MEMBERSHIP INTEREST PURCHASE AGREEMENT

LLC Membership Agreement

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CROCS, INC | HD PEARL, INC | JIBBITZ, LLC | JUNIPER HOLDING CORP | Zan Design & Associates

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Title: MEMBERSHIP INTEREST PURCHASE AGREEMENT
Governing Law: Delaware Date: 11/13/2006
Industry: Footwear Law Firm: Cooley Godward;Faegre Benson Sector: Consumer Cyclical

Exhibit 10.40

MEMBERSHIP INTEREST PURCHASE AGREEMENT

among

CROCS, INC.

and

THE MEMBERS OF JIBBITZ, LLC

September 29, 2006

TABLE OF CONTENTS

			Page
1.	Definitions		1
2.	Purchase and Sale of Membership Interests		7
	2.1	Basic Transaction	7
	2.2	Deposit	7
	2.3	Preliminary Purchase Price	7
	2.4	Closing	8
	2.5	Deliveries at Closing	8
	2.6	Closing Merger Equity Adjustment	8
	2.7	Earn-Out Accounts	10
	2.8	Payments	12
	2.9	Appointment of Member Agent	12
3.	Representations and Warranties Concerning Transaction		12
	3.1	Sellers’ Representations and Warranties	12
	3.2	Buyer’s Representations and Warranties	13
4.	Representations and Warranties Concerning Target		14
	4.1	Organization, Qualification, and Corporate Power	14
	4.2	Capitalization	14
	4.3	Non-Contravention	15
	4.4	Brokers’ Fees	15
	4.5	Title to Assets	15
	4.6	Subsidiaries	15
	4.7	Financial Statements	15
	4.8	Events Subsequent to Most Recent Fiscal Month End	15
	4.9	Undisclosed Liabilities	17
	4.10	Legal Compliance	17
	4.11	Tax Matters	18
	4.12	Real Property	20
	4.13	Intellectual Property	22
	4.14	Tangible Assets	24
	4.15	Inventory	24
	4.16	Contracts	24
	4.17	Notes and Accounts Receivable	26
	4.18	Powers of Attorney	26
	4.19	Insurance	26
	4.20	Litigation	26
	4.21	Product Warranty	26
	4.22	Product Liability	27
	4.23	Employees	27
	4.24	Employee Benefits	27
	4.25	Guaranties	28
	4.26	Environmental, Health, and Safety Matters	28
	4.27	Business Continuity	29

	4.28	Certain Business Relationships with Target	29
	4.29	Customers and Suppliers	29
5.	Pre-Closing Covenants		29
	5.1	General	29
	5.2	Notices and Consents	30
	5.3	Operation of Business	30
	5.4	Preservation of Business	30
	5.5	Access	30
	5.6	Notice of Developments	30
	5.7	Exclusivity	31
	5.8	Tax Matters	31
	5.9	Buyer Covenant Not to Compete	32
	5.10	Tax-Sharing Agreements	32
6.	Post-Closing Covenants		32
	6.1	General	32
	6.2	Transition	32
	6.3	Confidentiality	32
	6.4	Covenant Not to Compete	33
	6.5	Consulting Payment. The Parties covenant and agree that, with respect to any Earn-Out Payments, prior to making any distributions in accordance with the Earn-Out Allocations, Buyer shall pay the first 2.5% of any such Earn-Out Payment to Zan Design & Associates in consideration for consulting services performed by Zan Design & Associates. Thereafter, the remainder will be distributed in accordance with the Earn-Out Allocations as specified in Section 2.7(b). 6.6 Responsibility for Filing Tax Returns and Payment of Taxes	33
	6.6	Cooperation on Tax Matters	34
7.	Conditions to Obligation to Close		35
	7.1	Conditions to Buyer’s Obligation	35
	7.2	Conditions to Sellers’ Obligation	36
8.	Remedies for Breaches of this Agreement		37
	8.1	Survival of Representations and Warranties	37
	8.2	Indemnification Provisions for Buyer’s Benefit	37
	8.3	Indemnification Provisions for Sellers’ Benefit	38
	8.4	Matters Involving Third Parties	38
	8.5	Determination of Adverse Consequences	40
	8.6	Release	40
	8.7	Purchase Price Adjustment	40
10.	Termination		40
	10.1	Termination of Agreement	40
	10.2	Effect of Termination	40
11.	Miscellaneous		41
	11.1	Nature of Sellers’ Obligations	41
	11.2	Press Releases and Public Announcements	41
	11.3	No Third-Party Beneficiaries	41
	11.4	Entire Agreement	42
	11.5	Succession and Assignment	42
	11.6	Counterparts	42
	11.7	Headings	42
	11.8	Notices	42
	11.9	Governing Law	43
	11.10	Amendments and Waivers	43
	11.11	Severability	43
	11.12	Expenses	43
	11.13	Relationship	44
	11.14	Construction	44
	11.15	Incorporation of Exhibits, Annexes, and Schedules	44
	11.16	Specific Performance	44
	11.17	Submission to Jurisdiction	44

