AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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AcryMed Incorporated | Alaska Acquisition Subsidiary, Inc | Bullivant Houser Bailey PC

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: Delaware Date: 2/6/2008
Industry: Medical Equipment and Supplies Law Firm: Gibson Dunn;Bullivant Houser Sector: Healthcare

EXHIBIT 2.1

AGREEMENT AND PLAN OF MERGER

among

I-FLOW CORPORATION,

ALASKA ACQUISITION SUBSIDIARY, INC.,

ACRYMED INCORPORATED

and

BRUCE L. GIBBINS,
JACK D. MCMAKEN,
JOHN A. CALHOUN, AND
JAMES P. FEE, JR.,
as the Approving Holders,

and

JOHN A. CALHOUN,
as the Stockholder Representative

Dated as of February 2, 2008

TABLE OF CONTENTS


	Page
ARTICLE I DEFINITIONS		1

Section 1.1 Certain Defined Terms		1
Section 1.2 Table of Definitions		6

ARTICLE II THE MERGER		8

Section 2.1 The Merger		8
Section 2.2 Closing; Effective Time		8
Section 2.3 Effects of the Merger		9
Section 2.4 Articles of Incorporation and Bylaws		9
Section 2.5 Directors; Officers		9
Section 2.6 Subsequent Actions		9
Section 2.7 Conversion of Stock		10
Section 2.8 Dissenting Shares		10
Section 2.9 Options and Warrants		11
Section 2.10 Payment for Shares		11
Section 2.11 Post-Closing Adjustment of Merger Consideration		13
Section 2.12 Withholding Rights		15
Section 2.13 Stockholder Representative		15

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY		16

Section 3.1 Organization and Qualification		17
Section 3.2 Authority		17
Section 3.3 No Conflict; Required Filings and Consents		18
Section 3.4 Capitalization		18
Section 3.5 Equity Interests		19
Section 3.6 Financial Statements; No Undisclosed Liabilities		19
Section 3.7 Absence of Certain Changes or Events		20
Section 3.8 Accounts Receivable		20
Section 3.9 Accounts Payable		21
Section 3.10 Inventory		21
Section 3.11 Compliance with Law; Permits		21
Section 3.12 Litigation		22
Section 3.13 Employee Benefit Plans		22
Section 3.14 Labor and Employment Matters		24
Section 3.15 Title to, Sufficiency and Condition of Assets		26
Section 3.16 Real Property		26
Section 3.17 Intellectual Property		27
Section 3.18 Taxes		29
Section 3.19 Environmental Matters		31
Section 3.20 Material Contracts		33
Section 3.21 Affiliate Interests and Transactions		35
Section 3.22 Insurance		35

TABLE OF CONTENTS
(Continued)


	Page
Section 3.23 Customers and Suppliers		35
Section 3.24 Warranties		36
Section 3.25 Capital Expenditures		36
Section 3.26 Product Liability		36
Section 3.27 Bank Accounts; Powers of Attorney		36
Section 3.28 Brokers		36
Section 3.29 Disclosure		37
Section 3.30 Expenses		37

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND SUB		37

Section 4.1 Organization		37
Section 4.2 Authority		37
Section 4.3 No Conflict; Required Filings and Consents		38
Section 4.4 Financing		38
Section 4.5 Brokers		38

ARTICLE V COVENANTS		38

Section 5.1 Conduct of Business Prior to the Closing		38
Section 5.2 Access to Information		41
Section 5.3 Exclusivity		41
Section 5.4 Stockholder Meeting; Stockholder Approval		42
Section 5.5 Information Statement		42
Section 5.6 Notification of Certain Matters; Supplements to Disclosure Schedule		43
Section 5.7 Takeover Statutes		43
Section 5.8 Stock Option Plans		43
Section 5.9 Confidentiality		44
Section 5.10 Commercially Reasonable Efforts; Further Assurances		44
Section 5.11 Public Announcements		44
Section 5.12 Taxes		45
Section 5.13 Cashless Exercise Loans		47
Section 5.14 Loan Repayments		48
Section 5.15 Flow of Funds Statement		48
Section 5.16 Directors’ and Officers’ Indemnification		48

ARTICLE VI CONDITIONS TO CLOSING		49

Section 6.1 General Conditions		49
Section 6.2 Conditions to Obligations of the Company		49
Section 6.3 Conditions to Obligations of the Parent and Sub		50

TABLE OF CONTENTS
(Continued)


	Page
ARTICLE VII INDEMNIFICATION		52

Section 7.1 Survival of Representations and Warranties		52
Section 7.2 Indemnification by the Stockholders		53
Section 7.3 Certain Limits on Indemnification; Insurance		54
Section 7.4 Indemnification by the Parent		55
Section 7.5 Procedures		55
Section 7.6 Remedies Not Affected by Investigation, Disclosure or Knowledge		57
Section 7.7 Indemnity Escrow Fund		57
Section 7.8 Tax Matters		57
Section 7.9 Remedies		57

ARTICLE VIII TERMINATION		58

Section 8.1 Termination		58
Section 8.2 Effect of Termination		59

ARTICLE IX GENERAL PROVISIONS		60

Section 9.1 Fees and Expenses		60
Section 9.2 Amendment and Modification		60
Section 9.3 Extension		60
Section 9.4 Waiver		60
Section 9.5 Notices		61
Section 9.6 Interpretation		61
Section 9.7 Entire Agreement		62
Section 9.8 No Third-Party Beneficiaries		62
Section 9.9 Governing Law		62
Section 9.10 Submission to Jurisdiction		62
Section 9.11 Assignment; Successors		63
Section 9.12 Enforcement		63
Section 9.13 Currency		63
Section 9.14 Severability		63
Section 9.15 Waiver of Jury Trial		63
Section 9.16 Counterparts		63
Section 9.17 Facsimile Signature		64
Section 9.18 Time of Essence		64
Section 9.19 No Presumption Against Drafting Party		64
Section 9.20 Legal Representation		64
Section 9.21 Attorneys’ Fees		64

iii

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger, dated as of February 2, 2008 (this “ Agreement ”), is by and among I-Flow Corporation, a Delaware corporation (the “ Parent ”), Alaska Acquisition Subsidiary, Inc., an Oregon corporation and wholly owned subsidiary of the Parent (“ Sub ”), AcryMed Incorporated, an Oregon corporation (the “ Company ”), Bruce L. Gibbins, Jack D. McMaken, John A. Calhoun and James P. Fee, Jr. (collectively, the “ Approving Holders ”) and John A. Calhoun, in his capacity as the Stockholder Representative hereunder.

RECITALS

A. The Boards of Directors of each of the Parent, the Company and Sub have determined that the merger of Sub with and into the Company (the “ Merger ”) would be advisable and fair to, and in the best interests of, their respective stockholders and approved the Merger upon the terms and subject to the conditions set forth in this Agreement pursuant to the Laws of the State of Oregon (“ Oregon Law ”).

B. Of the outstanding shares of common stock, par value $0.000001 per share, of the Company (the “ Shares ”), the Approving Holders collectively hold approximately fifty-two percent (52%), and the Approving Holders have agreed to vote all of their shares in favor of the approval and adoption of the Merger, this Agreement and the transactions contemplated hereby.

AGREEMENT

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

ARTICLE I
DEFINITIONS

Section 1.1 Certain Defined Terms . For purposes of this Agreement:

“ Action ” means any claim, action, suit, inquiry, proceeding, audit or investigation by or before any Governmental Authority, or any other arbitration, mediation or similar proceeding.

“ Accounts Receivable ” means all trade accounts receivable of the Company, net of allowances and reserves.

“ Affiliate ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.

“ Ancillary Agreements ” means the Escrow Agreement, employment agreements, non-competition agreements and all other agreements, documents and instruments required to be delivered by any party pursuant to this Agreement, and any other agreements, documents or

instruments entered into at or prior to the Closing in connection with this Agreement or the transactions contemplated hereby.

“ Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in the City of New York.

“ Closing Date Merger Consideration ” means the result of (A) $25,000,000 less (B) the sum of the Indemnity Escrow Amount and the Stockholder Representative Fund, subject to adjustment prior to the Closing pursuant to Section 5.15.

“ Closing Date Per Share Merger Consideration ” means the Closing Date Merger Consideration divided by the number of Fully Diluted Shares.

“ Contract ” means any contract, agreement, arrangement or understanding, whether written or oral and whether express or implied.

“ control ”, including the terms “ controlled by ” and “ under common control with ”, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, as general partner or managing member, by Contract or otherwise, including the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

“ Current Assets ” means, without duplication, the Company’s cash and cash equivalents, Accounts Receivable, inventory, prepaid expenses and all other current assets, but excluding Tax assets, all determined in accordance with GAAP applied on a basis consistent with the Company’s existing accounting methods used in the preparation of the Financial Statements, subject to such differences in accounting principles, policies and procedures as are set forth in Schedule 2.11(a).

“ Current Liabilities ” means, without duplication, the Company’s trade accounts payable, accrued expenses, current portion of notes payable and all other current liabilities and deposits from third parties, all determined in accordance with GAAP applied on a basis consistent with the Company’s existing accounting methods used in the preparation of the Financial Statements, subject to such differences in accounting principles, policies and procedures as are set forth in Schedule 2.11(a).

“ Encumbrance ” means any charge, claim, limitation, condition, equitable interest, mortgage, lien, option, pledge, security interest, easement, encroachment, right of first refusal, adverse claim or restriction of any kind, including without limitation any restriction on or transfer or other assignment, as security or otherwise, of or relating to use, quiet enjoyment, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“ ERISA Affiliate ” means any trade or business, whether or not incorporated, under common control with the Company and that, together with the Company, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“ Escrow Agent ” means Citibank, N.A., or its successor under the Escrow Agreement.

“ Escrow Agreement ” means the Escrow Agreement to be entered into by the Parent, the Stockholder Representative and the Escrow Agent, substantially in the form of Exhibit A (and including revisions thereto requested by the Escrow Agent and agreed to by the Stockholder Representative and the Parent).

“ Fully Diluted Shares ” means the aggregate number of Shares (other than Shares to be cancelled in accordance with Sections 2.7(b) and 2.7(c)) and Share equivalents (including options, warrants and other interests convertible into or exchangeable for Shares) outstanding immediately prior to the Effective Time, including for purposes of this computation the aggregate number of Shares issuable upon the exercise in full of all Options and Warrants outstanding immediately prior to the Effective Time, whether or not vested or currently exercisable.

“ GAAP ” means United States generally accepted accounting principles and practices as in effect on the date hereof.

“ Governmental Authority ” means any United States or non-United States federal, national, supranational, state, provincial, local or similar government, governmental, regulatory or administrative authority, branch, agency or commission or any court, tribunal, or arbitral or judicial body (including any grand jury).

“ Immediate Family ”, with respect to any specified Person, means such Person’s spouse, parents, children and siblings, including adoptive relationships and relationships through marriage, or any other relative of such Person who shares such Person’s home.

“ Indemnity Escrow Amount ” means $2,500,000.

“ Indemnity Escrow Fund ” means the Indemnity Escrow Amount deposited with the Escrow Agent, as such sum may be increased or decreased as provided in the Escrow Agreement and Section 2.11(d).

“ Indemnity Escrow Fund Termination Date ” means termination of the Indemnity Escrow Fund and disbursement of any remaining funds therein to the parties entitled thereto, pursuant to the terms of the Escrow Agreement.

“ Intellectual Property ” means all intellectual property rights arising from or associated with the following, whether protected, created or arising under the Laws of the United States or any other jurisdiction: (i) trade names, trademarks and service marks (registered and unregistered), domain names and other Internet addresses or identifiers, trade dress and similar rights, and applications (including intent to use applications) to register any of the foregoing (collectively, “ Marks ”); (ii) patents and patent applications (collectively, “ Patents ”); (iii) copyrights (registered and unregistered) and applications for registration (collectively, “ Copyrights ”); (iv) know-how, inventions, methods, processes, technical data, specifications, research and development information, technology, product roadmaps, customer lists and any other information, in each case to the extent any of the foregoing derives economic value (actual

or potential) from not being generally known to other Persons who can obtain economic value from its disclosure or use, excluding any Copyrights or Patents that may cover or protect any of the foregoing (collectively, “ Trade Secrets ”); and (v) moral rights, publicity rights, data base rights and any other proprietary or intellectual property rights of any kind or nature that do not comprise or are not protected by Marks, Patents, Copyrights or Trade Secrets.

“ knowledge ”, with respect to a party, means the knowledge of any officer or director of such party and such knowledge as would be imputed to such persons after their exercise of careful inquiry.

“ Law ” means any statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or order of any Governmental Authority.

“ Leased Real Property ” means all real property leased, subleased or licensed to the Company or which the Company otherwise has a right or option to use or occupy, together with all structures, facilities, fixtures, systems, improvements and items of property previously or hereafter located thereon, or attached or appurtenant thereto, and all easements, rights and appurtenances relating to the foregoing.

