Document:

Retention Agreement

 Exhibit 10.3 

RETENTION AGREEMENT 

THIS RETENTION AGREEMENT (this “Agreement”) is entered into as of June 25, 2010 (the “Effective Date”) among
Abraxis BioScience, Inc., a Delaware corporation (“Parent”), and its wholly-owned operating subsidiary Abraxis BioScience, LLC, a Delaware limited liability company (the “Company”), and Bruce Wendel (“Executive”).

 RECITALS 

A. Executive is currently the Chief Executive Officer of Parent and the Company. 

B. Parent and the Company recognize that, as is the case with many publicly-held corporations, the possibility of a change in control of
Parent (and/or the Company) exists and that the uncertainties raised by such a possibility may result in the distraction or even the premature departure of Executive to the detriment of Parent and its stockholders. 

C. The Company has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication
of Executive without distraction from the possibility of a change in control of Parent and/or the Company and related events and circumstances. 

AGREEMENT 

NOW, THEREFORE, in consideration of the premises and the mutual promises set forth in this Agreement, the parties hereby agree as
follows: 
 1. Definitions. Unless otherwise defined herein, the capitalized terms defined in Exhibit A attached
hereto shall have the meanings therein specified for all purposes of this Agreement. 
 2. Term of Agreement. This
Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall terminate upon the first to occur of: 

(a) December 31, 2011, if a Change in Control Transaction has not occurred prior to such date; 

(b) If a Change in Control Transaction has occurred at any time prior to the December 31, 2011, the 18- month anniversary of the
Change in Control Date if Executive’s employment with the Company has not been terminated by the Company without Cause, or by Executive for Good Reason, prior to such date; or 

(c) If (i) a Change in Control Transaction has occurred at any time prior to December 31, 2011 and (ii) within 18 months
following the Change in Control Date and Executive’s employment with the Company has been terminated by the Company without Cause, or by Executive for Good Reason, the date on which the Company has fulfilled of all of its obligations under
Section 4. 
  

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 3. Employment Status. Executive acknowledges that this Agreement does not constitute
a contract of employment or impose on the Company any obligation to retain Executive as an employee. Executive acknowledges and aggress that he is an “at will” employee of the Company and may be terminated by the Company (or its successor)
at any time for any reason or no reason, with or without cause or prior notice. 
 4. Consequences of Termination following a
Change in Control. If (x) a Change in Control Transaction on or prior to December 31, 2011 and (y) within 18 months following the Change in Control Date the employment of Executive under this Agreement is terminated, then

 (a) If the employment of Executive is terminated for any reason other than a termination by the Company without Cause or by
Executive for Good Reason, then Executive shall not be entitled to any compensation or benefits from the Company under this Agreement or otherwise, except for the following: (i) the Company shall pay Executive (or, as applicable, his heirs,
estate or representative) the Accrued Compensation, (ii) the Company shall provide to Executive (or his dependents, as applicable) such benefits, if any, as may be required to be provided by the Company under the Consolidated Omnibus Budget
Reconciliation Act (“COBRA”) and any disability policy of the Company applicable to Executive, and (iii) Executive (or, as applicable, his heirs, estate or representative) shall be entitled to any then-vested benefits, stock options
and other equity awards as applicable pursuant to the terms of such benefits, options or award. 
 (b) If the employment of
Executive under this Agreement is terminated by the Company without Cause or by Executive for Good Reason, then Executive shall not be entitled to any compensation or benefits from the Company under this Agreement or otherwise, except for the
following: 
 (i) the Company shall pay Executive the Accrued Compensation; 

(ii) the Company shall pay Executive a lump sum payment equal to (i) two (2) times his then annual base salary and
(ii) two times his most-recently established target bonus; 
 (iii) the Executive shall be entitled to any then-vested
benefits, stock options and other equity awards as applicable pursuant to the terms of such benefits, options or awards; 

(iv) the Company shall provide reimbursement of Executive’s COBRA premiums until he obtains new employment, up to a maximum of
eighteen months from the Termination Date, subject to Executive’s submission of appropriate documentation; 
 (v) for a
period of twenty-four (24) months the Company shall continue to provide life insurance coverage at least the same levels as was provided on the Termination Date; 

provided, that, except as otherwise required by law, Executive shall not be entitled to receive or retain any post-termination benefits
described in this subsection (b) unless, within twenty-one (21) days (or forty-five (45) days if required by applicable law) following the 

 

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Termination Date, he executes and delivers to the Company a Release of Claims in the form attached as Exhibit B hereto, and does not revoke such Release of Claims during any applicable revocation
period. Any payments due pursuant to this subsection (b) shall be made or begun during the second month following the month in which the Termination Date occurs, subject to any delay required by Section 16(b)below. 

5. Representations. 

(a) Executive represents that he has full authority to enter into this Agreement and is not under any contractual restraint which would
prohibit Executive from satisfactorily performing his duties to the Company (and, if applicable, Parent) under this Agreement. 

(b) Executive acknowledges that he is free to seek advice from independent counsel with respect to this Agreement. Executive has either
obtained such advice or, after carefully reviewing this Agreement, has decided to forego such advice. Executive is not relying on any representation or advice from the Company or Parent or any of their respective officers, directors, attorneys or
other representatives regarding this Agreement, its content or effect. 
 6. Arbitration. The parties acknowledge and
agree to the provisions of the Arbitration Agreement attached hereto as Exhibit C and incorporated by this reference. 
 7.
Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal substantive laws (and not the laws of conflicts) of the State of California. 

8. Entire Agreement. It is understood, acknowledged and agreed that there are no oral agreements between the parties hereto or
their affiliates with respect to the matters described herein and that this Agreement constitutes the parties’ and their affiliates’ entire agreement and supersedes and cancels any and all previous negotiations, arrangements, agreements
and understandings, if any, between the parties hereto and their affiliates with respect to such matters, and none thereof shall be used to interpret or construe this Agreement. This Agreement, the Proprietary Interest Protection Agreement, the
agreements contemplated herein and the exhibits attached hereto, contain all of the terms, covenants, conditions, warranties and agreements of the parties and their affiliates, shall be considered to be the only agreement between the parties hereto
and their affiliates and their respective representatives and agents with respect to the matters described herein. Except as expressly stated in this Agreement, no party or its affiliates has made any statement or representation to the other party
or its affiliates regarding any fact, which statement or representation is relied upon by the other party in entering into this Agreement. Except as expressly stated in this Agreement, in connection with the execution of this Agreement, no party to
this Agreement or its affiliates has relied upon any statement, representation or promise of the other party or its affiliates not expressly contained herein. 
  

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 9. Assignability. 

(a) This Agreement is personal in nature and Executive shall not, without the written consent of the Company, assign or transfer this
Agreement or any rights or obligations hereunder. 
 (b) Nothing expressed or implied in this Agreement is intended or shall be
construed to confer upon or give to any person, other than the parties to this Agreement, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition of this Agreement. 

(c) Except as may otherwise be agreed to by the Company and Executive: 

(i) in the event of a Change in Control Transaction, this Agreement shall, subject to the provisions hereof, be binding upon and inure
to the benefit of such successor (if any) and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder. 

(ii) The Company may assign this Agreement only to a successor to all or substantially all of the business and/or assets of the Company,
provided that the Company shall require such successor to expressly assume in writing and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, “Company” shall mean the Company and any successor to its business and/or assets, which assumes and agrees to perform the duties and obligations of the Company under this Agreement by operation of law or
otherwise. 
 10. Amendments; Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or extended
and the terms or covenants of this Agreement may be waived only by a written instrument executed by the parties to this Agreement or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the right at a later time to enforce the same. No waiver by any party of the breach of any term or provision contained in this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 

11. Notice. All notices, requests or consents required or permitted under this Agreement shall be made in writing and shall be
given to the other party by personal delivery, registered or certified mail (with return receipt), overnight air courier (with receipt signature) or facsimile transmission (with “answerback” confirmation of transmission), sent to such
party’s addresses or telecopy numbers as are set forth below such party’s signature to this Agreement in the case of the Company or Parent or the address listed on the Company’s records in the case of Executive, or such other
addresses or telecopy numbers of which the parties have given notice pursuant to this Section 11. Each such notice, request or consent shall be deemed effective upon the date of actual receipt, receipt signature or confirmation of transmission,
as applicable (or if given by registered or certified mail, upon the earlier of (i) actual receipt or (ii) three (3) days after deposit thereof in the United States mail) 

12. Section 280G Parachute Tax Gross Up Letter. The parties acknowledge that the Company and the Executive executed a letter
agreement dated April 22, 2010 pursuant to which the Company agreed to pay to Executive an additional amount if the Executive is deemed to receive “parachute payments” under Section 280G of the Internal Revenue Code (“Gross
Up Agreement”). The parties acknowledge and agree that the Gross Up Agreement shall apply to any payments under this Agreement. 
  

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 13. Severability. Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. 
 14. Construction. Executive and Company
acknowledge and agree that (a) each party hereto is of equal bargaining strength, (b) each such party has actively participated in the drafting, preparation and negotiation of this Agreement, (c) each such party has consulted with
such party’s own, independent counsel, and such other professional advisors as such party has deemed appropriate, relating to any and all matters contemplated under this Agreement, (d) each such party and such party’s counsel and
advisors have reviewed this Agreement, (e) each such party has agreed to enter into this Agreement following such review and the rendering of such advice and (f) any rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not apply in the interpretation of this Agreement, or any portions hereof, or any amendments hereto. 

15. Survival. The representations and agreements of the parties set forth in Sections 5 (Representations), 6 (Arbitration), 12
(Section 280G) and 16 (General 409A Compliance) shall survive the expiration or termination of this Agreement (irrespective of the reason for such expiration or termination). 

16. General 409A Compliance. 

(a) The intent of the parties is that payments and benefits under this Agreement comply with or be exempt from Section 409A and,
accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. If Executive notifies the Company (with specificity as to the reason therefor) that Executive believes that any provision of this
Agreement (or of any award of compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest under Section 409A and the Company concurs with such belief, or outside counsel to the Company
makes such determination and informs the Company thereof, the Company shall, after consulting with Executive, to the extent legally permitted, reform such provision to try to comply with Section 409A through good faith modifications to the
minimum extent reasonably appropriate to conform with Section 409A. To the extent that any provision hereof is modified in order to comply with or be exempt from Section 409A, such modification shall be made in good faith and shall, to the
maximum extent reasonably possible, maintain the original intent and economic benefit to Executive and the Company of the applicable provision without violating the provisions of Section 409A. 

(b) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the
payment of any amounts or benefits that is considered nonqualified deferred compensation under Section 409A upon or following a termination of employment unless such termination is also a “separation from

  

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service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or
like terms shall mean “separation from service.” If Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B), then with regard to any payment or
benefit that is considered nonqualified deferred compensation under Section 409A payable on account of a “separation from service” that would otherwise be made or paid within the six (6)-month period measured from the date of such
“separation from service” of Executive, such payment or benefit shall be made or provided at the date which is the earlier of (i) the expiration of the six (6)-month period measured from the date of such “separation from
service” of Executive, and (ii) the date of Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 21(b) (whether they would have
otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Executive in a lump sum with interest at the prime rate as published in The Wall Street Journal on the first business day
of the Delay Period, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. 

(c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by
Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, of in-kind benefits, provided during any
taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated without regard to expenses reimbursed under any
arrangement covered by Internal Revenue Code Section 105(b) solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of
Executive’s taxable year following the taxable year in which the expense occurred. Any tax gross-up payment as provided herein shall be made in any event no later than the end of the calendar year immediately following the calendar year in
which Executive remits the related taxes, and any reimbursement of expenses incurred due to a tax audit or litigation shall be made no later than the end of the calendar year immediately following the calendar year in which the taxes that are the
subject of the audit or litigation are remitted to the taxing authority, or, if no taxes are to be remitted, the end of the calendar year following the calendar year in which the audit or litigation is completed. 

(d) For purposes of Section 409A, Executive’s right to receive any installment payments pursuant to this Agreement shall be
treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days
following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company. 
  

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 IN WITNESS WHEREOF, the parties hereto have executed this Retention Agreement as of the
Effective Date first above written. 
  

	
	Abraxis BioScience, LLC
	
	 /s/ Charles Kim

	By: Charles Kim
	Its: General Counsel

  

			
	Address for Notices:	  	Abraxis BioScience, LLC
		  	11755 Wilshire Blvd., Suite 2000
		  	Los Angeles, California 90025
		  	Attention:  General Counsel

  

	
	Abraxis BioScience, Inc.
	
	 /s/ Charles Kim

	By: Charles Kim
	Its: General Counsel

  

			
	Address for Notices:	  	Abraxis BioScience, Inc.
		  	11755 Wilshire Blvd., Suite 2000
		  	Los Angeles, California 90025
		  	Attention:  General Counsel

 By signing
below, the undersigned acknowledges and agrees that, except as expressly set forth in a written agreement signed by an authorized representative of the Company or Parent, the undersigned (i) has not been promised any equity interests in the
Company or Parent or any of their respective subsidiaries, affiliates or predecessors and (ii) does not and will not have any right to any equity interests in the Company or Parent or any of its respective subsidiaries, affiliates or
predecessors. 
  

	
	 /s/ Bruce Wendel

	Bruce Wendel

 EXHIBIT A 

DEFINITIONS 

“Accrued Compensation” shall mean (i) all earned but unpaid salary and vacation pay accrued through the Termination Date, (ii) any
vested but unpaid bonus for fiscal years prior to the year in which the termination of employment occurs, (iii) reimbursement for reasonable, documented and necessary expenses incurred by Executive on behalf of the Company or Parent on or prior
to the Termination Date and (iv) all other payments and benefits Executive is entitled to under the terms of any applicable benefit plan or program. The Accrued Compensation shall be paid within thirty (30) days following the Termination
Date; provided, that the benefits and amounts accrued under the plans and programs shall be paid or provided in accordance with such plans or programs. 

“Cause” shall mean any of the following (i) Executive commits a material breach of this Agreement, the Proprietary Interest Protection
Agreement or any material policy of the Company, and such material breach is not cured to the good-faith reasonable satisfaction of the Company within twenty (20) days after written notice to Executive from the Company; (ii) Executive
willfully fails to substantially perform his duties hereunder, or to implement or follow a lawful policy or directive of the Company, and such failure continues for a period of twenty (20) days after written notice to Executive from Company;
(iii) Executive is indicted for any felony, or for any misdemeanor involving dishonesty, breach of trust, physical harm to any person or serious moral turpitude; (iv) Executive engages in embezzlement, gross negligence as to a material
matter or willful misconduct in the performance of his duties; or (v) Executive engages in misconduct which is materially injurious to the Company (monetarily or otherwise) or which Executive knows constitutes a material violation of a material
federal or state law relating to the Company or its business. 
 “Change in Control Date” shall mean the date on which a Change in
Control Transaction is consummated. 
 “Change in Control Transaction” shall mean (i) a transaction (including, but not limited
to, a sale of equity interests, merger, consolidation, reorganization or recapitalization) pursuant to which the holders of the voting equity securities of the Company immediately prior to such transaction (or their affiliates) cease to beneficially
own more than fifty percent (50%) of voting equity securities of the Company or its successor (or, if there is a parent of the Company following such transaction, of the ultimate parent) immediately following such transaction, (ii) a
transaction (including, but not limited to, a merger, consolidation, reorganization or recapitalization) pursuant to which the holders of the voting capital stock of Parent immediately prior to such transaction (or their affiliates) cease to
beneficially own more than fifty percent (50%) of voting capital stock of Parent or its successor (or, if there is a parent of Parent following such transaction, of the ultimate parent) immediately following such transaction or (iii) the
Company sells all or substantially all of its assets to a third party; provided, that a Spin Transaction shall not be considered a “Change in Control Transaction” for purposes of this Agreement 

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

 A-1 

 “Good Reason” means, without Executive’s express written consent, the occurrence of any of
the following circumstances: (i) there is a change in Executive’s responsibilities which represents a material and adverse change from Executive’s overall responsibilities, taken as a whole (except any changes resulting from a Spin
Transaction); (ii) Executive is required to be based at any place outside a twenty-five (25) mile radius from the Company’s current headquarters in Los Angeles, California, except for travel that is reasonably necessary in connection
with the Company’s business; (iii) a material reduction in Executive’s base salary; or (iv) any material breach by the Company or Parent of this Agreement, including any breach of Section 9(d); provided, that
Executive’s voluntary termination shall be deemed for purposes hereof to have occurred for Good Reason only if (i) Executive provides written notice to the Company prior to resignation and within twenty (20) days after Executive
becomes aware of the circumstances giving rise to Good Reason, (ii) the Company fails to correct the circumstances giving rise to Good Reason prior to resignation and within thirty (30) days following receipt of such notice and
(iii) Executive resigns within fifteen (15) days following such thirty (30) day period. 
 “Section 409A” shall mean
Section 409A of the Code, together with and the related final regulations thereunder and other guidance relating thereto. 

“Spinco” shall mean (i) an entity, the equity securities of which (or the equity securities of the parent of which) are distributed in a
Spin Transaction, or (ii) any entity that (A) is directly or indirectly controlled by the current controlling stockholder of Parent and (B) acquires certain assets of the Company in connection with a Change in Control Transaction.

 “Spin Transaction” shall mean any transaction substantially similar to the transaction described in the in the Registration
Statement on Form 10 filed with the Securities and Exchange Commission by Abraxis Health, Inc. on August 4, 2009 (since withdrawn). 

“Termination Date” means the date on which Executive’s employment with the Company is terminated. 

 

 A-2 

 EXHIBIT B 

RELEASE 

In consideration for the payments described in Section 4(b) of the Retention Agreement, Executive hereby releases and discharges
Abraxis BioScience, LLC, Abraxis BioScience, Inc., and any subsidiaries or affiliates thereof (collectively the “Company”), and their respective (and limited to such capacities) directors, officers, employees, benefit plans and
administrators, successors and assigns (collectively with the Company, the “Released Parties”) from any and all claims, obligations, and liabilities, whether known or unknown, at law or in equity, arising out of Executive’s employment
with the Company and the termination thereof. This Release is to be broadly construed so as to resolve all pending or potential disputes including, but without limiting the generality of the foregoing, any and all claims under the Age Discrimination
in Employment Act, as amended by the Older Workers Benefit Protection Act of 1990, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Employee Retirement Income Security Act of 1974, the Equal Pay Act, the Family and
Medical Leave Act, and any other federal, state or local statute, regulation or ordinance, and any and all claims based upon alleged wrongful or retaliatory discharge, negligence, intentional infliction of emotional distress, defamation, invasion of
privacy, other torts, harassment, employment discrimination or breach of contract (express or implied). Notwithstanding the foregoing, Executive does not waive (i) any rights Executive may have to enforce the terms of the Retention Agreement,
(ii) to insurance protection and/or indemnification for actions taken by Executive while an employee, officer and/or director of the Company or to make any claims for workers’ compensation, (iv) rights as stockholder or investor in
Parent and (v) any rights to exercise any equity awards pursuant to the terms of applicable equity award agreement and equity plan 

Executive represents and agrees that he has not and will not file or initiate any legal proceedings, complaints or charges of any kind to
the extent released herein with any court or governmental or administrative agency against any one or more of the Released Parties relating to his employment or positions with Parent or the Company, and that he will not participate in or accept any
monies from any such action either in his individual capacity or as part of a representative or class action. Executive further agrees that he will not solicit, encourage, assist or cooperate in any proceedings, complaints or charges against the
Company or any other Released Party brought by any other person or entity unless specifically subpoenaed to appear or otherwise required by court order or in an official governmental investigation or otherwise required by law. The Company and the
other Released Parties shall be entitled to plead this Release as a complete defense to any claim or entitlement relating to Executive’s employment or positions with Parent or the Company which hereafter may be asserted by Executive or other
persons or agencies acting on his behalf in any suit or claim against the Company or any other Released Party. In the event that Executive sues the Company or any other Released Party in violation of this Agreement, Executive agrees and acknowledges
that he will pay such Released Party its litigation costs and expenses, including reasonable attorneys’ fees, associated with its defense. Executive understands that nothing in this Agreement precludes him from filing a charge with or
participating in an investigation by the Equal Employment Opportunity Commission; provided, however, Executive hereby waives any right to receive any monetary award resulting from such a charge or investigation. 

 

 G-1 

 Executive acknowledges that he is familiar with the provisions of Section 1542 of the
Civil Code of the State of California, which reads as follows: 
 “A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” 

Executive hereby waives and relinquishes all rights and benefits which it has or may have under Section 1542 of the Civil Code of the State of
California (or the law of any other state or jurisdiction to the same or similar effect) to the full extent permitted by law. 

Executive understands and acknowledges that: 

(a) This Agreement constitutes a voluntary waiver of any and all rights and claims he has or may have against the Released Parties as of
the Effective Date arising under the Age Discrimination in Employment Act, 29 U.S.C. § 623 et seq.; 
 (b) He is
waiving these substantive rights and claims pursuant to this Agreement in exchange for consideration, the value of which exceeds any payment or remuneration to which he was already entitled; 

(c) He is hereby advised that he may consult with an attorney of his choosing concerning this Agreement prior to executing it;

 (d) He has been afforded a period of at least twenty-one (21) days to consider the terms of this Agreement, and in the
event he should decide to execute this Agreement in less than twenty-one (21) days, he has done so with the express understanding that he has been given and declined the opportunity to consider this Agreement for a full twenty-one
(21) days; and 
 (e) He may revoke this Agreement at any time during the seven (7) days following the date of
execution of this Agreement, and this Agreement shall not become effective or enforceable until such revocation period has expired. Any revocation must be in writing and must be delivered, either by hand, overnight courier, or certified mail, return
receipt requested, to the General Counsel of the Company or his designee, Abraxis BioScience, LLC, 11755 Wilshire Boulevard, Suite 2000, Los Angeles, California 90025. 

Executive will not directly or indirectly, individually or in concert with others, engage in any conduct or make any statement calculated
or likely to have the effect of undermining the other, disparaging the other or otherwise reflecting poorly upon the Company and Parent, the business or the business reputation of the Company or Parent (or any of their subsidiaries or affiliates) or
their respective employees, officers, directors, customers, suppliers, successors and assigns, including, without limitation, negative comments about any such company, its management methods, policies and/or practices. Notwithstanding the foregoing,
nothing herein shall prohibit Executive from responding accurately and fully to any question, inquiry or request made in connection with any governmental inquiry, investigation, review, audit or proceeding, or as otherwise required by law.

  

 G-2 

 Executive hereby acknowledges and reaffirms his confidentiality obligations to the Company,
as an individual who was and may continue to be privy to trade secrets and other proprietary information of the Company. Executive agrees to comply with the provisions of the Proprietary Interest Protection Agreement which he signed at the time of
hire, which agreement is incorporated herein by reference. 
  

