent and Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as presently
proposed to be conducted. Each of the Parent and Merger Sub is duly qualified
or licensed to do business, and is in good standing (to the extent that such
concept is applicable), in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except where the failure to be
so qualified or licensed would not individually or in the aggregate be material
to Parent’s or Merger Sub’s ability to consummate the Merger or to perform
their respective obligations under this Agreement. Parent or Merger Sub has
made available to the Company true and complete copies of the currently
effective Certificate of Incorporation and Bylaws of Parent and Merger Sub,
each as amended to date. Neither Parent nor Merger Sub is in violation of its
Certificate of Incorporation or Bylaws, each as amended to date.

 

3.2       Capital Structure of
Parent and Merger Sub. The authorized capital stock of Parent consists of
800,000,000 shares of Parent Common Stock and 60,000,000 shares of Parent
Preferred Stock, all par value $0.001 per share. 10,000,000 shares of Parent
Preferred Stock are designated Series A Preferred Stock and 20,000,000 shares
of Parent Preferred Stock are designated Series B Preferred Stock. 60,609,441
shares of Parent Common Stock, 2,800,000 shares of Parent Series A Preferred
Stock and 3,600,000 shares of Parent Series B Preferred Stock are currently
outstanding. All outstanding shares of Parent Common Stock have been duly
authorized, validly issued, fully paid and are nonassessable and free of any
liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof. The shares of Parent Common Stock to be
issued pursuant to the transactions contemplated herein will, upon issuance
pursuant to the terms hereof, be duly authorized, validly issued, fully paid,
and non-assessable shares of Parent Common Stock. The authorized capital stock
of Merger Sub consists solely of 1000 shares of Common Stock, $0.001 par value
per share, of which 1,000 shares are issued and outstanding and all of which
are owned by Parent. All issued and outstanding shares of capital stock of
Merger Sub have been duly authorized and validly issued and are fully paid and
are nonassessable and free of any liens or encumbrances. Each of Parent and
Merger Sub has delivered a true, correct and complete copy of its Articles of
Incorporation, as set forth in Schedule 3.2(a), and its Bylaws, as set
forth in Schedule 3.2(b), and every other similar governing document or
agreement, as applicable, as amended to date, to Company.

 

3.3       Authority. Parent
and Merger Sub each has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the

 

22

 

transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Parent and Merger Sub, and, assuming the due
authorization, execution and delivery hereof by the Company and Certain Company
Shareholders, constitutes a legal, valid and binding obligation of Parent and
Merger Sub enforceable against Parent and Merger Sub in accordance with its
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors’ rights generally
and by general principles of equity. Merger Sub has been recently formed for
the purpose of effecting the Merger and has not conducted any business except
in connection with preparation for the Merger. Parent owns all of the issued
and outstanding capital stock of Merger Sub. The execution, delivery and
performance of each of this Agreement and any agreements contemplated hereby to
which it is a party have been duly authorized by all necessary action on the
part of each of Parent and Merger Sub, their respective boards of directors,
and the sole stockholder of Merger Sub. A vote of Parent’s stockholders will be
required to approve the Merger and the related transactions contemplated
hereby.

 

3.4           Financial Statements
of Parent.

 

(a)       All financial statements of Parent, on
the EDGAR Database on www.sec.gov, were prepared in accordance with GAAP on a
consistent basis throughout the periods indicated (except as may be indicated
in the notes thereto), are correct and complete in all material respects and
each present fairly, in all material respects, the financial position of Parent
as at the respective dates thereof and for the respective periods indicated
therein, except as otherwise noted therein (subject, in the case of unaudited
statements, to normal and recurring immaterial year-end adjustments). The
Parent’s financial statements have been filed with the U.S. Securities and
Exchange Commission. Since the date of the last financial statements of Parent,
there has been no change in any accounting policies, principles, methods or
practices, including any change with respect to reserves (whether for bad
debts, contingent liabilities or otherwise), of Parent.

 

3.5           No Conflicts. The consummation
by the Parent and Merger Sub of the transactions contemplated hereby do not and
will not:

 

(a)       conflict with or result in a violation or
breach of any terms, conditions or provisions of the Articles of Incorporation
or Bylaws, as amended, or equivalent documents of the Parent and Merger Sub;

 

(b)       conflict with or result in a violation or
breach of any Law or Order applicable to the Parent and Merger Sub or by which
any of their Assets and Properties are bound or affected; or;

 

(c)       (i) conflict with or result in a
violation or breach of, (ii) constitute a default (or an event that, with or
without notice or lapse of time or both, would constitute a default) under,
(iii) require the Parent or Merger Sub to obtain any consent, approval or
action of, make any filing with or give any notice to any Person as a result or
under the terms of (except for filings with the Nevada Secretary of State and
the Securities and Exchange Commission, as necessitated by this transaction and
described on Schedule 3.5(c)), (iv) result in or give to any Person any
right of termination, cancellation, acceleration or modification in or with respect
to, (v) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed

 

23

 

payments or
performance under, (vi) result in the creation or imposition of (or the
obligation to create or impose) any Lien upon the Parent or Merger Sub or any
of their Assets and Properties under or (vii) result in the loss of a material
benefit under, any of the terms, conditions or provisions of any Contract or License
to which the Parent or Merger Sub are a party or by which the Parent or Merger
Sub or their Assets and Properties are bound or affected.

 

3.6           Other
Negotiations; Brokers; Third Party Expenses. Neither the Parent nor Merger
Sub, to the knowledge of the Parent and Merger Sub, or any of their Affiliates
(nor any investment banker, financial advisor, attorney, accountant or other
Person retained by or acting for or on behalf of the Parent and Merger Sub or
any such Affiliate) (i) has entered into any Contract that conflicts with any
of the transactions contemplated by this Agreement or (ii) has entered into any
Contract or had any discussions with any Person regarding any transaction
involving the Parent and Merger Sub which could result in the Parent or Merger
Sub’s being subject to any claim for liability to said Person as a result of
entering into this Agreement or consummating the transactions contemplated
hereby. Without limiting the foregoing, except as set forth in Schedule 3.6,
no finder, broker, agent, financial advisor, or other intermediary has acted on
behalf of Parent or Merger Sub in connection with the Merger or the negotiation
or consummation of this Agreement or any of the transactions contemplated
hereby.

 

3.7           Warranty
Obligations. Neither the Parent nor Merger Sub is subject to any warranty
obligations.

 

3.8           Disclosure. No
representation or warranty contained in this Agreement or any related
document, list or other writing furnished to Company pursuant to any provision
of this Agreement (including the Parent and Merger Sub’s financial statements
and the notes thereto) contains any untrue statement of a material fact or
omits a material fact necessary in order to make the statements herein or
therein, in the light of the circumstances under which they were made, not
misleading.

 

ARTICLE 4

CONDUCT PRIOR TO THE CLOSING

 

4.1           Conduct of Business of the Company.
All parties mutually agree that during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to the provisions of Section 8.1 hereof or the Closing, the Company,
Parent and Merger Sub each shall (unless otherwise required by this Agreement
or Company has given its prior written consent to Parent or Merger Sub or
Parent has given its prior written consent to the Company, as the case may be)
carry on its business in the ordinary course consistent with past practice, to
pay its Liabilities and Taxes consistent with its past practices, to pay or
perform other obligations when due consistent with its past practices, subject
to any good faith disputes over such Liabilities, Taxes and other obligations
and, to the extent consistent with such business, to use reasonable efforts and
institute all policies to preserve intact its present business organization,
keep available the services of its present officers and key employees, preserve
its relationships with customers, suppliers, distributors, licensors,
licensees, independent contractors and other Persons having business dealings
with it and to cause its Subsidiaries to do the same, all with the express
purpose and intent of preserving unimpaired its goodwill and ongoing businesses
at the Closing.