“ Licensed Intellectual Property ” means (i) any grant by the Company to another Person of any license, sublicense, right, permission, consent or non-assertion relating to or under any Intellectual Property of the Company and (ii) any grant by another Person to the Company of any license, sublicense, right, permission, consent or non-assertion relating to or under any Intellectual Property owned by a third Person.

“ Material Adverse Effect ” means any event, change, circumstance, occurrence, effect or state of facts that (a) is or would reasonably be expected to be materially adverse to the business, assets, liabilities, condition (financial or otherwise), results of operations or prospects of the Company or (b) materially impairs the ability of the Company, any of the Approving Holders or the Stockholder Representative to consummate, or prevents or materially delays, any of the other transactions contemplated by this Agreement or the Ancillary Agreements or would reasonably be expected to do so.

“ Merger Consideration ” means the Closing Date Merger Consideration, subject to adjustment in accordance with Section 2.11 and Section 5.15, together with the Stockholder Representative Fund and any amounts to be distributed to the Stockholders from the Indemnity Escrow Fund as provided in the Escrow Agreement and this Agreement.

“ Off-the-Shelf Software ” means any Software (other than Public Software) that is generally and widely available to the public through regular commercial distribution channels and is licensed on a non-exclusive basis on standard terms and conditions for a one-time license fee less than $10,000 per license and that was obtained by the Company in the ordinary course of business.

“ Option ” means each outstanding option to purchase shares of the capital stock of the Company.

“ Owned Real Property ” means all real property owned by the Company, together with all structures, facilities, fixtures, systems, improvements and items of property previously or hereafter located thereon, or attached or appurtenant thereto, and all easements, rights and appurtenances relating to the foregoing.

“ Person ” means an individual, corporation, partnership, limited liability company, limited liability partnership, syndicate, person, trust, association, organization or other entity, including any Governmental Authority, and including any successor, by merger or otherwise, of any of the foregoing.

“ Public Software ” means any Software that contains, or is lawfully derived in any manner (in whole or in part) from, any Software that is distributed as free software, open source Software (e.g., Linux) or similar licensing or distribution models, including without limitation any model that requires the distribution of source code to licensees, including Software licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: (i) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL); (ii) the Artistic License (e.g., PERL); (iii) the Mozilla Public License; (iv) the Netscape Public License); (v) the Sun Community Source License (SCSL); (vi) the Sun Industry Standards License (SISL); (vii) the BSD License; (viii) the Apache License and (viii) an Open Source Foundation License (e.g., CDE and Motif UNIX user interfaces).

“ Reference Amount ” means $1,388,000, as adjusted pursuant to Section 5.15.

“ Registered Intellectual Property ” means all applications, registrations and filings for Intellectual Property that are pending or have been registered, filed, certified, issued or otherwise perfected or recorded with or by any Governmental Authority or the International Corporation for Assigned Names and Numbers or any domain name registrar.

“ Related Party ”, with respect to any specified Person, means: (i) any Affiliate of such specified Person, or any director, executive officer, general partner or managing member of such Affiliate; (ii) any Person who serves or within the past five years has served as a director, executive officer, partner, member or in a similar capacity of such specified Person; (iii) any Immediate Family member of a Person described in clause (ii); or (iv) any other Person who holds, individually or together with any Affiliate of such other Person and any member(s) of such Person’s Immediate Family, more than 5% of the outstanding equity or ownership interests of such specified Person.

“ Return ” means any return, declaration, report, statement, information statement or other document required to be filed with respect to Taxes.

“ Software ” means any and all (i) computer programs, including any and all software implementations of algorithms, heuristics, models and methodologies, whether in source code or object code, (ii) testing, validation, verification and quality assurance materials (iii) databases, conversions, interpreters and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iv) descriptions, schematics, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, (v) all documentation, including user manuals, web materials and architectural and design

specifications and training materials, relating to any of the foregoing, (vi) software development processes, practices, methods and policies recorded in permanent form, relating to any of the foregoing, and (vii) performance metrics, sightings, bug and feature lists, build, release and change control manifests recorded in permanent form, relating to any of the foregoing.

“ Special Meeting of Company Stockholders ” means the special meeting of the Stockholders of the Company called to conduct a vote of the Stockholders to approve the Merger in accordance with Oregon Law.

“ Stockholder Representative Fund ” means an amount equal to $250,000, to be held by the Escrow Agent in a separate account and made available to the Stockholder Representative for the performance of his duties, and related costs and expenses, pursuant to the terms of the Escrow Agreement. Upon the Indemnity Escrow Fund Termination Date, any amounts remaining in the Stockholder Representative Fund shall be released to the Stockholder Representative for distribution to the Stockholders or retained for costs and expenses of the Stockholder Representative for the performance of his duties hereunder, as reasonably determined by the Stockholder Representative.

“ Subsidiary ” means, with respect to any Person, any other Person controlled by such first Person, directly or indirectly, through one or more intermediaries.

“ Taxes ” means: (i) all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, registration, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto; (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period or otherwise through operation of law; and (iii) any liability for the payment of amounts described in clauses (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other Person.

“ Transaction Expenses ” means all fees and expenses payable by the Company in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, including fees and expenses payable to all attorneys, accountants, financial advisors and other professionals and bankers’, brokers’ or finders’ fees for persons not engaged by the Parent or Sub.

“ Warrant ” means each outstanding warrant to purchase shares of the capital stock of the Company.

“ Working Capital ” as of any date means the excess of Current Assets over Current Liabilities. Working Capital, as defined, shall be determined in accordance with GAAP applied on a basis consistent with the Company’s existing accounting methods used in the preparation of the Financial Statements.

Section 1.2 Table of Definitions .

The following terms have the meanings set forth in the Sections referenced below:


Definition		Location
Acquisition Proposal		5.3
Aggregate Cap		7.3(b)(i)
Agreement		Preamble
Approving Holders		Preamble
Articles of Merger		2.2(b)
Balance Sheet		3.6(b)
Cashless Exercise Loans		5.13
CERCLA		3.19
Certificates		2.10(c)
Closing		2.2(a)
Closing Balance Sheet		2.11(a)
Closing Balance Sheet Costs		2.11(c)
Closing Date		2.2(a)
Closing Working Capital		2.11(a)
Code		3.13(d)
Company		Preamble
Company Stockholder Approval		3.2(a)
Company Stockholders’ Meeting		3.29(b)
Core Representations		7.1(a)
Deficit Amount		5.15
Disclosure Schedules		Article III
Dissenting Shares		2.8
Effective Time		2.2(b)
Environmental Laws		3.19
Environmental Permits		3.19
Environmental Representations		7.1(c)
ERISA		3.13(a)(i)
Financial Statements		3.6(a)
Flow of Funds Statement		5.15
Hazardous Substances		3.19
Indemnified Party		7.5(a)
Indemnifying Party		7.5(a)
Independent Accounting Firm		2.11(c)
Information Statement		3.29(b)
Interim Financial Statements		3.6(a)
IRS		3.13(b)
Losses		7.2
Majority Holders		2.13(b)
Material Contracts		3.20(a)
Medline		6.3(p)
Merger		Recitals
Multiemployer Plan		3.13(c)
Multiple Employer Plan		3.13(c)


Definition		Location
Noncompetition Agreement		6.3(d)
Notice of Disagreement		2.11(b)
Option Withholding Amount		5.13
Oregon Law		Recitals
Parent		Preamble
Permits		3.11(b)
Permitted Encumbrances		3.15(a)
Plans		3.13(a)(iv)
Pre-Closing Tax Period		5.12(c)
Pre-Closing Taxes		5.12(a)
Release		3.19
Repayment Agreements		5.14
Representatives		5.2
Schedule of Expenses		2.10(g)
Shares		Recitals
Special Representations		7.1(c)
Stockholder		2.10(a)
Stockholder Representative		2.13(a)
Stradle Period		5.12(a)
Sub		Preamble
Surviving Corporation		2.1
Tax Claim		5.12(i)
Tax Representations		7.1(b)
Third Party Claim		7.5(a)
Title Commitment		3.16(c)
Unpaid Expenses		2.10(g)

ARTICLE II
THE MERGER

Section 2.1 The Merger . Upon the terms and subject to the conditions of this Agreement, at the Effective Time and in accordance with Oregon Law, Sub shall be merged with and into the Company pursuant to which (i) the separate corporate existence of Sub shall cease, (ii) the Company shall be the surviving corporation in the Merger (the “ Surviving Corporation ”) and shall continue its corporate existence under Oregon Law as a wholly owned Subsidiary of the Parent and (iii) all of the properties, rights, privileges, powers and franchises of the Company will vest in the Surviving Corporation, and all of the debts, liabilities, obligations and duties of the Company will become the debts, liabilities, obligations and duties of the Surviving Corporation.

Section 2.2 Closing; Effective Time .

(a) The closing of the Merger (the “ Closing ”) shall take place at the offices of Gibson, Dunn & Crutcher LLP, 3161 Michelson Drive, Irvine, California 92612, at 10:00 a.m. local time, on the second Business Day following the satisfaction or, to the extent permitted by applicable Law, waiver of all conditions to the obligations of the parties set forth in Article VI

(other than such conditions as may, by their terms, only be satisfied at the Closing or on the Closing Date), or at such other place or at such later time or on such other date as the parties mutually may agree in writing. The day on which the Closing takes place is referred to as the ” Closing Date ”.

(b) As soon as practicable on the Closing Date, the parties shall cause articles of merger substantially in the form attached as Exhibit B to be executed and filed with the Secretary of State of the State of Oregon (the “ Articles of Merger ”), executed in accordance with the relevant provisions of Oregon Law. The Merger shall become effective upon the filing of the Articles of Merger with the Secretary of State of the State of Oregon or at such other time as the parties shall agree and as shall be specified in the Articles of Merger. The date and time when the Merger shall become effective is herein referred to as the “ Effective Time ”.

Section 2.3 Effects of the Merger . The Merger shall have the effects provided for herein and in the applicable provisions of Oregon Law.

Section 2.4 Articles of Incorporation and Bylaws . From and after the Effective Time, (a) the articles of incorporation of the Company, as in effect immediately prior to the Effective Time, shall be amended and restated by virtue of the Merger to read in its entirety in the form of Exhibit C hereto without any further action on the part of the Company or Sub and (b) the bylaws of Sub shall be the bylaws of the Surviving Corporation, in each case until amended in accordance with the provisions thereof and applicable Law.

Section 2.5 Directors; Officers . From and after the Effective Time, (a) the directors of Sub serving immediately prior to the Effective Time shall be the directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be and (b) the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be, shall be as follows: Jack D. McMaken, President; Bruce L. Gibbins, Chief Technology Officer; John A. Calhoun, Chief Financial Officer; James J. Dal Porto, Secretary; and James R. Talevich, Treasurer and Assistant Secretary.

Section 2.6 Subsequent Actions . If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either the Company or Sub acquired or to be acquired by the Surviving Corporation as a result of or in connection with the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name of and on behalf of either the Company or Sub, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.

Section 2.7 Conversion of Stock . At the Effective Time, by virtue of the Merger and without any further action on the part of the Parent, Sub, the Company or any holder of any Shares or any shares of capital stock of Sub:

(a) Each Share issued and outstanding immediately prior to the Effective Time (other than any Shares described in Sections 2.7(b) or (c) and any Dissenting Shares) shall be converted into the right to receive the Closing Date Per Share Merger Consideration, in cash, without interest, together with any Merger Consideration which may be payable in respect of such Share pursuant to the Escrow Agreement and this Agreement, at the respective times and subject to the contingencies specified therein and herein;

(b) Each Share that is owned by the Parent or Sub immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor;

(c) Each Share that is held in the treasury of the Company or owned by the Company immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor; and

(d) Each share of common stock, par value $0.001 per share, of Sub issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid share of common stock, par value $0.001 per share, of the Surviving Corporation and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

Section 2.8 Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, the Shares (other than any Shares to be cancelled pursuant to Sections 2.7(b) or 2.7(c)) outstanding immediately prior to the Effective Time and held by a holder who (i) has delivered to the Company, before or at the time the vote on the Merger is taken at the Special Meeting of Company Stockholders, written notice of the holder’s intent to demand payment for the holder’s Shares if the Merger is effectuated and (ii) has not voted in favor of the Merger or consented thereto in writing and who has properly demanded appraisal for such Shares in accordance with Oregon Law (“ Dissenting Shares ”) shall not be converted into or be exchangeable for the right to receive a portion of the Merger Consideration unless and until such holder fails to perfect or withdraws or otherwise loses his right to appraisal and payment under Oregon Law. Notwithstanding the foregoing, any payments required to be made to holders of Dissenting Shares pursuant to Oregon Law shall be paid in accordance with Oregon Law, provided that such holders comply with the relevant requirements of Oregon Law and instructions provided for surrender of certificates representing Dissenting Shares. If, after the Effective Time, any such holder fails to perfect or withdraws or loses his right to appraisal, such Dissenting Shares shall thereupon be treated as if they had been converted as of the Effective Time into the right to receive the portion of the Merger Consideration to which such holder is entitled, without interest. The Company shall give the Parent (i) prompt notice of (1) any written notice of a Stockholder’s intent to demand payment for such holder’s Shares if the Merger is effectuated and (2) any demands received by the Company for appraisal of Shares, attempted written withdrawals of such demands, and any other instruments served pursuant to Oregon Law and received by the Company relating to stockholders’ rights to appraisal with respect to the Merger and (ii) the right

and sole opportunity to direct all negotiations and proceedings with respect to any exercise of such appraisal rights under Oregon Law. The Company shall not, except with the prior written consent of the Parent, voluntarily make any payment with respect to any demands for payment of fair value for capital stock of the Company, offer to settle or settle any such demands or approve any withdrawal of any such demands.