 G-3 

 EXHIBIT C 

ARBITRATION 
 The Company
and Executive hereby agree that, to the fullest extent permitted by law, any and all claims or controversies between them (or between Executive and any present or former officer, director, agent, or Executive of the Company or any of its affiliates)
relating in any manner to this Agreement or to the employment or the termination of employment of Executive shall be resolved by final and binding arbitration. Except as specifically provided herein or otherwise agreed to by the parties, any
arbitration proceeding shall be conducted in accordance with the JAMS Arbitration Rules and Procedures, which can be found at “www.jamsadr.com” (“the JAMS Rules”) or by a non-JAMS process to which the parties may otherwise agree.

 Claims subject to arbitration shall include, without limitation: contract claims, tort claims, claims relating to compensation and stock
options, as well as claims based on any federal, state, or local law, statute, or regulation, including but not limited to any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans
with Disabilities Act, and the California Fair Employment and Housing Act. However, claims for unemployment benefits, workers’ compensation claims, and claims under the National Labor Relations Act shall not be subject to arbitration.

 A neutral and impartial arbitrator shall be chosen by mutual agreement of the parties; however, if the parties are unable to agree upon an
arbitrator within a reasonable period of time, then a neutral and impartial arbitrator shall be appointed in accordance with the arbitrator nomination and selection procedure set forth in the JAMS Rules. The parties further agree that the arbitrator
shall not have any power to add to, subtract from, modify, amend, or refuse to enforce, any of the terms of this Agreement. The arbitrator shall prepare a written decision containing the essential findings and conclusions on which the award is based
so as to ensure meaningful judicial review of the decision. The arbitrator shall apply the same substantive law, with the same statutes of limitations and same remedies, that would apply if the claims were brought in a court of law. The arbitrator
shall have the authority to rule on a motion to dismiss and/or summary judgment by either party, and the arbitrator shall apply the standards governing such motions under the California Code of Civil Procedure. 

Either the Company or Executive may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Otherwise,
neither party shall initiate or prosecute any lawsuit or claim in any way related to any arbitrable claim, including without limitation any claim as to the making, existence, validity, or enforceability of the agreement to arbitrate. Nothing in this
Agreement, however, precludes a party from filing an administrative charge before an agency that has jurisdiction over an arbitrable claim. Moreover, the parties agree that this Agreement shall not apply to any disputes or claims relating to or
arising out of the alleged misuse or misappropriation of Executive’s or the Company’s trade secrets or proprietary information, and that nothing in this Agreement prohibits either party from seeking provisional relief pursuant to
Section 1281.8 of the California Code of Civil Procedure. 
  

 Schedule A-1 

 All arbitration hearings under this Agreement shall be conducted in Los Angeles, California, unless
otherwise agreed by the parties. Unless otherwise specifically provided for herein, the arbitration provisions of this Arbitration Agreement shall be governed by the Federal Arbitration Act. In all other respects, this Arbitration Agreement shall be
construed in accordance with the laws of the State of California, without reference to conflicts of law principles. 
 Each party shall pay its
own costs and attorney’s fees. The arbitrator shall not be entitled to award attorneys fees or costs to a prevailing party. The Company shall pay the fees and expenses of the arbitrator. 

The Company and Executive understand and agree that this Arbitration Agreement contains a full and complete statement of any agreements and
understandings regarding resolution of disputes between the parties, and the parties agree that this Arbitration Agreement supersedes all previous agreements, whether written or oral, express or implied, relating to the subjects covered in this
agreement. The parties also agree that the terms of this Arbitration Agreement cannot be revoked or modified except in a written document signed by both Executive and an officer of the Company. 

Except as expressly provided in the following sentence, neither party may disclose to any person or entity (i) any testimony or evidence presented
or submitted in the arbitration proceedings, (ii) the nature or terms of any award or judgment rendered in such arbitration, or any portion thereof or (iii) the opinion of the arbitrator or arbitration panel, or any portion thereof
(collectively, the “Arbitration Information”). To the extent either party brings an action to enforce or appeal any such judgment or award, then the filing party shall (x) file under seal all documents filed or submitted in such
action (including all Arbitration Information) and (y) fully cooperate with the non-filing party in ensuring that all documents filed or submitted in such action (including all Arbitration Information) shall be kept confidential. 

THE PARTIES ALSO UNDERSTAND AND AGREE THAT THIS AGREEMENT CONSTITUTES A WAIVER OF THEIR RIGHT TO A TRIAL BY JURY OF ANY CLAIMS OR CONTROVERSIES COVERED
BY THIS AGREEMENT. THE PARTIES AGREE THAT NONE OF THOSE CLAIMS OR CONTROVERSIES SHALL BE RESOLVED BY A JURY TRIAL. 
  

 Schedule A-2exhibit10-1.htm

    EXECUTION VERSION 

     

    AGREEMENT AND PLAN OF MERGER

     

    by and among

     

    UNIFY CORPORATION, 

     

    UNIFY ACQUISITION CORP., 

     

    STRATEGIC OFFICE SOLUTIONS, INC. (d/b/a
DAEGIS) 

     

    and 

     

    with respect to Sections 8.2(a)(i), 9.13 and
9.14, the SHAREHOLDERS 
listed on the Signature Pages hereto

     

    Dated as of June 29,
2010 

     

    

    
    

    TABLE OF CONTENTS

     

    
      	
            	       	
            	Page
	ARTICLE 1 DEFINITIONS	2
	 
	      
      1.1	 	Defined Terms	10
	       1.2	
            	Interpretation Provisions	10
	 
	ARTICLE 2 THE MERGER	10
	 
	      
      2.1	
            	The Merger	10
	       2.2	
            	Effective Time	11
	      
      2.3	
            	Effect of the Merger	11
	       2.4	
            	Articles of Incorporation; Bylaws	11
	      
      2.5	
            	Directors and Officers	12
	       2.6	
            	Effect on Company Stock	12
	      
      2.7	
            	Delivery of Merger
    Consideration	13
	       2.8	
            	No Further Ownership Rights in Shares of Company Stock	14
	      
      2.9	
            	Lost, Stolen or Destroyed
      Certificates	14
	       2.10	
            	Calculation of Merger Consideration	14
	      
      2.11	
            	Section 338(h)(10) Election	17
	       2.12	
            	Taking of Necessary Action; Further Action	17
	 
	ARTICLE 3 REPRESENTATIONS AND WARRANTIES
      OF COMPANY	17
	 
	      
      3.1	
            	Organization of Company	18
	       3.2	
            	No Subsidiaries; No Interest in Other Entities	18
	      
      3.3	
            	Capitalization of Company	18
	       3.4	
            	Unlawful Payments and Contributions	19
	      
      3.5	
            	Authorization	19
	       3.6	
            	Officers and Directors	19
	      
      3.7	
            	Bank Accounts	20
	       3.8	
            	Assets	20
	      
      3.9	
            	Material Contracts	20
	       3.10	
            	No Conflict or Violation; Consents	22
	      
      3.11	
            	Permits	23
	       3.12	
            	Financial Statements; Books and Records	23
	      
      3.13	
            	Absence of Certain Changes or
      Events	24
	       3.14	
            	Liabilities	26
	      
      3.15	
            	Litigation	26
	       3.16	
            	Labor Matters	26
	      
      3.17	
            	Employee Benefit Plans	27
	       3.18	
            	Transactions with Related Parties	30
	      
      3.19	
            	Compliance with Law	30
	       3.20	
            	Intellectual Property	30
	      
      3.21	
            	Taxes	32
	       3.22	
            	Insurance	34
	      
      3.23	
            	Accounts Receivable	34
	       3.24	
            	Customers and Suppliers	34
	      
      3.25	
            	Environmental Matters	35
	       3.26	
            	Brokers; Transaction Costs	35
	      
      3.27	
            	No Other Agreements to Sell Company or
      the Company Assets	35
	       3.28	
            	Financial Projections: Operating Plan	36
	      
      3.29	
            	Real Property	36

    

    

    
    

    
      	
            	
            	
            	Page
	ARTICLE 4 REPRESENTATIONS AND WARRANTIES
      OF BUYER AND MERGER SUB	36
	 
	      
      4.1	       	Organization of Buyer and Merger
      Sub	36
	       4.2	
            	Authorization  	36
	      
      4.3	
            	No Conflict or Violation;
    Consents	37
	       4.4	
            	Litigation  	37
	      
      4.5	
            	Brokers	38
	       4.6	
            	Capital Structure	38
	      
      4.7	
            	Availability of Merger
      Consideration	38
	       4.8	
            	SEC Documents; Buyer Financial Statements	39
	      
      4.9	
            	Merger Sub  	39
	       4.10	
            	Employee Benefits Matters	39
	      
      4.11	
            	Present Compliance with Obligations and
      Laws	40
	       4.12	
            	Absence of Certain Changes	40
	      
      4.13	
            	Listings	40
	       4.14	
            	Transactions with Affiliates	40
	      
      4.15	
            	Intellectual Property	40
	 
	ARTICLE 5 ACTIONS BY COMPANY AND BUYER
      PRIOR TO THE CLOSING	41
	 
	      
      5.1	
            	Conduct of Company Business	41
	       5.2	
            	No Mergers, Consolidations, Sale of Stock, Etc.	42
	      
      5.3	
            	Investigation by Buyer and
    Company	42
	       5.4	
            	Notification of Certain Matters	42
	      
      5.5	
            	Management and Employees	43
	       5.6	
            	Stockholder Meeting	43
	      
      5.7	
            	Further Assurances	43
	 
	ARTICLE 6 CONDITIONS TO
      OBLIGATIONS	44
	 
	      
      6.1	
            	Conditions to Each Party’s
      Obligations	44
	       6.2	
            	Conditions to the Obligations of Company	44
	      
      6.3	
            	Condition to Buyer’s and Merger Sub’s
      Obligations	45
	 
	ARTICLE 7 ACTIONS BY BUYER, THE
      SURVIVING CORPORATION
      AND 
                    
      THE SHAREHOLDERS AFTER THE CLOSING	46
	 
	      
      7.1	
            	Books and Records; Tax Matters	46
	       7.2	
            	Indemnification and Insurance	47
	      
      7.3	
            	Approval of Issuance of Additional Buyer
      Common Stock	47
	       7.4	
            	Release of Guaranties; Indemnification	47
	 
	ARTICLE 8 INDEMNIFICATION	48
	 
	      
      8.1	
            	Survival of Representations,
    Etc.	48
	       8.2	
            	Indemnification	48
	      
      8.3	
            	No Right of Contribution	50
	       8.4	
            	Exclusive Remedy	50
	      
      8.5	
            	Threshold; Limitations on
      Indemnity	50
	 
	ARTICLE 9 MISCELLANEOUS	51
	 
	      
      9.1	
            	Termination  	51
	       9.2	
            	Assignment  	52
	      
      9.3	
            	Notices	53
	       9.4	
            	Choice of Law  	53 

    

    

    
    

    
      	       	
            	
            	
            	Page
	
            	9.5	       	Limitation	53
	
            	9.6	
            	Arbitration	54
	
            	9.7	
            	Entire Agreement; Amendments and
      Waivers	54
	
            	9.8	
            	Counterparts	54
	
            	9.9	
            	Invalidity	54
	 	9.10	
            	Publicity	54
	
            	9.11	
            	No Third Party Beneficiaries	55
	
            	9.12	
            	Expenses	55
	
            	9.13	
            	Appointment of Shareholder
      Representative	55
	
            	9.14	
            	Other Provisions Relating to Signing Shareholders	56

    

    

    
    

    TABLE OF SCHEDULES

     

    
      	Schedule 3.1	    	Foreign Qualifications
	Schedule 3.3(a)	
            	Shareholder Information
	Schedule 3.3(e)	
            	Voting Trusts, Shareholder Agreements,
      Proxies or Similar Agreements
	Schedule 3.6	
            	Officers and Directors
	Schedule 3.7	
            	Bank Accounts
	Schedule 3.8	
            	Tangible Assets and Owned or Leased Properties
	Schedule 3.9	
            	Material Contracts
	Schedule 3.10(a)	
            	No Conflict or Violation; Consents
	Schedule 3.10(b)	
            	Notices to Governmental Authorities
	Schedule 3.11	
            	Permits
	Schedule 3.13	
            	Absence of Certain Changes or Events
	Schedule 3.14	
            	Liabilities
	Schedule 3.15	
            	Litigation
	Schedule 3.16	
            	Labor Matters
	Schedule 3.17	
            	Employee Benefit Plans
	Schedule 3.18	
            	Related Party Transactions
	Schedule 3.19	
            	Compliance with Law
	Schedule 3.20(a)	
            	Intellectual Property – General  
	Schedule 3.20(c)	
            	Intellectual Property – Royalties and Licenses
	Schedule 3.20(d)	
            	Intellectual Property – Ownership  
	Schedule 3.20(e)	
            	Intellectual Property – Absence of Claims
	Schedule 3.20(f)	
            	Intellectual Property – Protection
	Schedule 3.21	
            	Taxes
	Schedule 3.22	
            	Insurance
	Schedule 3.24	
            	Customers and Suppliers
	Schedule 3.25	
            	Environmental Matters
	Schedule 3.29	
            	Real Property
	Schedule 4.15	
            	Intellectual Property
	Schedule 6.3(b)	
            	Required Consents
	Schedule 7.4	
            	Jensen Guaranties
	Schedule 9.14(b)	
            	Accredited Investors  

    

    

    
    

    ANNEXES

     

    Annex I – This Annex includes the amount and
type of consideration each shareholder is receiving in the Merger, and their
names and addresses for notice purposes.

     

    Annex II – Allocation of Merger
Consideration

     

    

    
    

    TABLE OF EXHIBITS 

     

    
      	Exhibit A	          	Intentionally Omitted
	 	
            	
            
	Exhibit B	
            	Form of Registration Rights
      Agreement
	 	
            	
            
	Exhibit C	
            	Form of Subordinated Purchase
      Notes
	 	
            	
            
	Exhibit D	
            	Form of Subordinated Indemnity
      Note
	 	
            	
            
	Exhibit E	
            	Form of Transmittal Letter
	 	
            	
            
	Exhibit F	
            	Form of Opinion of K&L Gates,
      LLP
	 	
            	
            
	Exhibit G	
            	Form of Opinion of Farella Braun +
      Martel LLP

    

    

    
    

    AGREEMENT AND PLAN OF MERGER 

     

              AGREEMENT AND PLAN OF MERGER, dated as of June
29, 2010 (the “Agreement”), among Unify Corporation, a Delaware
corporation (“Buyer”), Unify Acquisition Corp., a California
corporation and a wholly owned subsidiary of Buyer (“Merger Sub”),
Strategic Office Solutions, Inc., d/b/a Daegis, a California corporation
(“Company”), and only with respect to Sections
8.2(a)(i), 9.13 and 9.14 of this Agreement, the Shareholders that are
signatories to this Agreement (the “Signing Shareholders”). 

     

    WITNESSETH: 

     

              WHEREAS, Buyer, Merger Sub and Company (Merger
Sub and Company sometimes being referred to herein as the “Constituent Corporations”) are hereby adopting a plan of merger, providing for the merger of
Merger Sub with and into Company, with Company continuing as the surviving
corporation (the “Merger”); 

     

              WHEREAS, the Board of Directors of Company has
adopted resolutions approving this Agreement and recommending approval thereof
by its shareholders; 

     

              WHEREAS, the Board of Directors of Buyer has
adopted resolutions approving this Agreement; 

     

              WHEREAS, the Signing Shareholders,
representing greater than eighty percent (80%) of the voting power of Company,
have approved this Agreement and the transactions contemplated hereby;

     

              WHEREAS, the Board of Directors of Merger Sub
has adopted resolutions approving this Agreement and recommending approval
thereof by Buyer as its sole shareholder, and Buyer as Merger Sub’s sole
shareholder has approved this Agreement by an action by written consent without
a meeting; 

     

              WHEREAS, the Merger will be consummated in
accordance with the California Corporations Code, as amended (the “California Code”),
and this Agreement and evidenced by a Certificate of Merger between Merger Sub
and Company in the form required under the California Code (the “Certificate of Merger”), such Merger to be consummated as of the Effective Time (as defined
herein); 

     

              WHEREAS, pursuant to the Merger, each
outstanding share of common stock of Company (“Company Stock”)
shall be converted solely into the right to receive the Merger Consideration (as
defined herein), issued in the amounts and form set forth on Annex I hereto; and 

     

              WHEREAS, Buyer, Merger Sub and Company have
agreed that the Merger will be treated as an asset sale under Section 338(h)(10)
of the Internal Revenue Code of 1986, as amended (the “Code”).

     

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

     

    1 

     

    

    
    

    ARTICLE
1
DEFINITIONS

     

         1.1 Defined
Terms

     

              As
used herein, the terms below shall have the following
meanings:

     

              “Actions” has the meaning set forth in
Section 3.15 hereof.

     

              “Actual Net Cash on Hand” has
the meaning set forth in Section 2.10(b)(iv) hereof.

     

              “Actual Working Capital” has the meaning set forth in
Section 2.10(b)(iv) hereof.

     

              “Affiliate” of any Person
means any Person who is controlled by, controls or is under common control with
such Person.

     

              “Agreement” has the meaning set forth in the
Preamble.

     

              “Ancillary Agreements” means
the Subordinated Seller Notes and the Registration Rights
Agreement.

     

              “Annual Financial Statements”
has the meaning set forth in Section 3.12(a) hereof.

     

              “Assets” of a Person means
the right, title and interest in and to such Person’s properties, assets and
rights of any kind, whether tangible or intangible, real or personal, including
without limitation the right, title and interest in the following:

     

              (a)
all Contracts and Contract Rights; 

     

              (b)
all Fixtures and Equipment; 

     

              (c)
all Inventory; 

     

              (d)
all Books and Records; 

     

              (e)
all Proprietary Rights; 

     

              (f)
all Permits;

     

              (g)
all return and other rights under or pursuant to all warranties, representations
and guarantees made by suppliers and other third parties in connection with the
Assets or services furnished to such Person;

     

              (h)
all cash, accounts receivable, deposits and prepaid expenses;
and

     

              (i)
all goodwill.

     

              “Books and Records” of a
Person means (a) all product, business and marketing plans, sales and
promotional literature and artwork relating to such Person, (b) all books, records,
lists, ledgers, financial data, files, reports, product and design manuals,
plans, drawings, technical manuals and operating records of every kind
(including records and lists of customers, distributors, suppliers and
personnel) relating to such Person, and (c) all telephone and fax numbers of
such Person, in each case whether maintained as hard copy or stored in computer
memory.

     

    2

     

    

    
    

              “Business” of a Person means the business
and operations of such Person.

     

              “Buyer” has the meaning set forth in the
Preamble.

     

              “Buyer Common Stock” means
the Common Stock, par value $0.001 per share, of Buyer.

     

              “Buyer Cure Period” has the meaning set forth in
Section 9.1(a)(iv) hereof.

     

              “Buyer Material Adverse
Change” means a Material Adverse Effect on, or with respect to, Buyer or
Merger Sub.

     

              “Buyer Proprietary Rights”
means Proprietary Rights that are owned by or licensed to Buyer or its
Subsidiaries that are material to the conduct of the Business of Buyer or such
Subsidiaries.

     

              “Buyer Stock Consideration” has the meaning set forth in
Section 2.10(a).

     

              “Buyer Terminating Breach”
has the meaning set forth in Section 9.1(a)(iii) hereof.

     

              “Buyer Transaction Expenses” means the Transaction Expenses of
Buyer. 

     

              “California Code” has the meaning set forth in the
Recitals. 

     

              “Certificate of Merger” has the meaning set forth in the
Recitals. 

     

              “Certificates” has the meaning set forth in
Section 2.7(a) hereof. 

     

              “Closing” has the meaning set forth in
Section 2.1(b) hereof. 

     

              “Closing Date” has the meaning set forth in
Section 2.2 hereof. 

     

              “Code” has the meaning set forth in the
Recitals. 

     

              “Company” has the meaning set forth in the
Preamble. 

     

              “Company Assets” means the Assets of
Company.

     

              “Company Balance Sheet” means
the balance sheet of Company as of the Company Balance Sheet Date.

     

              “Company Balance Sheet Date” means May 31,
2010.

     

              “Company Books and Records”
means the Books and Records of Company.

     

    3

     

    

    
    

              “Company Business” means the Business of
Company.

     

              “Company Cure Period” has the meaning set forth in
Section 9.1(a)(iii) hereof.

     

              “Company Financial
Statements” has the meaning set forth in Section 3.12(a)
hereof.

     

              “Company Material Adverse
Effect” or “Company Material Adverse Change” means
a Material Adverse Effect on, or with respect to, Company.

     

              “Company Options” has the meaning set forth in
Section 3.3(b).

     

              “Company Option Plan” means
the Strategic Office Solutions, Inc. 2001 Stock Plan, as amended.

     

              “Company Proprietary Rights”
means Proprietary Rights that are owned by or licensed to Company that are
material to the conduct of the Company Business.

     

              “Company Stock” has the meaning set forth in the
Recitals.

     

              “Company Terminating Breach”
has the meaning set forth in Section 9.1(a)(iv) hereof.

     

              “Company Transaction Expenses” means the Transaction Expenses of
Company.

     

              “Consents” of a Person means
any and all Permits and any and all consents, approvals or waivers from third
parties that are (i) required for the consummation of the transactions
contemplated by this Agreement or (ii) necessary in order that such Person can
conduct its business immediately after the Effective Time in substantially the
same manner as immediately before the Effective Time.

     

              “Constituent Corporations” has the meaning set forth in the
Recitals.

     

              “Contract Rights” means all rights and obligations
under the Contracts.

     

              “Contracts” of a Person means
all agreements, contracts, leases (whether for real or personal property),
purchase orders, undertakings, covenants not to compete, employment agreements,
confidentiality agreements, licenses, instruments, obligations and commitments
to which such Person is a party or by which such Person or any of its assets are
bound are affected, whether written or oral.

     

              “Court Order” means any
judgment, decision, consent decree, injunction, ruling or order of any
Governmental Authority that is binding on any Person or its property under
applicable law.

     

              “DGCL” means the Delaware General
Corporation Law, as amended.

     

              “Dissenters Rights” means the
rights of shareholders of Company with respect to mergers set forth in Chapter
13 of the California Code.

     

    4

     

    

    
    

              “Effective Time” has the meaning set forth in
Section 2.2 hereof.

     

              “Employees” of a Person means
all persons employed by such Person on a full or part-time basis as of the
relevant date.

