-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SFp15LOJu1z3UPfrTe4SV8plaCFOyRofD42ZTUHBkW10G6/MfUXQhajfoNyDv+aU HaJxPDr2LEfP6hpxIRCD5Q== 0000930413-05-001104.txt : 20050223 0000930413-05-001104.hdr.sgml : 20050223 20050223171608 ACCESSION NUMBER: 0000930413-05-001104 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20050217 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050223 DATE AS OF CHANGE: 20050223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INCENTRA SOLUTIONS, INC. CENTRAL INDEX KEY: 0001025707 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 860793960 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-32913 FILM NUMBER: 05635079 BUSINESS ADDRESS: STREET 1: 1140 PEARL STREET CITY: BOULDER STATE: CO ZIP: 80302 BUSINESS PHONE: 303-449-8279 MAIL ADDRESS: STREET 1: 1140 PEARL STREET CITY: BOULDER STATE: CO ZIP: 80302 FORMER COMPANY: FORMER CONFORMED NAME: FRONT PORCH DIGITAL INC DATE OF NAME CHANGE: 20000705 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE COMMUNICATIONS CORP DATE OF NAME CHANGE: 19980327 FORMER COMPANY: FORMER CONFORMED NAME: LITIGATION ECONOMICS INC DATE OF NAME CHANGE: 19961022 8-K 1 c35715_8k.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------- DATE OF REPORT: FEBRUARY 17, 2005 (Date of earliest event reported) INCENTRA SOLUTIONS, INC. (Exact name of Registrant as specified in its charter) NEVADA (State or other jurisdiction of incorporation) 333-16031 86-0793960 (Commission File No.) (I.R.S. Employer Identification No.) 1140 PEARL STREET BOULDER, COLORADO 80302 (Address of principal executive offices; zip code) (303) 440-7930 (Registrant's telephone number, including area code) N/A (Former Name or Former Address, if changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (SEE General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13-4(e) under the Exchange Act (17 CFR 240.13e-4(c)) SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. (a) In connection with the closing of our acquisition of all of the outstanding capital stock of STAR Solutions of Delaware, Inc., a Delaware corporation, as discussed in Item 2.01 below, on February 18, 2005, we, along with one of our subsidiaries, entered into several material agreements. The material agreements include an agreement and plan of merger, a $2,500,000 convertible promissory note, a registration rights agreement, an employment agreement and a consulting agreement. The descriptions of such agreements contained in Item 2.01 below are incorporated herein by reference. (b) On February 18, 2005, STAR Solutions of Delaware, Inc., one of our wholly-owned subsidiaries ("New SSI"), obtained a revolving line of credit from Wells Fargo Bank, N. A. ("Wells Fargo"), which provides for borrowings, from time to time until March 1, 2007, of up to $5,000,000. In connection with the line of credit, on February 18, 2005, New SSI entered into a credit agreement (the "Credit Agreement") with Wells Fargo and executed in favor of Wells Fargo a revolving line of credit note (the "LOC Note"), a continuing security agreement (rights to payment and inventory) ("Security Agreement #1") and a security agreement (equipment) ("Security Agreement #2, and collectively with Security Agreement #1, the "Security Agreements"). The Credit Agreement, the LOC Note and the Security Agreements are collectively referred to as the "Loan Documents." Pursuant to the Credit Agreement, the maximum principal amount of all borrowings under the line of credit cannot exceed 80% of New SSI's eligible accounts receivable. The Credit Agreement further provides that all borrowed amounts shall, at the option of Wells Fargo and without notice, become immediately due and payable upon the occurrence an event of default (as defined in the Credit Agreement). Such events of default include, without limitation, the occurrence of any of the following events: (i) the failure to pay when due any amounts payable under the Loan Document, (ii) any financial statement furnished to Wells Fargo or any representation or warranty made in the Loan Documents shall prove to be incorrect, false or misleading in any material respect when furnished or made, (iii) any default in the performance of any obligation contained in the Loan Documents, subject to a twenty (20) cure period in certain instances, (iv) there shall exist or occur any condition which Wells Fargo in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance under the Loan Documents or (v) a change in ownership of an aggregate of 25% or more of the common stock of New SSI. Principal amounts not paid when due bear interest at four percent (4%) above the per annum rate of interest of the LOC Note. The LOC Note provides that interest on all outstanding principal amounts shall accrue at a rate per annum equal to the "Prime Rate" (as reported by Wells Fargo) plus one and one-half percent (1.5%) (subject to certain adjustments based on New SSI's tangible net worth (as defined in the Credit Agreement). Interest on the LOC Note is payable monthly on the first day of each month during the term of the LOC Note, commencing April 1, 2005. Pursuant to the Security Agreements, borrowings under the line of credit are secured by a first priority lien on all of New SSI's assets. If an event of default occurs under the Security Agreements or the Note, Wells Fargo has the right to accelerate payments under the LOC Note and, in addition to any other remedies available to it, to foreclose upon the assets securing the LOC Note. In addition, on February 18, 2005, we executed a continuing guaranty in favor of Wells Fargo (the "Guaranty") pursuant to which we agreed to unconditionally guarantee New SSI's repayment of all borrowings under the line of credit. Pursuant to a Standstill Agreement among Wells Fargo, Laurus Master Fund, Ltd., a Cayman Islands company ("Laurus") and us, Wells Fargo has agreed that it will not take any action to enforce the Guaranty against us without the prior written consent of Laurus for so long as Laurus is a secured creditor of our company. In connection with the consummation of the acquisition described in Item 2.01 of this Report, on February 18, 2005, New SSI borrowed $1.9 million under the line of credit. In addition, at the time of such acquisition, New SSI had cash in bank accounts totaling $1.6 million. (c) On February 17, 2005, we entered into an Amendment and Waiver (the "Laurus Amendment and Waiver") with Laurus. The Laurus Amendment and Waiver waives certain events of default under the Registration Rights Agreement, dated as of May 13, 2004, by and between the parties (as amended on October 25, 2004, the "Registration Rights Agreement") and the Secured Convertible Term Note issued by us on May 13, 2004 in favor of Laurus. Pursuant to the Laurus Amendment and Waiver, Laurus agreed to waive all fees and default interest arising from our failure to pay the liquidated damages set forth in the Registration Rights Agreement and further waive any liquidated damages due and payable to Laurus by us in connection with out failure to maintain the effectiveness of our registration statement on Form SB-2 (Registration Statement No. 333-116942)(the "Registration Statement") as required by Section 2(b)(iii) of the Registration Rights Agreement. On February 18, 2005, we entered into a Waiver and Subordination Agreement with Laurus (the "Laurus Subordination"). The Laurus Subordination waives our obligation under Section 6.12(e)(ii) of the Securities Purchase Agreement, dated as of May 13, 2004, between Laurus and us (as amended, the "Laurus Purchase Agreement") to cause New SSI to become a party to the Master Security Agreement, dated as of May 13, 2004, between Laurus and us, as amended. Pursuant to the Laurus Subordination, Laurus also agreed to subordinate to Wells Fargo its security interest in the accounts receivable and other rights to payments, general intangibles, equipment and inventory of New SSI. In consideration of the waivers and subordination by Laurus described above, we agreed to issue Laurus an immediately exercisable seven-year warrant to purchase 3,625,000 shares of our common stock at an exercise price of $0.26 per share, at any time on or prior to February 17, 2012 (the "Additional Warrant") and further agreed to amend the Registration Statement to include the shares of our common stock issuable upon exercise of the Additional Warrant. SECTION 2 - FINANCIAL INFORMATION ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS. On February 18, 2005 (the "Closing Date"), we acquired all of the outstanding capital stock of STAR Solutions of Delaware, Inc., a Delaware corporation ("Old SSI"). The transaction was structured as a merger of Old SSI with and into Incentra Merger Corp., a Delaware corporation ("IMC") and a newly-formed, wholly-owned subsidiary of our company. The acquisition was effected pursuant to an Agreement and Plan of Merger dated as of February 18, 2005 (the "Merger Agreement"), by and among our company, Old SSI, IMC and Alfred Curmi ("Curmi"), the controlling stockholder of Old SSI. Immediately following the acquisition, IMC changed its name to "STAR Solutions of Delaware, Inc." ("New SSI"). Pursuant to the Merger Agreement, the purchase price for all of the issued and outstanding shares of Old SSI capital stock held by Curmi was paid on the Closing Date through (i) a cash payment of $1,422,000, (ii) the issuance to Curmi, or his designees, of an aggregate of 12,617,555 unregistered shares of our common stock and (iii) the issuance to Curmi of an unsecured convertible promissory note in the principal amount of $2.5 million (the "Note"). In addition, we paid $78,000 to the sole remaining stockholder of Old SSI in exchange for all shares of capital stock of Old SSI held by such stockholder. Among other terms and conditions of the Merger Agreement, as soon as practicable after the Closing Date we are required to take all necessary actions (including amending our articles of incorporation) to ensure that we will have sufficient authorized but unissued shares of our common stock to permit the conversion of the Note in accordance with its terms. The cash amounts paid on the Closing Date were provided pursuant to the line of credit described in Item 1.01(b) of this Report. In addition, at the time of the acquisition, New SSI had cash in bank accounts totaling $1.6 million. Interest on the Note accrues on the unpaid principal balance at an annual rate of one-half percent (0.5%). Principal is payable as follows: (i) $125,861 on May 1, 2005, (ii) eight consecutive quarterly payments of $251,722, commencing on August 1, 2005, and (iii) a single payment of $377,583 on August 1, 2007 (each of the foregoing dates, a "Payment Due Date"). All or a portion of the outstanding principal and interest due under the Note may be converted by the holder into shares of our common stock at any time from the end of each calendar quarter immediately preceding a Payment Due Date until and including one day prior to such Payment Due Date. The Note is initially convertible at a conversion price equal to the greater of (i) $0.40 or (ii) seventy percent (70%) of the average closing price of our common stock, as reported on the Over-The-Counter Bulletin Board, for the ten (10) consecutive trading days ending on and including the last day of the calendar quarter immediately preceding the applicable Payment Due Date. As of the Closing Date, the Note was convertible into a maximum of 6,250,000 shares of our common stock. Our obligations under the Note are not secured by any of our assets. The Note further provides that all unpaid principal and accrued interest shall, at the option of Curmi and without notice, become immediately due and payable upon the occurrence an event of default (as defined in the Note). Such events of default include, without limitation, the occurrence of any of the following events: (i) our failure to pay within ten (10) days after the applicable due date any amounts payable under the Note, (ii) an assignment by us for the benefit of our creditors, or (iii) our failure to perform any material covenant under the Merger Agreement, the registration rights agreement or the consulting agreement described below or any other material agreement between Curmi and our company. Principal amounts not paid when due (subject to applicable cure periods) bear interest at twelve percent (12%). Concurrently with the consummation of the acquisition, we entered into a registration rights agreement with Curmi, pursuant to which, at any time after March 1, 2006, Curmi shall have the right to cause us to register under the Securities Act of 1933, as amended, the shares of common stock issued to him in the acquisition and the shares of common stock issuable upon conversion of the Note. The agreement also provides that, after March 1, 2006, Curmi shall have `piggy-back' registration rights. In connection with the consummation of the acquisition, Elaine Bellock, an executive officer of Old SSI, was appointed the President of New SSI. New SSI entered into an `at-will' employment agreement dated as of the Closing Date with Ms. Bellock that provides that Ms. Bellock will receive an initial annual base salary of $240,000 and, for the 2005 fiscal year, will be eligible to receive a performance-based bonus of up to $100,000. Ms. Bellock will also be eligible to participate in our Equity Incentive Plan. The employment agreement also provides that Ms. Bellock may terminate the agreement upon thirty (30) days prior written notice and that New SSI may terminate Ms. Bellock's employment, with or without cause, at any time upon written notice to Ms. Bellock. If Ms. Bellock is terminated by New SSI without cause, she will be entitled to receive her annual base salary from the date of termination until the later of six months after the date of termination or one year from the effective date of the employment agreement, and certain group health benefits. On the Closing Date, we entered into a consulting agreement with FGBB, Inc., a Nevada corporation that is controlled by Curmi ("FGBB"), pursuant to which FGBB will provide sales and marketing services to us relating to the business of New SSI. The consulting agreement has a two-year term and may be terminated by FGBB upon ten (10) days prior written notice or by either party upon a material breach by the other party that remains uncured after ten (10) days notice thereof. The consulting agreement provides that we will pay FGBB a consulting fee of $500,000 for services to be provided thereunder, which amount shall be paid in twenty-four (24) equal monthly payments of $20,833.33, commencing on March 5, 2005. Inveraray Partners LLC ("Inveraray") acted as our exclusive mergers and acquisitions advisor in the acquisition and in consideration of its services we paid Inveraray the sum of $400,000. The above description of the acquisition and the material agreements is not a complete description of the material terms of the transaction or the material agreements and is qualified in its entirety by reference to the agreements entered into in connection with the transaction, copies of which are included as exhibits to this Current Report on Form 8-K. ITEM 2.03. CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT. (a) The description of the Note in Item 2.01 above is incorporated herein by reference. (b) The description of the line of credit from Wells Fargo in Item 1.01(b) above is incorporated herein by reference. SECTION 3 - SECURITIES AND TRADING MARKETS ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES. (a) On February 18, 2005, in connection with the closing of the transactions discussed in Item 2.01 above, we issued an aggregate of 12,617,555 shares of common stock to Curmi, or his designees. Such shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, on the basis that their issuance did not involve a public offering, no underwriting fees or sales commissions were paid by us in connection with such sale and Curmi represented to us that he was an "accredited investor," as defined in the Securities Act of 1933, as amended. (b) On February 18, 2005, in connection with the closing of the transactions discussed in Item 2.01 above, we issued the Note, as described in Item 2.01 above. Such description is incorporated herein by reference. The Note was issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, on the basis that its issuance did not involve a public offering, no underwriting fees or sales commissions were paid by us in connection with such issuance and Curmi, the acquirer of the Note, represented to us that he was an "accredited investor," as defined in the Securities Act of 1933, as amended. (c) On February 17, 2005, in connection with the execution of the Laurus Amendment and Waiver and Laurus Subordination discussed in Item 1.01(c) above, we issued to Laurus the Additional Warrant for the purchase up to 3,625,000 shares of our common stock. The Additional Warrant was issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, on the basis that its issuance did not involve a public offering, no underwriting fees or sales commissions were paid by us in connection with such issuance and Laurus represented to us that it was an "accredited investor," as defined in the Securities Act of 1933, as amended. SECTION 8 - OTHER EVENTS ITEM 8.01 OTHER EVENTS. On February 22, 2005, we issued a press release announcing the completion of the acquisition described in Item 2.01 above. The press release is attached hereto as Exhibit 99.1, and is incorporated herein by reference. SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Financial statements, if any, required by this item will be filed by within the time period prescribed by this item. (b) PRO FORMA FINANCIAL INFORMATION. Pro forma financial information, if any, required by this item will be filed by within the time period prescribed by this item. (c) Exhibits. NUMBER DOCUMENTS ------ --------- 2.1 Agreement and Plan of Merger, dated as of February 18, 2005, by and among Incentra Solutions, Inc., Incentra Merger Corp., STAR Solutions of Delaware, Inc. and Alfred Curmi. 10.1 $2,500,000 Convertible Promissory Note, dated as of February 18, 2005, by Incentra Solutions, Inc. in favor of Alfred Curmi. 10.2 Registration Rights Agreement, dated as of February 18, 2005, by and between Incentra Solutions, Inc. and Alfred Curmi. 10.3 Employment Agreement, dated as of February 18, 2005, by and between STAR Solutions of Delaware, Inc. and Elaine Bellock. 10.4 Consulting Agreement, dated as of February 18, 2005, by and between Incentra Solutions, Inc. and FGBB, Inc. 10.5 Credit Agreement, dated as of February 18, 2005, by and between STAR Solutions of Delaware, Inc. and Wells Fargo Bank, N.A. 10.6 Revolving Line of Credit Note, dated as of February 18, 2005, by STAR Solutions of Delaware, Inc. and Wells Fargo Bank, N.A. 10.7 Continuing Guaranty, dated as of February 18, 2005, by Incentra Solutions, Inc. in favor of Wells Fargo Bank, N.A. 10.8 Continuing Security Agreement, dated as of February 18, 2005, by STAR Solutions of Delaware, Inc. in favor of Wells Fargo Bank, N.A. 10.9 Security Agreement, dated as of February 18, 2005, by STAR Solutions of Delaware, Inc. in favor of Wells Fargo Bank, N.A. 10.10 Amendment and Waiver, dated as of February 17, 2005, by and between Incentra Solutions, Inc. and Laurus Master Fund, Ltd. 10.11 Common Stock Purchase Warrant, dated as of February 17, 2005, issued by Incentra Solutions, Inc. to Laurus Master Fund, Ltd. 10.12 Waiver and Subordination Agreement, dated as of February 17, 2005, by and among Incentra Solutions, Inc., Laurus Master Fund Ltd. and Wells Fargo Bank, N.A. 10.13 Standstill Agreement, dated as of February 18, 2005, by and among Incentra Solutions, Inc., Laurus Master Fund Ltd. and Wells Fargo Bank, N.A. 99.1 Press Release, dated February 22, 2005, relating to the acquisition of STAR Solutions of Delaware, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. INCENTRA SOLUTIONS, INC. Date: February 23, 2005 By: /s/ THOMAS P. SWEENEY III --------------------------------- Thomas P. Sweeney III Chief Executive Officer EXHBIT INDEX NUMBER DOCUMENTS ------ --------- 2.1 Agreement and Plan of Merger, dated as of February 18, 2005, by and among Incentra Solutions, Inc., Incentra Merger Corp., STAR Solutions of Delaware, Inc. and Alfred Curmi. 10.1 $2,500,000 Convertible Promissory Note, dated as of February 18, 2005, by Incentra Solutions, Inc. in favor of Alfred Curmi. 10.2 Registration Rights Agreement, dated as of February 18, 2005, by and between Incentra Solutions, Inc. and Alfred Curmi. 10.3 Employment Agreement, dated as of February 18, 2005, by and between STAR Solutions of Delaware, Inc. and Elaine Bellock. 10.4 Consulting Agreement, dated as of February 18, 2005, by and between Incentra Solutions, Inc. and FGBB, Inc. 10.5 Credit Agreement, dated as of February 18, 2005, by and between STAR Solutions of Delaware, Inc. and Wells Fargo Bank, N.A. 10.6 Revolving Line of Credit Note, dated as of February 18, 2005, by STAR Solutions of Delaware, Inc. and Wells Fargo Bank, N.A. 10.7 Continuing Guaranty, dated as of February 18, 2005, by Incentra Solutions, Inc. in favor of Wells Fargo Bank, N.A. 10.8 Continuing Security Agreement, dated as of February 18, 2005, by STAR Solutions of Delaware, Inc. in favor of Wells Fargo Bank, N.A. 10.9 Security Agreement, dated as of February 18, 2005, by STAR Solutions of Delaware, Inc. in favor of Wells Fargo Bank, N.A. 10.10 Amendment and Waiver, dated as of February 17, 2005, by and between Incentra Solutions, Inc. and Laurus Master Fund, Ltd. 10.11 Common Stock Purchase Warrant, dated as of February 17, 2005, issued by Incentra Solutions, Inc. to Laurus Master Fund, Ltd. 10.12 Waiver and Subordination Agreement, dated as of February 17, 2005, by and among Incentra Solutions, Inc., Laurus Master Fund Ltd. and Wells Fargo Bank, N.A. 10.13 Standstill Agreement, dated as of February 18, 2005, by and among Incentra Solutions, Inc., Laurus Master Fund Ltd. and Wells Fargo Bank, N.A. 99.1 Press Release, dated February 22, 2005, relating to the acquisition of STAR Solutions of Delaware, Inc. EX-2.1 2 c35715_ex2-1.txt AGREEMENT AND PLAN OF MERGER BY AND AMONG INCENTRA SOLUTIONS, INC. INCENTRA MERGER CORP. STAR SOLUTIONS OF DELAWARE, INC. AND ALFRED CURMI DATED AS OF FEBRUARY 18, 2005 TABLE OF CONTENTS
PAGE ARTICLE I THE MERGER.................................................................................3 SECTION 1.1 The Merger........................................................................3 SECTION 1.2 Closing...........................................................................4 SECTION 1.3 Effective Time....................................................................4 SECTION 1.4 Effects of the Merger.............................................................4 SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving Corporation.............4 SECTION 1.6 Directors and Officers............................................................4 ARTICLE II MERGER CONSIDERATION; EFFECT ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES....................5 SECTION 2.1 Merger Consideration..............................................................5 SECTION 2.2 Fractional Shares.................................................................6 SECTION 2.3 Exchange of Certificates..........................................................6 SECTION 2.4 Certain Adjustments...............................................................7 SECTION 2.5 Shares of Dissenting Shareholders.................................................7 SECTION 2.6 Tax-Free Reorganization...........................................................8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................8 SECTION 3.1 Organization, Standing and Corporate Power........................................8 SECTION 3.2 Subsidiaries......................................................................8 SECTION 3.3 Capital Structure.................................................................8 SECTION 3.4 Authority; Noncontravention.......................................................9 SECTION 3.5 Financial Statements; Undisclosed Liabilities....................................10 SECTION 3.6 Material Contracts...............................................................12 SECTION 3.7 Permits; Compliance with Applicable Laws.........................................12 SECTION 3.8 Absence of Litigation............................................................13 SECTION 3.9 Tax Matters......................................................................13 SECTION 3.10 Labor Matters....................................................................17 SECTION 3.11 Environmental Matters............................................................18 SECTION 3.12 Intellectual Property............................................................19 SECTION 3.13 Insurance Matters................................................................21 SECTION 3.14 Transactions with Affiliates.....................................................21
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PAGE SECTION 3.15 Voting Requirements..............................................................21 SECTION 3.16 Brokers..........................................................................21 SECTION 3.17 Real Property....................................................................21 SECTION 3.18 Tangible Personal Property.......................................................22 SECTION 3.19 Investment Company...............................................................22 SECTION 3.20 Board Approval...................................................................22 SECTION 3.21 Books and Records................................................................22 SECTION 3.22 Status of Company Capital Stock Being Transferred................................23 SECTION 3.23 Investment in Parent Common Stock................................................23 SECTION 3.24 Disclosure.......................................................................24 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT..................................................24 SECTION 4.1 Organization, Standing and Corporate Power.......................................24 SECTION 4.2 Capital Structure................................................................24 SECTION 4.3 Authority; Noncontravention......................................................25 SECTION 4.4 Parent Documents.................................................................27 SECTION 4.5 Permits; Compliance with Applicable Laws.........................................28 SECTION 4.6 Absence of Litigation............................................................28 SECTION 4.7 Voting Requirements..............................................................28 SECTION 4.8 Brokers..........................................................................28 SECTION 4.9 Board Approval...................................................................29 SECTION 4.10 Books and Records................................................................29 SECTION 4.11 Sarbanes Oxley Act Compliance....................................................29 SECTION 4.12 Financial Projections............................................................29 SECTION 4.13 Disclosure.......................................................................29 SECTION 4.14 Continuity of Business. .........................................................29 SECTION 4.15 Funds Available..................................................................30 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.................................................30 SECTION 5.1 Conduct of Business by the Company...............................................30 SECTION 5.2 Advice of Changes................................................................31 SECTION 5.3 No Solicitation by the Company...................................................31
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PAGE SECTION 5.4 Conduct of Business by Parent....................................................32 SECTION 5.5 Transition.......................................................................32 ARTICLE VI ADDITIONAL AGREEMENTS.....................................................................32 SECTION 6.1 Access to Information; Confidentiality...........................................32 SECTION 6.2 Commercially Reasonable Efforts..................................................34 SECTION 6.3 Fees and Expenses................................................................34 SECTION 6.4 Public Announcements.............................................................34 SECTION 6.5 Regulation D.....................................................................35 SECTION 6.6 Company Tax Returns..............................................................35 SECTION 6.7 Post-Closing Access..............................................................35 ARTICLE VII CONDITIONS PRECEDENT......................................................................35 SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.......................35 SECTION 7.2 Conditions to Obligations of Parent..............................................36 SECTION 7.3 Conditions to Obligations of the Company and the Stockholder.....................37 SECTION 7.4 Frustration of Closing Conditions................................................38 ARTICLE VIII INDEMNIFICATION; ARBITRATION..............................................................38 SECTION 8.1 Indemnification..................................................................38 SECTION 8.2 Arbitration......................................................................41 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.........................................................42 SECTION 9.1 Termination......................................................................42 SECTION 9.2 Effect of Termination............................................................43 SECTION 9.3 Amendment........................................................................43 SECTION 9.4 Extension; Waiver................................................................43 ARTICLE X GENERAL PROVISIONS........................................................................44 SECTION 10.1 Survival of Representations, Warranties and Agreements...........................44 SECTION 10.2 Notices..........................................................................44 SECTION 10.3 Definitions......................................................................45 SECTION 10.4 Interpretation...................................................................46 SECTION 10.5 Counterparts.....................................................................46 SECTION 10.6 Entire Agreement; No Third-Party Beneficiaries...................................46
-iii- TABLE OF CONTENTS (continued)
PAGE SECTION 10.7 Governing Law....................................................................46 SECTION 10.8 Assignment.......................................................................46 SECTION 10.9 Headings.........................................................................46 SECTION 10.10 Severability.....................................................................46 SECTION 10.11 Enforcement......................................................................47 SECTION 10.12 Further Assurances...............................................................47