Section 2.9 Options and Warrants . Prior to the Effective Time, the Company shall (i) take all action necessary or appropriate to ensure that all Options and Warrants have been exercised or converted into Shares and terminated, cancelled or retired, as relevant, (ii) make any amendments to the terms of the Company’s equity incentive plans and obtain any consents from Option and Warrant holders necessary to give effect to the transactions contemplated by this Agreement.

Section 2.10 Payment for Shares .

(a) The Surviving Corporation shall act as paying agent in effecting the payment of (i) the consideration to which holders of the Shares (each, a “ Stockholder ”) shall be entitled at the Effective Time pursuant to Section 2.7(a) and (ii) any payments required to be made to holders of Dissenting Shares under Oregon Law.

(b) As part of the Merger Consideration, concurrently with the Effective Time, the Parent shall deposit or cause to be deposited with the Escrow Agent for deposit into the Indemnity Escrow Fund, the Indemnity Escrow Amount. The Indemnity Escrow Fund shall be held, invested and distributed as provided in the Escrow Agreement and this Agreement.

(c) On or as promptly as practicable after the Closing Date, the Surviving Corporation shall mail to each holder of record of a certificate or certificates that, immediately prior to the Effective Time, evidenced outstanding Shares (the “ Certificates ”) and whose Shares were converted into the right to receive the consideration described in Section 2.7(a), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Surviving Corporation and shall be in such form and have such other provisions as the Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for payment therefor (which shall have such provisions as the Parent may reasonably specify). Upon surrender of a Certificate for cancellation to the Surviving Corporation or such agent or agent as may be appointed by the Parent, together with such letter of transmittal duly executed and delivered in accordance with such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor (as promptly as practicable), an amount in cash equal to (A) the Closing Date Per Share Merger Consideration multiplied by (B) the number of Shares formerly represented by such Certificate, without interest, and such Certificate shall, upon such surrender, be cancelled. If payment in respect of any Certificate is to be made to a Person other than the Person in whose name such Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall otherwise be in proper form for transfer, that the signatures on such Certificate or any related stock power shall be properly guaranteed and that the Person requesting such payment shall have established to the satisfaction of the Parent that any transfer and other Taxes required by reason of such payment to a Person

other than the registered holder of such Certificate have been paid or are not applicable. Until surrendered in accordance with the provisions of this Section 2.10, any Certificate (other than Certificates representing the Shares described in Sections 2.7(b) or (c) and any Dissenting Shares) shall be deemed, at any time after the Effective Time, to represent only the right to receive the portion of the Merger Consideration payable with respect thereto, in cash, without interest, as contemplated herein. The Surviving Corporation shall mail to each holder of Dissenting Shares any correspondence or notices required by Oregon Law.

(d) At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of any shares of capital stock thereafter on the records of the Company. If, after the Effective Time, a Certificate (other than representing the Shares described in Sections 2.7(b) or (c)) is presented to the Surviving Corporation, it shall be cancelled and exchanged as provided in this Section 2.10.

(e) All cash paid upon conversion of the Shares in accordance with the terms of this Article II and all cash deposited with the Escrow Agent pursuant to Section 2.10(b) shall be deemed to have been paid in full satisfaction of all rights pertaining to such Shares. From and after the Effective Time, the holders of Certificates shall cease to have any rights with respect to the Shares represented thereby, except as otherwise provided herein or by applicable Law.

(f) If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the holder thereof, the Surviving Corporation shall pay or cause to be paid in exchange for such lost, stolen or destroyed Certificate the relevant portion of the Merger Consideration payable in respect thereof pursuant to Section 2.10(c) for the Shares represented thereby; provided , however , that the Surviving Corporation may, in its discretion, require the delivery of a satisfactory indemnity and/or bond.

(g) Within three Business Days prior to the Closing Date, the Company will provide to the Parent an itemized schedule (the “ Schedule of Expenses ”) containing (i) a true and complete list of all Transaction Expenses that have been paid (or for which bills have been received) or shall have been paid by the Company as of the Closing Date, (ii) a good faith estimate of all such additional Transaction Expenses that have been incurred or shall have been incurred as of the Closing Date but are not reflected in clause (i) hereof and (iii) a good faith estimate of all additional Transaction Expenses that are expected to be incurred after the Closing Date, together with a certificate of an authorized officer of the Company certifying the accuracy and completeness of the Schedule of Expenses. The Schedule of Expenses shall include without limitation all fees and expenses of the Company’s legal counsel, auditors and financial advisors for services rendered or to be rendered on or prior to the Closing Date. On or before the Closing Date, the Company shall have made payment of each Transaction Expense set forth in the Schedule of Expenses (including without limitation the $700,000 investment banking fee owed by the Company at the Closing and the amounts owed by the Company to its legal advisors, auditors and accountants for services through the Closing), other than the fees and expenses set forth therein that are estimated for services to be performed after the Closing Date (the “ Unpaid Expenses ”), which fees and expenses shall be paid by the Surviving Corporation as they are later incurred or billed up to the amount estimated therefor; provided that any such fees and expenses in excess of the amount estimated therefor in the Schedule of Expenses shall be the sole responsibility of the Stockholders and the Parent shall be entitled to receive such excess amount

from the Indemnity Escrow Fund. For the avoidance of doubt, Unpaid Expenses shall be listed as a Current Liability on the Closing Balance Sheet.

(h) Notwithstanding anything to the contrary in this Section 2.10, to the fullest extent permitted by law, neither the Parent nor the Surviving Corporation shall be liable to any holder of a Certificate for any amount properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(i) If contemplated by the Flow of Funds Statement prepared and agreed upon pursuant to Section 5.15, the Board of Directors of the Company, if permitted by applicable Law and provided that the Company has complied with the obligations set forth in Section 5.1(s), may declare a dividend equal to the amount set forth in the Flow of Funds Statement. Such dividend, if any, shall be completely paid by the Company immediately prior to the Closing, and the Surviving Company shall have no liability therefor, or obligation with respect thereto, for any reason whatsoever.

Section 2.11 Post-Closing Adjustment of Merger Consideration .

(a) Within 90 calendar days after the Closing Date, the Parent shall deliver to the Stockholder Representative (i) a balance sheet of the Company, including all notes thereto, dated as of the Closing Date (the “ Closing Balance Sheet ”), prepared in accordance with GAAP applied on a basis consistent with the Company’s existing accounting methods used in the preparation of the Financial Statements (except as set forth in Section 2.10(g)); provided that no purchase accounting valuation adjustments in respect of the transactions contemplated by this Agreement shall be made and (ii) a reasonably detailed calculation based on the Closing Balance Sheet of the Working Capital of the Company as of the Closing Date (the “ Closing Working Capital ”). The Closing Balance Sheet and the Closing Working Capital shall be calculated and prepared as of the time immediately after the Effective Time (so that completion of the transactions contemplated at the Closing are reflected therein).

(b) During the 20 Business Day period following the Stockholder Representative’s receipt of the Closing Balance Sheet and the Closing Working Capital calculation, the Parent shall use its commercially reasonable efforts to provide the Stockholder Representative and its auditors with access to the working papers of the Parent and its auditors relating to the Closing Balance Sheet and the Closing Working Capital calculation, and the Parent shall cooperate with the Stockholder Representative and its auditors to provide them with any other information used in preparing the Closing Balance Sheet and the Closing Working Capital calculation reasonably requested by the Stockholder Representative and its auditors. The Closing Balance Sheet and the Closing Working Capital calculation shall become final and binding on the 20th Business Day following delivery thereof, unless prior to the end of such period, the Stockholder Representative delivers to the Parent written notice of his disagreement (a “ Notice of Disagreement ”) specifying the nature and amount of any disputed item and accompanied by a certificate of the Stockholder Representative’s auditors stating that they concur with each of the positions taken by the Stockholder Representative in the Notice of Disagreement. The Stockholder Representative shall be deemed to have agreed with all items and amounts in the Closing Balance Sheet and the Closing Working Capital calculation not

specifically referenced in the Notice of Disagreement, and such items and amounts shall not be subject to review in accordance with Section 2.11(c).

(c) During the 10 Business Day period following delivery of a Notice of Disagreement by the Stockholder Representative to the Parent, the parties in good faith shall seek to resolve in writing any differences that they may have with respect to the matters specified therein. During such 10 Business Day period, the Stockholder Representative shall use his commercially reasonable efforts to provide the Parent and its auditors with access to the working papers of the Stockholder Representative and its auditors relating to such Notice of Disagreement, and the Stockholder Representative and its auditors shall cooperate with the Parent and its auditors to provide them with any other information used in preparation such Notice of Disagreement reasonably requested by the Parent or its auditors. Any disputed items resolved in writing between the Stockholder Representative and the Parent within such 10 Business Day period shall be final and binding with respect to such items, and if the Stockholder Representative and the Parent agree in writing on the resolution of each disputed item specified by the Stockholder Representative in the Notice of Disagreement and the amount of the Closing Working Capital, the amount so determined shall be final and binding on the parties for all purposes hereunder. If the Stockholder Representative and the Parent have not resolved all such differences by the end of such 10 Business Day period, the Stockholder Representative and the Parent shall submit, in writing, to an independent public accounting firm (the “ Independent Accounting Firm ”), their briefs detailing their views as to the correct nature and amount of each item remaining in dispute and the amount of the Closing Working Capital, and the Independent Accounting Firm shall make a written determination as to each such disputed item and the amount of the Closing Working Capital, which determination shall be final and binding on the parties for all purposes hereunder. The Independent Accounting Firm shall be authorized to resolve only those items remaining in dispute between the parties in accordance with the provisions of this Section 2.11 within the range of the difference between the Parent’s position with respect thereto and the Stockholder Representative’s position with respect thereto. The determination of the Independent Accounting Firm shall be accompanied by a certificate of the Independent Accounting Firm that it reached such determination in accordance with the provisions of this Section 2.11. The Independent Accounting Firm shall in good faith be agreed in writing by the Stockholder Representative and the Parent. The Stockholder Representative and the Parent shall use their commercially reasonable efforts to cause the Independent Accounting Firm to render a written decision resolving the matters submitted to it within 20 Business Days following the submission thereof. Judgment may be entered upon the written determination of the Independent Accounting Firm in any court referred to in Section 9.10. The fees and disbursements of the auditors of each party incurred in connection with their preparation and review of the Closing Balance Sheet shall be borne by such party (the sum of such fees and disbursements incurred by both parties, the “ Closing Balance Sheet Costs ”); provided , however , in the event of a dispute resolution pursuant to this Section 2.11(c), the Closing Balance Sheet Costs and the costs of such dispute resolution (including the fees and expenses of the Independent Accounting Firm and of any enforcement of the determination thereof and the fees and disbursements of the auditors of each party incurred in connection with their preparation or review of any Notice of Disagreement) shall be borne by the Stockholder Representative and/or the Stockholders, on the one hand, and the Parent, on the other hand, in inverse proportion as they may prevail on the matters resolved by the Independent Accounting Firm, which proportionate allocation shall be calculated on an aggregate basis based on the relative dollar

values of the amounts in dispute and shall be determined by the Independent Accounting Firm at the time the determination of such firm is rendered on the merits of the matters submitted.

(d) If the Reference Amount is greater than the Closing Working Capital as finally determined pursuant to this Section 2.11, the Merger Consideration shall be adjusted downwards in an amount equal to the difference between the Reference Amount and the Closing Working Capital. In such event, the Parent shall deliver written notice to the Escrow Agent and the Stockholder Representative specifying the amount of such downwards adjustment of the Merger Consideration, and the Escrow Agent shall pay such amount out of the Indemnity Escrow Fund to the Parent in accordance with the terms of the Escrow Agreement and neither the Stockholder Representative nor any Stockholder shall be entitled to object to such claim against the Indemnity Escrow Fund; provided that the Stockholders shall remain liable in the event amounts in the Indemnity Escrow Fund are insufficient to cover such amount. If the Reference Amount is less than the Closing Working Capital as finally determined pursuant to this Section 2.11, the Merger Consideration shall be adjusted upwards in an amount equal to the difference between the Reference Amount and the Closing Working Capital. In such event, the Parent or the Surviving Corporation shall deliver written notice to the Stockholder Representative specifying the amount of such upwards adjustment of the Merger Consideration, and shall pay such amount to the Stockholders pro rata in accordance with the portion of the Merger Consideration each such Stockholder would otherwise have been entitled to receive under Section 2.10(c), by virtue of the ownership of outstanding Shares immediately prior to the Effective Time.

