ASSET PURCHASE AGREEMENT

• • ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this " Agreement ") is entered into as of November 1, 2007 between HouseValues, Inc., a Washington corporation (the " Buyer "), Realty Generator, LLC, a Delaware limited liability company (the " Company "), Tom Ray and Justin Tracy, the sole members of the Company (together, the " Members " and individually, a " Member " ) and Blackwater Realty, LLC, a North Carolina limited liability company, an Affiliate of the Company (" Blackwater ").

• • RECITALS

A. The Company and Blackwater are in the business of providing products and services to the real estate industry (the " Business ").

B. Buyer wishes to purchase from the Company, and the Company wishes to sell, assign and transfer to Buyer, substantially all of the assets and properties of the Company, and Buyer wishes to purchase from Blackwater and Blackwater wishes to sell, assign and transfer to Buyer, all of the Contracts relating to the Business to which Blackwater is a party and any other assets and properties of Blackwater, if any, used in the Business (subject to certain exclusions specified in Section 1.1(c)) subject to the terms and conditions set forth herein.

• • AGREEMENT

In consideration of the terms hereof, the parties agree as follows:

• • ARTICLE I - PURCHASE AND SALE 

    1.1 Purchase of Assets

(a) Subject to the terms and conditions hereof, at the Closing, the Company, shall sell, transfer, assign and deliver to Buyer, and Buyer shall purchase from the Company its respective rights, title and interest in and to all properties, assets and rights of the Company, of every nature, whether real, personal, tangible, intangible or otherwise, and whether now existing or hereinafter acquired (other than the Excluded Assets), wherever located, and Blackwater, shall sell, transfer, assign and deliver to Buyer, and Buyer shall purchase from Blackwater all of the Contracts relating to the Business to which Blackwater is a party and any assets and properties of Blackwater, if any, used in the Business (other than the Excluded Assets) (collectively, the " Assets "), including, without limitation, all such items in the following categories:

• • • • • • (i) all cash and cash equivalents of the Company and Blackwater;

            (ii) all bank accounts of the Company and Blackwater;

            (iii) all goodwill and similar intangible assets associated with the Business, including but not limited to the Company's work force and relationships with customers, suppliers and vendors;

            (iv) all rights relating to prepayments by the Company and Blackwater to any vendor, deferred charges, security deposits and similar items;

            (v) all of the Company's and Blackwater's accounts receivable, notes, bonds and other rights to receive payments from any Person (collectively, the " Acquired Accounts Receivable ");

            (vi) all rights relating to prepayments to the Company and Blackwater;

            (vii) all computers, servers and related hardware and equipment, furnishings and similar property of the Company and Blackwater;

            (viii) all Company IP ;

            (ix) all rights under the Contracts listed on Disclosure Schedule 3.10(a), including any and all rights to receive payment, goods or services and to assert claims and take other actions thereunder ;

            (x) copies of all books and records of the Company and Blackwater, including all tax records, accounting records, bank records, communications with accountants, attorneys, and other corporate advisors;

            (xi) all Permits, including pending applications therefor or renewals thereof, to the extent their transfer is permitted by law;

            (xii) all claims, demands, lawsuits and judgments with respect to the Business or the ownership, use or value of any Asset (whether before or after the Closing Date), including the right to bring such claims, demands and lawsuits or enforce such judgments; and

            (xiii) all domain names registered in the name of any Member or any third party that are used in the Business .

(b) Buyer's purchase of the Assets hereunder shall be a full and complete transfer of all of the Company's and Blackwater's rights, title and interest in and to the Assets throughout the world. At the Closing, the Assets shall be transferred to Buyer free and clear of all Encumbrances whatsoever.

(c) Notwithstanding the provisions of Section 1.1 or any other provision hereof or any schedule or exhibit hereto, the Company shall retain and not transfer, and Buyer shall not purchase or acquire, the following assets (collectively, the " Excluded Assets "):

• • • • • • (i) RESERVED;

            (ii) Any Employee Benefit Plan or the assets of any Employee Benefit Plan; and

            (iii) the limited liability certificates of the Company and Blackwater, taxpayer and other identification numbers, seals and other documents relating to the organization and existence of each of the Company and Blackwater as a limited liability company and all original tax records, accounting records, bank records, communications with accountants, attorneys, and other corporate advisors.