Exhibit A Form of Endorsement Agreement

Exhibit B Form of Escrow Agreement

Exhibit C Financial Statements

Exhibit D-1 Employment Agreement with Rich Schmelzer

Exhibit D-2 Employment Agreement with Sheri Schmelzer

MEMBERSHIP INTEREST PURCHASE AGREEMENT

This Membership Interest Purchase Agreement (this “ Agreement ”) is entered into on September 29, 2006, by and among CROCS, Inc., a Delaware corporation (“ Buyer ”), each of the parties listed as “Sellers” on the signature pages hereto (each a “ Seller ” and collectively, “ Sellers ”), and Rich Schmelzer, as Member Agent (as hereinafter defined). Buyer, Sellers and Member Agent are referred to collectively herein as the “ Parties ”.

Sellers in the aggregate own all of the outstanding Membership Interests of Jibbitz, LLC, a Colorado limited liability company (“ Target ”).

This Agreement contemplates a transaction in which Buyer will purchase from Sellers, and Sellers will sell to Buyer, all of the outstanding membership interests of Target in return for cash and the other consideration described herein.

For United States federal income tax purposes, the parties intend to treat the purchase of Target membership interests as a transaction covered under Revenue Ruling 99-6.

Concurrently with the execution of this Agreement, Buyer and Target are entering into the Endorsement Agreement.

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

1. Definitions .

“ Accountant ” has the meaning set forth in Section 2.6 below.

“ Acceleration Event ” has the meaning set forth in Section 2.7(d) below.

“ Acquisition Proposal ” has the meaning set forth in Section 5.7 below.

“ Act ” has the meaning set forth in Section 4.1 below.

“ Affiliate ” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

“ Affiliated Group ” means any affiliated group within the meaning of Code §1504(a) or any similar group defined under a similar provision of state, local or foreign law.

“ Basis ” means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence.

“ Buyer ” has the meaning set forth in the preface above.

“ Buyer Material Adverse Effect ” means any effect or change with respect to Buyer or its business that would be (or could reasonably be expected to be) materially adverse to the ability of Buyer to make the Earn-Out Payment or of Sellers to earn the Earn-Out Payment, or to the ability of Buyer to consummate timely the transactions contemplated hereby (regardless of whether any Seller has knowledge of such effect or change on the date hereof) ; provided, however, that none of the following shall be deemed, either alone or in combination, to constitute a Buyer Material Adverse Effect: (i) any adverse effect (including any loss of employees, any cancellation of or delay in customer orders, any litigation or any disruption in supplier, partner or similar relationships) proximately resulting from or arising out of the announcement or pendency of this Agreement and the transactions contemplated hereby (except for any adverse effect resulting from a breach by Buyer of a representation, warranty or covenant hereunder); (ii) any adverse effect resulting from or arising out of changes in general economic conditions; (iii) any adverse effect resulting from or arising out of changes generally affecting the industry in which Buyer operates provided that such changes do not affect Buyer in a materially disproportionate manner; (iv) any adverse effect resulting from or arising out of any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof; or (v) any adverse effect resulting from or arising out of changes in GAAP or applicable laws, rules or regulations.

“ Cash Payment Increase ” has the meaning set forth in Section 2.6 below.

“ Cash Payment Decrease ” has the meaning set forth in Section 2.6 below.

“ Closing ” has the meaning set forth in Section 2.4 below.

“ Closing Date ” has the meaning set forth in Section 2.4 below.

“ Closing Date Balance Sheet ” has the meaning set forth in Section 2.6 below.

“ Closing Member Equity ” has the meaning set forth in Section 2.6 below.

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

“ Confidential Information ” means any information concerning the businesses and affairs of Target that is not already generally available to the public.

“ Conflict ” has the meaning set forth in Section 3.1(c) below.

“ Controlled Group ” has the meaning set forth in Code §1563.

“ Deposit ” has the meaning set forth in Section 2.2 below.

“ Disclosure Schedule ” has the meaning set forth in Section 4 below.

“ Draft Closing Date Balance Sheet ” has the meaning set forth in Section 2.6 below.

“ Earn-Out Payment ” has the meaning set forth in Section 2.7 below.

“ EBIT ” means the earnings of Target before interest and taxes determined in accordance with the accounting policies of Buyer consistently applied.

“ Employee Benefit Plan ” mean any “employee benefit plan” (as such term is defined in ERISA §3(3)) and any other employee benefit plan, program or arrangement of any kind.