-iv- TABLE OF CONTENTS (continued) PAGE EXHIBITS EXHIBIT A - SURVIVING CORPORATION CERTIFICATE OF INCORPORATION EXHIBIT B - FORM OF PROMISSORY NOTE EXHIBIT C - FORM OF EMPLOYMENT AGREEMENT EXHIBIT D - FORM OF CONSULTING AGREEMENT EXHIBIT E - FORM OF REGISTRATION RIGHTS AGREEMENT -v- INDEX OF DEFINED TERMS DEFINED TERMS SECTION - ------------- ------- Adjustment Event Section 2.4 Affiliate Section 10.3(a) Agreement Preamble Cash Consideration Section 2.1(c) Certificate of Merger Section 1.3 Closing Section 1.2 Closing Date Section 1.2 Code Section 2.6 Company Preamble Company Acquisition Proposal Section 5.3(a) Company Certificate of Incorporation Section 3.1(b) Company Common Stock Recitals Company Disclosure Schedule Article III Company Financial Statements Section 3.5(a) Company IP Agreements Section 3.13(g) Company Material Contracts Section 3.6(b) Company Permitted Liens Section 3.18(b) Company Stock Certificates Section 2.2 Company Stockholders Section 2.3 Confidential Information Section 6.1(b) Confidentiality Dispute Section 8.2 Consulting Agreement Section 7.2(f) Curmi Preamble DGCL Preamble Dispute Section 8.2 Dissenting Shares Section 2.5 Effective Time Section 1.3 Employee Plans Section 3.10(a) Employment Agreements Section 7.2(e) Environmental Laws Section 3.12(d)(i) Environmental Permits Section 3.12(d)(ii) ERISA Section 3.10(a) ERISA Affiliate Section 3.10(a) Excluded Assets Section 3.5(g) Fiduciary Section 3.10(e) GAAP Section 3.5(a) Government Entities Section 3.4(c) Governmental Entity Section 3.4(c) Hazardous Substances Section 3.12(d)(iii) Indemnified Person Section 8.1(e) Intellectual Property Section 3.13(a) IRS Section 3.10(g) Knowledge Section 10.3(c) Liens Section 3.4(d) Page 1 DEFINED TERMS SECTION - ------------- ------- Material adverse change Section 10.3(c) Material adverse effect Section 10.3(c) Merger Recitals Merger Consideration Section 2.1(c) Merger Sub Preamble Merger Sub Common Stock Section 4.2(d) Multi-Employer Plans Section 3.10(d) NVGCL Recitals Parent Preamble Parent Common Stock Section 2.1(b)(ii) Parent Disclosure Schedule Article IV Parent Employee Stock Options Section 4.2(a) Parent Indemnified Parties Section 8.1(a) Parent Preferred Stock Section 4.2(a) Parent Representatives Section 6.1(a) Parent SEC Documents Section 4.4(a) Parent Shares Section 2.1(b(ii) Parent Stock Plans Section 4.2(a) Permits Section 3.7(a) Person Section 10.3(e) Projections Section 4.12 Promissory Note Section 2.1(b)(iii) Parent Organizational Documents Section 4.1(b) Registration Rights Agreement Section 7.3(g) Release Section 3.12(d)(iv) Requisite Regulatory Approvals Section 7.1(b) Restraints Section 7.1(c) Sarbanes Oxley Act Section 4.11 SEC Section 4.4(a) Secretary Section 1.3 Securities Act Section 3.24(a) Seller Indemnified Parties Section 8.1(b) Seller Losses Section 8.1(b) Software Section 3.13(a) Stockholder Preamble Surviving Corporation Section 1.1 Tangible Personal Property Section 3.19 Tax Section 3.9(h)(i) Tax Return Section 3.9(h)(ii) Taxes Section 3.9(h)(i) Third Party Claim Section 8.1.(e) Third Party Rights Section 3.13(d) Transaction Documents Section 10.3(h) Page 2 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of February 18, 2005, by and among INCENTRA SOLUTIONS, INC., a Nevada corporation ("Parent"), INCENTRA MERGER CORP., a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"), STAR SOLUTIONS OF DELAWARE, INC., a Delaware corporation, as successor by merger to Star Solutions, LLC, a California limited liability company (the "Company"), and ALFRED CURMI (referred to herein as "Curmi" or "Stockholder"). RECITALS WHEREAS, each of Parent, Merger Sub and the Company desire Parent to consummate a business combination with the Company in a transaction whereby, upon the terms and subject to the conditions set forth in this Agreement, the Company will merge with and into Merger Sub (the "MERGER"), each outstanding share of Common Stock, $.01 par value per share, of the Company ("COMPANY COMMON STOCK") (other than shares cancelled and retired pursuant to Section 2.1(d) and Dissenting Shares (as defined herein), will be converted into the right to receive the Merger Consideration, and Merger Sub will be the surviving corporation in the Merger; WHEREAS, the Board of Directors of the Company unanimously has determined and resolved that the Merger and all of the transactions contemplated by this Agreement are in the best interest of the holders of Company Common Stock and that the Merger is fair and advisable, and has approved this Agreement in accordance with the Delaware General Corporation Law, as amended (the "DGCL"), and has further resolved unanimously to recommend to all holders of Company Common Stock that they authorize, approve and adopt this Agreement and the transactions contemplated hereby; and WHEREAS, the Board of Directors of Parent unanimously has determined and resolved that the Merger and all of the transactions contemplated by this Agreement are in the best interest of Parent and the holders of Parent Common Stock and has adopted this Agreement in accordance with the Nevada General Corporation Law, as amended (the "NVGCL") and Parent, as sole shareholder of Merger Sub, has adopted this Agreement in accordance with the DGCL. NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound do hereby agree as follows: ARTICLE I THE MERGER SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL, at the Effective Time, the Company shall be merged with and into Merger Sub and Merger Sub shall be the surviving corporation in the Merger (the "Surviving Corporation") and, as such, Merger Sub shall continue its corporate Page 3 existence as a direct, wholly owned subsidiary of Parent under the laws of the State of Delaware, and the separate corporate existence of the Company thereupon shall cease. SECTION 1.2 CLOSING. Subject to the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to consummation of the Merger contained in Article VII hereof, the closing of the Merger (the "Closing") shall take place at 8:00 a.m., Denver, CO time, on a date to be specified by the parties (the "Closing Date"), which date shall not be later than the third business day next following the satisfaction or, to the extent permitted by applicable law, waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or, to the extent permitted by applicable law, waiver of those conditions), unless another time or date is agreed to by the parties hereto. The Closing will be held at the offices of Parent, located at 1140 Pearl Street, Boulder, CO 80302 or at such other location as is agreed to by the parties hereto. SECTION 1.3 EFFECTIVE TIME. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing the parties shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware (the "SECRETARY") a certificate of merger in form and substance acceptable to the parties hereto (the "CERTIFICATE OF MERGER") duly executed and so filed in accordance with the DGCL and shall make all other filings and recordings required under the DGCL to effectuate the Merger and the transactions contemplated by this Agreement. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary, or at such subsequent date or time as Parent and the Company mutually shall agree and specify in the Certificate of Merger (the time the Merger becomes so effective being hereinafter referred to as the "EFFECTIVE TIME"). The parties shall cooperate with each other and take all commercially reasonable action to pre-position and/or pre-clear the Certificate of Merger with the Secretary of State of Delaware so that the Certificate of Merger is accepted and becomes effective on the Closing Date. SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in the DGCL. SECTION 1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION. The certificate of incorporation of the Surviving Corporation shall be amended and restated to read as set forth in EXHIBIT A attached hereto and as so amended shall be the certificate of incorporation of the Surviving Corporation until thereafter amended or restated as provided therein or by applicable law. The by-laws of Merger Sub in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended or restated as provided therein or by applicable law. SECTION 1.6 DIRECTORS AND OFFICERS. The directors of Merger Sub at the Effective Time shall, from and after the Effective Time, be and become the directors of the Surviving Corporation until their successors shall have been duly elected and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and by-laws of the Surviving Corporation and the DGCL; provided that the board of directors of the Merger Sub shall be comprised of two (2) directors, consisting of Thomas P. Sweeney III and Paul McKnight. The officers of Merger Sub at the Effective Time shall, from and after the Effective Time, be and become the officers of the Surviving Corporation until their successors shall have Page 4 been duly appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the by-laws of the Surviving Corporation. ARTICLE II MERGER CONSIDERATION; EFFECT ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES SECTION 2.1 MERGER CONSIDERATION. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities: (a) The Company Common Stock held by Kathryn Frank shall be converted into the right to receive cash in the amount of Seventy Eight Thousand Dollars ($78,000.00), and (b) The Company Common Stock held by Curmi, shall be converted into the right for he and/or his designees to receive: (i) cash in the amount of One Million Four Hundred Twenty Two Thousand Dollars ($1,422,000.00); (ii) Twelve Million Six Hundred Seventeen Thousand Five Hundred Fifty Five (12,617,555) shares (collectively, the "Parent Shares") of Parent's unregistered common stock, par value $.001 per share ("Parent Common Stock"); and (iii) an unsecured convertible promissory note, in substantially the form attached hereto as Exhibit B, with appropriate insertions, in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00)(the "Promissory Note"). The principal and accrued interest under the Promissory Note shall be convertible at the option of the holder into shares of Parent Common Stock, all as more particularly described in the Promissory Note. The Parent Shares issued hereunder and the shares of Parent Common Stock issued upon conversion of the Promissory Note shall be eligible for registration under the Registration Rights Agreement. (c) For purposes of this Agreement, the payment pursuant to Section 2.1(a) and 2.1(b)(i) shall collectively be referred to as the "Cash Consideration", and the term "Merger Consideration" shall mean, collectively, the Parent Shares, the Cash Consideration and the Promissory Note. At the Closing, Parent shall (i) pay the Cash Consideration described in Section 2.1(a) to Kathryn Frank and the Cash Consideration described in Section 2.1(b)(i) to the Stockholder by wire transfer of immediately available U.S. federal funds to such accounts as the Stockholder may direct by written notice delivered to Parent or Parent's counsel; (ii) issue and deliver a stock certificate or certificates representing the Parent Shares to the Stockholder; and (iii) execute and deliver the Promissory Note to the Stockholder. (d) Each share of Company Common Stock then issued and held in the Company's treasury, if any, and each share of Company Common Stock then owned by Parent, Page 5 Merger Sub or any other wholly owned subsidiary of Parent, if any, shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. SECTION 2.2 FRACTIONAL SHARES. No certificates representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of certificates representing Company capital stock ("Company Stock Certificates"), no dividend or distribution by Parent shall relate to such fractional share interests, and such fractional share interests shall not entitle the owner thereof to vote or to any rights as a shareholder of Parent. Further, no holder of a Company Stock Certificate who otherwise would have been entitled to receive in the Merger a fractional share interest in exchange for such Company Stock Certificate shall have the right to receive cash payment in lieu thereof. In lieu of any such fractional shares or cash payment, (x) any such fractional share interest greater than or equal to one-half of a share (0.5) shall be rounded up to the next whole share number, and (y) any such fractional share less than one-half of a share (0.5) shall be rounded down to the preceding whole share number and the certificates representing shares of Parent Common Stock to be issued in the Merger shall reflect such adjustments. SECTION 2.3 EXCHANGE OF CERTIFICATES. (a) At the Closing, the Stockholder, together with any other stockholder of the Company (collectively, the "Company Stockholders") shall surrender to the Parent all Company Stock Certificates in proper form for cancellation, and upon such surrender shall be entitled to receive in exchange therefor his or her respective Merger Consideration, including a certificate (or certificates) representing such whole number of shares of Parent Common Stock as such holder is entitled to receive pursuant to Article II in such denominations and registered in such names as such holder may request. The shares represented by the Company Stock Certificate so surrendered shall forthwith be cancelled. Without limiting the generality of the foregoing (and notwithstanding any other provisions of this Agreement), no interest shall be paid or accrued in respect of any of the Merger Consideration payable to holders of Company Common Stock in accordance with this Article II. Until surrendered in accordance with this Section 2.3, each Company Stock Certificate shall be deemed at all times from and after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration. (b) If any Company Stock Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Company Stock Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Company Stock Certificate, Parent shall issue in exchange for such lost, stolen or destroyed Company Stock Certificate, the applicable Merger Consideration to which such person is entitled pursuant to the provisions of this Article II. (c) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared or made after the Effective Time in respect of shares of Parent Common Stock having a record date after the Effective Time shall be paid to the holder of any unsurrendered Company Stock Certificate until the holder shall surrender such Company Stock Certificate as provided in this Section 2.3. Subject to applicable law, following surrender of any Page 6 such Company Stock Certificate, there shall be paid to the holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefore, in each case without any interest thereon, (i) at the time of such surrender, the amount of dividends or other distributions, if any, having a record date after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock and not paid, less the amount of all required withholding Taxes in respect thereof, and (ii) at the appropriate payment date subsequent to surrender, the amount of dividends or other distributions having a record date after the Effective Time but prior to the date of such surrender and having a payment date subsequent to the date of such surrender and payable with respect to such whole shares of Parent Common Stock, less the amount of all required withholding Taxes in respect thereof. (d) All shares of Parent Common Stock issued upon surrender of Company Stock Certificates in accordance with this Article II shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such shares of Company Common Stock represented thereby and, as of the Effective Time, the stock transfer books and records of the Company shall be closed and there shall be no further registration of transfers on the stock transfer books and records of the Company of shares of Company Common Stock outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Stock Certificates are properly presented to the Surviving Corporation for any reason (but otherwise in accordance with this Article II), they shall be cancelled and exchanged for the Merger Consideration as provided in this Section 2.3. SECTION 2.4 CERTAIN ADJUSTMENTS. If, after the date hereof and prior to the Effective Time and to the extent permitted by this Agreement, the outstanding shares of Parent Common Stock or Company Common Stock shall be changed into a different number, class or series of shares by reason of any reclassification, recapitalization or combination, forward stock split, reverse stock split, stock dividend or rights issued in respect of such stock, or any similar event shall occur (any such action, an "ADJUSTMENT EVENT"), the Merger Consideration shall be adjusted correspondingly to provide to the holders of Company Common Stock the right to receive shares of Parent Common Stock having the same economic value as contemplated by this Agreement immediately prior to such Adjustment Event and Parent's payment obligations likewise shall be correspondingly adjusted such that it shall be required to pay and deliver not more than the aggregate Merger Consideration contemplated by this Agreement. Notwithstanding the foregoing provision, the aggregate amount of the Cash Consideration and the original principal amount of the Promissory Note shall not change under any circumstances. SECTION 2.5 SHARES OF DISSENTING SHAREHOLDERS. Notwithstanding anything in this Agreement to the contrary, any shares of Company Common Stock that are outstanding as of the Effective Time and that are held by a shareholder who has properly exercised his appraisal rights under Section 262 of the DGCL (the "DISSENTING Shares") shall not be converted into the right to receive the Merger Consideration; PROVIDED, HOWEVER, if any such holder shall have failed to perfect or shall have effectively withdrawn or lost his right to dissent from the Merger under the DGCL and to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to and subject to the requirements of the DGCL, each share of such holder's Company Common Stock thereupon shall be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the Merger Consideration in accordance with Article II. The Company shall give Parent prompt Page 7 written notice of (i) all demands for appraisal or payment for shares of Company Common Stock received by the Company prior to the Effective Time in accordance with the DGCL, and (ii) any settlement or offer to settle any such demands. SECTION 2.6 TAX-FREE REORGANIZATION. The Merger is intended to qualify as a reorganization described in Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), and the parties hereto agree not to take any action which could result in the Merger failing to so qualify. The parties hereto further agree to report the Merger for all purposes as a reorganization under Section 368 of the Code, and that this Agreement is intended to be a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement which hereby is incorporated by reference in and constitutes an integral part of this Agreement (the "COMPANY DISCLOSURE SCHEDULE"), the Company and the Stockholder hereby represent and warrant to Parent as follows: SECTION 3.1 ORGANIZATION, STANDING AND CORPORATE POWER. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization and has the requisite corporate power and authority to carry on its business as presently being conducted. Except as set forth in Section 3.1(c) of the Company Disclosure Schedule, the Company is duly qualified or licensed to conduct business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not reasonably be expected to have a material adverse effect on the Company. (b) The Company has delivered or made available to Parent prior to the execution of this Agreement complete and correct copies of the certificate of incorporation (the "COMPANY CERTIFICATE OF INCORPORATION") and by-laws of the Company, each as in effect at the date of this Agreement. SECTION 3.2 SUBSIDIARIES. The Company does not have any subsidiaries. SECTION 3.3 CAPITAL STRUCTURE. The authorized capital stock of the Company consists of One Thousand (1,000) shares of Company Common Stock, $.01 par value. As of the date hereof: (a) (i) One Thousand (1,000) shares of Company Common Stock are issued and outstanding; and (ii) no shares of Company Common Stock are held by the Company in its treasury. Page 8 (b) Except as set forth on Section 3.3(b) of the Company Disclosure Schedule, all outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and are not subject to preemptive rights created by statute, the Company Certificate of Incorporation or any agreement to which the Company is a party or by which the Company may be bound. Except as set forth in this Section, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, and (iii) except pursuant to this Agreement, no options or other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock of the Company. SECTION 3.4 AUTHORITY; NONCONTRAVENTION. (a) The Company and the Stockholder have the power and authority to execute, deliver and perform this Agreement and the other agreements to be executed and delivered by them in connection herewith and to consummate the transactions contemplated hereby and thereby. All acts and proceedings required to be taken by or on the part of the Company and/or the Stockholder and to authorize the Company to execute, deliver and perform this Agreement and the other agreements to be executed and delivered by the Company in connection herewith and to consummate the transactions contemplated hereby and thereby have been duly and validly taken or will be taken on or prior to the Closing. This Agreement constitutes a valid and binding agreement, and the other agreements to be executed and delivered by the Company in connection herewith when so executed and delivered will constitute valid and binding agreements, of the Company. (b) Except as set forth in Section 3.4(b) of the Company Disclosure Schedule, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, conflict with or result in a violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation under (i) any provision of the Company Certificate of Incorporation, (ii) any material loan or credit agreement, note, mortgage, indenture, lease or other material agreement to which the Company or the Stockholder is a party or (iii) any material instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. (c) Except for any registrations, notices or filings which may be required under the federal or state securities laws and registrations, notices or filings with the office of the Secretary of State of Delaware and the office of the Secretary of State of California in connection with the Merger, the execution, delivery and performance by the Company of this Agreement and the consummation of the purchase and sale of the Merger require no consent, approval, order or authorization of, action by or in respect of, or registration or filing with, any governmental body, court, agency, commission, official or authority (each, a "GOVERNMENTAL ENTITY", collectively "GOVERNMENTAL ENTITIES." (d) The execution and delivery of this Agreement and the consummation of the Merger will not result in the creation of any pledges, claims, liens, charges, encumbrances, Page 9 adverse claims, mortgages and security interests of any kind or nature whatsoever (collectively, "LIENS") upon any asset of the Company. (e) Except as set forth in Section 3.4(e) of the Company Disclosure Schedule, no consent, approval, waiver or other action by any person (other than the Governmental Entities referred to in (c) above) under any Company Material Contract is required or necessary for, or made necessary by reason of, the execution, delivery and performance of this Agreement by the Company or the consummation of the Merger. SECTION 3.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. (a) The Company has furnished to the Parent true, correct and complete copies of: (i) balance sheets of the Company's predecessor limited liability company, Star Solutions, LLC, as of December 31, 2001, December 31, 2002 and December 31, 2003 compiled by Star Solutions, LLC; (ii) income statements of Star Solutions, LLC for the fiscal years ended December 31, 2001, December 31, 2002 and December 31, 2003 compiled by the Company; (iii) a balance sheet, income statement, statement of cash flow and statement of members' equity of Star Solutions, LLC for the fiscal year ended December 31, 2004 prepared in accordance with generally accepted accounting principles ("GAAP") and audited by the Company's independent accountants (except as set forth in Section 3.5(a) of the Company Disclosure Schedule); and (iv) an income statement and statement of cash flows for the Company for the period from January 1, 2005 through and including February 17, 2005, a balance sheet, schedule of open orders and a statement of stockholders' equity of the Company as of February 17, 2005 (collectively, the "Company Financial Statements"). The Company Financial Statements have been prepared by the Company on the basis of the books and records maintained by the Company in the ordinary course of business in a manner consistently used and applied throughout the periods involved and the accounting practices and procedures have been applied consistently for interim periods after the periods of the Company Financial Statements. The Company Financial Statements fairly present in all material respects the financial condition of the Company and the Company's predecessor limited liability company as at the respective dates thereof. (b) Except for liabilities (i) set forth in Section 3.5(b) of the Company Disclosure Schedule, (ii) reflected in the Company Financial Statements or described in any notes thereto (or for which neither accrual nor footnote disclosure is required pursuant to GAAP), or (iii) incurred in the ordinary course of business, consistent with past practice or in connection with this Agreement or the transactions contemplated hereby, the Company has no material liabilities of any nature. The Company is not in default in respect of any terms or conditions of any indebtedness. (c) Other than changes in the usual and ordinary conduct of business since December 31, 2004, there have been no material adverse changes in the financial condition of the Company. Specifically, but, not by way of limitation, since its balance sheet of December 31, 2004, the Company has not: (i) Issued or sold any stock, bond, or other Company securities; Page 10 (ii) Except for current liabilities and obligations incurred in the ordinary course of business, incurred any material obligation or liability, absolute or contingent; (iii) Except for current liabilities shown on the balance sheet and current liabilities incurred since that date in the ordinary course of business, discharged or satisfied any material lien or encumbrance, or paid any material liability, absolute or contingent; (iv) Mortgaged, pledged or subjected to lien or any other encumbrance, any of its material assets, tangible or intangible, other than pursuant to any Company Permitted Liens; (v) Except in the ordinary course of business, sold or transferred any of its material tangible assets or canceled any material debts or claims; (vi) Sold, assigned, or transferred any patents, formulas, trademarks, trade names, copyrights, licenses, or other material intangible assets; (vii) Suffered any extraordinary losses, been subjected to any strikes or other labor disturbances, or waived any rights of any substantial value; or (viii) Except for transactions contemplated by this Agreement, entered into any material transaction other than in the ordinary course of business. (d) Subject to any changes that may have occurred in the ordinary and usual course of business, the material assets of the Company at the Closing Date will be substantially those owned by it and shown on the Company Financial Statements. (e) Except to the extent that an allowance for uncollectible accounts has been established on its books and is reflected in the Company Financial Statements and except as set forth in Section 3.5(e) of the Company Disclosure Schedule, all accounts receivable and notes receivable of the Company are current and, to the Company's knowledge, collectible; provided however, that Parent acknowledges and agrees that approximately $50,000 of the Company's accounts receivable have not been collectible on an annual basis, and a similar portion of the Company's outstanding accounts receivable may become uncollectible over the next twelve (12) months. Such accounts receivable of the Company have arisen in the ordinary course of business in arms-length transactions for goods actually sold and services actually performed or to be performed. (f) All inventory to be transferred to Buyer pursuant to this Agreement is in saleable condition. (g) Prior to the Closing Date, the Company shall assign and transfer to Alfred Curmi and/or any other person designated by Alfred Curmi all of the Company's right, title and interest in and to the assets described in Section 3.5(g) of the Company Disclosure Schedule (collectively, the "Excluded Assets"). Parent acknowledges and agrees that none of the Excluded Assets, nor the rights, title or interests of the Company therein, shall be deemed to constitute a Page 11 part of the Company or its assets, and that such assets will not be owned or retained by the Company at the Closing. Parent acknowledges and agrees that the Company may transfer or distribute the Excluded Assets at any time and from time to time prior to the Closing, and no such transfer or distribution shall be deemed to violate or breach any provision under this Agreement or any other Transaction Document. (h) For purposes of this Section 3.5, material in regards to any obligation, debt, asset or the like shall mean having a value in excess of Twenty-Five Thousand Dollars ($25,000.00). SECTION 3.6 MATERIAL CONTRACTS. (a) Each Company Material Contract is valid and binding on and enforceable against the Company and each other party thereto and is in full force and effect. Except as set forth in Section 3.6(a) of the Company Disclosure Schedule, the Company is not in breach or default under any Company Material Contract. Except as set forth in Section 3.6(a) of the Company Disclosure Schedule, the Company does not know of, and has not received notice of, any violation or default under (nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default under) any Company Material Contract by any other party thereto. Prior to the date hereof, the Company has made available to Parent true and complete copies of all Company Material Contracts. (b) As used in this Agreement, "Company Material Contracts" shall mean any contract, license agreement, commitment, lease, or restriction of any kind to which the Company is a party or by which the Company is bound or to which any of the Company's assets are subject which involve payments to or from the Company of at least $75,000. SECTION 3.7 PERMITS; COMPLIANCE WITH APPLICABLE LAWS. (a) Except as set forth in Section 3.1(a) of the Company Disclosure Schedule, to the Company's knowledge, the Company owns and/or possesses all material permits, licenses, variances, authorizations, exemptions, orders, registrations and approvals of all Governmental Entities which are required for the operation of the business of the Company (the "Permits") as presently conducted. To the Company's knowledge, the Company is in compliance in all material respects with the terms of its Permits. All of its Permits are in full force and effect and no suspension, modification or revocation of any of them is pending or, to the Company's knowledge, threatened nor, to the Company's knowledge, do grounds exist for any such action. (b) To the Company's knowledge, the Company is in compliance in all material respects with all applicable statutes, laws, regulations, ordinances, rules, writs, judgments, orders, decrees and arbitration awards of each Governmental Entity applicable to the Company. (c) Except for filings with respect to Taxes, which are the subject of Section 3.9 and not covered by this Section 3.7(c), to the Company's knowledge, the Company has timely filed all regulatory reports, schedules, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that they were required to file with each Governmental Entity, and have timely paid all fees and assessments, if any, due and Page 12 payable in connection therewith, except where the failure to make such payments and filings individually or in the aggregate would not have a material adverse effect on the Company. SECTION 3.8 ABSENCE OF LITIGATION. Section 3.8 of the Company Disclosure Schedule contains a true and current summary description of each pending and, to the Company's knowledge, threatened litigation, action, suit, case, proceeding, investigation or arbitration against the Company. Except as set forth in Section 3.8 of the Company Disclosure Schedule, no action, inquiry, demand, charge or investigation by any Governmental Entity and no litigation, action, suit, case, proceeding, investigation or arbitration by any person or Governmental Entity, in each case with respect to the Company or any of its properties or Permits, is pending or, to the knowledge of the Company, threatened. SECTION 3.9 TAX MATTERS. (a) The Company and Star Solutions, LLC have (i) filed with the appropriate Governmental Entities all United States federal and state income and other material Tax Returns required to be filed by them on or before the date of this Agreement (giving effect to all extensions) and such Tax Returns are true, correct and complete in all material respects; (ii) except as set forth in the Company Disclosure Schedule, paid in full all United States federal income and other material Taxes required to have been paid by them; and (iii) made adequate provision for all accrued Taxes not yet due. To the Company's knowledge, the accruals and provisions for Taxes reflected in the Company Financial Statements for the year ended December 31, 2004, are adequate in accordance with GAAP for all Taxes accrued or accruable through the date of such statements. (b) As of the date of this Agreement, no Federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of the Company, and except as set forth in the Company Disclosure Schedule, the Company has not received a written notice of any material pending or proposed claims, audits or proceedings with respect to Taxes. (c) No deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Tax has been proposed, asserted, or assessed in writing by any Governmental Entity against, or , with respect to, the Company. There is no action, suit or audit now in progress, pending or, to the knowledge of the Company , threatened against or with respect to the Company with respect to any material Tax. (d) The Company has not been included in any "consolidated," "unitary" or "combined" Tax Return (other than Tax Returns which include only the Company) provided for under the laws of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable year. (e) No claim has been made in writing by any Governmental Entities in a jurisdiction where the Company does not file Tax Returns that the Company is, or may be, subject to taxation by that jurisdiction. (f) The Company has made available to Parent correct and complete copies of (i) all of its material Tax Returns filed within the past three (3) years, (ii) except as set forth in Page 13 Section 3.9(f) of the Company Disclosure Schedule, all audit reports, letter rulings, technical advice memoranda and similar documents issued by a Governmental Entity within the past three (3) years relating to the Federal, state, local or foreign Taxes due from or with respect to the Company, and (iii) any closing letters or agreements entered into by the Company with any Governmental Entities within the past three (3) years with respect to Taxes. (g) The Company has not received any notice of deficiency or assessment from any Governmental Entity for any amount of Tax that has not been fully settled or satisfied, and to the knowledge of the Company, no such deficiency or assessment is proposed. (h) For purposes of this Agreement: (i) "Tax" or "Taxes" shall mean all federal, state, county, local, foreign and other taxes of any kind whatsoever (including, without limitation, income, profits, premium, excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, license, stamp, environmental, withholding, employment, unemployment compensation, payroll related and property taxes, import duties and other governmental charges and assessments), whether or not measured in whole or in part by net income, and including deficiencies, interest, additions to tax or interest, and penalties with respect thereto, and including expenses associated with contesting any proposed adjustment related to any of the foregoing. (ii) "Tax Return" shall mean any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendments thereof. SECTION 3.10 EMPLOYEE BENEFIT PLANS. (a) Section 3.10 of the Company Disclosure Schedule contains a true and complete list of all pension, stock option, stock purchase, benefit, welfare, profit-sharing, retirement, disability, vacation, severance, hospitalization, insurance, incentive, deferred