AGREEMENT AND PLAN OF MERGER

Exhibit 10.1

EXECUTION DRAFT

 

 

TABLE OF CONTENTS

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AGREEMENT AND PLAN OF MERGER

          This Agreement and Plan of Merger (this “ Agreement ”) is entered into as of October 15, 2008 by and among (i) QUALITY SYSTEMS, INC., a California corporation (the “ Parent ”), (ii) NEXTGEN HEALTHCARE INFORMATION SYSTEMS, INC., a California corporation and a wholly-owned subsidiary of the Parent (“ NextGen ”) (iii) RUTH MERGER SUB, INC., a Maryland corporation and a wholly-owned subsidiary of NextGen (the “ Merger Sub ”), (iv) PRACTICE MANAGEMENT PARTNERS, INC., a Maryland corporation (the “ Company ”), and (v) PERRY SNYDER and DONALD GOOD (each an “ Indemnifying Stockholder ” and collectively, the “ Indemnifying Stockholders ”).

          This Agreement contemplates a merger of the Merger Sub with and into the Company. In such merger, the Constituents will receive cash and shares of Parent’s common stock in exchange for their capital stock or options to purchase capital stock of the Company. Unless otherwise defined herein or the context clearly requires otherwise, capitalized terms used herein shall have the respective meanings set forth in Article X hereof.

          Now, therefore, in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows.

ARTICLE I
THE MERGER

          1.1      The Merger . Upon and subject to the terms and conditions of this Agreement, the Merger Sub shall merge with and into the Company at the Effective Time. From and after the Effective Time, the separate corporate existence of the Merger Sub shall cease and the Company shall continue as the Surviving Corporation. The Merger shall have the effects set forth in Section 3-114 of the Maryland General Corporation Law (the “ MGCL ”).

          1.2      The Closing . The Closing shall take place at the offices of Whiteford, Taylor & Preston L.L.P. in Baltimore, Maryland, or at such other place as the Parties may mutually agree in writing, commencing at 10:00 a.m. local time on the second Business Day following the date on which the last of the conditions set forth in Article VI have been satisfied or waived (other than conditions that may only be satisfied on the Closing date, but subject to satisfaction of such conditions) or on such other date as the Parent and the Company may mutually agree in writing (the “ Closing Date ”).

          1.3      Actions at the Closing .

                    (a)     At the Closing:

                             (i)      the Company shall deliver to the Parent the various certificates, instruments and documents referred to in Section 6.1 of this Agreement;

                             (ii)     the Parent and/or Merger Sub shall deliver to the Company the various certificates, instruments and documents referred to in Section 6.2 of this Agreement;

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                            (iii)     the Surviving Corporation and the Merger Sub shall file with the Maryland State Department of Assessments and Taxation the Maryland Articles of Merger; and

                            (iv)     the Parent, the Stockholder Representatives and the Escrow Agent shall execute and deliver the Escrow Agreement.

                  (b)     Upon confirmation from the Maryland State Department of Assessments and Taxation that the Maryland Articles of Merger have been filed and accepted:

                            (i)       each Company Stockholder, other than holders of Dissenting Shares, shall deliver to the Parent for cancellation the certificate(s) representing their Company Shares together with an appropriate letter of transmittal (each, a “ Stockholder Transmittal Letter ”) substantially in the form attached hereto as Exhibit A ;

                            (ii)      each holder of Options shall deliver to the Parent for cancellation the agreements and/or instruments evidencing his/her Options, together with an acknowledgment of termination thereof, substantially in the form attached hereto as Exhibit B (collectively the “ Option Termination Agreements ”);

                            (iii)     the Parent shall pay by wire transfer the cash portion of the Closing Amount to each Constituent into which such Constituent’s Company Shares or Options, as the case may be, are converted or exchanged pursuant to Section 1.5(a);

                            (iv)     the Parent shall submit to its transfer agent an order for the issuance of the Parent Shares portion of the Closing Amount to each Constituent into which such Constituent’s Company Shares or Options, as the case may be, are converted or exchanged pursuant to Section 1.5(a);

                            (v)      the Parent shall deposit the Escrow Amount with the Escrow Agent in accordance with Section 1.9; and

                            (vi)     the Parent shall pay in full the Company debt listed in Section 1.3(b)(vi) of the Disclosure Schedule pursuant to the payoff letters (or other similar authorizations or demands) from such lenders.

          1.4      Additional Action . The Surviving Corporation may, at any time after the Effective Time, take any action, including executing and delivering any document, in the name and on behalf of the Company or the Merger Sub, in order to consummate the series of transactions contemplated by this Agreement.

          1.5      Conversion of Shares and Options . At the Effective Time, by virtue of the Merger and the Option Termination Agreements without any further action on the part of any Party or the holder of any of the Company Shares or the holder of any Option:

                    (a)     Each Company Share (other than Dissenting Shares) and Option shall be converted, in accordance with the formula set forth in Exhibit C attached hereto, into the right to receive a portion (which may, in the case of some Options, be zero) of the Aggregate Transaction Consideration which shall be payable at any time in which a portion of the Aggregate

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                    (b)     Whenever cash payments are due by the Parent under this Agreement, Parent shall pay, or such funds shall be released from the Escrow Account and transferred, by wire transfer of immediately available funds to the Constituents, the amount determined in accordance with the preceding provisions of Section 1.5(a).

                    (c)     Each share of common stock, $0.01 par value per share of the Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and thereafter evidence one share of common stock, $0.01 par value per share, of the Surviving Corporation.

                    (d)     No certificates or scrip representing fractional shares of Parent Shares shall be issued as part of any amount of the Aggregate Transaction Consideration that a Constituent has a right to receive. Notwithstanding any other provision of this Agreement, in the event a Constituent would otherwise have been entitled to receive a fraction of a share of Parent Shares such fraction shall be rounded up or down to the nearest whole share.

                    (e)     For illustrative purposes only, a spreadsheet prepared by Indemnifying Stockholders showing the calculations for the assumed distributions to each Constituent is set forth on Exhibit D attached hereto.

          1.6      Closing Amount Adjustments .

                    (a)      Estimated Net Debt Adjustment .

                             (i)     The cash portion of the Closing Amount will be adjusted by the amount, if any, by which the Net Debt as of the Closing is lesser or greater than One Million Eight Hundred Thirty-Four Thousand Four Hundred Nineteen Dollars ($1,834,419) (the “ Target Net Debt ”).

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                            (ii)    Two Business Days before the Closing Date, the Stockholder Representatives will deliver to Parent a certificate setting forth, as of the date thereof, an estimate of the amount of Cash and Debt expected as of the Closing Date (on a pro forma basis giving effect to the transactions contemplated by this Agreement). The amount of Debt will be itemized by creditor, with supporting detail, and the amount of Cash will specify cash on hand and each cash equivalent, with supporting detail. If the amount of estimated Net Debt as of the Closing Date (the “ Estimated Net Debt ”) is less than the Target Net Debt, the cash portion of the Closing Amount will be increased by an amount equal to such shortfall, and if the Estimated Net Debt is greater than the Target Net Debt, the cash portion of the Closing Amount will be reduced by an amount equal to such excess (the amount of such increase or decrease shall be referred to as the “ Estimated Net Debt Adjustment ”).

                  (b)      Estimated Working Capital Adjustment

                            (i)     The cash portion of the Closing Amount will be adjusted by the amount by which Closing Date Working Capital is greater or less than One Million Three Hundred Seventy-Five Thousand Four Hundred Fifty-Four ($1,375,454) (the “ Target Working Capital ”).

                            (ii)    Two Business Days before the Closing Date, the Stockholder Representatives will deliver to Parent a certificate setting forth, as of the date thereof, an estimate of the Closing Date Working Capital (the “ Estimated Working Capital ”), with supporting detail. If the Closing Date Working Capital set forth in such certificate is greater than the Target Working Capital, the cash portion of the Closing Amount will be increased by such excess and if the Closing Date Working Capital set forth in such certificate is less than the Target Working Capital, the cash portion of the Closing Amount will be decreased by such shortfall (the amount of such increase or decrease shall be referred to as the “ Estimated Working Capital Adjustment ”).