“ Employee Pension Benefit Plan ” has the meaning set forth in ERISA §3(2).

“ Employee Welfare Benefit Plan ” has the meaning set forth in ERISA §3(1).

“ Employment Agreements “ has the meaning set forth in Section 7.1 below.

“ Endorsement Agreement ” means the agreement in the form attached hereto as Exhibit A .

“ Environmental, Health, and Safety Requirements ” shall mean, as amended and as now and hereafter in effect, all federal, state, local, and foreign statutes, regulations, ordinances, and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations, and all common law concerning public health and safety, worker health and safety, pollution, or protection of the environment, including, without limitation, all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances, or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise, or radiation.

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

“ Escrow Agreement ” has the meaning set forth in Section 2.2 below.

“ Financial Statements ” has the meaning set forth in Section 4.7 below.

“ FIRPTA Affidavit ” has the meaning set forth in Section 7.1 below.

“ Force Majeure Event ” has the meaning set forth in Section 4.27 below.

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

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

“ Improvements ” has the meaning set forth in Section 4.12 below.

“ Indemnified Party ” has the meaning set forth in Section 8.4 below.

“ Indemnifying Party ” has the meaning set forth in Section 8.4 below.

“ Intellectual Property ” means all of the following in any jurisdiction throughout the world: (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade names, corporate names, Internet domain names, and rights in telephone numbers, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including source code, executable code, data, databases, and related documentation), (g) all advertising and promotional materials, (h) all other proprietary rights, and (i) all copies and tangible embodiments thereof (in whatever form or medium).

“ Knowledge ” means actual knowledge.

“ Lease Consents ” has the meaning set forth in Section 7.1 below.

“ Leased Real Property ” means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by Target.

“ Leases ” means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto, pursuant to which Target holds any Leased Real Property, including the right to all security deposits and other amounts and instruments deposited by or on behalf of Target thereunder.

“ Liability ” means any liability or obligation of whatever kind or nature (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.

“ License ” means any license, sublicense, agreement, or permission with respect to the Intellectual Property of any Person.

“ Lien ” means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) liens for Taxes not yet due and payable, (b) purchase money liens and liens securing rental payments under capital lease arrangements, and (c) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money .

“ Loss ” or “ Losses ” means all claims, losses, Liabilities, damages, costs, interest, awards, judgments, penalties, reasonable amounts paid in settlement, and expenses, including

court costs and reasonable attorneys’ and consultants’ fees and expenses, net of actual insurance recoveries.

“ Material Adverse Effect ” or “ Material Adverse Change ” means any effect or change with respect to Target or its business that would be (or could reasonably be expected to be) materially adverse to the business, assets, condition (financial or otherwise), operating results or operations of Target, or to the ability of Sellers to consummate timely the transactions contemplated hereby (regardless of whether Buyer has knowledge of such effect or change on the date hereof) ; provided, however, that none of the following shall be deemed, either alone or in combination, to constitute a Material Adverse Effect: (i) any adverse effect (including any loss of employees, any cancellation of or delay in customer orders, any litigation or any disruption in supplier, partner or similar relationships) proximately resulting from or arising out of the announcement or pendency of this Agreement and the transactions contemplated hereby (except for any adverse effect resulting from a breach by any Seller of a representation, warranty or covenant hereunder); (ii) any adverse effect resulting from or arising out of changes in general economic conditions; (iii) any adverse effect resulting from or arising out of changes generally affecting the industry in which Target operates provided that such changes do not affect Target in a materially disproportionate manner; (iv) any adverse effect resulting from or arising out of any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof; or (v) any adverse effect resulting from or arising out of changes in GAAP or applicable laws, rules or regulations.

“ Member Agent ” means agent appointed by the Sellers pursuant to Section 2.9 below.

“ Member Equity ” means (a) total assets minus (b) total liabilities (including accrued compensation for paid time off and all fees and expenses of the Sellers in connection with the transactions contemplated by the Agreement).

“ Membership Interests ” means the membership interests of Target.

“ Most Recent Balance Sheet ” has the meaning set forth in Section 4.7 below.

“ Most Recent Fiscal Month End ” has the meaning set forth in Section 4.7 below.

“ Objection Report ” has the meaning set forth in Section 2.6 below.

“ Ordinary Course of Business ” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

“ Owned Real Property ” means all land, together with all buildings, structures, improvements, and fixtures located thereon, including all electrical, mechanical, plumbing and other building systems, fire protection, security and surveillance systems, telecommunications, computer, wiring, and cable installations, utility installations, water distribution systems, and landscaping, together with all easements and other rights and interests appurtenant thereto (including air, oil, gas, mineral, and water rights), owned by Target.