 

24

 

Except as expressly
contemplated by this Agreement or disclosed in Schedules, neither (1) Company,
on the one hand, nor (2) Parent or Merger Sub on the other hand, will, without
the prior written consent of the other, voluntarily take or agree in writing or
otherwise to take, or agree to:

 

(a)           any of the actions described in
Section 2.7;

 

(b)           any other action that would make any
of its representations or warranties contained in this Agreement untrue or
incorrect or prevent the applicable party (or parties) from performing or cause
the applicable party (or parties) not to perform its agreements and covenants
hereunder;

 

(c)           the Company will not issue additional
shares of its capital stock or grant any warrants, options or other rights to
acquire shares of its capital stock;

 

(d)           the Company will not make any capital
expenditures or commitments for additions to property, plant or equipment of
the Company constituting capital assets individually in an amount exceeding
twenty-five thousand dollars ($25,000) unless Parent agrees otherwise.

 

4.2           Solicitation            Until the earlier of the Closing or
the date of termination of this Agreement pursuant to the provisions of Section
8.1 hereof, neither Company nor Parent or Merger Sub, nor any Certain Company
Shareholders, officers, directors, agents, investment bankers or other
representatives of any of them (collectively, the “Representatives”)
will, directly or indirectly, (i) solicit, engage in discussions or negotiate
with any Person (regardless of who initiates such discussions or negotiations),
or take any other action intended or designed to facilitate the efforts of any
Person, other than the parties hereto, relating to the possible acquisition of
the Company, Parent or Merger Sub (whether by way of purchase of capital stock,
purchase of assets or otherwise) or any significant portion of its capital
stock or assets by any Person other than the parties hereto (an “Alternative Acquisition”), (ii)
provide information with respect to the Company, Parent or Merger Sub to any
Person relating to a possible Alternative Acquisition by any Person, (iii)
enter into an agreement with any Person providing for a possible Alternative
Acquisition, or (iv) make or authorize any statement, recommendation or
solicitation in support of any possible Alternative Acquisition by any Person. The
Company, Parent, or Merger Sub, as the case may be, shall cause its
Representatives to immediately cease and cause to be terminated all existing
discussions or negotiations with any Person heretofore conducted with respect
to any possible Alternative Acquisition.

 

Each of the Company, Certain Company Shareholders, Parent and Merger
Sub acknowledge that the terms of this Section 4.2 are a significant inducement
for the Company, Certain Company Shareholders, Parent and Merger Sub to enter
into this Agreement and the absence of such provision would have resulted in
either (i) a material change in the terms hereof or (ii) a failure to induce
the parties hereto to enter into this Agreement.

 

ARTICLE 5

 

ADDITIONAL
AGREEMENTS

 

5.1       Access to Information.
Between the date of this Agreement and the earlier of the Closing or the
termination of this Agreement, upon reasonable advance notice given to the

 

25

 

Company, the Company will (i) give Parent and its respective officers,
employees, accountants, counsel, financing sources and other agents and
representatives reasonable access to all buildings, offices, and other
facilities of the Company and to the extent permitted by law to all Books and
Records of the Company, regardless of where located; (ii) permit Parent to make
such inspections as it may require; (iii) cause its officers to furnish Parent
such financial, operating, technical and product data and other information
with respect to the business and Assets and Properties of the Company as Parent
from time to time may reasonably request to verify the representations and
warranties provided herein and for integration planning purposes, including
without limitation financial statements and schedules; (iv) allow Parent the
opportunity to interview non-clerical employees and other personnel and
Affiliates of the Company during normal business hours with the Company’s prior
written consent, which consent will not be unreasonably withheld or delayed;
and (v) assist and cooperate with Parent in the development of integration
plans for implementation by Parent and the Company following the Closing;
provided, however, that no investigation pursuant to this Section 5.1 will
affect or be deemed to modify any representation or warranty made by the
Company herein.

 

5.2           Confidentiality.
Parent, Merger Sub and Company acknowledge and agree that the terms and
conditions described in this Agreement, including its existence, as well as the
non-public information and data furnished to them or their respective
Representatives from the first introduction of the parties and throughout the
negotiation and drafting of this Agreement is confidential and will not be
disclosed to any third party, or used for any purpose not specifically contemplated
herein, without prior written consent of the other party, unless otherwise
required by Law or unless it ceases to be confidential through no breach of the
receiving party.

 

5.3
     Expenses.  Whether or not the
transactions contemplated hereby are consummated, each of Parent, Merger Sub
and Company will be responsible for their own fees and expenses incurred in
connection with this Agreement including all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties (“Third Party Expenses”) that may be
engaged by Parent, Merger Sub and Company, incurred by a third party in
connection with the negotiation and effectuation of the terms and conditions of
the transactions contemplated hereby, including this Agreement, and the
transactions contemplated hereby, and will be the obligation of the respective
party incurring such Third Party Expenses.

 

5.4           Approvals. The Company and
Parent will cooperate and use commercially reasonable efforts to obtain the
Approvals, if any, from Governmental or Regulatory Authorities or under any of
the Contracts or other agreements as may be required in connection with the
transactions contemplated hereby as to preserve all rights of and benefits to
the Company thereunder. Parent will provide the Company with such assistance
and information as is reasonably required to obtain such Approvals.

 

5.5           Notification of Certain Matters.
The Company will give prompt notice to Parent and Merger Sub, and Parent and
Merger Sub will give prompt notice to the Company, of (i) the occurrence or
non-occurrence of any event, the occurrence or nonoccurrence of which is likely
to cause any representation or warranty of the Company, Certain Company
Shareholders, or the Parent or Merger Sub, respectively, contained in this
Agreement to be untrue or inaccurate at or prior to the Closing Date and (ii)
any failure of the Company, Certain Company Shareholders, or Parent or Merger
Sub, as the case may be, to comply with or satisfy any covenant, condition or
agreement to

 

26

 

be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.5 will not limit or otherwise affect any remedies available to
the party receiving such notice.

 

5.6           Additional Documents and Further
Assurances. Each party hereto, at the request of the other party hereto,
will execute and deliver such other instruments and documents and do and
perform such other acts and things (including, but not limited to, all action
reasonably necessary to seek and obtain any and all consents and approvals of
any Government or Regulatory Authority or Person, if any are necessary
hereunder; provided, however, that Parent will not be obligated to consent to
any divestitures or operational limitations or activities in connection
therewith and no party will be obligated to make a payment of money as a
condition to obtaining any such condition or approval) as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.

 

5.7           Company’s Accountants. 
If the Closing Date occurs before December 31, 2007, the Company will use
commercially reasonable efforts to cause its management and its accountants to
facilitate on a timely basis (i) the preparation of audited financial
statements prepared in accordance with GAAP for the years ended December 31,
2005 and 2006, (ii) the review, 
pursuant to the requirements promulgated by the Public Company Accounting
Oversight Board of the Company’s financial statements for the nine months ended
September 30, 2007 (iii) the delivery of such reports from the Company’s
independent accountants to Parent prior to December 31, 2007. If the
Closing Date occurs on or after December 31, 2007  the Company will use commercially reasonable
efforts to cause its management and its accountants to facilitate on a timely
basis (i) the preparation of audited financial statements prepared in accordance
with GAAP for the years ended and ending December 31, 2006 and 2007
respectively and (ii) the delivery of such reports from the Company’s
independent accountants to Parent prior to March 1, 2008.  In addition if
the Closing Date occurs prior to December 31, 2007 for the purposes of the
requirements of Internal Revenue Service Revenue Ruling 59-60 and the
accounting requirements pursuant to the accounting for business combinations,
the Company shall deliver no later than December 31, 2007 a balance sheet of
the Company as of the Closing Date (the “Closing
Date Balance Sheet”) that has been reviewed and approved by its
independent accounting firm. If the Closing Date occurs on December 31, 2007 or
later the Closing Date Balance Sheet will be delivered to Parent no later than
ten (10) days following the Closing Date.