compensation and other similar fringe or employee benefit plans, funds, programs or arrangements, whether written or oral, in each of the foregoing cases which (i) covers, is maintained for the benefit of, or relates to any or all current or former employees of the Company and any other entity ("ERISA AFFILIATE") related to the Company under Section 414(b), (c), (m) and (o) of the Code and (ii) is not a "multiemployer plan" as defined in Section 3(37) or Section 4001(a)(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 414 of the Code (the "EMPLOYEE PLANS"). Section 3.10(a) of the Company Disclosure Schedule identifies and includes but is not limited to, each of the Employee Plans that is subject to Section 302 or Title IV of ERISA or Section 412 of the Code. Neither the Company, nor any ERISA Affiliate of the Company has any commitment or formal plan, whether or not legally binding, to create any additional employee benefit plan or modify or change any existing Employee Plan other than as may be required by the express terms of such Employee Plan or applicable law. Page 14 (b) With respect to each Employee Plan that has been qualified or is intended to be qualified under the Code or that is an "Employee Benefit Plan" within the meaning of Section 3.3 of ERISA, such Employee Plan has been duly approved and adopted by all necessary and appropriate action of the Board of Directors of the Company (or a duly constituted committee thereof). (c) Except as set forth in Section 3.10(c) of the Company Disclosure Schedule, with respect to the Employee Plans, all required contributions for all periods ending before the Closing Date have been or will be paid in full by the Closing Date. Subject only to normal retrospective adjustments in the ordinary course, all required insurance premiums have been or will be paid in full with regard to such Employee Plans for policy years or other applicable policy periods ending on or before the Closing Date by the Closing Date. As of the date hereof, none of the Employee Plans has unfunded benefit liabilities, as defined in Section 4001(a)(16) of ERISA. (d) The Company has no "multi-employer plans," as defined in Section 3(37) or Section 4001(a)(3) of ERISA or Section 414 ("MULTI-EMPLOYER PLANS"), and never has had any such plans. (e) With respect to each Employee Plan, (i) to the Company's knowledge, no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code have occurred or are expected to occur as a result of the Merger or the transactions contemplated by this Agreement, (ii) no action, suit, grievance, arbitration or other type of litigation, or claim with respect to the assets of any Employee Plan (other than routine claims for benefits made in the ordinary course of plan administration for which plan administrative review procedures have not been exhausted) is pending or, to the knowledge of the Company , threatened against the Company, any ERISA Affiliate or any fiduciary, as such term is defined in Section 3(21) of ERISA ("Fiduciary"), including, but not limited to, any action, suit, grievance, arbitration or other type of litigation, or claim regarding conduct that allegedly interferes with the attainment of rights under any Employee Plan. To the knowledge of the Company , neither the Company, nor its directors, officers, employees nor any Fiduciary has any liability for failure to comply with ERISA or the Code for any action or failure to act in connection with the administration or investment of such plan. None of the Employee Plans is subject to any pending investigations or to the knowledge of the Company threatened investigations from any Governmental Agencies who enforce applicable laws under ERISA and the Code. (f) To the Company's knowledge, each of the Employee Plans is, and has been, operated in accordance with its terms and each of the Employee Plans, and administration thereof, is, and has been, in all material respects in compliance with the requirements of any and all applicable statutes, orders or governmental rules or regulations currently in effect, including, but not limited to, ERISA and the Code. To the Company's knowledge, all required reports and descriptions of the Employee Plans (including but not limited to Form 5500 Annual Reports, Form 1024 Application for Recognition of Exemption Under Section 501(a), Summary Annual Reports and Summary Plan Descriptions) have been timely filed and distributed as required by ERISA and the Code. To the Company's knowledge, any notices required by ERISA or the Code or any other state or federal law or any ruling or regulation of any state or federal Page 15 administrative agency with respect to the Employee Plans, including but not limited to any notices required by Section 4980B of the Code, have been appropriately given. (g) Except as set forth in Section 3.10(g) of the Company Disclosure Schedule, the Internal Revenue Service (the "IRS") has issued a favorable determination letter or opinion letter with respect to each Employee Plan intended to be "qualified" within the meaning of Section 401(a) of the Code that has not been revoked and, to the knowledge of the Company, no circumstances exist that could adversely affect the qualified status of any such plan and the exemption under Section 501(a) of the Code of the trust maintained thereunder. Except as set forth in Section 3.10(g) of the Company Disclosure Schedule, each Employee Plan intended to satisfy the requirements of Section 125, 501(c)(9) or 501(c)(17) of the Code has , to the Company's knowledge, satisfied such requirements in all material respects (h) With respect to each Employee Plan to which the Company or any ERISA Affiliate made, or was required to make, contributions on behalf of any employee during the five-year period ending on the last day of the most recent plan year end prior to the Closing Date, (i) no liability under Title IV or Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate that has not been satisfied in full, and (ii) to the knowledge of the Company, no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring any such liability and (iii) the present value of accrued benefits under such plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such plan's actuary with respect to such plan did not exceed, as of its latest valuation date, the then current value of the assets of such plan allocable to such accrued benefits. No Employee Plan or any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recently ended fiscal year. (i) Except as set forth in Section 3.10(i) of the Company Disclosure Schedule, no Employee Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by Section 4980B of the Code, Section 601 of ERISA or other applicable law, (ii) death benefits under any "pension plan," (iii) benefits the full cost of which is borne by the employee (or his beneficiary) or (iv) Employee Plans that can be amended or terminated by the Company without consent. The Company does not have any current or projected liability with respect to post-employment or post-retirement welfare benefits for retired, former, or current employees of the Company. (j) To the Company's knowledge, no material amounts payable under the Employee Plans will fail to be deductible for Federal income tax purposes by virtue of Section 162(m) of the Code. (k) To the extent that the Company is deemed to be a fiduciary with respect to any Plan that is subject to ERISA, the Company (i) during the past five years has complied in all material respects with the requirements of ERISA and the Code in the performance of its duties and responsibilities with respect to such employee benefit plan and (ii) has not knowingly caused any of the trusts for which it serves as an investment manager, as defined in Section 3(38) of ERISA, to enter into any transaction that would constitute a "prohibited transaction" under Page 16 Section 406 of ERISA or Section 4975 of the Code, with respect to any such trusts, except for transactions that are the subject of a statutory or administrative exemption. (l) To the Company's knowledge, no person will be entitled to a "gross up" or other similar payment in respect of excise taxes under Section 4999 of the Code with respect to the transactions contemplated by this Agreement. (m) None of the Employee Plans have been completely or partially terminated and , to the Company's knowledge, none has been the subject of a "reportable event" as that term is defined in Section 4043 of ERISA. No amendment has been adopted which would require the Company or any ERISA Affiliate to provide security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code. SECTION 3.11 LABOR MATTERS. (a) With respect to employees of the Company: (i) to the knowledge of the Company, no senior executive or key employee has any plans to terminate employment with the Company; (ii) there is no unfair labor practice charge or complaint against the Company pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or any other comparable Governmental Entity; (iii) there is no demand for recognition made by any labor organization or petition for election filed with the National Labor Relations Board or any other comparable Governmental Entity; (iv) no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and, to the knowledge of the Company, no claims therefor have been threatened other than grievances or arbitrations incurred in the ordinary course of business; (v) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not give rise to termination of any existing collective bargaining agreement or permit any labor organization to commence or initiate any negotiations in respect of wages, hours, benefits, severance or working conditions under any such existing collective bargaining agreements; and (vi) there is no litigation, arbitration proceeding, governmental investigation, administrative charge, citation or action of any kind pending or, to the knowledge of the Company, proposed or threatened against the Company relating to employment, employment practices, terms and conditions of employment or wages, benefits, severance and hours. (b) Section 3.11(b) of the Company Disclosure Schedule lists the name, title, date of employment and current annual salary of each current salaried employee whose annual salary exceeds $100,000. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of the Company, from the Company under any Employee Plan or other agreement, (ii) materially increase any benefits otherwise payable under any Employee Plan or other agreement, or (iii) result in the acceleration of the time of payment, exercise or vesting of any such benefits. (c) Section 3.11(c) of the Company Disclosure Schedule sets forth all contracts, agreements, plans or arrangements covering any employee of the Company or its subsidiaries containing "change of control," "stay-put," transition, retention, severance or similar provisions, Page 17 and sets forth the names and titles of all such employees, the amounts payable under such provisions, whether such provisions would become payable as a result of the Merger and the transactions contemplated by this Agreement, and when such amounts would be payable to such employees, all of which are in writing, have heretofore been duly approved by the Company, and true and complete copies of all of which have heretofore been delivered to Parent. There is no contract, agreement, plan or arrangement (oral or written) covering any employee of the Company that individually or collectively could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code. SECTION 3.12 ENVIRONMENTAL MATTERS. Except for such matters which would not, individually or in the aggregate, reasonably be expected to result in a material adverse effect on the Company or are listed in Section 3.12 of the Company Disclosure Schedule: (a) COMPLIANCE. (i) To the Company's knowledge, the Company is in compliance in all material respects with all applicable Environmental Laws; (ii) the Company has not received any written communication from any person or governmental entity that alleges that the Company is not in compliance with applicable Environmental Laws; and (iii) to the Company's knowledge, there have not been any Releases of Hazardous Substances by the Company, at any property currently or formerly owned or operated by the Company that occurred during the period of the Company's ownership or operation of such property. (b) ENVIRONMENTAL PERMITS. To the Company's knowledge, the Company has all Environmental Permits necessary for the conduct and operation of its business, and all such permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and, to the Company's knowledge, the Company is in compliance with all terms and conditions of all such Environmental Permits and is not required to make any expenditure in order to obtain or renew any Environmental Permits. (c) ENVIRONMENTAL CLAIMS. There is no environmental litigation, action, suit, case, proceeding pending or, to the Company's knowledge, threatened, against the Company, or against any real or personal property or operation that the Company owns, leases or manages. (d) As used in this Agreement: (i) "Environmental Laws" shall mean any and all binding and applicable local, municipal, state, federal or international law, statute, treaty, directive, decision, judgment, award, regulation, decree, rule, guidance, order, direction, consent, authorization, permit or similar requirement, approval or standard concerning (A) occupational, consumer and/or public health and safety, and/or (B) environmental matters (including clean-up standards), with respect to buildings, equipment, soil, sub-surface strata, air, surface water, or ground water, whether set forth in applicable law, whether to facilities such as those of the Company Properties in the jurisdictions in which the Company Properties are located or to facilities such as those used for the transportation, storage or disposal of Hazardous Substances generated by the Company or otherwise. Page 18 (ii) "Environmental Permits" shall mean Permits required by Environmental Laws. (iii) "Hazardous Substances" shall mean any and all dangerous substances, hazardous substances, toxic substances, radioactive substances, hazardous wastes, special wastes, controlled wastes, oils, petroleum and petroleum products, computer component parts, hazardous chemicals and any other materials which are regulated by the Environmental Laws or otherwise found or determined to be potentially harmful to human health or the environment. (iv) "Release" shall mean any spilling, leaking, pumping, emitting, emptying, discharging, injecting, escaping, leaching, migrating, dumping or disposing of Hazardous Substances (including the abandonment or discarding of barrels, containers or other closed receptacles containing Hazardous Substances) into the environment. SECTION 3.13 INTELLECTUAL PROPERTY. (a) Section 3.13(a) of the Company Disclosure Schedule sets forth, for the Intellectual Property (as defined below) owned or purported to be owned by the Company, a complete and accurate list of any U.S. and foreign (i) patents and patent applications, (ii) trademarks and service marks which are registered or the subject of an application for registration and material unregistered trademarks or service marks , (iii) copyrights which are registered or the subject of an application for registration, and (iv) Internet domain names. The Company owns or has the valid right to use all patents and patent applications, patent rights, trademarks, service marks, trademark or service mark registrations and applications, trade names, logos, designs, Internet domain names, slogans and general intangibles of like nature, together with all goodwill related to the foregoing, copyrights, copyright registrations, renewals and applications, Software (as defined below), technology, inventions, discoveries, trade secrets and other Confidential Information, know-how, proprietary processes, designs, processes, techniques, formulae, algorithms, models and methodologies, licenses, and all other proprietary rights (collectively, the "Intellectual Property") that it owns or is licensed to Company in a manner sufficient for the conduct of the business of the Company as it currently is conducted. "Software" means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, (iv) the technology supporting and content contained on any owned or operated Internet site(s), and (v) all documentation, including user manuals and training materials, relating to any of the foregoing. (b) All of the Intellectual Property owned or purported to be owned by the Company is free and clear of all Liens, other than any Company Permitted Liens. (c) Any of the patents, patent applications, trademarks, service marks and copyrights owned by the Company which have been issued by, or registered or the subject of an Page 19 application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or in any similar office or agency anywhere in the world, including, but not limited to any items listed in Section 3.13(a) of the Company Disclosure Schedule are subsisting, enforceable, in full force and effect, and have not been cancelled, expired, abandoned or otherwise terminated and all renewal fees in respect thereof have been duly paid and are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications) and are, to the Company's knowledge, valid. There is no pending or, to the Company's knowledge, threatened opposition, interference, invalidation or cancellation proceeding before any court or registration authority in any jurisdiction against any of the items listed in Section 3.13(a) of the Company Disclosure Schedule or, to the Company's knowledge, against any other Intellectual Property used by the Company. (d) Subject to the disclaimer set forth in Section 3.13(f), the conduct of the Company's business as currently conducted does not infringe upon (either directly or indirectly such as through contributory infringement or inducement to infringe), dilute, misappropriate or otherwise violate (i) any Intellectual Property owned or controlled by any third party ("Third Party Rights"), other than the rights of any third party under any patent, or (ii) to the Company's knowledge, the rights of any third party under any patent. There are no pending, or, to the knowledge of the Company, threatened claims against the Company alleging that the operation of the business as currently conducted, infringes on or conflicts with any Third Party Rights. (e) To the Company's knowledge, no third party is misappropriating, infringing, diluting, or violating any Intellectual Property owned or purported to be owned by or licensed to or by the Company and no such claims have been made against a third party by the Company. (f) Notwithstanding anything contained herein to the contrary, except with respect to the Great Plains Software licenses, the Company makes no representation or warranty regarding the status of any Software licenses. (g) Subject to the disclaimer set forth in Section 3.13(f), the Section 3.13(g) of Company Disclosure Schedule sets forth a complete list of all agreements under which the Company is granted rights to acquire or use the Intellectual Property of a third party (other than shrink-wrap general purpose software) (the "Company IP Agreements"). Except as set forth in Section 3.13(g) of Company Disclosure Schedule, the Company is not under any obligation to pay royalties or other payments in connection with any Company IP Agreement, nor restricted from assigning its rights respecting Intellectual Property nor will the Company otherwise be, as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any Company IP Agreement. Each Company IP Agreement is in full force and effect and has not been amended. Neither the Company nor, to the knowledge of the Company, any other party thereto, is in default or breach under any such Company IP Agreement. No event has occurred which, with the passage of time or the giving of notice or both, would cause a breach of or default by the Company under any of the Company IP Agreements and, to the knowledge of the Company, there is no breach or anticipated breach by any other party to any Company IP Agreement. (h) To the Company's knowledge, the Products do not intentionally contain any "viruses", "time-bombs", "key-locks", or any other devices intentionally created that could Page 20 disrupt or interfere with the operation of the Products or the integrity of the data, information or signals they produce in a manner adverse to the Company or any licensee or recipient. (i) To the Company's knowledge, the Company has not embedded any open source, copyleft or community source code in any of its Products which are generally available or in development, including but not limited to any libraries or code licensed under the GNU General Public License, GNU Lesser General Public License or similar license arrangement. SECTION 3.14 INSURANCE MATTERS. The Company has all material primary insurance providing insurance coverage that is customary in amount and scope for companies in the industry in which the Company operates. All such policies are in full force and effect, all premiums due and payable thereon have been paid and no written notice or, to the Company's knowledge, oral notice of cancellation or termination has been received and is outstanding. SECTION 3.15 TRANSACTIONS WITH AFFILIATES. Except as set forth on Section 3.15 of the Company Disclosure Schedule, there are no outstanding amounts payable to or receivable from, loans, leases or other existing agreements between the Company on the one hand, and any member, officer, manager, employee or affiliate of the Company or any family member or affiliate of such member, officer, manager, employee or affiliate, on the other hand. SECTION 3.16 VOTING REQUIREMENTS. The affirmative vote (in person or by duly authorized and valid proxy at a Company stockholders' meeting or by written consent) of the holders of all of the outstanding Company Common Stock in favor of the adoption of this Agreement is the only vote of the holders of any class or series of the Company's capital stock required by applicable law and the Company's organizational instruments to duly effect such adoption. SECTION 3.17 BROKERS. No broker, investment banker, financial advisor, finder, consultant or other person is entitled to any broker's, finder's, financial advisor's or other similar fee, compensation or commission, however and whenever payable, in connection with the Merger and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. SECTION 3.18 REAL PROPERTY. (a) The Company does not own any real property. The Company has valid leaseholds in all real estate leased by it, other than Company Permitted Liens. Section 3.18(a) of the Company Disclosure Schedule sets forth a complete list of all real property leased, subleased, or otherwise occupied or used by the Company as lessee. With respect to each parcel of real property leased, subleased, or otherwise occupied or used by the Company as lessee: (i) the Company has a valid leasehold interest or other right of use and occupancy, free and clear (other than Company Permitted Liens) of any Liens on such leasehold interest or other rights of use and occupancy, except as do not materially affect the occupancy or uses of such property. Each of the Company's agreements with respect to real property leased, subleased, or otherwise occupied or used by the Company as lessee is in full force and effect and has not been amended. The Company is not, and to the knowledge of the Company, no other party thereto, is in material default or material breach under any such agreement. No event has occurred which, with the Page 21 passage of time or the giving of notice or both, would cause a material breach of or default by the Company under any of such agreement and, to the knowledge of the , there is no breach by any other party to such agreements. (b) As used in this Agreement, Company Permitted Liens shall mean: (i) any Lien reflected in Section 3.18(b)(i) of the Company Disclosure Schedule, (ii) Liens for Taxes not yet due or delinquent or as to which there is a good faith dispute and for which there are adequate provisions on the books and records of the Company for the year ended December 31, 2004 in accordance with GAAP, (iii) with respect to real property, any Lien, encumbrance or other title defect (x) which is not in a liquidated amount (whether material or immaterial) and which does not, individually or in the aggregate, interfere materially with the current use or materially detract from the value or marketability of such property (assuming its continued use in the manner in which it is currently used); or (y) which is on any real property leased by the Company, as lessee, but which was not created by the Company, (iv) the rights of parties to and/or any beneficiaries under any contract, license agreement, commitment, lease or Permit, (v) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, bonds and other obligations of a like nature and (vi) inchoate materialmen's, mechanics', carriers', workmen's, repairmen's, landlord's and statutory liens arising in the ordinary course and not past due and payable or the payment of which is being contested in good faith by appropriate proceedings. SECTION 3.19 TANGIBLE PERSONAL PROPERTY. Except as would not materially impair the Company and its operations, the machinery, equipment, furniture, fixtures and other tangible personal property (the "Tangible Personal Property") owned, leased or used by the Company is in the aggregate sufficient and adequate to carry on business in all material respects as presently conducted and is, in the aggregate and in all material respects, in reasonably good operating condition and repair, normal wear and tear excepted. The Company is in possession of and has good title to, or valid leasehold interests in or valid rights under contract to use, the Tangible Personal Property material to the Company, taken as a whole, free and clear of all Liens, other than the Company Permitted Liens. SECTION 3.20 INVESTMENT COMPANY. The Company is not an investment company required to be registered as an investment company pursuant to the Investment Company Act of 1940. SECTION 3.21 BOARD APPROVAL. Pursuant to meetings duly noticed and convened in accordance with all applicable laws and at each of which a quorum was present, the Board of Directors of the Company, after full and deliberate consideration, unanimously (other than for directors who abstain) has (i) duly approved this Agreement and resolved that the Merger and the transactions contemplated hereby are fair to, advisable and in the best interests of the Company's shareholders, (ii) resolved to unanimously recommend that the Company's shareholders approve the Merger and the transactions contemplated hereby and (iii) directed that the Merger be submitted for consideration by the holders of Company Common Stock . SECTION 3.22 BOOKS AND RECORDS. Except as set forth in Section 3.22 of the Company Disclosure Schedule, the Company maintains and has maintained in all material respects accurate books and records reflecting its assets and liabilities and accounts, notes and Page 22 other receivables and inventory are recorded accurately in all material respects, and reasonably adequate procedures are implemented to effect the collection thereof on a current and timely basis. SECTION 3.23 STATUS OF COMPANY CAPITAL STOCK BEING TRANSFERRED. Curmi and Kathryn Frank own all of the issued and outstanding capital stock of the Company, and have full power to convey good and marketable title to their capital stock, free of any liens, charges, or encumbrances of any nature. SECTION 3.24 INVESTMENT IN PARENT COMMON STOCK. (a) Curmi, the only Stockholder receiving Parent Common Stock hereunder, is an "accredited investor" as defined in Rule 501(a)(3) under the Securities Act of 1933, as amended (the "Securities Act"). (b) Curmi is acquiring the shares of Parent Common Stock to be issued hereunder for investment for his own account, and not for the account of another person, and not with a view to, or for sale in connection with, any distribution, assignment, or resale of any part thereof in violation of the Securities Act, nor with any present intention of any such distribution, assignment, or resale. Alfred Curmi understands that the shares of Parent Common Stock to be issued to him hereunder have not been registered in the United States under the Securities Act or applicable state securities laws and may not be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or pursuant to any exemption from such registration requirements, and that certificates representing the shares of Parent Common Stock shall bear legends to this effect. Alfred Curmi understands that Parent's issuance of the shares of Parent Common Stock contemplated by this Agreement is intended to be exempt from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Curmi's representations as expressed herein. Curmi is neither a party to nor bound by any agreement regarding the ownership or disposition of the shares of Parent Common Stock other than this Agreement and the Registration Rights Agreement. (c) Curmi has made independent investigation of Parent and related matters as (i) he deems to be necessary or advisable in connection with his investment in and acceptance of the shares of Parent Common Stock to be issued to him hereunder and (ii) he believes to be necessary in order to reach an informed decision as to the advisability of making an investment in and accepting the shares of Parent Common Stock to be issued to him hereunder. Without limiting the foregoing, Curmi has reviewed the Parent SEC Documents (as hereinafter defined) and the Parent's other publicly-available SEC filings that are available on EDGAR or that have been delivered by Parent to Alfred Curmi. In evaluating his investment in and acceptance of the shares of Parent Common Stock to be issued to him hereunder, Curmi has not relied upon any representation or other information (oral or written) of Parent other than as set forth in such Parent SEC Documents, such other SEC filings or this Agreement or the other Transaction Documents. (d) Curmi has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of his investment in the Parent Common Page 23 Stock as contemplated by this Agreement, and is able to bear the economic risk of such investment for an indefinite period of time. Curmi is not relying on Parent for advice with respect to economic considerations involved in its acquisition and acceptance of the shares of Parent Common Stock. However, Curmi is relying on representations, statements and other information set forth in the Parent SEC Documents, Parent's other publicly-available SEC filings, this Agreement and the other Transaction Documents. SECTION 3.25 DISCLOSURE. None of the representations and warranties made by the Company and/or the Stockholder in this Agreement and contained in any certificate or other instrument furnished or to be furnished to Parent pursuant to this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary in order to make the statements contained in this Agreement not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT Except as set forth on the Disclosure Schedule delivered by Parent to the Company and the Stockholder prior to the execution of this Agreement which is hereby incorporated by reference in and constitutes an integral part of this Agreement (the "PARENT DISCLOSURE SCHEDULE"), Parent and the Merger Sub hereby represent and warrant to the Company and the Stockholder as follows: SECTION 4.1 ORGANIZATION, STANDING AND CORPORATE POWER. (a) Each of Parent and its subsidiaries (including the Merger Sub) is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate power and requisite authority to carry on its business as presently being conducted. Each of Parent and its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not reasonably be expected to have a material adverse effect on Parent. (b) Parent has delivered or made available to the Company and the Stockholder prior to the execution of this Agreement complete and correct copies of the certificate of incorporation and by-laws or other organizational documents of Parent and its subsidiaries and any and all other agreements, documents and instruments setting forth or affecting the powers, designations, preferences and relative participating, optional, and other special rights of each class or and series of the shares of capital stock of Parent and the qualifications, limitations or restrictions of such shares, each as in effect at the date of this Agreement (the "Parent Organizational Documents"). SECTION 4.2 CAPITAL STRUCTURE. (a) The authorized capital stock of Parent consists of 200,000,000 shares of Parent Common Stock, and 5,000,000 shares of Series A Preferred Stock, par value $.001 per Page 24 share, of Parent ("PARENT PREFERRED STOCK"). As of the date hereof: (i) 103,919,642 shares of Parent Common Stock were issued and outstanding; (ii) 1,433,639 shares of Parent Common Stock were held by Parent in its treasury; (iii) no shares of Parent Common Stock were held by subsidiaries of Parent; (iv) approximately 21,563,337 shares of Parent Common Stock were reserved for issuance pursuant to stock-based plans (such plans, collectively, the "PARENT STOCK PLANS"), all of which are subject to outstanding employee stock options or other rights to purchase or receive Parent Common Stock granted under the Parent Stock Plans (collectively, "PARENT EMPLOYEE STOCK OPTIONS"); (v) 14,893,333 shares of Parent Common Stock are reserved for issuance pursuant to convertible notes, (vi) 15,101,026 shares of Parent Common Stock were reserved for issuance pursuant to outstanding warrants. As of the date hereof, (w) 2,466,971 shares of Parent Preferred Stock were issued and outstanding; (x) no shares of Parent Preferred Stock were held by Parent in its treasury; (y) no shares of Parent Preferred Stock were held by subsidiaries of Parent; and (z) 33,029 shares of Parent Preferred Stock were reserved for issuance pursuant to outstanding warrants. (b) All outstanding shares of capital stock of Parent have been, and all shares thereof which may be issued pursuant to this Agreement or otherwise (including upon exercise of Parent Stock Options and outstanding warrants, the conversion of outstanding convertible notes, the conversion of the Parent Series A Preferred