“ Party ” has the meaning set forth in the preface above.

“ Percentage Ownership Amounts ” has the meaning set forth in Section 2.3 below.

“ Period 1 ” has the meaning set forth in Section 2.7 below.

“ Period 2 ” has the meaning set forth in Section 2.7 below.

“ Period 3 ” has the meaning set forth in Section 2.7 below.

“ Person ” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other business entity, or a governmental entity (or any department, agency, or political subdivision thereof).

“ Pre-Closing Tax Period ” means taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date.

“ Preliminary Purchase Price ” has the meaning set forth in Section 2.3 below.

“ Purchase Price ” shall mean the aggregate of the Preliminary Purchase Price and any Earn-Out Payment pursuant to Section 2.7 hereof.

“ Real Property ” has the meaning set forth in Section 4.12 below.

“ Real Property Laws ” has the meaning set forth in Section 4.12 below.

“ Real Property Permits ” has the meaning set forth in Section 4.12 below.

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Seller ” has the meaning set forth in the preface above.

“ Subsidiary ” means, with respect to any Person, any corporation, limited liability company, partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company, partnership, association, or other business entity (other than a corporation), a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons own a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director or general

partner of such business entity (other than a corporation). The term “Subsidiary” shall include all Subsidiaries of such Subsidiary.

“ Systems ” has the meaning set forth in Section 4.27 below.

“ Target ” has the meaning set forth in the preface above.

“ Tax ” or “ Taxes ” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

“ Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“ Third-Party Claim ” has the meaning set forth in Section 8.4 below.

2. Purchase and Sale of Membership Interests .

2.1 Basic Transaction . On and subject to the terms and conditions of this Agreement, Buyer agrees to purchase from each Seller, and each Seller agrees to sell to Buyer, all of his or her or its Membership Interests for the consideration specified below in this Section 2.

2.2 Deposit . Concurrently with the execution of this Agreement, Buyer is delivering to Sellers a deposit of $2,000,000 (the “ Deposit ”) by wire transfer or delivery of other immediately available funds. The Deposit shall be held by U.S. Bank National Association, as escrow agent, pursuant to the terms of the Escrow Agreement of even date herewith (the “ Escrow Agreement ”), a copy of which is attached hereto as Exhibit B. The Deposit and any interest or other income thereon shall either be credited toward the cash payment to Sellers at Closing, forfeited to Sellers, or refunded to Buyer upon the occurrence of certain events described in this Agreement. For income tax purposes, the Deposit shall be treated as owned by Buyer during the escrow period, and all interest or other income earned on the Deposit under the Escrow Agreement shall be treated as taxable income of Buyer and shall be reported as such to the Internal Revenue Service and other taxing authorities. The parties agree to treat the Deposit and the Escrow Agreement consistently with the foregoing for all tax reporting purposes.

2.3 Preliminary Purchase Price . Buyer agrees to pay to Sellers at the Closing $10,000,000 (the “ Preliminary Purchase Price ”) by (1) delivery of cash equal to the difference of Preliminary Purchase Price less the amount of the Deposit and any interest or other income earned on the Deposit and (2) release of the Deposit and any interest or other income earned on the Deposit. The Preliminary Purchase Price shall be allocated among Sellers in accordance with

the percentages set forth on Schedule 2.3 hereof (the “ Percentage Ownership Amounts ”). The Preliminary Purchase Price shall be subject to post-Closing adjustment as set forth in Section 2.6.

2.4 Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Faegre & Benson LLP, in Boulder, Colorado, commencing at 9:00 a.m. local time on the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as Buyer and Member Agent may mutually determine (the “ Closing Date ”); provided , however , that the Closing Date shall be no earlier than December 1, 2006.

2.5 Deliveries at Closing . At the Closing, (i) Sellers will deliver to Buyer the various certificates, instruments, and documents referred to in Section 7.1 below, (ii) Buyer will deliver to Sellers the various certificates, instruments, and documents referred to in Section 7.2 below, (iii) Buyer will deliver to each Seller the consideration specified in Section 2.2 above and (iv) Buyer shall (x) repay all amounts outstanding under Target’s line of credit with Waymire Trading Co. (in an amount not to exceed $1.5 million); (y) repay all outstanding notes payable to the Sellers; and (z) pay to Sellers all accrued distributions as of the Closing Date.