(d) Subject to the terms and conditions hereof, at the Closing, Buyer shall assume and agree to pay and discharge when due the following Liabilities (collectively, the " Assumed Liabilities "):

• • • • • • (i) all liabilities, obligations and commitments arising out of the Contracts listed on Disclosure Schedule 3.10(a), other than the Excluded Liabilities;

            (ii) the Company's accounts payable to suppliers and vendors reflected in the Financial Statements or the Blackwater Financial Statements or incurred by the Company or Blackwater in the ordinary course of business since the Balance Sheet Date through the Closing (collectively, the " Assumed Accounts Payable "); and

            (iii) all other liabilities reflected in the Financial Statements or the Blackwater Financial Statements or incurred by the Company or Blackwater in the ordinary course of business since the Balance Sheet Date through the Closing, other than the Excluded Liabilities.

(e) Except for the Assumed Liabilities, Buyer shall not assume any Liabilities whatsoever of the Company or Blackwater (collectively, the " Excluded Liabilities "), including, but not limited to:

• • • • • • (i) any Liabilities relating to Excluded Assets;

            (ii) any Liabilities relating to the Assets or to the operation of the Business prior to the Closing;

            (iii) any Liabilities for Taxes of the Company, Blackwater or the Members, or for which the Company, Blackwater or the Members may otherwise be liable (including, without limitation, pursuant to Section 5.3 hereof, as a transferee or successor, by contract or pursuant to any law, rule, or regulation), or which relate to the ownership of the Assets or the operation of the Business on or prior to the Closing;

            (iv) any litigation relating to the Assets or to the operation of the Business in either case to the extent arising from facts occurring prior to the Closing;

            (v) any Liabilities not related to the Business;

            (vi) any Liabilities with respect to any employee, independent contractor or other service provider arising prior to, or as a result of or in connection with the termination by the Company or Blackwater of such person at, the Closing (including any bonus obligations);

            (vii) any Liabilities related to any option to purchase or similar right to share in the appreciation of the value of the Company's or Blackwater's equity, whether or not arising under an Employee Benefit Plan;

            (viii) any Liabilities relating to the non-existence or lack of validity of a work-for-hire agreement with the Company or Blackwater with respect to Company-Owned IP;

            (ix) any Company Transaction Expenses; and

            (x) any Liabilities with respect to or arising under any Employee Benefit Plan.

    1.2 Consideration for Assets

The aggregate consideration for the Assets (the " Purchase Price ") shall consist of the Closing Amount (minus the Closing Deficit, if any), the Contingency Payments, if any, and the Segment EBITDA Payments, if any, payable as set forth in this Section 1.2.

• • • • 1.2.1 Closing Consideration

Buyer shall pay the Company, by wire transfer at the Closing, a total of $9,999,000 minus the Holdback Amount, and shall pay Blackwater, by wire transfer at the Closing, $1,000 (the " Closing Amount ").

• • • • 1.2.2 Contingency Payments

        • • • 1.2.2(a) Payment of Contingency Payments

Buyer shall pay the Company in cash a contingency payment (the " 2008 Contingency Payment "), based on the Average Revenue (as defined below) of the Business per month for the three-month period ending December 31, 2008 (" 2008 Q4 Average Revenue "), and Buyer shall pay the Company an additional contingency payment (the " 2009 Contingency Payment "), based on the Average Revenue of the Business per month for the three-month period ending June 30, 2009 (" 2009 Q2 Average Revenue ") as follows:

(a) If the 2008 Q4 Average Revenue is equal to or greater than $750,000, the 2008 Contingency Payment shall be $1,000,000.

(b) If the 2009 Q2 Average Revenue is equal to or greater than $950,000, but less than $1,150,000, the 2009 Contingency Payment shall be $500,000. If the 2009 Q2 Average Revenue is equal to or greater than $1,150,000, the 2009 Contingency Payment shall be $1,000,000.

The term " Average Revenue " shall mean the total revenue of the Business, as determined by Buyer on an accrual basis reflecting the Agreed GAAP Adjustments consistently applied by Buyer, as adjusted by adding back in the Non-GAAP Deferred Revenue Amount, divided by the number of months in such period. The 2008 Contingency Payment and the 2009 Contingency Payment are together referred to herein as the " Contingency Payments ". Notwithstanding the foregoing, any changes in GAAP occurring after the Effective Date that alter the determination of Contingency Payments shall result in proportionate changes in the Contingency Payments such that the Contingency Payments shall equal the amount determined under GAAP as of the Effective Date as determined hereunder.

• • • • • • • 1.2.2(b) Timing of Contingency Payments

The 2008 Contingency Payment, if any, shall be paid by wire transfer not later than two (2) business days following the issuance of Buyer's audited financial statements for the fiscal year ending December 31, 2008, but in no event later than March 15, 2009. The 2009 Contingency Payment, if any, shall be paid within two (2) business days following the issuance of Buyer's reviewed financial statements for the three-month period ending June 30, 2009, but in no event later than August 15, 2009.