 

5.8           Conveyance Taxes. Parent,
Merger Sub, and the Company will cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents
regarding any sales, use, transfer, value added, and stock transfer, any
transfer, recording, registration and other fees, and any similar Taxes which
become payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Closing.

 

5.9           Commercially Reasonable Efforts.
Each party hereto will use its commercially reasonable efforts to perform and
fulfill all obligations to be performed and fulfilled under this Agreement, and
to cause all conditions precedent to the consummation of the transactions to be
timely satisfied, to the end that the transactions contemplated by this
Agreement will be consummated substantially in accordance with its terms.

 

27

 

5.10         Breach of Representations,
Warranties, Agreements and Covenants. Subject to its rights under Section
8.1, each party hereto will not voluntarily take, or fail to take, any action
which from the date hereof through the Closing would cause or constitute a
material breach of any of its representations, warranties, agreements and
covenants set forth in this Agreement. In the event of, and promptly after
becoming aware of, the actual, pending or threatened occurrence of any event
which would cause or constitute such a breach or inaccuracy, such party will give
detailed notice thereof to the other parties hereto and will use its
commercially reasonable efforts to prevent or promptly remedy such breach or
inaccuracy.

 

5.11         Agreement to Defend and Indemnify.

 

(a)           Parent will cause all rights to
indemnification by the Company in favor of each present and former officer or
director of the Company (hereinafter referred to as the “Company Indemnified Parties”) as
provided in the Company’s Articles of Incorporation or Bylaws (or both) or
similar constitutive documents or pursuant to other instruments or agreements,
including insurances, in effect on the date hereof, to survive the Closing and
to continue in full force and effect following the Closing Date until the
expiration of the applicable statute of limitations.

 

(b)           Subject to the terms set forth
herein, Parent will, as an absolute and unconditional guarantor of performance
and payment, and will cause the Company to, indemnify and hold harmless, to the
fullest extent permitted under applicable Law (and will also advance expenses
as incurred by a Company Indemnified Party to the fullest extent permitted
under applicable Law), each Company Indemnified Party against any costs or
expenses (including reasonable legal fees and expenses) judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to any action, alleged action, omission or alleged omission by such Company
Indemnified Party on or prior to the Closing Date (including any claims,
action, suits, proceedings and investigations which arise out of or relate to
the transactions contemplated by this Agreement) until the expiration of the
applicable statute of limitations; provided that, in the event any claim,
action, suit, proceeding or investigation is asserted or made or otherwise
becomes known to Parent or the Company or is commenced prior to the expiration
of the applicable statute of limitations, all rights to indemnification in
respect of any such claim, action, suit, proceeding or investigation will
continue until the final disposition thereof.

 

(c)           The covenants contained in this
Section 5.11 will survive the Closing Date until fully discharged and are
intended to benefit the Company Shareholders and each of the Company
Indemnified Parties.

 

28

 

ARTICLE 6

 

CONDITIONS
TO THE ACQUISITION

 

6.1           Conditions to Obligations of Each
Party to Effect the Merger. The respective obligations of each party to
this Agreement to effect the transactions contemplated hereby will be subject
to the satisfaction at or prior to the Closing of the following conditions:

 

(a)           No Injunctions or
Regulatory Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court of
competent jurisdiction or Governmental or Regulatory Authority or other legal
or regulatory restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect; nor shall there be any
action taken, or any Law or Order enacted, entered, enforced or deemed
applicable to the transactions contemplated hereby or the other transactions
contemplated by the terms of the Agreement that would prohibit the consummation
of the transactions contemplated hereby or which would permit consummation of
the transactions contemplated hereby only if certain divestitures were made or
if Parent and Merger Sub were to agree to limitations on its business
activities or operations.

 

(b)           Existence of Board
Approval. Each party will provide to the other party certified
copies of Board minutes or consents, or certified extracts thereof, indicating
Board approval has been granted on or prior to the date hereof for the
satisfaction of all obligations hereunder and the consummation of the
transaction.

 

(c)           Tax Liabilities. The
tax liabilities disclosed in Section 2.10(p) above are paid in full prior to or
contemporaneous with Closing.

 

(d)           Loan. The debt
restructuring and loan as set forth in Section 6.3(n) is in place as of
Closing.

 

6.2       Additional Conditions
to Obligations of the Company and Certain Company Shareholders. The
obligations of the Company and Certain Company Shareholders to effect the
transactions contemplated hereby will be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by the Company and Certain Company Shareholders:

 

(a)           Representations and
Warranties. Each of the representations and warranties made by
Parent and Merger Sub in this Agreement shall be materially true and correct
when made and on and as of the Closing Date as though such representation or
warranty was made on and as of the Closing Date, except that any representation
or warranty that expressly speaks as of a specified date earlier than the
Closing Date shall have been true and correct on and as of such earlier date,
and further provided that Parent and Merger Sub shall be permitted to update,
revise, supplement and/or correct the Schedules through the Closing Date.

 

(b)           Performance. Parent
and Merger Sub shall have performed and complied with each agreement, covenant
and obligation required by this Agreement to be so performed or complied with
by Parent and Merger Sub at or before the Closing Date.

 

(c)           Officers’ Certificates.
Each of Parent and Merger Sub will have delivered to the Company a certificate
or certificates, dated the Closing Date and executed by its respective

 

29

 

President
and/or its Chief Executive Officer, certifying as to the resolutions delivered
pursuant to Section 6.1(b) and Parent’s and Merger Sub’s compliance with the
condition set forth in Section 6.2(a).

 

(d)           Non-Competition and
Employment Agreements. Parent and/or the Company shall have executed
and delivered to each member of the Senior Management Team as listed Schedule
1.16 Part II, an employment and non-competition agreement (each, a “Non Competition and Employment Agreement”).

 

(e)           Legal Proceedings.
No Governmental or Regulatory Authority will have notified any party to this
Agreement that it intends to commence proceedings to restrain or prohibit the
transactions contemplated hereby or force rescission, unless such Governmental
or Regulatory Authority will have withdrawn such notice and abandoned any such
proceedings prior to the time which otherwise would have been the Closing Date.

 

(f)            Proceedings and Documents.
All corporate and other proceedings in connection with the transactions
contemplated hereby and all documents and instruments incident to such
transactions will be in form and substance reasonably satisfactory to the
Company and its counsel, and the Company will have received all such
counterpart originals or certified or other copies of such documents as they
may reasonably request.

 

6.3           Additional Conditions to the
Obligations of Parent and Merger Sub. The obligations of Parent and Merger
Sub to effect the transactions contemplated hereby will be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent and
Merger Sub:

 

(a)           Representations and
Warranties. Each of the representations and warranties made by the
Company and Certain Company Shareholders in this Agreement shall be materially
true and correct when made and on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date, except that
any representation or warranty that expressly speaks as of a specified date
earlier than the Closing Date shall have been true and correct on and as of
such earlier date, and further provided that Company and the Certain Company
Shareholders shall be permitted to update, revise, supplement and/or correct
the Schedules through the Closing Date.

 

(b)           Performance. The
Company shall have performed and complied with each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
the Company on or before the Closing Date.

 

(c)           Officers’ Certificates.
The Company and Certain Company Shareholders shall have delivered to Parent and
Merger Sub a certificate or certificates, dated the Closing Date and executed
by the President and/or the Chief Executive Officer of the Company, certifying
as to the resolutions delivered pursuant to Section 6.1(b) and Company’s and
the Certain Company Shareholders’ compliance with the condition set forth in
Section 6.3(a).