     

              “Encumbrance” means any
claim, lien, pledge, option, charge, easement, security interest, deed of trust,
mortgage, right-of-way, encroachment, building or use restriction, conditional
sales agreement or encumbrance of any nature whatsoever.

     

              “Environmental Law” means any
and all federal, state, local and foreign statutes, laws, regulations,
ordinances or rules in existence on the Closing Date relating to the protection,
remediation or restoration of the environment; environmental safety and health;
the effect of the environment or Substances on human health; emissions,
discharges or releases of Substances into the environment, including without
limitation ambient air, surface water, groundwater or land; or otherwise
relating to the Handling of Substances or the clean-up or other remediation
thereof.

     

              “ERISA” means the Employee
Retirement Income Security Act of 1974, as amended.

     

              “Escrow Agent” means U.S. Bank,
N.A.

     

              “Escrow Agreement” means the
Escrow Agreement, by and among Buyer, Shareholder Representative and Escrow
Agent, as escrow agent, in the form mutually agreed to by the parties
thereto.

     

              “Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

     

              “Exchange Agent” has the meaning set forth in
Section 2.7(a).

     

              “Fixtures and Equipment” of a
Person mean all of the furniture, fixtures, furnishings, machinery, computer
hardware, and other tangible personal property owned or leased by such Person,
wherever located and including any such Fixtures and Equipment in the possession
of any of such Person’s respective suppliers or other vendors.

     

              “GAAP” means United States
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of comparable
stature and authority within the accounting profession), or in such other
statements by such entity as may be in general use by significant segments of
the U.S. accounting profession, which are applicable to the facts and
circumstances on the date of determination.

     

              “Governmental Authority”
means any federal, state, municipal, provincial, local, foreign or other
governmental, quasi-governmental or administrative body, instrumentality,
bureau, department or agency or any court, tribunal, administrative hearing
body, arbitrator, arbitration panel, commission, or other similar
dispute-resolving panel or body. 

     

    5

     

    

    
    

              “HSR Act” means the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     

              “Handling” means the
production, use, generation, emission, storage, treatment, transportation,
recycling, disposal, discharge, release, or other handling or disposition of a
Substance of any kind at any time.

     

              “Holdback Escrow” means the
$1,200,000 Subordinated Indemnity Note that will be placed in escrow (pursuant
to the terms of the Escrow Agreement) to offset indemnity claims in accordance
with Section 8.5(b).

     

              “Holdback Shares” means any
shares of the Buyer Common Stock into which the Subordinated Indemnity Note may
be converted, which such shares of Buyer Common Stock shall be used to offset
indemnity claims in accordance with Section 8.5(b) and which such shares of
Buyer Common Stock shall be held in escrow pursuant to the terms of the Escrow
Agreement.

     

              “Inventory” means all
merchandise owned and intended for resale and all raw materials, work in
process, finished goods, wrapping, supply and packaging items and similar items,
whether or not located on the premises, on consignment to a third party, or in
transit or storage.

     

              “Jensen” means Kurt Jensen, an
individual.

     

              “Liability” means any direct
or indirect liability, indebtedness, obligation, commitment, expense, claim,
deficiency, guaranty or endorsement of or by any Person of any type, whether
accrued, absolute, contingent, matured, unmatured, liquidated, unliquidated,
known or unknown.

     

              “Material Adverse Effect”
with respect to any Person means any effect or change which has, individually or
in the aggregate, a material adverse effect on such Person’s financial
condition, results of operations or business; provided that any adverse effect
that results from general economic, business or industry conditions shall be
disregarded in determining whether there has been a “Material Adverse Effect” on
such Person.

     

              “Material Contracts” has the meaning set forth in
Section 3.9.

     

              “Merger” has the meaning set forth in the
Recitals.

     

              “Merger Consideration” means
the Preliminary Merger Consideration as adjusted pursuant to Section 2.10(b) of
this Agreement.

     

              “Merger Sub” has the meaning set forth in the
Preamble.

     

              “NCM” has the meaning set forth in
Section 4.2.

     

              “Net Cash on Hand” means the
cash and cash equivalents of the Company included in the Company’s current
assets less total outstanding indebtedness, excluding capital leases as of the
Effective Time.

     

    6

     

    

    
    

              “Operating Site” means any
real property or facility owned or leased at any time by Company in connection
with the operation of the Company Business.

     

              “Ordinary Course” means in
the ordinary course of business and consistent with past practice.

     

              “PCBs” means polychlorinated
biphenyls.

     

              “Permitted Encumbrance” means
(a) liens for Taxes and other governmental charges and assessments which are not
yet due and payable or which are being contested in good faith, (b) liens of
landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the Ordinary Course for sums not yet due and payable
or which are being contested in good faith, (c) other liens or imperfections on
real property which do not materially detract from the existing use of the
property affected by such lien or imperfection, (d) liens shown on any title
insurance policies delivered to Buyer prior to the date hereof and (e) liens
reflected on the Company Balance Sheet.

     

              “Permits” of a Person means
all licenses, permits, franchises, approvals, authorizations, consents or orders
of, or filings with, any Governmental Authority necessary for the past or
present conduct or operation of the Business or ownership of the Assets of such
Person.

     

              “Person” means any person or
entity, whether an individual, trustee, corporation, limited liability company,
general partnership, limited partnership, trust, unincorporated organization,
business association, firm, joint venture or Governmental
Authority.

     

              “Pre-Closing Dividend” means
a cash dividend that, subject to compliance with applicable laws, the Board of
Directors of Company will be permitted to declare on Company Common Stock, to be
paid immediately prior to the Effective Time.

     

              “Preliminary Merger
Consideration” has the meaning set forth in Section 2.10(a)
hereof.

     

              “Proprietary Rights” means
any and all (a) U.S. and foreign patents, patent applications, patent
disclosures and improvements and modifications thereto, combinations,
combinations-in-part, renewals, and extensions, including without limitation
petty patents and utility models and applications therefor, (b) U.S. and foreign
trademarks, service marks, trade dress, logos, trade names, corporate names and
assumed names, and all modifications thereto, and the goodwill associated
therewith, whether based on common law or statutory rights, and registrations
and applications for registration thereof, (c) U.S. and foreign copyrights and
derivative works thereto, whether based on common law or statutory rights, and
registrations and applications for registration thereof, (d) U.S. and foreign
mask work rights and registrations and applications for registration thereof,
(e) trade secrets, know-how, research and development information, financial
data, and customer and supplier lists, (f) computer software, programs, code (in
any form, including, without limitation, modifications, enhancements and
improvements thereto), domain names, internet addresses, web sites, telephone
numbers and business addresses, and (g) licenses from third parties granting any
rights with respect to any of the foregoing.

     

    7

     

    

    
    

              “Registration Rights
Agreement” means the Registration Rights Agreement substantially in the
form attached hereto as Exhibit B to be entered into on the
Closing Date providing certain registration rights to shareholders of Company
with respect to certain of the Merger Consideration.

     

              “Regulations” means any laws,
statutes, ordinances, regulations, rules, notice requirements, court decisions,
agency guidelines, principles of law and orders of any Governmental Authority,
including without limitation energy, motor vehicle safety, public utility,
zoning, building and health codes, Environmental Laws, occupational safety and
health and laws respecting employment practices, employee documentation, terms
and conditions of employment and wages and hours.

     

              “Related Party” means any of
Company’s Affiliates, officers and directors, and any Affiliates, partner or
immediate family members of such officers and directors.

     

              “Representative” means any
Affiliate, officer, director, principal, attorney, agent, employee or other
legal representative of any Person.

     

              “Resignations” has the meaning set forth in
Section 2.5.

     

              “SEC” has the meaning set forth in
Section 4.7 hereof.

     

              “SEC Documents” has the meaning set forth in
Section 4.7 hereof.

     

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

     

              “Shareholders” has the meaning set forth in
Section 3.3(a) hereof.

     

              “Shareholder Representative”
has the meaning set forth in Section 9.13 of this Agreement.

     

              “Signing Shareholders” has the meaning set forth in the
Recitals. 

     

              “Subordinated Indemnity Note”
means the principal amount $1,200,000 (subject to adjustment as set forth in
Section 2.10(b) below) promissory note in the form of Exhibit D that is subject to set off
for indemnity claims under Section 8.5, that is to be issued as part of the
Merger Consideration and that is to be held by the Escrow Agent pursuant to the
Escrow Agreement.

     

              “Subordinated Purchase Notes”
means the aggregate principal amount $5,000,000 promissory notes in the form of
Exhibit C that are to be issued as part
of the Merger Consideration.

     

              “Subordinated Seller Notes”
means the Subordinated Indemnity Note and the Subordinated Purchase
Notes.

     

              “Subsidiary” of any Person,
means any corporation, partnership, limited liability company, joint venture,
trust, association or other legal entity of which such Person (either alone,
through or together with any other Subsidiary) (i) owns, directly or indirectly,
more than 50% of the stock or other equity interests, or (ii)
exercises actual control over the management of such corporation or other legal
entity.

     

    8

     

    

    
    

              “Substances” means any
“hazardous substance,” “hazardous waste,” “pollutant,” “contaminant” or “toxic
substance,” as defined by the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., the Clean Water Act, 33 U.S.C.
Section 1251 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., or the
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., and regulations
promulgated thereunder, or any analogous state and local laws and regulations;
petroleum and petroleum products; PCBs or asbestos.

     

              “Surviving Corporation” has the meaning set forth in
Section 2.1(a).

     

              “Target Net Cash on Hand” means
$2,000,000.

     

              “Target Working Capital” means
$4,250,000.

     

              “Tax Return” means any
report, return, document, declaration or other information or filing required to
be supplied to any taxing authority or jurisdiction (foreign or domestic) with
respect to Taxes, including information returns, and any documents with respect
to or accompanying requests for the extension of time in which to file any such
report, return, document, declaration or other information.

     

              “Taxes” mean any and all
taxes, charges, fees, levies or other assessments, including income, gross
receipts, excise, real or personal property, sales, withholding, social
security, retirement, unemployment, occupation, use, service, license, net
worth, payroll, franchise and transfer and recording, imposed by the Internal
Revenue Service or any taxing authority (whether domestic or foreign, including
any federal, state, county, local or foreign government or any subdivision or
taxing agency thereof (including a U.S. possession)), whether computed on a
separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest, fines, penalties or additional amounts attributable
to, or imposed upon, or with respect to, any such taxes, charges, fees, levies
or other assessments.

     

              “Taxpayer” shall have the meaning set forth
in Section 3.21(a).

     

              “To the knowledge” or “knowledge” of a party (or similar
phrases) means to the extent of matters which are actually known by such party;
provided that, with respect to Company,
such terms shall mean to the extent of matters (i) which are actually known by
Jensen and (ii) which an individual in Jensen’s position would reasonably be
expected to discover or otherwise become aware of in the course of conducting an
investigation concerning the existence of such matters.

     

              “Transaction Expenses” means
all legal, accounting, investment banking, and other fees and expenses incurred
in connection with this Agreement, the Merger, and the other transactions
contemplated hereby.

     

              “Transmittal Letter” has the meaning set forth in
Section 2.7(a) hereof.

     

    9

     

    

    
    

              “Unaudited Financial
Statements” has the meaning set forth in Section 3.12(a)
hereof.

     

              “Working Capital” means the
difference (whether positive or negative) of (a) the consolidated current assets
of Company (excluding cash and cash equivalents), minus (b) the consolidated
current liabilities of Company, in each case, as determined in accordance with
GAAP, as of the Effective Time.

     

         1.2 Interpretation
Provisions

     

              (a)
The words “hereof,” “herein” and “hereunder” and words of similar import when
used in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement, and article, section, schedule and
exhibit references are to this Agreement unless otherwise specified. The meaning
of defined terms shall be equally applicable to the singular and plural forms of
the defined terms. The term “or” is disjunctive but not necessarily exclusive.
The terms “include” and “including” are not limiting and mean “including without
limitation.”

     

              (b)
References to agreements and other documents shall be deemed to include all
subsequent amendments and other modifications thereto.

     

              (c)
References to statutes shall include all regulations promulgated thereunder and
references to statutes or regulations shall be construed as including all
statutory and regulatory provisions consolidating, amending or replacing the
statute or regulation.

     

              (d)
The captions and headings of this Agreement are for convenience of reference
only and shall not affect the construction of this Agreement.

     

              (e)
The language used in this Agreement shall be deemed to be the language chosen by
the parties to express their mutual intent, and no rule of strict construction
shall be applied against either party.

     

              (f)
The annexes, schedules and exhibits to this Agreement are a material part hereof
and shall be treated as if fully incorporated into the body of the
Agreement.

     

    ARTICLE 2
THE
MERGER

     

         2.1 The
Merger

     

              (a)
Merger. At the
Effective Time (as defined in Section 2.2 hereof), and subject to and upon the
terms and conditions of this Agreement and in accordance with the California
Code, Merger Sub shall be merged with and into Company, the separate corporate
existence of Merger Sub shall cease, and Company shall continue as the surviving
corporation and a wholly owned subsidiary of Buyer. Company, as the surviving
corporation after the Merger, is hereinafter sometimes referred to as the “Surviving Corporation.”

     

              (b)
Closing. Unless
this Agreement shall have been terminated pursuant to Section 9.1, and subject
to the satisfaction (or, to the extent permitted, the waiver) of the conditions
set forth in Article 6, the closing of the transactions contemplated by this
Agreement (the “Closing”) shall take place at the
Effective Time at the offices of K&L Gates LLP, 70 West Madison Street,
Suite 3100, Chicago, Illinois.

     

    10

     

    

    
    

         2.2 Effective
Time

     

              As
soon as practicable after the satisfaction or, to the extent permitted, the
waiver, of the conditions set forth in Article 6, and provided that this
Agreement has not been terminated pursuant to Section 9.1, Merger Sub and
Company shall prepare, execute and file with the Office of the Secretary of
State of the State of California the Certificate of Merger in order to comply in
all respects with the applicable requirements of the California Code and with
the provisions of this Agreement. For purposes of this Agreement, the “Effective Time” of the Merger shall
mean the time at which the Certificate of Merger has been duly filed with the
Office of the Secretary of State of the State of California and has become
effective in accordance with the California Code; and the term “Closing Date” shall mean the date on
which the Effective Time occurs.

     

         2.3 Effect of the
Merger

     

              At the
Effective Time, the effect of the Merger shall be as provided in this Agreement,
the Certificate of Merger and the applicable provisions of the California Code.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time the Surviving Corporation shall thereupon and thereafter possess
all of the rights, privileges, powers and franchises, of a public as well as a
private nature, of the Constituent Corporations, and shall become subject to all
of the restrictions, disabilities and duties of each of the Constituent
Corporations; and all rights, privileges, powers and franchises of each
Constituent Corporation, and all property, real, personal and mixed, and all
debts to each such Constituent Corporation, on whatever account, and all choses
in action belonging to each such corporation, shall become vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interests shall become thereafter the
property of the Surviving Corporation as they are of the Constituent
Corporations; and the title to any real property vested by deed or otherwise or
any other interest in real estate vested by any instrument or otherwise in
either of such Constituent Corporations shall not revert or become in any way
impaired by reason of the Merger; but all rights of creditors and Encumbrances
upon any property of either Constituent Corporation shall therefore attach to
the Surviving Corporation and shall be preserved unimpaired, and all debts,
liabilities and duties of each Constituent Corporation shall attach to the
Surviving Corporation and may be enforceable against it to the same extent as if
said debts, liabilities and duties had been incurred or contracted by it; all of
the foregoing in accordance with the applicable provisions of the California
Code.

     

         2.4 Articles of Incorporation;
Bylaws

     

              (a)
Articles of
Incorporation. At and after the Effective Time, the Articles of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter duly amended in accordance with applicable law and such Articles of
Incorporation, provided that the name of the Surviving Corporation shall be
“Strategic Office Solutions, Inc.”

     

              (b)
Bylaws. At and
after the Effective Time, the bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving Corporation
until
thereafter duly amended in accordance with applicable law, the Articles of
Incorporation of the Surviving Corporation and such
bylaws.

     

    11

     

    

    
    

         2.5 Directors and
Officers

     

              The
directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and bylaws of the Surviving
Corporation, and the officers of Merger Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified in
the manner provided in the Articles of Incorporation and bylaws of the Surviving
Corporation and in accordance with applicable law. Company shall use
commercially reasonable efforts to cause each of its directors and corporate
officers to tender his or her resignation (collectively, the “Resignations”) prior to the Effective
Time, with each such resignation to be effective as of the Effective
Time.

     

         2.6 Effect on Company
Stock

     

              At the
Effective Time, by virtue of the Merger and without any further action on the
part of Buyer, Merger Sub, Company or the Shareholders:

     

              (a)
Company Stock.
Each share of Company Stock issued and outstanding immediately prior to the
Effective Time will be converted into the right to receive, in accordance with
the terms hereof, the Merger Consideration payable for such share of Company
Stock. When so converted, all of such shares of Company Stock will be
automatically cancelled and retired and shall no longer be
outstanding.

     

              (b)
Merger Sub.
Each share of common stock of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and become one fully paid
and nonassessable share of common stock of the Surviving
Corporation.

     

              (c)
[Intentionally Omitted]

     

              (d)
Dissenters
Rights. Shares of Company Stock that have not been voted in favor of
adoption of the Merger and with respect to which dissenters rights shall have
been properly demanded in accordance with the California Code shall not be
converted as set forth in Section 2.6(a) above at or after the Effective Time
unless and until the holder of such shares withdraws its demand for appraisal in
accordance with applicable law or becomes ineligible for such appraisal, at
which time such shares shall be converted as set forth in Section 2.6(a) above,
without interest. Company shall give Buyer (i) notice of any written demands for
appraisal, withdrawals of demands for appraisal and any other instruments in
respect thereof received by Company prior to the Effective Time, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal. Without the prior written consent of Buyer, which shall
not be unreasonably withheld or delayed, Company will not make any payment with
respect to any demands for appraisal and will not settle or offer to settle any
such demands.

     

              (e)
Cancellation of Buyer
Owned Stock. All of the Company Stock that is owned by Buyer or any
direct or indirect wholly-owned Subsidiary of Buyer shall automatically cease to be
outstanding, shall be canceled and shall cease to exist and no Merger
Consideration shall be delivered in exchange
therefor.

     

    12

     

    

    
    

              (f)
Adjustments to Annex
I. In the event of any reclassification, stock split or stock dividend
with respect to Company Stock or Buyer Common Stock, any change or conversion of
Company Stock or Buyer Common Stock into other securities or any other dividend
or distribution with respect to Company Stock or Buyer Common Stock (or if a
record date with respect to any of the foregoing should occur) prior to the
Effective Time, appropriate and proportionate adjustments shall be made to the
description of the Merger Consideration on Annex I.

     

              (g)
Withholding
Rights. Each of the Surviving Corporation and Buyer shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Stock such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code and the rules and regulations promulgated thereunder, or any provision
of state, local or foreign tax law. To the extent that amounts are so withheld
by the Surviving Corporation or Buyer, as the case may be, and delivered to the
relevant taxing authority, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Company
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or Buyer.

     

         2.7 Delivery of Merger
Consideration

     

              (a)
Exchange Agent.
Prior to the Effective Time, Buyer will designate a Person reasonably acceptable
to Company to act as exchange agent (the “Exchange Agent”) for the payment of the
Merger Consideration in accordance with this Article 2. At or prior to the
Effective Time, Buyer shall deliver the Preliminary Merger Consideration to the
Exchange Agent to be held in trust for the benefit of the Shareholders (the
“Exchange Fund”).

     

              (b)
Distribution of
Transmittal Letter. As soon as practicable after the Effective Time, but
in any event no later than two business days thereafter, Buyer shall, or shall
cause K&L Gates, LLP to, make available to each Shareholder a letter of
transmittal in substantially the form attached hereto as Exhibit E (the “Transmittal Letter”), which Transmittal
Letter shall, among other things, (i) acknowledge that the shares of Buyer
Common Stock are restricted securities, (ii) to the extent that such Shareholder
is not a Signing Shareholder, acknowledge that such Shareholder is agreeing to
the appointment, and indemnification, of the Shareholder Representative, in
accordance with the terms and conditions contained in Section 9.13 of this
Agreement, (iii) to the extent that such Shareholder is not a Signing
Shareholder, acknowledge that such Shareholder is agreeing to the
indemnification obligations contained in Section 8.2(a)(i) of this Agreement,
and (iv) provide instructions for such Shareholder’s use in effecting the
surrender of the certificate or certificates evidencing Company Stock (the
“Certificates”) in exchange for the
Merger Consideration.

     

              (c)
Delivery. At
the Effective Time, each Shareholder shall be entitled to receive, upon
surrender to the Exchange Agent of any Certificates for cancellation, together
with a duly-executed and completed Transmittal Letter, such Shareholder’s
portion of the Merger Consideration set forth opposite such Shareholder’s name
on Annex I, provided that the Subordinated
Indemnity Note shall be held by the Exchange Agent, rather than delivered to the
Escrow
Agent, until such time as the Actual Working Capital is determined in accordance
with Section 2.10(b).

     

    13

     

    

    
    

              (d)
Cancellation of
Company Stock. Upon surrender of each Certificate and delivery by Buyer
of the Merger Consideration to be delivered in exchange therefor, such
Certificate shall forthwith be canceled. Until so surrendered, each Certificate
shall be deemed for all corporate purposes to evidence only the right to receive
upon such surrender its pro rata share of the Merger Consideration in accordance
with the terms and upon the conditions of this Agreement, the Transmittal Letter
and the Exchange Agent Agreement.

     

              (e)
Termination of
Exchange Fund. Any portion of the Exchange Fund that remains
undistributed to the Shareholders for twelve (12) months after the Effective
Time shall be delivered to Buyer, upon demand, and any Shareholders who have not
theretofore completed a Transmittal Letter, submitted it and their Certificates
to the Exchange Agent and otherwise complied with the requirements described in
this Article 2 shall thereafter look only to Buyer for, and Buyer shall remain
liable for, payment of their claims for the Merger Consideration pursuant to the
provisions of this Article 2.

     

         2.8 No Further Ownership Rights in
Shares of Company Stock

     

              At the
Effective Time, the stock transfer books of Company shall be closed, and there
shall be no further registration of transfers of Company capital stock
thereafter on the records of Company. The Merger Consideration delivered upon
the surrender for exchange of shares of Company Stock in accordance with the
terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to the shares of Company Stock. If, after the twelve (12)
month anniversary of the Effective Time, the Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and the holder
thereof shall receive its pro rata share of the Merger Consideration as provided
in this Article 2.