2.6 Closing Merger Equity Adjustment .

(a) On or before March 31, 2007, Buyer shall prepare and deliver to Member Agent a draft balance sheet (the “ Draft Closing Date Balance Sheet ”) as of the close of business on the Closing Date (determined on a pro forma basis as though the Parties had not consummated the transactions contemplated by this Agreement). The Draft Closing Date Balance Sheet shall be prepared in accordance with GAAP applied on a basis consistent with the preparation of the Financial Statements; provided, however, that assets, liabilities, gains, losses, revenues, and expenses in interim periods or as of dates other than year-end (which normally are determined through the application of so-called interim accounting conventions or procedures) shall be determined, for purposes of the Draft Closing Date Balance Sheet, through full application of the procedures used in preparing the Most Recent Balance Sheet. The Draft Closing Date Balance Sheet shall provide sufficient detail as is reasonably necessary to confirm the calculations therein.

(b) If Member Agent objects to the Draft Closing Date Balance Sheet, any such objections shall be set forth in reasonable detail in a report (the “ Objection Report ”) that shall be delivered to Buyer within 15 days after receipt of the Draft Closing Date Balance Sheet that shall indicate the grounds upon which Member Agent disputes that the Draft Closing Date Balance Sheet has been prepared in accordance herewith. Any such Objection Report shall specify those items or amounts as to which Member Agent disagrees, and Sellers shall be deemed to have agreed with all other items and amounts contained in the Draft Closing Date Balance Sheet.

(c) Within 15 calendar days of the receipt by Buyer of the Objection Report, Buyer and Member Agent shall endeavor to agree on any items or amounts in dispute.

(d) If Buyer and Member Agent are unable to agree on any matters in dispute within 15 calendar days after receipt by Buyer of the Objection Report, then, within 15 days of the expiration of such 15-day period, the items or amounts in dispute will be submitted for resolution to a nationally recognized independent accounting firm mutually acceptable to Buyer and Member Agent (the “ Accountant ”). If Buyer and Member Agent are unable to select an independent accountant acceptable to each of them within such 15-day period, then each of Buyer and Member Agent shall select a nationally recognized independent accounting firm acceptable to such Party, and such accounting firms shall mutually select a third national nationally recognized independent accounting firm to serve as the Accountant. The Accountant shall, within 30 calendar days of such submission of the items or amounts in dispute, make a final determination of the items or amounts in dispute, and the Accountant’s determination shall be within the range of the amounts shown on the Draft Closing Date Balance Sheet and the amounts of the disputed items shown on the Objection Report. The Accountant shall issue a written report to Buyer and Member Agent setting forth the Accountant’s determination(s), and such resolution and such written decision shall be final and binding upon Buyer and Member Agent. Buyer and Member Agent agree that the procedure set forth in this Section 2.6 for resolving disputes with respect to the Draft Closing Date Balance Sheet shall be the sole and exclusive method for resolving any such disputes; provided that this provision shall not prohibit Buyer or Member Agent from instituting litigation to enforce the ruling of the Accountant. Buyer and Member Agent shall cooperate to enable the Accountant to render a written decision as promptly as possible. Buyer and Member Agent shall share the fees and expenses of the Accountant in the same proportion as the dollar amount of the disputed items or amounts that are not resolved in favor of Buyer or Seller (as applicable) bears to the total dollar amount of the items or amounts in dispute that are submitted to the Accountant.

(e) “ Closing Date Balance Sheet ” means (i) the Draft Closing Date Balance Sheet if no Objection Report is provided by Member Agent within the period set forth in Section 2.6(b); or (ii) if an Objection Report is provided by Member Agent within the period set forth in Section 2.6(b), the Draft Closing Date Balance Sheet with such changes as are agreed by Buyer and Member Agent pursuant to Section 2.6(c) or with such changes as are determined by the Accountant pursuant to Section 2.6(d).

(f) If the Member Equity of Target as of the close of business on the Closing Date as set forth on the Closing Date Balance Sheet (the “ Closing Member Equity ”) is less than $400,000, the Purchase Price shall be reduced by an amount equal to the amount of such difference (the “ Cash Payment Decrease ”), and the Cash Payment Decrease shall be paid to Buyer by Sellers in accordance with the percentages set forth on Schedule 2.6 hereof within 10 business days after the date of receipt by Buyer and Member Agent of the Draft Closing Date Balance Sheet (or date of final determination in the case of a dispute).

(g) If the Closing Member Equity is greater than $400,000, the Purchase Price shall be increased by an amount equal to such difference (the “ Cash Payment Increase ”), and the Cash Payment Increase shall be paid by Buyer to Sellers in accordance with the percentages set forth on Schedule 2.6 hereof within 10 business days

after the date of receipt by Buyer and Member Agent of the Closing Date Balance Sheet (or date of final determination in the case of a dispute).