 

(d)           Third Party Consents.
Parent and Merger Sub will have been furnished with evidence satisfactory to
them that the Company has obtained the consents, approvals and waivers, if any,
listed in Schedule 2.28(b).

 

30

 

(e)           Non-Competition and
Employment Agreements. Each of the members of the Senior Management
Team shall have executed and delivered to Parent, Company, and/or Merger Sub a
Non-Competition and Employment Agreement.

 

(f)            No Material Adverse Change.
There will have occurred no Material Adverse Change in the Business or
Condition of the Company since the date hereof.

 

(g)           Legal Proceedings.
No Governmental or Regulatory Authority will have notified any party to this
Agreement that it intends to commence proceedings to restrain or prohibit the
transactions contemplated hereby or force rescission, unless such Governmental
or Regulatory Authority will have withdrawn such notice and abandoned any such
proceedings prior to the time which otherwise would have been the Closing Date.

 

(h)           Employees. Not
less than 95% of those employees listed in Schedule 2.19(b), will be
employed by the Company at the Closing (and will have not given any notice or
other indication that they will not continue to be willing to be employed by
the Company as a wholly-owned subsidiary of Parent following the transactions
contemplated hereby). Each employee of the Company to be employed by Company as
a wholly-owned subsidiary of Parent following the Closing shall have executed
Parent’s standard form Proprietary Rights and Inventions Assignment Agreement,
substantially in the form set forth in Exhibit B hereto.

 

(i)            Proceedings and Documents.
All corporate and other proceedings in connection with the transactions
contemplated hereby and all documents and instruments incident to such
transactions will be in form and substance reasonably satisfactory to Parent
and Merger Sub and their counsel, and Parent and Merger Sub will have received
all such counterpart originals or certified or other copies of such documents
as they may reasonably request.

 

(j)            Equity Equivalents.
There will be no un-expired and unexercised Equity Equivalents of the Company
outstanding as of the Closing.

 

(k)           Sub-S Election.  Company shall have filed a timely
termination of its election to be treated as an S Corporation with the
appropriate office of the Internal Revenue Service.

 

(l)            Audit Completion.  The Company will deliver to Parent
the audit financials for year ending December 31, 2006 no later than December 15,
2007.

 

(m)          Working Capital and Third
Party Debt.  The Company will
have minimum working capital on hand of $500,000 (based on the Company’s
unaudited 9-30-2007 financial statement and based on restructuring of Company
debt as of Closing) and no more than $2,339,000 of third party debt. If either
of these conditions are violated, then there will be a dollar for dollar
reduction in the cash consideration to be paid from the $3,500,000 as pursuant
in 1.6(a)(ii) by reducing such consideration by a dollar for (i) each dollar
under $478,928 (as adjusted per above) of working capital and by (ii) each
dollar over $2,339,000 of third-party debt, all as of Closing. Parent
acknowledges and agrees that Company will not meet the working capital
threshold required herein at Closing without debt restructuring facilitated by
Parent at Closing.

 

31

 

(n)           Restructure of Debt.  The Company’s debt as outlined in
the Company financials, Schedule 2.6(a), will be restructured by the Closing
Date through a loan from Parent or an affiliate of Parent of $2,339,000.

 

(o)           Note to Shareholder.  One half of the CRI shareholder
debt ($416,312) will be converted to Parent Common Stock and such shares are
deemed to be included in the 5,900,000 equivalent shares of Parent Common Stock
identified in the Merger Consideration and the remaining one half of the
shareholder debt ($416,312) will be renegotiated to a weighted average cost of
debt of 5% require payback to the shareholder(s) entitled to payment for such
debt with interest at the rate of 5% per annum, interest only payments for 18
months and then an ultimate payment of all interest and principal due and owing
to the shareholder(s) upon the expiration of 18 months from Closing.

 

(p)           Note from Academic
Accelerator.  The investment
in Academic Accelerator asset as noted on the CRI books at Closing will be
converted from a receivable from Academic Accelerator to an unsecured note from
Academic Accelerator. Such note with interest accrued but not paid will include
a provision to be converted to equity in Academic Accelerator at the end of
three years and the number of shares or ownership percentage will be based on a
fair market valuation of the Academic Accelerator business.

 

ARTICLE 7

SURVIVAL OF REPRESENTATIONS, WARRANTIES,

COVENANTS AND AGREEMENTS; INDEMNIFICATION

 

7.1           Survival of Representations,
Warranties, Covenants and Agreements. The representations and warranties
set forth in Articles 2 and 3 will survive until the first anniversary of the
Closing Date; provided, however that the representations and warranties in (i)
Sections 2.3, 2.15, 2.16, 2.21, 3.2, 3.16, 3.17, 3.22 and (ii) the
representations and warranties contained in Sections 2.11 will survive until
the expiration of the statute of limitations applicable to claims with respect
to the matters covered thereby. The one-year limitation in this Section 7.1
will not apply under circumstances involving direct personal participation in
fraud or willful misconduct by such party, in which case a limitation equal to
the statute of limitations will apply.

 

7.2           Indemnification.

 

(a)           The Certain Company Shareholders will
jointly and severally indemnify and hold harmless Parent, Merger Sub and their
respective officers and directors (hereinafter referred to individually as a “Parent Indemnified Person” and
collectively as “Parent Indemnified
Persons”) from and against any and all Losses arising out of any
misrepresentation or breach of the representations, warranties, covenants and
agreements given or made by the Company or any Certain Company Shareholder in
this Agreement, or any certificate, instrument or document delivered by the
Company or any Certain Company Shareholder pursuant to this Agreement;
provided, however, that no Certain Company Shareholder will be liable for
indemnification under this Section 7.2 for fraud or misrepresentation committed
by any other Certain Company Shareholder.

 

32

 

(b)           Parent shall indemnify and hold
harmless each of the Certain Company Shareholders (each, a “Certain Company Indemnified Person”
and, collectively, “Certain Company
Indemnified Persons”) from and against any and all Losses
arising out of any misrepresentation or breach of the representations,
warranties, covenants and agreements given or made by the Parent or Merger Sub
in this Agreement, or any certificate, instrument or document delivered by the
Parent or Merger Sub pursuant to this Agreement.

 

7.3           Third-Party Claims. In the
event a Parent Indemnified Person(s) or Certain Company Indemnified Person(s)
(each, an “Indemnified Party” and,
collectively, the “Indemnified Parties”)
becomes aware of a third-party claim based on any misrepresentation or breach
of or default in connection with any of the representations, warranties,
covenants and agreements given or made by the other party in this Agreement
(each, an “Indemnifying Party”), which
the Indemnified Party believes may result in a claim against it (a “Third Party Claim”), the
Indemnified Party will promptly notify the Indemnifying Party of such Third
Party Claim. By written notice to the Indemnified Party within twenty (20) days
after delivery of notice of such a claim, the Indemnifying Party’s
representative (on behalf of the Indemnifying Party) will be entitled, at the
Indemnifying Party’s expense, to participate in any defense of such claim by
the Indemnified Party, which will direct the defense and settlement of such
claims. Notwithstanding the foregoing, however, the Indemnified Party may
consent to a settlement or compromise of, or the entry of any judgment arising
from, the Third Party Claim without the prior written consent of the
Indemnifying Party if, and only if, the proposed settlement, compromise, or
judgment: (a) does not contain an admission of guilt or wrongdoing on the part
of the Indemnifying Party; and (b) does not provide for any remedy or sanction
against the Indemnifying Party other than the payment of money which the
Indemnifying Party agrees and is able to pay. In the event that the Indemnifying
Party has consented to any such settlement amount, the Indemnifying Party will
have no power or authority to object under any provision of this Article 7 to
any claim by the Indemnified Party for indemnity with respect to such
settlement amount.