Stock) will be, when issued, duly authorized and validly issued and are fully paid and nonassessable and are not subject to preemptive rights created by statute, the Parent's articles of incorporation or any agreement to which Parent is a party or by which Parent may be bound. Except as set forth in this Section and except for changes since the date of this Agreement resulting from the exercise of any Parent Employee Stock Options outstanding on such date, there are outstanding (i) no shares of capital stock or other voting securities of Parent, (ii) no securities of Parent convertible into or exchangeable for shares of capital stock or voting securities of Parent, and (iii) no options or other rights to acquire from Parent, other than Employee Stock Options, and no obligation of Parent to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock of Parent. (c) Parent has a sufficient number of duly authorized but unissued shares of Parent Common Stock to issue the maximum number of such Parent Shares contemplated by Article II of this Agreement as part of the Merger Consideration. As soon as practicable after the Closing, Parent shall take all necessary actions, including but not limited to, amending Parent's articles of incorporation, to ensure that Parent will have sufficient shares of duly authorized but unissued Parent Common Stock reserved to issue upon conversion of the Promissory Note or any part thereof. The shares of Parent Common Stock to be issued and delivered hereunder and upon any conversion of the Promissory Note will be duly authorized, duly and validly issued, fully paid and non-assessable, free and clear of any and all preemptive rights, rights of first refusal or other encumbrances of any nature. (d) The authorized capital stock of the Merger Sub consists of 200 shares of Common Stock, $.001 par value ("Merger Sub Common Stock"), of which 200 shares of Merger Sub Common Stock are issued and outstanding and held (and as of the Closing will continue to be held) by Parent of record and beneficially. The Merger Sub is a newly formed subsidiary of Parent with no obligations except as contemplated by this Agreement. Page 25 (e) The Board of Directors of Parent has approved this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby, and the provisions of any "control share acquisition," "interested shareholders," "fair price," "affiliated transaction" or other anti-takeover statute or regulation and any anti-takeover or other restrictive provisions of Parent's articles of incorporation (i) are not applicable to the Merger, the issuance of the Parent Shares, the issuance of the Promissory Note and the other transactions contemplated by this Agreement or other Transaction Documents, and (ii) will not limit the Stockholder's rights to purchase additional shares of Parent Common Stock granted to the Stockholder under the Transaction Documents or to exercise any rights (including voting rights) with respect to any shares of Parent Company Stock acquired hereunder or thereunder. SECTION 4.3 AUTHORITY; NONCONTRAVENTION. (a) Each of Parent and the Merger Sub has the corporate power and authority to execute, deliver and perform this Agreement, the Promissory Note, and the other agreements to be executed and delivered by them in connection herewith, to consummate the transactions contemplated hereby and thereby, and to convey good and marketable title to the shares of Parent Common Stock to be issued and delivered hereunder and upon any conversion of the Promissory Note, free of any and all preemptive rights, rights of first refusal or other encumbrances of any nature. All corporate acts and proceedings required to be taken by or on the part of each of Parent and the Merger Sub to authorize Parent and Merger Sub to execute, deliver and perform this Agreement, the Promissory Note and the other agreements to be executed and delivered by Parent and/or Merger Sub in connection herewith, to issue and deliver to the Company Stockholders the shares of Parent Common Stock to be issued under this Agreement and under the Promissory Note and to consummate the transactions contemplated hereby and thereby have been duly and validly taken. This Agreement constitutes a valid and binding agreement, and the Promissory Note and the other agreements to be executed and delivered by Parent in connection herewith when so executed and delivered will constitute valid and binding agreements, of each of Parent and the Merger Sub, enforceable in accordance with their respective terms. (b) The execution and delivery of this Agreement, the Promissory Note and the other agreements to be executed and delivered by Parent and/or the Merger Sub, as applicable, in connection herewith does not, and the issuance and delivery to the Company Stockholders of the shares of Parent Common Stock to be issued under this Agreement and the Promissory Note and the consummation of the transactions contemplated hereby and thereby will not, conflict with or result in a violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation under (i) any provision of any Parent Organizational Documents or the organization documents of the Merger Sub, (ii) any material loan or credit agreement, note, mortgage, indenture, lease or other material agreement to which Parent or Merger Sub is a party or (iii) any material instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or Merger Sub or their respective properties or assets. (c) Except for the filing by Purchase of a Notice of Sale of Securities on Form D and other notices or filings by Parent which may be required under state securities laws, the execution, delivery and performance by Parent and Merger Sub, as applicable, of this Agreement, the Promissory Note and the other agreements to be executed and delivered by Page 26 Parent and/or Merger Sub in connection herewith does not, and the issuance and delivery to the Stockholder of the shares of Parent Common Stock to be issued under this Agreement and the Promissory Note and the consummation of the transactions contemplated hereby and thereby will not, require any consent, approval, order or authorization of, action by or in respect of, or registration or filing with, any Governmental Entity. (d) The execution, delivery and performance by Parent and Merger Sub, as applicable, of this Agreement, the Promissory Note and the other agreements to be executed and delivered by Parent and/or Merger Sub, as applicable, in connection herewith does not, and the issuance and delivery to the Stockholder of the shares of Parent Common Stock to be issued under this Agreement and the Promissory Note and the consummation of the transactions contemplated hereby and thereby will not, result in the creation of any Liens upon any asset of Parent or Merger Sub. (e) Except as set forth in Section 4.3(e) of the Company Disclosure Schedule, no consent, approval, waiver or other action by any person (other than the Governmental Entities referred to in (c) above) under any Parent Material Contract is required or necessary for, or made necessary by reason of, the execution, delivery and performance by Parent of this Agreement the Promissory Note and the other agreements to be executed and delivered by Parent in connection herewith, nor the issuance and delivery to the Stockholder of the shares of Parent Common Stock to be issued under this Agreement and the Promissory Note, nor the consummation of the transactions contemplated hereby and thereby. SECTION 4.4 PARENT DOCUMENTS. (a) As of their respective filing dates, (i) all reports filed by Parent with the Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act (the "PARENT SEC DOCUMENTS") complied in all material respects with the requirements of the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Documents, and (ii) no Parent SEC Documents, as of their respective dates contained any untrue statement of a material fact or omitted, and no Parent SEC Document filed subsequent to the date hereof will omit as of their respective dates, to state a material fact required to be stated therein or necessary to make the statements therein (in the case of registration statements of the Parent under the Securities Act, in light of the circumstances under which they were made) not misleading. Parent has made available to the Company and the Stockholder true and correct copies of its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2004, June 30, 2004, and September 30, 2004, and a true and correct copy of its proxy statement relating to its 2004 annual meeting of stockholders held on November 17, 2004. (b) The financial statements of Parent included in the Parent SEC Documents (including the related notes) complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by Quarterly Report Form 10-Q of the SEC) applied on a consistent basis during the periods and at the dates involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial condition of Parent and its subsidiaries at the dates thereof and the consolidated results of operations and cash flows Page 27 of Parent and its subsidiaries for the periods then ended (subject, in the case of unaudited statements, to notes and normal year-end audit adjustments that were not material in amount or effect). Except for liabilities (i) reflected in Parent's unaudited balance sheet as of December 31, 2004 or described in any notes thereto (or for which neither accrual nor footnote disclosure is required pursuant to GAAP), (ii) incurred in the ordinary course of business since December 31, 2004 consistent with past practice or in connection with this Agreement or the transactions contemplated hereby, or (iii) set forth on Schedule 4.4(b) of the Parent Disclosure Schedule, neither Parent nor any of its subsidiaries has any material liabilities or obligations of any nature. Parent is not in material default in respect of any terms or conditions of any indebtedness, nor does any default exist which could have a material adverse effect on the business, assets, liabilities, condition (financial or otherwise), cash flows or results of operations of Parent or its subsidiaries, or on the ability of the Parent to perform its obligations under this Agreement or the Transaction Documents. SECTION 4.5 PERMITS; COMPLIANCE WITH APPLICABLE LAWS. (a) To Parent's knowledge, Parent and its subsidiaries own and/or possess all material Permits which are required for the operation of the business of Parent and its subsidiaries as presently conducted. To the Parent's knowledge, Parent and its subsidiaries are in compliance in all material respects with the terms of their Permits. All of its Permits are in full force and effect and no suspension, modification or revocation of any of them is pending or, to the Parent's knowledge, threatened nor, to the Parent's knowledge, do grounds exist for any such action. (b) To the Parent's knowledge, each of Parent and its subsidiaries is in compliance in all material respects with all applicable statutes and laws applicable to Parent or any of its subsidiaries, and with all regulations, ordinances, rules, writs, judgments, orders, decrees and arbitration awards of each Governmental Entity applicable to Parent or any of its subsidiaries. (c) To Parent's knowledge, Parent and each of its subsidiaries has timely filed all regulatory reports, schedules, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that they were required to file with each Governmental Entity, and have timely paid all fees and assessments, if any, due and payable in connection therewith, except where the failure to make such payments and filings individually or in the aggregate would not have a material adverse effect on Parent. SECTION 4.6 ABSENCE OF LITIGATION. Section 4.6 of the Parent Disclosure Schedule contains a true and current summary description of each pending and, to the Parent's knowledge, threatened litigation, action, suit, case, proceeding, investigation or arbitration. Except as set forth in Section 4.6 of the Parent Disclosure Schedule, no action, inquiry, demand, charge or investigation by any Governmental Entity and no litigation, action, suit, case, proceeding, investigation or arbitration by any person or Governmental Entity, in each case with respect to Parent, or its subsidiaries or any of their respective properties or Permits, is pending or, to the knowledge of Parent, threatened. Except as set forth on Section 4.6 of the Parent Disclosure Schedule ,as of the date hereof, (i) neither Parent nor any of its subsidiaries is subject to any material order, consent decree, settlement or similar agreement with any Governmental Entity, Page 28 and (ii) since the date of the last Parent SEC Document, there has been no judgment, injunction, decree, order or other determination of an arbitrator or Governmental Entity applicable to Parent or any of its subsidiaries. SECTION 4.7 VOTING REQUIREMENTS. No consent or approval of the holders of the outstanding shares of Parent Common Stock or any other class of Parent capital stock is required to approve the Merger and the transactions contemplated by this Agreement under applicable law or the Parent's organizational instruments. SECTION 4.8 BROKERS. Except for Inveraray Partners, LLC, the fees and expenses of which will be paid by Parent, no broker, investment banker, financial advisor, finder, consultant or other person is entitled to any broker's, finder's, financial advisor's or other similar fee, compensation or commission, however and whenever payable, in connection with the Merger and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent and/or Merger Sub. Parent hereby agrees to indemnify, hold harmless and defend the Company from and against any and all claims, losses, liability, costs and expenses (including reasonable attorneys' fees and expenses at or before the trial level and any appellate proceedings) arising out of any claim made by Inveraray Partners, LLC for fees, compensation, commissions and expenses in connection with the transactions contemplated by this Agreement. SECTION 4.9 BOARD APPROVAL. Pursuant to meetings duly noticed and convened in accordance with all applicable laws and at each of which a quorum was present, the Board of Directors of Parent, after full and deliberate consideration, unanimously (other than for directors who abstain) has duly adopted this Agreement and the other Transaction Documents and resolved that the Merger and the transactions contemplated hereby and thereby are fair to, advisable and in the best interests of Parent's shareholders. The Boards of Directors of Parent and Merger Sub have duly approved this Agreement and the other Transaction Documents and have determined that the Merger is advisable. SECTION 4.10 BOOKS AND RECORDS. Each of Parent and its subsidiaries maintains and has maintained accurate books and records reflecting its assets and liabilities and accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis. SECTION 4.11 SARBANES OXLEY ACT COMPLIANCE. Parent is in material compliance with all presently effective and applicable provisions of the Sarbanes Oxley Act of 2002 (the "SARBANES OXLEY ACT") and is actively taking steps to ensure that it will be in compliance with other provisions of the Sarbanes Oxley Act upon the effectiveness or applicability to Parent of such provisions. SECTION 4.12 FINANCIAL PROJECTIONS. Any financial projections, sales forecasts or forward-looking statements (collectively, the "PROJECTIONS") regarding the Company that have been or may be provided to Purchaser or any of its representatives by the Company or the Stockholder have been or will be provided without any representation or warranty as to their accuracy. Neither Parent nor any of its subsidiaries has relied on any Projections in making their determination to enter into this Agreement or to consummate the Parent of any other transaction contemplated hereby. Page 29 SECTION 4.13 DISCLOSURE. None of the representations and warranties made by Parent and/or Merger Sub in this Agreement or contained in any other Transaction Document furnished or to be furnished to the Company or the Stockholder pursuant to this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary in order to make the statements contained in this Agreement or such other Transaction Documents, not misleading. SECTION 4.14 CONTINUITY OF BUSINESS. Neither Parent nor the Merger Sub has taken any action that would create a material risk that the Merger would not qualify as a reorganization within the meaning of section 368(a)(2)(D) of the Code. Neither Parent nor the Merger Sub, as applicable, will make an election under Section 338 of the Code. Immediately after the Closing, the Surviving Corporation or a member of a "qualified group" (as defined in Treasury Regulations Section 1.368-1(d)(4)) determined with respect to the Surviving Corporation will hold all or substantially all of the assets of the Company. Prior to and as of the Closing it is the plan and intention of Parent to continue the historic business of the Company or to use a significant portion of the Company's historic business assets in a business within the meaning of the "continuity of business enterprise" regulations issued under Treasury Regulations Section 1.368-1(d). SECTION 4.15 FUNDS AVAILABLE. Parent has and will have at the Closing adequate resources available to pay and deliver the Cash Consideration and the other Merger Consideration. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS SECTION 5.1 CONDUCT OF BUSINESS BY THE COMPANY. Except as required by applicable law or regulation and except as otherwise contemplated by this Agreement, until the earlier of the termination of this Agreement or the Closing Date, the Company shall conduct its business in the ordinary course and consistent with past practices. Accordingly, except as set forth in Section 5.1 of the Company Disclosure Schedule, except as required by applicable law or regulation, except as otherwise contemplated by this Agreement or except as consented to in advance by Parent, in writing (which consent shall not be unreasonably withheld or delayed), after the date hereof and until the earlier of the termination of this Agreement or the Closing Date, the Company shall not: (a) amend or otherwise change its certificate of incorporation or bylaws; (b) issue, sell, pledge, dispose of, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any capital stock of any class, or options, warrants, convertible securities or other rights of any kind to acquire capital stock, or any other ownership interest, thereof, or (ii) any of its assets, tangible or intangible, except in the ordinary course of business, consistent with past practice; (c) except in the ordinary course of business, consistent with past practices, declare, set aside, make or pay any dividend or other distribution, payable in cash, property or Page 30 otherwise, with respect to its capital stock; notwithstanding anything contained in this Agreement or any Transaction Document to the contrary, the Company may pay any and all dividends or other distribution to the Stockholder and the other Company Stockholders any amounts necessary to pay any Taxes for the fiscal year ended December 31, 2004 and any tax year deemed ended as of the Closing Date. (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) acquire (including, without limitation, for cash or capital stock, by purchase, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or, except in the ordinary course of business, consistent with past practice, purchase any property or assets of any other person, (ii) except in the ordinary course of business, consistent with past practice, incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances, or (iii) except in the ordinary course of business, consistent with past practice, enter into any Company Material Contract; (f) make any capital expenditure in excess of $25,000 individually or enter into any contract or commitment therefore, except in the ordinary course of business, consistent with past practice; (g) amend, terminate or extend any Company Material Contract, except in the ordinary course of business, consistent with past practice and except for any such termination as a result of a breach or default (or anticipatory breach or default) by the other party to any such Company Material Contract; (h) delay or accelerate payment of any account payable or other liability of the Company beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of business consistent with past practice; or (i) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty contained in Article III untrue or incorrect in any material respect. SECTION 5.2 ADVICE OF CHANGES. Each of the Stockholder, the Company, Parent and the Merger Sub, shall promptly advise the other party orally and in writing to the extent it has knowledge of (i) any representation or warranty made by them contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect, (ii) the failure by any of them to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by them under this Agreement; (iii) any suspension or termination, or any material modification, change or other alteration of any agreement, arrangement, business or other relationship with any of the Company's or Parent's material customers or suppliers, as applicable; or (iv) any change or event having, or which, insofar as Page 31 reasonably can be foreseen, could have a material adverse effect on the Company or Parent, as applicable, or on the accuracy and completeness of its representations and warranties or the ability of the Stockholder or the Company, or Parent or the Merger Sub, as applicable, to satisfy the conditions set forth in Article VII; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement; and provided further that a failure to comply with this Section 5.2 shall not constitute a failure to be satisfied of any condition set forth in Article VII unless the underlying untruth, inaccuracy, failure to comply or satisfy, or change or event would independently result in a failure of a condition set forth in Article VII to be satisfied. SECTION 5.3 NO SOLICITATION BY THE COMPANY. (a) The Company will promptly notify Parent after receipt of any written offer or indication that any person is considering making an offer with respect to a Company Acquisition Proposal or any written request for nonpublic information relating to the Company or for access to the properties, books or records of the Company by any person who has indicated that such person is interested in making, or who has made, an offer with respect to a Company Acquisition Proposal, and will keep Parent fully informed of the status and details of any such offer, indication or request. "Company Acquisition Proposal" means any proposal for a Merger or other business combination involving the Company or the acquisition of any equity interest in, or a substantial portion of the assets of, the Company, other than the transactions contemplated by this Agreement. (b) From the date hereof until the termination hereof pursuant to Section 9.1, the Company and the officers of the Company will not and the Company will use commercially reasonable efforts to cause its directors, employees and agents not to, directly or indirectly, (i) take any action to solicit, initiate or encourage any offer or indication of interest from any person or entity with respect to any Company Acquisition Proposal, (ii) engage in negotiations with, or disclose any nonpublic information relating to the Company to, any person or entity who has indicated that it is interested in making, or who that has made, an offer with respect to a Company Acquisition Proposal, or (iii) afford access to the properties, books or records of the Company to, any person or entity who has indicated that it is interested in making, or who that has made, an offer with respect to a Company Acquisition Proposal. SECTION 5.4 CONDUCT OF BUSINESS BY PARENT. Each of Parent and the Merger Sub will conduct its business in substantially the same manner as before. SECTION 5.5 TRANSITION. To the extent permitted by applicable law, Parent and the Company shall, and shall cause their respective subsidiaries, affiliates, officers and employees to, use their commercially reasonable efforts to facilitate the integration of the Company with the businesses of Parent and its subsidiaries to be effective as of the Closing Date. ARTICLE VI ADDITIONAL AGREEMENTS Page 32 SECTION 6.1 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) The Company and the Stockholder shall afford to Parent and to the officers, directors, current employees, accountants, counsel, financial advisors, agents, lenders and other representatives of Parent (collectively, "Parent Representatives"), reasonable access, upon reasonable prior notice, during normal business hours during the period prior to the Closing Date, to all the Company's properties, books, contracts, commitments, personnel and records for purposes of allowing Parent to complete its due diligence of the Company to effect the transactions contemplated hereunder, and, during such period, shall furnish promptly to Parent (i) a copy of each material report, schedule and other document filed by it with any Governmental Entity, and (ii) all other information concerning its business, properties and personnel as Parent may reasonably request; provided that, any such access and investigation shall be conducted in such a manner as not to interfere unreasonably with the operation of the business of the Company. (b) The parties will hold, and will cause their respective officers, directors, employees, consultants, advisors, counsel, lenders, agents and representatives to hold, in confidence (subject to the provisions of this paragraph, unless compelled to disclose by judicial or administrative process or by other requirements of law), and to not use, directly or indirectly, except in connection with their respective due diligence reviews of each other to effect the transactions contemplated hereunder, any and all documents and information concerning the other party and its subsidiaries furnished to it in connection with the transactions contemplated hereby (collectively, "Confidential Information"), except to the extent that such information can be shown to have been (i) previously known on a nonconfidential basis by the receiving party , (ii) in the public domain through no fault of the receiving party, or (iii) later lawfully acquired by the receiving party from other sources if the receiving party has no reason to believe such source is bound by or is subject to a confidentiality agreement with or obligation to the disclosing party, or that such source is prohibited from transmitting such information by virtue of a contractual, legal or fiduciary obligation to the disclosing party; provided that the receiving party may disclose such information to its officers, directors, employees, consultants, advisors and agents in connection with the Merger so long as such persons are informed of the confidential nature of such information and are directed to and agree in writing to treat such information confidentially. If either party, or any of its officers, directors, employees, consultants, advisors or agents becomes compelled by judicial or administrative process or by other requirements of law to disclose any of the Confidential Information, such party will provide the disclosing party with prompt notice of such requirement prior to disclosing the Confidential Information so that the disclosing party may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Agreement under the specific circumstance. In the event that such protective order or other remedy is not obtained, or the disclosing party waives compliance with the provisions of this paragraph, the receiving party will furnish only that portion of the Confidential Information that it is advised by its legal counsel is required by applicable law or regulation. Each party's obligation to hold such information in confidence shall be satisfied if it exercises the same care with respect to such information as it would exercise to preserve the confidentiality of its own similar information, which in any event, shall not be less than reasonable care. Notwithstanding any other provision of this Agreement, if this Agreement is terminated, such confidence and restriction on use shall continue to be maintained, and upon request by the disclosing party, the receiving party shall promptly return to the disclosing party, Page 33 and cause all of the receiving party's officers, directors, employees, consultants, advisors, counsel, lenders, agents to promptly return to the disclosing party, all of the Confidential Information, and no copies, reproductions or records of the Confidential Information (whether in written or other tangible form or in any other recorded, electronic or magnetic storage form), in whole or in part, shall be retained by the receiving party or its officers, directors, employees, consultants, advisors or agents. (c) The parties acknowledge that a disclosing party will be irreparably harmed if any of the agreements or covenants in this Section 6.1 are not performed in accordance with their terms, and that the disclosing party would not have an adequate remedy at law for money damages if such agreements or covenants were not performed in accordance with their terms. A disclosing party shall be entitled to specific performance of such covenants and agreements, in addition to, and without waiving, any other remedy to which they may be entitled at law or in equity. In the event of any litigation, suit, action, arbitration or other proceeding relating to this Agreement, if a court of competent jurisdiction or arbitrator(s) determines that any provision of this Section 6.1 has been breached by a receiving party or by any of a receiving party's officers, directors, employees, consultants, advisors, counsel, lenders, agents, then the receiving party will reimburse the disclosing party for its costs, disbursements and expenses (including, without limitation, legal fees and expenses) incurred in connection with all such litigation, suits, actions, arbitration or other proceedings, including fees, costs, disbursements and expenses in regulatory and appellate proceedings. A party breaching this Section 6.1 shall reimburse and hold harmless the non-breaching party from any damage, loss or expense (including reasonable attorney's fees) incurred as a result of the use of the Confidential Information by the breaching party contrary to the terms of this Agreement. (d) The parties' obligations under this Section 6.1 shall survive any termination of this Agreement and shall not expire. SECTION 6.2 COMMERCIALLY REASONABLE EFFORTS. Except where otherwise provided in this Agreement, each party will use its commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the Merger as soon as practicable after the satisfaction of the conditions set forth in Article VII hereof, PROVIDED that the foregoing shall not require the Stockholder, the Company, Merger Sub or Parent to take any action or agree to any condition that might, in the reasonable judgment of the Stockholder, the Company, Merger Sub or Parent, as the case may be, have a material adverse effect on the Stockholder, the Company, Merger Sub or Parent, respectively. SECTION 6.3 FEES AND EXPENSES. All costs, fees and expenses incurred in connection with the Merger, this Agreement (including all instruments and agreements prepared and delivered in connection herewith), and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses unless otherwise provided herein or therein; provided, however, notwithstanding anything herein to the contrary, Parent shall bear the expense of the audit of the Company's financial statements for the year ended December 31, 2004. Page 34 SECTION 6.4 PUBLIC ANNOUNCEMENTS. Parent, Merger Sub, Stockholder and the Company shall consult with each other before issuing, and shall provide each other the opportunity to review, comment upon and concur with, and shall use reasonable efforts to agree on, any press release or other public statements or announcements (including pursuant to Rule 165 under the Securities Act and Rule 14a-12 under the Exchange Act) and any broadly distributed internal communications with respect to the Merger, this Agreement and the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement or announcement prior to such consultation, except as either party may determine is required by applicable law or court process (provided prior notice is given to the other party with a copy of any such disclosure). Except as required by applicable law or court process, Parent and Merger Sub shall not disclose, publish or file a copy of this Agreement, the Transaction Documents or the Company Disclosure Schedules with any Governmental Entity or other person without the Stockholder's prior written consent. If Parent is required by applicable law or court process to file a copy of the Company Disclosure Schedule with any Governmental Entity, Parent shall give the Stockholder reasonable advance notice of such obligation so as to provide Stockholder the opportunity to seek confidential treatment with respect to the Merger Consideration and other terms and statements that are set forth in the Company Disclosure Schedules. The parties agree that the initial press releases (or joint press release if the parties so determine) to be issued with respect to the Merger, this Agreement and the transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties. SECTION 6.5 REGULATION D. Parent shall use all reasonable efforts to cause the shares of Parent Common Stock to be issued hereunder in connection with the Merger and the shares of Parent Common Stock to be issued upon any conversion of the Promissory Note to be issued in accordance with Regulation D promulgated under the Securities Act. Each party hereto shall cooperate with the other parties hereto with respect to all filings required pursuant to Regulation D promulgated under the Securities Act and shall not knowingly take any action or fail to act to the extent such action or failure to act would jeopardize the issuance of the shares of Parent Common Stock hereunder in accordance with such Regulation D. SECTION 6.6 COMPANY TAX RETURNS. The Stockholder shall file the Star Solutions, LLC federal income tax return for the tax year ended December 31, 2004, and any tax year deemed ended as of the Effective Time in a