2.7 Earn-Out Accounts .

(a) Subject to the other paragraphs of this Section 2.7, the Purchase Price shall be subject to the following adjustments (collectively, the “ Earn-Out Payment ”):

(i) If EBIT for the period commencing on Closing and ending on the earlier of: (x) the satisfaction of the $12,500,000 Earn-Out Payment milestone described in paragraph 2.7(a)(i)(B) below and (y) the close of business on December 31, 2007 (“ Period 1 ”):

(A) is equal to or greater than $10,000,000 but less than $12,500,000, the Purchase Price shall be increased by an amount equal to 32% of EBIT for Period 1; or

(B) is equal to or greater than $12,500,000, the Purchase Price shall be increased by an amount equal to $3,333,333.

(ii) If EBIT for the period commencing at the ending of Period 1 and ending on the earlier of: (x) the satisfaction of the $15,625,000 Earn-Out Payment milestone described in paragraph 2.7(a)(ii)(B) below and (y) the close of business on the date that is one year following the end of Period 1 (“ Period 2 ”):

(A) is equal to or greater than $12,500,000 but less than $15,625,000, the Purchase Price shall be increased by an amount equal to 25.6% of EBIT for Period 2; or

(B) is equal to or greater than $15,625,000, the Purchase Price shall be increased by an amount equal to $3,333,333.

(iii) If EBIT for the period commencing at the ending of Period 2 and ending on the earlier of: (x) the satisfaction of the $15,625,000 Earn-Out Payment milestone described in paragraph 2.7(a)(iii)(B) below and (y) the close of business on the date that is one year following the end of Period 2 (“ Period 3 ”):

(A) is equal to or greater than $15,625,000 but less than $19,531,000, the Purchase Price shall be increased by an amount equal to 20.5% of EBIT for Period 3; or

(B) is equal to or greater than $19,531,000, the Purchase Price shall be increased by an amount equal to $3,333,333.

(b) Earn-Out Allocations . Subject to Section 6.5, any portion of the Earn-Out Payment that is due with respect to Period 1, Period 2 or Period 3 will be paid by Buyer to those Persons (the “ Earn-Out Recipients ”) and in accordance with the

percentages set forth on Schedule 2.7 hereof (the “ Earn-Out Allocations ”) by wire transfer or delivery of other immediately available funds within thirty (30) days following the completion of the calendar quarter in which such Earn-Out Payment milestone is achieved. The maximum amount of the Earn-Out Payment under this Section 2.7 is $10,000,000.

(c) Operational Covenants .

(i) Target Operational Covenants . Until the earlier of the end of Year 3 or the date on which the Earn-Out Payment that has been made by Buyer is $10,000,000, Rich Schmelzer and Sheri Schmelzer shall cause Target to operate its business in good faith and in a manner consistent with reasonable business practices and with its operations prior to the date hereof unless Target directs Rich Schmelzer and Sheri Schmelzer to change its business operations or practices.

(ii) Buyer Operational Covenants . Until the earlier of the end of Period 3 or the date on which the Earn-Out Payment that has been made by Buyer is $10,000,000, Buyer shall not, without consent of the Member Agent, require that any current or future customers of Target carry Buyer’s products as a condition to carrying and selling Target’s products (the “ Customer Covenant ”). If at any time prior to the end of Period 3, neither Rich Schmelzer nor Sheri Schmelzer is employed by Target, Buyer thereafter shall no longer be obligated to comply with this Section 2.7(c)(ii).

(d) Acceleration of Earn-Out Payments . Except as set forth in Section 2.7(e), upon the occurrence of an Acceleration Event, Buyer will pay to Earn-Out Recipients in accordance with the Earn-Out Allocations, within thirty (30) days of such Acceleration Event, an amount equal to $10,000,000 less the Earn-Out Payments made to date, whether or not the milestones associated with the Earn-Out Payments have been achieved. For purposes hereof, an “ Acceleration Event ” shall mean (i) the termination of the employment of either Rich Schmelzer or Sheri Schmelzer by Buyer (or any subsidiary or other affiliate of Buyer) without “Cause” or the resignation of either Rich Schmelzer or Sheri Schmelzer of employment with Buyer (or any subsidiary or other affiliate of Buyer) with “Good Reason”, as such terms are defined in the respective Employment Agreements or (ii) the occurrence of breach of the Customer Covenant.

(e) Breach of Operational Covenants . Notwithstanding anything herein to the contrary,

(i) in the event Rich Schmelzer or Sheri Schmelzer cause Target to breach in any material respect the covenant set forth in Section 2.7(c)(i) and fail to cure such breach within 10 days following Member Agent’s receipt of written notice thereof by Buyer, Buyer shall have the right (but not the obligation) to take any and all action to remedy the breach and mitigate the consequences of the breach;

(ii) in the event Buyer causes Buyer to breach in any material respect the covenant set forth in Section 2.7(c)(ii) and fails to cure such breach

within 10 days following Buyer’s receipt of written notice thereof by the Member Agent, Sellers shall have the right (but not the obligation) to take any and all action to remedy the breach and mitigate the consequences of the breach.