• • • • • • • 1.2.2(c) Payment of Segment EBITDA Contingency Payments

Buyer shall pay the Company Segment EBITDA contingency payments (the " Segment EBITDA Contingency Payments "), based on the Segment EBITDA (as defined below) of the Business for the period from the day immediately following the Closing Date and ending December 31, 2007 and for each three-month period ending March 31, 2008, June 30, 2008, September 30, 2008 and December 31, 2008 (each such period, a " Segment EBITDA Period ") in an amount equal to seventy-five percent (75%) multiplied by the Segment EBITDA for each such Segment EBITDA Period.

The term " Segment EBITDA " shall mean the earnings of the Business from operations before interest, taxes, depreciation and amortization as determined by Buyer on an accrual basis reflecting the Agreed GAAP Adjustments consistently applied by Buyer, as adjusted by adding back in the Non-GAAP Deferred Revenue Amount, provided that no allocated general or administrative cost or expense of Buyer (as determined by Buyer and consistently applied by Buyer for external financial reporting purposes) shall be included in the calculation of EBITDA (other than general or administrative cost or expenses directly attributable to the Business, including without limitation, compensation paid to the Members pursuant to the Member Employment Agreements). Notwithstanding the foregoing, any changes in GAAP occurring after the Effective Date that alter the determination of Segment EBITDA Contingency Payments shall result in proportionate changes in the Segment EBITDA Contingency Payments such that the Segment EBITDA Contingency Payments shall equal the amount determined under GAAP as of the Effective Date as determined hereunder.

• • • • • • • 1.2.2(d) Timing of Segment EBITDA Contingency Payments

The Segment EBITDA Contingency Payments, if any, shall be paid by wire transfer not later than two (2) business days following the issuance of Buyer's reviewed or audited financial statements for the applicable Segment EBITDA Period, but in no event later than the forty-fifth (45th) day following the last day of such Segment EBITDA Period, except the Segment EBITDA Periods ending on December 31, 2007 and December 31, 2008, for which such payment shall be paid not later than the seventy-fifth (75th) day following the last day of such Segment EBITDA Period.

• • • • 1.2.3 Decisions Regarding Operations of the Business

In accordance with the terms of the Ray Employment Agreement and the Tracy Employment Agreement, for the period from the Closing Date through December 31, 2008, the business and affairs of the Business shall be managed by the Members, under the direction of Buyer's board of directors and executive management in accordance with their business judgment. Until June 30, 2009, Buyer shall cause the books and records of Buyer to be maintained in such a manner as will allow for the proper segregation, identification and accounting for expenses and revenues of the Business from the other subsidiaries and business divisions of Buyer.

• • • • 1.2.4 Purchase Price Allocation

The Purchase Price (including the Assumed Liabilities of the Company and other relevant items) shall be allocated among the Assets in accordance with Section 1060 of the Code, which allocation shall be determined by Buyer, subject to review and approval by the Company (not to be unreasonably withheld or delayed). Each party agrees that it will not take any reporting position in any federal, state or local tax filings which are inconsistent with such allocations.

• • • • 1.2.5 Release of Holdback Amount

Within ten (10) days after the Closing, Company shall prepare and deliver to the Buyer a pro forma consolidated balance sheet of the Company and Blackwater as of the Closing Date, prepared on the same basis as the Company Balance Sheet, but excluding any Excluded Assets and any Excluded Liabilities (the " Closing Balance Sheet "). Within ten (10) days after receipt of such Closing Balance Sheet, if the Holdback Amount exceeds the Closing Deficit, Buyer shall pay to Company such difference by wire transfer, and if the Closing Deficit exceeds the Holdback Amount, Company shall pay to Buyer such difference by wire transfer. " Closing Deficit " means the amount, if any, by which the Liabilites (other than Liabilites for deferred set up fees) recorded on the Closing Balance Sheet exceed the cash and Accounts Receivables from customers recorded on the Closing Balance Sheet.

• • ARTICLE II - CLOSING

    2.1 The Closing

The Closing shall be held at 10:00 a.m. (local time) on the date hereof at the offices of Perkins Coie LLP in Seattle, Washington (the " Closing Date "). At the Closing, Buyer, the Company, Blackwater and the Members shall take all such action and deliver all such funds, documents, instruments, certificates and other items as may be required, under this Agreement or otherwise, in order to perform or fulfill all covenants, conditions and agreements on their part to be performed or fulfilled at or before the date hereof and to cause all conditions precedent to the other parties' obligations under this Agreement to be satisfied in full.