(e) Amounts to be paid pursuant to Section 2.11(d) shall bear simple interest from the Closing Date to the date of such payment at a rate equal to the “prime rate” as published in The Wall Street Journal , Eastern Edition, in effect from time to time or (if less) the maximum rate permitted by applicable Law, calculated on the basis of a year of 365 days and the number of days elapsed.

Section 2.12 Withholding Rights . The Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration otherwise payable to any Person pursuant to this Agreement such amounts as it reasonably believes it is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of applicable tax Law. To the extent that such amounts are so withheld or paid over to or deposited with the relevant Governmental Authority by the Parent or the Surviving Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the applicable Person in respect to which such deduction and withholding was made.

Section 2.13 Stockholder Representative .

(a) Immediately upon the approval of this Agreement by the requisite vote of the Stockholders, each Stockholder shall be deemed to have consented to the appointment of John A. Calhoun as such Stockholder’s representative and attorney-in-fact (the “ Stockholder Representative ”), with full power of substitution to act on behalf of the Stockholders to the extent and in the manner set forth in this Agreement and the Escrow Agreement. All decisions, actions, consents and instructions by the Stockholder Representative shall be binding upon all of the Stockholders, and no Stockholder shall have the right to object to, dissent from, protest or

otherwise contest the same. The Parent and Sub shall be entitled to rely on any decision, action, consent or instruction of the Stockholder Representative as being the decision, action, consent or instruction of the Stockholders (including, without limitation, the resolution of all claims for indemnification), and the Parent and Sub are hereby relieved from any liability to any Person for acts done by them in accordance with any such decision, act, consent or instruction.

(b) The Stockholder Representative may resign at any time, and may be removed for any reason or no reason by the vote or written consent of Stockholders holding a majority of the aggregate Fully Diluted Shares immediately before the Effective Time (the “ Majority Holders ”). In the event of the death, incapacity, resignation or removal of the Stockholder Representative, a new Stockholder Representative shall be appointed by the vote or written consent of the Majority Holders. Notice of such vote or a copy of the written consent appointing such new Stockholder Representative shall be sent to the Parent and, after the Effective Time, to the Surviving Corporation, such appointment to be effective upon the later of the date indicated in such consent or the date such consent is received by the Parent and, after the Effective Time, the Surviving Corporation; provided that until such notice is received, the Parent, Sub and the Surviving Corporation, as applicable, shall be entitled to rely on the decisions, actions, consents and instructions of the prior Stockholder Representative as described in Section 2.13(a). The Stockholder Representative may charge a reasonable fee for his services; provided that all fees and expenses incurred by the Stockholder Representative in performing his duties hereunder (including legal fees and expenses related thereto) and any indemnification in favor of the Stockholder Representative shall be borne by the Stockholders, and the amount held in the Stockholder Representative Fund shall be available to the Stockholder Representative therefor pursuant to the terms of the Escrow Agreement.

(c) The Stockholder Representative shall not be liable to the Stockholders for actions taken pursuant to this Agreement or the Escrow Agreement, except to the extent such actions shall have been determined by a court of competent jurisdiction to have constituted willful misconduct or fraud. Except in cases where a court of competent jurisdiction has made such a finding, the Stockholders shall jointly and severally indemnify and hold harmless the Stockholder Representative from and against any and all losses, liabilities, claims, actions, damages and expenses, including reasonable attorneys’ fees and disbursements, arising out of and in connection with its activities as Stockholder Representative under this Agreement, the Escrow Agreement or otherwise.

(d) The approval of this Agreement by the requisite vote of the Stockholders shall also be deemed to constitute approval of all arrangements relating to the transactions contemplated hereby and to the provisions hereof binding upon the Stockholders, including, without limitation, Section 7.2.

ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY

Except as set forth in the corresponding sections or subsections of the Disclosure Schedules attached hereto (collectively, the “ Disclosure Schedules ”) (which correspond to the section numbers in this Agreement; however, to the extent any exception is disclosed pursuant to

any specific section of the Agreement, it shall be deemed to be disclosed for any and all other sections for which its relevance is reasonably ascertainable from its inclusion in the former section), the Company hereby represents and warrants to the Parent and Sub as follows:

Section 3.1 Organization and Qualification .

(a) The Company is (i) a corporation duly organized, validly existing and in good standing under Oregon Law, and has full corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (ii) duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, all of which are set forth in Schedule 3.1 of the Disclosure Schedules.

(b) The Company has heretofore furnished to the Parent a complete and correct copy of the articles of incorporation and bylaws or equivalent organizational documents, each as amended to date, of the Company. Such articles of incorporation, bylaws or equivalent organizational documents are in full force and effect. The Company is not in breach or violation of any of the provisions of its articles of incorporation, bylaws or equivalent organizational documents. The transfer books and minute books of the Company that have been made available for inspection by the Parent prior to the date hereof are true and complete in all respects.

Section 3.2 Authority .

(a) The Company has full corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it will be a party and, subject to obtaining approval of Stockholders representing a majority of the outstanding Shares in accordance with the requirements of Oregon Law (“ Company Stockholder Approval ”), to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of this Agreement and each of the Ancillary Agreements to which the Company will be party and the consummation by the Company of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of the Company. Except for obtaining Company Stockholder Approval, no other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery or performance of this Agreement or any Ancillary Agreement or to consummate the transactions contemplated hereby and thereby. This Agreement has been, and upon their execution each of the Ancillary Agreements to which the Company will be a party will have been, duly executed and delivered by the Company. This Agreement constitutes, and upon their execution each of the Ancillary Agreements to which the Company will be a party will constitute, the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms.

(b) The Board of Directors of the Company, pursuant to a Unanimous Written Consent in Lieu of Meeting dated February 1, 2008, unanimously (i) determined that this Agreement and the Merger are fair to and in the best interests of the Company and its stockholders and (ii) resolved to recommend that the Company’s stockholders approve and adopt this Agreement and the Merger.

Section 3.3 No Conflict; Required Filings and Consents .

(a) The execution, delivery and performance by the Company of this Agreement and each of the Ancillary Agreements to which the Company will be a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not:

(i) conflict with or violate the articles of incorporation or bylaws or equivalent organizational documents of the Company;

(ii) conflict with or violate any Law applicable to the Company or by which any property or asset of the Company is bound or affected; or

(iii) result in any breach of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, require any consent of any Person pursuant to, give to any Person any right of termination, amendment, modification, acceleration or cancellation of, allow the imposition of any fees or penalties, require the offering or making of any payment or redemption, give rise to any increased, guaranteed, accelerated or additional rights or entitlements of any Person or otherwise adversely affect any rights of the Company under, or result in the creation of any Encumbrance on any property, asset or right of the Company pursuant to, any note, bond, mortgage, indenture, agreement, lease, license, permit, franchise, instrument, obligation or other Contract to which the Company is a party or by which the Company or any of its properties, assets or rights are bound or affected.

(b) The Company is not required to file, seek or obtain any notice, authorization, approval, order, permit or consent of or with any Governmental Authority in connection with the execution, delivery and performance by the Company of this Agreement and each of the Ancillary Agreements to which the Company will be a party or the consummation of the transactions contemplated hereby or thereby or in order to prevent the termination of any right, privilege, license or qualification of the Company, except for the filing of the Articles of Merger with the Secretary of State of the State of Oregon.

(c) No “fair price”, “interested shareholder”, “business combination” or similar provision of any takeover provision of Oregon Law is, or at the Effective Time will be, applicable to the transactions contemplated by this Agreement or the Ancillary Agreements.

Section 3.4 Capitalization .

(a) The authorized capital stock of the Company consists only of (i) 21,000,000 shares of common stock, par value $0.000001 per share, of which 7,858,168 shares, constituting the Shares, are issued and outstanding on the date hereof (which number shall be increased to reflect the issuance of Shares upon the exercise of Options and Warrants pursuant to Section 2.9, and the Company shall promptly inform the Parent of any such increase, in any event prior to the Closing Date) and (ii) 5,000,000 shares of preferred stock (of which 1,600,000 shares are designated Series B-1 preferred stock), par value $0.000001 per share, of which no shares are issued and outstanding on the date hereof. Except for the Shares and except as set forth in Schedule 3.4 of the Disclosure Schedules, the Company has not issued or agreed to issue any: (i) share of capital stock or other equity or ownership interest; (ii) option, warrant or interest convertible into or exchangeable or exercisable for the purchase of shares of capital stock

or other equity or ownership interests; (iii) stock appreciation right, phantom stock, interest in the ownership or earnings of the Company or other equity equivalent or equity-based award or right; or (iv) bond, debenture or other indebtedness having the right to vote or convertible or exchangeable for securities having the right to vote. Each outstanding share of capital stock or other equity or ownership interest of the Company is duly authorized, validly issued, fully paid and nonassessable. All of the aforesaid shares or other equity or ownership interests have been offered, sold and delivered by the Company in compliance with all applicable federal and state securities Laws. Except as set forth in Schedule 3.4 of the Disclosure Schedules and except for rights granted to the Parent and Sub under this Agreement, there are no outstanding obligations of the Company to issue, sell or transfer or repurchase, redeem or otherwise acquire, or that relate to the holding, voting or disposition of, or that restrict the transfer of, the issued or unissued capital stock or other equity or ownership interests of the Company. No shares of capital stock or other equity or ownership interests of the Company have been issued in violation of any rights, agreements, arrangements or commitments under any provision of applicable Law, the articles of incorporation or bylaws or equivalent organizational documents of the Company or any Contract to which the Company is a party or by which the Company is bound.

(b) There are no, nor have there ever been any, Subsidiaries of the Company.

Section 3.5 Equity Interests . The Company does not directly or indirectly own any equity, partnership, membership or similar interest in, or any interest convertible into, exercisable for the purchase of or exchangeable for any such equity, partnership, membership or similar interest, or is under any current or prospective obligation to form or participate in, provide funds to, make any loan, capital contribution or other investment in, or assume any liability or obligation of, any Person.

Section 3.6 Financial Statements; No Undisclosed Liabilities .

(a) True and complete copies of (x) the unaudited balance sheet of the Company as at December 31, 2007, and the related unaudited statements of income, retained earnings, stockholders’ equity and changes in financial position of the Company, (y) the audited balance sheets of the Company as at December 31, 2006 and December 31, 2005, and the related audited statements of income, retained earnings, stockholders’ equity and changes in financial position of the Company, together with all related notes and schedules thereto, accompanied by the reports thereon of the Company’s independent auditors (clauses (x) and (y) being collectively referred to as the “ Financial Statements ”) are attached hereto as Schedule 3.6(a) of the Disclosure Schedules and (z) the unaudited balance sheet of the Company as at January 31, 2008, and the related unaudited statements of income, retained earnings, stockholders’ equity and changes in financial position of the Company, together with all related notes and schedules thereto (collectively referred to as the “ Interim Financial Statements ”) will be provided as a supplement to Schedule 3.6(a) of the Disclosure Schedules by the Company prior to the Closing. Each of the Financial Statements and the Interim Financial Statements (i) are correct and complete in all material respects and have been prepared in accordance with the books and records of the Company; (ii) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto); and (iii) fairly present, in all material respects, the financial position, results of operations and cash flows of the Company as at the respective dates thereof and for the respective periods indicated therein,

except (A) as otherwise noted therein and subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments that will not, individually or in the aggregate, be material and (B) for the December 31, 2007 tax provision, deferred tax asset and deferred tax liabilities balances set forth in the Financial Statements as at December 31, 2007, which may change materially, provided that the amounts of such changes shall be provided by the Company to the Parent prior to the Closing.

(b) Except as and to the extent adequately accrued or reserved against in the unaudited balance sheet of the Company as at December 31, 2007 (such balance sheet together with all related notes and schedules thereto, the “ Balance Sheet ”), the Company has no liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, whether known or unknown and whether or not required by GAAP to be reflected in a balance sheet of the Company or disclosed in the notes thereto, except for liabilities and obligations, incurred in the ordinary course of business consistent with past practice since the date of the Balance Sheet, that are not, individually or in the aggregate, material to the Company.

(c) The books of account and financial records of the Company are true and correct and have been prepared and are maintained in accordance with sound accounting practice.

Section 3.7 Absence of Certain Changes or Events . Since the date of the Balance Sheet: (i) the Company has conducted its businesses only in the ordinary course consistent with past practice; (ii) there has not been any change, event or development or prospective change, event or development that, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect; (iii) the Company has not suffered any loss, damage, destruction or other casualty affecting any of its material properties or assets, whether or not covered by insurance; and (iv) the Company has not taken any action that, if taken after the date of this Agreement, would constitute a breach of any of the covenants set forth in Section 5.1.