     

         2.9 Lost, Stolen or Destroyed
Certificates

     

              In the
event any Certificates shall have been lost, stolen or destroyed, the Exchange
Agent, Buyer or Surviving Corporation, as applicable, shall issue in exchange
for such lost, stolen or destroyed Certificates, upon the making of an affidavit
of that fact with appropriate indemnification, in form satisfactory to Buyer in
its reasonable discretion, by the Person claiming such Certificate to be lost,
stolen, or destroyed, such Certificate’s pro rata share of the Merger
Consideration pursuant to this Article 2.

     

         2.10 Calculation of Merger
Consideration

     

              (a)
Payments at
Closing. Buyer agrees to pay to Shareholders at the Closing the following
aggregate consideration (the “Preliminary Merger Consideration”): (i)
an amount in cash equal to $24,000,000; (ii) $5,000,000 in Subordinated Purchase
Notes; and (iii) $7,300,000 in the form of 2,085,714 shares of Buyer Common
Stock, (the “Buyer Stock Consideration”). Buyer
agrees to deliver to the Escrow Agent, the Seller Indemnity Note. The
Preliminary Merger Consideration shall be subject to adjustment as set forth in
Section 2.10(b) below.

     

    14

     

    

    
    

              (b)
Determination of
Actual Working Capital and Net Cash on Hand.

     

              (i)
Preliminary
Statement. On the day prior to the Closing Date, Company will prepare and
deliver to Buyer a statement (the “Preliminary Statement”) setting forth
in reasonable detail Company’s determination and calculation of Working Capital
and Net Cash on Hand. The Preliminary Statement will be prepared using the same
accounting treatment and other methodology used by the Company in preparing the
Company Financial Statements, and will in all respects be prepared in a manner
consistent with the Company Financial Statements.

     

              (ii)
Closing Balance
Sheet. Within thirty (30) days after the Closing Date, Shareholder
Representative will prepare, or cause to be prepared, and deliver to Buyer a
statement (the “Closing Balance Sheet”) setting forth
in reasonable detail Shareholder Representative’s determination and calculation
of Working Capital and Net Cash on Hand as of the Closing Date. The Closing
Balance Sheet will be prepared using the same accounting treatment and other
methodology used by the Company in preparing the Company Financial Statements,
and will in all respects be prepared in a manner consistent with the Company
Financial Statements.

     

              (iii)
Closing Statement
Preparation and Review. If Buyer does not object to the calculation of
Net Cash on Hand set forth in the Closing Balance Sheet within thirty-five (35)
days after the Closing Date, or accepts such calculation in writing during such
thirty-five (35) day period, the Closing Balance Sheet will become the final
determination and calculation of the Actual Net Cash on Hand and payment will be
made in accordance with Section 2.10(b)(v). If Buyer does not object to the
calculation of Working Capital set forth in the Closing Balance Sheet within
sixty (60) days after the Closing Date, or accepts such calculation in writing
during such sixty (60) day period, the Closing Balance Sheet will become the
final determination and calculation of the Actual Working Capital and payment
will be made in accordance with Section 2.10(b)(v). If Buyer objects to the
Closing Balance Sheet, as soon as practicable following the Closing Date, but in
no event later than thirty-five (35) days thereafter with respect to Net Cash on
Hand, and no later than sixty (60) days thereafter with respect to Working
Capital, Buyer will notify the Shareholder Representative in writing of such
objection (a “Notice of Objection”). The Notice of
Objection shall contain a statement (the “Closing Statement”) setting forth in
reasonable detail Buyer’s determination and calculation of the Working Capital
and the Net Cash on Hand, and identifying any adjustments to the Preliminary
Merger Consideration as a result of such amounts being greater or less than the
Working Capital and Net Cash on Hand set forth in the Preliminary Statement. The
Closing Statement shall be prepared based on the books and records of Company
using the same accounting treatment and other methodologies used by Company in
preparing the Preliminary Statement.

     

    15

     

    

    
    

              (iv)
Closing Statement
Dispute Resolution. During the thirty (30) day period immediately
following the Shareholder Representative’s receipt of any Notice of Objection,
Buyer and the Shareholder Representative will negotiate in good faith to resolve
all disputed items. If Buyer and the Shareholder Representative are unable to
resolve all of such disputes within thirty (30) days of Shareholder
Representative’s receipt of the Notice of Objection, the items in dispute may be
referred by either such party for determination as promptly as practicable to an
independent accounting firm mutually agreed upon by Buyer and the Shareholder
Representative (the “Independent Accounting Firm”), which shall be jointly engaged by Buyer and the Shareholder
Representative pursuant to an engagement letter in customary form which each of
Buyer and the Shareholder Representative will execute. The parties will direct
the Independent Accounting Firm to prescribe procedures for resolving the
disputed items and to make a written determination, with respect to such
disputed items only, whether and to what extent, if any, the accompanying
calculations of the Working Capital and Net Cash on Hand require adjustment
based on the terms and conditions of this Agreement (the “Determination”).
The Determination will be based solely on presentations with respect to such
disputed items by Buyer and the Shareholder Representative to the Independent
Accounting Firm and not on the Independent Accounting Firm’s independent review;
provided, that such presentations will be deemed to include any written reports,
work papers, records, accounts or similar materials delivered to the Independent
Accounting Firm by Buyer or the Shareholder Representative in connection with
such presentations and any materials delivered to the Independent Accounting
Firm in response to requests by the Independent Accounting Firm. In the absence
of fraud or manifest error, the Determination will be conclusive and binding
upon Buyer, the Shareholder Representative and the Shareholders. The parties
agree that, if the Independent Accounting Firm assigns to any item a value
greater than the greatest value for such item claimed by either Buyer or the
Shareholder Representative (the “Upper Limit”) or
less than the smallest value for such item claimed by Buyer or the Shareholder
Representative (the “Lower Limit”), the
Determination for such item shall be adjusted to the Upper Limit or the Lower
Limit, as applicable. If the value assigned by the Independent Accounting Firm
to the Working Capital and Net Cash on Hand, taken together, is less than
ninety-five percent (95%) of the value assigned to such items by Shareholder
Representative in the Closing Balance Sheet, then the expenses and fees of the
Independent Accounting Firm shall be offset against the aggregate principal
amount of the Subordinated Purchase Note, otherwise such expenses and fees will
be borne by the Buyer. 

     

         (v) Adjustment to Merger
Consideration. The Working
Capital amount determined in accordance with Section 2.10(b) (the “Actual Working Capital”) and the Net Cash on Hand as determined in accordance with Section
2.10(b) (the “Actual Net Cash on Hand”) will be used to calculate any necessary
post-Closing adjustments to the Preliminary Merger Consideration in order to
arrive at the Merger Consideration. Any such post-Closing adjustments to the
Preliminary Merger Consideration resulting from the Actual Net Cash on Hand
being greater than or less than, as the case may be, the Target Net Cash on Hand
shall be made on or before the later of (x) the fifth day after determination of
the Actual Net Cash on Hand and (y) the date thirty-five (35) days after the
Effective Time. Any such post-Closing adjustments to the Preliminary Merger
Consideration resulting from the Actual Working Capital being greater than or
less than, as the case may be, the Target Actual Working Capital shall be made
on or before the later of (x) the fifth day after the determination of the
Actual Working Capital and (y) the date one-hundred twenty (120) days after the
Closing Date.

     

              (A) Subject to subsection (D) below, if the
Actual Working Capital exceeds the Target Working Capital, Buyer will increase
the aggregate cash portion of the Merger Consideration by the amount of such
difference. 

     

    16 

     

    

    
    

              (B) If the Actual Net Cash on Hand exceeds the
Target Net Cash on Hand, Buyer will increase the aggregate cash portion of the
Merger Consideration by the amount of such difference. 

     

              (C) If the Target Working Capital exceeds the
Actual Working Capital, the aggregate principal balance of the Subordinated
Purchase Note shall be reduced by the amount of such
difference. 

     

              (D) If the Target Net Cash on Hand exceeds the
Actual Net Cash on Hand, Shareholders will pay to Buyer the amount of such
difference in cash.

     

              (E) The Preliminary Merger Consideration as
finally adjusted in accordance with this Section 2.10(b) will be deemed to be
the Merger Consideration. 

     

         2.11 Section 338(h)(10) Election 

     

              Buyer, Merger Sub and Company agree to treat
the Merger as a “qualified stock purchase” of the Company Common Stock within
the meaning of section 338(d)(3) of the Code and shall make a joint election
under section 338(h)10) of the Code, and comparable state and local Tax
provisions, with respect to such purchase (the “Section 338(h)(10) Election”). In connection with the making of the Section 338(h)(10) Election,
Buyer and Company have agreed to the allocation set forth in Annex II of the Merger Consideration among the assets
of the Company that are deemed to have been acquired pursuant to section
338(h)(10) of the Code and comparable state and local Tax provisions. Buyer and
Company shall exchange completed and properly executed copies of IRS Form 8023,
required schedules related thereto, and comparable state and local Tax forms and
schedules, all of which are to be prepared on a basis consistent with the
allocation set forth in Annex II. 

     

         2.12 Taking of Necessary Action; Further Action 

     

              Each of Buyer, Merger Sub and 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.

     

    ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY 

     

              As an inducement of Buyer to enter into this
Agreement, Company hereby makes, as of the date hereof, the following
representations and warranties to Buyer, except as otherwise set forth in
written disclosure schedules (the “Schedules”)
delivered to Buyer. The Schedules are numbered to correspond to the various
sections of this Article 3 setting forth certain exceptions to the
representations and warranties contained in this Article 3 and certain other
information called for by this Agreement. Unless otherwise specified, no
disclosure made in any particular Schedule shall be deemed made in any other
Schedule unless expressly made therein (by cross reference or otherwise) or the
Schedules otherwise expressly and completely disclose the specific exception.

     

    17 

     

    

    
    

         3.1 Organization of Company

     

              Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Company has full corporate power and authority to conduct its business as it is
presently being conducted and to own or lease, as applicable, the Company
Assets. Copies of the Articles of Incorporation, certified by the Secretary of
State of California, and the bylaws of Company, certified by the Secretary of
Company, have been delivered to Buyer by Company and are true, correct and
complete in all material respects. Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law as a result of the conduct of
the Company Business or the ownership of its properties and where the failure to
be so qualified would have a Company Material Adverse Effect. Each jurisdiction
in which Company is qualified to do business as a foreign corporation is set
forth in Schedule 3.1. 

     

         3.2 No Subsidiaries; No Interest in Other Entities 

     

              Company has no Subsidiaries and owns no shares
of any corporation and has no other ownership or other investment interest,
either of record, beneficially or equitably, in any company, association,
partnership, joint venture or legal entity, except for bank, checking and money
market accounts. 

     

         3.3 Capitalization of Company 

     

              (a) As of the date of this Agreement, there are 20,000,000 shares of Company
Stock authorized under its Articles of Incorporation, of which 19,357,142 are
issued and outstanding. Schedule 3.3(a) sets forth a complete and accurate list of
the names and addresses of all holders of record, as of the date of this
Agreement, of Company Stock (the “Shareholders”).

     

              (b) As of the date of this Agreement, there are no outstanding and
unexercised options to purchase shares of Company Stock (“Company Options”).

     

              (c) Except as set forth in paragraphs (a) and (b) of this Section 3.3, there
are issued and outstanding (i) no shares of capital stock or other voting
securities of Company, (ii) no securities of Company convertible into or
exchangeable for shares of capital stock or other voting securities of Company,
(iii) no subscription, options, warrants, calls, commitments, preemptive rights
or other rights of any kind to acquire from Company and no obligation of Company
to issue or sell, any shares of capital stock or other voting securities of
Company or any securities of Company convertible into or exchangeable for such
capital stock or voting securities and (iv) no equity equivalents, interests in
the ownership or earnings or stock appreciation, phantom stock or other similar
rights of or with respect to Company. There is no liability for or obligation
with respect to any dividends, distributions or similar participation interests
declared or accumulated but unpaid with respect to any shares of Company capital
stock. 

     

              (d) All outstanding shares of Company Stock are, and any shares of Company
Stock issuable upon exercise of any outstanding Company Option, will, upon
exercise or conversion pursuant to its terms, be, validly issued, fully paid and
non-assessable and not subject to any preemptive rights created by statute,
Company’s Articles of Incorporation or bylaws or any Contract. Each outstanding
share of Company Stock and outstanding Company Option has been, and the shares
of Company Stock issuable upon exercise of any outstanding Company Option will
be, issued in compliance with all federal and state corporate and securities
laws.

     

    18 

     

    

    
    

              (e) Except as set forth in Schedule 3.3(e), there are no outstanding obligations
(contractual or otherwise) of Company to repurchase, redeem or otherwise acquire
any shares of Company capital stock or any other securities of the type
described in paragraph (c) of this Section 3.3. There is no restriction upon the
voting or transfer of any share of Company capital stock or other voting
securities of Company pursuant to Company’s Articles of Incorporation, bylaws or
any Contract to which Company is a party or by which Company is bound, and,
except as contemplated by this Agreement, there is no outstanding vote, plan or
pending proposal for any redemption of Company Stock or other voting securities
of Company or the merger or consolidation of Company with or into any other
entity. Except as set forth in Schedule 3.3(e), there are no voting trusts, shareholder
agreements, proxies or other agreements in effect with respect to the voting or
transfer of the Company Stock. 

     

         3.4 Unlawful Payments and Contributions 

     

              To the knowledge of the Company, neither the
Company, nor any of its directors, officers, employees or agents has (i) used
any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity, (ii)
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee, (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iv) made
any bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any Person or entity.

     

         3.5 Authorization 

     

              Company has all necessary corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and has taken all corporate action required to authorize the execution, delivery
and performance of this Agreement and the consummation of the Merger and the
other transactions contemplated hereby. This Agreement has been duly executed
and delivered by Company, assuming the due authorization, execution and delivery
by Buyer and Merger Sub, and the Shareholders that are parties hereto. This
Agreement is, and upon execution and delivery will be, a legal, valid and
binding obligation of Company, enforceable against Company in accordance with
its terms, except that enforceability may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors. 

     

         3.6 Officers and Directors 

     

              Schedule 3.6 contains a true, correct and complete list of
all corporate officers and directors of Company. 

     

    19 

     

    

    
    

         3.7 Bank Accounts 

     

              Schedule 3.7 contains a list of all of Company’s bank
accounts, safe deposit boxes and persons authorized to draw thereon or have
access thereto. 

     

         3.8 Assets 

     

              Schedule 3.8 contains an accurate list of all tangible
assets and properties owned or leased by Company where the value of an
individual item exceeds $50,000. Except as set forth on Schedule 3.8, Company has good and marketable fee simple
title or a valid leasehold or license to each of the Company Assets, and none of
the Company Assets are subject to any Encumbrances other than Permitted
Encumbrances. The Company Assets constitute all of the assets, rights and
properties, tangible or intangible, real or personal, which are required for the
operation of the Company Business as it is presently conducted. Except as set
forth on Schedule 3.8, all tangible assets and properties which are
part of the Company Assets are in good operating condition and repair (normal
wear and tear excepted) and are usable in the Ordinary Course. 

     

         3.9 Material Contracts 

     

              (a) Disclosure. Schedule 3.9 sets forth a complete and accurate list of
all of Contracts to which Company is a party as of the date of this Agreement of
the following categories (collectively, the “Material Contracts”): 

     

              (i) Contracts that are not made in the Ordinary Course, pursuant to which
aggregate payments of $100,000 or more have been made since January 1, 2009;

     

              (ii) manufacturing or joint development agreements; 

     

              (iii) license agreements or royalty agreements, whether Company is the licensor
or licensee thereunder (excluding licenses that are commonly available on
standard commercial terms, such as software “shrink wrap” or “click through”
licenses), pursuant to which aggregate payments of $25,000 or more have been
made since January 1, 2009; 

     

              (iv) confidentiality and non-disclosure agreements (whether the Company is the
beneficiary or the obligated party thereunder) not otherwise described in this
Section 3.9(a); 

     

              (v) customer orders or sales contracts under which the customer is required
by its terms to make a payment after the date hereof of $100,000 or
more; 

     

              (vi) Contracts or commitments involving future expenditures or Liabilities,
actual or potential, in excess of $100,000 after the date
hereof; 

     

              (vii) Contracts or commitments relating to commission arrangements with others,
pursuant to which aggregate payments of $100,000 or more have been made since
January 1, 2009; 

     

    20 

     

    

    
    

              (viii) employment contracts, consulting contracts and severance agreements,
including Contracts (A) to employ or terminate executive officers or other
Company Employees and other contracts with present officers or directors of
Company or (B) that will result in the payment by, or the creation of any
Liability to pay on behalf of Company, Surviving Corporation or Buyer any
severance, termination, “golden parachute,” or other similar payments to any
Company Employees following termination of employment or otherwise as a result
of the consummation of the transactions contemplated by this
Agreement; 

     

              (ix) indemnification agreements, including Contracts that contain
indemnification obligations, not otherwise described in this Section
3.9(a); 

     

              (x) promissory notes, loans, agreements, indentures, evidences of
indebtedness, letters of credit, guarantees, or other instruments relating to an
obligation to pay money, whether Company shall be the borrower, lender or
guarantor thereunder (excluding credit provided by Company in the Ordinary
Course to purchasers of its products and obligations to pay vendors in the
Ordinary Course), except as disclosed in the Company Financial
Statements; 

     

              (xi) Contracts to which Company is a party, or to Company’s knowledge any
other Contracts, containing covenants limiting the freedom of Company, or any
officer, director, Employee or Affiliate of Company, to engage in any line of
business or compete with any Person that relates directly or indirectly to the
Company Business; 

     

              (xii) any Contract with the federal, state or local government or any agency or
department thereof, pursuant to which aggregate payments of $10,000 or more have
been made since January 1, 2009; 

     

              (xiii) any Contract or other arrangement with a Related Party other than
employment agreements and any compensatory arrangements entered into in the
Ordinary Course; 

     

              (xiv) Contracts that contain a change of control provision granting to another
party or other parties thereto the right to terminate such Contract or take
other action adverse to Company upon or following the Merger or any other
transaction contemplated herein (the “Consent Agreements”); 

     

              (xv) Contracts that purport to limit Company or, after the Effective Time, the
Surviving Corporation or Buyer, from providing any service in any jurisdiction,
whether under the Company name, the Buyer name, or otherwise, or grant any
exclusive geographic, segment or other rights to any third party; 

     

              (xvi) Contracts that are in the nature of offset or barter
arrangements; 

     

              (xvii) professional services contracts, pursuant to which aggregate payments of
$100,000 or more have been made since January 1, 2009; 

     

    21 

     

    

    
    

              (xviii) any fixed-fee professional services contracts under which Company is
obligated to perform not otherwise described in this Section 3.9(a);
and 

     

              (xix) any other Contract material to the Company Business or the Company
Assets. 

     

    True, correct and
complete copies of all of the Material Contracts listed on Schedule 3.9, including all amendments and supplements
thereto, have been made available to Buyer or its Representatives. Company has
included as part of Schedule 3.9 a brief summary of the material terms of each
oral Material Contract. 

     

              (b) Absence of Defaults. All of the Contracts listed pursuant to
paragraph (a) of this Section 3.9 are valid, binding and enforceable against
Company and, to the knowledge of Company, are valid, binding and enforceable
against the other parties thereto, in each case, in accordance with their terms.
Except as set forth on Schedule 3.9, no condition exists or event has occurred
which, with notice or lapse of time or both, would constitute a default under
the Material Contracts by Company or, to the knowledge of Company, any other
party thereto. Company has no reason to believe that the products or services
called for by any Material Contract cannot be supplied in accordance with the
terms of such Material Contract, including time specifications, and has no
reason to believe that any unfinished Material Contract will, upon performance
by Company, result in a material loss to Company. 

     

              (c) Product Warranty. Company has not committed any act, and, to
Company’s knowledge, there has been no omission by Company, which may result in,
and there has been no occurrence which may give rise to, any product Liability
or Liability for breach of warranty (whether covered by insurance or not) on the
part of Company, with respect to products designed, sold, repaired, maintained,
delivered or installed or services rendered prior to or on the Closing Date.

     

         3.10 No Conflict or Violation; Consents 

     

              (a) Except for the Consent Agreements and except as set forth on Schedule 3.10(a), none of the execution, delivery or
performance of this Agreement, the consummation of the Merger or any other
transaction contemplated hereby, nor compliance by Company with any of the
provisions hereof, will (i) violate or conflict with any provision of Company’s
Articles of Incorporation or bylaws, (ii) violate, conflict with, or result in a
breach of or constitute a default (with or without notice or passage of time)
under, or result in the termination of, or accelerate the performance required
by, or result in a right to terminate, accelerate, modify or cancel under, or
require a consent under, or result in the creation of any Encumbrance upon any
of its assets under, any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, security interest or other arrangement to which
Company is a party or by which Company is bound, (iii) violate any applicable
Regulation or Court Order or (iv) impose any Encumbrance on any Company Assets
(other than Permitted Encumbrances), other than, with respect to (ii), (iii) and
(iv) any such violation, conflict, breach, default, termination, acceleration,
modification, cancellation, consent requirement or Encumbrance that would not
reasonably be expected to have a Material Adverse Effect. 

     

    22 

     

    

    
    

              (b) Except as set forth on Schedule 3.10(b), no notices to, declaration, filing or
registration with, approvals or consents of, or assignments by, any Governmental
Authority are necessary to be made or obtained by Company in connection with the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby, except (i) the filing of the Certificate of
Merger with the Secretary of State of the State of California, (ii) any filing
that may be required by the HSR Act, and (iii) such notices, approvals or
consents which if not obtained or made would not reasonably be expected to have
a Material Adverse Effect on Company or impair its ability to consummate the
transactions contemplated hereby. 

     

         3.11 Permits 

     

              (a) Schedule 3.11(a) sets forth a complete list of all Permits
material to the Company Business or the Company Assets, all of which are as of
the date hereof, and will be as of the Closing Date, in full force and
effect.

     

              (b) Except as set forth on Schedule 3.11(b), Company currently has all Permits required
under any applicable Regulation necessary for the lawful conduct of its business
as presently conducted and owns or possesses such Permits free and clear of all
Encumbrances other than Permitted Encumbrances, except for such Permits the
failure of which to obtain have not had and would not reasonably be expected to
have a Company Material Adverse Effect. Company is not in default, nor has
Company received any notice of any claim of default, with respect to any such
Permit, except for such defaults that have not had and would not reasonably be
expected to have a Company Material Adverse Effect. 