 

7.4           Recovery of Losses.

 

(a)           Subject to the limitations in Section
7.6 below: (i) a Parent Indemnified Person will recover any claim for indemnity
under Sections 7.2 or 7.3 relating to breaches of representations or warranties
directly from any breaching Certain Company Shareholder, who will be
individually liable for such amounts; (ii) a Parent Indemnified Person will
recover all claims for indemnity under Sections 7.2 or 7.3, directly from the
Certain Company Shareholders, who will be jointly and severally liable for such
amounts.

 

(b)           No claim by a Parent Indemnified
Person for indemnity under Sections 7.2 or 7.3 relating to breaches of
representations or warranties will be recoverable unless the aggregate amount
owing exceeds ten thousand dollars ($10,000) per occurrence.

 

7.5           Contribution. To the extent
that a Certain Company Shareholder, pursuant to the provisions of Section
7.4(b), is required to pay more than his pro rata interest in the Merger
Consideration issued to all Company Shareholders pursuant to this Agreement,
such Certain Company Shareholder will be entitled to seek and obtain
proportional contribution from the other Certain Company Shareholders.

 

33

 

7.6           Limitations on Claims. Notwithstanding
anything herein to the contrary, the obligations of each Certain Company
Shareholder arising under this Article 7 will be limited to valid written
claims received by the Certain Company Shareholders within twelve (12) months
of the Effective Time, and will be deemed fully satisfied by surrender of that
portion of Parent’s Shares received by such Certain Company Shareholder in
connection with the Merger, valued at their then current fair market value,
necessary to satisfy such Certain Company Shareholder’s pro rata portion of
such obligations but subject to the following sentence. Notwithstanding
anything herein to the contrary, in no event will the total aggregate
indemnification obligation for all claims cumulatively arising under this
Article 7 require the surrender of more than two percent (2%) of the pro rata
portion of Parent’s Shares received by such Certain Company Shareholder
pursuant to Section 1.6(a)(i), regardless of the then current fair market value
of such Parent’s Shares. The indemnification mechanism provided for by this
Article 7 shall be the sole remedy for breaches of representations or
warranties under this Agreement.

 

ARTICLE 8

TERMINATION, AMENDMENT AND WAIVER

 

8.1           Termination. Except as
provided in Section 8.2 below, this Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing:

 

(a)           by mutual agreement of the Company
and the Certain Company Shareholders and Parent and Merger Sub;

 

(b)           by Parent and Merger Sub or the
Company (or with respect to the obligations of any particular Certain Company
Shareholder, such Certain Company Shareholder) if (i) the Closing has not
occurred before 10:00 am (Eastern Standard Time) on the date which is 60 days
after the date of this Agreement or on such later date as the parties hereto
may mutually agree (provided, however, that the right to terminate this
Agreement under this sub clause 8.1(b) (i) will not be available to any party
whose willful failure to fulfill any obligation hereunder has been the cause
of, or resulted in, the failure of the Closing to occur on or before such
date); (ii) there will be a final nonappealable order of United States federal
or state court in effect preventing consummation of the transactions
contemplated hereby; or (iii) there will be any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the transactions
contemplated hereby by any Governmental or Regulatory Authority that would make
consummation of the transactions contemplated hereby illegal;

 

(c)           by Parent and Merger Sub if there
shall be any action taken, or any Law or Order enacted, promulgated or issued
or deemed applicable to the transactions contemplated hereby, by any
Governmental or Regulatory Authority, which would: (i) prohibit Parent’s
ownership or operation of all or any material portion of the business of the
Company or (ii) compel Parent or the Surviving Corporation to dispose of or
hold separate all or a substantial portion of the Assets and Properties of the
Company as a result of the transactions contemplated hereby;

 

(d)           by Parent and Merger Sub if there has
been a breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the Company or Certain Company Shareholders
and (i) the Company or Certain Company Shareholders, as the case may be, have
not cured such breach within thirty (30) days following receipt by the Company
or

 

34

 

Certain
Company Shareholders, as the case may be, of written notice of such breach or
is not using its reasonable efforts to cure such breach after written notice of
such breach to the Company or Certain Company Shareholders, as the case may be,
(provided, however, that, no cure period will be required for a breach which by
its nature cannot be cured) and (ii) as a result of such breach the conditions
set forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be
satisfied;

 

(e)           by the Company if there has been a
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Parent or Merger Sub and (i) Parent or Merger Sub have
not cured such breach within thirty (30) days following receipt by the Company
of written notice of such breach or is not using its reasonable efforts to cure
such breach after written notice of such breach to Parent or Merger Sub
(provided, however, that no cure period will be required for a breach which by
its nature cannot be cured), and (ii) as a result of such breach the conditions
set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be
satisfied;

 

8.2           Effect of Termination. In the
event of a valid termination of this Agreement as provided in Section 8.1, this
Agreement will forthwith become void and there will be no liability or
obligation on the part of Parent, Merger Sub, Certain Company Shareholders, or
the Company, or their respective officers, directors or shareholders or
Affiliates or Associates; provided, however, that the provisions of Sections
5.2, 5.3, 5.4, 8.2, 9.6, 9.9, 9.10 and 9.11 of this Agreement will remain in
full force and effect and survive any termination of this Agreement.

 

ARTICLE 9

MISCELLANEOUS PROVISIONS

 

9.1           Notices. All notices, requests
and other communications hereunder must be in writing and will be deemed to
have been duly given only if delivered personally against written receipt or
mailed by prepaid first class registered or certified mail, return receipt
requested, or sent by overnight courier prepaid, to the parties at the
following addresses or facsimile numbers:

 

If to Parent or Merger Sub to:

Francis E. Wilde, Chairman & CEO

Shea Development Corp.

3452 Lake Lynda Drive, #350

Orlando, Florida 32817

Telephone:   407-282-3545

Facsimile:    407-249-0089

 

with a copy to:

Francis J. Mooney, Jr. / Robert T. Lincoln

Dunnington, Bartholow & Miller LLP

477 Madison Avenue, 12th Floor

New York, NY 10022

Telephone:   212-682-8811

Facsimile:    212-661-7769

 

 

35

 

If to the Company or Certain Company Shareholders to:

Mr. Gary Brookshier

CEO and President

CRI Advantage, Inc.

12754 W. LaSalle

Boise, ID 83713

 

with a copy to:

David P. McAnaney

McAnaney & Associates, PLLC

1101 W. River Street, Suite 100

Boise, Idaho 83702

Telephone:   208-344-7500

Facsimile:    208-344-7501

 

9.2           Entire Agreement. This
Agreement supersedes all prior discussions and agreements between the parties
with respect to the subject matter hereof and thereof and contains the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof. Except for the representations and warranties contained in
this Agreement or in any instrument delivered pursuant to this Agreement, each
of the parties to this Agreement acknowledges that no other representations or
warranties have been relied upon by that party or made by any other party or
its officers, directors, employees, agents, financial and legal advisors or
other representatives.

 

9.3           Further Assurances; Post-Closing
Cooperation. At any time or from time to time after the Closing, the
parties will execute and deliver to the other party such other documents and
instruments, provide such materials and information and take such other actions
as the other party may reasonably request to consummate the transactions
contemplated by this Agreement and otherwise to cause the other party to
fulfill its obligations under this Agreement and the transactions contemplated
hereby. Each party agrees to use commercially reasonable efforts to cause the
conditions to its obligations to consummate the transactions contemplated
hereby to be satisfied.

 

9.4           Amendment. This Agreement may
be amended by the parties hereto at any time before the Closing by execution of
an instrument in writing signed on behalf of each of the parties hereto and
after the Closing by execution of an instrument in writing signed on behalf of
Parent, the Surviving Corporation and each of the Certain Company Shareholders.