Section 3.8 Accounts Receivable . All accounts receivable reflected on the Balance Sheet or to be reflected on the Closing Balance Sheet represent or will represent bona fide and valid obligations arising from sales actually made or services or licenses actually performed or granted in the ordinary course of business. Unless paid prior to the Closing, as of the Closing Date, all accounts receivable will be current and collectible net of the respective reserves shown on the Balance Sheet or to be shown on the Closing Balance Sheet (which reserves (i) are adequate and calculated consistent with past practice, (ii) in the case of reserves on the Closing Balance Sheet, will not represent a greater percentage of accounts receivable as of the Closing than the reserve reflected on the Balance Sheet represented of the accounts receivable reflected therein and (iii) will not represent a change in the composition of such accounts receivable in terms of aging). Subject to such reserves, each account receivable either has been or will be collected in full, without any set-off, by the date that is one (1) year after the date hereof. Any amounts not so collected by the date that is one (1) year after the date hereof shall be deducted from the Indemnity Escrow Fund by the Escrow Agent and paid to the Surviving Corporation. There is no contest, claim or right of set-off, other than returns in the ordinary course of business which are not material, under any Contract with any obligor of any accounts receivable related to

the amount or validity of such accounts receivable, and no bankruptcy, insolvency or similar proceedings have been commenced by or against any such obligor.

Section 3.9 Accounts Payable . All accounts payable and notes payable by the Company to third parties have arisen in the ordinary course of business and no such account payable or note payable is delinquent in its payment.

Section 3.10 Inventory . Schedule 3.10 of the Disclosure Schedules sets forth a true and complete list of all inventory as of the date of the Balance Sheet, the value thereof and the address at which such inventory is located. Such inventory has not been consigned to, or held on consignment from, any third Person. Such inventory and additional items of inventory arising since the date of the Balance Sheet were acquired and have been maintained in accordance with the regular business practices of the Company, consist of new and unused items usable or saleable in the ordinary course of business, and are valued at prices equal to the lower of cost or realizable value and in accordance with the internal accounting practices of the Company applied on a basis consistent with the Financial Statements, each consistently applied throughout the periods covered by the Financial Statements, with adequate provisions or adjustments for excess inventory, slow-moving inventory, spoilage and inventory obsolescence and shrinkage. The inventory (including items of inventory acquired or manufactured subsequent to the date of the Balance Sheet) consists, and will as of the Closing Date consist, of products of quality and quantity commercially usable and salable at not less than cost in the ordinary course of business, except for any items of obsolete material or material below standard quality, substantially all of which have been written down to realizable market value, or for which adequate reserves have been provided, and, except as described in Schedule 3.10 of the Disclosure Schedules, the present quantities of all inventory are reasonable in the present circumstances of the Company and consistent with the average level of inventory in the past 24 months.

Section 3.11 Compliance with Law; Permits .

(a) The Company is and has been in compliance in all material respects with all Laws applicable to it. None of the Company or any of its executive officers or directors has received during the past five years, nor is there any basis for, any notice, order, complaint or other communication from any Governmental Authority or any other Person that the Company is not in compliance in any material respect with any Law applicable to it.

(b) Schedule 3.11 of the Disclosure Schedules sets forth a true and complete list of all permits, licenses, franchises, approvals, certificates, consents, waivers, concessions, exemptions, orders, registrations, notices or other authorizations of any Governmental Authority necessary for the Company to own, lease and operate its properties and to carry on its business as currently conducted (the “ Permits ”). The Company is and has been in compliance in all material respects with all such Permits. No suspension, cancellation, modification, revocation or nonrenewal of any Permit is pending or, to the knowledge of the Company, threatened. The Company will continue to have the use and full benefit of all Permits following consummation of the transactions contemplated hereby. No Permit is held in the name of any employee, officer, director, stockholder, agent or otherwise on behalf of the Company.

Section 3.12 Litigation . There is no Action pending or, to the knowledge of the Company, threatened against the Company, or any material property or asset of the Company, nor is there any basis for any such Action. There is no Action pending or, to the knowledge of the Company, threatened seeking to prevent, hinder, modify, delay or challenge the transactions contemplated by this Agreement or the Ancillary Agreements. There is no outstanding order, writ, judgment, injunction, decree, determination or award of, or pending or, to the knowledge of the Company, threatened investigation by, any Governmental Authority relating to the Company, any of its properties or assets or the transactions contemplated by this Agreement or the Ancillary Agreements. There is no Action by the Company pending, or which the Company has commenced preparations to initiate, against any other Person.

Section 3.13 Employee Benefit Plans .

(a) Schedule 3.13(a) of the Disclosure Schedules sets forth a true and complete list of:

(i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) and all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements to which the Company or any ERISA Affiliate is a party, with respect to which the Company has or could have any obligation or liability (contingent or otherwise) or which are maintained, contributed to or sponsored by the Company or any ERISA Affiliate for the benefit of any current or former employee, officer or director of the Company;

(ii) each employee benefit plan for which the Company could incur liability under Section 4069 of ERISA in the event such plan has been or were to be terminated;

(iii) any plan in respect of which the Company could incur liability under Section 4212(c) of ERISA; and

(iv) any Contracts between the Company and any employee, officer or director of the Company, including any Contracts relating in any way to a sale of the Company.

The items set forth in clauses (i) through (iv) above are collectively referred to herein as the “ Plans ”.

(b) Each Plan is in writing. The Company has furnished to the Parent a true and complete copy of each Plan and has delivered to the Parent a true and complete copy of each material document, if any, prepared in connection with each Plan, including (i) a copy of each trust or other funding arrangement, (ii) the most recent summary plan description and each summary of material modifications, (iii) the two most recently filed Internal Revenue Service (“IRS”) Forms 5500, (iv) the most recently received IRS determination letter for each Plan and (v) the most recently prepared actuarial report and financial statement in connection with each Plan. The Company has no express or implied commitment (A) to create, incur liability with

respect to or cause to exist any other employee benefit plan, program or arrangement, (B) to enter into any Contract to provide compensation or benefits to any individual or (C) to modify, change or terminate any Plan.

(c) None of the Plans is (i) a multiemployer plan within the meaning of Section 3(37) or 4001(a)(3) of ERISA (a “ Multiemployer Plan ”) (ii) a single employer pension plan within the meaning of Section 4001(a)(15) of ERISA for which the Company could incur liability under Section 4063 or 4064 of ERISA (a “ Multiple Employer Plan ”), or otherwise subject to Title IV of ERISA or Section 412 of the Code. Neither the Company nor any ERISA Affiliate has incurred any liability (contingent or otherwise) with respect to any such Plan or any other plan or arrangement subject to Title IV of ERISA or Section 412 of the Code. Except as set forth in Schedule 3.13(c) of the Disclosure Schedules, none of the Plans: (i) provides for the payment of separation, severance, termination or similar-type benefits to any person; (ii) obligates the Company to pay separation, severance, termination or similar-type benefits as a result of the transactions contemplated by this Agreement or the Ancillary Agreements (whether alone or in combination with any other event); or (iii) obligates the Company to make any payment or provide any benefit as a result of the transactions contemplated by this Agreement or the Ancillary Agreements (whether alone or in combination with any other event). Except as set forth in Schedule 3.13(c) of the Disclosure Schedules, there will be no payment, accrual of additional benefits, acceleration of payments or vesting of any benefit under any Plan or any other agreement or arrangement to which the Company is a party solely by reason of entering into or in connection with the transactions contemplated by this Agreement (whether alone or in combination with any other event). No Plan that is a welfare benefit plan within the meaning of Section 3(1) of ERISA provides benefits to former employees of the Company or its ERISA Affiliates other than pursuant to Section 4980B of the Code or similar state laws. Each of the Plans is maintained in the United States and is subject only to the Laws of the United States or a political subdivision thereof.

(d) Each Plan is now and always has been operated in all respects in accordance with its terms and the requirements of all applicable Laws, including ERISA and the Internal Revenue Code of 1986, as amended (the “ Code ”). The Company has performed all obligations required to be performed by it and is not in any respect in default under or in violation under any Plan, nor does the Company have any knowledge of any such default or violation by any other party to any Plan.

(e) Each Plan that is intended to be qualified under Section 401(a) of the Code has received a timely favorable determination letter from the IRS covering all of the provisions applicable to the Plan for which determination letters are currently available that the Plan is so qualified. No fact or event has occurred since the date of such determination letter or letters from the IRS that could adversely affect the qualified status of any such Plan or the exempt status of any such trust.

(f) There has not been any non-exempt prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, with respect to any Plan. The Company has not incurred any liability under, arising out of or by operation of Title IV of ERISA, including any liability in connection with (i) the termination or reorganization of any employee benefit plan subject to Title IV of ERISA or (ii) the withdrawal from any

Multiemployer Plan or Multiple Employer Plan, and no fact or event exists that would give rise to any such liability.

(g) All contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. All such contributions have been fully deducted for income tax purposes. No such deduction has been challenged or disallowed by any Governmental Authority and no fact or event exists that would give rise to any such challenge or disallowance.

(h) There are no suits, actions, disputes, claims (other than routine claims for benefits), arbitrations, administrative or other proceedings pending or, to the knowledge of the Company, threatened, anticipated or expected to be asserted with respect to any Plan or any related trust or other funding medium thereunder or with respect to the Company or any ERISA Affiliate as the sponsor or fiduciary thereof or with respect to any other fiduciary thereof.

(i) No Plan or any related trust or other funding medium thereunder or any fiduciary thereof is, to the knowledge of the Company, the subject of an audit, investigation or examination by any Governmental Authority.

(j) Each Plan that is a nonqualified deferred compensation plan (as defined under Section 409A of the Code) satisfies the applicable requirements of Sections 409A(a)(2),(3), and (4) of the Code, and has, since January 1, 2005, been operated in good faith compliance with Sections 409A(a)(2), (3), and (4) of the Code.

(k) The Company and its ERISA Affiliates do not maintain any Plan which is a “group health plan”, as such term is defined in Section 5000(b)(1) of the Code, that has not been administered and operated in all respects in compliance with the applicable requirements of Section 601 of ERISA, Section 4980B(b) of the Code and the applicable provisions of the Health Insurance Portability and Accountability Act of 1986. The Company is not subject to any liability, including additional contributions, fines, penalties or loss of tax deduction as a result of such administration and operation.

(l) No payment or benefit that will or may be made in connection with the transactions contemplated by this Agreement (either alone or in combination with any other events) by the Company, its ERISA Affiliates or the Parent or any of its Affiliates with respect to any employee, officer, director or consultant of the Company will be characterized as a “parachute payment,” within the meaning of Section 280G(b)(2) of the Code.

Section 3.14 Labor and Employment Matters .

(a) The Company is not a party to any labor or collective bargaining Contract that pertains to employees of the Company. There are no organizing activities or collective bargaining arrangements that could affect the Company pending or under discussion with any labor organization or group of employees of the Company. There is, and during the past five years there has been, no labor dispute, strike, controversy, slowdown, work stoppage or lockout pending or, to the knowledge of the Company, threatened against or affecting the Company, nor is there any basis for any of the foregoing. The Company has not breached or otherwise failed to comply with the provisions of any collective bargaining or union Contract. There are no pending

or, to the knowledge of the Company, threatened union grievances or union representation questions involving employees of the Company.

(b) The Company has not engaged and is not engaging in any unfair labor practice. No unfair labor practice or labor charge or complaint is pending or, to the knowledge of the Company, threatened with respect to the Company before the National Labor Relations Board, the Equal Employment Opportunity Commission or any other Governmental Authority.

(c) The Company has withheld and paid to the appropriate Governmental Authority or is holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of the Company and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any applicable Laws relating to the employment of labor. The Company has paid in full to all its employees or adequately accrued in accordance with GAAP for all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees.

(d) The Company is not a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices. None of the Company or any of its executive officers has received within the past five years any notice of intent by any Governmental Authority responsible for the enforcement of labor or employment laws to conduct an investigation relating to the Company and, to the knowledge of the Company, no such investigation is in progress. To the knowledge of the Company, no current employee or officer of the Company intends, or is expected, to terminate his employment relationship with such entity following the consummation of the transactions contemplated hereby. All individuals who are performing consulting or other services for the Company are or were correctly classified as either “independent contractors” or “employees” as the case may be and, at the Closing Date, will qualify for such classification

(e) Except as set forth in Schedule 3.14(e) of the Disclosure Schedules, (i) all employees working in the United States hired by the Company on or after November 7, 1986 are authorized for employment by the Company in the United States in accordance with the Immigration and Naturalization Act, as amended, and the regulations promulgated thereunder. No allegations of immigration-related unfair employment practices have been made with the Equal Employment Opportunity Commission or the Special Counsel for Immigration-Related Unfair Employment Practices; (ii) the Company has completed and retained in accordance with the Immigration and Naturalization Service regulations a Form I-9 for all employees working in the United States hired on or after November 7, 1986, except those employees whose employment terminated on or before June 1, 1987 and (iii) none of the employees currently employed by the Company is authorized for employment in the United States pursuant to a nonimmigrant visa that authorizes the employee to be employed by the Company.