     

         3.12 Financial Statements; Books and Records 

     

              (a) Company has made available to Buyer (i) the audited balance sheets of
Company as of each of December 31, 2009 (the “Company Annual Balance Sheet Date”) and December 31, 2008 and the related
statements of income and cash flow for the 12-month periods then ended together
with the notes thereon (the “Audited Financial Statements”), (ii) the reviewed but unaudited balance
sheet of Company as of December 31, 2007 and the related statements of income
and cash flow for the 12-month period then ended together with the notes
thereon, and (iii) the unaudited balance sheet of Company as of the Company
Balance Sheet Date and the related statements of income and cash flow for the
five-month period then ended together with the notes thereon (the financial
statements described in clauses (ii) and (iii) above, collectively, the
“Unaudited Financial
Statements” and together
with the Audited Financial Statements, the “Company Financial Statements”). The Audited Financial Statements have been
prepared in accordance with GAAP consistently applied from period to period. The
Company Financial Statements present fairly, in all material respects, the
financial condition of Company as of the dates stated therein and the results of
operation for the periods stated therein. 

     

              (b) Company has maintained a system of internal accounting controls
sufficient to provide reasonable assurance that transactions have been executed
with management's authorizations, and transactions have been recorded as
necessary to permit preparation of the Company Financial Statements in
accordance with GAAP. 

     

    23 

     

    

    
    

              (c) The Company Books and Records accurately and fairly reflect, in all
material respects, the activities of Company and have been made available to
Buyer for its inspection. 

     

              (d) Company has not engaged in any monetary transaction, maintained any bank
account or used any corporate funds except for such monetary transactions, bank
accounts or funds which have been and are reflected, in all material respects,
in the normally maintained Company Books and Records. 

     

              (e) The stock records and minute books of Company that have been made
available to Buyer reflect all minutes of meetings and resolutions of its
shareholders and board of directors and all committees thereof and, to the
knowledge of Company, all issuances, transfers and redemptions of Company Stock,
and contain true, correct and complete copies of Company’s Articles of
Incorporation and bylaws and all amendments thereto through the date hereof.

     

         3.13 Absence of Certain Changes or Events

     

              Except as set forth on Schedule 3.13, since the Company Balance Sheet Date there
has not been any: 

     

              (a) event or occurrence that would reasonably be expected to constitute a
Company Material Adverse Change; 

     

              (b) failure to exercise commercially reasonable efforts to preserve the
Company Business intact and to preserve the continued services of its Employees
and the goodwill of suppliers, customer and others having existing business
relations with Company; 

     

              (c) resignation or termination of any officer or Employee, or any material
increase in the rate of compensation payable or to become payable to any officer
or Employee of Company, including the making of any loan to, or the payment,
grant or accrual of any bonus, incentive compensation, service award or other
similar benefit to, any such Person, or the addition to, modification of, or
contribution to any Employee Plan (as defined below) other than (i)
contributions made to the benefit plans specified in
Schedule 3.17 in accordance with the normal practices of
Company or (ii) the extension of coverage under such plans to others who became
eligible after the Company Balance Sheet Date; 

     

              (d) payment, loan or advance of any amount to, or in respect of, or the sale,
transfer or lease of any properties or any Company Assets to, or entering into
of any Contract with, any Related Party except in the Ordinary Course and (i)
directors’ fees and (ii) compensation to Employees at the rates disclosed
pursuant to Section 3.16(d); 

     

              (e) sale, assignment, license, transfer or encumbrance of any of the Company
Assets tangible or intangible, singly or in the aggregate, except in the
Ordinary Course; 

     

              (f) new Contracts, or extensions, modifications, terminations or renewals
thereof, except in the Ordinary Course; 

     

    24 

     

    

    
    

              (g) actual or to Company’s knowledge threatened termination of any material
customer account or group of accounts or actual or to Company’s knowledge
threatened material reduction in purchases or royalties payable by any such
customer or occurrence of any event that would reasonably be expected to result
in any such termination or reduction; 

     

              (h) disposition or lapsing of any of the Company Proprietary Rights, in whole
or in part, or, to Company’s knowledge, any disclosure of any material trade
secret, process or know-how to any Person not an Employee or not bound by a
confidentiality agreement; 

     

              (i) material change in accounting methods or practices by Company other than
as required by GAAP; 

     

              (j) revaluation by Company of any of the material Company Assets, including
writing off notes or accounts receivable other than for which adequate reserves
have been established; 

     

              (k) damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the Company Assets or the Company
Business;

     

              (l) declaration, setting aside or payment of dividends or distributions in
respect of any Company Stock (except for the Pre-Closing Dividend) or any
redemption, purchase or other acquisition of any of Company's equity securities;

     

              (m) issuance or reservation for issuance by Company of, or commitment of it
to issue or reserve for issuance, any shares of stock or other equity securities
or obligations or securities convertible into or exchangeable for shares of
Company Stock, other than as required with respect to the grant of options under
the Company Option Plan; 

     

              (n) increase, decrease or reclassification of the Company Stock;

     

              (o) amendment of Company’s Articles of Incorporation or bylaws; 

     

              (p) capital expenditure or execution of any lease or any incurring of
Liability therefor by Company, involving payments in excess of $100,000 in the
aggregate; 

     

              (q) failure to pay any material obligation of Company when due; 

     

              (r) cancellation of any indebtedness or waiver of any rights of substantial
value to Company, except in the Ordinary Course; 

     

              (s) indebtedness incurred by Company for borrowed money or any commitment to
borrow money entered into by Company, or any loans made or agreed to be made by
Company except, in each case, in the Ordinary Course;

     

              (t) Liability in excess of $100,000 incurred by Company except in the
Ordinary Course, or any increase or material change in any assumptions
underlying or methods of calculating any bad debt, contingency or other
reserves; 

     

              (u) payment, discharge or satisfaction of any Liabilities of Company other
than the payment, discharge or satisfaction in the Ordinary Course of
Liabilities reflected or reserved against in the Company Financial Statements or
incurred in the Ordinary Course since the Company Balance Sheet
Date;

     

    25 

     

    

    
    

              (v) acquisition of any equity interest in any other Person; or

     

              (w) agreement by Company to do any of the foregoing.

     

         3.14 Liabilities 

     

              Except as set forth on Schedule 3.14, Company has no Liabilities or obligations
(absolute, accrued, contingent or otherwise) except (i) Liabilities which are
reflected and reserved against in the Company Financial Statements in accordance
with GAAP, (ii) Liabilities incurred in the Ordinary Course since the Company
Balance Sheet Date (all of which Liabilities do not exceed $100,000 in the
aggregate, excluding payroll, rent expenses, and Liabilities incurred in the
Ordinary Course to suppliers and service providers with whom Company had a
business relationship prior to the Company Balance Sheet Date) and (iii)
Liabilities arising under the Contracts (other than obligations which are
required to be reflected on a balance sheet prepared in accordance with GAAP)
set forth on Schedule 3.9 or which are not required to be disclosed on
such Schedule and which have arisen or been incurred in the Ordinary Course.

     

         3.15 Litigation 

     

              Except as set forth on Schedule 3.15, there is no action, order, writ, injunction,
judgment or decree outstanding or claim, suit, litigation, proceeding,
investigation or dispute (collectively, “Actions”) pending
or, to the knowledge of Company, threatened (i) against, relating to or
affecting Company or any of its officers and directors (other than Actions to
which Company is not a party or which relate to or affect the document
management and eDiscovery industries generally), (ii) which seek to enjoin or
obtain damages in respect of the transactions contemplated hereby or by the
Ancillary Agreements or (iii) which prevents, or would reasonably be expected to
prevent Company from consummating the transactions contemplated hereby. None of
the Actions, if adversely determined against Company, or its directors or
officers, would reasonably be expected to result in a loss to Company,
individually or in the aggregate, in excess of $100,000. To the knowledge of
Company, there is no basis for any Action which, if adversely determined against
Company, its directors or officers, would reasonably be expected to result in a
loss to Company, individually or in the aggregate, in excess of $100,000. There
are presently no outstanding judgments, decrees or orders of any court or any
Governmental Authority against or affecting Company. There are no Court Orders
with, or Encumbrances by, any Governmental Authority relating to any
Environmental Laws which regulate, obligate or bind Company. Schedule 3.15 contains a complete and accurate description
of all Actions to which Company is a party or Company’s corporate officers or
directors other than Actions brought by Company for collection of moneys owed in
the Ordinary Course. 

     

         3.16 Labor Matters 

     

              (a) Company is not a party to any collective bargaining agreement with
respect to its Employees with any labor organization, group or association and,
to Company’s knowledge, has not experienced any attempt by organized labor or
its representatives to make Company conform to demands of organized labor
relating to its Employees or to enter into a binding agreement with organized
labor that would cover the Employees of Company. Except as set forth on Schedule 3.16(a),
there is no unfair labor practice charge or complaint under the National Labor
Relations Act against Company pending before the National Labor Relations Board
or any other Governmental Authority arising out of Company’s activities, and
Company does not have any knowledge of any facts or information which would
reasonably be expected to give rise thereto; there is no labor strike or labor
disturbance pending or, to Company’s knowledge, threatened against Company nor
is any grievance currently being asserted against it; and Company has not
experienced a material work stoppage or slow down. Except as set forth on Schedule 3.16(a),
there are no controversies pending or, to the knowledge of Company, threatened
between Company and any of its Employees, and Company is not aware of any facts
which would reasonably be expected to result in any such
controversy.

     

    26 

     

    

    
    

              (b) Company is in material compliance with all applicable Regulations
respecting employment practices, terms and conditions of employment, wages and
hours, equal employment opportunity, the payment of social security and similar
taxes, occupational safety and health and employee documentation. Company is not
liable for any claims for past due wages or any penalties for failure to comply
with any of the foregoing.

     

              (c) Except as set forth on Schedule 3.16(c), Company has not entered into any severance
or similar arrangement in respect of any present or former Employee that will
result in any obligation (absolute or contingent) of Buyer or Company to make
any payment to any present or former Employee following termination of
employment or upon consummation of the transactions contemplated by this
Agreement.

     

              (d) Company has previously made available to Buyer a list of the names of all
present Employees and their current salary or hourly wage rate and other
compensation payable by Company. 

     

         3.17 Employee Benefit Plans 

     

              (a) Definitions. The following terms, when used in this
Section 3.17, shall have the following meanings. Any of these terms may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. 

     

              (i) “Benefit Arrangement” means any employment, consulting, severance or other similar contract,
arrangement or policy and each plan, arrangement (written or oral), program,
agreement or commitment providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability or accident benefits (including any “voluntary
employees” beneficiary association” as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement insurance,
compensation or benefits which (A) is not a Welfare Plan, Pension Plan or
Multiemployer Plan, (B) is entered into, maintained, contributed to or required
to be contributed to, as the case may be, by Company or any ERISA Affiliate or
under which Company or any ERISA Affiliate may incur any liability, and (C)
covers any employee or former employee of Company or any ERISA Affiliate (with
respect to their relationship with such entities). 

     

    27 

     

    

    
    

              (ii) “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended. 

     

              (iii) “Employee Plans”
means all Benefit Arrangements, Multiemployer Plans, Pension Plans and Welfare
Plans. 

     

              (iv) “ERISA Affiliate”
means any entity which is (or at any relevant time was) a member of a
“controlled group of corporations” with or under “common control” with Company
as defined in Section 414(b), (c), (m) or (o) of the Code. 

     

              (v) “Multiemployer Plan” means any “multiemployer plan,” as defined in Section 3(37) of
ERISA. 

     

              (vi) “PBGC” means the
Pension Benefit Guaranty Corporation. 

     

              (vii) “Pension Plan”
means any “employee pension benefit plan” as defined in Section 3(2) of ERISA
(other than a Multiemployer Plan) (A) which Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or,
within the five years prior to the Closing Date, maintained, administered,
contributed to or was required to contribute to, or under which Company or any
ERISA Affiliate may incur any liability and (B) which covers any employee or
former employee of Company or any ERISA Affiliate (with respect to their
relationship with such entities). 

     

              (viii) Welfare Plan.
“Welfare Plan” means any “employee welfare benefit plan” as defined in Section
3(1) of ERISA, (A) which Company or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or under which Company or any
ERISA Affiliate may incur any liability and (B) which covers any employee or
former employee of either of Company or any ERISA Affiliate (with respect to
their relationship with such entities). 

     

              (b) Disclosure; Delivery of Copies of Relevant
Documents and Other Information. Schedule 3.17 contains a complete list of Employee Plans
which cover Employees of Company (with respect to their relationship with
Company), including any special bonus, benefit or compensation arrangement with
executives of Company that will remain in effect after the Effective Time. True,
complete and correct copies of each of the following documents have been made
available to Buyer by Company: (i) each Welfare Plan and Pension Plan (and, if
applicable, related trust agreements) and all amendments thereto, all material
written interpretations thereof and material written descriptions thereof
currently in effect which have been distributed to the employees of Company and
all annuity contracts or other funding instruments currently in effect, (ii)
each Benefit Arrangement including material written interpretations thereof and
material written descriptions thereof currently in effect which have been
distributed to Company's Employees (including descriptions of the number and
level of Employees covered thereby), (iii) the most recent determination letter
issued by the Internal Revenue Service with respect to each Pension Plan, (iv)
for the three most recent plan years, Annual Reports on Form 5500 Series
required to be filed with any Governmental Authority for each Pension Plan, and
(v) a description setting forth the amount of any liability of Company as of the
Closing Date for payments more than 30 days past due with respect to each
Welfare Plan. 

     

    28 

     

    

    
    

              (c) Representations. 

     

              (i) Pension Plans. No Pension Plan is subject to Title IV of
ERISA or Section 412 of the Code. 

     

              (ii) Multiemployer Plans. Neither Company nor any ERISA Affiliate
contributes to, or within the past six years has been obligated to, contribute
to any Multiemployer Plan. 

     

              (iii) Welfare Plans. None of Company, any ERISA Affiliate or any
Welfare Plan has any present or future obligation to make any payment to or with
respect to any present or former employee of Company or any ERISA Affiliate
pursuant to any retiree medical benefit plan, or other retiree Welfare Plan
other than as may be required by COBRA or other similar state law, and no
condition exists which would prevent Company from amending or terminating any
such benefit plan or Welfare Plan. 

     

              (iv) Compliance with Law. Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument has received a favorable
determination letter from the IRS that such Pension Plan is qualified and
tax-exempt under the provisions of Sections 401(a) (or 403(a), as appropriate)
and 501(a) of the Code and no facts or circumstances exist which would
reasonably be expected to adversely effect such qualification in form or in
operation other than violations that may be corrected under the IRS voluntary
corrections programs without penalty. Each Welfare Plan which is a “group health
plan,” as defined in Section 607(1) of ERISA, has been operated in material
compliance with provisions of Parts 6 and 7 of Title I of ERISA and Section
4980B of the Code at all times. 

     

              (v) Benefit Arrangements. Each Benefit Arrangement which covers
Employees of Company (with respect to their relationship with Company) has been
maintained in material compliance with its terms and with the requirements
prescribed by any and all Regulations which are applicable to such Benefit
Arrangement, including the Code. Except as set forth in Schedule 3.17, and except as provided by law, the
employment of all persons presently employed or retained by Company is
terminable at will at any time and without advance notice. 

     

              (vi) Deductibility of Payments. There is no Contract covering any Employee
of Company (with respect to their relationship with Company) that, individually
or collectively, provides for the payment by Company of any amount (i) that is
not deductible under Section 162(a)(1) or 404 of the Code currently or (ii) that
is an “excess parachute payment” pursuant to Section 280G of the
Code. 

     

              (vii) Fiduciary Duties and Prohibited
Transactions. Neither
Company nor to its knowledge any plan fiduciary of any Welfare Plan or Pension
Plan which covers employees or former employees of Company, has engaged in any
transaction in violation of Sections 404 or 406 of ERISA or any “prohibited
transaction,” as defined in Section 4975(c)(1) of the Code, for which no
exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the
Code. 

     

    29 

     

    

    
    

              (viii) No Amendments. Neither Company nor any ERISA Affiliate has
any announced plan or legally binding commitment to create any additional
Employee Plans or to amend or modify any existing Employee Plan, except as may
be required under applicable law.

     

              (ix) No Acceleration of Rights or
Benefits. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the acceleration or creation of
any rights of any person to benefits under any of the Employee Plans, the
acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any Pension Plan or the creation of
rights under any severance, parachute or change of control
agreement. 

     

              (x) No Other Material Liability. No event has occurred in connection with
which Company or any ERISA Affiliate or any Employee Plan, directly or
indirectly, is currently subject to any material liability (i) under any
Regulation or governmental order relating to any Employee Plans or (ii) pursuant
to any obligation of Company to indemnify any Person against liability incurred
under, any such Regulation or order as they relate to the Employee Plans.

     

         3.18 Transactions with Related Parties 

     

              Except for employment agreements and other
compensation arrangements, and as otherwise disclosed on Schedule 3.18, no Shareholder or Related Party (a) has
borrowed from, or loaned money or other property to, Company which has not been
repaid or returned, (b) has any contractual or other claims, express or implied,
of any kind whatsoever against Company, (c) has any interest in any Company
Asset or any property used by Company or (d) is a party, directly or indirectly,
to any Contract with Company. 

     

         3.19 Compliance with Law 

     

              Except as set forth in Schedule 3.19, Company has conducted the Company Business
in material compliance with all applicable Regulations and Court Orders. Company
has not received any notice to the effect that, or has otherwise been advised in
writing that, Company is not in material compliance with any such Regulations or
Court Orders. 

     

         3.20 Intellectual Property 

     

              (a) General. Schedule 3.20(a) sets forth with respect to the Company
Proprietary Rights: (i) for each patent and patent application that has been
filed with the applicable patent authority in any country, as applicable, the
number, normal expiration date, title and priority information for each country
in which such patent has been issued, or, the application number, date of
filing, title and priority information for each country, (ii) for each
trademark, tradename or service mark that Company has used in commerce in
connection with the marketing or promotion of its products and services, whether
or not registered, the date first used, the application serial number or
registration number, the class of goods covered, the nature of the goods or
services, the countries in which the names or mark is used and the expiration
date for each country in which a trademark has been registered, (iii) for each
copyright for which registration has been sought, whether or not registered, the
date of creation and first publication of the work, the number and date of
registration for each country in which a copyright application has been registered, (iv) each
mask work, whether or not registered, the date of first commercial exploitation
and if registered, the registration number and date of registration, (v) a list
of all such Proprietary Rights in the form of licenses from any third parties to
Company, other than “shrink wrap”, “click through” or similar software licenses,
and (vi) a list of all such Company Proprietary Rights which are licensed by
Company to any third parties. True and correct copies of all applications and
registrations for each of Company’s Proprietary Rights required to be listed on
Schedule 3.20(a) have been made available to Buyer.

     

    30 

     

    

    
    

              (b) Adequacy. The Company Proprietary Rights constitute
all of the Proprietary Rights used in the conduct of the Company Business as
presently conducted, including the design, manufacture and sale of all products
currently under development, or in production. With regard to any Proprietary
Rights based upon an assignment from any third party, such assignment(s) have
been duly recorded where and as necessary to establish and maintain the Company
Proprietary Rights.

     

              (c) Royalties and Licenses. Except as set forth in Schedule 3.20(c), Company has no obligation to compensate any
Person for the use of any of the Company Proprietary Rights nor has Company
granted to any Person any license, option or other rights to use in any manner
any of the Company Proprietary Rights, whether requiring the payment of
royalties or not. 

     

              (d) Ownership. Except as set forth in Schedule 3.20(d), Company exclusively owns or has been granted
an unexpired right to use the Company Proprietary Rights, without any
Encumbrances (other than Permitted Encumbrances), and such Proprietary Rights
will not cease to be existing rights of Company by reason of the execution,
delivery and performance of this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby; nor will this
Agreement or the Ancillary Agreements or the consummation of the transactions
contemplated hereby or thereby otherwise have a Material Adverse Effect on the
Proprietary Rights; and the Proprietary Rights will remain fully transferable,
alienable, and licensable without restriction and without payment. Further, this
Agreement, the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby will not cause any payment or royalty (i) to be
created other than in the Ordinary Course; or (ii) to become accelerated. The
patents and the registered trademarks and copyrights of the Company are valid
and in full force and effect and are not subject to any fines, maintenance fees
or Actions falling due within 90 days of the date hereof. 

     

              (e) Absence of Claims. Except as set forth in Schedule 3.20(e), Company has not
received any written notice of any (A) invalidity, challenge of the legality or
ownership or unenforceability, or alleged invalidity, challenge of the legality
or ownership or unenforceability with respect to any of the Company Proprietary
Rights; (B) infringement, misappropriation, or alleged infringement or
misappropriation of any Proprietary Rights of others due to any activity by
Company; or (C) infringement, misappropriation, or alleged infringement or
misappropriation of the Company Proprietary Rights. To Company’s knowledge,
neither the holding or use by Company of any of the Company Proprietary Rights
nor the offering or sale or other provision by Company of any services or
products marketed or sold or otherwise provided by Company violates or is
alleged to violate any license, sublicense or other agreement with, or infringes
any common-law or statutory right of, any third party anywhere in the world. No
other Person (i) has notified Company that it is claiming any ownership of or
right to use any of the Company Proprietary Rights or (ii) to Company’s
knowledge, is infringing upon any such Company Proprietary Rights in any
way.

     

    31 

     

    

    
    

              (f) Protection of Proprietary
Rights. Except as set
forth in Schedule 3.20(f), all of the pending applications for the
Company Proprietary Rights listed on Schedule 3.20(a) have been duly filed and all registrations
and issued patents that are part of the Company Proprietary Rights are in full
force and effect and are not subject to any fines, maintenance fees or Actions
falling due within 90 days after the date hereof. Company has taken all
reasonable steps that are customary in the industry (including, entering into
confidentiality and nondisclosure agreements, in connection with the Company
Assets or the Company Business) to safeguard and maintain the secrecy and
confidentiality of, and the proprietary rights in, the Company Proprietary
Rights, except where any failure to do so would not reasonably be expected to
have a Company Material Adverse Effect. Without limiting the foregoing, except
as set forth in Schedule 3.20(f), all material Company Proprietary Rights that
were created by consultants, independent contractors or other third parties for
or on behalf of Company are subject to written agreements pursuant to which all
right, title and interest therein, including without limitation the copyrights
thereto, have been assigned to Company. 

     

         3.21 Taxes

     

              (a) Filing of Tax Returns. Except as set forth on Schedule 3.21(a), Company has timely
filed with the appropriate taxing authorities all Tax Returns that it was
required to file under applicable laws and regulations. The Tax Returns filed
are complete, correct and accurate in all respects. Except as specified in
Schedule 3.21, Company is not currently the beneficiary of
any extension of time within which to file Tax Returns in respect of any Taxes.
Company has delivered, or made available, to Buyer complete and accurate copies
of all Tax Returns of Company for the years ended December 31, 2009, 2008 and
2007. No claim has ever been made by an authority in a jurisdiction where
Company does not file Tax Returns that Company is or may be subject to taxation
by that jurisdiction.