                  (c)      Closing Amount Adjustment . Within five (5) Business Days after the final determination of the Final Balance Sheet pursuant to Section 1.6(d) of this Agreement, the cash portion of the Closing Amount will be adjusted (the amount of any such adjustment, the “ Closing Amount Adjustment ”) and the Parent or the Constituents, as the case may be, will make whatever payments to each other as are necessary, if any, such that the Closing Amount is what it would have been had (i) the Estimated Net Debt equaled the Net Debt reflected on such Final Balance Sheet; and (ii) the Estimated Working Capital equaled the Closing Date Working Capital reflected on such Final Balance Sheet. Parent will pay any amount due to the Constituents by wire transfer in immediately available funds to each of the Constituents in an amount equal to the portion of the Closing Amount into which his or her Company Shares or Options, as the case may be, are converted or exchanged pursuant to Section 1.5(a). In the event a Closing Amount Adjustment is due to the Parent hereunder, the amount shall be disbursed (i) from the Escrow Amount, (ii) to the extent the Escrow Amount is insufficient to pay in full such Closing Amount Adjustment, then from any other amounts of the Aggregate Transaction Consideration payable to the Constituents hereunder, whether by right of setoff or otherwise, or (iii) if amounts payable hereunder are not sufficient, upon demand by Parent, from the Indemnifying Stockholders on a several basis based on their respective Pro Rata Share.

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                  (d)       Adjustment Procedures . The adjustments described in Section 1.6(c) will be determined as follows:

                             (i)     Within sixty (60) days after the Closing Date, the Parent shall prepare, in accordance with GAAP, and deliver to the Stockholder Representatives a balance sheet of the Company as of the Closing Date (the “ Final Balance Sheet ”). The Parties acknowledge and agree that for purposes of determining the Closing Amount Adjustment pursuant to this Section 1.6(d)(i) the Final Balance Sheet shall be prepared on a basis consistent with and utilizing the same principles, practices and policies of the Company, as those used in preparing the Most Recent Balance Sheet, subject to the Accounting Policies. The Parties acknowledge and agree that the items listed on Section 1.6(d)(i) of the Disclosure Schedule shall be taken into account in calculating Net Debt and Closing Date Working Capital for the pre-closing estimates and on the Final Balance Sheet.

                             (ii)    The Stockholder Representatives and any professionals chosen by them shall have the right to review the Surviving Corporation’s books and records relating to, and the work papers of the Parent and its advisors utilized in, preparing the Final Balance Sheet. The Final Balance Sheet shall be binding for purposes of the Closing Amount Adjustment unless the Stockholder Representatives present to the Parent within 15 Business Days after receipt of the Final Balance Sheet from the Parent written notice of disagreement specifying in reasonable detail the nature and extent of the disagreement.

                             (iii)   If the Stockholder Representatives deliver a timely notice of disagreement, the Parent and the Stockholder Representatives shall attempt in good faith during the thirty (30) days immediately following the Parent’s receipt of timely notice of disagreement to resolve any disagreement with respect to the Final Balance Sheet. If, at the conclusion of such 30-day period, the Parent and the Stockholder Representatives have not resolved their disagreements regarding the Final Balance Sheet, the Parent and the Stockholder Representatives shall refer the items of disagreement for final determination to the Philadelphia office of a regional accounting firm which is mutually acceptable to the Parent and the Stockholder Representatives (the “ Accountants ”). However, if the Parent and Stockholder Representatives are unable to agree on such a firm which is willing to so serve, the Parent shall deliver to the Stockholder Representatives a list of two independent regional accounting firms that are not auditors, tax advisors or other consultants to the Parent, the Company or the Stockholder Representatives, and the Stockholder Representatives shall select one of such two firms to be the Accountants within five (5) Business Days. The parties will be reasonably available for such firm, and shall instruct such firm to render a final determination within the 20 days immediately following the referral to the Accountants. The Final Balance Sheet shall be deemed to be conclusive and binding on the Parent and the Constituents upon (A) the failure of the Stockholder Representatives to deliver to the Parent a notice of disagreement within 15 Business Days of their receipt of the Final Balance Sheet prepared by the Parent, (B) resolution of any disagreement by mutual agreement of the Parent and the Stockholder Representatives after a timely notice of disagreement has been delivered to the Parent, or (C) notification by the Accountants of their final determination of the items of disagreement submitted to them.

                  (e)      The fees and disbursements of the Accountants under Section 1.6(d) shall be borne exclusively by the Constituents unless the adjustments to the Final Balance Sheet

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resulting from the Stockholder Representatives’ notice of disagreement caused an increase in the Closing Amount Adjustment in favor of the Constituents in excess of one hundred thousand dollars ($100,000), in which case such fees and disbursements shall be borne exclusively by the Parent. In the event the Constituents are obligated to pay the fees and disbursements of the Accountants hereunder, such amounts shall be disbursed (i) from the Escrow Amount, (ii) to the extent the Escrow Amount is insufficient to pay in full such fees and disbursements, then from any other amounts of the Aggregate Transaction Consideration payable to the Constituents hereunder, whether by right of setoff or otherwise, or (iii) if amounts payable hereunder are not sufficient, upon demand by Parent, from the Indemnifying Stockholders.

          1.7      Earnout Payments .

                    (a)     The Constituents shall be eligible to receive earnout consideration up to a maximum of three million dollars ($3,000,000) for all such earnout payments, based on the performance of the Surviving Corporation following the Closing as set forth in this Section 1.7.

                             (i)     For the period beginning immediately after the Closing and ending on the first anniversary of the Closing (the “ First Earnout Period ”), the Constituents shall receive $3 for every $1 of Post-Closing Net Income in excess of one hundred ten percent (110%) of the Adjusted Forecast for such First Earnout Period (the “ First Earnout Period Payment ”).

                             (ii)    For the period beginning on the day after the first anniversary of the Closing and ending on the second anniversary of the Closing (the “ Second Earnout Period ”), the Constituents shall receive $3 for every $1 of Post-Closing Net Income in excess of one hundred ten percent (110%) of the Adjusted Forecast for such Second Earnout Period until the Post-Closing Net Income results in an aggregate of $1.5 million of earnout consideration being earned during the Second Earnout Period (such amount of Post-Closing Net Income, the “ Second Earnout Threshold ”), at which point the amount earned thereafter shall change to $1.50 for every $1 of Post-Closing Net Income in excess of the Second Earnout Threshold for such Second Earnout Period (collectively, the “ Second Earnout Period Payment ”).

                    (b)     Earnout amounts shall be calculated promtly after the preparation of the Parent’s financial statements following the accounting period in which the end of such earnout period occurs. The First Earnout Period Payment, if any, shall be deposited with Escrow Agent and made part of the Escrow Amount. The calculation of the amount earned in the First Earnout Period Payment or Second Earnout Period Payment, as the case may be, may be referred to as the “ Earnout Payment ” for such period. Such Earnout Payments shall be delivered to the Escrow Agent or paid to the Constituents in accordance with Section 1.5(a), as the case may be, within the later of (i) ninety (90) days after the Parent’s delivery to the Stockholder Representatives of the applicable Earnout Certificate, or (ii) if disputed pursuant to Section 1.7(f) below, ten (10) Business Days after final determination of the applicable Earnout Payment pursuant to the provisions of Section 1.7(f).

                    (c)     [intentionally omitted]

                    (d)     In no case shall the aggregate amounts paid pursuant to this Section 1.7 exceed $3 million.

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                  (e)     As soon as reasonably practicable following Parent’s determination of the Earnout Payment for each of the First Earnout Period and Second Earnout Period (but in no event prior to the date the Parent’s financial statements for the periods to which such Earnout Payments relate have been publicly disclosed by Parent), Parent will deliver to the Stockholder Representatives (i) a statement that includes each element of the calculation of the Earnout Payment; and (ii) a certificate of the Parent’s Chief Financial Officer certifying on behalf of the Parent that the calculation of the Earnout Payment was made in accordance with the terms of this Section 1.7 (such statement and certificate being referred to as the “ Earnout Certificate ”). The Stockholder Representatives and their professional advisors will be given reasonable access to only those books and records of the Surviving Corporation that are necessary to confirm the calculation of the Earnout Payment. All information obtained by the Stockholder Representatives shall be deemed to be confidential information of the Parent subject to the restrictions of the Confidentiality Agreement attached hereto as Exhibit I.

                  (f)      Dispute Resolution .

                           (i)     The amount of the Earnout Payment for each of the First Earnout Period and Second Earnout Period set forth in the Earnout Certificate shall be binding on the Constituents unless the Stockholder Representatives present to the Parent within sixty (60) days after receipt of the Earnout Certificate written notice of disagreement specifying in reasonable detail the nature and extent of the disagreement. The Parent and the Stockholder Representatives shall attempt in good faith during the thirty (30) days immediately following the Parent’s receipt of the Stockholder Representatives’ timely notice of disagreement to resolve any disagreement with respect to such Earnout Payment.