2.8 Payments . Any payments required under this Section 2 shall be made by wire transfer or in other immediately available funds.

2.9 Appointment of Member Agent . Each Seller hereby appoints Rich Schmelzer as its agent and attorney in fact to take any and all actions on behalf of the Seller under this Agreement. The Member Agent shall be entitled to rely on such appointment, and each Seller hereby releases and agrees to indemnify and hold harmless the Member Agent from any liability resulting from the Member Agent’s reliance on such appointment in accordance with their respective Percentage Ownership Amounts.

3. Representations and Warranties Concerning Transaction .

3.1 Sellers’ Representations and Warranties . Each Seller represents and warrants to Buyer as follows:

(a) Organization of Certain Sellers . Seller (if a corporation or other entity) is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or other formation.

(b) Authorization of Transaction . Seller has full power and authority (including full power and authority) to execute and deliver this Agreement and to perform his, her, or its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Seller, enforceable in accordance with its terms and conditions except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors rights generally and laws relating to the availability of specific performance, injunctive relief or other equitable remedies. Except as has been obtained prior to the date hereof, Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. The execution, delivery, and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by Seller.

(c) Non-Contravention . Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller is subject or, if Seller is an entity, any provision of its charter, bylaws, or other governing documents, (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel (any such event, a “ Conflict ”), or require any notice that has not been given as of the date of this Agreement under any agreement, contract, lease, license, instrument, or other arrangement to which Seller is a party or by which he, she, or it is

bound or to which any of his, her, or its assets are subject, or (C) result in the imposition or creation of a Lien upon or with respect to the Membership Interests.

(d) Brokers’ Fees . Neither Seller nor any of its Affiliates has any Liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

(e) Membership Interests . Seller holds of record and owns beneficially the Membership Interests set forth next to his, her, or its name in Section 4.2 of the Disclosure Schedule, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. Seller is not a party to any option, warrant, purchase right, or other contract or commitment (other than this Agreement) that could require Seller to sell, transfer, or otherwise dispose of any membership interests or equity interests, or any voting or economic right therein, of Target. Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any membership interests or equity interests of Target.

3.2 Buyer’s Representations and Warranties . Buyer represents and warrants to Sellers as follows:

(a) Organization of Buyer . Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.

(b) Authorization of Transaction . Buyer has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms and conditions except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors rights generally and laws relating to the availability of specific performance, injunctive relief or other equitable remedies. Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. The execution, delivery, and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by Buyer.

(c) Non-Contravention . Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Buyer is subject or any provision of its charter, bylaws, or other governing documents or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or

other arrangement to which Buyer is a party or by which it is bound or to which any of its assets are subject.

(d) Brokers’ Fees . Buyer has no Liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which any Seller could become liable or obligated.

(e) Cash Resources . Buyer has sufficient cash resources to pay any amounts owed pursuant to Sections 2.6 and 2.7 hereunder.

4. Representations and Warranties Concerning Target . Sellers jointly and severally represent and warrant to Buyer, subject to such exceptions as are disclosed in the disclosure schedule delivered by Sellers to Buyer on the date hereof and initialed by the Parties (the “ Disclosure Schedule ”) (it being understood that the Disclosure Schedule shall qualify (a) the representations and warranties set forth in the corresponding sections and subsections of this Section 4 and (b) any other representations and warranties of this Section 4 if and solely to the extent that it is readily apparent on the fact of such disclosure (without reference to the documents referenced therein) that it applies to such other representations and warranties), as follows:

4.1 Organization, Qualification, and Corporate Power . Target is a limited liability company duly organized, validly existing and in good standing under the laws of Colorado. Target is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the failure to be so qualified or in good standing would not reasonably be expected to have a Material Adverse Effect. Target has full power and authority and all licenses, permits, and authorizations necessary to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. Section 4.1 of the Disclosure Schedule lists the managers and officers of Target. Sellers have delivered to Buyer correct and complete copies of the Articles of Organization and Operating Agreement for Target, each as amended to date. Target is governed by the Colorado Limited Liability Company Act, as amended (the “ Act ”). The membership interest record books for Target are correct and complete. Target is not in default under or in violation of any provision of its Articles of Organization or Operating Agreement.

4.2 Capitalization . The Membership Interests constitute the entire outstanding membership interests of Target. All of the issued and outstanding Membership Interests have been duly authorized. Sellers collectively hold all of the issued Membership Interests, and the Membership Interests are held of record by the respective Sellers as set forth in Section 4.2 of the Disclosure Schedule. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Target to issue, sell, or otherwise cause to become outstanding any of its Membership Interests, or any equity or voting right therein component thereof. There are no outstanding or authorized equity appreciation, phantom interest, profit participation, or similar rights with respect to Target. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the Membership Interests of Target.