(f) Neither the Company nor, to the knowledge of the Company, any of its directors, executives, representatives, agents or employees, (a) has used or is using any corporate funds for any illegal contributions, gifts, entertainment or other unlawful expenses relating to political activity, (b) has used or is using any corporate funds for any direct or indirect unlawful payments to any foreign or domestic governmental officials or employees, (c) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977, (d) has established or

maintained, or is maintaining, any unlawful fund of corporate monies or other properties or (e) has made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

Section 3.15 Title to, Sufficiency and Condition of Assets .

(a) The Company has good and valid title to or a valid leasehold interest in all of its assets, including all of the assets reflected on the Balance Sheet or acquired in the ordinary course of business since the date of the Balance Sheet, except those sold or otherwise disposed of for fair value since the date of the Balance Sheet in the ordinary course of business consistent with past practice. The assets owned or leased by the Company constitute all of the assets necessary for the Company to carry on its businesses as currently conducted and proposed to be conducted. None of the assets owned or leased by the Company is subject to any Encumbrance, other than (i) liens for current taxes and assessments not yet past due, (ii) mechanics’, workmen’s, repairmen’s, warehousemen’s and carriers’ liens arising in the ordinary course of business of the Company consistent with past practice and (iii) any Encumbrances identified on Schedule 3.15 of the Disclosure Schedules (collectively, “ Permitted Encumbrances ”).

(b) All tangible assets owned or leased by the Company have been maintained in all material respects in accordance with generally accepted industry practice, are in good operating condition and repair, ordinary wear and tear excepted, and are adequate for the uses to which they are being put.

This Section 3.15 does not relate to real property or interests in real property, such items being the subject of Section 3.16, or to Intellectual Property, such items being the subject of Section 3.17.

Section 3.16 Real Property .

(a) Schedule 3.16(a) of the Disclosure Schedules sets forth a true, correct and complete list of all Leased Real Property, and the Company has provided to the Parent true, correct and complete copies of all leases and amendments thereto relating to the Leased Real Property. There is no Owned Real Property. The Company has good and marketable leasehold title to all Leased Real Property, free and clear of all Encumbrances, except Permitted Encumbrances. No parcel of Leased Real Property is subject to any governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor, to the knowledge of the Company, has any such condemnation, expropriation or taking been proposed. Each parcel of Leased Real Property is in compliance with applicable Laws. All leases of Leased Real Property and all amendments and modifications thereto are in full force and effect, and there exists no default under any such lease by the Company or any other party thereto, nor any event which, with notice or lapse of time or both, would constitute a default thereunder by the Company or any other party thereto. All leases of Leased Real Property will remain valid and binding in accordance with their terms following the Closing.

(b) There are no contractual or legal, and to the knowledge of the Company there are no threatened, restrictions that preclude or restrict the ability to use any Leased Real

Property by the Company for the current or contemplated use of such Leased Real Property. To the knowledge of the Company, there are no material latent defects or material adverse physical conditions affecting the Leased Real Property. To the knowledge of the Company, except as set forth in the Title Commitment, there are no Encumbrances affecting any real property relating to the Leased Real Property. All plants, warehouses, distribution centers, structures and other buildings on the Leased Real Property are adequately maintained and are in good operating condition and repair for the requirements of the business of the Company as currently conducted.

(c) The Company has delivered to the Parent (i) a commitment for a 2006 ALTA leasehold title insurance policy insuring the Leased Real Property, in a form reasonably satisfactory to the Parent (the “ Title Commitment ”), issued by a title company reasonably acceptable to the Parent setting forth the status of title to the Leased Real Property and showing all liens, claims, encumbrances, easements, rights of way, encroachments, reservations, restrictions and all other matters of record affecting the Leased Real Property, together with complete and legible copies of all documents referred to in the Title Commitment affecting the Leased Real Property and (ii) any and all Contracts that the Company has entered into pertaining to any Encumbrance affecting the Leased Real Property, including all subordination, non-disturbance or similar agreements.

Section 3.17 Intellectual Property .

(a) Schedule 3.17 of the Disclosure Schedules sets forth a true and complete list of all registered and unregistered Marks, Patents and registered Copyrights, including any pending applications to register any of the foregoing, owned (in whole or in part) by or licensed to the Company, identifying for each whether it is owned by or licensed to the Company. Subject to Section 3.17(h) below, the Company owns, licenses or has the right to use all Intellectual Property used in its business as operated as of the Closing Date. With respect to Registered Intellectual Property owned by the Company, Schedule 3.17 of the Disclosure Schedules lists (i) the record owner of each such item of Intellectual Property, (ii) the jurisdictions in which each such item of Intellectual Property has been issued or registered or in which any such application for issuance or registration has been filed and (iii) the registration or application date, as applicable. With respect to Licensed Intellectual Property other than Off-the-Shelf software, Schedule 3.17 of the Disclosure Schedules lists (i) the parties to the license; (ii) whether the license is exclusive or non-exclusive; (iii) the applicable products, services and/or field of use of such license; and (iv) any royalties or payments paid or payable in connection with such license. At all relevant times, the Company has lawfully licensed and maintained licenses for sufficient copies and quantities of all Software, including Off-the-Shelf Software, used in or distributed in connection with the Company’s business.

(b) Except as set forth in Schedule 3.17(b) of the Disclosure Schedules, no registered Mark identified on Schedule 3.17 of the Disclosure Schedules has been or is now involved in any opposition or cancellation proceeding and, to the knowledge of the Company, no such proceeding is or has been threatened with respect to any of such Marks. No Patent identified on Schedule 3.17 of the Disclosure Schedules has been or is now involved in any interference, reissue or reexamination proceeding and, to the knowledge of the Company, no such proceeding is or has been threatened with respect thereto any of such Patents.

(c) Subject to Section 3.17(h) below, the Company exclusively owns, free and clear of any and all Encumbrances, all Intellectual Property identified on Schedule 3.17 of the Disclosure Schedules and has continuing rights to use, sell, license and otherwise commercially exploit, as the case may be, all such Intellectual Property. All other Intellectual Property used in the Company’s businesses is licensed to the Company by a third party licensor pursuant to a written license agreement that remains in effect or may be lawfully used because it is in the public domain. Except as set forth in Schedule 3.17(c) of the Disclosure Schedules, the Company has not received any notice or claim challenging the Company’s ownership of any of the Owned Intellectual Property by the Company, nor to the knowledge of the Company is there a reasonable basis for any claim that the Company does not so own any of such Owned Intellectual Property.

(d) The Company has taken reasonable steps in accordance with standard industry practices to protect its rights in its Intellectual Property and at all times has maintained the confidentiality of all information that constitutes or constituted a Trade Secret of the Company. The Company has not disclosed any information pertaining to its Intellectual Property except pursuant to a written confidentiality agreement that has been made available to the Parent. Except as set forth on Schedule 3.17(d) of the Disclosure Schedules, all current and former employees, consultants and contractors of the Company have executed and delivered to the Company written proprietary information, confidentiality and assignment agreements protecting all Trade Secrets of the Company and assigning all rights to any Intellectual Property developed by Company employees in the course of their employment to the Company or by consultants or contractors in the course of their engagement by the Company. For the purposes of this Section 3.17(d), “contractors” does not include tradesmen (e.g., plumbers and electricians) or other contractors who did not have meaningful access to the Company’s Intellectual Property.

(e) The Registered Intellectual Property identified on Schedule 3.17 of the Disclosure Schedules are valid and subsisting and, to the knowledge of the Company, enforceable, and, except as set forth in Schedule 3.17(b) of the Disclosure Schedules, the Company has not received any notice or claim challenging the validity or enforceability of any such Registered Intellectual Property or alleging any misuse of such Registered Intellectual Property. The Company has not taken any action or failed to take any action that could reasonably be expected to result in the abandonment, cancellation, forfeiture, relinquishment, invalidation or unenforceability of any of such Registered Intellectual Property (including the failure to pay any filing, examination, issuance, post registration and maintenance fees, annuities and the like and the failure to disclose any known material prior art in connection with the prosecution of patent applications).

(f) The development, manufacture, sale, distribution or other commercial exploitation of products, and the provision of any services, by or on behalf of the Company, and all of the other activities or operations of the Company, have not infringed upon, misappropriated, violated, diluted or constituted the unauthorized use of, any Intellectual Property of any third party, and the Company has not received any notice or claim asserting or suggesting that any such infringement, misappropriation, violation, dilution or unauthorized use is or may be occurring or has or may have occurred, nor to the knowledge of the Company, is there a reasonable basis therefor. Except as set forth in Schedule 3.17(f) of the Disclosure Schedules, no Intellectual Property owned by or licensed to the Company is subject to any

outstanding order, judgment, decree, stipulation or agreement restricting the use or licensing thereof by the Company. To the knowledge of the Company, no third party is misappropriating, infringing, diluting or violating any Intellectual Property owned by or exclusively licensed to the Company and the Company has not alleged any such misappropriation, infringement, dilution or violation. To the knowledge of the Company, no Intellectual Property of any of its employees’ former employers are used in the operations of the Company.

(g) The Company has not transferred ownership of, or granted any exclusive or non-exclusive license with respect to, any Intellectual Property, except (i) in connection with the ordinary sale of its products in accordance with the terms and conditions as disclosed to the Parent and (ii) as set forth in Schedule 3.17(g) of the Disclosure Schedules . Upon the consummation of the Closing, the Surviving Corporation shall succeed to all of the Intellectual Property rights necessary for the conduct of the Company’s businesses as they are currently and proposed to be conducted, and all of such rights shall be exercisable by the Surviving Corporation to the same extent as by the Company prior to the Closing. No loss or expiration of any of the material Intellectual Property used by the Company in the conduct of its business is threatened, pending or reasonably foreseeable.

(h) With regard to the Company’s representations and warranties regarding its ownership of its Intellectual Property in Sections 3.17(a) and (c), the Company’s representations and warranties with regard to Marks and Patents are limited to the countries in which they are registered, as indicated on Schedule 3.17 of the Disclosure Schedules .

(i) No licenses, products or services offered or planned to be offered by the Company’s business are, in whole or in part, subject to the provisions of any open source, quasi-open source or other source code license agreement that (i) requires the distribution of source code in connection with the distribution of the licensed software in object code form; (ii) prohibits or limits the Company from charging a fee or receiving consideration in connection with sublicensing or distributing such licensed software (whether in source code or object code form); or (iii) allows a customer or requires that a customer have the right to decompile, disassemble or otherwise reverse engineer the software by its terms and not by operation of law, including without limitation, any version of any of license for any Public Software. The Company has taken all actions customary in the United States software industry to document any Software and its operation that is part of the Intellectual Property owned by the Company, such that the materials comprising the Software, including the source code and documentation, have been written in a clear and professional manner so that they may be understood, modified and maintained in an efficient manner by reasonably competent programmers.

Section 3.18 Taxes .

(a) The Company has filed all Returns that it was required to file under applicable Laws. All such Returns were correct and complete in all respects, were prepared in compliance with all applicable Laws, and did not contain a disclosure statement under Section 6662 of the Code or any predecessor provision or comparable provision of state, local or foreign Law. The Company is and has been in compliance with all applicable Laws pertaining to Taxes, including all applicable Laws relating to record retention.

(b) The Company has timely paid all Taxes it is required to have paid (whether or not shown on any Return) and all unpaid Taxes not yet due have been adequately reserved for on the Company’s Interim Financial Statements. All Taxes of the Company accrued following the end of the most recent period covered by the Interim Financial Statements have been (and will be) accrued in the ordinary course of business and do not (and will not) exceed comparable amounts incurred in similar periods in prior years (taking into account any changes in the Company’s operating results).

(c) No claim has been made by any taxing authority in any jurisdiction where the Company does not file Returns that it is or may be subject to Tax by that jurisdiction. No extensions or waivers of statutes of limitations with respect to any Returns have been given by or requested from the Company.

(d) Schedule 3.18(d) of the Disclosure Schedules sets forth (i) the taxable years of the Company as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired, (ii) those years for which examinations by the taxing authorities have been completed and (iii) those taxable years for which examinations by taxing authorities are presently being conducted.

(e) The Company is not a party to any Action by any taxing authority, nor does the Company have knowledge of any pending or threatened Action by any taxing authority.

(f) All deficiencies asserted or assessments made against the Company or as a result of any examinations by any taxing authority have been fully paid and no rationale underlying a claim for Taxes has been asserted previously by any taxing authority that reasonably could be expected to be asserted in any other period.

(g) There are no Encumbrances for Taxes, other than Encumbrances for current Taxes not yet due and payable, upon the assets of the Company.