                           (ii)    If, at the end of the 30-day period referenced in Section 1.7(f)(i) above, Parent and the Stockholder Representatives have not resolved all disagreements with respect to whether the calculation of the Earnout Payment is in accordance with the terms of Section 1.7 of this Agreement, Parent and the Stockholder Representatives will refer the items of disagreement to the Accountants (selected in accordance with Section 1.6(d)(iii)) for non-binding mediation. The parties will be reasonably available and work diligently to facilitate the mediation of all disputes between the parties within the 30-day period immediately following the referral to the Accountants. The Accountants, Parent and the Stockholder Representatives will enter into such engagement letters as required by the Accountants to perform under this Section 1.7(f)(ii). The fees and disbursements of the Accountants under this Section 1.7(f)(ii) will be deducted from the Earnout Payments (and borne by the Stockholder Representatives if there are no Earnout Payments), unless it is determined that (A) the Earnout Certificate understated the applicable Earnout Payment for the period in question by $100,000 or more or (B) Parent acted in bad faith with respect to such understatement, in either which case such fees and disbursements will be borne exclusively by Parent.

                           (iii)   If, at the end of the second 30-day period referenced in subsection (ii) above, Parent and the Stockholder Representatives have not resolved all disagreements submitted to the Accountants for mediation with respect to whether the calculation of the Earnout Payment is in accordance with the terms of Section 1.7 of this Agreement, any such remaining disagreement, regardless of the legal theory upon which it is based, will be settled by final, binding arbitration pursuant to the Federal Arbitration Act, 9

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U.S.C. § 1 et seq ., in accordance with the applicable rules of the American Arbitration Association (“ AAA ”) in effect at such time, which will be the sole and exclusive procedures for any such disagreement. The arbitration will be heard before a sole neutral arbitrator mutually agreed upon by Parent and the Stockholder Representatives. If Parent and the Stockholder Representatives cannot agree upon such an arbitrator within ten (10) Business Days after the date referenced in the first sentence of this subsection (iii), AAA will appoint an arbitrator with expertise in the general industry of the business engaged in by the Surviving Corporation. All arbitration proceedings will take place in Philadelphia, Pennsylvania. If the arbitrator finds in favor of the Constituents, the arbitrator will have no authority to award amounts to the Constituents in excess of the amounts the Constituents would have been entitled to receive for any Earnout Payment in the absence of the actions taken by Parent and determined by the arbitrator to be in violation of Section 1.7. Without limiting the generality of the foregoing, the arbitrator will have no authority to award any special, punitive, exemplary, consequential, incidental or indirect losses or damages. Judgment upon any award granted in a proceeding brought pursuant to this subsection (iii) may be entered in any court of competent jurisdiction. Should it become necessary to resort or respond to court proceedings to enforce a Party’s compliance with this Section 1.7(f)(iii), such proceedings will be brought only in the federal or state courts located in Philadelphia, Pennsylvania, which will have exclusive jurisdiction to resolve any disputes with respect to this Section 1.7(f)(iii), with each Party irrevocably consenting to the jurisdiction thereof.

                  (g)      Conduct of Business .

                           (i)     The Constituents understand, acknowledge and agree (as evidenced by, in the case of the Company Stockholders, the adoption of this Agreement and the approval of the Merger by such Company Stockholders and, in the case of the holders of Options, the execution and delivery of the Option Termination Agreements by such holders of Options) that, except as specifically restricted by subsections (ii), (iii), (iv) and (v) of this Section 1.7(g), the Parent is entitled to manage and operate the Surviving Corporation and its businesses in its sole and absolute discretion.

                           (ii)    Unless otherwise agreed to in writing by each of Parent and the Stockholder Representatives in its and their sole discretion, to the extent Parent or an Affiliate of Parent, except through the Surviving Corporation, during the Earnout Periods in the states of Virginia, Maryland, Delaware and the District of Columbia (the “ Target Region ”): (A) conducts outsourced billing and collections services business, then any increase in net income of the Parent or an Affiliate of Parent attributable to new business generated in the Target Region shall be credited to the Surviving Corporation for purposes of Section 1.7(a) hereof; or (B) acquires or combines with any Acquired Person that conducts outsourced billing and collections services business, then any increase in net income of the Acquired Person attributable to new business generated in the Target Region after the closing of such acquisition or combination over the net income of the Acquired Person in the Target Region prior to such closing shall be credited to the Surviving Corporation for purposes of Section 1.7(a) hereof. To the extent that Parent or an Affiliate of Parent requires the Surviving Corporation to manage or operate (A) a business or (B) another Affiliate that operates outside of the Target Region, any increase in net income of the Parent or such Affiliate of Parent attributable to such managed or operated business or other Affiliate shall be credited to the Surviving Corporation for purposes of Section 1.7(a) hereof.

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Net income generated from business in the Target Region or from the acquisition or combination with any Acquired Person shall be determined in accordance with the principles outlined in this Agreement, where applicable.

                           (iii)    Notwithstanding any other provision herein, (A) without the Surviving Corporation’s prior written consent, Parent will not and will not permit an Acquired Person or any other of Parent’s Affiliates (other than the Surviving Corporation) to solicit any active customers, or identified prospects, of the Surviving Corporation for the provision of services that fall within the scope of the definition of “Business,” and (B) without Parent’s prior written consent, Surviving Corporation will not and will not permit its employees, agents or representatives to solicit any active customers, or identified prospects, of Parent or Parent’s Affiliates (other than the Surviving Corporation) for the provision of services. An “identified prospect” of the Surviving Corporation or of Parent is a potential customer of the Company (pre-Closing) or Surviving Corporation (post-Closing), on the one hand, or Parent or Parent’s Affiliates (other than the Surviving Corporation), on the other hand, to which such party has made a written proposal or solicitation and had face to face contact, in each case within the immediately preceding 120 days from the time in question and (X) as to the Surviving Corporation, has been disclosed by the Company in Section 1.7(g)(iii)(X) of the Disclosure Schedule and, (Y) as to Parent or Parent’s Affiliates (other than the Surviving Corporation), has been disclosed by Parent in Section 1.7(g)(iii)(Y) of the Disclosure Schedule, each of which respective schedules shall be updated by the Surviving Corporation and Parent on a calendar quarter basis until the end of the Second Earnout Period and delivered to the other party (Surviving Corporation or Parent, respectively) in writing within ten (10) business days of the end of each calendar quarter. An “active customer” is a customer to which the Company (pre-Closing) or Surviving Corporation (post-Closing), on the one hand, or Parent or Parent’s Affiliates (other than the Surviving Corporation), on the other hand, has actually provided services within the immediately preceding six (6) months from the time in question.

                           (iv)    The Parties acknowledge and agree that, unless otherwise agreed to in writing by each of Parent and the Stockholder Representatives, in its and their sole discretion, during the Earnout Periods, Parent will not cause to be operated through the Surviving Corporation any business other than the Business and such other activities, if any, conducted by the Surviving Corporation as of the Closing Date.

                           (v)     Parent will maintain or cause to be maintained separate or otherwise identifiable (e.g., in the case of a shared general ledger) books and records for the Surviving Corporation at all times during the Earnout Periods in a manner reasonably necessary for the financial statements of the Surviving Corporation to be prepared in accordance with GAAP (and in a manner consistent with the Accounting Policies).

                  (h)     Acceleration of Earnout Payments . Upon the occurrence of an Acceleration Event at any time prior to the end of the Second Earnout Period, then, notwithstanding anything to the contrary in this Agreement, automatically and without any further action on the part of Parent, Stockholders Representatives, or any Company Stockholder, the maximum aggregate $3 million amount of Earnout Payments, less any Earnout Payments already paid, will immediately become due and payable to the Constituents. For purposes of illustration only, if an Acceleration Event occurs in the First Earnout Period, then the $3 million

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maximum earnout amount, less any amounts already paid in the First Earnout Period will be accelerated and payable by the Parent to the Constituents. Parent will give Stockholder Representatives written notice of the occurrence (i) of an Acceleration Event within 48 hours of the occurrence of such Acceleration Event and (ii) of the execution of a definitive agreement for a transaction described in the definition of Acceleration Event within 48 hours of the execution of such definitive agreement. Such accelerated Earnout Payments shall be paid to the Constituents within fifteen (15) days after the Acceleration Event, and as contemplated under Section 1.5.

                    (i)      Loss of Right to Earnout . Notwithstanding anything to the contrary in this Agreement or the subsequently referenced employment agreements, the First Earnout Period Payment and Second Earnout Period Payment otherwise payable to each Constituents that is also a party to an employment agreement pursuant to Article VI hereof shall be permanently forfeited, and the total amount of such earnouts permanently reduced, as follows:

                             (i)     In the event any Constituent that is a party to an employment agreement pursuant to Article VI hereof shall be terminated for cause or resign without good reason (as such terms are defined in the respective employment agreement to which such Constituent is a party) prior to or on the last day of the First Earnout Period, the entire First Earnout Period Payment that would otherwise be payable to such Constituent shall be permanently forfeited in full and the total First Earnout Period Payment payable to all Constituents shall be reduced by such amount.