     

              (b) Payment of Taxes. All Taxes due and owing by Company (whether
or not shown on any Tax Return) have been paid. Company has not incurred a
Liability for additional Taxes other than in the Ordinary Course.

     

              (c) Audits, Investigations or
Claims. Except as set
forth on Schedule 3.21(c), no deficiencies for Taxes of Company have
been claimed, proposed or assessed by any taxing or other Governmental
Authority. There are no current, pending or, to the knowledge of Company,
threatened audits, assessments or other Actions for or relating to any Liability
in respect of Taxes of Company, and there are no matters under discussion with
any taxing or Governmental Authorities, or known to Company, with respect to
Taxes that are likely to result in an additional Liability for Taxes by Company.
Audits of federal, state and local Tax Returns by the relevant taxing
authorities have been completed for the periods set forth on Schedule 3.21 and, except as set forth in such Schedule,
Company has not been notified in writing that any taxing authority intends to
audit a Tax Return for any other period. No extension of a statute of
limitations relating to Taxes is in effect with respect to Company.

     

              (d) Liens. Except as set forth on Schedule 3.21(d), there are no Encumbrances for Taxes (other
than for current Taxes not yet due and payable) on any of Company’s Assets or
the Company Stock. 

     

    32 

     

    

    
    

              (e) Tax Elections. All elections with respect to Taxes
affecting Company or its assets as of the date hereof are set forth on Company’s
latest Tax Returns or on Schedule 3.21. Company (i) has not made a deemed dividend
election under Reg. § 1.1502-32(f)(2) or a consent dividend election under
Section 565 of the Code; (ii) has not consented at any time under Section
341(f)(1) of the Code to have the provisions of Section 341(f)(2) of the Code
apply to any disposition of any Taxpayers’ Assets; (iii) has not agreed, or is
required, to make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise; (iv) has not made an election, or is
required, to treat any Company Asset as owned by another Person pursuant to the
provisions of Section 168(f) of the Code or as tax-exempt bond financed property
or tax-exempt use property within the meaning of Section 168 of the Code; and
(v) has not made any of the foregoing elections or is required to apply any of
the foregoing rules under any comparable state or local Tax
provision.

     

              (f) Prior Affiliated Groups. Company has never been a member of an
affiliated group of corporations within the meaning of Section 1504 of the Code
other than a group that had Company as its common parent. 

     

              (g) Tax Sharing Agreements. There are no Tax-sharing agreements or
similar arrangements (including indemnity arrangements) with respect to or
involving Company, and, after the Closing Date, Company shall not be bound by
any such Tax-sharing agreements or similar arrangements (entered into prior to
the Closing) or have any Liability thereunder for amounts due in respect of
periods prior to the Closing Date. 

     

              (h) Partnerships. Company does not have any interest in and is
not subject to any joint venture, partnership, or other arrangement or contract
which is treated as a partnership for federal income tax purposes.

     

              (i) Successors. Company is not a successor to any other
Person by way of merger, reorganization or similar transaction. 

     

              (j) U.S. Real Property Holding
Corporation. Company is
not and has never been a United States real property holding corporation as
defined in Section 897(c)(2) of the Code during the applicable period specified
in Section 897(c)(1)(A)(ii) of the Code. 

     

              (k) No Withholding. The Merger is not subject to the tax
withholding provisions of Section 3406 of the Code, or of Subchapter A of
Chapter 3 of the Code. 

     

              (l) Closing Agreements. Company has not executed or entered into any
closing agreement under Section 7121 of the Code (or any similar provision of
state, local or foreign law) or has not agreed to make any adjustment to its
income or deductions pursuant to Section 481(a) of the Code (or similar
provision of state, local or foreign law) in either case that could affect its
Tax liability after the Closing Date to any extent. 

     

              (m) Compliance with Withholding
Taxes. Company has
withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owning to any employee, independent
contractor, creditor, stockholder, or other third party. 

     

    33 

     

    

    
    

              (n) S-corporation Election. Company has been a validly electing S
corporation within the meaning of Code Section 1361 and Section 1362 during its
existence and Company will be an S corporation up to and including the Effective
Time. 

     

              (o) Section 338(h)(10) Election. Company shall not be liable for any Tax
under Code Section 1374 in connection with the deemed sale of Company’s assets
(including the assets of any qualified subchapter S subsidiary) caused by the
Section 338(h)(10) Election. Company has not, in the past 7 years (A) acquired
assets from another corporation in a transaction in which Company’s Tax basis
for the acquired assets was determined, in whole or in part, by reference to the
Tax basis of the acquired assets (or any other property) in the hands of the
transferor or (B) acquired the stock of any corporation that is a qualified
subchapter S subsidiary. 

     

         3.22 Insurance 

     

              Schedule 3.22 contains a complete and accurate list of all
policies or binders of insurance (showing as to each policy or binder the
carrier, policy number, coverage limits, expiration dates, annual premiums and
any pending claims thereunder) of which Company is the owner, insured or
beneficiary. Such insurance policies are of the type and in the amounts that are
customarily carried by Persons conducting businesses similar to the Company
Business, and are reasonable in light of the risks associated with the Company
Business. Company is not in default under any of such policies or binders, and
it has not failed to give any notice or to present any claim under any such
policy or binder in a due and timely fashion. There are no outstanding unpaid
claims under any such policies or binders. Such policies and binders are in full
force and effect. 

     

         3.23 Accounts Receivable 

     

              The accounts and notes receivable reflected in
the Company Balance Sheet, and all accounts or notes receivable arising since
the Company Balance Sheet Date are genuine and represent bona fide claims
against debtors for sales, services performed or other charges arising on or
before the date of recording thereof, and all the goods delivered and services
performed which gave rise to said accounts were delivered or performed in
accordance with the applicable orders, Contracts or customer requirements. All
such receivables are, to the knowledge of Company, fully collectible in the
Ordinary Course except to the extent of an amount not in excess of the reserve
for doubtful accounts reflected on the Company Balance Sheet and additions to
such reserves as reflected on the Company Books and Records. Since the date of
the Company Balance Sheet, Company has not changed any principle or practice
with respect to the recordation of accounts receivable or the calculation of
reserves therefor, or any collection, discount or write-off policy or procedure
unless required by GAAP or statutory accounting principles. 

     

         3.24 Customers and Suppliers 

     

              Schedule 3.24 sets forth (i) a complete and accurate list
of the names and addresses of (i) the customers who, since January 1, 2009, have
made aggregate payments of at least $250,000 to Company, showing the approximate
total sales in dollars to each such customer during such period, (ii) a complete
and accurate list of the names and 2009 revenue of the largest twenty-five (25)
customers, by revenue, of Company, (iii) a complete and accurate list of the
names and 2009 revenue of the largest twenty-five (25) matters, by revenue, of
the Company, and (iv) suppliers with sales to Company greater than $100,000
during the last fiscal year and $25,000 during the last fiscal quarter, showing
the approximate total purchases in dollars by Company from each such supplier
during such periods. Since the Company Balance Sheet Date, there has been no
Company Material Adverse Change in the business relationship of Company with any
customer or supplier named on Schedule 3.24.
Company has not received any written communication from any customer or supplier
named on Schedule
3.24 of any intention to return, terminate or materially reduce purchases
from or supplies to Company. 

     

    34 

     

    

    
    

         3.25 Environmental Matters 

     

              Except as set forth in Schedule 3.25 and except as would not reasonably be
expected to have a Company Material Adverse Effect, (i) there is and has been no
Handling of Substances at, on, or from any Operating Site in material violation
of any Environmental Law; (ii) there is and has been no material presence of
Substances on, in or under any Operating Site regardless of how the Substance or
Substances came to rest there; (iii) no underground tanks, PCBs or
asbestos-containing materials are or have been located on, in or under any
Operating Site; (iv) Company has not received written notice of any assertion by
any Governmental Authority that it or a predecessor business or landowner may be
a responsible party in connection with any Operating Site, and Company has no
knowledge of any pending or threatened claims or any reasonable basis for a
claim by any Person against Company under any Environmental Law; (v) no
Encumbrances have been, or are, imposed on any of the Company Assets under any
Environmental Law; (vi) Company has made available to Buyer copies of all
environmental reports or studies of any kind relating to Company or any
Operating Site; and (vii) Company has obtained all material Permits and has made
all reports and notifications required under any Environmental Law, and is in
material compliance with all applicable Environmental Laws. Schedule 3.25 hereto also contains a list and brief
description of all filings by Company with, notices to Company from, and related
reports to any Governmental Authority administering an Environmental Law, within
three years prior to the date hereof, including without limitation, filings
made, corrective action taken, or citations and notices of violations received
by Company with respect to any Operating Site. 

     

         3.26 Brokers; Transaction Costs 

     

              Except for its Contract with St. Charles
Capital, LLC, Company has not entered into any Contract with any Person which
will result in the obligation of Buyer, Merger Sub or Company, to pay any
finder’s fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby. 

     

         3.27 No Other Agreements to Sell Company or the Company Assets

     

              Company does not have any legal obligation,
absolute or contingent, to any other Person to sell a material portion of the
Company Assets (other than in the Ordinary Course) or to sell any capital stock
of Company (except pursuant to the conversion or exercise of outstanding
securities and except pursuant to option grants to Employees of Company) or to
effect any merger, consolidation or other reorganization of Company or to enter
into any agreement with respect thereto, except pursuant to this Agreement.

     

    35 

     

    

    
    

         3.28 Financial Projections: Operating Plan 

     

              Company has made available to Buyer certain
financial projections with respect to the operating plan and sales pipeline for
Company. Company makes no representation or warranty regarding the accuracy of
such projections or as to whether such projections will be achieved, except that
Company represents and warrants that such projections were prepared in good
faith and are based on assumptions believed by it to be reasonable as of the
date the projections were prepared and has disclosed any material changes since
their preparation to Buyer. 

     

         3.29 Real Property 

     

              Except as set forth on Schedule 3.29, neither Company nor any predecessor owns, or
ever has owned, any real property. Schedule 3.29 contains a list of all real property leased
by Company. Except as set forth on Schedule 3.29, all such real property leases are valid and
subsisting and in full force and effect. Neither Company nor, to the knowledge
of Company, any other party to such real property leases is in breach or default
under such real property leases, and, to the knowledge of Company, no event has
occurred or circumstance exists which, with the delivery of notice, the passage
of time or both, would constitute such a breach or default or permit the
termination, modification or acceleration of rent under such real property
leases. 

     

    ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUB

     

              As an inducement of Company to enter into this
Agreement, Buyer and Merger Sub, where applicable, hereby make the following
representations and warranties to Company: 

     

         4.1 Organization of Buyer and Merger Sub 

     

              Each of Buyer and Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, in the case of Buyer, and the State of California, in the
case of Merger Sub, and has full corporate power and authority to conduct its
Business as it is presently being conducted, and to own or lease, as applicable,
its Assets. Each of Company and Merger Sub is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law as a result of the conduct of
its respective Business or the ownership of its respective properties and where
the failure to be so qualified would have a Buyer Material Adverse Effect.

     

         4.2 Authorization 

     

              The Board of Directors of Merger Sub has
declared the Merger advisable and Merger Sub has the requisite corporate power
and authority to approve, authorize, execute and deliver this Agreement and the
Ancillary Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The Board of Directors of Buyer has declared
the Merger and issuance of Buyer Common Stock advisable and Buyer has the
requisite corporate power and authority to approve, authorize, execute and
deliver this Agreement and the Ancillary Agreements to which it is a party and
to consummate the transactions contemplated hereby and thereby. This Agreement,
the Ancillary Agreements and the consummation by Buyer and Merger Sub of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Boards of Directors of Buyer and Merger Sub and no other
corporate proceedings on the part of Buyer or Merger Sub (other than any
required approval of the Merger by the stockholders of Buyer in accordance with
the listing requirements or other rules applicable to issuers whose securities
are listed on the NASDAQ Capital Market (“NCM”)) are necessary to authorize this
Agreement and the Ancillary Agreements or to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly and validly
executed and delivered by Buyer and Merger Sub and, assuming this Agreement
constitutes the valid and binding agreement of the Company and the Signing
Shareholders, constitutes the valid and binding agreement of Buyer and Merger
Sub, enforceable against Buyer and Merger Sub in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors’ rights
and to general principles of equity.

     

    36 

     

    

    
    

         4.3 No Conflict or Violation; Consents 

     

              (a) None of the execution, delivery or performance of this Agreement or any
Ancillary Agreement, the consummation of the Merger or any other transaction
contemplated hereby or thereby, nor compliance by Buyer or Merger Sub with any
of the provisions hereof or thereof, will (i) violate or conflict with any
provision of Buyer’s or Merger Sub’s Certificate of Incorporation, bylaws or
other governing documents, (ii) violate, conflict with, or result in a breach of
or constitute a default (with or without notice or passage of time) under, or
result in the termination of, or accelerate the performance required by, or
result in a right to terminate, accelerate, modify or cancel under, or require a
consent under, or result in the creation of any Encumbrance upon any of its
assets under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, security interest or other arrangement to which Buyer or Merger
Sub is a party or by which Buyer or Merger Sub is bound, (iii) violate any
applicable Regulation or Court Order or (iv) impose any Encumbrance on any of
Buyer’s or Merger Sub’s Assets. 

     

              (b) Except for any filings that may be required on a Current Report on Form
8-K to reflect this Agreement and any other approvals and filings previously
obtained or made and in full force and effect, no notices to, declaration,
filing or registration with, approvals or consents of, or assignments by, any
Governmental Authority are necessary to be made or obtained by Buyer or Merger
Sub in connection with the execution, delivery or performance of this Agreement
or any Ancillary Agreement or the consummation of the transactions contemplated
hereby or thereby. 

     

         4.4 Litigation 

     

              There is no Action pending or, to the
knowledge of Buyer, threatened or anticipated, against Buyer or Merger Sub
which, if determined adversely, would reasonably be expected to have a Buyer
Material Adverse Effect, or would prevent, or would reasonably be expected to
prevent Buyer or Merger Sub from entering into and performing its obligations
under this Agreement and the Ancillary Agreements. There is no unsatisfied
judgment or any open injunction binding upon Buyer or Merger Sub which would
reasonably be expected to have a Buyer Material Adverse Effect, or would
prevent, or would reasonably be expected to prevent Buyer or Merger Sub from
entering into and performing its obligations under this Agreement and the
Ancillary Agreements.

     

    37 

     

    

    
    

         4.5 Brokers 

     

              Except for its Contract with St. Charles
Capital, LLC, neither Buyer nor Merger Sub has entered into and will not enter
into any Contract with any Person which will result in the obligation of Buyer,
Merger Sub, Company or the Shareholders to pay any finder’s fee, brokerage
commission or similar payment in connection with the transactions contemplated
hereby. 

     

         4.6 Capital Structure 

     

              The authorized capital stock of Buyer consists
of 40,000,000 shares of common stock, par value $0.001 per share, and 7,931,370
shares which are designated as preferred stock, par value $0.001 per share. As
of the date hereof, there are (i) 10,558,613 shares of Buyer Common Stock issued
and outstanding and no Buyer Common Stock held in Buyer’s treasury, (ii)
2,076,323 shares of Buyer Common Stock reserved for issuance upon exercise of
outstanding stock options, (iii) 626,126 shares of Buyer Common Stock reserved
for issuance upon exercise of outstanding warrants, (iv) 35,262 shares of Buyer
Common Stock reserved for issuance upon debt conversion, (v) 100,000 shares of
Buyer Common Stock reserved for issuance in the event certain milestones are
achieved with respect to the business formerly operated by AXS-One, Inc., and
(vi) no preferred stock of Buyer issued and outstanding, held in Buyer’s
treasury or reserved for issuance. All of the issued and outstanding shares of
Buyer Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. Other than as referenced above, Buyer does
not have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any Buyer Common Stock or preferred shares or any other equity
security of Buyer or any securities representing the right to purchase or
otherwise receive any Buyer Common Stock or any other equity security of Buyer.
Buyer owns 100% of the outstanding equity interests in each subsidiary of Buyer.
Other than as described in the SEC Documents, there are not as of the date
hereof and there will not be at the Effective Time any stockholder agreements,
voting trusts or other agreements or understandings to which the Buyer is a
party or to which it is bound relating to the voting of any shares of the
capital stock of the Buyer. Except as described in the SEC Documents, there are
no existing rights with respect to the registration of Buyer Common Stock under
the Securities Act, including, but not limited to, demand rights or piggy-back
registration rights.

     

         4.7 Availability of Merger Consideration 

     

              (a) Buyer has the funds available for the cash portion of the Merger
Consideration. 

     

              (b) At the Effective Time, the Buyer Common Stock will be duly authorized,
validly issued, fully paid and nonassessable, free and clear of Encumbrances.
None of the issuance, sale or delivery of the Buyer Common Stock to the
Shareholders is subject to any preemptive right of stockholders of Buyer or to
any right of first refusal or other right in favor of any Person which has not
been observed or waived. 

     

    38 

     

    

    
    

              (c) Buyer has obtained the
requisite approval of its stockholders to issue the Buyer Common Stock issuable
upon conversion of the Subordinated Seller Notes, subject to any applicable
waiting periods under the Exchange Act or other securities laws.

     

              (d) The issuance of the Buyer
Common Stock to the Shareholders at the Effective Time in accordance with this
Agreement will be exempt from registration under applicable federal and state
securities laws. 

     

         4.8 SEC Documents; Buyer Financial Statements

     

              Buyer has furnished or made available to
Company true and complete copies of all reports or registration statements filed
by it with the U.S. Securities and Exchange Commission (the “SEC”) since
January 1, 2007, all in the form so filed (all of the foregoing being
collectively referred to herein as the “SEC Documents”).
As of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act as the
case may be, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, except to the extent corrected by a
document subsequently filed with the SEC prior to the date of this Agreement.
The consolidated financial statements of Buyer, including the notes thereto,
included in the SEC Documents (the “Buyer Financial Statements”) have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) and present
fairly, in all material respects, the consolidated financial position of Buyer
at the dates thereof and the consolidated results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Buyer has timely filed all forms, reports
and documents required to be filed by it with the SEC in the last twelve months
under the Exchange Act. 

     

         4.9 Merger Sub 

     

              Merger Sub is a wholly owned subsidiary of
Buyer that was formed by Buyer solely for the purpose of engaging in the Merger
and the other transactions contemplated by this Agreement. As of the date of
this Agreement and the Effective Time, Merger Sub has (i) has engaged in no
other business activities, (ii) has conducted its operations only as
contemplated by this Agreement, and (iii) has no liabilities and is not a party
to any agreement other than this Agreement. Buyer, as the sole stockholder of
Merger Sub, has adopted this Agreement. 

     

         4.10 Employee Benefits Matters 

     

              Employees of Company shall be given credit
under each employee benefit plan, program, policy or arrangement of Buyer in
which the Employees are eligible to participate for all service with Company (to
the extent service was credited by Company) for purposes of eligibility,
vesting, severance and vacation entitlement. 

     

    39

     

    

    
    

         4.11 Present Compliance with Obligations and Laws

     

              Neither Buyer nor Merger Sub is: (i) in
violation of its Certificate of Incorporation, Articles of Incorporation, bylaws
or similar documents; (ii) in default in the performance of any obligation,
agreement or condition of any debt instrument which (with or without the passage
of time or the giving of notice, or both) affords to any Person the right to
accelerate any indebtedness or terminate any right; (iii) in default under or
breach of (with or without the passage of time or the giving of notice) any
other contract to which it is a party or by which it or its assets are bound; or
(iv) in violation of any Regulation or Court Order applicable to it or its
assets; except where any violation, default or breach under items (ii), (iii) or
(iv) would not reasonably be expected to have a Buyer Material Adverse
Effect.

     

         4.12 Absence of Certain Changes

     

              Except as described in the SEC Documents,
since the date of the most recent Buyer Financial Statements, except with
respect to the action contemplated by this Agreement, there has not been (i) any
Buyer Material Adverse Effect or (ii) any damage, destruction or loss (whether
or not covered by insurance) that has had or would reasonably be expected to
have a Buyer Material Adverse Effect. 

     

         4.13 Listings 

     

              Buyer’s securities are not listed, or quoted,
for trading on any domestic or foreign securities exchange, other than the NCM.
Buyer is in compliance in all material respects with the rules, regulations and
policies of the NCM, including without limitation its corporate governance
standards. 

     

         4.14 Transactions with Affiliates

     

              Except as set forth in the SEC Documents filed
prior to the date of this Agreement, since the date of Buyer’s last proxy
statement to its stockholders, no event has occurred that would be required to
be reported by Buyer as a Certain Relationship or Related Transaction, pursuant
to Item 404 of Regulation S-K promulgated by the SEC. 

     

         4.15 Intellectual Property 

     

              Except as set forth in Schedule 4.15, neither Buyer nor any of its Subsidiaries
has any obligation to compensate any Person for the use of any of the Buyer
Proprietary Rights (excluding licenses that are commonly available on standard
commercial terms, such as software “shrink wrap” or “click through” licenses)
nor has Buyer or any of its Subsidiaries granted to any Person any license,
option or other rights to use in any manner any of the Buyer Proprietary Rights,
whether requiring the payment of royalties or not, except in the Ordinary
Course. 