(h) The Company is not a party to or bound by any tax indemnity, tax sharing or tax allocation agreement.

(i) The Company is not a party to or bound by any closing agreement or offer in compromise with any taxing authority.

(j) The Company has not been a member of an affiliated group of corporations, within the meaning of Section 1504 of the Code, or a member of a combined, consolidated or unitary group for state, local or foreign Tax purposes. The Company has no liability for Taxes of any Person other than the Company under Treasury Regulations Section 1.1502-6 or any corresponding provision of state, local or foreign income Tax Law, as transferee or successor, by Contract or otherwise. The Company has not been a personal holding company under Section 542 of the Code.

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

(l) The Company has not agreed to make, nor is it required to make, any adjustment under Sections 481(a) or 263A of the Code or any comparable provision of state, local or foreign Tax Laws by reason of a change in accounting method or otherwise, except that the Company may in the future be required to make an adjustment pursuant to Section 263A of the Code, which has been disclosed to the Parent. The Company has not taken any action that is not in accordance with past practice that could defer a liability for Taxes of the Company from any taxable period ending on or before the Closing Date to any taxable period ending after such date. The Company converted from cash method accounting to accrual method accounting effective in its 2004 fiscal year and since then has at all times used the accrual method of accounting for income Tax purposes.

(m) The Company is not a party to any Contract or plan that has resulted or would result, separately or in the aggregate, in connection with this Agreement or any change of control of the Company, in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code.

(n) The Company is not a party to any joint venture, partnership, or other arrangement or Contract that could be treated as a partnership for federal income tax purposes. There are no elections pursuant to Treas. Reg. § 301.7701-3 that have been made by business entities in which the Company owns an equity interest.

(o) Except as set forth in Schedule 3.18(o) of the Disclosure Schedules, no Stockholder is a “foreign person” as that term is used in Treas. Reg. § 1.1445-2. The Company is not, nor has it 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) of the Code.

(p) Except as set forth on Schedule 3.18(p) of the Disclosure Schedules, there is currently no limitation on the utilization of net operating losses, capital losses, built-in losses, tax credits or similar items of the Company under Sections 269, 382, 383, 384 or 1502 of the Code and the Treasury Regulations thereunder and comparable provisions of state, local or foreign Law.

Section 3.19 Environmental Matters .

(a) The Company is and has been in compliance with all applicable Environmental Laws. None of the Company or any of its executive officers or directors has received during the past five years, nor is there any basis for, any communication or complaint from a Governmental Authority or other Person alleging that the Company has any liability under any Environmental Law or is not in compliance with any Environmental Law.

(b) Except for those substances typically used and stored in the prudent and safe operation of a business like that of the Company and as set forth in Schedule 3.19(b) of the Disclosure Schedules, no Hazardous Substances (other than commonly available cleaning solvents, equipment lubricants and other similar materials, all of which have been properly stored in their original containers and used according to their instructions) are or have been present, and there is and has been no Release or threatened Release of Hazardous Substances nor

any clean-up or corrective action of any kind relating thereto, on any properties (including any buildings, structures, improvements, soils and surface, subsurface and ground waters thereof) currently or formerly owned, leased or operated by or for the Company or any predecessor company, at any location to which the Company has sent any Hazardous Substances or at any other location with respect to which the Company may be liable. No underground improvement, including any treatment or storage tank or water, gas or oil well, is or has been located on any property described in the foregoing sentence. The Company is not actually, contingently, potentially or allegedly liable for any Release of, threatened Release of or contamination by Hazardous Substances or otherwise under any Environmental Law. There is no pending or, to the knowledge of the Company, threatened investigation by any Governmental Authority, nor any pending or, to the knowledge of the Company, threatened Action with respect to the Company relating to Hazardous Substances or otherwise under any Environmental Law. The Company has not exposed any employee or third party to any Hazardous Substances or condition that has subjected or may subject the Company to liability under any Environmental Law. The Company is not required to make any capital or other expenditures to comply with any Environmental Law nor is there any basis on which any Governmental Authority could take action that would require such capital or other expenditure.

(c) The Company holds all Environmental Permits necessary for the present operation of its businesses (all of which are set forth in Schedule 3.19(c) of the Disclosure Schedules), and is and has been in compliance therewith. Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby will (i) require any notice to or consent of any Governmental Authority or other Person pursuant to any applicable Environmental Law or Environmental Permit or (ii) subject any Environmental Permit to suspension, cancellation, modification, revocation or nonrenewal.

(d) The Company has provided to the Parent all “Phase I”, “Phase II” or other environmental assessment reports in its possession or to which it has reasonable access addressing locations ever owned, operated or leased by the Company or at which the Company actually, potentially or allegedly may have liability under any Environmental Law.

For purposes of this Agreement:

“ Environmental Laws ” means: any Laws of any Governmental Authority relating to (i) releases or threatened releases of Hazardous Substances or materials containing Hazardous Substances; (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances; or (iii) pollution or protection of the environment, health, safety or natural resources.

“ Environmental Permits ” means all Permits under any Environmental Law.

“ Hazardous Substances ” means: (i) those substances defined in or regulated under the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act (“ CERCLA ”), the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act, and their state counterparts, as each may be amended from time to time, and all regulations thereunder; (ii) petroleum and petroleum

products, including crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; (v) any other pollutant or contaminant; and (vi) any substance, material or waste regulated by any Governmental Authority pursuant to any Environmental Law.

“Release” has the meaning set forth in Section 101(22) of CERCLA.

Section 3.20 Material Contracts.

(a) Except as set forth in Schedule 3.20(a) of the Disclosure Schedules, the Company is not a party to or bound by any Contract of the following nature (such Contracts as are required to be set forth in Schedule 3.20(a) of the Disclosure Schedules being “ Material Contracts ”):

(i) any manufacturing, supply, broker, distributor, dealer, manufacturer’s representative, franchise, agency, continuing sales or purchase, sales promotion, market research, marketing, consulting or advertising Contract;

(ii) any Contract relating to or evidencing indebtedness of the Company, including mortgages, other grants of security interests, guarantees or notes;

(iii) any Contract pursuant to which the Company has provided funds to or made any loan, capital contribution or other investment in, or assumed any liability or obligation of, any Person, including take-or-pay contracts or keepwell agreements;

(iv) any Contract with any Governmental Authority;

(v) any Contract with any Related Party of the Company;

(vi) any employment or consulting Contract, other than Contracts for employment covered in clause (v);

(vii) any Contract that limits, or purports to limit, the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time, or that restricts the right of the Company to sell to or purchase from any Person or to hire any Person, or that grants the other party or any third person “most favored nation” status or any type of special discount rights;

(viii) any Contract that requires a consent to or otherwise contains a provision relating to a “change of control”, or that would prohibit or delay the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements;

(ix) any Contract pursuant to which the Company is the lessee or lessor of, or holds, uses, or makes available for use to any Person (other than the Company), (A) any real property or (B) any tangible personal property and, in the case of clause (B), that involves an aggregate future or potential liability or receivable, as the case may be, in excess of $25,000;

(x) any Contract for the sale or purchase of any real property, or for the sale or purchase of any tangible personal property in an amount in excess of $25,000;

(xi) any Contract providing for indemnification to or from any Person with respect to liabilities relating to any current or former business of the Company or any predecessor Person;

(xii) any Contract containing confidentiality clauses;

(xiii) any Contract relating in whole or in part to any Intellectual Property, other than Off-the-Shelf Software;

(xiv) any joint venture or partnership, merger, asset or stock purchase or divestiture Contract relating to the Company;

(xv) any Contract with any labor union or providing for benefits under any Plan;

(xvi) except with regard to Options and Warrants which shall have been exercised or converted into Shares and terminated, cancelled or retired, as relevant, prior to the Effective Time, any Contract for the purchase of any debt or equity security or other ownership interest of any Person, or for the issuance of any debt or equity security or other ownership interest, or the conversion of any obligation, instrument or security into debt or equity securities or other ownership interests of, the Company;

(xvii) any Contract relating to settlement of any administrative or judicial proceedings within the past five years;

(xviii) any Contract that results in any Person holding a power of attorney from the Company that relates to the Company or its business; and

(xix) any other Contract, whether or not made in the ordinary course of business that (A) involves a future or potential liability or receivable, as the case may be, in excess of $25,000 on an annual basis or in excess of $50,000 over the current Contract term, (B) has a term greater than one year and cannot be cancelled by the Company without penalty or further payment on 30 days’ notice or less or (C) is material to the business, operations, assets, financial condition, results of operations or prospects of the Company.

(b) Each Material Contract is a legal, valid, binding and enforceable agreement and is in full force and effect. The Company is not and, to the knowledge of the Company, no other party is in breach or violation of, or (with or without notice or lapse of time or both) default under, any Material Contract, nor has the Company received any claim of any such breach, violation or default. The Company has delivered or made available to the Parent true and complete copies of all Material Contracts, including any amendments thereto.

Section 3.21 Affiliate Interests and Transactions .

(a) No Related Party of the Company: (i) owns or has owned, directly or indirectly, any equity or other financial or voting interest in any competitor, supplier, licensor, lessor, distributor, independent contractor or customer of the Company or its business; (ii) owns or has owned, directly or indirectly, or has or has had any interest in any property (real or personal, tangible or intangible) that the Company uses or has used in or pertaining to the business of the Company; (iii) has or has had any business dealings or a financial interest in any transaction with the Company or involving any assets or property of the Company, other than business dealings or transactions conducted in the ordinary course of business at prevailing market prices and on prevailing market terms; or (iv) is or has been employed by the Company.

(b) There are no outstanding notes payable to, accounts receivable from or advances by the Company to, and the Company is not otherwise a debtor or creditor of, and does not have any liability or other obligation of any nature to, any Related Party of the Company. Since the date of the Balance Sheet, the Company has not incurred any obligation or liability to, or entered into or agreed to enter into any transaction with or for the benefit of, any Related Party of the Company, other than the transactions contemplated by this Agreement and the Ancillary Agreements.

Section 3.22 Insurance . Schedule 3.22 of the Disclosure Schedules sets forth a true and complete list of all casualty, directors and officers liability, general liability, product liability and all other types of insurance maintained with respect to the Company, together with the carriers and liability limits for each such policy. All such policies are in full force and effect and no application therefor included a material misstatement or omission. All premiums with respect thereto have been paid to the extent due. No notice of cancellation, termination or reduction of coverage has been received with respect to any such policy. No claim currently is pending under any such policy involving an amount in excess of $10,000. Schedule 3.22 of the Disclosure Schedules identifies which insurance policies are “occurrence” or “claims made” and which Person is the policyholder. All material insurable risks in respect of the business and assets of the Company are covered by such insurance policies and the types and amounts of coverage provided therein are usual and customary in the context of the business and operations in which the Company is engaged. The activities and operations of the Company have been conducted in a manner so as to conform to all applicable provisions of such insurance policies. The consummation of the transactions contemplated by this Agreement and the Ancillary Agreements will not cause a cancellation or reduction in the coverage of such policies.

Section 3.23 Customers and Suppliers .

(a) Schedule 3.23(a) of the Disclosure Schedules sets forth a true and complete list of (i) the names and addresses of all customers or licensees of the Company with a billing for each such customer or licensee of $10,000 or more during the 12 months ended December 31, 2007, (ii) the amount for which each such customer or licensee was invoiced during such period and (iii) the percentage of the total sales or revenues of the Company represented by sales or licenses to each such customer or licensee during such period. The Company has not received any notice or has any reason to believe that any of such customers or licensees (A) has ceased or substantially reduced, or will cease or substantially reduce, use of

products, services or technologies of the Company or (B) has sought, or is seeking, to reduce the price it will pay for the products, services or technologies of the Company. None of such customers or licensees has otherwise threatened to take any action described in the preceding sentence as a result of the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements.

(b) Schedule 3.23(b) of the Disclosure Schedules sets forth a true and complete list of (i) all suppliers of the Company from which the Company ordered products or services with an aggregate purchase price for each such supplier of $10,000 or more during for the 12 months ended December 31, 2007 and (ii) the amount for which each such supplier invoiced the Company during such period. The Company has not received any notice or has any reason to believe that there has been any material adverse change in the price of such supplies or services provided by any such supplier, or that any such supplier will not sell supplies or services to the Surviving Corporation at any time after the Closing Date on terms and conditions substantially the same as those used in its current sales to the Company, subject to general and customary price increases. No such supplier has otherwise threatened to take any action described in the preceding sentence as a result of the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements.

Section 3.24 Warranties . The Company has heretofore delivered to the Parent true and correct copies of all written warranties currently in effect covering the respective products, services and technologies of the Company. During the past three years, the aggregate warranty expenses experienced during any one year by the Company did not exceed $25,000.

Section 3.25 Capital Expenditures . The aggregate contractual commitments of the Company for new capital expenditures do not exceed $50,000 as of the date hereof.