                             (ii)    In the event any Constituent that is a party to an employment agreement pursuant to Article VI hereof shall be terminated for cause or resign without good reason (as such terms are defined in the respective employment agreement to which such Constituent is a party) prior to or on the last day of the Second Earnout Period, the entire Second Earnout Period Payment that would otherwise be payable to such Constituent shall be permanently forfeited in full and the total Second Earnout Period Payment payable to all Constituents shall be reduced by such amount.

          1.8      Dissenting Shares .

                    (a)     Dissenting Shares shall not be converted into or represent the right to receive any portion of the Aggregate Transaction Consideration unless such Company Stockholder shall have forfeited his, her or its right to appraisal under the MGCL or properly withdrawn his, her or its demand for appraisal. Until such time, any portion of the Aggregate Transaction Consideration that would have otherwise been payable to such Company Stockholder shall be held in a separate bank account maintained by the Parent (the “ Dissenting Share Consideration ”). If such Company Stockholder has so forfeited or withdrawn his, her or its right to appraisal of Dissenting Shares, then, (i) as of the occurrence of such event, such holder’s Dissenting Shares shall cease to be Dissenting Shares and shall be converted into and represent the right to receive the Aggregate Transaction Consideration payable in respect of such Company Shares pursuant to Section 1.5, and (ii) promptly following the occurrence of such event, the Parent or the Surviving Corporation shall deliver to such Company Stockholder, a payment representing the Closing Amount to which such holder is entitled pursuant to

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Section 1.5. Unless otherwise paid to a dissenting Company Stockholder as set forth herein, the Dissenting Share Consideration shall remain the property of the Parent.

                    (b)     The Company shall give the Parent (i) prompt notice, but in no event later than two (2) days, of any written demands for appraisal of any Company Shares, withdrawals of such demands, and any other instruments that relate to such demands received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the MGCL. The Company shall not, except with the prior written consent of the Parent, make any payment with respect to any demands for appraisal of Company Shares or offer to settle or settle any such demands.

                    (c)     In the event the Parent becomes obligated to make any payment with respect to any demands for appraisal of Company Shares, such payment shall be satisfied first by payment of the Dissenting Share Consideration to the dissenting Company Stockholders. For amounts payable to such Dissenting Company Stockholders in excess of the Dissenting Share Consideration, the Parent shall seek such payment (i) from any amounts of the Aggregate Transaction Consideration payable to the Constituents hereunder (including, but not limited to, the Escrow Amount), whether by right of setoff or otherwise, or (ii) if amounts payable hereunder are not sufficient, upon demand by the Parent, from the Indemnifying Stockholders.

          1.9      Escrow .

                    (a)      Escrow Amount to Secure Obligations . On the Closing Date, the Parent or the Merger Sub shall deposit with the Escrow Agent the Escrow Amount. The Escrow Amount shall represent a source of funds to secure the Constituents’ and the Indemnifying Stockholders’ obligations hereunder to the extent the Escrow Amount has not been reduced by operation of Section 1.6, Section 1.8, this Section 1.9 and Articles VII and VIII hereof or in accordance with the Escrow Agreement. The Escrow Amount shall be held by the Escrow Agent under the Escrow Agreement pursuant to the terms thereof. Subject to the release provisions of this Section 1.9, the Escrow Amount shall be held as a trust fund and shall not be subject to any lien, attachment trustee process or any other judicial process of any creditor of any party, and shall be held and disbursed solely for the purposes and in accordance with the terms of the Escrow Agreement.

                    (b)      Release of Escrow Amount to Constituents .

                              (i)     $1,500,000, or such lesser balance of the Escrow Amount as may then exist, shall be released to the Constituents upon the Company or Surviving Corporation obtaining all of the consents, releases and waivers set forth in Section 1.9(b)(i) of the Disclosure Schedule.

                              (ii)    Within thirty (30) days after each AR Measuring Date, a portion of the Escrow Amount shall be released in accordance with the following formula:

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                          “ AR Measuring Date ” means the last Business Day of each calendar month after the Closing.

                  (c)     A portion of the Escrow Amount may be released to the Parent in accordance with Section 1.9(c) of the Disclosure Schedule.

                  (d)     In accordance with the terms of the Registration Rights Agreement, a portion of the Escrow Amount equal to the amount of any fees, costs or expenses to Parent or its Affiliates in connection with Parent’s performance under the Registration Rights Agreement shall be released to Parent if and when such fees, costs or expenses are incurred.

                  (e)     The remaining balance of the Escrow Amount will be released to the Constituents promptly after January 1, 2011 and after any remaining releases of the Escrow Amount that may be due to the Parent are calculated pursuant to Section 1.9(c), 1.9(d), Article VII and Article VIII.

                  (f)     Any amounts released from the Escrow Account shall be paid to the Constituents in accordance with Section 1.5.

                  (g)     The adoption of this Agreement and the approval of the Merger by the Company Stockholders shall constitute approval of the Escrow Agreement and of all of the arrangements relating thereto, including the placement of the Escrow Amount in escrow and the appointment of the Stockholder Representatives to act on behalf of the Constituents.

                  (h)     Whenever any portion of the Escrow Amount is to be released to one or more Constituents, the Stockholder Representatives shall provide to Parent, certified in writing by each of the Stockholder Representatives (“ Payment Information Certificate ”), a schedule specifying the name, address and taxpayer identification number for each such Constituent and the exact amount and type of Escrow Amount to be disbursed to each such Constituent (“ Payment Information ”). The preparation of the Payment Information Certificate and the accuracy of the Payment Information set forth thereon shall be the sole and exclusive responsibility of the Stockholder Representatives; provided , however , that Parent shall have the right to review and approve such Payment Information Certificate and Payment Information, which approval shall not be unreasonably withheld or delayed.

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          1.10   Articles of Incorporation and By-laws .

                    (a)    The Articles of Incorporation of the Surviving Corporation immediately following the Effective Time shall be the same as the Articles of Incorporation of the Company immediately prior to the Effective Time.

                    (b)    The By-laws of the Surviving Corporation immediately following the Effective Time shall be the same as the By-laws of the Company immediately prior to the Effective Time.

          1.11     No Further Rights . From and after the Effective Time, no Company Shares shall be deemed to be outstanding, and holders of certificates formerly representing Company Shares shall cease to have any rights with respect thereto except as provided herein or by law.

          1.12     Stockholder Releases .

                     (a)       Except as set forth in Section 1.12 of the Disclosure Schedule, effective as of the Closing, each Indemnifying Stockholder agrees not to sue and fully releases and discharges the Company, the Surviving Corporation, the Parent and their respective stockholders, directors, officers, assigns and successors, past and present (collectively, “ Releasees ”), with respect to and from any and all claims, issuances of the Company’s stock, notes or other securities, any demands, rights, liens, contracts, covenants, proceedings, causes of action, obligations, debts, and losses of whatever kind or nature in law, equity or otherwise, whether now known or unknown, and whether or not concealed or hidden, all of which each Indemnifying Stockholder now owns or holds or has at any time owned or held against Releasees connected with or relating to any matter occurring on or prior to the Closing Date. Nothing in this Section 1.12 will be deemed to constitute a release by any Indemnifying Stockholder of any right of such Indemnifying Stockholder under this Agreement or any right to receive compensation or benefits under employee benefit plans attributable to the periods prior to the Closing Date.

                      (b)        It is the intention of each Indemnifying Stockholder that such release be effective as a bar to each and every claim, demand and cause of action hereinabove specified.

          1.13     Company Closing Expenses . At the Closing, subject to Section 5.7, Parent shall cause the payment of the Company Closing Expenses directly to those Persons designated in writing on Section 1.13 of the Disclosure Schedule as being entitled thereto. As soon as reasonably practicable prior to the Closing, the Stockholder Representatives shall designate in writing the amounts payable to such Persons as Company Closing Expenses. The Company and the Stockholder Representatives hereby represent and warrant that there will be no other Company Closing Expenses.

          1.14      Appointment of Stockholder Representatives .

                     (a)    Upon the approval of the Merger by the Company Stockholders in accordance with the MGCL, the Company Stockholders will irrevocably make, constitute and appoint up to two representatives to act as the Company Stockholders’ representatives and agents for all purposes under this Agreement (collectively, the “ Stockholder Representatives ”). In

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addition, prior to the Effective Time, the Company shall obtain an Option Termination Agreement from each holder of an Option which shall designate and appoint the duly elected Stockholder Representatives (or their successors) as each such holder’s duly appointed Stockholder Representative for all purposes under this Agreement. Upon election of the Stockholder Representatives and upon receipt of the Option Termination Agreement, the Stockholder Representatives will be authorized to execute on behalf of each Constituent any and all documents and agreements referred to herein upon the Closing.