timely manner and shall be responsible for all expenses incurred in such filings, including, but not limited to, any taxes due pursuant to such tax returns, which shall be payable by distributing the amount of taxes payable for such year from the Company to the Stockholder prior to Closing. SECTION 6.7 POST-CLOSING ACCESS. Parent agrees that all books and records delivered to Parent by the Stockholder or the Company pursuant to this Agreement shall be open for inspection by the Stockholder at any time during regular business hours upon reasonable notice for a period of five (5) years (or for such longer period as may be required by applicable law) following the Closing and that during such period, the Stockholder may make such copies thereof as it may reasonably desire. Without limiting the generality of the foregoing, Parent shall not destroy or give up possession of any original or final copy of any such books and records delivered to Parent hereunder (whether stored on electronic media or otherwise) without first offering the Stockholder the opportunity to obtain such original or final copy or a copy thereof. Page 35 ARTICLE VII CONDITIONS PRECEDENT SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligation of each party to effect the Merger is subject to the satisfaction or, to the extent permitted by applicable law, waiver by each of Parent and the Stockholder on or prior to the Closing Date of the following conditions: (a) SHAREHOLDER APPROVALS. The Company shall have obtained the consent of its shareholders to the Merger, this Agreement and the transactions contemplated hereby. (b) GOVERNMENTAL AND REGULATORY APPROVALS. All consents, approvals and actions of, filings with and notices to any Governmental Entity required by the Company, Parent or any of their subsidiaries under applicable law or regulation to consummate the Merger and the transactions contemplated by this Agreement, the failure of which to be obtained or made would result in a material adverse effect on Parent's ability to conduct the business of the Company in substantially the same manner as presently conducted, shall have been obtained or made (all such approvals and the expiration of all such waiting periods, the "REQUISITE REGULATORY APPROVALS"). (c) NO INJUNCTIONS OR RESTRAINTS. No judgment, order, restraining order and/or injunction (temporary or otherwise), decree, statute, law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity or other legal restraint or prohibition (collectively, "RESTRAINTS") shall be in effect preventing or materially delaying the consummation of the Merger; PROVIDED, HOWEVER, that each of the parties shall have used its commercially reasonable efforts to have such Restraint (other than any Restraint under a statute, law, ordinance, rule or regulation) lifted, vacated or rescinded. (d) BALANCE SHEET AT CLOSING. The Company shall have had not less than One Million Six Hundred Thousand Dollars ($1,600,000.00) in cash on deposit as of the Closing. SECTION 7.2 CONDITIONS TO OBLIGATIONS OF PARENT. The obligation of Parent and Merger Sub to effect the Merger is further subject to satisfaction or waiver of the following conditions: (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The representations and warranties of the Company set forth herein and in the Company Disclosure Schedule shall be true and correct in all material respects at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such date). Parent shall have received a certificate of the Company's President to the foregoing effect. (b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and the Stockholder shall have performed in all material respects all obligations required to be performed by them at or prior to the Closing Date under this Agreement. Parent shall have received a certificate of the Company's President to the foregoing effect. Page 36 (c) REGULATORY CONDITION. No condition or requirement shall have been imposed by one or more Governmental Entities in connection with any required approval by them of the Merger that requires the Company to be operated in a manner that would have a material adverse effect on the Company. (d) NO COMPANY MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there shall not be or exist any change, effect, event, circumstance, occurrence or state of facts that has had, has or which reasonably could be expected to have, a material adverse effect on the Company. (e) EMPLOYMENT AGREEMENTS. Each of the Company employees designated below shall have executed Employment Agreements in the respective forms attached hereto as EXHIBIT C_(the "Employment Agreements"): (i) Elaine Bellock (f) CONSULTING AGREEMENT. FGBB, Inc. and Parent shall have executed a Consulting Agreement in the form attached hereto as EXHIBIT D (the "Consulting Agreement"). (g) RESIGNATION OF OFFICERS AND DIRECTORS. There shall have been delivered to Parent the written resignations of the officers and directors of the Company. SECTION 7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDER. The obligation of the Company and the Stockholder to effect the Merger is further subject to satisfaction or waiver of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Parent and the Merger Sub set forth herein and in the Parent Disclosure Schedule shall be true and correct in all material respects at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such date). The Company and the Stockholder shall have received a certificate of Parent's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB. Parent and Merger Sub shall have performed in all material respects all obligations required to be performed by it at or prior to the Closing Date under this Agreement. The Company and the Stockholder shall have received a certificate of Parent's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (c) REGULATORY CONDITION. No condition or requirement shall have been imposed by one or more Governmental Entities in connection with any required approval by them of the Merger that requires Parent or any of its subsidiaries to be operated in a manner that would have a material adverse effect on Parent. (d) NO PARENT MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there shall not be or exist any change, effect, event, circumstance, occurrence or state of facts that has had, has or which reasonably could be expected to have, a material adverse effect on Parent. Page 37 (e) EMPLOYMENT AGREEMENTS. Each of the Company employees designated below shall have executed Employment Agreements in the respective forms attached hereto as Exhibit C (the "Employment Agreements"): (i) Elaine Bellock (f) CONSULTING AGREEMENT. FGBB, Inc. and Parent shall have executed a Consulting Agreement in the form attached hereto as EXHIBIT D (the "Consulting Agreement"). (g) REGISTRATION RIGHTS AGREEMENT. Parent and Alfred Curmi shall have entered into a Registration Rights Agreement in the form attached hereto as EXHIBIT E (the "Registration Rights Agreement"). (h) PROMISSORY NOTE. Parent shall have executed and delivered the Promissory Note to the order of Alfred Curmi. (i) MERGER CONSIDERATION. Parent shall have (a) paid the Cash Consideration to the Company Stockholders pursuant to Sections 2.1(a) and 2.1(b)(i); (b) issued the delivered the Parent Shares to the Stockholder pursuant to Section 2.1(b)(ii); and (c) executed and delivered the Promissory Note to the Stockholder pursuant to Section 2.1(b)(iii). SECTION 7.4 FRUSTRATION OF CLOSING CONDITIONS. Neither Parent nor the Stockholder may rely on the failure of any condition set forth in Section 7.1, 7.2 or 7.3, as the case may be, to be satisfied if such failure was caused by such party's failure to use its own commercially reasonable efforts to consummate the Merger and the other transactions contemplated by this Agreement, as required by and subject to Section 6.2. ARTICLE VIII INDEMNIFICATION; ARBITRATION SECTION 8.1 INDEMNIFICATION. (a) Subject to the occurrence of the Closing under this Agreement, Parent and its officers, directors and affiliates (the "Parent Indemnified Parties") shall be indemnified and held harmless by the Stockholder against all claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses of investigation (hereinafter individually a "Parent Loss" and collectively "Parent Losses") incurred by the Parent Indemnified Parties directly or indirectly as a result of: (i) any inaccuracy of a representation or warranty of the Company contained in this Agreement in any material respect (provided that the Stockholder shall have no liability or obligation with respect to any Parent Losses resulting from the use or ownership by the Company of any Software), (ii) any failure to file the Company tax returns for the tax year ended December 31, 2004 or the short tax year ended as of the Effective Time, (iii) the merger of STAR SOLUTIONS of Delaware, LLC with and into Star Solutions of Delaware, Inc., or (iv) any failure by the Company (prior to the Closing Date) or Stockholder to perform or comply with any covenant of the Company (to be performed prior to the Closing Date) or the Stockholder contained in this Agreement in any material respect; PROVIDED HOWEVER, that the Stockholder shall have no liability or obligation (for indemnification or otherwise) with respect Page 38 to any matters described in clauses (i), (ii), (iii) or (iv) above, and no Parent Indemnified Party shall be entitled to receive indemnification payments under clauses (i), (ii), (iii) or (iv) above with respect to any Parent Loss, unless and until the aggregate amount of the Parent Losses exceeds $250,000, and then only for the amount by which such Parent Losses exceeds $250,000; PROVIDED FURTHER that, notwithstanding anything contained in this Agreement or any Transaction Document to the contrary, the Stockholder shall not have any liability (for indemnification or otherwise) under this Agreement, any of the other Transaction Documents or any of the transactions contemplated hereby or thereby in excess of $6,500,000 in the aggregate; and PROVIDED FURTHER that, in determining the amount of any Parent Losses suffered by any Parent Indemnified Party which give rise to liability of Stockholder hereunder, there shall have been taken into account (x) the amount of any tax benefits actually realized by such Parent Indemnified Party attributable to such Parent Losses or derived therefrom in any period to and including the end of the taxable year following the year in which the Parent Loss was incurred; and (y) the amount of any insurance benefits actually realized by such Parent Indemnified Party attributable to such Parent Losses or derived therefrom. At the Stockholder's sole option, the Stockholder may pay any indemnification amount that may become due and payable for any Purchaser Losses hereunder (i) by directing Parent to set off such amount against the amount of unpaid principal and interest under the Promissory Note in the inverse order of their maturities (i.e., without interrupting Parent's obligations to pay the unpaid principal and interest installments on their scheduled due dates); and, in the event that the aggregate amount of any such indemnification liability exceeds the amount of unpaid principal and interest under the Promissory Note, (ii) by using shares of Parent Common Stock, without any discounts for brokerage or underwriting commissions. The per share value of such shares for purposes of this Section 8.1(a) shall be the greater of (x) $0.277391, or (y) the closing price of Parent Common Stock on the date on which the Stockholder receives notice of such claim for indemnification hereunder. Unless the Stockholder exercises his set off right as described above, Parent shall have no right under this Agreement or any Transaction Document to set off any amounts owing by the Stockholder under this Agreement or any Transaction Document against amounts owing by Parent under the Promissory Note, and Parent hereby waives any and all rights of set off that it may have under applicable law. (b) Subject to the occurrence of the Closing under this Agreement, the Stockholder (the "Seller Indemnified Parties") shall be indemnified and held harmless by Parent against all claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses of investigation (hereinafter individually a "Seller Loss" and collectively "Seller Losses") incurred by the Seller Indemnified Parties directly or indirectly as a result of: (i) any inaccuracy of a representation or warranty of Parent or the Merger Sub contained in this Agreement in any material respect, (ii) any failure by Parent or the Merger Sub to perform or comply with any covenant of Parent or the Merger Sub contained in this Agreement in any material respect; PROVIDED HOWEVER, that Parent shall have no liability or obligation (for indemnification or otherwise) with respect to any matters described in clauses (i) or (ii) above, and no Seller Indemnified Party shall be entitled to receive indemnification payments under clauses (i) or (ii) above with respect to any Seller Loss, unless and until the aggregate amount of the Seller Losses exceeds $250,000, and then only for the amount by which such Seller Losses exceeds $250,000; PROVIDED FURTHER that, notwithstanding anything contained in this Agreement or any Transaction Document to the contrary, Parent shall not have any liability (for indemnification or otherwise) under this Agreement, any of the other Transaction Page 39 Documents or any of the transactions contemplated hereby or thereby in excess of $6,500,000 in the aggregate; and PROVIDED FURTHER that, in determining the amount of any Seller Losses suffered by any Seller Indemnified Party which give rise to liability of Parent hereunder, there shall have been taken into account (x) the amount of any tax benefits actually realized by such Seller Indemnified Party attributable to such Seller Losses or derived therefrom in any period to and including the end of the taxable year following the year in which the Seller Loss was incurred; and (y) the amount of any insurance benefits actually realized by such Seller Indemnified Party attributable to such Seller Losses or derived therefrom. (c) Notwithstanding anything to the contrary herein, the Stockholder shall have no liability (for indemnification or otherwise) with respect to any representation or warranty in this Agreement or any other Transaction Document, or any covenant or obligation under this Agreement or any other Transaction Document to be performed and complied with prior to the Closing, unless on or before August 18, 2006, Parent notifies the Stockholder of a claim specifying the factual basis of that claim in reasonable detail, and the Stockholder's indemnification obligations for Parent Losses incurred by the Parent Indemnified Parties directly or indirectly as a result of any inaccuracy of a representation or warranty or the breach of any covenant or obligation of the Company or the Stockholder to be performed and complied with prior to the Closing contained in this Agreement shall terminate on August 18, 2006. Notwithstanding anything to the contrary herein, Parent shall have no liability (for indemnification or otherwise) with respect to any representation or warranty in this Agreement or any other Transaction Document, or any covenant or obligation under this Agreement or any other Transaction Document to be performed and complied with prior to the Closing, unless on or before August 18, 2006, the Company Stockholder notifies Parent of a claim specifying the factual basis of that claim in reasonable detail, and Parent's indemnification obligations for Seller Losses incurred by the Seller Indemnified Parties directly or indirectly as a result of any inaccuracy of a representation or warranty or the breach of any covenant or obligation of Parent to be performed and complied with prior to the Closing contained in this Agreement shall terminate on August 18, 2006. (d) Notwithstanding anything to the contrary herein, the existence of this Article VIII and of the rights and restrictions set forth herein do not limit any legal remedy for claims based on fraud. (e) Any claim for the recovery of Seller Losses or Parent Losses shall be made by giving notice thereof in accordance with Section 10.2. For purposes of this Section 8.1, the term "Third-Party Claim" shall mean any claim by a third party against any indemnified party under this Section 8.1 (an "Indemnified Person"), whether or not involving a legal, administrative or governmental proceeding, which could give rise to a Seller Loss or a Parent Loss, as applicable. Promptly after receipt by an Indemnified Person of notice of the assertion of a Third-Party Claim against it, such Indemnified Person shall, if a claim is to be made against the Parent or the Stockholder, as applicable, for indemnification under this Section 8.1 (for purposes of this paragraph, the Parent or the Stockholder, as applicable, is referred to as the "Indemnifying Person"), give notice to such Indemnifying Person of the assertion of such Third-Party Claim, provided that the failure to notify any Indemnifying Person will not relieve such Indemnifying Person of any liability that it may have to such Indemnified Person hereunder, except to the extent that such Indemnifying Person demonstrates that the defense of such Third-Party Claim is Page 40 prejudiced by such Indemnified Person's failure to give such notice. If an Indemnified Person gives notice to the Indemnifying Person pursuant to this paragraph of the assertion of a Third-Party Claim, the Indemnifying Person shall be entitled to participate in the defense of such Third-Party Claim and, to the extent that it wishes, to assume the defense of such Third-Party Claim with counsel reasonably satisfactory to the Indemnified Person, PROVIDED the Indemnifying Person notifies the Indemnified Person of its election to so assume the defense within fifteen (15) days after the Indemnifying Person receives notice from the Indemnified Person of the Third-Party Claim. After notice from the Indemnifying Person to the Indemnified Person of its election to assume the defense of such Third-Party Claim, the Indemnifying Person shall not, so long as it diligently conducts such defense, be liable to the Indemnified Person under this Agreement for any fees of other counsel or any other expenses with respect to the defense of such Third-Party Claim, in each case subsequently incurred by the Indemnified Person in connection with the defense of such Third-Party Claim, other than reasonable costs of investigation. If the Indemnifying Person assumes the defense of a Third-Party Claim, no compromise or settlement of such Third-Party Claim may be effected by the Indemnifying Person without the Indemnified Person's consent unless (i) there is no finding or admission of any violation of law or any violation of the rights of any person; (ii) the sole relief provided is monetary damages that are paid in full by the Indemnifying Person; and (iii) the Indemnified Person shall have no liability with respect to any compromise or settlement of such Third-Party Claim effected without its consent. Notwithstanding the foregoing, if (i) there is a reasonable probability that a Third-Party Claim may adversely affect the Indemnified Person other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, or (ii) the Indemnifying Person is also a person against whom the Third-Party Claim is made and joint representation would be inappropriate, the Indemnified Person may, by notice to the Indemnifying Person, assume the exclusive right to defend, compromise or settle such Third-Party Claim, but the Indemnifying Person will not be bound by any determination of any Third-Party Claim so defended for the purposes of this Agreement or any compromise or settlement effected without its consent. With respect to any Third-Party Claim subject to indemnification under this Section 8.1: (i) both the Indemnified Person and the Indemnifying Person, as the case may be, shall keep the other person informed of the status of such Third-Party Claim and any related proceedings at all stages thereof where such person is not represented by its own counsel, and (ii) the parties agree (each at its own expense) to render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any Third-Party Claim. SECTION 8.2 ARBITRATION. Any dispute, controversy or claim arising out of or relating to this Agreement (a "Dispute") shall be settled by binding arbitration. Any such arbitration proceeding shall be conducted by one arbitrator mutually agreeable to the Stockholder and Parent. In the event that within 45 days after submission of any Dispute to arbitration, Stockholder and Parent cannot mutually agree on one arbitrator, Stockholder and Parent shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The arbitrator or arbitrators, as the case may be, shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator or majority of the three arbitrators, as the case may be, to discover relevant information from the opposing parties about the subject matter of the Dispute. The arbitrator or a majority of the three arbitrators, as the case may be, shall rule upon motions to compel or limit discovery and shall have the authority to impose Page 41 sanctions, including attorneys' fees and costs, to the same extent as a competent court of law or equity, should the arbitrators or a majority of the three arbitrators, as the case may be, determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of the arbitrator or a majority of the three arbitrators, as the case may be, shall be binding and conclusive upon the parties to this Agreement. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrator(s). Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction. Any such arbitration shall be held in Denver, CO under the rules then in effect of Judicial Arbitration and Mediation Services. The substantially non-prevailing party shall pay all expenses relating to the arbitration, including without limitation, the respective expenses of each party, the fees of each arbitrator and applicable administrative fees. Notwithstanding the provisions of this Section 8.2, and without limiting the right of the parties to commence arbitration proceedings under this Section 8.2 with respect to any Dispute arising out of or relating to Section 6.1 of this Agreement (a "Confidentiality Dispute"), each party shall have the right and option to bring an action for temporary, preliminary or permanent injunctive or other equitable relief in the United States District Court for the Southern District of California with respect to any Confidentiality Dispute. Each party consents to submit itself to the personal jurisdiction of any Federal court located in the State of California in the event any Confidentiality Dispute arises. The parties irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of any Confidentiality Dispute in any Federal court located in the State of California, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER SECTION 9.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of Parent and the Stockholder; (b) by either Parent or the Stockholder; (i) if the Merger shall not have been consummated at or prior to 5:00 p.m., Denver, CO, time, on March 18, 2005, PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this Section 9.1(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Merger to be consummated by such time and date. (ii) if any Restraint having any of the effects set forth in Section 9.1(c) shall be in effect and shall have become final and nonappealable; PROVIDED, HOWEVER, that the party seeking to terminate this Agreement pursuant to this Section 9.1(b) (iii) shall have used its commercially reasonable efforts to prevent the entry of such Restraint (other than any Restraint under a statute, law, Page 42 ordinance, rule or regulation) and to have such Restraint vacated or removed (other than any Restraint under a statute, law, ordinance, rule or regulation); (iii) if any Governmental Entity that must grant a Requisite Regulatory Approval shall have denied the applicable Requisite Regulatory Approval and such denial shall have become final and nonappealable; or (c) by Parent or the Stockholder if the Company's stockholders have not consented to Merger; (d) by Parent, if the Stockholder or the Company shall have breached any of their respective representations, warranties, covenants or other agreements contained in this Agreement, which breach (i) would give rise to the failure of a condition set forth in Section 7.2(a) or (b), and (ii) is either incapable of being cured by the Company or the Stockholder, if curable, is not cured within 15 days of receipt from Parent of written notice thereof; or (e) by the Stockholder, if Parent or the Merger Sub shall have breached any of their respective representations, warranties, covenants or other agreements contained in this Agreement, which breach (i) would give rise to the failure of a condition set forth in Section 7.3(a) or (b), and (ii) is either incapable of being cured by Parent or the Merger Sub or, if curable, is not cured within 15 days of receipt from the Stockholder of written notice thereof. The party desiring to terminate this Agreement pursuant to clause (b), (c), (d) or (e) of this Section 9.1 shall provide written notice of such termination to the other party in accordance with Section 10.2, specifying in reasonable detail the provision hereof pursuant to which such termination is effected. SECTION 9.2 EFFECT OF TERMINATION. (a) If this Agreement is terminated by either the Stockholder or Parent as provided in Section 9.1, this Agreement forthwith shall become void and have no effect, without any liability or obligation on the part of Parent, the Merger Sub, the Company or the Stockholder; PROVIDED, HOWEVER, that nothing herein shall relieve any party from any liability (in contract, tort or otherwise, and whether pursuant to an action at law or in equity) for any knowing or willful breach by such party of any of its representations, warranties, covenants or agreements set forth in this Agreement or in respect of fraud by any party. Notwithstanding the foregoing, the provisions of this Article IX, Section 3.17, Section 4.8, Section 6.1, Section 6.3, Section 6.4, Section 10.7, Section 10.8 and Section 10.11 shall survive any termination of this Agreement. (b) Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Article VII hereof for its benefit have not been satisfied, Parent and/or the Stockholder (as applicable) shall have the right to waive the satisfaction thereof and to proceed with the transactions contemplated hereby. SECTION 9.3 AMENDMENT. This Agreement may be amended by the parties at any time. This Agreement may not be amended except by an instrument in writing signed on behalf of all of the parties to be bound thereby. Page 43 SECTION 9.4 EXTENSION; WAIVER. At any time prior to the Closing, a party may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the provisions of Section 9.3 waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. ARTICLE X GENERAL PROVISIONS SECTION 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations and warranties in this Agreement, in any other Transaction Document or in any instrument delivered pursuant to this Agreement shall survive the Closing Date for a period of eighteen (18) months and shall terminate and shall be deemed void AB INITIO on the date that is eighteen (18) months from the Closing Date. This Section 10.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Closing Date. SECTION 10.2 NOTICES. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Parent, to: Incentra Solutions, Inc. 1140 Pearl Street Boulder, Colorado 80302 Fax No.: (303) 440-7114 Attention: Thomas P. Sweeney III with a copy (which shall not constitute notice pursuant to this Section 10.2 to: Reed Guest, Esq. 94 Underhill Road Orinda, CA 94563 Fax No.: (925) 254-9226. (b) if to the Company or to the Stockholder, to: Alfred Curmi 910 Seasage Drive Delray Beach, FL 33483 Fax No. (561) 208-3953 Page 44 with a copy (which shall not constitute notice pursuant to this Section 10.2) to: David Bates, Esq. Gunster, Yoakley & Stewart, P.A. 777 South Flagler Drive Suite 500, East Tower West Palm Beach, FL 33401 Fax No. (561) 655-5677 SECTION 10.3 DEFINITIONS. For purposes of this Agreement: (a) an "AFFILIATE" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. (b) "ENCUMBRANCES" shall mean Liens, security interests, deeds of trust, encroachments, reservations, orders of Governmental Entities, decrees, judgments, contract rights, claims or equity of any kind. (c) "KNOWLEDGE" means, (i) with respect to the Company or the Stockholder, as applicable, the actual knowledge after reasonable due inquiry, of the Stockholder and of the Company's President; and (ii) with respect to Parent or the Merger Sub, as applicable, the actual knowledge after reasonable due inquiry, of Parent's executive officers. (d) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when used in reference to the Company or Parent, any change, effect, event, circumstance, occurrence or state of facts that is, or which reasonably could be expected to be, materially adverse to the business, assets, liabilities, condition (financial or otherwise), cash flows or results of operations of such party and its subsidiaries, considered as an entirety. (e) "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (f) "ORDINARY COURSE OF BUSINESS, CONSISTENT WITH PAST PRACTICES" or similar provision, when used with respect to the Company, refers to the such practices of the Company and/or its predecessor limited liability company, Star Solutions, LLC. (g) a "SUBSIDIARY" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect not less than a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. Page 45 (h) "Transaction Documents" means this Agreement, the Promissory Note, the Registration Rights Agreement, the Consulting Agreement, and any other agreement, document, certificate or instrument executed and/or delivered by the Company or the Stockholder and/or Parent and/or the Merger Sub pursuant to any of the foregoing documents, the Merger, or the transactions contemplated thereby. SECTION 10.4 INTERPRETATION. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. SECTION 10.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. A facsimile copy of a signature page shall be deemed to be an original signature page. SECTION 10.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement (including the documents and instruments executed and/or delivered pursuant hereto) (a) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement and (b) except for the provisions of Section 6.4 which shall inure to the benefit of and be enforceable by the persons referred to therein, are not intended to confer upon any person other than the parties hereto and their permitted successors and assigns any rights or remedies. SECTION 10.7 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the internal substantive and procedural laws of the State of Colorado, regardless of the laws that might otherwise govern under applicable principles of conflicts of law of such state. SECTION 10.