 

9.5           Extension. At any time prior
to the Closing, Parent, Merger Sub, Certain Company Shareholders and the
Company may, to the extent legally allowed, extend the time for the performance
of any of the obligations of the other party hereto.

 

9.6           Waiver. Any term or condition
of this Agreement may be waived at any time by the party that is entitled to
the benefit thereof, but no such waiver will be effective unless set forth in a
written instrument duly executed by or on behalf of the party waiving such term
or condition. No waiver by any party of any term or condition of this
Agreement, in any one or more instances, will be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion. All remedies, either under this Agreement or by Law or
otherwise afforded, will be cumulative and not alternative.

 

36

 

9.7           Third Party Beneficiaries. The
terms and provisions of this Agreement are intended solely for the benefit of
each party hereto and their respective successors or permitted assigns, and it
is not the intention of the parties to confer third-party beneficiary rights,
and this Agreement does not confer any such rights, upon any other Person other
than any Person entitled to indemnity as described in Article 7.

 

9.8           No Assignment; Binding Effect.
Neither this Agreement nor any right, interest or obligation hereunder may be
assigned (by operation of law or otherwise) by any party without the prior
written consent of the other parties and any attempt to do so will be void. Subject
to the preceding sentence, this Agreement is binding upon, inures to the
benefit of and is enforceable by the parties hereto and their respective
successors and assigns.

 

9.9           Headings. The headings and
table of contents used in this Agreement have been inserted for convenience of
reference only and do not define or limit the provisions hereof.

 

9.10         Invalid Provisions. If any
provision of this Agreement is held to be illegal, invalid or unenforceable
under any present or future law, and if the rights or obligations of any party
hereto under this Agreement will not be materially and adversely affected
thereby, (a) such provision will be fully severable, (b) this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom and
(d) in lieu of such illegal, invalid or unenforceable provision, there will be
added automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.

 

9.11         Governing Law. This Agreement
will be governed by and construed in accordance with the domestic laws of the
State of New York, without giving effect to any choice of law or conflict of
law provision. The parties hereto expressly and irrevocably consent and submit
to the exclusive jurisdiction of the applicable local, federal, or appellate
courts located in New York, New York, in connection with any proceeding arising
from or out of this Agreement. Each party agrees that such courts shall be
deemed to be a convenient forum in any such legal proceeding, and agrees not to
assert (by way of motion, as a defense or otherwise) any claim that such party
is not subject personally to the jurisdiction of any such courts, that such
legal proceeding has been brought in an inconvenient forum, that the venue of
such legal proceeding is improper or, that this Agreement or the subject matter
hereof may not be enforced in, or by, any such courts.

 

9.12         Construction. The parties hereto
agree that this Agreement is the product of negotiation between sophisticated
parties and individuals, all of whom were represented by counsel, and each of
whom had an opportunity to participate in and did participate in, the drafting
of each provision hereof. Accordingly, ambiguities in this Agreement, if any,
will not be construed strictly or in favor of or against any party hereto but
rather will be given a fair and reasonable construction without regard to the
rule of contra proferentum.

 

9.13         Counterparts. This Agreement may
be executed in any number of counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument.

 

37

 

9.14                           Specific
Performance. The parties hereto agree that irreparable damage would occur
in the event that Section 5.2 of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is agreed
that the parties will be entitled to an injunction or injunctions to prevent
breaches of Section 5.2 of this Agreement and to enforce specifically the terms
and provisions thereof in any court having jurisdiction, this being in addition
to any other remedy to which they are entitled at law or in equity.

 

ARTICLE 10

DEFINITIONS

 

10.1                           Definitions.

 

(a)                                  As
used in this Agreement, the following defined terms will have the meanings
indicated below:

 

“$” means United States Dollars
unless otherwise indicated.

 

“Actions or Proceedings” means
any action, suit, petition, investigation, proceeding, arbitration, litigation
or Governmental or Regulatory Authority investigation, audit or other
proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental or Regulatory Authority.

 

“Affiliate” means, as applied
to any Person, (a) any other Person directly or indirectly controlling,
controlled by or under common control with, that Person, (b) any other Person
that owns or controls 10% or more of any class of equity securities of that
Person or any of its Affiliates (including any equity securities issuable upon
the exercise of any option or convertible security) of that Person or any of
its Affiliates, or (c) any director, partner or officer of such Person. For the
purposes of this definition, “control” (including with correlative meanings,
the terms “controlling”, “controlled by”, and “under common control with”) as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through ownership of voting securities or by contract or
otherwise.

 

“Agreement” means this
Agreement and Plan of Merger, the Schedules the Exhibits, and the certificates
and instruments delivered in connection herewith, or incorporated by reference,
as the same may be amended or supplemented from time to time in accordance with
the terms hereof.

 

“Alternative Acquisition” has
the meaning ascribed to it in Section 4.2.

 

“Approval” means any approval,
authorization, consent, permit, qualification or registration, or any waiver of
any of the foregoing, required to be obtained from or made with, or any notice,
statement or other communication required to be filed with or delivered to, any
Governmental or Regulatory Authority or any other Person.

 

“Assets and Properties” of any
Person means all assets and properties of every kind, nature, character and
description (whether real, personal or mixed, whether tangible or intangible,
whether absolute, accrued, contingent, fixed or otherwise and wherever
situated), including the goodwill related thereto, operated, owned, licensed or
leased by such Person, including cash, cash

 

38

 

equivalents, Investment Assets, accounts and notes receivable, chattel
paper, documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.

 

“Associate” means, with respect
to any Person, any corporation or other business organization of which such
Person is an officer or partner or is the beneficial owner, directly or
indirectly, of 10% or more of any class of equity securities, any trust or
estate in which such Person has a substantial beneficial interest or as to which
such Person serves as a trustee or in a similar capacity and any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.

 

“Benefit Plan” means an
employee benefit plan maintained by any of Company, Parent or Merger Sub.

 

“Books and Records” means all
files, documents, instruments, papers, books and records relating to the
Business or Condition of the Company, including financial statements, internal
reports, Tax Returns and related work papers and letters from accountants,
budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute
books, stock certificates and books, stock transfer ledgers, Contracts,
Licenses, customer lists, computer files and programs (including data
processing files and records), retrieval programs, operating data and plans and
environmental studies and plans.

 

“Business Combination” means,
with respect to any Person, (i) any amalgamation, consolidation, merger or
other business combination to which such Person is a party, (ii) any sale or
other disposition of any capital stock or other equity interests of such
Person, (iii) any tender offer (including a self tender), exchange offer,
recapitalization, restructuring, liquidation, dissolution or similar or
extraordinary transaction, (iv) any sale, dividend or other disposition of all
or a material portion of the Assets and Properties of such Person or (v) the
entering into of any agreement or understanding, the granting of any rights or
options, or the acquiescence of the Person, with respect to any of the
foregoing.

 

“Business Day” means a day
other than Saturday, Sunday or any day on which banks located in the State of
New York are authorized or obligated to close.

 

“Business or Condition of Parent or Merger Sub”
means the business, condition (financial or otherwise), results of operations,
prospects or Assets and Properties of Parent or Merger Sub and each of its
Subsidiaries, taken as a whole.

 

“Business or Condition of the Company”
means the business, condition (financial or otherwise), results of operations,
prospects or Assets and Properties of the Company, taken as a whole.

 

“Certain Company Indemnified Person(s)”
has the meaning ascribed to it in Section 7.2(b).

 

“Certain Company Shareholders”
is defined as Gary Brookshier, Monte Brookshier and Toby Tobaccowala who
combined own all of the Company’s Class B Common Shares.