                   (b)    Should either Stockholder Representative or both Stockholder Representatives resign or be unable to serve, the Constituents having received a majority of the Aggregate Transaction Consideration distributed as of the latest Payment Date shall appoint a single substitute agent to take on the responsibilities of such Stockholder Representative or Stockholder Representatives, whose appointment shall be effective on the date of the prior Stockholders Representative’s resignation or incapacity.

                   (c)    By way of illustration only, and without limitation, the Stockholder Representatives shall have the authority to (i) execute on behalf of each Constituent, as fully as if the Constituents were acting on their own behalf, any and all documents and agreements referred to herein, including executing this Agreement and the Escrow Agreement as the Constituents’ representative, (ii) give and receive notice or instructions permitted or required under this Agreement or the Escrow Agreement, (iii) authorize the release of the amounts held in the Escrow Fund to pay any Claimed Amount, Closing Amount Adjustment or any other amounts payable out of the Escrow Fund in accordance with this Agreement or (iv) to undertake any actions with respect to the resolution of a Dispute or any disagreement with respect to the amount of any Earnout Payment, including partaking in any dispute resolution process.

                   (d)    Any notice, direction or communication received by Parent, Merger Sub or the Surviving Corporation from the Stockholder Representatives, or delivered to the Stockholder Representatives by Parent, Merger Sub or the Surviving Corporation, shall be binding upon the Constituents, and each of them. The Stockholder Representatives shall act in all matters on behalf of the Constituents and Parent and Merger Sub and, after the Effective Time, the Surviving Corporation shall be entitled to rely on the actions of the Stockholder Representatives hereunder acting in concert or alone as the actions of the Constituents. Any single Stockholder Representative shall have the authority to bind the Stockholder Representatives as a group and the Parent and its Affiliates shall be entitled to rely on any and all documents signed by any one or more Stockholder Representatives. Parent, Merger Sub and the Surviving Corporation may deliver notices and communications to the Constituents hereunder through the Stockholder Representatives at the address set forth in this Agreement for notices, and such delivery shall be deemed to have been made to any or all of the Constituents. None of Parent, Merger Sub nor the Surviving Company shall pay any costs or expenses incurred by the Stockholder Representatives in carrying out their obligations hereunder. Each of Parent, Merger Sub and the Surviving Corporation consents to the appointment of the Stockholder Representatives to act as described hereunder.

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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE INDEMNIFYING STOCKHOLDERS

          Each of the Indemnifying Stockholders, severally, represents and warrants to the Parent that, except as set forth in the Disclosure Schedule, the statements contained in this Article II are true and correct as of the date of this Agreement and will be true and correct as of the Closing, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties will be true and correct as of such date). The Indemnifying Stockholders shall have the right to supplement and update the Disclosure Schedule to reflect events that have occurred between the date of this Agreement and the Closing and could not have been disclosed at the date of this Agreement; provided , however , that no such supplemental or updated information shall be deemed to avoid or cure any misrepresentation or breach of warranty or constitute an amendment of any breach of representation or warranty made by the Company or any Indemnifying Stockholder as of the date of this Agreement; and provided , further , however , that such right shall not be deemed in any way to waive, modify or amend the condition to Closing set forth in Section 6.1 (i) hereof unless the Parent expressly waives the condition in writing. The Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Article II. The disclosures in any section or subsection of the Disclosure Schedule shall qualify any other sections and subsections in this Article II only to the extent it is clear from a reading of the disclosure and through written cross-reference that such disclosure is applicable to such other sections and subsections.

          2.1      Organization, Qualification and Corporate Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. The Company is duly qualified to conduct business and is in good standing under the laws of each jurisdiction listed in Section 2.1 of the Disclosure Schedule, which jurisdictions constitute the only jurisdictions in which the nature of the Company’s businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so authorized, qualified or licensed would not result in a Company Material Adverse Effect. The Company has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has furnished to the Parent true, complete and correct copies of its Articles of Incorporation and By-laws. The Company is not in default under or in violation of any provision of its Articles of Incorporation or By-laws.

          2.2    Capitalization .

                  (a)    The authorized capital stock of the Company consists of Twelve Million (12,000,000) shares of common stock, $0.01 par value per share, of which, as of the date of this Agreement, Five Million One Hundred Seventy-Five Thousand Four Hundred and Thirty-Five (5,175,435) shares have been issued and are outstanding.

                  (b)    Section 2.2(b)(i) of the Disclosure Schedule sets forth a complete and accurate list, as of the date of this Agreement, of the Company Stockholders, showing the number of shares of capital stock, and the class or series of such shares, held by each Company Stockholder. Section 2.2(b)(ii) of the Disclosure Schedule also indicates all outstanding Company Shares that constitute restricted stock or that are otherwise subject to a repurchase or redemption right, indicating the name of the applicable stockholder, the vesting schedule (including any acceleration provisions with respect thereto), and the repurchase price payable by the Company. All of the issued and outstanding shares of capital stock of the Company have

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been duly authorized and validly issued and are fully paid and nonassessable. All of the issued and outstanding securities of the Company have been offered, issued and sold by the Company in compliance with all applicable federal and state securities laws.

                  (c)    Section 2.2(c) of the Disclosure Schedule sets forth a complete and accurate list, as of the date of this Agreement of: (i) all Company Stock Plans, indicating for each Company Stock Plan the number of Company Shares issued to date under such Plan, the number of Company Shares subject to outstanding options under such Plan and the number of Company Shares reserved for future issuance under such Plan; (ii) all holders of outstanding Options, indicating with respect to each Option the Company Stock Plan under which it was granted, the number of Company Shares subject to such Option, the exercise price, the date of grant, the expiration date, the vesting schedule (including any acceleration provisions with respect thereto), and whether such Option was intended to qualify as an incentive stock option under Section 422 of the Code; and (iii) all holders of outstanding Warrants, indicating with respect to each Warrant the agreement or other document under which it was granted, the number of shares of capital stock, and the class or series of such shares, subject to such Warrant, the exercise price, the date of issuance and the expiration date thereof. The Company has provided to the Parent complete and accurate copies of all Company Stock Plans, forms of all stock option agreements evidencing Options and all Warrants. All of the shares of capital stock of the Company subject to Options and Warrants will be, upon issuance pursuant to the exercise of such instruments, duly authorized, validly issued, fully paid and nonassessable.

                  (d)    Except as set forth in Section 2.2(d)(i) of the Disclosure Schedule, (i) no subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company is authorized or outstanding, (ii) the Company has no obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right, or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of the Company, and (iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or to make any other distribution in respect thereof. Except as set forth in Section 2.2(d)(ii) of the Disclosure Schedule, there are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company.

                  (e)    Except as set forth in Section 2.2(e) of the Disclosure Schedule, there is no outstanding agreement, written or oral, between the Company and any holder of its securities, or, to the best of the Company’s Knowledge, among any holders of its securities, relating to the sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights), registration under the Securities Act, or voting, of the capital stock of the Company.

          2.3    Authorization of Transaction . The Company has all requisite power, capacity and authority to execute and deliver this Agreement and to perform its obligations hereunder. Except as set forth in Section 2.3 of the Disclosure Schedule, the execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company, including the Requisite Stockholder Approval. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and

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binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent such enforceability is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other law affecting or relating to creditors rights generally and general principles of equity (regardless of whether such enforceability is considered in proceeding in equity or law).

          2.4     Noncontravention . Subject to the filing of the Articles of Merger as required by the MGCL, neither the execution and delivery by the Company of this Agreement, nor the consummation by the Company of the transactions contemplated hereby, will (a) conflict with or violate any provision of the Articles of Incorporation or By-laws of the Company, (b) require on the part of the Company any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity, (c) except as set forth in Section 2.4(c) of the Disclosure Schedule, conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument of a value in excess of $50,000 per year or duration in excess of 12 months to which the Company is a party or by which the Company is bound or to which any of their respective assets is subject, (d) result in the imposition of any Security Interest upon any assets of the Company, or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its properties or assets.

          2.5     Subsidiaries . The Company does not control directly or indirectly or have any direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business association or entity.

          2.6     Financial Statements . The Company has provided to the Parent the Financial Statements, copies of which are attached to Section 2.6 of the Disclosure Schedule. Except for the adjustments listed on Section 1.6(d)(i) of the Disclosure Schedule which have not been made to the Financial Statements, the Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, fairly present the consolidated financial condition, results of operations and cash flows of the Company as of the respective dates thereof and for the periods referred to therein and are consistent with the books and records of the Company; provided , however , that the Financial Statements referred to in clause (b) of the definition of such term are subject to normal recurring year-end adjustments (which will not be material) and do not include footnotes. Except as set forth in Section 2.6 of the Disclosure Schedule, there are no material differences from the information included in the footnotes to the audited Financial Statements that would be disclosed in footnotes to the unaudited Financial Statements if such footnotes had been prepared.