• • 2.2 Closing Deliverables

At the Closing, Buyer will deliver to the Company and Blackwater their respective portions of the Closing Amount and the Company, Blackwater and the Members will deliver to Buyer:

(a) All documents, certificates and agreements necessary to transfer to Buyer good and valid title to the Assets, free and clear of any and all Encumbrances thereon, including, without limitation:

(i) a bill of sale, assignment and general conveyance with respect to the Assets, in substantially the form set forth as Exhibit 2.2(a)(i); and

(ii) assignments of all Intellectual Property, including domain names registered in the name of any Member used in the Business, dated the Closing Date, in form and substance reasonably satisfactory to Buyer.

(b) All transfers of permits or licenses and all approvals, applications or notices to public agencies, federal, state, local or foreign, the granting or delivery of which is necessary for the consummation of the transactions contemplated hereby or for the continued operation of the Business, as set forth on the Disclosure Schedules, shall have been obtained. All other consents, approvals and notices material to the consummation of the transactions contemplated by this Agreement and referred to on the Disclosure Schedules shall have been obtained or delivered. All such transfers, approvals and consents shall be satisfactory in all respects to Buyer in its sole and absolute discretion.

(c) An opinion of Barrack Law Firm, P.C., as counsel for the Company, dated as of the date hereof, in substantially the form attached as Exhibit 2.2(c).

(d) Buyer and Tom Ray shall have executed and delivered an employment agreement, dated as of the date hereof, in substantially the form attached as Exhibit 2.2(d-1) (the " Ray Employment Agreement" ). Buyer and Justin Tracy shall have executed and delivered an employment agreement, dated as of the date hereof, in substantially the form attached as Exhibit 2.2(d-2) (the " Tracy Employment Agreement" ).

• • ARTICLE III - REPRESENTATIONS AND WARRANTIES
    OF THE MEMBERS

To induce Buyer to enter into and perform this Agreement, and except as is otherwise set forth on the Disclosure Schedules, which exceptions shall specifically identify the paragraph or paragraphs of this Article III to which such exceptions relate, and which shall constitute in its entirety a representation and warranty under this Article III, each of the Company and the Members jointly and severally represent and warrant (other than with respect to Section 3.1, which each Member individually but not jointly represents and warrants with respect to himself alone), to Buyer as of the date hereof as follows in this Article III:

• • 3.1 Member Matter s

    • • 3.1.1 Enforceability

This Agreement and the other Transaction Documents to which such Member is a party have been duly executed and delivered by such Member and are legal, valid and binding obligations of such Member, enforceable against such Member in accordance with their terms.

• • • • 3.1.2 No Approvals or Notices Required; No Conflicts

The execution, delivery and performance of this Agreement and the other Transaction Documents by such Member, and the consummation of the transactions contemplated hereby and thereby, will not (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of any law or any judgment, decree, order, regulation or rule of any court, agency or other governmental authority applicable to such Member, (b) require any consent, approval or authorization of, or declaration, filing or registration with, any Person other than compliance with applicable securities and antitrust and similar laws, (c) result in a default (with or without the giving of notice or lapse of time, or both) under, acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, Encumbrance, obligation or liability to which such Member is a party or by which he is bound or to which any assets of such Member are subject, (d) result in the creation of any Encumbrance upon the assets of such Member, or (e) violate or conflict with the articles of organization, limited liability agreement or other charter document of the Company.

• • 3.2 Organization ; Good Standing; Authority

(a) The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the state of Delaware. The Company is duly qualified to do business, and is in good standing, in the states required due to (i) the ownership or lease of Real Property or Personal Property for use in the operation of such Company's business or (ii) the nature of the business conducted by the Company. The Company has all requisite power, right and authority to own, operate and lease its properties and assets, to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party, and to carry out the transactions contemplated hereby and thereby.

(b) All actions on the part of the Company and the Members necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, have been taken.

3.3 Reserved

• • 3.4 Subsidiaries and Affiliates

The Company does not own, directly or indirectly, any ownership, equity, profits or voting interest in, or otherwise control, any Person, and the Company does not have any agreement or commitment to purchase any such interest.

• • 3.5 No Approvals or Notices Required; No Conflicts

The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company, and the consummation of the transactions contemplated hereby and thereby, will not (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of any applicable law or any judgment, decree, order, regulation or rule of any court, agency or other governmental authority applicable to the Company, (b) require any consent, approval or authorization of, or declaration, filing or registration with, any Person other than compliance with applicable securities laws, (c) result in a default (with or without the giving of notice or lapse of time, or both) under, acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, Encumbrance, obligation or liability to which the Company is a party or by which it is bound or to which any Assets are subject, (d) result in the creation of any Encumbrance upon the Assets, (e) invalidate or materially adversely affect any permit, license, authorization or status used in the conduct of the business of the Company, or (f) violate or conflict with the articles of organization, limited liability agreement or other charter document of the Company.