 

“Certificates” has the meaning
ascribed to it in Section 1.7.

 

39

 

“Closing” has the meaning
ascribed to it in Section 1.2.

 

“Closing Date” has the meaning
ascribed to it in Section 1.2.

 

“Code” means the Internal
Revenue Code of 1986, as amended, and the rules and regulations promulgated
thereunder.

 

“Company” has the meaning
ascribed to it in the forepart of this Agreement.

 

“Company Common Stock” has the
meaning ascribed to it in the Recitals to this Agreement.

 

 “Company
Financials” means the audited financial statements (balance
sheet and statements of operations and cash flow, including schedules and notes
thereto) of the Company as of and for the periods ended December 31, 2004,
December 31, 2005 and December 31, 2006.

 

“Company Indemnified Parties”
has the meaning ascribed to it in Section 5.11(a).

 

“Company Intellectual Property”
means any Intellectual Property of commercial value that is (i) owned by; (ii)
licensed to; or (iii) was developed or created by or for the Company.

 

“Company Option(s)” has the
meaning ascribed to it in Section 2.3.

 

“Company Option Holders” has
the meaning ascribed to it in Section 2.3.

 

“Company Shareholders” has the
meaning ascribed to it in the forepart of this Agreement.

 

“Confidential Information” has
the meaning ascribed to it in Section 2.15(h).

 

“Contract” means any material
contract, including without limitation:

 

(i)                                     any
distributor, sales, advertising, agency or manufacturer’s representative
contract;

 

(ii)                                  any
continuing contract for the purchase of materials, supplies, equipment or
services involving in the case of any such contract more than $5,000 over the life
of the contract;

 

(iii)                               any
contract that expires or may be renewed at the option of any person other than
the Company so as to expire more than one year after the date of this
Agreement;

 

(iv)                              any
trust indenture, mortgage, promissory note, loan agreement or other contract
for the borrowing of money, any currency exchange, commodities or other hedging
arrangement or any leasing transaction of the type required to be capitalized
in accordance with generally accepted accounting principles;

 

(v)                                 any
contract for capital expenditures in excess of $5,000 in the aggregate;

 

40

 

(vi)                              any
contract limiting the freedom of the Company to engage in any line of business
or to compete with any other Person;

 

(vii)                           any
contract pursuant to which the Company is a lessor of any machinery, equipment,
motor vehicles, office furniture, fixtures or other personal property having an
original cost of more than $25,000;

 

(viii)                        any
contract with any person with whom the Company does not deal at arm’s length;
or

 

(ix)                                any
agreement of guarantee, support, indemnification, assumption or endorsement of,
or any similar commitment with respect to, the obligations, liabilities
(whether accrued, absolute, contingent or otherwise) or indebtedness of any
other Person.

 

“Effective Date” has the
meaning ascribed to it in Section 1.2.

 

“Effective Time” has the
meaning ascribed to it in Section 1.2.

 

“Eligible Option” has the
meaning ascribed to it in Section 1.6(b).

 

“Equity Equivalents” means
securities (including Options) which, by their terms, are or may be
exercisable, convertible or exchangeable for or into common shares, preferred
shares, or other securities of the Company at the election of the holder
thereof.

 

“Financial Statement Date”
means December 31, 2006.

 

“GAAP” means accounting
principles generally accepted in the United States, as in effect from time to
time.

 

“Governmental or Regulatory Authority”
means any court, tribunal, arbitrator, authority, agency, bureau, board,
commission, department, official or other instrumentality of the United States,
any foreign country or any domestic or foreign state, county, city or other
political subdivision.

 

“Income Tax” means (i) any
income, alternative or add-on minimum tax, gross income, gross receipts,
franchise, profits, including estimated taxes relating to any of the foregoing,
or other similar tax or other like assessment or charge of similar kind
whatsoever, excluding any Other Tax, together with any interest and any
penalty, addition to tax or additional amount imposed by any Taxing Authority
responsible for the imposition of any such Tax (domestic or foreign); or (ii)
any liability of a Person for the payment of any taxes, interest, penalty,
addition to tax or like additional amount resulting from the application of
Treas. Reg. § 1,1502-6.

 

“Indebtedness” of any Person
means all obligations of such Person (a) for borrowed money, (b) evidenced by
notes, bonds, debentures or similar instruments, (c) for the deferred purchase
price of goods or services (other than trade payables or accruals incurred in
the ordinary course of business), (d) under capital leases and (e) in the
nature of guarantees of the obligations described in clauses (a) through (d)
above of any other Person.

 

41

 

“Indemnified Party(ies)” has
the meaning ascribed to it in Section 7.3.

 

“Intellectual Property” means
all trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, patents
and patent rights, utility models and utility model rights, copyrights, mask
work rights, brand names, trade dress, product designs, product packaging,
business and product names, logos, slogans, rights of publicity, trade secrets,
inventions (whether patentable or not), invention disclosures, improvements,
processes, formulae, industrial models, processes, designs, specifications,
technology, methodologies, computer software (including all source code and object
code), firmware, development tools, flow charts, annotations, all Web
addresses, sites and domain names, all data bases and data collections and all
rights therein, any other confidential and proprietary right or information,
whether or not subject to statutory registration, and all related technical
information, the information set forth in manufacturing, engineering and
technical drawings, know-how and all pending applications for and registrations
of patents, utility models, trademarks, service marks and copyrights, and the
right to sue for past infringement, if any, in connection with any of the
foregoing.

 

“Investment Assets” means all
debentures, notes and other evidences of Indebtedness, stocks, securities
(including rights to purchase and securities convertible into or exchangeable
for other securities), interests in joint ventures and general and limited
partnerships, mortgage loans and other investment or portfolio assets owned of
record or beneficially by the Company.

 

“knowledge” or “known to” or any similar phrase means, when used with
respect to: (i) any Person who is an individual, the actual knowledge of such
Person; (ii) the Company, the actual knowledge of Gary Brookshier; and (iii)
the Parent or Merger Sub, the actual knowledge of Francis E. Wilde.

 

“Law” or “Laws”
means any law, statute, order, decree, consent decree, judgment, rule,
regulation, ordinance or other pronouncement having the effect of law whether
in the United States, any foreign country, or any domestic or foreign state, province,
county, city or other political subdivision or of any Governmental or
Regulatory Authority.

 

“Liabilities” means all
Indebtedness, obligations and other liabilities of a Person, whether absolute,
accrued, contingent (or based upon any contingency), known or unknown, fixed or
otherwise, or whether due or to become due.

 

“License” means any Contract
that grants a Person the right to use or otherwise enjoy the benefits of any
Intellectual Property (including without limitation any covenants not to sue
with respect to any Intellectual Property).

 

“Lien” or “Liens”
means any mortgage, pledge, assessment, security interest, lease, lien,
easement, charge or adverse claim or other encumbrance of any kind, or any
conditional sale Contract, title retention Contract or other Contract to give
any of the foregoing, except for any restrictions on transfer generally arising
under any applicable federal, provincial or state securities law.

 

“Loss(es)” means any and all
damages, fines, fees, Taxes, penalties, deficiencies, losses and expenses,
including interest, reasonable expenses of investigation, court costs,
reasonable fees and

 

42

 

expenses of attorneys, accountants and other experts or other expenses
of litigation or other proceedings or of any claim, default or assessment (such
fees and expenses to include all fees and expenses, including fees and expenses
of attorneys, incurred in connection with (i) the investigation or defense of
any Third Party Claims or (ii) asserting or disputing any rights under this
Agreement against any party hereto or otherwise).