          2.7     Absence of Certain Changes . Since the Most Recent Balance Sheet Date, the Company has operated its business only in the Ordinary Course of Business, and, except as set forth on Section 2.7 of the Disclosure Schedule:

                   (a)    the Company has not incurred any Debt other than changes in the principal balance of the Company’s line of credit;

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                 (b)    the Company has not made any acquisition (by merger, consolidation, or acquisition of stock or assets or otherwise) of any other Person;

                 (c)    the Company has not created any Security Interest on any of its assets, tangible or intangible;

                 (d)    except for sales to customers of the Company’s products and services in the Ordinary Course of Business, the Company has not sold, assigned or transferred any of its tangible assets;

                 (e)    the Company has not entered into or amended (i) any customer agreement with a Person that is or would be a Significant Person or (ii) any agreement, other than a customer agreement, that is or would be a Material Contract;

                 (f)    the Company has not (i) entered into or amended any employment or severance or similar agreement with any employee or any collective bargaining agreement, (ii) adopted or amended, or increased the payments to or benefits under, any profit sharing, bonus, thrift, stock option, deferred compensation, savings, insurance, restricted stock, pension, retirement, or other employee benefit plan for or with any of its directors, officers or employees or (iii) granted any increase in compensation payable or to become payable or the benefits provided to its directors, officers or employees, other than in the Ordinary Course of Business;

                 (g)    the Company has not (i) made or changed any Tax election or (ii) made any material change in any method of accounting or accounting practice used by it, other than any such changes required by GAAP;

                 (h)    the Company has conducted and reflected in its books and records each transaction referenced in Section 2.26 of the Disclosure Schedule on an arm’s-length basis;

                 (i)    there has been no change, event or development that has had, individually or in the aggregate, a Company Material Adverse Effect;

                 (j)    there has not been any material casualty, loss, damage or destruction (whether or not covered by insurance) to any asset of the Company;

                 (k)    the Company has not made any single expenditure or commitment to purchase personal property or for additions to property, plant and equipment in excess of $25,000;

                 (l)    the Company has not issued, sold or otherwise disposed of any debenture, note, stock, or equity interest or modified or amended any right of any holder thereof;

                 (m)    the Company has not amended, terminated, waived, disposed of, or permitted to lapse, any material license or Permit;

                 (n)    there has not been any amendment to the Articles of Incorporation or By-laws of the Company; and

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                      (o)     the Company has not materially altered the nature of its business or business plan.

          2.8        Undisclosed Liabilities . Except as provided in Section 2.8 of the Disclosure Schedule, the Company has no liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (a) liabilities shown or reserved for on the Most Recent Balance Sheet, (b) liabilities which have arisen since the Most Recent Balance Sheet Date in the Ordinary Course of Business and (c) contractual and other liabilities incurred in the Ordinary Course of Business which are not required by GAAP to be reflected on a balance sheet or that would not otherwise be required to be disclosed in the footnotes of the Company’s financial statements if such footnotes had been prepared, (d) liabilities incurred in connection with the negotiation of this Agreement and specifically set forth in Section 2.8 of the Disclosure Schedule and clearly identified as “liabilities not reflected on the Most Recent Balance Sheet,” and (e) liabilities specifically and clearly set forth in other sections of the Disclosure Schedule and clearly identified as “liabilities not reflected on the Most Recent Balance Sheet.”

          2.9        Taxes .

                      (a)       The Company has properly filed on a timely basis all Tax Returns that it is and was required to file, and all such Tax Returns were true, correct and complete in all respects. Except as set forth in Section 2.9(a) of the Disclosure Schedule, the Company has properly paid on a timely basis all Taxes, whether or not shown on any of its Tax Returns, that were due and payable. All Taxes that the Company is or was required by law to withhold or collect have been withheld or collected and, to the extent required, have been properly paid on a timely basis to the appropriate Governmental Entity. The Company has complied with all information reporting and back-up withholding requirements including maintenance of the required records with respect thereto, in connection with amounts paid to any employee, independent contractor, creditor or other third party.

                      (b)       The unpaid Taxes of the Company for periods through the date of the Most Recent Balance Sheet Date do not exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Most Recent Balance Sheet.

                      (c)       The Company is not and has never been a member of any group of corporations with which it has filed (or been required to file) consolidated, combined, or unitary Tax Returns. The Company has no actual or potential liability under Treasury Regulation Section 1.1502-6 (or any comparable or similar provision of federal, state, local, or foreign law), or as a transferee or successor, by contract, or otherwise for any Taxes of any Person (including without limitation any affiliated, combined, or unitary group of corporations or other entities that included the Company during a prior Taxable period). The Company is not a party to, bound by, or obligated under any Tax allocation, Tax sharing, Tax indemnity or similar agreement.

                      (d)       The Company has delivered to the Parent (i) complete and correct copies of all income Tax Returns of the Company relating to Taxes for all Taxable periods for which the applicable statute of limitations has not yet expired and (ii) complete and correct copies of all

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private letter rulings, revenue agent reports, information document requests, notices of proposed deficiencies, deficiency notices, protests, petitions, closing agreements, settlement agreements, pending ruling requests and any similar documents submitted by, received by or agreed to by or on behalf of the Company relating to Taxes for all Taxable periods for which the applicable statute of limitations has not yet expired. The income Tax Returns of the Company have not been audited by the Internal Revenue Service or other applicable Governmental Entity or are closed by the applicable statute of limitations for all periods through and including the Taxable period specified in Section 2.9(d) of the Disclosure Schedule. The Company has delivered or made available to the Parent complete and correct copies of all other Tax Returns of the Company relating to Taxes for all Taxable periods for which the applicable statute of limitations has not yet expired. No examination or audit of any Tax Return of the Company by any Governmental Entity is currently in progress or, to the Knowledge of the Company, threatened or contemplated, and the Company does not know of any basis upon which a Tax deficiency or assessment could reasonably be expected to be asserted against the Company. The Company has not been informed by any jurisdiction that the jurisdiction believes that the Company was required to file any Tax Return that was not filed.

                      (e)       The Company has not (i) waived any statute of limitations, which waiver is still in effect, with respect to Taxes or agreed to extend the period for assessment or collection of any Taxes, (ii) requested any extension of time within which to file any Tax Return, which Tax Return has not yet been filed, or (iii) executed or filed any power of attorney relating to Taxes with any Governmental Entity.

                      (f)       The Company is not a party to any Tax litigation. The Company is not nor has it ever been a party to any specific transaction which will result in the imposition of penalties upon the Company by any taxing authority. The Company is not nor has it ever been a party to any transaction or agreement that is in conflict with the Tax rules on transfer pricing in any relevant jurisdiction. The Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code.

                      (g)       Except as set forth on Section 2.9(g) of the Disclosure Schedule, there are no Security Interests or other encumbrances with respect to Taxes upon any of the assets or properties of the Company, other than with respect to Taxes not yet due and payable.

                      (h)       The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.

                      (i)       Except as set forth on Section 2.9(i) of the Disclosure Schedule, the Company has not made any payments, nor is it obligated to make any payments, nor is it a party to any agreement, contract, arrangement, or plan that could obligate it to make any payments, that are or could be, separately or in the aggregate, “excess parachute payments” within the meaning of Section 280G of the Code (without regard to Sections 280G(b)(4) and 280G(b)(5) thereof). No excise Tax will be imposed upon the Company as a result of the acceleration of Options.

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                        (j)       No Company Stockholder holds Company Shares that are non-transferable and subject to a substantial risk of forfeiture within the meaning of Section 83 of the Code with respect to which a valid election under Section 83(b) of the Code has not been made, and no payment to any Company Stockholder of any portion of the consideration payable pursuant to this Agreement will result in compensation or other income to such Company Stockholder with respect to which the Parent or the Company would be required to deduct or withhold any Taxes.

                        (k)       None of the assets of the Company (i) is property that is required to be treated as being owned by any other person pursuant to the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, (ii) is “tax-exempt use property” within the meaning of Section 168(h) of the Code, (iii) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code, or (iv) is subject to a lease under Section 770l(h) of the Code or under any predecessor section.

                        (l)       The Company will not be required to include any item of income in, or exclude any item of deduction from, Taxable income for any Taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a Taxable period ending on or prior to the Closing Date (or as a result of the transactions contemplated by this Agreement) under Section 481 of the Code (or any corresponding or similar provision of federal, state, local or foreign Tax law); (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Tax law) executed on or prior to the Closing Date; (iii) deferred intercompany gain or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or foreign Tax law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date. The Company currently utilizes, the accrual method of accounting for income Tax purposes and such method of accounting has not changed in the past five (5) years.

                        (m)       The Company has not participated in or cooperated with an international boycott within the meaning of Section 999 of the Code.