Section 3.26 Product Liability . There is no basis for any product liability, warranty, material backcharge, material additional work or other claims by any third party (whether based on contract or tort and whether relating to personal injury, including death, property damage or economic loss) arising from (a) services rendered or licenses provided by the Company during the period through and including the Closing Date, (b) licenses by the Company or the sale, distribution, treatment or supply of products by the Company, or the manufacture of products by the Company whether delivered to a customer before or after the Closing Date (except with respect to any liability or obligation arising out of any action by the Parent or the Surviving Corporation after the Closing Date) or (c) the operation of the Company’s business during the period through and including the Closing Date.

Section 3.27 Bank Accounts; Powers of Attorney . Schedule 3.27 of the Disclosure Schedules sets forth a true and complete list of (a) all bank accounts or safe deposit boxes under the control or for the benefit of the Company, (b) the names of all persons authorized to draw on or have access to such accounts and safe deposit boxes and (c) all outstanding powers of attorney or similar authorizations granted by the Company, copies of which have been furnished to the Parent.

Section 3.28 Brokers . Except as set forth in Schedule 3.28 of the Disclosure Schedules, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or

commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Company. All brokerage, finder’s and other fees and commissions set forth in Schedule 3.28 of the Disclosure schedules shall be Transaction Expenses hereunder.

Section 3.29 Disclosure .

(a) None of the representations or warranties of the Company contained in this Agreement or any Ancillary Agreement and none of the information contained in any schedule, certificate, or other document delivered pursuant hereto or thereto or in connection with the transactions contemplated hereby or thereby contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading.

(b) None of the information included in any notices, statements of dissenters’ rights, information statements, proxy statements or any other materials provided to the Stockholders by the Company relating to the Merger, this Agreement or the meeting of Stockholders to be held in connection with consideration of the Merger and this Agreement (the “ Company Stockholders’ Meeting ”) (such notices, statements of dissenters’ rights, information statements, proxy statements and other materials, together with all amendments and supplements thereto, in each case in the form mailed or delivered to the Stockholders, are collectively referred to as the “ Information Statement ”) will, at the date delivered to such Stockholders or at the date of such meeting or consent, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein or therein not misleading. Each component of the Information Statement will comply in all respects with the provisions of Oregon Law.

Section 3.30 Expenses . The Schedule of Expenses delivered to the Parent sets forth or will set forth, when delivered pursuant to Section 2.10(g), a true and complete list of all Transaction Expenses which have been paid by or on behalf of the Company or for which bills have been received, and a good faith estimate of all Unpaid Expenses.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND SUB

The Parent and Sub hereby represent and warrant to the Company as follows:

Section 4.1 Organization . Each of the Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted.

Section 4.2 Authority . Each of the Parent and Sub has full corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it will be a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Parent and Sub of this Agreement and each of the Ancillary Agreements to which it will be a party and the consummation by the Parent and Sub of the transactions contemplated hereby and thereby have been duly and validly authorized by the Boards of Directors of the Parent and Sub

and by the Parent as the sole stockholder of Sub. No other corporate proceedings on the part of the Parent or Sub are necessary to authorize this Agreement or any Ancillary Agreement or to consummate the transactions contemplated hereby or thereby. This Agreement has been, and upon their execution each of the Ancillary Agreements to which the Parent or Sub will be a party will have been, duly and validly executed and delivered by the Parent and Sub, as applicable. This Agreement constitutes, and upon their execution each of the Ancillary Agreements to which the Parent or Sub will be a party will constitute, the legal, valid and binding obligations of the Parent and Sub, as applicable, enforceable against the Parent and Sub, as applicable, in accordance with their respective terms.

Section 4.3 No Conflict; Required Filings and Consents .

(a) The execution, delivery and performance by each of the Parent and Sub of this Agreement and each of the Ancillary Agreements to which it will be a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not:

(i) conflict with or violate the certificate or articles of incorporation or bylaws of the Parent or Sub; or

(ii) conflict with or violate any Law applicable to the Parent or Sub.

(b) Neither the Parent nor Sub is required to file, seek or obtain any notice, authorization, approval, order, permit or consent of or with any Governmental Authority in connection with the execution, delivery and performance by the Parent and Sub of this Agreement and each of the Ancillary Agreements to which it will be party or the consummation of the transactions contemplated hereby or thereby, except for the filing of the Articles of Merger with the Secretary of State of the State of Oregon.

Section 4.4 Financing . The Parent has sufficient funds to permit the Parent or Sub to consummate the transactions contemplated by this Agreement and the Ancillary Agreements, including the Merger.

Section 4.5 Brokers . No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Parent or Sub.

ARTICLE V
COVENANTS

Section 5.1 Conduct of Business Prior to the Closing . Between the date of this Agreement and the Closing Date, unless the Parent shall otherwise agree in writing, the business of the Company shall be conducted only in the ordinary course of business consistent with past practice; and the Company shall preserve substantially intact the business organization and assets of the Company, keep available the services of the current officers, employees and consultants of the Company and preserve the current relationships of the Company with customers, licensees, suppliers and other persons with which the Company has significant business relations. By way of amplification and not limitation, between the date of this Agreement and the Closing Date, the

Company shall not do, or propose to do, directly or indirectly, any of the following without the prior written consent of the Parent:

(a) amend or otherwise change its articles of incorporation or bylaws or equivalent organizational documents;

(b) issue, sell, pledge, dispose of or otherwise subject to any Encumbrance (i) any shares of capital stock of the Company, or any options, warrants, convertible securities or other rights of any kind to acquire any such shares, or any other ownership interest in the Company, except for the exercise or conversion of Options and Warrants pursuant to Section 2.9 or (ii) any properties or assets of the Company, other than sales or transfers of inventory or accounts receivable in the ordinary course of business consistent with past practice;

(c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, or make any other payment on or with respect to any of its capital stock, except for (A) the completion of payment of the previously declared Preferred Stock distribution and Common Stock cash dividend of an aggregate of $3,848,128 to shareholders of record as of December 7, 2007 and (B) the dividend, if any, pursuant to Section 2.10(i);

(d) reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its capital stock or make any other change with respect to its capital structure;

(e) acquire any corporation, partnership, limited liability company, other business organization or division thereof or any material amount of assets, or enter into any joint venture, strategic alliance, exclusive dealing, noncompetition or similar contract or arrangement;

(f) except for the Merger, adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company, or otherwise alter the Company’s corporate structure;

(g) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any Person, or make any loans or advances, except in the ordinary course of business consistent with past practice; provided that in no event shall the Company (i) incur, assume or guarantee any long-term indebtedness for borrowed money or (ii) make any optional repayment of any indebtedness for borrowed money;

(h) (i) enter into, amend, waive, modify, renew or consent to the termination of (x) any Material Contract, (y) any distribution, license, acquisition, manufacturing, production or supply Contract or (z) the Company’s rights under any of the foregoing or (ii) enter into any Contract other than in the ordinary course of business consistent with past practice;

(i) authorize, or make any commitment with respect to, any single capital expenditure that is in excess of $10,000 or capital expenditures that are, in the aggregate, in excess of $20,000 for the Company;

(j) enter into any lease of real or personal property or any renewals thereof involving a term of more than one year or rental obligation exceeding $10,000 per year in any single case;

(k) hire or terminate any employee, increase the compensation payable or to become payable or the benefits provided to its directors, officers, employees or consultants, except for normal merit and cost-of-living increases consistent with past practice in salaries or wages of employees of the Company who are not directors or officers of the Company and who receive less than $60,000 in total annual cash compensation from the Company, or grant any severance or termination payment to, or pay, loan or advance any amount to (except pursuant to Section 5.13), any director, officer, employee or consultant of the Company, or establish, adopt, enter into or amend any Plan;

(l) enter into any Contract with any Related Party of the Company;

(m) make any change in any method of accounting or accounting practice or policy, except as required by GAAP;

(n) make, revoke or modify any Tax election, settle or compromise any Tax liability or file any Return other than on a basis consistent with past practice;

(o) pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice, of liabilities reflected or reserved against on the Balance Sheet or subsequently incurred in the ordinary course of business consistent with past practice;

(p) cancel, compromise, waive or release any right or claim other than in the ordinary course of business consistent with past practice;

(q) permit the lapse of any existing policy of insurance relating to the business or assets of the Company;

(r) permit the lapse of any right relating to Intellectual Property or any other intangible asset used in the business of the Company;

(s) accelerate the collection of or discount any accounts receivable, delay the payment of accounts payable or defer expenses, reduce inventories, fail to maintain levels of inventory proportionate to the Company’s existing business or alter the inventory practices maintained during the Company’s last full fiscal year, or otherwise increase cash on hand, except in the ordinary course of business consistent with past practice;

(t) pay or become liable to pay any costs or expenses arising out of or related to the transactions contemplated by this Agreement or the Ancillary Agreements, other than the Transaction Expenses;

(u) commence or settle any Action;

(v) disclose any non-public information about the Company including proprietary and confidential information;

(w) take any action, or fail to take any action, that would cause any representation or warranty made by the Company in this Agreement or any Ancillary Agreement to be untrue or result in a breach of any covenant made by the Company in this Agreement or any Ancillary Agreement, or that has or would reasonably be expected to have a Material Adverse Effect;

(x) take any other action that causes, or fail to take any remedial action that prevents, the material impairment of the value of the Company or the rights of the Parent hereunder; or

(y) announce an intention, enter into any formal or informal agreement, or otherwise make a commitment to do any of the foregoing.

Section 5.2 Access to Information . From the date hereof until the Closing Date, the Company shall afford the Parent and its officers, directors, employees, advisors, auditors, attorneys, agents, bankers and other representatives (collectively, “ Representatives ”) complete access (including for inspection and copying) at all reasonable times to the properties, offices, plants and other facilities, books and records of the Company, and shall promptly furnish the Parent with such financial, operating and other data and information as the Parent may reasonably request.

Section 5.3 Exclusivity . The Company and the Approving Holders agree that between the date of this Agreement and the earlier of the Closing and the termination of this Agreement, the Company and the each of the Approving Holders shall not, and shall take all action necessary to ensure that none of the Company’s Affiliates and Representatives shall (i) solicit, initiate, consider, encourage or accept any proposal or offer that constitutes an Acquisition Proposal or (ii) participate in any discussions, conversations, negotiations or other communications regarding, or furnish to any other Person any information with respect to, or otherwise cooperate in any way, assist or participate in, facilitate or encourage the submission of, any proposal that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal. The Company and the Approving Holders shall immediately cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any Persons conducted heretofore with respect to any of the foregoing. The Company and/or the Approving Holders, as the case may be, shall notify the Parent promptly, but in any event within 24 hours, orally and in writing if any such Acquisition Proposal, or any inquiry or other contact with any Person with respect thereto, is made. Any such notice to the Parent shall indicate in reasonable detail the identity of the Person making such Acquisition Proposal, inquiry or other contact and the terms and conditions of such Acquisition Proposal, inquiry or other contact. The Company shall not release any Person from, or waive any provision of, any confidentiality or standstill agreement to which the Company is a party, without the prior written consent of the Parent. For purposes of this Agreement, “ Acquisition Proposal ” means any offer or proposal for, or any indication of interest in, any of the following: (A) any direct or indirect acquisition or purchase of all or any portion of the capital stock of the Company or assets of the Company (other than inventory to be sold in the ordinary course of business consistent with past practice), (B) any merger,

consolidation or other business combination relating to the Company or (C) any recapitalization, reorganization or any other extraordinary business transaction involving or otherwise relating to the Company.

Section 5.4 Stockholder Meeting; Stockholder Approval As soon as practicable following the date of this Agreement, the Company shall take all action necessary or advisable in accordance with Oregon Law and the Company’s articles of incorporation and bylaws to duly call, give notice of, convene and hold the Company Stockholders’ Meeting for Stockholders to consider and vote upon the adoption and approval of the Merger, this Agreement and the transactions contemplated hereby. The Company will, through its Board of Directors, unanimously recommend to the Stockholders the adoption and approval of the Merger and this Agreement, shall not withdraw, modify or change such recommendation, and shall use its best efforts to obtain Company Stockholders’ Approval.

(b) Each of the Approving Holders agrees to the terms and obligations specified in this Agreement, and each further agrees that he shall vote all of his Shares in favor of the Merger, this Agreement and transactions contemplated hereby. Each Approving Holder further covenants not to (i) sell, convey, transfer, pledge, encumber, hypothecate, assign or otherwise dispose of (including by gift) any of his Shares during the term of this Agreement; (ii) deposit any Shares into a voting trust, enter into any voting arrangement or understanding, grant any proxy or otherwise transfer voting power with respect thereto; (iii) disclose any non-public information about the Company including proprietary and confidential information; or (iv) issue any option, right of first refusal or any other right with respect to his Shares, in each case without the prior written consent of the Parent (which may be withheld by the Parent in its sole discretion). The Company represents and warrants to the Parent that a vote by the Approving Holders of all of their Shares in favor of the Merger, this Agreement and the transactions contemplated hereby (both (x)

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