4.3 Non-Contravention . Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Target is subject or any provision of the Articles of Organization or Operating Agreement of Target, each as amended to date, or (ii) result in any Conflict or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Target is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Lien upon any of its assets), except where such Conflict or failure to give notice would not reasonably be expected to have a Material Adverse Effect. Target need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement, except where the failure to give notice, to file, or to obtain any authorization, consent or approval would reasonably be expected to have a Material Adverse Effect.

4.4 Brokers’ Fees . Neither Target nor its Affiliates has any Liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

4.5 Title to Assets . Target has good and marketable title to, or a valid leasehold interest in, the properties and assets used by it, located on its premises, or shown on the Financial Statements or acquired after the date thereof, free and clear of all Liens, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Financial Statements.

4.6 Subsidiaries . Target does not have any Subsidiaries and does not own or have any right to acquire, directly or indirectly, any outstanding capital stock of, or other equity interests in, any Person.

4.7 Financial Statements . Attached hereto as Exhibit C are the following financial statements (collectively the “ Financial Statements ”): (i) unaudited balance sheet and statement of income as of and for the fiscal year ended on December 31, 2005 for Target; and (ii) unaudited balance sheet (the “ Most Recent Balance Sheet ”) and statement of income (the “ Most Recent Income Statement ”) as of and for the six months ended June 30, 2006 (the “ Most Recent Fiscal Month End ”) for Target. The Financial Statements present fairly in all material respects the financial condition of Target as of such date and the results of operations of Target for such period, are correct and complete, and are consistent with the books and records of Target (which books and records are correct and complete).

4.8 Events Subsequent to Most Recent Fiscal Month End . Since the Most Recent Fiscal Month End, there has not been any Material Adverse Change. Without limiting the generality of the foregoing, between the date of the Most Recent Fiscal Month End and the date of this Agreement:

(a) Target has not sold, leased, transferred, or assigned any of its material assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business;

(b) Target has not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) outside the Ordinary Course of Business or involving a future payment after the date of this Agreement in excess of $50,000;

(c) no party (including Target) has accelerated, terminated, made a material modification to, or cancelled any material agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses);

(d) Target has not imposed any Liens upon any of its assets, tangible or intangible;

(e) Target has not made any capital expenditure (or series of related capital expenditures) in excess of $50,000 in the aggregate;

(f) Target has not made any capital investment in, any loan or advances of money to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) outside the Ordinary Course of Business;

(g) Target has not created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation involving more than $50,000 in the aggregate, except for trade payables and advances to employees for travel and business expenses in the Ordinary Course of Business;

(h) Target has not delayed or postponed the payment of accounts payable and other Liabilities outside the Ordinary Course of Business;

(i) Target has not cancelled, compromised, waived, or released any material right or claim (or series of material related rights and claims) either involving more than $50,000 or outside the Ordinary Course of Business;

(j) Target has not transferred, assigned, or granted any License of any rights under or with respect to any Intellectual Property;

(k) there has been no change made or authorized in the Articles of Organization or Operating Agreement of Target;

(l) Target has not issued, sold, or otherwise disposed of any of its membership interests, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its Membership Interests, or any voting or economic interests therein;

(m) Target has not declared, set aside, or paid any dividend or made any distribution or return of capital with respect to its Membership Interests (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its membership interests;

(n) Target has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property;

(o) Target has not made any loan to, or entered into any other transaction with, any of its managers, officers, and employees outside the Ordinary Course of Business;

(p) Target has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement;

(q) Target has not granted any increase in the base compensation of any of its managers, officers or employees outside the Ordinary Course of Business;

(r) Target has not adopted, amended, modified, or terminated any bonus, profit sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its managers, officers or employees;

(s) Target has not changed any employment terms for any of its managers, officers or employees outside the Ordinary Course of Business;

(t) Target has not made or pledged to make any charitable or other capital contribution outside the Ordinary Course of Business;

(u) there has not been any other material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving Target;

(v) Target has not discharged a material Liability or Lien outside the Ordinary Course of Business; and

(y) Target has not committed to do any of the foregoing.

4.9 Undisclosed Liabilities . Target does not have any material Liability of any nature required to be reflected on or reserved against in financial statements that are prepared in accordance with GAAP except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet; (ii) Liabilities that have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any material breach of contract, material breach of warranty, tort, infringement, or material violation of law) or (iii) legal and accounting fees and expenses incurred by Target in connection with the execution of this Agreement.

4.10 Legal Compliance . Target has complied, to the Knowledge of any Seller, with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder and including the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq.) of federal, state, local, and foreign governments (and all agencies thereof), except to the extent

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