• • 3.6 Financial Statements ; Obligations

(a) The Company has delivered to Buyer: (i) an unaudited balance sheet and statement of operations of the Company as of and for the fiscal year ended December 31, 2006, together with the compilation report thereon of the Company's accounting firm, Accounting Acumen, P.C., (ii) an unaudited balance sheet and statement of operations of the Company as of and for the nine month period ended September 30, 2007, together with the compilation report thereon of the Company's accounting firm, Accounting Acumen, P.C., and (iii) an unaudited balance sheet as of September 30, 2007 (such date being the " Balance Sheet Date "). All the foregoing financial statements are attached as Exhibit 3.6 hereto and are herein referred to as the " Financial Statements ." The balance sheet of the Company as of the Balance Sheet Date is herein referred to as the " Company Balance Sheet ." The Financial Statements have been prepared from internal-use financial statements, as adjusted for revenue and expense accrual basis recognition, specifically (i) set-up fees have been deferred and recognized as revenue ratably over the expected life of the customer, (ii) initial fees paid by customers have been recognized as revenue in the first full month of service, and (iii) pre-billed amounts have been recognized as revenue in the month of service and (iv) expenses have been recorded in the month incurred (the items set forth in (i) through (iv) are the " Agreed GAAP Adjustments ") , such that the financial statements are in conformity with the Agreed GAAP Adjustments consistently applied and fairly present, in all material respects, the financial position, results of operations and changes in financial position of the Company as of the dates and for the periods indicated.  All accounts receivables reflected in the Financial Statements and all accounts receivable arising subsequent to the date of the Company Balance Sheet arose in the ordinary course of business and are payable on ordinary trade terms.

(b) The Company has no liabilities or obligations of any nature (absolute, contingent or otherwise) that are not fully reflected or reserved against in the Company Balance Sheet except for normal obligations incurred in the ordinary course of the Business since the Balance Sheet Date through the Closing. The Company is not a guarantor, indemnitor, surety or other obligor of any indebtedness or obligation of any other Person.

(c) The amount of cash and Accounts Receivable from customers included in the Assets, together with the Holdback Amount, is sufficient to discharge in full all Liabilities recorded on the Company Balance Sheet (to the extent not discharged prior to the date hereof) and any other liabilities incurred by the Company since the Balance Sheet Date through the Closing.

• • 3.7 Absence of Certain Changes or Events

Since the Balance Sheet Date, there has not been any event or condition of any character that could reasonably be expected to result in a material adverse effect on the business, assets, operations or financial condition of the Company, the Company has conducted business substantially in the manner heretofore conducted and in the ordinary course of Business, and the Company has not, other than specifically contemplated in this Agreement:

(a) taken any action or entered into or amended, terminated, granted a waiver under or given consent with respect to any transaction, agreement or commitment, or other than in the ordinary course of business and consistent with past practice;

(b) forgiven or canceled any indebtedness or waived any claims or rights of material value (including, without limitation, any indebtedness owing by any stockholder, officer, director, employee or Affiliate of the Company);

(c) become subject to any change or circumstance that has had, or could reasonably be expected to have, a material adverse effect on the business, assets, operations or financial condition of the Company;

(d) experienced any material increase in bad debt or doubtful accounts, any material increase in accounts receivable aging, or any material adverse change in customer acquisition or retention rates;

(e) made any change in accounting methods or practices or internal accounting control, inventory, investment, credit, allowance or Tax procedure or practices;

(f) made any write off or write down, or any determination to make a write-off or write down, of any of the assets or properties of the Company;

(g) declared, paid or set aside for payment any dividend or other distribution, or redeemed, purchased or otherwise acquired, directly or indirectly, any securities of the Company, or otherwise permitted the withdrawal by any of the holders of the Company's securities of any cash or other assets (real, personal or mixed, tangible or intangible), in compensation, indebtedness or otherwise, other than payments of compensation and distributions in the ordinary course of business and consistent with past practice;

(h) experienced any material increase in the number or dollar amount of warranty claims, returns or similar claims affecting revenue; or

(i) agreed, whether in writing or otherwise, to take any action described in this Section 3.7.

• • 3.8 Tax Matters

(a) The Company has (i) timely filed with the appropriate governmental agencies all Returns required to have been filed with respect to the Company and the Company's business, and such Returns are true, correct and complete in all respects; (ii) duly and timely paid all Taxes (whether or not reflected on such Returns) that are due or claimed to be due (whether notice of deficiency or similar document or otherwise) by any governmental agency ; (iii) duly withheld and collected any Tax required to have been withheld or collected by the Company , and each such Tax has been paid to the appropriate governmental agencies; and (iv) not executed any waiver of any statute of limitations on or extended the period for the assessment or collection of any Tax. The Company is not currently the beneficiary of any extension of time to file any Returns that have not yet been filed; and no power of attorney has been granted by the Company with respect to any matter relating to Taxes.