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties hereto without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 10.9 HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 10.10 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Page 46 Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. SECTION 10.11 ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 10.12 FURTHER ASSURANCES. The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. [The remainder of this page is intentionally left blank.] Page 47 IN WITNESS WHEREOF, the Company, Parent, Merger Sub, and the Stockholder have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. INCENTRA SOLUTIONS, INC. By: /s/Thomas P. Sweeney III ------------------------------- Name: Thomas P. Sweeney III Title: Chief Executive Officer STAR SOLUTIONS OF DELAWARE, INC. By: /s/ Alfred Curmi ------------------------------- Name: Alfred Curmi Title: President INCENTRA MERGER CORP. By: /s/Thomas P. Sweeney III ------------------------------ Name: Thomas P. Sweeney III Title: Chief Executive Officer STOCKHOLDER: /s/Alfred Curmi ---------------------------------- Alfred Curmi MIAMI 406160.10 2/18/05 Page 48 EX-10.1 3 c35715_ex10-1.txt THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. CONVERTIBLE PROMISSORY NOTE $2,500,000.00 February 18, 2005 FOR VALUE RECEIVED, Incentra Solutions, Inc., a Nevada corporation (the "Company") and any successor corporation to the Company, hereby promises to pay to the order of ALFRED CURMI and his assigns (together with his assigns, "Payee"), the principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) on the terms set forth below. The Company promises to pay interest on the principal amount of this Note in arrears from and including the date hereof on the principal balance from time to time outstanding, computed daily, at an annual rate of one-half percent (1/2%). Interest shall be calculated on the basis of actual number of days elapsed over a year of 360 days. Notwithstanding any other provision of this Note, the holder hereof does not intend to charge and the Company shall not be required to pay any interest or other fees or charges in excess of the maximum permitted by applicable law; any payments in excess of such maximum shall be refunded to the Company or credited to reduce principal hereunder. An initial payment of principal and interest in the amount of One Hundred Twenty Five Thousand Eight Hundred Sixty One Dollars ($125,861.00) shall be due and payable without notice or demand on May 1, 2005. Thereafter, eight (8) consecutive quarterly payments of principal and interest in the amount of Two Hundred Fifty One Thousand Seven Hundred Twenty Two and 00/100 Dollars ($251,722.00) shall be due and payable without notice or demand on the first day of each August, November, February and May during the period beginning on August 1, 2005 and ending on May 1, 2007, and a final payment of principal and interest under this Note in the amount of Three Hundred Seventy Seven Thousand Five Hundred Eighty Three and 00/100 Dollars ($377,583.00) shall be due and payable without notice or demand on August 1, 2007. For purposes of this Note, each such date on which payment is due shall be referred to as a "Payment Due Date". Payments shall be made by wire transfer of immediately available United States federal funds sent to an account or accounts designated by the holder in accordance with the instructions furnished to the Company for that purpose; PROVIDED, HOWEVER, Payee shall have the right, at Payee's sole and absolute option, to delay any quarterly payment until no later than August 1, 2007. This Note constitutes the "Promissory Note" described in that certain Agreement and Plan of Merger dated February _, 2005 (the "Merger Agreement"), by and among the Company, Payee, Star Solutions of Delaware, Inc., a Delaware corporation, Incentra Merger Corp., a Delaware corporation and is entitled to all of the benefits of the Merger Agreement and the Registration Rights Agreement. Unless defined herein, capitalized terms used herein that are defined in the Merger Agreement have the meaning given to such terms in the Merger Agreement. Upon the happening of any of the following events, each of which shall constitute a default hereunder (herein referred to as an "Event of Default"), the entire unpaid principal balance and accrued interest evidenced by this Note and all other liabilities of the Company to the Payee evidenced by this Note, shall thereupon or thereafter, at the option of the Payee, without notice or demand, become due and payable: (a) failure of the Company to pay in full, within ten (10) days after the applicable due date hereof, any installment of principal and/or interest under this Note or any other charge or liability hereunder; (b) failure of the Company to perform any other agreement hereunder; (c) the Company shall make an assignment for the benefit of creditors; (d) the Company shall petition or apply to any court or other tribunal for the appointment of a custodian, receiver or any trustee or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; (e) if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Company in which an order for relief is entered or which remains undismissed for a period of sixty (60) days or more; (f) the Company by any act or omission shall indicate consent to, approval of or fail to timely object to any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or any trustee or shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of sixty (60) days or more; (g) the Company shall generally not pay its debts as such debts become due or admit in writing its inability to pay its debts as they mature; (h) the Company shall have made or suffered a transfer of any of its property in contravention of any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; (i) the taking of possession of any substantial part of the property of the Company at the instance of any governmental authority; or (j) the failure of the Company to perform any material agreement or covenant under the Merger Agreement, the Registration Rights Agreement, the Consulting Agreement or any other material agreement between or including the Company and the Payee. If the principal of this Note or any portion hereof and, to the extent permitted by law, interest hereon shall not be paid when due, whether by acceleration or otherwise, the same shall bear interest for any period during which the same shall be overdue at the rate of twelve percent (12%) per annum, and payable on demand. The Company agrees to pay all costs, charges and expenses incurred by the Payee and its assigns (including, without limitation, costs of collection, court costs, and reasonable attorneys' fees and disbursements) in connection with the successful enforcement of the Payee's rights under this Note (all such costs, fees and expenses being herein referred to as "Costs"). The Company hereby expressly waives presentment, demand, and protest, notice of demand, dishonor and nonpayment of this Note, and all other notices or demands of any kind in connection with the delivery, acceptance, performance, default or enforcement hereof. The rights and remedies of the holder as provided herein shall be cumulative and concurrent and in addition to any other rights the Payee may have at law, in equity or otherwise, and may be pursued singularly, successively or together at the sole discretion of the holder and may be exercised as often as occasion therefor shall occur. The Company agrees that any delay or 2 failure on the part of the Payee in exercising any rights or remedies hereunder will not operate as a waiver of such rights, and further agrees that any payments and prepayments received hereunder will be applied first to Costs, then to interest and the balance to principal. The Payee shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies, and no waiver of any kind shall be valid unless in writing and signed by the party or parties waiving such rights or remedies. All payments under this Note shall be made without counterclaim, offset or defense of any kind. This Note will be registered on the books of the Company or its agent as to principal and interest. This Note applies to, inures to the benefit of, and binds the successors and assigns of the parties hereto; provided however that the Company shall not assign this Note without the prior written consent of the Payee. Any transfer of this Note will be effected only by surrender of this Note to the Company and reissuance of a new note to the transferee. The Payee and any subsequent holder of this Note receives this Note subject to the foregoing terms and conditions, and agrees to comply with the foregoing terms and conditions for the benefit of the Company and any other Payees. Any notice required or permitted under this Note shall be in writing and shall be deemed to have been given on the date of delivery, if personally delivered to the party to whom notice is to be given, or on the third business day after mailing, if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, and addressed as follows: if to the Company, at Incentra Solutions, Inc. 1140 Pearl Street Boulder, CO 80302 Attn: Chief Executive Officer and, if to the holder, at the most recent address provided to the Company by the holder for such purpose; or, in each case, to the most recent address, specified by written notice, given to the sender pursuant to this paragraph. Without limiting any of Payee's rights under this Note, Payee shall have the right, which right may be exercised at Payee's sole and absolute discretion, at any time from the end of each calendar quarter immediately preceding a Payment Due Date until and including one (1) day prior to such Payment Due Date (each such period, an "Exercise Period"), to convert (the "Conversion") all or any portion of the principal and/or accrued interest due under this Note on such Payment Due Date into such number of fully paid and nonassessable shares of the common stock, par value $.001 per share, of the Company (the "Company Common Stock"), as shall be provided herein. For purposes of this Note, the price at which each share of Company Common Stock may be acquired upon any Conversion shall be equal to the greater of (i) $0.40, or (ii) seventy percent (70%) of the average closing price of Purchaser Common Stock, as reported on Bloomberg L.P. on the Principal Market, for the ten (10) consecutive trading days ending on and including the last day of the calendar quarter immediately preceding the Payment Due Date on which the payment that is being converted is due (the "Conversion Price"). Payee may exercise the Conversion right hereunder as to any payment of principal and/or interest that will become 3 due on a Payment Date by giving written notice (the "Conversion Notice") to the Company of the exercise of such right at any time during the applicable Exercise Period and stating the name or names in which the stock certificate or stock certificates for the shares of Company Common Stock are to be issued and the address to which such certificates shall be delivered. If prepayment of principal and/or interest is permitted under this Note, then the Company shall provide Payee at least ten (10) days' advance written notice (each, a "Prepayment Notice") of any proposed prepayment (each, a "Proposed Prepayment") specifying the date of prepayment (each, a "Prepayment Date") and the amounts that are proposed to be prepaid. In addition to the conversion rights set forth above, the Payee shall have the right, which right may be exercised at Payee's sole and absolute discretion, to convert (a "Prepayment Conversion") all or any portion of such Proposed Prepayment amount to shares of the Company Common Stock at a conversion price equal to the greater of (i) $0.40, or (ii) seventy percent (70%) of the average closing price of Purchaser Common Stock, as reported on Bloomberg L.P. on the Principal Market, for the ten (10) consecutive trading days ending on and including the date on which the Prepayment Notice is required to be given to Payee hereunder (the "Prepayment Conversion Price"). Payee may exercise the Prepayment Conversion right hereunder as to any Proposed Prepayment by giving written notice (the "Prepayment Conversion Notice") to the Company of the exercise of such right at any time during the ten (10) day period after the date on which Payee receives the Prepayment Notice (the "Prepayment Conversion Exercise Period") and stating the name or names in which the stock certificate or stock certificates for the shares of Company Common Stock are to be issued and the address to which such certificates shall be delivered. The number of shares of Company Common Stock that shall be issuable upon conversion of the Note shall equal the amount of principal and/or interest requested by Payee to be converted (the "Conversion Amount") divided by the Conversion Price (or the Prepayment Conversion Price, as applicable) in effect on the date the Conversion Notice (or the Prepayment Conversion Notice, as applicable) is given (the "Conversion Date"). Within ten (10) business days after the Conversion Date, the Company shall issue and deliver by hand against a signed receipt therefor or by United States registered mail, return receipt requested, to the address designated in the Conversion Notice (or the Prepayment Conversion Notice, as applicable), a stock certificate or stock certificates of the Company representing the number of shares of Company Common Stock to which Payee is entitled and, in exchange for this Note, an executed replacement Convertible Promissory Note representing the balance of the Note not converted into shares of Company Common Stock. Any Conversion of principal hereunder shall be applied to the remaining installments of principal in the inverse order of their maturities, and the payment schedule of the replacement Convertible Promissory Note shall reflect such application. In the case of any capital reorganization, reclassification or recapitalization of the Company Common Stock, then the conversion privilege in effect immediately before such action shall be adjusted so that the Payee may receive the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or recapitalization by a holder of the number of shares of Company Common Stock into which this Note could have been converted immediately prior to such reorganization, reclassification or recapitalization; and any such resulting or surviving corporation shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such shares, securities or property as the Payee may be entitled to and to make provisions for the protection of the conversion rights as herein provided. In case securities or property other than shares of Company Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this Note to the Company 4 Common Stock shall be deemed to apply, so far as appropriate and as nearly as practicable, to such other securities or property. The Company will not, by amendment of its Organizational Documents or through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Note and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Payee against impairment. No fractional shares of the Company Common Stock are to be issued upon the Conversion (or the Prepayment Conversion, as applicable) of this Note. In lieu of delivering any fractional shares to which the Payee would otherwise be entitled, the number of shares of Company Common Stock shall be rounded to the nearest whole number. As soon as practicable after the date hereof, the Company shall take all necessary actions, including but not limited to, amending the Company's articles of incorporation, to ensure that the Company will have sufficient shares of duly authorized but unissued Company Common Stock reserved to issue upon conversion of this Note or any part thereof. Notwithstanding anything contained herein, any portion of the payment which is due on a Payment Due Date or a Prepayment Date, as applicable, that is not converted by Payee pursuant this provision shall be paid in full to Payee on such Payment Due Date or Prepayment Date, as applicable. This Note is made under and shall be governed by and construed in accordance with the internal laws of, and enforced by the courts located within, the State of Colorado. IN WITNESS WHEREOF, the Company has executed this Note under seal as of the date first written above. INCENTRA SOLUTIONS, INC. By: /s/Thomas P. Sweeney III --------------------------- Thomas P. Sweeney III Chief Executive Officer MIAMI 405091.8 2/16/05 5 EX-10.2 4 c35715_ex10-2.txt REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of February 18, 2005, between INCENTRA SOLUTIONS, INC., a Nevada corporation (the "Company"), and Alfred Curmi ("Curmi"). W I T N E S S E T H: WHEREAS, pursuant to the terms of an Agreement and Plan of Merger dated as of February 18, 2005 (the "Merger Agreement") by and among the Company, Curmi, Star Solutions of Delaware, Inc., a Delaware corporation and Incentra Merger Corp., a Delaware corporation, the Company has agreed to issue to Curmi such number of shares of Common Stock, $.001 par value, of the Company (the "Common Stock") as determined pursuant to the Merger Agreement and upon conversion of the Convertible Promissory Note dated as of the date hereof (the "Note") by the Company in favor of Curmi in the original principal amount of $2,500,000; and WHEREAS, as a condition precedent to the consummation of the transactions contemplated by the Merger Agreement, the Company has agreed to provide certain registration rights pursuant to the terms of this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS. For purposes of this Agreement, capitalized terms used herein shall have the meanings set forth in the preambles hereto and in this Section 1. 1.1 "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.2 "COMMON STOCK" shall mean the common stock, par value $.001 per share, of the Company or, in the case of a conversion, reclassification or exchange of such shares of such Common Stock, shares of the stock issued or issuable in respect of such shares of Common Stock, and all provisions of this Agreement shall be applied appropriately thereto and to any stock resulting therefrom. 1.3 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute enacted hereafter, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 1.4 "EXISTING RIGHTS AGREEMENTS" shall mean (i) the warrant agreements originally dated as of October 10, 2000 between the Company and the Original Warrantholders for the purchase of an aggregate of 800,000 shares of Common Stock and any warrant agreement executed and delivered by the Company upon the registration or transfer of any warrants evidenced by such warrant agreements, (ii) the Registration Rights Agreement dated as of October 10, 2000 between the Company and Equity Pier LLC, (iii) the warrant agreement 1 between the Company and Equity Pier LLC dated February 28, 2001, (iv) the Form SB-2 filed on or about June 29, 2004, and (v) the Registration Rights Agreement between the Company and former ManagedStorage International, Inc. shareholders dated August 18, 2004. 1.5 "HOLDER" shall mean any holder of Registrable Securities and any Person having the right to acquire Registrable Securities, and any transferee or assignee thereof in accordance with Section 8 of this Agreement; provided, however, that any Person who acquires any of the Registrable Securities in a distribution pursuant to a registration statement filed by the Company under the Securities Act or pursuant to a public sale under Rule 144 under the Securities Act or any similar or successor rule shall not be considered a Holder. 1.6 "INITIATING HOLDERS" shall mean Holders representing (on a fully diluted basis) at least fifty-one percent (51%) of the total number of Registrable Securities outstanding at any point of determination. 1.7 "ORIGINAL WARRANTHOLDERS" shall mean Hawke Company Ltd, Tillgrove Investments Ltd and Notel Group Limited. 1.8 "PERSON" shall mean any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. 1.9 "REGISTER", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement with the Commission in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement by the Commission. 1.10 "REGISTRABLE SECURITIES" shall mean (A) the shares of Common Stock issued to Curmi and/or his designee(s) pursuant to the Merger Agreement, (B) the shares of Common Stock issuable or issued upon conversion of all or any portion of the principal and/or accrued interest under the Note, (C) any stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Common Stock referred to in clause (A) and/or clause (B); provided, however, that such shares of Common Stock shall only be treated as Registrable Securities hereunder if and so long as they have not been sold in a registered public offering or have not been sold to the public pursuant to Rule 144 under the Securities Act or any similar or successor rule. 1.11 "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in compliance herewith, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, the reasonable fees and expenses (subject to documentation thereof) of one counsel for all Holders and Other Stockholders that offer securities being sold pursuant to the Existing Rights Agreements selected by them, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). 2 1.12 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal statute enacted hereafter, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 1.13 "SELLING EXPENSES" shall mean all underwriting discounts and commissions applicable to the sale of Registrable Securities. 2. REQUESTED REGISTRATION. 2.1 REQUEST FOR REGISTRATION. At any time after March 1, 2006 (such date being hereinafter referred to as the "Demand Date"), if the Company shall receive from Initiating Holders a written request that the Company effect any registration with respect to Registrable Securities the Company will: (a) promptly give written notice of the proposed registration to all other Holders; and (b) as soon as practicable, use all reasonable efforts to effect such registration (including, without limitation, the execution of an undertaking to file post- effective amendments, appropriate qualification under the blue sky or other state securities laws requested by Initiating Holders and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within thirty (30) days after receipt of such written notice from the Company; provided, that the Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 2: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder; (ii) less than ninety (90) calendar days after the effective date of any other registration declared or ordered effective other than a registration on Form S-3 or Form S-8; (iii) if, while a registration request is pending pursuant to this Section 2, the Company determines, in the good faith judgment of the Board of Directors of the Company, with the advice of counsel, that the filing of a registration statement would require the disclosure of non-public material information the disclosure of which would have a material adverse effect on the Company or would otherwise materially adversely affect a financing, acquisition, disposition, merger or other significant 3 transaction involving the Company, the Company shall deliver a certificate to such effect signed by its President to the proposed selling Holders and the Company shall not be required to effect a registration pursuant to this Section 2 until the earlier of (A) three (3) days after the date upon which such material information is disclosed to the public or ceases to be material or (B) 90 days after the Company makes such good faith determination; provided, however, that the Company shall not utilize this right more than once in any twelve month period; or (iv) except as set forth in Section 2.5, after the second such registration pursuant to this Section 2.1 has been declared or ordered effective. Subject to the foregoing clauses (i), (ii), (iii) and (iv), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders. 2.2 ADDITIONAL SHARES TO BE INCLUDED. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Sections 2.4 and 3.3 below, include (a) other securities of the Company (the "Additional Shares") which are held by (i) officers or directors of the Company who, by virtue of agreements with the Company, are entitled to include their securities in any such registration or (ii) other persons who, by virtue of agreements with the Company, including the Existing Rights Agreements, are entitled to include their securities in any such registration (the "Other Stockholders"), and (b) securities of the Company being sold for the account of the Company. 2.3 UNDERWRITING. (a) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2 and the Company shall include such information in the written notice to other Holders referred to in Section 2.1 above. The right of any Holder to registration pursuant to this Section 2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein and subject to the limitations provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he holds. (b) The Company shall (together with all Holders, officers, directors and Other Stockholders proposing to distribute their securities through such underwriting) negotiate and enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, which underwriter(s) shall be reasonably acceptable to the Company. 4 2.4 LIMITATIONS ON SHARES TO BE INCLUDED. Notwithstanding any other provision of this Section 2, if the representative of the underwriters advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following order of priority: first, among the Holders, in proportion, as nearly as practicable, to the respective amounts of Registrable Securities which they had requested to be included in such registration; second, among the Other Stockholders that offer securities being sold pursuant to the Existing Rights Agreements, in proportion, as nearly as practicable, to the respective amounts of Additional Shares which they had requested to be included in such registration pursuant to the Existing Rights Agreements or such other proportion among the Other Stockholders as otherwise provided in the Existing Rights Agreements; third, to the Company for securities being sold for its own account; and thereafter, the number of shares that may be included in the registration statement and underwriting shall be allocated among all officers or directors or remaining Other Stockholders, in each case in proportion, as nearly as practicable, to the respective amounts of Additional Shares which they had requested to be included in such registration at the time of filing the registration statement. If the Company or any Holder, officer, director or Other Stockholder who has requested inclusion in such registration as provided above disapproves of the terms of any such underwriting, such Person may elect to withdraw such Person's Registrable Securities or Additional Shares therefrom by written notice to the Company and the underwriter and the Initiating Holders. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration. No Registrable Securities or Additional Shares excluded from such registration by reason of such underwriters' marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with this Section 2.4, the Company or underwriter or underwriters selected as provided above may round the number of Registrable Securities of any Holder which may be included in such registration to the nearest 100 shares. Notwithstanding anything contained in this Agreement to the contrary, the Holders shall have priority over all other Persons with respect to the inclusion of any securities in any registration requested pursuant to this Section 2. 2.5 ADDITIONAL DEMAND REGISTRATION. If with respect to the last registration permitted to be exercised by the Holders of Registrable Securities under Section 2.1, the Holders are unable to register all of their Registrable Securities because of the operation of Section 2.4 hereof, such Holders shall be entitled to require the Company to effect one additional registration to afford the Holders an opportunity to register all such Registrable Securities. Such additional registration shall again be subject to the provisions of this Section 2, including this Section 2.5. 3. COMPANY REGISTRATION. 3.1 At any time after March 1, 2006, if the Company shall determine to register under the Securities Act any of its equity securities or securities convertible into equity securities either for its own account or the account of a security holder or holders exercising any demand registration rights, other than a registration relating solely to employee benefit plans, or a registration relating solely to a Commission Rule 145 transaction, or a registration on Form S-4 or S-8, or the Registration Statement of the Company on Form SB-2 filed on or about June 29, 2004, (or any successor forms thereto), the Company will: 5 (a) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (b) include in such registration (and, subject to Section 2.1(b)(i), any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or request, made by any Holder within thirty (30) days after receipt of the written notice from the Company described in clause (a) above, except as set forth in Section 3.3 below. Such written request may specify all or a part of a Holder's Registrable Securities. 3.2 UNDERWRITING. If the registration of which the Company gives notice pursuant to Section 3.1 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.1(a). The right of any Holder to registration pursuant to this Section 3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and any officers, directors or Other Stockholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he holds. 3.3 LIMITATIONS ON SHARES TO BE INCLUDED. Notwithstanding any other provision of this Section 3, if the representative of the underwriters of an offering described in Section 3.2 advises the Company in writing that marketing factors require a limitation or elimination on the number of shares to be underwritten, the representative may (subject to the allocation priority set forth below) limit the number of or eliminate the Registrable Securities to be included in the registration and underwriting pursuant to this Section 3. The Company shall so advise all holders of securities requesting registration in such offering, and the number of shares of securities that are entitled to be included in such registration and underwriting shall be allocated in the following order of priority: first, if such underwritten offering shall have been initiated by the Company for the sale of securities for its own account, to the Company for securities being sold for its own account; second, among the Other Stockholders that offer securities being sold pursuant to the Existing Rights Agreements, in proportion, as nearly as practicable, to the respective amounts of such Additional Shares which they had requested to be included in such registration pursuant to the Existing Rights Agreements or such other proportion among the Other Stockholders as otherwise provided in the Existing Rights Agreements; third, among the Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities which they had requested to be included in such registration; and fourth, if such registration shall not have been initiated by the Company, to the Company for securities being sold for its own account; and thereafter, the number of shares that may be included in the registration statement and underwriting shall be allocated among all officers or directors or remaining Other Stockholders, in each case in proportion, as nearly as practicable, to the respective amounts of Additional Shares which they had requested to be included in such 6 registration at the time of filing the registration statement. If any Holder of Registrable Securities or any officer, director or Other Stockholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 4. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 2, 3 or 4 of this Agreement shall be borne by the Company, except that Selling Expenses shall be borne pro rata by each Holder in accordance with the number of shares sold. 5. REGISTRATION PROCEDURES. 5.1 In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof and will, at its expense: (a) prepare and file with the Commission a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, (b) use all reasonable efforts to keep such registration effective for a period of 180 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that the Company will keep such registration effective for longer than 180 days if the costs and expenses associated with such extended registration are borne by the selling Holders; (c) prepare and file with the Commission such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) furnish such number of prospectuses (including preliminary prospectuses) and other documents incident thereto, including any amendment (and post-effective amendments) of or supplement to the prospectus, as a Holder from time to time may reasonably request; (e) promptly notify each seller of Registrable Securities covered by such registration statement and the underwriters, if any, at any time: (i) when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective; 7 (ii) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose; (iv) if at any time the representations and warranties of the Company set forth in the underwriting agreement cease to be true and correct; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding such purpose; and (vi) when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing; (f) use reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible time; (g) promptly incorporate in a prospectus supplement or post-effective amendment such necessary information as the underwriters and the Holders of a majority of the Registrable Securities being sold in connection with an underwritten offering reasonably request to have included therein relating to the plan of distribution with respect to such Registrable Securities, including, without limitation, information with respect to the amount of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus supplement or post- 8 effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; (h) use all reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, subject to Section 2.1(b)(i); (i) List all such Registrable Securities registered in such registration on each securities exchange or automated quotation system on which the Common Stock of the Company is then listed; (j) Provide a transfer agent and registrar for all Registrable Securities and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (k) Make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement, and any attorney or accountant retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers and directors to supply all information reasonably requested by any such seller, underwriter, attorney or accountant in connection with such registration statement; (l) Furnish to each selling Holder upon request a signed counterpart, addressed to each such selling Holder, of (i) an opinion of counsel for the Company, dated the effective date of the registration statement in form reasonably acceptable to the Company and such counsel, and (ii) "comfort" letters signed by the Company's independent public accountants who have examined and reported on the Company's financial statements included in the registration statement, to the extent permitted by the standards of the American Institute of Certified Public Accountants, covering such matters as are customarily covered in opinions of issuer's counsel and accountants' "comfort" letters delivered to underwriters in underwritten public offerings of securities; (iii) Furnish to each selling Holder upon request a copy of all documents filed with and all correspondence from or to the Commission in connection with any such offering; and (m) Make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. 9 5.2 It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement that the Holders proposing to register Registrable Securities shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and their intended method of distribution of such Registrable Securities as the Company shall reasonably request and as shall be required in connection with the action to be taken by the Company. 5.3 In connection with the preparation and filing of each registration statement under this Agreement, the Company will give the Holders on whose behalf such Registrable Securities are to be registered and their underwriters, if any, and their respective counsel and accountants, the opportunity to review such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each such Holder such access to the Company's books and records and such opportunities to discuss the business of the Company with its officers, its counsel and the independent public accountants who have certified the Company's financial statements, as shall be necessary, in the opinion of such Holders or such underwriters or their respective counsel, in order to conduct a reasonable and diligent investigation within the meaning of the Securities Act. 6. INDEMNIFICATION. 6.1 INDEMNIFICATION BY THE COMPANY. The Company will indemnify each Holder, each of its officers, directors and partners, and each person controlling such Holder, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each Person who controls any underwriter, against all claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each Person controlling such Holder, each such underwriter and each Person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission made in reliance upon and based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. 