     

    40

     

    

    
    

    ARTICLE 5
ACTIONS BY
COMPANY
AND BUYER PRIOR TO THE
CLOSING

     

              Company and Buyer covenant as follows for the
period from the date hereof through the Closing Date:

     

         5.1 Conduct of Company Business

     

              From the date hereof through the Closing,
Company shall, except for the payment of the Pre-Closing Dividend, and except as
provided in Section 5.2 below and as otherwise contemplated by this Agreement,
or as otherwise consented to by Buyer in writing, which consent shall not be
unreasonably withheld or delayed, operate the Company in the Ordinary Course and
will not take any action inconsistent with this Agreement, the Ancillary
Agreements or the consummation of the Merger. Without limiting the generality of
the foregoing, Company shall not, except as provided in Section 5.2 below, as
specifically contemplated by this Agreement or as consented to by Buyer in
writing: 

     

              (a) except in the Ordinary
Course, incur any indebtedness for borrowed money, or assume, guarantee, endorse
(other than endorsements for deposit or collection in the Ordinary Course), or
otherwise become responsible for obligations of any other Person; 

     

              (b) issue or commit to issue
any shares of its capital stock or any other securities or any securities
convertible into shares of its capital stock or any other securities, including,
without limitation, any options to acquire capital stock, other than the
issuance of shares of Company Stock pursuant to the valid exercise of Company
Options outstanding as of the date hereof or upon conversion or exercise of
outstanding securities; 

     

              (c) declare, pay or incur any
obligation to declare or pay any dividend or other distribution on its capital
stock (except for the Pre-Closing Dividend) or make or incur any obligation to
make any redemption with respect to, or purchase of, any share of its capital
stock;

     

              (d) make any change to
Company’s Articles of Incorporation or bylaws;

     

              (e) except in the Ordinary
Course, mortgage, pledge or otherwise encumber any Company Assets or sell,
transfer, license or otherwise dispose of any Company Assets; 

     

              (f) except in the Ordinary
Course, cancel, release or assign any indebtedness owed to it or any claims or
rights held by it; 

     

              (g) make any material
investment of a capital nature either by purchase of stock or securities,
contributions to capital, property transfer or otherwise, or by the purchase of
a material amount of property or assets of any other Person; 

     

              (h) terminate any Material
Contract or make any amendment to any Material Contract; 

     

              (i) (i) enter into or modify
any employment Contract, (ii) pay or agree to pay any compensation to or for any
Employee, officer or director other than in the Ordinary Course, (iii) pay or
agree to pay any bonus, incentive compensation, service award or other like
benefit, except as required under agreements outstanding as of the date of this
Agreement, copies of which have previously been made available to Buyer, (iv)
grant any Company Options or (v) enter into or modify any other Employee Plan;

     

              (j) enter into or modify any
Contract with a Related Party; 

     

    41

     

    

    
    

              (k) make any change in any
method of accounting or accounting practice other than changes required by GAAP;

     

              (l) knowingly fail to comply
with all material Regulations applicable to the Company; 

     

              (m) fail to use its
commercially reasonable efforts to maintain existing relationships with
suppliers and customers and others having material business dealings with
Company and otherwise preserve the existing goodwill of the Company;

     

              (n) make or change any
election in respect of Taxes, adopt or change any accounting method in respect
of Taxes (other than changes required by GAAP), enter into any tax allocation
agreement, tax sharing agreement, tax indemnity agreement, or closing agreement,
settle or compromise any claim, notice, audit report or assessment in respect of
Taxes or consent to any extension or waiver of any limitation period applicable
to any claim or assessment in respect of Taxes; or 

     

              (o) authorize, recommend,
propose or announce an intention to do any of the foregoing, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing.

     

         5.2 No Mergers, Consolidations, Sale of Stock,
Etc.

     

              Except pursuant to this Agreement, Company
shall not, and Company shall use commercially reasonable efforts to cause its
Representatives not to, directly or indirectly, knowingly solicit any inquiries
or proposals or initiate or enter into or continue any discussions, negotiations
or agreements, whether or not initiated by Company or its Representatives,
relating to (i) the sale or exchange of any Company capital stock, (ii) the
merger of Company with, or the direct or indirect disposition of a significant
amount of the Company Assets or the Company Business to, any Person other than
Buyer or its Affiliates, or (iii) the licensing of Company Proprietary Rights to
any Person other than in the Ordinary Course. 

     

         5.3 Investigation by Buyer and Company

     

              From the date hereof through the Closing Date,
each of Buyer and Company shall, and shall cause its respective Representatives
to, afford the other party and its Representatives access upon reasonable notice
and at all reasonable times to Buyer and Company, as applicable, for the purpose
of inspecting the same, and to the respective officers, Employees and other
Representatives, properties, the Books and Records, Contracts and other Assets
of Buyer and Company, as applicable, and shall furnish the other party and its
Representatives, upon reasonable notice and in a timely manner, all financial,
operating and other data and information (including with respect to Proprietary
Rights) as the other party or its Representatives may reasonably request.

     

         5.4 Notification of Certain Matters

     

              Each party shall give prompt notice to the
other of (i) the occurrence, or failure to occur, of any event which occurrence
or failure causes any representation or warranty of either party contained in
this Agreement to be untrue or inaccurate in any material respect and (ii) any
material failure of such party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. 

     

    42

     

    

    
    

         5.5 Management and Employees 

     

              Company hereby covenants and agrees that it
shall use its commercially reasonable efforts from the date hereof until the
Closing Date to retain key Employees of Company. Company shall promptly notify
Buyer in writing if any Employee of Company as of the date hereof ceases to be
an Employee of Company, or if any Employee of Company as of the date hereof
informs any officer of Company in writing that he or she intends to terminate
his or her employment or engagement with Company.

     

         5.6 Stockholder Meeting 

     

              If the issuance of Buyer Common Stock pursuant
to this Agreement requires the approval of the stockholders of Buyer pursuant to
the rules of the NCM, Buyer shall take all action necessary in accordance with
the DGCL and its certificate of incorporation and bylaws to convene a meeting of
stockholders to be held as promptly as practicable after the date of this
Agreement for the purposes of voting upon the issuance of Buyer Common Stock and
shall use commercially reasonable efforts to obtain such approval of its
stockholders. In the event that prior to the date of the stockholders’ meeting,
the rules of the NCM permit Buyer to consummate the Merger without the approval
of Buyer’s stockholders, Buyer shall be entitled to cancel the meeting and/or
the vote on the adoption of this Agreement and the Merger.

     

         5.7 Further Assurances 

     

              Upon the terms and subject to the conditions
contained herein, the parties agree, in each case both before and after the
Closing, (i) to use all commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement and the Ancillary Agreements, (ii) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder and
thereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective commercially reasonable efforts (A) to obtain any necessary Consents
(including, without limitation, all filings required to be made under the HSR
Act, if any, with respect to this Agreement and the transactions contemplated
hereby) and take any steps necessary to comply with the securities and blue sky
laws of all jurisdictions which are applicable to the issuance of the Buyer
Common Stock which may be issued as consideration hereunder; provided,
however, that no amendment or modification shall be
made to any Contract to obtain such Consent without Buyer’s consent, which
consent shall not be unreasonably withheld or delayed, (B) to obtain all
necessary Permits, (C) to give all notices to, and make all registrations and
filings with third parties, including submissions of information requested by
Governmental Authorities and (D) to fulfill all conditions to this Agreement.

     

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    ARTICLE 6
CONDITIONS TO OBLIGATIONS

     

         6.1 Conditions to Each Party’s Obligations

     

              The respective obligations of each party to
effect the Merger and complete the related transactions contemplated by this
Agreement are subject to the satisfaction of each of the following conditions:

     

              (a) Governmental Consent and
Approvals. All Consents,
approvals and waivers from Governmental Authorities necessary to permit
consummation of the Merger and the other transactions contemplated hereby and by
the Ancillary Agreements shall have been obtained, all approvals required under
any Regulations to carry out the transactions contemplated by this Agreement and
the Ancillary Agreements (including, without limitation, the expiration or
termination of the waiting period under the HSR Act, if applicable) shall have
been obtained and the parties shall have complied with all Regulations
applicable to the transactions contemplated hereby and thereby. 

     

              (b) No Court Order or
Restraints. There shall
not be any Regulation or Court Order that makes the Merger or any other
transaction contemplated hereby and by the Ancillary Agreements illegal or
otherwise prohibited or which would materially change the Merger or such other
transactions contemplated hereby and by the Ancillary Agreements. No Action by
any court or Governmental Authority shall have been instituted or threatened
which questions the validity or legality of the Merger or the other transactions
contemplated hereby and by the Ancillary Agreements and which would reasonably
be expected to damage Buyer, Company, the Company Assets or the Company Business
materially if the transactions contemplated hereby or thereby are consummated,
including any material restriction on the right or ability of Buyer to own,
operate or transfer Company after the Closing. There shall not be any Regulation
or Court Order that makes the acquisition of Company contemplated hereby illegal
or otherwise prohibited. 

     

              (c) Dissenting Shareholders. No more than twenty percent (20%) of the
Shareholders have indicated an intent to exercise dissenters’ rights in
connection with the transactions contemplated by this Agreement in accordance
with the requirements of the California Code either by (i) making a written
demand for appraisal or (ii) refraining from voting for the approval of the
Merger. 

     

         6.2 Conditions to the Obligations of Company

     

              The obligation of Company to effect the Merger
and complete the transactions contemplated by this Agreement and by the
Ancillary Agreements are subject to the satisfaction of the following
conditions, any one or more of which may be waived in writing by Company:

     

              (a) Representations and
Warranties. All
representations and warranties of Buyer and Merger Sub contained in this
Agreement that are qualified by materiality shall be true and correct at and as
of the Closing Date as if such representations and warranties were made at and
as of the Closing Date, and all of such representations and warranties that are
not so qualified shall be true and correct in all material respects at and as of
the Closing Date as if such representations and warranties were made at and as
of the Closing Date, except in both cases, to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representations and warranties, the same shall be true as of
such specified date. Buyer and Merger Sub shall each have performed in all
material respects all agreements and covenants required hereby to be performed
by each of them prior to or at the Closing Date.

     

    44

     

    

    
    

              (b) Registration Rights Agreement.
Buyer shall have executed and delivered
to the Shareholders the Registration Rights Agreement. 

     

              (c) Merger Consideration. At or prior to the Effective Time, Buyer
shall have executed each of the Subordinated Seller Notes and delivered each of
the following to the Exchange Agent for deposit in the Exchange Fund: (i) the
Subordinated Purchase Notes; (ii) the cash portion of the Preliminary Merger
Consideration; and (iii) the Buyer Common Stock. At or prior to the Effective
Time, Buyer shall have delivered the Subordinated Indemnity Note to the Escrow
Agent pursuant to the Escrow Agreement. 

     

              (d) Legal Opinions. Company shall have received an opinion of
K&L Gates, LLP, counsel to Buyer and Merger Sub, dated as of the Closing
Date, substantially in the form attached hereto as Exhibit F. 

     

              (e) Buyer Material Adverse
Change. There shall have
been no Buyer Material Adverse Change. 

     

         6.3 Condition to Buyer’s and Merger Sub’s
Obligations 

     

              The obligations of Buyer and Merger Sub to
effect the Merger and complete the transactions contemplated by this Agreement
and by the Ancillary Agreements are subject to the satisfaction of each of the
following conditions, any one or more of which may be waived in writing by
Buyer: 

     

              (a) Representations and
Warranties. All
representations and warranties of Company contained in this Agreement that are
qualified by materiality shall be true and correct at and as of the Closing Date
as if such representations and warranties were made at and as of the Closing
Date, and all of such representations and warranties that are not so qualified
shall be true and correct in all material respects at and as of the Closing Date
as if such representations and warranties were made at and as of the Closing
Date, and except, in both cases, to the extent that such representations and
warranties are expressly made as of another specified date and, as to such
representations and warranties, the same shall be true as of such specified
date. Company shall have performed in all material respects all agreements and
covenants required hereby to be performed by it prior to or at the Closing
Date.

     

              (b) Third Party Consents. All consents, approvals, and waivers from
third parties required under the Contracts listed on Schedule 6.3(b) shall have been obtained. 

     

              (c) Legal Opinion. Company shall have delivered to Buyer an
opinion of Farella Braun + Martel LLP, counsel to Company, dated as of the
Closing Date, which provides an opinion substantially in the form attached
hereto as Exhibit G. 

     

              (d) Resignations. Company shall have delivered to Buyer the
Resignations. 

     

    45 

     

    

    
    

              (e) Company Material Adverse
Change. There shall not
have been any Company Material Adverse Change. 

     

              (f) Evidence of Target Net Cash on
Hand. Company shall have
delivered to Buyer evidence reasonably satisfactory to Buyer that the Target Net
Cash on Hand is available in accounts of Company as of the Closing Date.

     

              (g) Form 8023. Company shall have delivered to Buyer IRS
Form 8023 properly executed by each Shareholder. 

     

    ARTICLE 7
ACTIONS BY BUYER, THE SURVIVING CORPORATION
AND THE SHAREHOLDERS AFTER
THE CLOSING 

     

         7.1 Books and Records; Tax
Matters. 

     

              (a) The Shareholder
Representative shall, at Shareholders’ expense, prepare or cause to be prepared
all Tax Returns of the Company for all periods ending prior to or on the Closing
Date, which have not been filed as of the Closing Date (“Pre-Closing Tax Return”). At least ten (10) business days prior to the date on which any
Pre-Closing Tax Return is required to be filed, the Shareholder Representative
shall submit such Pre-Closing Tax Return to Buyer for Buyer’s review. Buyer
shall be entitled to review and comment on each such Pre-Closing Tax Return and
shall provide written comments, if any, to Shareholder Representative not later
than the fifth (5th) business day after receipt of the applicable Pre-Closing
Tax Return. Buyer and Shareholder Representative shall use commercially
reasonable efforts to resolve any disagreements between them that may exist in
such Pre-Closing Tax Return. Upon resolution of any such disagreements, Buyer
shall timely file, or cause to be filed, all such Pre-Closing Tax Returns, on or
before September 30, 2010. For the avoidance of doubt, taxable income or taxable
loss, as the case may be, for the period commencing on January 1, 2010 and
ending on the Closing Date, shall be determined based on an interim closing of
the Company books effective as of the close of business on the Closing Date. For
the purposes of the interim closing of the books calculation, such calculation
shall give effect to all deductions and other items with respect to the taxable
period ended on the Closing Date (including full utilization on the Pre-Closing
Tax Return of any deductions for compensation paid by the Company on or prior to
the Closing Date, whether such compensation deduction is the result of a cash
payment, the result of any exercise of Company Options or otherwise), to the
extent such amounts are otherwise permitted as a deduction or loss, or are
includable in income for such period under applicable Regulations. 

     

              (b) Buyer agrees that so long
as any books, records and files relating to Company prior to the Closing Date,
remain in existence and available, any Shareholder (at its expense) shall, upon
prior notice, have the right to inspect and to make copies of the same at any
time during business hours for any proper purpose. 

     

              (c) Buyer covenants and
agrees that in the event it or the Surviving Corporation receives any notice or
inquiry from the IRS with respect to the characterization of any action taken
pursuant to or contemplated by this Agreement or any Ancillary Agreement, Buyer
will give prompt written notice to the Shareholders’ Representative concerning
such notice or inquiry. Buyer agrees to report, and to cause the Surviving
Corporation to report, the consideration delivered to the Shareholders under
this Agreement in a manner consistent with the terms hereof.

     

    46

     

    

    
    

              (d) Buyer agrees to, and to
cause the Surviving Corporation to, (A) retain all books and records with
respect to Tax matters pertinent to Company relating to any Tax period beginning
before the Closing Date until ninety (90) days after the expiration of the
applicable statute of limitations and to abide by all record retention
agreements entered into with any Taxing Authority and (B) allow the Shareholders
and their representatives, at times and dates mutually acceptable to the
parties, to inspect, review and make copies of such records as such party may
deem necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at such party’s expense. 

     

              (e) If any changes are
required to be made to the IRS Forms 8023, required schedules related thereto,
or comparable state forms and schedules, prepared by Company and Buyer prior to
Closing pursuant to Section 2.11 of this Agreement as a result of information
that first becomes available after the Closing, Buyer, Surviving Corporation and
the Shareholder Representative shall promptly and in good faith reach an
agreement as to the precise changes required to be made. Buyer, Company and the
Surviving Corporation shall use the agreed-upon allocation for purposes of
preparing all Tax Returns. 

     

         7.2 Indemnification and Insurance

     

              From and after the Closing, Buyer agrees that
it will cause Surviving Corporation to continue to indemnify and hold harmless
each present and former director and officer of Company against any costs or
expenses (including reasonable attorneys’ fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Closing, whether asserted or claimed prior to, at or after the
Closing, to the fullest extent that Company would have been permitted under
California law, the Company Articles of Incorporation and the Company bylaws in
effect on the date hereof, to indemnify such person (including the advancing of
expenses as incurred to the fullest extent permitted under applicable law),
provided the person to whom such expenses are advanced provides an undertaking
to the Surviving Corporation to repay such advances if it is ultimately
determined by a court of competent jurisdiction (which determination shall have
become final) that such person is not entitled to indemnification. 

     

         7.3 Approval of Issuance of Additional Buyer
Common Stock 

     

              Following the issuance of the Subordinated
Seller Notes, Buyer shall promptly, and in any event no later than August 31,
2010, prepare and file an Information Statement on Schedule 14C relating to the
stockholder approval of issuance of Buyer Common Stock issuable upon conversion
of the Subordinated Seller Notes.

     

         7.4 Release of Guaranties; Indemnification

     

              Buyer, Surviving Corporation and Jensen shall
use all commercially reasonable efforts to obtain promptly after the Closing the
termination and release of the personal guaranties of Jensen set forth on
Schedule 7.4 (the “Guaranties”). From
the Closing Date until the Guaranties are terminated and released, Buyer and
Surviving Corporation, jointly and severally, shall indemnify Jensen and hold
Jensen harmless from and against all losses, expenses or claims by third parties
to enforce or collect indebtedness owed by Buyer or Surviving Corporation which
is personally guaranteed by Jensen pursuant to the Guaranties.

     

    47

     

    

    
    

    ARTICLE
8
INDEMNIFICATION

     

         8.1 Survival of Representations, Etc.

     

              Except as otherwise provided herein, all
statements contained in this Agreement, any schedule or in any certificate or
instrument of conveyance delivered by or on behalf of the parties pursuant to
this Agreement or in connection with the transactions contemplated hereby shall
be deemed to be representations and warranties by such party hereunder. The
representations and warranties contained herein shall survive the Closing Date
until (and claims based upon or arising out of such representations and
warranties, as well as any claims based upon or arising out of any covenants and
agreements herein, may be asserted at any time before the date which shall be)
the date that is eighteen (18) months from the Closing Date, provided that the
representations and warranties of Company contained in Sections 3.1, 3.2, 3.3
and 3.5 shall survive forever, the representations of Buyer contained in
Sections 4.1, 4.2 and 4.6 shall survive forever, and the representations and
warranties of Company contained in Section 3.21 shall survive until the
expiration of the statute of limitations for the matters covered in such
section. No investigation made by any of the parties hereto (whether prior to,
on or after the Closing Date) shall in any way limit the representations and
warranties of the parties. The termination of the representations and warranties
provided herein shall not affect the rights of a party in respect of any claim
properly given by such party prior to the expiration of the applicable survival
period provided herein. 

     

         8.2 Indemnification. 

     

              (a) General. 

     

    
                (i) Obligations of the
Shareholders.
Subsequent to the Closing and subject to Section 8.5, the Shareholders shall,
severally and not jointly, indemnify Buyer, its Affiliates, and each of their
respective partners, officers, directors, employees, stockholders and agents
(“Buyer Indemnified Parties”) against, and hold each of the Buyer
Indemnified Parties harmless from, any damage, claim, loss, cost, liability or
expense, including without limitation, interest, penalties, reasonable
attorneys’ fees and expenses of investigation, response action, removal action
or remedial action (collectively “Damages”) incurred
by such Buyer Indemnified Party, that are incident to, arise out of, in
connection with, or related to, whether directly or indirectly, the breach of
any warranty, representation, covenant or agreement of Company contained in this
Agreement which survives the Closing Date pursuant to Section 8.1, and any and
all Damages incident to any of the foregoing or to the enforcement of this
Section 8.2. The term “Damages” as used in
this Section 8.2 is not limited to matters asserted by third parties against
Buyer Indemnified Parties, but includes Damages incurred or sustained by such
persons in the absence of third party claims. 

       

                (ii) Obligations of Buyer. Subsequent to the Closing, Buyer and the
Surviving Corporation shall, jointly and severally, indemnify the Shareholders
and each of their respective heirs, partners, officers, directors, employees,
shareholders and agents (the “Company Indemnified Parties”) against, and hold each of the Company Indemnified Parties harmless
from, any Damages incurred by such Company Indemnified Party, that are incident
to, arise out of, in connection with, or related to, whether directly or
indirectly, the breach of any warranty, representation, covenant or agreement of
Buyer contained in this Agreement which survives the Closing Date pursuant to
Section 8.1, and any and all Damages incident to any of the foregoing or to the
enforcement of this Section 8.2.

    

     

    48

     

    

    
    

              (b) Procedure for Claims between
Parties. Any Buyer
Indemnified Party or Company Indemnified Party (in either case, the
“Indemnified Party”) seeking indemnification hereunder shall,
within the relevant limitation period provided for in Section 8.1 above, give to
the party obligated to provide indemnification to such Indemnified Party (the
“Indemnitor”) a written notice (a “Claim Notice”)
describing in reasonable detail the facts giving rise to any claims for
indemnification hereunder and shall include in such Claim Notice (if then known)
the amount or the method of computation of the amount of such claim, and a
reference to the provision of this Agreement or any agreement, document or
instrument executed pursuant hereto or in connection herewith upon which such
claim is based; provided, that a Claim Notice in respect of any action
at law or suit in equity by or against a third party as to which indemnification
will be sought shall be given promptly after the action or suit is commenced;
and provided further, that failure to give such notice shall not
relieve the Indemnitor of its obligations hereunder except to the extent it
shall have been prejudiced by such failure. In the case of a Buyer Indemnified
Party, the Claim Notice shall be delivered to the Shareholder Representative.

     

              The Indemnitor shall have ninety (90) days
after the giving of any Claim Notice pursuant hereto to (i) agree to the amount
or method of determination set forth in the Claim Notice and to pay such amount
to such Indemnified Party or (ii) to provide such Indemnified Party with notice
that it disagrees with the amount or method of determination set forth in the
Claim Notice (the “Dispute Notice”). Within thirty (30) days after the giving of
the Dispute Notice, a representative of Indemnitor and such Indemnified Party
shall negotiate in a bona fide attempt to resolve the matter. In the event that
the controversy is not resolved within thirty (30) days of the giving of the
Dispute Notice, either party may commence an action in accordance with the
provisions of Section 9.6. 