(b) There has been no audit, examination or investigation of or with respect to any Return of the Company, and no audits, examinations, investigations, claims, assessments or other proceeding with respect to Taxes of the Company is pending or, to the Knowledge of each Member, threatened.

(c) Disclosure Schedule 3.8(c) sets forth the types of Returns filed by the Company and the jurisdictions in which such Returns are filed. The Company has never engaged in a trade or business within, and no claim has been made that the Company is required to file Returns in, any state, local or foreign jurisdiction other than those for which Returns have been duly filed by the Company.

(d) The Company is not a party to any tax sharing or allocation agreement, and does not have any liability under any such agreements.

(e) There are no Encumbrances of any kind upon the Assets, except for liens for Taxes not yet due and payable.

(f) The Company has been properly classified as a domestic limited liability company taxable as a Subchapter S Corporation pursuant to Code Section 136(a)(1) and Treasury Regulations Section 301.7701-3(c)(i)(v)(C) at all times since its formation and through the Closing for all income tax purposes.

(g) All Employee Benefit Plans or arrangements to which Company is a party that are "nonqualified deferred compensation plans" within the meaning of Code Section 409A(d)(1) have been operated and administered since January 1, 2005 in good faith compliance with Section 409A of the Code and the applicable guidance thereunder.

(h) As of the date of the Company Balance Sheet, the Company has no material liabilities for unpaid Taxes that have not been accrued or reserved on the Company Balance Sheet in accordance with GAAP, and since the date of the Company Balance Sheet, the Company has not incurred any liability for Taxes other than in the ordinary course of business.

• • 3.9 Assets

(a) The Assets, other than the Excluded Assets, constitute all the property used in or reasonably necessary for the conduct of the Business as currently conducted.

(b) Disclosure Schedule 3.9(b) contains a complete and accurate list of all real property that is leased, rented or used by the Company (the " Real Property "). The Company does not own any Real Property. The Company has delivered to Buyer true and complete copies of all leases, subleases, rental agreements, contracts of sale, tenancies or licenses relating to the Real Property. The Company holds good, marketable and insurable title to a leasehold interest in the Real Property that is leased or used by such Company, free and clear of all Encumbrances. All Personal Property owned, leased, rented or used by the Company is free and clear of all liens.

(c) Each lease of any portion of the Real Property and each lease, license, rental agreement, contract of sale or other agreement to which the Company's Personal Property is subject is listed on Disclosure Schedule 3.9(c) and is valid, binding and enforceable in accordance with its terms against the parties thereto; the Company has performed all obligations imposed upon the Company thereunder; and the Company is not in default thereunder, nor to the Knowledge of each Member is there any event that with notice or lapse of time, or both, would constitute a default thereunder. No consent is required from any Person under any lease or other agreement or instrument relating to the Real Property or such Personal Property in connection with the consummation of the transactions contemplated by this Agreement, and the Company has not received notice that any party to any such lease or other agreement or instrument intends to cancel, terminate or refuse to renew the same or to exercise or decline to exercise any option or other right thereunder. The Company has not granted any lease, sublease, tenancy or license of any portion of the Real Property or such Personal Property.

(d) The Real Property and the Personal Property include all the properties and assets (whether real, personal or mixed, tangible or intangible) reflected in the Company Balance Sheet and all the properties and assets purchased by the Company since the date of the Company Balance Sheet. The Company's offices and other structures and its Personal Property are in good repair and working order in all material respects (normal wear and tear excepted).

• • 3.10 Contracts

(a) Disclosure Schedule 3.10(a) contains a complete and accurate list of all Contracts to which the Company or Blackwater is currently a party or by which the Company or Blackwater is currently bound, including, but not limited to each Contract (i) that relates to the employment, or the engagement as an independent contractor, of any person by the Company, other than agreements terminable by the Company at will without triggering any severance or other payment obligations, (ii) that is with any Member or any member of a Member's immediate family, (iii) that concerns noncompetition by the Company, Blackwater, any Member or, to the Members' Knowledge, any employee or independent contractor of the Company or Blackwater, or (iv) with any customer or reseller where: (A) such party has rights that permit, or may in the future permit, such party to provide any Company or Blackwater product or service exclusively or with preferential rights in a specified area, or (B) the Company or Blackwater does not have the right to unilaterally terminate the Contract at the end of the term set forth in the Disclosure Schedule (each a " Significant Contract "). True and complete copies of each such written Contract listed on Disclosure Schedule 3.10(a) (or written summaries of the terms of any such oral Contracts listed on Disclosure Schedule 3.10(a)) have been delivered to Buyer.