6.2 INDEMNIFICATION BY THE HOLDERS. Each Holder will, if Registrable Securities held by him are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company (other than such Holder) or such underwriter within the 10 meaning of the Securities Act and the rules and regulations thereunder, each other such Holder and each of their officers, directors and partners, and each Person controlling such Holder or other stockholder, against all claims, losses, damages, expenses and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, each of its directors and officers, each underwriter or control Person, each other Holder and each of their officers, directors and partners and each Person controlling such Holder or other stockholder for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein. 6.3 NOTICES OF CLAIMS, PROCEDURES, ETC. Each party entitled to indemnification under this Section 6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at the Indemnified Party's sole expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 7 unless such failure is prejudicial to the ability of Indemnifying Party to defend such claim or action. Notwithstanding the foregoing, such Indemnified Party shall have the right to employ its own counsel in any such litigation, proceeding or other action if (i) the employment of such counsel has been authorized by the Indemnifying Party, in its sole and absolute discretion, or (ii) the named parties in any such claims (including any impleaded parties) include any such Indemnified Party and the Indemnified Party and the Indemnifying Party shall have been advised in writing (in suitable detail) by counsel to the Indemnified Party either (A) that there may be one or more legal defenses available to such Indemnified Party which are different from or additional to those available to the Indemnifying Party, or (B) that there is a conflict of interest by virtue of the Indemnified Party and the Indemnifying Parties having common counsel, in any of which events, the legal fees and expenses of a single counsel for all Indemnified Parties with respect to each such claim, defense thereof, or counterclaims thereto shall be borne by Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall cooperate to the extent reasonably required and furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. 11 7. INFORMATION BY HOLDER. Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. 8. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted by the Company under this Agreement may be transferred or assigned by a Holder to a transferee or assignee of any Registrable Securities; provided that the Company is given written notice at or prior to the time of said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and provided further that the transferee or assignee of such rights assumes in writing the obligations of a Holder under this Agreement to the Company and other Holders in effect at the time of transfer under all effective agreements. 9. EXCHANGE ACT COMPLIANCE. So long as the Company remains subject to the reporting requirements of the Exchange Act, the Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder, and will take all actions reasonably necessary to enable holders of Registrable Securities to sell such securities without registration under the Securities Act within the limitation of the provisions of (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, (b) Rule 144A under the Securities Act, as such Rule may be amended from time to time, if applicable or (c) any similar rules or regulations hereunder adopted by the Commission. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 10. NO CONFLICT OF RIGHTS. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement. Without limiting the generality of the foregoing, the Company will not hereafter enter into any agreement with respect to its securities which grants or modifies any existing agreement with respect to its securities to grant to the holder of its securities in connection with an incidental registration of such securities equal or higher priority to the rights granted to the Holders under Sections 2 and 3 of this Agreement. 11. BENEFITS OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, legal representatives and heirs. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any other Person. 12. COMPLETE AGREEMENT. This Agreement constitutes the complete understanding among the parties with respect to its subject matter and supersedes all existing agreements and understandings, whether oral or written, among them. No alteration or modification of any provisions of this Agreement shall be valid unless made in writing and signed, on the one hand, by the Holders of a majority of the Registrable Securities then outstanding and, on the other, by the Company. 12 13. SECTION HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14. NOTICES. All notices, offers, acceptances and other communications required or permitted to be given or to otherwise be made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered by hand, first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, if to the Company, at 1140 Pearl Street, Boulder, Colorado 80302, Attention: Chief Financial Officer, with a copy to Reed Guest, Esq., 94 Underhill Road, Orinda, CA 94563, and if to Curmi, to 910 Seasage Drive, Delray Beach, FL 33483, with a copy to David Bates, Esq., Gunster, Yoakley & Stewart, P.A., 777 South Flagler Drive, Suite 500, East Tower, West Palm Beach, FL 33401, or at such other address as may have been furnished the Company in writing. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any party may change the address to which each such notice or communication shall be sent by giving written notice to the other parties of such new address in the manner provided herein for giving notice. 15. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware without giving effect to the provisions, policies or principles thereof respecting conflict or choice of laws. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts each of which shall be deemed an original but all of which taken together shall constitute one and the same agreement. 17. SEVERABILITY. Any provision of this Agreement which is determined to be illegal, prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, prohibition or unenforceability without invalidating the remaining provisions hereof which shall be severable and enforceable according to their terms and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. [The remainder of this page is intentionally left blank.] 13 IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first set forth above. INCENTRA SOLUTIONS, INC. By: /s/Thomas P. Sweeney III ------------------------------- Name: Thomas P. Sweeney III Title: Chief Executive Officer CURMI /s/Alfred Curmi ----------------------------------- ALFRED CURMI MIAMI 406162.5 2/14/05 14 EX-10.3 5 c35715_ex10-3.txt EMPLOYMENT AGREEMENT This AGREEMENT (the "Agreement") is made as of the date signed (the "Effective Date"), by and between STAR SOLUTIONS of Delaware, Inc., a Delaware corporation ("Employer") with its headquarters located in Boulder, Colorado (the "Employer"), and Elaine Bellock (the "Executive"). In consideration of the mutual covenants contained in this Agreement, the Employer and the Executive agree as follows: 1. EMPLOYMENT. The Employer agrees to employ the Executive and the Executive agrees to be employed by the Employer on the terms and conditions set forth in this Agreement. 2. CAPACITY; LOCATION. The Executive shall serve the Employer as President of Employer. In her capacity as President, Executive will report to the Chairman of the Board of Directors (the "Chairman"), and shall be responsible for the overall management and operations of Employer subject to the direction of the Chairman. In such capacity, the Executive shall perform such services and duties in connection with the business, affairs and operations of the Employer as may be assigned or delegated to the Executive from time to time by or under the authority of the Chairman. Executive's employment with Employer will be based in Employer's San Diego, California offices; PROVIDED, that Employee may be required from time to time to travel in connection with Employer's business needs. 3. TERM. Executive shall be considered an at-will employee of Employer and, subject to the provisions of Section 6, the employment relationship described herein may be terminated by either Executive or Employer at any time. 4. COMPENSATION AND BENEFITS. The regular compensation and benefits payable to the Executive under this Agreement shall be as follows: (a) SALARY. For all services rendered by the Executive under this Agreement, the Employer shall pay the Executive a salary (the "Salary") at the annual rate of Two Hundred Forty Thousand Dollars ($240,000.00), subject to increase from time to time in the discretion of the Employer. The Salary shall be payable in periodic installments in accordance with the Employer's usual practice for its senior executives. (b) BONUS. For the fiscal year ending December 31, 2005, Executive shall be eligible for an annual bonus of up to One Hundred Thousand Dollars ($100,000.00), paid in quarterly installments, based upon performance as 1 determined by the Employer. Thereafter, Executive shall be eligible to participate in an incentive program established by the Employer, with such terms as may be established in the sole discretion of the Employer. (c) CAR ALLOWANCE. Employer shall pay Executive a monthly car allowance of Seven Hundred Fifty ($750.00). (d) DISABILITY COVERAGE. Employer shall pay for the current long term disability insurance of Executive until such time as Employer's regular benefits include disability coverage. (e) REGULAR BENEFITS. The Executive shall be entitled to health insurance benefits from Employer, and shall also be entitled to participate in any employee benefit plans, life insurance plans, disability income plans, retirement plans, expense reimbursement plans and other benefit plans which the Employer may from time to time have in effect for all or most of its executive management employees. Such participation shall be subject to the terms of the applicable plan documents, generally applicable policies of the Employer, applicable law and the discretion of the Employer or any administrative or other committee provided for in or contemplated by any such plan. Except with respect to the aforementioned health insurance benefits, nothing contained in this Agreement shall be construed to create any obligation on the part of the Employer to establish any such plan or to maintain the effectiveness of any such plan which may be in effect from time to time. (f) VACATION. The Executive shall be entitled to vacation according to Employer's vacation policy, such vacation time to accrue on a per-pay-period basis. (g) TAXATION OF PAYMENTS AND BENEFITS. The Employer shall undertake to make deductions, withholdings and tax reports with respect to payments and benefits under this Agreement to the extent that it reasonably and in good faith believes that it is required to make such deductions, withholdings and tax reports. Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall be construed to require the Employer to make any payments to compensate the Executive for any adverse tax effect associated with any payments or benefits or for any deduction or withholding from any payment or benefit. (h) EXPENSES. The Employer shall reimburse the Executive for all reasonable and necessary business related travel expenses incurred or paid by the Executive in performing his duties under this Agreement and which are consistent with applicable policies of the Employer. All payments for reimbursement of such expenses shall be made upon presentation by the Executive of expense statements or vouchers and such other supporting information as the Employer may from time to time reasonably request. 2 (i) STOCK OPTIONS. Executive shall also be eligible for participation in Employer's Parent's Stock Option Plan and Executive shall be entitled to receive stock options pursuant to the terms of option agreements. (j) EXCLUSIVITY OF SALARY AND BENEFITS. The Executive shall not be entitled to any payments or benefits other than those provided under this Agreement. 5. EXTENT OF SERVICE. During the Executive's employment under this Agreement, the Executive shall devote the Executive's full business time, best efforts and business judgment, skill and knowledge to the advancement of the Employer's interests and to the discharge of the Executive's duties and responsibilities under this Agreement. The Executive shall not engage in any other business activity, except as may be approved by the Employer; PROVIDED, that nothing in this Agreement shall be construed as preventing the Executive from: (a) investing the Executive's assets in any Employer or other entity in a manner not prohibited by Section 7(d) and in such form or manner as shall not require any material activities on the Executive's part in connection with the operations or affairs of the companies or other entities in which such investments are made; and (b) engaging in religious, charitable or other community or non-profit activities that do not impair the Executive's ability to fulfill the Executive's duties and responsibilities under this Agreement. 6. TERMINATION AND TERMINATION BENEFITS. Notwithstanding the provisions of Section 3, the Executive's employment under this Agreement shall terminate under the following circumstances set forth in this Section 6. (a) TERMINATION BY THE EMPLOYER FOR CAUSE. The Executive's employment under this Agreement may be terminated for "Cause" without further liability on the part of the Employer, effective immediately upon a vote of the managers of the Employer and written notice to the Executive. Only the following shall constitute "Cause" for such termination: (i) dishonest or fraudulent statements or acts of the Executive with respect to the Employer or any affiliate of the Employer; (ii) the Executive's conviction of, or entry of a plea of guilty or nolo contendere for, (A) a felony or (B) any misdemeanor (excluding minor traffic violations) involving moral turpitude, deceit, dishonesty or fraud; 3 (iii) gross negligence, willful misconduct or insubordination of the Executive with respect to the Employer or any affiliate of the Employer; or (iv) material breach by the Executive of any of the Executive's obligations under this Agreement, or any other agreement to which Executive and Employer are now or hereafter a party to. (b) TERMINATION BY THE EMPLOYER WITHOUT CAUSE. Subject to the payment of Termination Benefits pursuant to Section 6(d), the Executive's employment under this Agreement may be terminated by the Employer without Cause upon written notice to the Executive (a termination "Without Cause"). (c) TERMINATION BY EXECUTIVE. The Executive's employment under this Agreement may be terminated by the Executive by written notice to Employer at least thirty (30) days prior to such termination. (d) CERTAIN TERMINATION BENEFITS. Unless otherwise specifically provided in this Agreement or otherwise required by law, all compensation and benefits payable to the Executive under this Agreement shall terminate on the date of termination of the Executive's employment under this Agreement. Notwithstanding the foregoing, in the event of termination of the Executive's employment with the Employer Without Cause pursuant to Section 6(b) above, the Employer shall provide to the Executive the following termination benefits ("Termination Benefits"): (i) payment of the Executive's Salary at the rate then in effect pursuant to Section 4(a) for the period from the date of termination until the later of the date that is six (6) months after the date of termination or one (1) year from the Effective Date; and (ii) continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. ss. 1161 ET SEQ. (commonly known as "COBRA"), with the cost of the regular premium for such benefits shared in the same relative proportion by the Employer and the Executive as in effect on the date of termination for six (6) months and at a cost of 102% of premium provided under COBRA, for up to an additional six (6) months. Notwithstanding the foregoing, nothing in this Section 6(d) shall be construed to affect the Executive's right to receive COBRA continuation entirely at the Executive's own cost to the extent that the Executive may continue to be entitled to COBRA continuation after the Executive's right to cost sharing under Section 6(d)(ii) ceases. 4 (e) DISABILITY. If the Executive shall be disabled so as to be unable to perform the essential functions of the Executive's then existing position or positions under this Agreement with reasonable accommodation, the Employer may remove the Executive from any responsibilities and/or reassign the Executive to another position with the Employer during the period of such disability. Notwithstanding any such removal or reassignment, the Executive shall continue to receive the Executive's full Salary (less any disability pay or sick pay benefits to which the Executive may be entitled under the Employer's policies) and benefits under Section 4 of this Agreement (except to the extent that the Executive may be ineligible for one or more such benefits under applicable plan terms) for a period of time equal to nine (9) months. If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executive's then existing position or positions with reasonable accommodation, the Executive may, and at the request of the Employer shall, submit to the Employer a certification in reasonable detail by a physician selected by the Employer to whom the Executive or the Executive's guardian has no reasonable objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the Employer's determination of such issue shall be binding on the Executive. Nothing in this Section 6(e) shall be construed to waive the Executive's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. ss.2601 ET SEQ. and the Americans with Disabilities Act, 42 U.S.C. ss.12101 ET SEQ. 7. CONFIDENTIAL INFORMATION, NONCOMPETITION AND COOPERATION. (a) CONFIDENTIAL INFORMATION. As used in this Agreement, "Confidential Information" means information belonging to the Employer which is of value to the Employer in the course of conducting its business and the disclosure of which could result in a competitive or other disadvantage to the Employer. Confidential Information includes, without limitation, financial information, reports, and forecasts; inventions, improvements and other intellectual property; trade secrets; know-how; designs, processes or formulae; software; market or sales information or plans; customer lists; and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Employer. Confidential Information includes information developed by the Executive in the course of the Executive's employment by the Employer, as well as other information to which the Executive may have access in connection with the Executive's employment. Confidential Information also includes the confidential information of others with which the Employer has a business relationship. Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless due to breach of the Executive's duties under Section 7(b). 5 (b) CONFIDENTIALITY. The Executive understands and agrees that the Executive's employment creates a relationship of confidence and trust between the Executive and the Employer with respect to all Confidential Information. At all times, both during the Executive's employment with the Employer and after its termination, the Executive will keep in confidence and trust all such Confidential Information, and will not use or disclose any such Confidential Information without the written consent of the Employer, except as may be necessary in the ordinary course of performing the Executive's duties to the Employer. (c) DOCUMENTS, RECORDS, ETC. All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, which are furnished to the Executive by the Employer or are produced by the Executive in connection with the Executive's employment will be and remain the sole property of the Employer. The Executive will return to the Employer all such materials and property as and when requested by the Employer. In any event, the Executive will return all such materials and property immediately upon termination of the Executive's employment for any reason. The Executive will not retain with the Executive any such material or property or any copies thereof after such termination. (d) NONCOMPETITION AND NONSOLICITATION. Without the prior written consent of the CEO, during the period that Executive is employed by Employer and for one (1) year thereafter, the Executive (i) will not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any Competing Business (as hereinafter defined); (ii) will refrain from directly or indirectly employing, attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Employer; and (iii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business relationship with the Employer. The Executive understands that the restrictions set forth in this Section 7(d) are intended to protect the Employer's interest in its Confidential Information and established employee, customer and supplier relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose. For purposes of this Agreement, the term "Competing Business" shall mean any business that provides or intends to provide the same or similar types of services or products as those provided or targeted by Employer or any of its subsidiaries in any geographic area then served or targeted by Employer or any of its subsidiaries. Notwithstanding the foregoing, the Executive may own up to two percent (2%) of the outstanding stock of a publicly held corporation. (e) THIRD-PARTY AGREEMENTS AND RIGHTS. The Executive hereby confirms that the Executive is not bound by the terms of any agreement with any previous employer or other party which restricts in any way the Executive's use or disclosure of information or the Executive's engagement in any business. The 6 Executive represents to the Employer that the Executive's execution of this Agreement, the Executive's employment with the Employer and the performance of the Executive's proposed duties for the Employer will not violate any obligations the Executive may have to any such previous employer or other party. In the Executive's work for the Employer, the Executive will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of the Employer any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. (f) LITIGATION AND REGULATORY COOPERATION. During and after the Executive's employment, the Executive shall cooperate fully with the Employer in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer which relate to events or occurrences that transpired while the Executive was employed by the Employer. The Executive's full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employer at mutually convenient times. During and after the Executive's employment, the Executive also shall cooperate fully with the Employer in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Employer. The Employer shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executive's performance of obligations pursuant to this Section 7(f) and shall pay the Executive for his time at his annual salary rate in effect at the time of the termination of his employment. (g) INJUNCTION. The Executive agrees that it would be difficult to measure any damages caused to the Employer which might result from any breach by the Executive of the promises set forth in this Section 7, and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, subject to Section 8 of this Agreement, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Employer shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Employer. 8. ARBITRATION OF DISPUTES. Any controversy or claim arising out of or relating to this Agreement or the breach thereof or otherwise arising out of the Executive's employment or the termination of that employment (including, without limitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent permitted by law, be settled by arbitration in any forum and form agreed upon by the parties or, in the absence of such an agreement, under the auspices of the American Arbitration Association ("AAA") in San Diego, California 7 in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of arbitrators. In the event that any person or entity other than the Executive or the Employer may be a party with regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person or entity's agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. This Section 8 shall be specifically enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate; PROVIDED, that any other relief shall be pursued through an arbitration proceeding pursuant to this Section 8. 9. CONSENT TO JURISDICTION. To the extent that any court action is permitted consistent with or to enforce Section 8 of this Agreement, the parties hereby consent to the jurisdiction of the courts of the State of California. Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process. 10. INTEGRATION. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties with respect to any related subject matter. 11. ASSIGNMENT; SUCCESSORS AND ASSIGNS, ETC. Neither the Employer nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; PROVIDED, that the Employer may assign its rights under this Agreement without the consent of the Executive in the event that the Employer shall effect a reorganization, consolidate with or merge into any other corporation, partnership, organization or other entity, or transfer all or substantially all of its properties or assets to any other corporation, partnership, organization or other entity. This Agreement shall inure to the benefit of and be binding upon the Employer and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. 12. ENFORCEABILITY. If any portion or provision of this Agreement (including, without limitation, any portion or provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 13. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of 8 any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 14. NOTICES. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Employer or, in the case of the Employer, at 1140 Pearl Street, Boulder, CO 80302, ATTN: Thomas P. Sweeney III, and shall be effective on the date of delivery in person or by courier or three (3) days after the date mailed. 15. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Employer. 16. GOVERNING LAW. This is a California contract and shall be construed under and be governed in all respects by the laws of the State of California, without giving effect to the conflict of laws principles of such State. 17. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document. IN WITNESS WHEREOF, this Agreement has been executed by the Employer and by the Executive as of the Effective Date. STAR SOLUTIONS OF DELAWARE, INC.: By: /s/Thomas P. Sweeney III Dated: February 18, 2005 ------------------------------------- Name: Thomas P. Sweeney III Title: Chairman of the Board of Directors EXECUTIVE: /s/Elaine Bellock Dated: February 18, 2005 - ------------------ Elaine Bellock 9 EX-10.4 6 c35715_ex10-4.txt CONSULTING AGREEMENT This CONSULTING AGREEMENT (the "Agreement") is entered into as of the 18th day of February, 2005 (the "Effective Date"), by and between Incentra Solutions, Inc., a Nevada corporation (the "Company") and FGBB, Inc., a Nevada corporation (the "Consultant"). WITNESSETH: WHEREAS, the Company, the Consultant, STAR SOLUTIONS of Delaware, Inc., of which the Consultant is a controlling stockholder ("Star") and Incentra Merger Corp., a wholly-owned subsidiary of the Company (the "Merger Sub") have entered into that certain Agreement and Plan of Merger dated as of February 18, 2005 (the "Merger Agreement"), pursuant to which Star would merge with and into Merger Sub, and Merger Sub, as the surviving entity, would change its name to STAR SOLUTIONS of Delaware, Inc. ("Star Solutions"); WHEREAS, the Company is a leading provider of data protection solutions and services; WHEREAS, subject to the terms and conditions of this Agreement, the Company has requested, and the Consultant has agreed, to act as a consultant to the Company for purposes of assisting the Company in connection with the Company's sales and marketing efforts to its customers; and WHEREAS, it is a condition precedent to the Closing under the Merger Agreement that the Company enter into this Agreement with the Consultant. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged, the parties hereto, intending to be legally bound, agree as follows. ARTICLE I APPOINTMENT OF THE CONSULTANT 1.1 APPOINTMENT. The Company hereby engages the Consultant to act as a consultant to the Company for the purpose of providing the Services described below. The Consultant hereby accepts such appointment. ARTICLE II DUTIES AND RESPONSIBILITIES OF THE CONSULTANT 2.1 DESCRIPTION OF SERVICES. The Consultant shall provide the following services (collectively, the "Services") to the Company during the Term (as defined below): the Consultant will consult with the Company from time to time in connection with the Company's sales and marketing efforts to its customers. 2.2 ADDITIONAL DUTIES. At all times when acting pursuant hereto, the Consultant shall (i) comply with all applicable laws; and (ii) consult with the Company prior to providing any oral or written information about the Company to any entities which information has not been pre-approved for such dissemination by the Company. 2.3 REQUIRED LICENSES. The Consultant shall procure and maintain, at its sole expense, all material licenses which may be required by applicable law to legally perform the Services. 2.4 RECORDS. The Consultant shall maintain reasonable records of all transactions performed pursuant to this Agreement. 2.5 EXPENSES INCURRED IN CONNECTION WITH PERFORMANCE OF SERVICES. The Company shall pay or reimburse the Consultant for all travel and other reasonable expenses incurred by the Consultant or its employees or agents in the course of performing Services under this Agreement, PROVIDED HOWEVER, that the Company shall have no obligation to pay or reimburse the Consultant for such expenses unless such expenses have been authorized in writing in advance by the Company. The Company shall pay against any invoices submitted by the Consultant for such expenses within thirty (30) days from the date on which the Company receives such invoice. Appropriate receipts and a written description must support all expenses for which reimbursement is sought. ARTICLE III DUTIES AND RESPONSIBILITIES OF THE COMPANY 3.1 PROVISION OF INFORMATION TO THE CONSULTANT. The Company shall provide the Consultant with all materials and information the Consultant reasonably requires in order to provide the Services under this Agreement. 3.2 PAYMENT. The Company shall pay to the Consultant the compensation set forth in Article V of this Agreement in the manner provided for in such Article. ARTICLE IV TERM AND TERMINATION 4.1 TERM. The term of this Agreement (the "Term") shall be for a period of two (2) years, commencing on February __, 2005 and ending on February __, 2007. 4.2 TERMINATION. Notwithstanding the foregoing, this Agreement may be terminated (i) by the Consultant prior to expiration of the Term upon ten (10) days written notice to the Company, or (ii) by either party on a material breach of this Agreement by the other party if such default is not cured within ten (10) days after written notice is given to the breaching party. For purposes of this provision, the term "material breach" shall not include any matters arising from or related to the quality or frequency of the Services to be performed by the Consultant hereunder. 4.3 EFFECT OF TERMINATION. In the event that this Agreement is terminated, then this Agreement shall forthwith become void and have no further effect, without any liability or obligation on the part of the Company or the Consultant except as follows: Notwithstanding anything contained in this Agreement, (i) if this Agreement is terminated by Consultant, the Company shall pay the unpaid amount of the Consulting Fee prorated from the commencement 2 date through the date of termination and unpaid expenses of the Consultant properly incurred under this Agreement through the termination date; and (ii) nothing herein shall relieve any party from any liability (in contract, tort or otherwise, and whether pursuant to an action at law or in equity) for any breach by such party of any of its covenants or agreements in this Agreement. ARTICLE V COMPENSATION 5.1 COMPENSATION. As compensation for the Services rendered on behalf of the Company by the Consultant hereunder, the Consultant shall receive a consulting fee in connection with the provision of Services hereunder in the amount of Five Hundred Thousand Dollars ($500,000.00) (the "Consulting Fee"). 5.2 TIME OF PAYMENTS. The Consulting Fee shall be paid to the Consultant in twenty four (24) equal consecutive monthly installments of Twenty Thousand Eight Hundred Thirty Three and 33/100 Dollars ($20,833.33) each. Each monthly installment of the Consulting Fee shall be due and payable in arrears without notice, demand, deduction, withholding or setoff on or prior to the fifth (5th) day of each calendar month during the Term, commencing on March 5, 2005 and ending on February 5, 2007. ARTICLE VI OWNERSHIP OF THE COMPANY RECORDS All records of the Company shall be and remain at all times the property of the Company; provided however, that the Consultant shall be entitled to copies of documents related to this Agreement. ARTICLE VII MISCELLANEOUS 7.1 INDEPENDENT CONTRACTOR STATUS. It is specifically recognized and agreed that the Services of the Consultant are those of an independent contractor with respect to the Company. Nothing contained in this Agreement shall be construed to create a joint venture, partnership, association, or other affiliation or like relationship between the parties. In no event shall either party be liable for the debts or obligations of the other. The Consultant understands and agrees that: (i) the Consultant will not be treated as an employee of the Company for federal tax or other purposes; (ii) the Company will not withhold on behalf of the Consultant any sums for income tax, unemployment insurance, or social security; and (iii) all of such payments, withholding obligations and benefits, shall be the sole responsibility of the Consultant. Consultant shall defend and hold the Company harmless from any and all tax or withholding obligations arising out of Consultant's failure to pay taxes or withholdings as required under this Agreement. 