     

              (c) Defense of Third Party
Claims. If any lawsuit or
enforcement action is filed against any Indemnified Party and a claim in respect
thereof is to be made against the Indemnitor under this Section 8.2, written
notice thereof shall be given to the Indemnitor as promptly as practicable (and
in any event within fifteen (15) calendar days after the service of the citation
or summons). The failure of any Indemnified Party to give timely notice
hereunder shall not affect rights to indemnification hereunder, except to the
extent that the Indemnitor demonstrates it was actually prejudiced by such
failure. After such notice, if the Indemnitor shall acknowledge in writing to
the Indemnified Party that it shall be obligated under the terms of its
indemnity hereunder in connection with such lawsuit or action, or that it will
defend such lawsuit or action under a reservation of rights, then it shall be
entitled, if it so elects at its own cost, risk and expense, (i) to take control
of the defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of its own choice to handle and defend the same unless the
named parties to such action or proceeding include both the Indemnitor and the
Indemnified Party and the Indemnified Party has been advised in writing by
counsel that there may be one or more legal defenses available to such
Indemnified Party that are different from or additional to those available to
the Indemnitor, in which event the Indemnified Party shall be entitled, at the
Indemnitor’s cost, risk and expense, to separate counsel of its own choosing,
and (iii) to compromise or settle such claim, which compromise or settlement
shall be made only with the written consent of the Indemnified Party, such
consent not to be unreasonably withheld, unless such compromise or settlement
includes an unconditional release of the Indemnified Party, in which case no
consent shall be required. The Indemnified Party shall cooperate in all
reasonable respects with the Indemnitor and its attorneys in the investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom;
provided, however, that the Indemnified Party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with each
other in any notifications to insurers. If the Indemnitor fails to assume the
defense of such claim within fifteen (15) calendar days after receipt of the
notice of claim, the Indemnified Party against which such claim has been
asserted will (upon delivering notice to such effect to the Indemnitor) have the
right to undertake, at the Indemnitor’s cost, risk and expense, the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of the Indemnitor; provided, however, that such claim shall not be compromised or
settled without the written consent of the Indemnitor, which consent shall not
be unreasonably withheld, unless such compromise or settlement includes an
unconditional release of the Indemnified Party, in which case no consent shall
be required. If the Indemnified Party assumes the defense of the claim, the
Indemnified Party will keep the Shareholders’ Representative or Buyer, as the
case may be, reasonably informed of the progress of any such defense, compromise
or settlement. The Indemnitor shall be liable for any settlement of any action
effected pursuant to and in accordance with this Section 8.2 and for any final
judgment (subject to any right of appeal), and the Indemnitor agrees to
indemnify and hold harmless an Indemnified Party from and against any Damages by
reason of such settlement or judgment. 

     

    49 

     

    

    
    

         8.3 No Right of Contribution 

     

              After the Closing, no Shareholder shall have
any right of contribution against the Surviving Corporation for any breach of
any representation, warranty, covenant or agreement of Company. 

     

         8.4 Exclusive Remedy 

     

              The remedies set forth in this Article 8 are
the sole and exclusive remedies of the parties hereto for any action arising
under this Agreement or any agreement, document or instrument executed pursuant
hereto or in connection herewith, provided that these
limitations will not impair, alter or in any way affect the rights of any party
with respect to any Damages resulting from fraud. 

     

         8.5 Threshold; Limitations on Indemnity

     

              (a) Notwithstanding any
provisions of this Agreement to the contrary, Buyer on the one hand, and the
Shareholders on the other hand, will not be liable for any Damages suffered by
the other party unless and until the aggregate Damages suffered or incurred by
an Indemnified Party exceeds $100,000 (the “Indemnification Threshold”); provided, however, that once the amount of Damages exceeds the
Indemnification Threshold, then the Shareholders shall be liable for the full
amount of all Damages including the amount of the Indemnification
Threshold.

     

    50

     

    

    
    

              (b) Subject to the following
sentence, the total recourse of the Buyer Indemnified Parties against the
Shareholders for Damages pursuant to this Article 8 shall be limited to
$1,200,000, and indemnity claims shall be made solely by offset against the
Holdback Escrow (or Holdback Shares, if applicable), pro rata against all
Shareholders in proportion to the percentage of the Holdback Escrow (or Holdback
Shares, if applicable) held by the Escrow Agent for the benefit of each
Shareholder. Notwithstanding the foregoing, Buyer Indemnified Parties may make
Damage claims in excess of $1,200,000 for Damages (i) arising out of breaches of
the representations and warranties contained in Sections 3.1, 3.2, 3.3, 3.5 and
3.21 (which Damages shall not, in the aggregate, exceed the cash portion of the
total Merger Consideration hereunder), or (ii) resulting from fraud on the part
of a Shareholder (which Damages shall not, in the aggregate, exceed the cash
portion of the total Merger Consideration received by such Shareholder
hereunder). 

     

              (c) For purposes of
calculation the value of the Holdback Shares used to settle Damages claims under
this Article 8: 

     

    
           (i) each Holdback Share shall be valued at the
higher of (x) $3.50 per share, and (y) the twenty (20) day weighted average
trading price of Buyer Common Stock for the twenty (20) trading days ending on
the second trading day prior to the date upon which the Damages claim is made;
and

       

           (ii) the number of Holdback Shares and the
value per share shall be adjusted as equitably required to take into account
stock splits, reverse stock splits and stock dividends completed by the Buyer
after the Effective Time but prior to the payment of a Damage
claim.

    

     

              (d) Other than such number of
Holdback Shares (or such amount of the Holdback Escrow) as may be reasonably
required to resolve Damages claims that are pending on the eighteen (18) month
anniversary of the Effective Time, the balance of the Holdback Shares or
Holdback Escrow, as the case may be, shall be released to the Shareholders on
such eighteen (18) month anniversary.

     

    ARTICLE 9
MISCELLANEOUS

     

         9.1 Termination 

     

              (a) This Agreement may be
terminated at any time prior to Closing: 

     

    
                (i) By mutual written consent
of Buyer and Company; 

       

                (ii) By Buyer or Company if
the Closing shall not have occurred on or before August 31, 2010, other than due
to a breach of this Agreement by the party seeking to terminate; 

       

                (iii) [Intentionally Omitted];

    

     

    51

     

    

    
    

    
                (iv) By Buyer if there is a
material breach of any representation or warranty set forth in Article 3 or of
any covenant or agreement to be complied with or performed by Company pursuant
to the terms of this Agreement which would reasonably be expected to cause a
failure to meet a condition to closing set forth in Section 6.1 or Section 6.3
(a “Buyer Terminating Breach”), provided,
however, that if such Buyer Terminating Breach is
curable by Company through the exercise of their commercially reasonable
efforts, then, for a period of thirty (30) days, but only so long as Company
continues to use its commercially reasonable efforts to cure such Company
Terminating Breach (the “Company Cure Period”), such termination shall not be effective, and such termination shall
become effective only if the Buyer Terminating Breach is not cured within the
Company Cure Period;

       

                (v) By Buyer if more than
twenty percent (20%) of the Shareholders have indicated an intent to exercise
dissenters’ rights in connection with the transactions contemplated by this
Agreement; or 

       

                (vi) By Company if there is a
material breach of any representation or warranty set forth in Article 4 hereof
or of any covenant or agreement to be complied with or performed by Buyer or
Merger Sub pursuant to the terms of this Agreement, which would reasonably be
expected to cause a failure to meet a condition to closing set forth in Section
6.1 or Section 6.2 (an “Company Terminating Breach”), provided, however, that if such Company Terminating Breach is
curable by Buyer through the exercise of its commercially reasonable efforts,
then, for a period of up to thirty (30) days, but only so long as Buyer
continues to use its commercially reasonable efforts to cure such Company
Terminating Breach (the “Buyer Cure Period”), such termination shall not be effective, and such termination shall
become effective only if the Company Terminating Breach is not cured within the
Buyer Cure Period.

    

     

              (b) Except as set forth in
the following sentence, no party hereto shall have any liability to any other
party to this Agreement in the event of termination of this Agreement.
Notwithstanding the foregoing, the parties hereto shall remain liable for any
breach of, or knowing misrepresentation made in, this Agreement occurring prior
to the proper termination of this Agreement.

     

         9.2 Assignment 

     

              Neither this Agreement nor any of the rights
or obligations hereunder may be assigned by Company without the prior written
consent of Buyer, or by Buyer or Merger Sub without the prior written consent of
Company. 

     

    52

     

    

    
    

         9.3 Notices 

     

              Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered in person or by courier, telegraphed,
telexed, sent by facsimile transmission, sent via overnight delivery service or
mailed by registered or certified mail (such notice to be effective upon
receipt, or, in the case of registered or certified mail, three (3) days after
the mailing date), as follows: 

     

    If prior to the Closing, to Company:

     

    Strategic Office Solutions, Inc.
235 Montgomery Street, Suite
350
San Francisco, CA 94104
Telecopy: (415) 296-7301
Attention: Kurt
Jensen, President 

     

    With a copy to: 

     

    Farella Braun + Martel LLP
235 Montgomery Street
San Francisco, CA
94104
Telecopy: (415) 954-4480
Attention: Samuel C. Dibble

     

    If to Buyer or, if after the Closing, to the Surviving Corporation:

     

    Unify Corporation
1420 Rocky Ridge Drive
Suite 380
Roseville, CA
95661
Telecopy: (916) 218-4377
Attention: Mr. Todd E. Wille, Chief
Executive Officer 

     

    With a copy to: 

     

    K&L Gates LLP
70 West Madison Street, Suite 3100
Chicago,
Illinois 60602
Telecopy: (312) 345-9995
Attention: Jude M.
Sullivan

     

    or to such other
place and with such other copies as either party may designate as to itself by
written notice to the others. 

     

         9.4 Choice of Law 

     

              This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of California, except with respect to matters of law concerning the
internal corporate affairs of any corporate entity which is a party to or the
subject of this Agreement, and as to those matters the law of the jurisdiction
under which the respective entity derives its powers shall govern. 

     

         9.5 Limitation 

     

              NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, NO PARTY HERETO SHALL BE LIABLE TO ANY OTHER PARTY HERETO FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES (EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM THE
TERMINATION OR BREACH OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, LOSS OF
REVENUE OR ANTICIPATED PROFITS OR LOSS BUSINESS.

     

    53

     

    

    
    

         9.6 Arbitration 

     

              Subject to Section 2.10(b)(iii), any
controversy, dispute or claim arising out of or relating in any way to this
Agreement or the Ancillary Agreements or the transactions arising hereunder or
thereunder (each, a “Dispute”) shall be
finally settled by binding arbitration in a proceeding before a single
arbitrator of JAMS/Endispute who is selected by the parties in accordance with
the rules of JAMS/Endispute and held in the city of San Francisco, California.
The foregoing arbitration proceedings may be commenced by any party to a Dispute
by notice to the other parties to the Dispute. The parties to this Agreement
consent to the jurisdiction of the Superior Court of the State of California for
the City and County of San Francisco, for all purposes in connection with any
arbitration. 

     

         9.7 Entire Agreement; Amendments and Waivers

     

              This Agreement, together with all exhibits and
schedules hereto and the Ancillary Agreements, constitute the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, provided that the confidentiality provisions of that
certain letter agreement dated March 31, 2010 between Buyer and Company, shall
remain in full force and effect. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided. 

     

         9.8 Counterparts 

     

              This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. 

     

         9.9 Invalidity 

     

              In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.

     

         9.10 Publicity 

     

              Except as required by law or on advice of
counsel, neither party shall issue any press release or make any public
statement regarding the transactions contemplated hereby without the prior
approval of the other parties, which approval shall not be unreasonably withheld
or delayed, and the parties hereto shall issue a mutually acceptable press
release as soon as practicable after the date hereof and after the Closing Date.
Notwithstanding the foregoing, Buyer shall be permitted to make any public
statement without obtaining the consent of any other party hereto if (i) the
disclosure is required by law or the requirements of the NCM and (ii) Buyer has
first used its reasonable efforts to consult with (but not to obtain the consent
of) the other parties about the form and substance of such
disclosure.

     

    54

     

    

    
    

         9.11 No Third Party Beneficiaries

     

              This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation. 

     

         9.12 Expenses 

     

              Except as set forth in Section 9.1(b), Buyer
shall pay all Buyer Transaction Expenses and Shareholders shall pay all Company
Transaction Expenses. 

     

         9.13 Appointment of Shareholder Representative

     

              (a) Each Signing Shareholder
hereby irrevocably constitutes and appoints Jensen (the “Shareholder Representative”) as such Signing Shareholder’s true and lawful attorney in fact and
agent and authorizes him to act for such Signing Shareholder and in such Signing
Shareholder’s name, place and stead, in any and all capacities to do and perform
every act and thing required or permitted to be done after the Effective Time in
connection with this Agreement, as fully to all intents and purposes as such
Signing Shareholder might or could do in person, including taking any and all
action on behalf of such Signing Shareholder from time to time as contemplated
hereunder. Any delivery by the Shareholder Representative of any waiver,
amendment, agreement, opinion, certificate or other document executed by the
Shareholder Representative will bind the Signing Shareholders by such documents
or action as fully as if such Signing Shareholder had executed and delivered
such documents. This appointment and power of attorney shall be deemed an agency
coupled with an interest and all authority conferred hereby shall be irrevocable
and shall not be subject to termination by operation of law, whether by the
death or incapacity of any Signing Shareholder or the occurrence of any other
event or events. 

     

              (b) Indemnification of the Shareholder
Representative. Each
Signing Shareholder agrees to hold the Shareholder Representative harmless and
indemnify the Shareholder Representative, severally (and not jointly) in
accordance with the amount of Merger Consideration received by such indemnifying
Signing Shareholder, with respect to any and all loss, damage or liability and
expenses (including legal fees) which such Signing Shareholder may sustain as a
result of any action taken in good faith by the Shareholder Representative.

     

              (c) Replacement of the Shareholder
Representative. Upon the
death, disability or incapacity of the initial Shareholder Representative, the
Shareholder Representative’s executor, guardian or legal representative, as the
case may be, shall appoint a replacement reasonably believed by such person as
capable of carrying out the duties and performing the obligations of the
Shareholder Representative hereunder within thirty (30) days of such death,
disability or incapacity. 

     

    55

     

    

    
    

              (d) Actions of the Shareholder
Representative. Buyer and
Merger Sub shall be entitled to rely on any action taken by the Shareholder
Representative after the Effective Time on behalf of the Signing Shareholders
(each, an “Authorized Action”), and that each Authorized Action shall be
binding on each Signing Shareholder as fully as if such Signing Shareholder had
taken such Authorized Action. 

     

         9.14 Other Provisions Relating to Signing
Shareholders 

     

              (a) Non-Competition;
Non-Solicitation. Each
Signing Shareholder agrees that, for a period ending on the third anniversary of
the Closing Date, such Signing Shareholder will not, anywhere in the United
States, directly or indirectly (whether as an owner, partner, shareholder,
agent, officer, director, employee, independent contractor, consultant, or
otherwise): (i) own, operate, manage, control, invest in, perform services for,
or engage or participate in any manner in, (alone or in association with any
Person) any business that engages in the Company Business; provided, however,
that a Signing Shareholder may own any amount of debt or equity securities in
Buyer or any successor to Buyer and up two (2%) percent of the outstanding debt
or equity securities of any other Person without violating the restrictions of
this clause (i); (ii) except on behalf of Company or Buyer, Buyer or any
successor to Company or Buyer, solicit business from any Person which is a
customer of Company, or from any successor in interest to any such Person for
the purpose of securing business or contracts which are competitive with the
Company Business, and (iii) except on behalf of Company, Buyer or any successor
to Company or Buyer, employ, engage or solicit for employment any individual who
is, or was at any time during the twelve (12) month period ending on the later
of (x) the Closing Date and (y) the date such Signing Shareholder’s employment
with Company, Buyer or any successor to Company or Buyer terminates, an employee
of Company or otherwise seek to adversely influence or alter such individual’s
relationship with Company or any successor to Company; provided, however,
that such Signing Shareholder may employ, engage or solicit for employment such
individual in the event that such individual was terminated by Company, Buyer,
or any successor to Company or Buyer. 

     

              (b) Accredited Investor. Each Signing Shareholder represents and
warrants to Buyer that such Signing Shareholder is (i) an “accredited investor”
within the meaning of Rule 501(a) of Regulation D under the Securities Act
(unless listed on Schedule 9.14(b)), (ii) (A) familiar with the business and
affairs of Buyer and (B) knowledgeable and experienced in financial and business
matters to the extent that such Signing Shareholder is capable of evaluating the
merits and risks of an investment in the Buyer Stock Consideration and the
Subordinated Seller Notes, and (iii) purchasing the Buyer Stock Consideration
and the Subordinated Sellers Notes for its own account and not with a view to
the sale or distribution of such Buyer Stock Consideration and Subordinated
Seller Notes. 

     

              (c) Tax Matters.

     

    
                (i) Each Signing Shareholder
agrees that the Merger Consideration will be allocated to the assets of Company
for all purposes (including Tax and financial accounting) as shown on the
allocation schedule attached hereto as Annex II. 

       

                (ii) Each Signing Shareholder
agrees that all Tax Returns (including amended returns and claims for refund)
and information reports filed by such Signing Shareholder will be consistent
with the Pre-Closing Tax Return that is prepared and filed in accordance with
Section 7.1(a) of this Agreement.

    

     

    56

     

    

    
    

    
                (iii) Each Signing Shareholder
has filed, on a timely basis, all Tax Returns and reports of any nature
whatsoever which are required to be filed with any federal, state, local or
foreign governmental authority with respect to the Company’s profits or losses
that are attributed or attributable to it. Each Signing Shareholder is
responsible for all such Taxes related to the period prior to the Effective Time
and each Signing Shareholder shall indemnify Buyer and Company against any
adverse consequences arising out of its failure to pay any such Taxes;
and

       

                (iv) Each Signing Shareholder
shall include any income, gain, loss, deduction or other Tax item resulting from
the Section 338(h)(10) Election on its Tax Returns to the extent required by
applicable law. Each Signing Shareholder shall pay any Tax imposed on Company
attributable to the making of the Section 338(h)(10) Election, including (i) any
Tax imposed under Code Section 1374, (ii) any tax imposed under Reg. Section
1.338(h)(10)-1(d)(2), or (iii) any state, local, or non-U.S. Tax imposed on
Company’s gain, and shall indemnify Buyer and Company against any adverse
consequences arising out of any failure to pay any such
Taxes.

    

     

              (d) Lock-up. Each Signing Shareholder agrees that, prior
to the date (the “First Lock-Up Date”) that is the earlier of: (i) the
effectiveness date of the Registration Statement on Form S-3 to be filed by
Buyer in connection with the issuance of shares in connection with the Merger or
(ii) the date one hundred eighty (180) days after the Effective Time; it will
not directly or indirectly transfer, sell, assign, convey, pledge, hypothecate,
encumber or otherwise dispose of any Buyer Stock Consideration without the prior
written consent of Buyer. Each Signing Shareholder further agrees that, (x)
after the First Lock-Up Date, but prior to the first anniversary of the
Effective Time, it will not directly or indirectly transfer, sell, assign,
convey, pledge, hypothecate, encumber or otherwise dispose of more than
one-third (1/3) of the Buyer Stock Consideration without the prior written
consent of Buyer, and (y) after the first anniversary but prior to the second
anniversary of the Effective Time, it will not directly or indirectly transfer,
sell, assign, convey, pledge, hypothecate, encumber or otherwise dispose of more
than two-thirds (2/3) of the Buyer Stock Consideration without the prior written
consent of Buyer. 

     

              (e) Spousal Consent. Each Signing Shareholders represents and
warrants that no consent of such Signing Shareholder or any spouse of such
Signing Shareholder is necessary under any “community property” or other laws in
order for such Signing Shareholder to enter into and perform his/her obligations
under this Agreement. 

     

    57

     

    

    
    

              (f) Release by Signing
Shareholders. Effective
automatically at the Effective Time, each Signing Shareholder (and, if
applicable, such party in his or her capacity as an officer, manager, employee
and/or director of Company) hereby fully releases and discharges each other
Signing Shareholder (including, if applicable, such party in his or her capacity
as an officer, manager, employee and/or director of Company) (the “Released Parties”)
from all rights, claims, liabilities, demands, causes of action, costs,
expenses, attorneys’ fees, damages, indemnities and obligations of every kind
and nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed (“Claims”), which
such Signing Shareholder (and, if applicable, such party in his or her capacity
as an employee, officer and/or director of Company) now or as of the Effective
Time has against any of the Released Parties, arising out of or relating to
events occurring at or prior to the Effective Time. Each Signing Shareholder
hereby waives and relinquishes all rights and benefits afforded by Section 1542
of the California Civil Code, which states as follows: 

     

    A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.

     

    Each Signing
Shareholder has had the opportunity to consult with an attorney prior to
executing this release. Each Signing Shareholder understands and acknowledges
the significance and consequence of this waiver of the benefits afforded by
Section 1542 and nevertheless elects to, and does, release those claims
described in this Section 9.14(f), known or unknown, that such Signing
Shareholder may have.

     

    [Signature Page Follows]

     

    58

     

    

    
    

    IN WITNESS WHEREOF,
the parties hereto have executed this Agreement or caused this Agreement to be
duly executed on its behalf by its officer thereunto duly authorized, as of the
day and year first above written. 

     

    
      	
              UNIFY
      CORPORATION,
a Delaware corporation

            
	
            	 
	By:	 /s/ Todd E. Wille
	 	Name: Todd E. Wille
	 	Title: President and Chief Executive
Officer

      	
              UNIFY
      ACQUISITION CORP.,
a California corporation

            
	
            	 
	By:	 /s/ Todd E. Wille
	 	Name: Todd E. Wille
	 	Title: President

      	
              STRATEGIC
      OFFICE SOLUTIONS, INC.
(d/b/a DAEGIS),
a California
      corporation

            
	
            	 
	By:	 /s/ Kurt A. Jensen
	 	Name: Kurt A. Jensen
	 	Title: President and Chief Financial
Officer

    

    [Signature Page to
Merger Agreement] 

     

    

    
    

    As to Sections 8.2(a)(i), 9.13 and 9.14 only:

     

    
      	
            	 
	/s/ Donald R.
      Carmignani	 
	Donald R. Carmignani	 
	
            	 
	
            	 
	/s/ Judson
    Holt	 
	Judson Holt	 
	
            	 
	
            	 
	/s/ Matthew
      McCormack	 
	Matthew McCormack	 
	
            	 
	
            	 
	/s/ Suzi
    Schultz	 
	Suzi Schultz	 
	
            	 
	
            	 
	/s/ Douglas
      Stewart	 
	Douglas Stewart	 
	
            	 
	
            	 
	/s/ Joseph
      Rodrigues	 
	Joseph Rodrigues	 
	
            	 
	
            	 
	/s/ Kevin
    Savage	 
	Kevin Savage	 
	
            	 
	
            	 
	THE JENSEN REVOCABLE TRUST	 
	DATED JANUARY 25, 2007	 
	
            	 
	/s/ Carolyn L.
      Jensen	 
	Carolyn L. Jensen, as Trustee	 
	
            	 
	
            	 
	/s/ Kurt A.
      Jensen	 
	Kurt A. Jensen, as Trustee	 
	
            	 

    

    [Signature Page to
Merger Agreement]

     

    

    
    

    Schedules and Exhibits
Omitted

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00175-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00175-of-00352.parquet"}]]