(b) All Contracts listed on Disclosure Schedule 3.10(a) are valid, binding and enforceable in accordance with their terms against the Company and each other party thereto and are in full force and effect, the Company has performed in all material respects all obligations imposed on it thereunder, and neither the Company nor, to each of the Member's Knowledge, any other party thereto is in default thereunder, nor is there any event that with notice or lapse of time, or both, would constitute a material default by the Company or, to each of the Member's Knowledge, any other party thereunder.

(c) The execution and delivery of this Agreement and the performance of the obligations of the Company hereunder will not constitute a default under any Contract and do not require the consent of any other party to any Contracts.

• • 3.11 Customers and Suppliers

Disclosure Schedule 3.11 sets forth a complete and accurate list of any customer or supplier with whom the Company or Blackwater has conducted business over the last twelve months. Neither the Company nor Blackwater has received any notice from the Company's or Blackwater's customers or suppliers that would cause the Company or Blackwater to expect any material modification to the Company's or Blackwater's relationship with any customers or suppliers named on Disclosure Schedule 3.11.

• • 3.12 Orders and Commitments

The Company does not have any backlog (including any accepted or unfulfilled service contracts or research agreements) and outstanding purchase orders are within historical ranges for the Company and being addressed in the normal course of its business.

• • 3.13 Claims and Legal Proceedings

There are no Claims pending or, to the Knowledge of each Member, threatened or asserted against or involving the Company or any Employee Benefit Plan before or by any Person, including without limitation, any consumer protection Claim, truth in lending action, privacy complaint or Claim or anti-spam complaint or Claim. There are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which the Company is a party. Disclosure Schedule 3.13 sets forth, in addition to the above-referenced items, a description of any Claims that have been filed, asserted or threatened against the Company or involved the Company since its inception and a description of the resolution of any such matters, whether by litigation, settlement, consent decree or otherwise. The Company's use of personal information is consistent with the Company's privacy policies and applicable law. The Company has not had, to the Knowledge of each Member, any breach or compromises of its systems, network, computers or information. The Company has not made any express warranties in connection with the sale of its products and services except as may be set forth in any Contract listed on Disclosure Schedule 3.10(a) or in the Company's standard customer Contract (or contracts), a copy (or copies) of which has (have) been provided to Buyer.

• • 3.14 Labor Matters

There are no labor disputes, employee grievances or disciplinary actions pending or, to the Knowledge of each Member, threatened against or involving the Company or any person performing services for the Company. The Company and each Member has complied in all material respects with all applicable provisions of law relating to employment and employment practices, terms and conditions of employment, wages and hours including, without limitation, equal opportunity, workplace safety, workers' compensation and other similar laws. Neither the Company nor either Member is engaged in any unfair labor practice or has any liability for any arrears of wages or Taxes or penalties for failure to comply with any such provisions of law. Each employee, officer, contractor and consultant of the Company has executed the agreements described in Disclosure Schedule 3.14. Disclosure Schedule 3.14 lists the names and current compensation amounts of all employees and contractors of the Company. The Company has no, and will not incur any obligation or liability for, severance, back pay, or bonuses or other benefits owed or earned through, by virtue of, in connection with or otherwise relating to the Closing and the transactions required therefor by this Agreement. All employees of the Company are employed on an "at will" basis, are eligible to work and are lawfully employed in the United States.

• • 3.15 Employee Benefit Plans

    • • 3.15.1 Employee Benefit Plan Listing

Disclosure Schedule 3.15 contains a complete and accurate list of all Employee Benefit Plans. The Company does not have any agreement, arrangement, commitment or obligation, whether formal or informal, whether written or unwritten and whether legally binding or not, to create, enter into or contribute to any additional Employee Benefit Plan, or to modify or amend any existing Employee Benefit Plan. There has been no amendment, interpretation or other announcement (written or oral) by the Company or any other Person relating to, or change in participation or coverage under, any Employee Benefit Plan that, either alone or together with other such items or events, could materially increase the expense to the Company of maintaining or participating in such Employee Benefit Plan (or the Employee Benefit Plans taken as a whole) above the level of expense incurred by the Company with respect thereto for the most recent fiscal year included in the Financial Statements. None of the rights of the Company under any Employee Benefit Plan will be impaired in any way by this Agreement or the consummation of the transactions contemplated by this Agreement. The Company is not and has never been under common control with an Affiliate within the meaning of Section 4001(b)(1) of ERISA, or who with the Company would be treated as a single employer under Sections 414(b), (c), (m), (n) and (o) of the Code and related Treasury Regulations.