                        (n)       There is no limitation on the utilization by the Company of its net operating losses, built-in losses, Tax credits, or similar items under Sections 382, 383, or 384 of the Code or comparable provisions of foreign, state or local law (other than any such limitation arising as a result of the consummation of the transactions contemplated by this Agreement).

                        (o)       The Company has not distributed to the Constituents or security holders stock or securities of a controlled corporation, nor have stock or securities of the Company been distributed, in a transaction to which Section 355 or Section 361 of the Code applies.

                        (p)       The Company is not nor has it ever been required to make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).

                        (q)       Section 2.9(q) of the Disclosure Schedule sets forth each jurisdiction (other than United States federal) in which the Company files, or, is required to file or has been required to file a Tax Return or is or has been liable for Taxes on a “nexus” basis and each

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jurisdiction that has sent notices or communications of any kind requesting information relating to the Company’s nexus with such jurisdiction.

                        (r)    [Intentionally omitted].

                        (s)    There is no basis for the assertion of any claim relating or attributable to Taxes, which, if adversely determined, would result in any Security Interest on the assets of the Company, or would reasonably be expected to have a material adverse effect on the Company.

          2.10        Assets .

                        (a)    Except as set forth in Section 2.10(a) of the Disclosure Schedule, the Company is the true and lawful owner, and has good title to, all of the assets (tangible or intangible) purported to be owned by the Company, free and clear of all Security Interests. The Company owns or leases all tangible assets sufficient for the conduct of its businesses as presently conducted. Each such tangible asset is free from material defects, has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear) and is suitable for the purposes for which it presently is used and contemplated to be used per such business plan.

                        (b)    Section 2.10(b) of the Disclosure Schedule lists (i) all fixed assets (within the meaning of GAAP) of the Company having a book value greater than $5,000, indicating the cost, accumulated book depreciation (if any) and the net book value of each such fixed asset as of the Most Recent Balance Sheet Date, and (ii) all other assets of a tangible nature (other than inventories) of the Company whose book value exceeds $5,000.

                        (c)    Each item of equipment, motor vehicle and other asset that the Company has possession of pursuant to a lease agreement or other contractual arrangement is in such condition that, upon its return to its lessor or owner under the applicable lease or contract, the obligations of the Company to such lessor or owner to maintain such item will have been discharged in full and no additional amounts will be due and owing thereunder.

          2.11        Owned Real Property . The Company does not own, and has never owned, any real property.

          2.12        Real Property Leases . Section 2.12 of the Disclosure Schedule lists all Leases and lists the term of such Lease, any extension and expansion options, and the rent payable thereunder. The Company has delivered to the Parent complete and accurate copies of the Leases. With respect to each Lease:

                        (a)    such Lease is legal, valid, binding, enforceable and in full force and effect;

                        (b)    except as disclosed on Section 2.12 of the Disclosure Schedule, such Lease will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing;

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                        (c)     the Company is not in breach or violation of, or default under, any material provision of such Lease, and no event has occurred, is pending or, to the Knowledge of the Company, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default of a material provision by the Company or, to the Knowledge of the Company, any other party under such Lease and to the Knowledge of the Company, each parcel of Leased Real Property is in compliance in all material respects with all applicable Laws and Governmental Orders. Except as set forth in Section 2.12(c) of the Disclosure Schedule, the Lease for each parcel of Leased Real Property is in full force and effect, there are no defaults under such leases by the Company, or, to the Knowledge of the Company, any other party to such leases;

                        (d)     there are no disputes, oral agreements or forbearance programs in effect as to such Lease;

                        (e)     the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold;

                        (f)     based on the Company’s experience during the past full fiscal year and up to the Closing Date, all facilities leased or subleased thereunder are supplied with utilities and other services adequate for the operation of said facilities;

                        (g)     to the Company’s Knowledge there is not any Security Interest, easement, covenant or other restriction applicable to the real property subject to such lease which materially impairs the current uses or the occupancy by the Company of the property subject thereto; and

                        (h)     other than the rental payment amounts set forth in Section 2.12 of the Disclosure Schedule, no other amounts are owed or reasonably likely to be owed by the Company with respect to any parcel of Leased Real Property.

          2.13        Intellectual Property .

                        (a)     Section 2.13(a) of the Disclosure Schedule lists (i) each patent, patent application, copyright registration or application therefor, and trademark, service mark and domain name registration or application therefor of the Company and (ii) each Customer Deliverable of the Company.

                        (b)     The Company owns or has the right to all Company Intellectual Property reasonably necessary (i) to use, sell, market and distribute the Customer Deliverables and (ii) to operate the Business. Each item of Company Intellectual Property will be owned or available for use by the Surviving Corporation immediately following the Closing on substantially identical terms and conditions as it was owned or available for use by the Company immediately prior to the Closing, except as described in Section 2.13(b) of the Disclosure Schedule. No current or former employee of the Company has any claim or right in or to the Company Intellectual Property. The Company has taken commercially reasonable measures to protect the proprietary nature of each item of Company Intellectual Property, and to maintain in confidence all trade secrets and confidential information, that it owns or uses. No other Person has any rights to any of the Company Intellectual Property owned by the Company (except pursuant to agreements or licenses specified in Section 2.13(d) of the Disclosure Schedule), and, to the Knowledge of the

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Company, no other Person is infringing, violating or misappropriating any of the Company Intellectual Property, except as described in Section 2.13(b) of the Disclosure Schedule.

                        (c)     None of the Company Intellectual Property, Customer Deliverables, or the sale, marketing, distribution, provision or use thereof, infringes or violates, or constitutes a misappropriation of, any Intellectual Property rights of any Person. Section 2.13(c) of the Disclosure Schedule lists any complaint, claim or notice, or threat thereof, received by the Company alleging any infringement, violation or misappropriation; and the Company has provided to the Parent complete access to all written documentation in the possession of the Company relating to any such complaint, claim, notice or threat. The Company has provided to the Parent complete access to all written documentation in the Company’s possession relating to claims or disputes known to the Company concerning any Company Intellectual Property.

                        (d)     Section 2.13(d) of the Disclosure Schedule identifies each license or other agreement pursuant to which the Company has licensed, distributed or otherwise granted any rights to any third party with respect to, any Company Intellectual Property or any Intellectual Property owned by a party other than the Company. Except as described in Section 2.13(d) of the Disclosure Schedule, the Company has not agreed to indemnify any Person against any infringement, violation or misappropriation of any Intellectual Property rights with respect to any Customer Deliverables. The Company is not, nor will it or any party hereto be as a result of the execution and delivery of this Agreement or the performances of its obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the Company Intellectual Property.

                        (e)     Section 2.13(e) of the Disclosure Schedule identifies each item of Intellectual Property used or possessed by the Company that is owned by a party other than the Company, and the license or agreement pursuant to which the Company uses it (excluding off-the-shelf software programs licensed by or to the Company pursuant to nonnegotiable standard form, mass market or “shrink wrap” licenses).

                        (f)     Except as set forth in Section 2.13(f) of the Disclosure Schedule, all of the copyrightable materials (but excluding materials created, developed or otherwise provided by a third party) embedded in, or integrated in, incorporated in or bundled with the Customer Deliverables have been created by employees of the Company within the scope of their employment by the Company, or by independent contractors of the Company who have executed agreements expressly assigning all right, title and interest in such copyrightable materials to the Company. Except as set forth in Section 2.13(f) of the Disclosure Schedule, no portion of such copyrightable materials was jointly developed with any third party.

                        (g)     Except as set forth in Section 2.13(g) of the Disclosure Schedule, the Customer Deliverables, the Internal Systems, and the Company Intellectual Property are free from significant defects or programming errors, and conform in all material respects to the written documentation and specifications therefore.

                        (h)     The Internal Systems, Customer Deliverables, and the Company Intellectual Property currently used by the Company to provide products and services to their customers (i) are fully adequate for the business of the Company as of the date of this Agreement

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(ii) meet the normal and customary requirements of customers under the customer contracts of the Company, and (iii) will meet, or are capable of being scaled to meet, the normal and customary requirements of existing customers under the customer contracts.”