 

“Material Adverse Change”
means, when used with respect to:

 

(a)                                  the
Company, any change in the financial condition and operation of the Company
that would either individually or, if aggregated with other effects on the
financial condition of the Company, result in a deterioration of the balance
sheet of the Company by an amount equal or greater than $250,000.00; or

 

(b)                                 the
Parent, Merger Sub or any of their respective Subsidiaries, any change in the
financial condition and operation of the Parent, Merger Sub or any of their
respective Subsidiaries that would either individually or, if aggregated with
other effects on the financial condition of the Parent, Merger Sub or any of
their respective Subsidiaries, result in a deterioration of the consolidated
balance sheet of the Parent by an amount equal or greater than $500,000.00;

 

(c)                                  provided,
however, that none of the following shall be taken into account in determining
whether there has been or would be a “Material Adverse Effect”: (i) any
adverse change resulting from conditions affecting any nation’s economy
generally, (ii) any adverse change resulting from or relating to
financial, banking or securities markets (including any disruption thereof and
any decline in the price of any security or any market index), (iii) any
adverse change in applicable Laws or the interpretation thereof, (iv) any
adverse change arising primarily out of, or resulting primarily from, actions
taken by any party in connection with (but not in breach of) this Agreement and
the transactions contemplated hereunder, or which is primarily attributable to
the announcement of this Agreement and the Merger (including any litigation,
employee attrition or any loss or postponement of business resulting from
termination or modification of any vendor, customer or other business
relationships, delay of customer order or otherwise and any corresponding
change in the margins, profitability or financial condition of a party), and
(v) any adverse change in any Company business that is cured (including by
the payment of money), to the extent curable, by Company before the earlier of
(a) the Closing Date, or (b) the date on which this Agreement is
terminated pursuant to Article 8 hereof.

 

“Material Adverse Effect” means
any event or condition of any character which results in, has resulted in, or
could reasonably be expected to result in, a Material Adverse Change on the
condition (financial or otherwise), results of operations, assets, liabilities,
properties, or business of a Person and its Subsidiaries, taken as a whole, or
would prevent or unreasonably delay consummation of the transactions
contemplated hereby.

 

“Merger” has the meaning
ascribed to it in the Recitals to this Agreement.

 

“Merger Consideration” has the
meaning ascribed to it in Section 1.6.

 

“Merger Sub” has the meaning
ascribed to it in the forepart of this Agreement.

 

43

 

“Non-Competition and Employment Agreement”
has the meaning ascribed to it in Section 6.2(d).

 

 “Officer’s
Certificate” has the meaning ascribed to it in Sections 6.2 and
6.3 hereof.

 

“Option” with respect to any
Person means any security, right, subscription, warrant, option, “phantom”
stock right or other Contract that gives the right to (i) purchase or otherwise
receive or be issued any shares of capital stock or other equity interests of
such Person or any security of any kind convertible into or exchangeable or
exercisable for any shares of capital stock or other equity interests of such
Person or (ii) receive any benefits or rights similar to any rights enjoyed by
or accruing to the holder of shares of capital stock or other equity interests
of such Person, including any rights to participate in the equity, income or
election of directors or officers of such Person.

 

“Option Cancellation Agreement”
has the meaning ascribed to it in Section 1.6(b).

 

“Option Plan” has the meaning
ascribed to it in Section 1.6(b).

 

“Order” means any writ,
judgment, decree, injunction or similar order of any Governmental or Regulatory
Authority (in each such case whether preliminary or final).

 

“Other Tax” means any sales,
use, ad valorem, business license, withholding, payroll, employment, excise,
stamp, transfer, recording, occupation, premium, property, value added, custom
duty, severance, windfall profit or license tax, governmental fee or other
similar assessment or charge, together with any interest and any penalty,
addition to tax or additional by any Taxing Authority responsible for the
imposition of any such tax (domestic or foreign).

 

“Outstanding Company Shares”
means all issued and outstanding shares of Company Common Stock immediately
prior to the Effective Time plus all shares of Company Common Stock
deemed to be issued upon exercise of all Eligible Options.

 

“Parent” has the meaning
ascribed to it in the forepart of this Agreement.

 

“Parent Common Stock” has the
meaning ascribed to it in the Recitals to this Agreement.

 

“Parent Indemnified Person(s)”
has the meaning ascribed to it in Section 7.2(a).

 

“Parent Preferred Stock” means
the Preferred Stock, par value $.001 per share, of Parent.

 

“Parent’s Shares” has the
meaning ascribed to it in Section 1.6(a)(i).

 

“Participating Company Shares”
shall mean any Outstanding Company Shares other than shares of Company Common
Stock, if any, cancelled pursuant to Section 1.6(d).

 

“Person” means any natural
person, corporation, general partnership, limited partnership, limited
liability company or partnership, proprietorship, other business organization,
trust, union, association or Governmental or Regulatory Authority.

 

44

 

“Registered Intellectual Property”
will mean all United States, international and foreign: (i) patents, patent
applications (including provisional applications); (ii) registered trademarks
and service marks, applications to register trademarks, intent-to-use
applications, other registrations or applications to trademarks or service marks,
or trademarks or service marks in which common law rights are owned or
otherwise controlled; (iii) registered copyrights and applications for
copyright registration; (iv) any mask work registrations and applications to
register mask works; and (v) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued by, filed with, or recorded by, any state, government or other public
legal authority.

 

“Representatives” has the
meaning ascribed to it in Section 4.2.

 

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

 

“Senior Management Team” means
those persons listed in Schedule 1.12(Part I).

 

“Shrink Wrap License Agreements”
means the granting conditions and terms of use that are presumed to be
acknowledged and agreed to by breaking a thermoplastic seal.

 

“Stock Award Plan” has the
meaning ascribed to it in Section 1.13.

 

“Subsidiary” of any specified
Person shall mean any corporation fifty percent (50%) or more of the
outstanding voting power of which, or any partnership, joint venture, limited
liability company or other entity fifty percent (50%) or more of the total
equity interest of which, is directly or indirectly owned by such specified
Person.

 

“Surviving Corporation” has the
meaning ascribed to it in Section 1.1.

 

“Tax” or “Taxes”
means all present and future taxes, surtaxes, duties, levies, imposts, rates,
fees, assessments, withholdings, dues and other charges of any nature imposed
by any Governmental or Regulatory Authority (including income, capital
(including large corporations), withholding, consumption, sales, use, transfer,
goods and services or other value-added, excise, customs, anti-dumping,
stumpage, countervail, net worth, stamp, registration, franchise, payroll,
employment, health, education, business, school, property, local improvement,
development, education development and occupation taxes, surtaxes, duties,
levies, imposts, rates, fees, assessments, withholdings, dues and charges)
together with all fines, interest, penalties on or in respect of, or in lieu of
or for non-collection of, those taxes, surtaxes, duties, levies, imposts,
rates, fees, assessments, withholdings, dues and other charges.

 

“Tax Liability” has the meaning
ascribed to it in Section 1.14.

 

“Tax Returns” means any return,
report, information return, schedule, certificate, statement or other document
(including any related or supporting information) filed or required to be filed
with, or, where none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority in connection with
any Tax.

 

45

 

“Taxing Authority” means any
governmental agency, board, bureau, body, department or authority of any United
States federal, state or local jurisdiction or any foreign jurisdiction, having
or purporting to exercise jurisdiction with respect to any Tax.

 

“Third Party Claim” has the
meaning ascribed to it in Section 7.3.

 

“Third Party Expenses” has the
meaning ascribed to it in Section 5.3.

 

“Third Party Intellectual Property Rights”
has the meaning ascribed to it in Section 2.15(c).

 

“Transmittal Letter” has the
meaning ascribed to it in Section 1.7.

 

“Warranty Obligations” has the
meaning ascribed to it in Section 2.25.

 

Signatures On Following Page

 

46

 

 

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