• • • • 3.15.2 Documents Provided

The Company has made available to Buyer true, correct and complete copies (or, in the case of unwritten Employee Benefit Plans, descriptions) of all of the Company's Employee Benefit Plans (and all amendments thereto), along with, to the extent applicable to the particular Employee Benefit Plan, copies of the following: (i) the last three annual reports (Form 5500 series) filed with respect to such Employee Benefit Plan; (ii) the most recent summary plan description, together with any summaries of material modifications related thereto, prepared for such Employee Benefit Plan; (iii) all contracts and agreements (and any amendments thereto) relating to such Employee Benefit Plan, including, without limitation, trust agreements, investment management agreements, annuity contracts, insurance contracts, bonds, indemnification agreements and service provider agreements; (iv) the most recent determination letter issued by the IRS with respect to such Employee Benefit Plan; (v) all written communications during the last three years relating to the amendment, creation or termination of such Employee Benefit Plan, or an increase or decrease in benefits, acceleration of payments or vesting or other events that could reasonably be expected to result in liability to such Company since the date of the most recently completed and filed annual report; (vi) all correspondence to or from any governmental entity or agency during the last three years relating to such Employee Benefit Plan; (vii) samples of all administrative forms currently in use, including, without limitation, all COBRA and HIPAA forms and notices; (viii) all coverage, nondiscrimination, top heavy and Code Section 415 tests performed with respect to such Employee Benefit Plan for the last three years; and (ix) notice of any material adverse change occurring with respect to such Employee Benefits Plan since the date of the most recently filed annual report for such Employee Benefit Plan.

• • • • 3.15.3 Compliance

With respect to each Employee Benefit Plan: (i) such Employee Benefit Plan is, and at all times since inception has been, maintained, administered, operated and funded in all material respects in accordance with its terms and in compliance with all applicable requirements of all applicable laws, statutes, orders, rules and regulations, including, without limitation, ERISA, COBRA, HIPAA and the Code; (ii) the Company, all other Persons (including, without limitation, all fiduciaries) have, at all times, to the Knowledge of the Members properly performed all of their duties and obligations (whether arising by operation of law or by contract) under or with respect to such Employee Benefit Plan, including, without limitation, all reporting, disclosure and notification obligations; (iii) all returns, reports and other information (including, without limitation, all Form 5500 series annual reports, together with all schedules and audit reports required with respect thereto) relating to such Employee Benefit Plan required to be filed with any governmental entity or agency have been accurately completed and timely and properly filed; (iv) all notices, statements, reports and other disclosure (including, without limitation, all summary plan descriptions) required to be given or made to participants in such Employee Benefit Plan or their beneficiaries have been accurately completed and timely and properly disclosed or provided; (v) none of the Company or, to the Knowledge of each Member, any fiduciary of such Employee Benefit Plan has engaged in any transaction or acted or failed to act in a manner that violates the fiduciary requirements of ERISA or any other applicable law; (vi) no transaction or event has occurred or is threatened or about to occur (including any of the transactions contemplated in or by this Agreement) that constitutes or could constitute a prohibited transaction under Section 406 or 407 of ERISA or under Section 4975 of the Code for which an exemption is not available; and (vii) the Company has not incurred, and to the Knowledge of each Member, there exists no condition or set of circumstances in connection with which the Company or Buyer could incur, directly or indirectly, any material liability or expense (except for routine contributions and benefit payments) under ERISA, the Code or any other applicable law, statute, order, rule or regulation, or pursuant to any indemnification or similar agreement, with respect to such Employee Benefit Plan.

• • • • 3.15.4 Qualification

Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code is, and at all times since inception has been, so qualified and its related trust is, and at all times since inception has been, exempt from taxation under Section 501(a) of the Code. Each such Employee Benefit Plan (i) is the subject of an unrevoked favorable determination letter from the IRS with respect to such Employee Benefit Plan's qualified status under the Code, as amended by the Tax Reform Act of 1986 and all subsequent legislation, (ii) has remaining a period of time under the Code or applicable Treasury regulations or IRS pronouncements in which to request, and to make any amendments necessary to obtain, such a letter from the IRS, or (iii) if reliance is permitted under IRS Announcement 2001-77, relies on the favorable opinion letter or advisory letter of the master, prototype or volume submitter plan sponsor of such Employee Benefit Plan. To the Knowledge of each Member, no fact exists or is reasonably expected by the Company to arise, that could adversely affect the qualification or exemption of any such Employee Benefit Plan or its related trust. No such E