          2.14       Contracts .

                       (a)     Section 2.14 of the Disclosure Schedule lists the following agreements (written or oral) to which the Company is a party as of the date of this Agreement (each, a “ Material Contract ”):

                                 (i)       any agreement (or group of related agreements) for the lease of personal property from or to third parties providing for lease payments in excess of $10,000 per annum or having a remaining term longer than six months;

                                 (ii)      any agreement (or group of related agreements) with software vendors, distributors or sales agents allowing for the resale, marketing or distribution of the Company’s services of products;

                                 (iii)     any agreement concerning confidentiality or containing covenants restraining or limiting the freedom of the Company to engage in any line of business or compete with any Person including, without limitation, by restraining or limiting the right to solicit customers or that could reasonably be expected, following the Closing, to restrain or limit the freedom of the Parent or any Affiliate thereof to engage in any line of business or compete with any Person;

                                 (iv)     any agreement containing a right of first refusal;

                                 (v)      any agreement (or group of related agreements) that is terminable upon or prohibits a change in ownership or control of the Company, or that requires consent in connection with a change in ownership or control of the Company;

                                 (vi)     any agreement (or group of related agreements) that provides for the Company to be the exclusive or a preferred provider of any product or service to any Person or the exclusive or a preferred recipient of any product or service of any Person during any period of time or that otherwise involves the granting by any Person to the Company of exclusive or preferred rights of any kind;

                                 (vii)    any agreement (or group of related agreements) that provides for any Person to be the exclusive or a preferred provider of any product or service to the Company, or the exclusive or a preferred recipient of any product or service of the Company during any period of time or that otherwise involves the granting by the Company to any Person of exclusive or preferred rights of any kind;

                                 (viii)   any agreement (or group of related agreements) in which a party has agreed to purchase at least $10,000 worth of goods or services per year or that includes specific service level commitments;

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                               (ix)       any agreement (or group of related agreements) in which the Company has granted manufacturing rights, “most favored nation” or similar pricing provisions or marketing or distribution rights relating to any products or territory;

                               (x)        any agreement (or group of related agreements) under which it has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) Debt or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible;

                               (xi)       any agreement for the disposition of any significant portion of the assets or business of the Company (other than sales of products in the Ordinary Course of Business) or any agreement for the acquisition of the assets or business of any other entity (other than purchases of inventory or components in the Ordinary Course of Business);

                               (xii)      any employment or consulting agreement;

                               (xiii)     any agreement still in effect involving any current or former officer, director or stockholder of the Company or an Affiliate thereof;

                               (xiv)     any agreements that by their terms bind Affiliates of the Company or will bind current Affiliates of the Company after the Closing;

                               (xv)      any agreement under which the consequences of a default or termination would reasonably be expected to have a Company Material Adverse Effect;

                               (xvi)     any agreement which contains any provisions requiring the Company to indemnify any other party;

                               (xvii)    any agreement regarding Intellectual Property (excluding off-the-shelf software programs licensed by or to the Company pursuant to nonnegotiable standard form, mass market or “shrink wrap” licenses); and

                               (xviii)   any other agreement (or group of related agreements) involving more than the expenditure of $50,000 per year.

                      (b)    The Company has made available to the Parent a complete and accurate copy of each agreement listed in Section 2.13 or Section 2.14 of the Disclosure Schedule, or with respect to each such unwritten agreement, the Company has provided a detailed description of the terms of such unwritten agreement. With respect to each agreement so listed: (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing; and (iii) except as set forth on Section 2.14(b)(iii) of the Disclosure Schedule, neither the Company nor, to the Knowledge of the Company, any other party, is in breach or violation of, or default under, any material provision of such agreement, and no event has occurred, is pending or, to the Knowledge of the Company, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default of any material provision of

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such agreement by the Company or, to the Knowledge of the Company, of any other party under such agreement.

          2.15      Accounts Receivable . Each and all accounts receivable of the Company reflected on the Final Balance Sheet are valid receivables enforceable and fully collectible (i) in the ordinary course of business as historically collected or (ii) by December 31, 2010, whichever is sooner, free and clear of any claim, right of setoff or other dispute, demand or future obligation of any nature whatsoever all net of any applicable allowance for doubtful accounts reflected in the Final Balance Sheet. The Company has not received any written notice from an account debtor stating that any such account receivable is subject to any contest, claim or setoff by such account debtor.

          2.16      Powers of Attorney . Except as set forth in Section 2.16 of the Disclosure Schedule, there are no outstanding powers of attorney executed on behalf of the Company.

          2.17      Insurance . Section 2.17 of the Disclosure Schedule lists each insurance policy (including fire, theft/crime, casualty, comprehensive general liability, workers compensation, business interruption, environmental, errors and omissions, directors and officers fiduciary liability, employment practices liability, product liability and automobile insurance policies and bond and surety arrangements) to which the Company is a party, all of which are in full force and effect, including the name of the insurer, policy numbers and whether such policy is a claims-made or occurrence policy. Except as set forth in Section 2.17 of the Disclosure Schedule, there is no claim pending or, to the Knowledge of the Company, any existing facts which are reasonably likely to result in a claim under any such policy, and if any of the foregoing have been disclosed, no such claim or existing facts were questioned, denied or disputed by the underwriter of such policy. All premiums due and payable under all such policies have been paid. The Company has not been denied insurance coverage at any time during the past five years and no policies have been cancelled or have been refused to be renewed by the insurer in the past five years except as set forth in Section 2.17 of the Disclosure Schedule. The Company has no Knowledge of any threatened termination of, or premium increase with respect to, any such policy except as set forth in Section 2.17 of the Disclosure Schedule. Each such policy will continue to be enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing. The Company has not failed to timely give any notice required or failed to satisfy any subjectivities under such insurance policies or binders of insurance.

          2.18      Litigation . Except as set forth in Section 2.18 of the Disclosure Schedule, there is no Legal Proceeding which is pending or, to the Knowledge of the Company, has been threatened against the Company. There are no judgments, orders or decrees outstanding against the Company.

          2.19      Warranties .

                      (a)     Except as set forth in Section 2.19 of the Disclosure Schedule, no Customer Deliverable is subject to any guaranty, warranty, right of credit or other indemnity. Section 2.19 of the Disclosure Schedule sets forth the aggregate expenses incurred by the Company in fulfilling its obligations under its guaranty, warranty, right of credit and other indemnity

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provisions during each of the fiscal years and the interim period covered by the Financial Statements; and to the Knowledge of the Company there is no reason such expenses should significantly increase as a percentage of sales in the future, provided that the Surviving Corporation is operated in a manner substantially consistent with the manner the Company was operated during the one-year period immediately prior to Closing.

                      (b)     The Company has no liability arising out of any injury to individuals or property as a result of the ownership, possession, or use of any product manufactured, sold, leased or delivered by the Company.

          2.20      Employees .

                      (a)     Section 2.20 of the Disclosure Schedule contains a list of all employees of the Company, along with the position and the annual rate (or hourly rate, where applicable) of compensation of each such person.

                      (b)     The Company is not a party to or bound by any collective bargaining agreement, and has not experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. The Company has not committed any unfair labor practice. The Company has no Knowledge of any organizational effort made or threatened, either currently or within the past two years, by or on behalf of any labor union with respect to employees of the Company.

                      (c)     All material employee expenses and benefits shall have been accrued on the Final Balance Sheet for all periods prior to and up through the date thereof.

                      (d)     To the Knowledge of the Company, no officer, Key employee or group of employees has any plans to terminate employment with the Company.

          2.21      Employee Benefits .

                      (a)     Section 2.21(a) of the Disclosure Schedule contains a complete and accurate list of all Company Plans. Complete and accurate copies of documents embodying each of the Company Plans and related plan documents including (without limitation) plan documents, trust documents, group annuity contracts, plan amendments, insurance policies or contracts, participant agreements, employee booklets, administrative service agreements, summary plan descriptions, plan summaries or descriptions, minutes, resolutions, compliance and nondiscrimination tests for the last three plan years, standard COBRA forms and related notices, registration statements and prospectuses, and, to the extent still in its possession, any material employee communications relating thereto, have been provided to the Parent. With respect to the Company Plan which is subject to ERISA reporting requirements, the Company has provided copies of the Form 5500 reports and any applicable financial statements, including schedules and reports filed for the last five years. The Company has furnished Parent with the most recent Internal Revenue Service determination or opinion letter issued with respect to each such Company Plan which is intended to be a qualified plan as described in Code Section 401(a), and nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of tax-qualified status of any Company Plan subject to Code Section 401(a).

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                      (b)     Each Company Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code), except as would not have, in the aggregate, a Company Material Adverse Effect, and the Company, and the ERISA Affiliates have performed all material obligations required to be performed by them under, and are not in material default or violation by any other party to, any Company Plan and all required contributions required to be made by the Company or any ERISA Affiliate to any Company Plan have been made. All filings and reports as to each Company Plan subject to ERISA have prepared in good faith and timely filed, all requisite governmental reports (which were true and correct as of the date filed) have prepared in good faith and timely filed and the Company has properly and timely filed and distributed or posted all notices and reports to employees or participants in the Company Plans required to be filed, distributed or posted. There has been no “prohibited transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the Code, with respect to any Company Plan and neither the Company or any ERISA Affiliate is subject to or, to the Knowledge of the Company, threatened, claimed or alleged to be subject to, any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Company Plan. With respect to each Company Plan no “reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred. No Company Plan has assets that include secur