7.2 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado (without regard to principles of conflict of laws). 3 7.3 AMENDMENTS. This Agreement may not be amended, altered or modified except by a writing signed by all parties hereto. 7.4 WAIVER. Any failure of any party to comply with any obligation, covenant, agreement or condition herein may be waived in writing by the other parties. Any such waiver or failure to insist upon compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 7.5 SEVERABILITY. If any provision of this Agreement is invalid, illegal or unenforceable, the balance of this Agreement shall remain in effect and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If the scope or duration of any covenant contained in this Agreement is deemed unreasonable by a court of law with appropriate jurisdiction, the parties agree that the court may modify the Agreement to make it conform to law. 7.6 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand delivery, or by facsimile (with confirmation of transmission), or by overnight courier, or by registered or certified mail, return receipt requested, postage prepaid, in each case addressed as follows: If to the Consultant: FGBB, Inc. 910 Seasage Drive Delray Beach, FL 33483 Fax No. (561) 208-3953 Attention: Alfred Curmi with a copy (which shall not constitute notice pursuant to this Section 7.6) to: David Bates, Esq. Gunster, Yoakley & Stewart, P.A. 777 South Flagler Drive Suite 500, East Tower West Palm Beach, FL 33401 Fax No. (561) 655-5677 If to the Company: Incentra Solutions, Inc. 1140 Pearl Street Boulder, Colorado 80302 Fax No.: (303) 440-7114 Attention: Thomas P. Sweeney III with a copy (which shall not constitute notice pursuant to this Section 7.6 to: 4 Reed Guest, Esq. 94 Underhill Road Orinda, CA 94563 Fax No.: (925) 254-9226 or to such other address as either party shall have furnished to the other in writing in accordance herewith. A notice shall be deemed received upon hand delivery, upon telephone confirmation of receipt of the facsimile, three (3) days after posting in United States Mail or one (1) day after dispatch by overnight courier. 7.7 ASSIGNMENT. This Agreement may not be assigned by either party without the prior written consent of the non-assigning party. 7.8 ATTORNEYS FEES. In any litigation, action, suit or proceeding arising out of or in connection with this Agreement, the prevailing party shall be entitled to an award of reasonable attorneys' fees and disbursements incurred by such party in connection therewith, including fees and disbursements in bankruptcy, insolvency, regulatory and appellate proceedings. 7.9 RECITALS. The above recitals are true and correct and are incorporated herein by reference. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the day and year indicated below. INCENTRA SOLUTIONS, INC., a Nevada corporation By: /s/Thomas P. Sweeney III ----------------------------------------- Thomas P. Sweeney III, Chief Executive Officer FGBB, INC., a Nevada corporation By: /s/Alfred Curmi ------------------------------------------- Alfred Curmi, President MIAMI 406249.3 2/15/05 5 EX-10.5 7 c35715_ex10-5.txt Exhibit 10.5 CREDIT AGREEMENT THIS CREDIT AGREEMENT (this "Agreement") is entered into as of February 18, 2005, by and between STAR SOLUTIONS OF DELAWARE, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS Borrower has requested that Bank extend or continue credit to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I CREDIT TERMS SECTION 1.1. LINE OF CREDIT. (a) LINE OF CREDIT. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including March 1, 2007, not to exceed at any time the aggregate principal amount of Five Million Dollars ($5,000,000.00) ("Line of Credit"), the proceeds of which shall be used for acquisition of other business operations. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note dated as of February 18, 2005 ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) LIMITATION ON BORROWINGS. Outstanding borrowings under the Line of Credit, to a maximum of the principal amount set forth above, shall not at any time exceed an aggregate of eighty percent (80%) of Borrower's eligible accounts receivable. All of the foregoing shall be determined by Bank upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Bank may from time to time require. Borrower acknowledges that said borrowing base was established by Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower's gross sales for said period. If such dilution of Borrower's accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower's gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Bank reasonably believes may affect payment of any portion of Borrower's accounts, Bank, in its sole discretion, may reduce the foregoing advance rate against eligible accounts receivable to a percentage appropriate to reflect such additional dilution and/or establish additional reserves against Borrower's eligible accounts receivable. As used herein, "eligible accounts receivable" shall consist solely of trade accounts created in the ordinary course of Borrower's business, upon which Borrower's right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which Bank has a perfected security interest of first priority, and shall not include: -1- (i) any account which is more than ninety (90) days past due; (ii) that portion of any account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted; (iii) any account which represents an obligation of any state or municipal government or of the United States government or any political subdivision thereof (except accounts which represent obligations of the United States government and for which the assignment provisions of the Federal Assignment of Claims Act, as amended or recodified from time to time, have been complied with to Bank's satisfaction); (iv) any account which represents an obligation of an account debtor located in a foreign country; (v) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, member, parent or subsidiary of Borrower; (vi) that portion of any account, which represents interim or progress billings or retention rights on the part of the account debtor; (vii) any account which represents an obligation of any account debtor when twenty percent (20%) or more of Borrower's accounts from such account debtor are not eligible pursuant to (i) above; (viii) that portion of any account from an account debtor which represents the amount by which Borrower's total accounts from said account debtor exceeds twenty-five percent (25%) of Borrower's total accounts; (ix) any account deemed ineligible by Bank when Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory. (c) BORROWING AND REPAYMENT. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. SECTION 1.2. INTEREST/FEES. (a) INTEREST. The outstanding principal balance of each credit subject hereto shall bear interest at the rate of interest set forth in each promissory note or other instrument or document executed in connection therewith. (b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in each promissory note or other instrument or document required hereby. -2- (c) COMMITMENT FEE. Borrower shall pay to Bank a non-refundable commitment fee for the Line of Credit equal to Ten Thousand Dollars ($10,000.00), which fee shall be due and payable in full upon the execution of the promissory note. SECTION 1.3. COLLATERAL. As security for all indebtedness of Borrower to Bank subject hereto, Borrower hereby grants to Bank security interests of first priority in all Borrower's accounts receivable and other rights to payments, general intangibles, equipment and inventory. All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, deeds of trust or mortgages, and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance. SECTION 1.4. GUARANTIES. All indebtedness of Borrower to Bank shall be guaranteed jointly and severally by Incentra Solutions, Inc. in the principal amount of Five Million Dollars ($5,000,000.00) each, as evidenced by and subject to the terms of guaranties in form and substance satisfactory to Bank. ARTICLE II REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the State of Delaware, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. -3- SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated December 31, 2004, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's -4- operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. (b) DOCUMENTATION. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and each promissory note or other instrument or document required hereby. (ii) Corporation Resolution: Borrowing. (iii) Corporate Resolution: Continuing Guaranty. (iv) Certificate of Incumbency (2). (v) Continuing Guaranty. (vi) Security Agreement Equipment. (vii) Continuing Rights to Payment and Inventory. (viii) Exhibit A to UCC Financing Statement. (ix) Such other documents as Bank may require under any other Section of this Agreement. (c) FINANCIAL CONDITION. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower or any guarantor hereunder, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any such guarantor. (d) INSURANCE. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: -5- (a) COMPLIANCE. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) DOCUMENTATION. Bank shall have received all additional documents which may be required in connection with such extension of credit. ARTICLE IV AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 120 days after and as of the end of each fiscal year, a consolidating copy of the 10K report filed with the Securities Exchange Commission, prepared by a certified public accountant acceptable to Bank, to include balance sheet, income statement, statement of cash flows, management report, auditor's report and all supporting schedules and footnotes; (b) not later than 30 days after and as of the end of each month, a financial statement of Borrower, prepared by Borrower, to include balance sheet and income statement; (c) not later than 30 days after and as of the end of each month, a borrowing base certificate, an aged listing of accounts receivable and accounts payable, and a reconciliation of accounts, and immediately upon each request from Bank, a list of the names and addresses of all Borrower's account debtors; -6- (d) contemporaneously with each annual and quarter end financial statement of Borrower required hereby, a certificate of a member of Borrower that said financial statements are accurate and that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default; (e) from time to time such other information as Bank may reasonably request. SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment. SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower. SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower's financial statements for the period ending March 31, 2005: (a) Tangible Net Worth not at any time less than $150,000.00 as of June 30, 2005; $500,000.00 as of September 30, 2005 and $750,000.00 as of December 31, 2005, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (b) Total Funded Debt to EBITDA not greater than 2.25 to 1.0 measured on a rolling four-quarter basis, with "Funded Debt" defined as the sum of all obligations for borrowed money -7- (including subordinated debt) plus all capital lease obligations, and with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense. SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property. ARTICLE V NEGATIVE COVENANTS Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof. SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any fiscal year in excess of an aggregate of $500,000.00. SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. SECTION 5.5. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. -8- SECTION 5.6. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or distribution either in cash, stock or any other property on Borrower's stock now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding. SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower, any guarantor hereunder or any general partner or joint venturer in any Borrower which is a partnership or joint venture (with each such guarantor, general partner and/or joint venturer referred to herein as a "Third Party Obligor") has incurred any debt or other liability to any person or entity, including Bank. (e) The filing of a notice of judgment lien against Borrower or any Third Party Obligor; or the recording of any abstract of judgment against Borrower or any Third Party Obligor in any county in which Borrower or such Third Party Obligor has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any Third Party Obligor; or the entry of a judgment against Borrower or any Third Party Obligor. (f) Borrower or any Third Party Obligor shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or -9- any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any Third Party Obligor shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any Third Party Obligor, or Borrower or any Third Party Obligor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any Third Party Obligor shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any Third Party Obligor by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (g) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents. (h) The death or incapacity of any individual Borrower or Third Party Obligor. The dissolution or liquidation of any Borrower or Third Party Obligor which is a corporation, partnership, joint venture or other type of entity; or Borrower or any such Third Party Obligor, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of such Borrower or Third Party Obligor. (i) Any change in ownership of an aggregate of twenty-five percent (25%) or more of the common stock of Borrower. SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the -10- exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: STAR SOLUTIONS OF DELAWARE, INC. 5910 Pacific Center Blvd. San Diego, California 92121 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION 1740 Broadway Denver, Colorado 80274 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, any guarantor hereunder or the business of such guarantor, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to -11- each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. SECTION 7.11. ARBITRATION. (a) ARBITRATION. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit. (b) GOVERNING RULES. Any arbitration proceeding will (i) proceed in a location in Colorado selected by the American Arbitration Association ("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the "Rules"). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a -12- waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. ss.91 or any similar applicable state law. (c) NO WAIVER OF PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph. (d) ARBITRATOR QUALIFICATIONS AND POWERS. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of Colorado or a neutral retired judge of the state or federal judiciary of Colorado, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Colorado and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Colorado Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. (e) DISCOVERY. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available. (f) CLASS PROCEEDINGS AND CONSOLIDATIONS. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding. -13- (g) PAYMENT OF ARBITRATION COSTS AND FEES. The arbitrator shall award all costs and expenses of the arbitration proceeding. (h) MISCELLANEOUS. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. WELLS FARGO BANK, STAR SOLUTIONS OF DELAWARE, INC. NATIONAL ASSOCIATION By: /s/ Thomas P. Sweeney, III By: /s/ Joseph Gavan ----------------------------- ----------------------------- Thomas P. Sweeney, III, Joseph Gavan, Relationship Manager Chief Executive Officer -14- EX-10.6 8 c35715_ex10-6.txt Exhibit 10.6 REVOLVING LINE OF CREDIT NOTE $5,000,000.00 Denver, Colorado February 18, 2005 FOR VALUE RECEIVED, the undersigned STAR SOLUTIONS OF DELAWARE, INC. ("Borrower) promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (`Bank at its office at 1740 Broadway, Denver, Colorado 80274, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Five Million Dollars ($5,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. INTEREST: (a) INTEREST. The outstanding principal balance of this Note shall bear interest. (computed on the basis of a 360-day year, actual days elapsed) at a rate per annum one and one half percent (1.50%) above the Prime Rate in effect from time to time. See attached pricing grid. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable on the first day of each month, commencing April 1, 2005. (c) DEFAULT INTEREST. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year; actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) BORROWING AND REPAYMENT. Borrower may from time to time during the term of this Note borrow, partially or wholly repay Its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereof by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on March 1, 2007. (b) ADVANCES. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (I) Thomas P. Sweeney. Ill, any one acting alone,: who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of any Borrower, which advances, when so deposited shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of February 18, 2005, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default' under this Note. MISCELLANEOUS: (a) REMEDIES. Upon the occurrence of any Event of Default, the holder of this Note, at the holders option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holders in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of Colorado. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. STAR SOLUTIONS OF DELAWARE, INC. By: /s/ THOMAS P. SWEENEY III --------------------------- Thomas P. Sweeney III Chief Executive Officer ADDENDUM TO PROMISSORY NOTE (PRIME RATE PRICING ADJUSTMENTS) THIS ADDENDUM is attached to and made a part of that certain promissory note executed by STAR SOLUTIONS OF DELAWARE, INC. ("Borrower") and payable to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), or order, dated as of February is, 2005, in the principal amount of Five Million Dollars ($5,000,000.00) (the "Note"). The following provisions are hereby incorporated into the Note to reflect the interest rate adjustments agreed to by Bank and Borrower: INTEREST RATE ADJUSTMENTS: (a) INITIAL PRIME RATE MARGIN. The initial Prime Rate margin applicable to this Note shall be as set forth in the " paragraph herein. (b) PRIME RATE ADJUSTMENTS. In addition to any interest rate adjustments resulting from changes in the Prime Rate, Bank shall adjust the Prime Rate margin applicable to Prime Rate options selected by Borrower under this Note on a quarterly basis, commencing with Borrower's fiscal quarter ending March 31, 2005, if required to reflect a change in Borrowers Tangible Net Worth (as defined in the Credit Agreement referenced herein), in accordance with the following grid: APPLICABLE PRIME RATE TANGIBLE NET WORTH MARGIN ------------------ ------ Less than $1,500,000.0O +1.50% Greater than $1,500,000.00 but less than $2,000,000.00 +1.25% Greater than $2,000,000.00 but less than $2,500,000.00 +.75% Greater than $2,500,000.00 +.25% Each such adjustment shall be effective on the first Business bay of Borrower's fiscal quarter following the quarter during which Bank receives and reviews Borrower's most current fiscal quarter-end financial statements in accordance with any requirements established by Bank for the preparation and delivery thereof. IN WITNESS WHEREOF, this Addendum has been executed as of the same date as the Note. STAR SOLUTIONS OF DELAWARE, INC. By: /s/ THOMAS P. SWEENEY III -------------------------- Thomas P. Sweeney III Chief Executive Officer EX-10.7 9 c35715_ex10-7.txt Exhibit 10.7 WELLS FARGO CONTINUING GUARANTY - -------------------------------------------------------------------------------- TO: WELLS FARGO BANK, NATIONAL ASSOCIATION 1. GUARANTY; DEFINITIONS. In consideration of any credit or other financial accommodation heretofore now or hereafter extended or made to STAR SOLUTIONS OF DELAWARE, INC. ("Borrowers'), or any of them, by WELLS FARGO BANK, NATIONAL. ASSOCIATION ("Bank"), and for other valuable consideration, the undersigned INCENTRA SOLUTIONS, INC. ("Guarantor"), jointly and severally unconditionally guarantees and promises to pay to Bank or order, on demand in lawful money of the United States of America and in immediately available funds, any and all Indebtedness of any of the Borrowers to Bank. The term "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Borrowers, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrowers may be liable individually or jointly with others, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 2. MAXIMUM LIABILTY; SUCCESSIVE TRANSACTIONS; REVOCATION; OBLIGATION UNDER OTHER GUARANTIES. The liability of Guarantor shall not exceed at any time the sum of $5,000,000.00 for principal, plus all interest thereon and costs and expenses pertaining to the enforcement of this Guaranty and/or the collection of the Indebtedness of any of the Borrowers to Bank. Notwithstanding the foregoing, Bank may permit the Indebtedness of Borrowers to exceed Guarantor's liability. This is a continuing guaranty and all rights, powers and remedies hereunder shall apply to all past, present and future Indebtedness of each of the Borrowers to Bank, including that arising under successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied, and notwithstanding the death, incapacity, dissolution, liquidation or bankruptcy of any of the Borrowers or Guarantor or any other event or proceeding affecting any of the Borrowers or Guarantor. This Guaranty shall not apply to any new Indebtedness created after actual receipt by Bank of written notice of its revocation as to such new Indebtedness; provided however, that loans or advances made by Bank to any of the Borrowers after revocation under commitments existing prior to receipt by Bank of such revocation, and extensions, renewals or modifications, of any kind, of Indebtedness incurred by any of the Borrowers or committed by Bank prior to receipt by Bank of such revocation, shall not be considered new Indebtedness. Any such notice must be sent to Bank by registered U.S. mail, postage prepaid, addressed to its office at Colorado RCBO, 1740 Broadway, 3rd Floor, Denver, CO 80274, or at such other address as Bank shall from time to time designate. Any payment by Guarantor with respect to the Indebtedness shall not reduce Guarantor's maximum obligation hereunder unless written notice to that effect is actually received by Rank at or prior to the time of such payment. The obligations of Guarantor hereunder shall be in addition to any obligations of Guarantor under any other guaranties of any liabilities or obligations of any of the Borrowers or any other persons heretofore or hereafter given to Bank unless said other guaranties are expressly modified or revoked in writing; and this Guaranty shall not, unless expressly herein provided, affect or invalidate any such other guaranties. 3. OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are joint and several and independent of the obligations of Borrowers, and a separate action or actions may be brought and prosecuted against Guarantor whether action is brought against any of the Borrowers or any other person, or whether arty of the Borrowers or any other person is joined in any such action or actions. Guarantor acknowledges that this Guaranty is absolute and unconditional, there are no conditions precedent to the effectiveness of this Guaranty, and this Guaranty is in full force and effect and is binding on Guarantor as of the date written below, regardless of whether Bank obtains collateral or any guaranties from others or takes any other action contemplated by Guarantor. Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability hereunder or the enforcement hereof, and Guarantor agrees that any payment of any Indebtedness or other act which shall toll any statute of limitations applicable thereto shall similarly operate to toll such statute of limitations applicable to Guarantor's liability hereunder. The liability of Guarantor hereunder shall be reinstated and revived and the rights of Bank shall continue if and to the extent that for any reason any amount at any time paid on account of any Indebtedness guaranteed hereby is rescinded or must otherwise be restored by Bank, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, all ~s though such amount had not been paid. The determination as to whether any amount so paid must be rescinded or restored shall be made by Bank in its sole discretion; provided however, that if Bank chooses to contest any such matter at the request of Guarantor, Guarantor agrees to indemnify and hold Bank harmless from and against all costs and expenses, including reasonable attorneys' fees, expended or incurred by Bank in connection therewith, including without limitation, in any litigation with respect thereto, 4. AUTHORIZATIONS TO BANK. Guarantor authorizes Bank either before or after revocation hereof, without notice to or demand on Guarantor, and without affecting Guarantor's liability hereunder, from time to time to: (a) alter, compromise, renew, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, the Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Indebtedness or any portion thereof, and exchange, enforce, waive, subordinate or release any such security; (c) apply such security and direct the order or manner of sale thereof, including without limitation, a non-judicial sale permitted by the terms of the controlling security agreement, mortgage or deed of trust, as Bank in its direction may determine; (d) release or substitute any one or more of the endorsers or any other guarantors of the Indebtedness, or any portion thereof or any portion thereof, or any other party thereto; and (e) apply payments received by Bank from any of the Borrowers to any Indebtedness of any of the Borrowers to Bank, in such order as Bank shall determine in its sole discretion, whether or not such Indebtedness is covered by this Guaranty, and Guarantor hereby waives any provision of law regarding application of payments which specifies otherwise. Bank may without notice assign this Guaranty in whole or in part Upon Bank's request. Guarantor agrees to provide to Bank copies of Guarantor's financial Statements. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Bank that: (a) this Guaranty is executed at Borrowers' request; (b) Guarantor shall not, without Bank's prior written consent, sell, lease, assign, encumber, hypothecate, transfer or otherwise dispose of all or a substantial or material part of Guarantor's assets other than in the ordinary course of Guarantor's business; (c) Bank has made no representation to Guarantor as to the creditworthiness of any of the Borrowers; and (d) Guarantor has established adequate means of obtaining from each of the Borrowers on a continuing basis financial and other information pertaining to Borrowers' financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events or circumstances which might in arty way affect Guarantor's risks hereunder, and Guarantor further agrees that Bank shall have no obligation to disclose to Guarantor any information or material about any of the Borrowers which is acquired by Bank In any manner. 6. GUARANTOR'S WAIVERS. 6.1 Guarantor waives any right to require Bank to: (a) proceed against any of the Borrowers or any other person; (b) marshal assets or proceed against or exhaust any security held from any of the Borrowers or any other person; (c) give notice of the terms, time and place of any public or private sale or other disposition of personal property security held from any of the Borrowers or any other person; (d) take any action or pursue any other remedy in Bank's power; or (a) make any presentment or demand for performance, or give any notice of nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection With arty obligations or evidences of indebtedness held by Bank as security for or which constitute in whole or in part the Indebtedness guaranteed hereunder, or in connection with the creation of new or additional Indebtedness. 6.2 Guarantor waives any defense to its obligations hereunder based upon or arising by reason of (a) any disability or other defense of any of the Borrowers or any other person; (b) the cessation or limitation from any cause whatsoever, other than payment in full, of the Indebtedness of any of the Borrowers or any other person; (c) any lack of authority of any officer, director, partner, agent or other person acting or purporting to act on behalf of any of the Borrowers which is a corporation, partnership or other type of entity, or any defect in the formation of any such Borrower; (d) the application by any of the Borrowers of the proceeds of any Indebtedness for purposes other than the purposes represented by Borrowers to, or intended or understood by, Bank or Guarantor; (a) any act or omission by Bank which directly or indirectly results in or aids the discharge of any of the Borrowers or any portion of' the Indebtedness by operation of law or otherwise, or which in any way impairs or suspends any rights or remedies of Bank against any of the Borrowers: (f) any impairment of the value of any interest in any security for the Indebtedness or any portion thereof, including without limitation, the failure to obtain or maintain perfection or recordation of any interest in any such security, the release of any such security without substitution, and/or the failure to preserve the value of, or to comply with applicable law in disposing of, any such security; (g) any modification of the Indebtedness, in any form whatsoever, including arty modification made after revocation hereof to any indebtedness incurred prior to such revocation, and including without limitation the renewal, extension, acceleration or other change in time for payment of,. or other change in the terms of, the Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon; or (h) any requirement that Bank give any notice of acceptance of this Guaranty. Until all Indebtedness shall have been paid in full, Guarantor shall have no right of subrogation, and Guarantor waives any right to enforce any remedy which Bank now has or may hereafter have against any of the Borrowers or any other person, and waives any benefit of, or any right to participate in, any security now or hereafter held by Bank. Guarantor further waives all rights and defenses Guarantor may have arising out of (i) any election of remedies by Bank, even though that election of remedies such as a non-judicial foreclosure with respect to any security for any portion of the Indebtedness destroys Guarantor's rights of subrogation or Guarantor's right to proceed against any of the Borrower for reimbursement, or (ii) any loss of rights Guarantor may suffer by reason of any rights, powers or remedies of any of the Borrower's Indebtedness, whether by operation of law or otherwise, including any rights Guarantor may have to a fair market value hearing to determine the size of a deficiency following any foreclosure sale or other disposition of any real property security for any portion of the Indebtedness. 7. BANK'S RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN BANK'S POSSESSION. In addition to all liens upon and rights of setoff against the monies, securities or other property of Guarantor given to Bank by law, Bank shall have a lien upon and a right of setoff against all monies, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Bank, whether held in a general or special account or deposit or for safekeeping or otherwise, and every such lien and right of setoff may be exercised without demand upon or notice to Guarantor. No lien or right of setoff shall he deemed to have been waived by any act or conduct on the part of Bank, or by any neglect to exercise such right of setoff or to enforce such lien, or by any delay in so doing, and every right of setoff and lien shall continue in full force and effect until such right of setoff or lien is specifically waived or released by Bank in writing. 8. SUBORDINATION. Any Indebtedness of any of the Borrowers now or hereafter held by Guarantor is hereby subordinated to the Indebtedness of Borrowers to Bank. Such Indebtedness of Borrowers to Guarantor is assigned to Bank as security for this Guaranty and the Indebtedness and, if Bank requests, shall be collected and received by Guarantor as trustee for Bank and paid over to Bank on account of the Indebtedness of Borrowers to Bank but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this GUARANTY. Any notes or other instruments now or hereafter evidencing such Indebtedness of any of the Borrowers to Guarantor shall be marked with a legend that the same are subject to this Guaranty and, if Bank so requests, shall be delivered to Bank. Bank is hereby authorized in the name of Guarantor from time to time to file financing statements and continuation statements and execute such other documents and take such other action as Bank deems necessary or appropriate to perfect, preserve and enforce its rights hereunder. 9. REMEDIES; NO WAIVER. All rights, powers and remedies of Bank hereunder are cumulative. No delay failure or discontinuance of Bank in exercising any right, power or remedy hereunder shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of arty kind by bank of any breach of this Guaranty, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. 10. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with the enforcement of arty of Bank's rights, powers or remedies and/or the collection of any amounts which become due to Bank under this Guaranty, and the prosecution or defense of any action in any way related to this Guaranty, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Guarantor or any other person or entity. All of the foregoing shall be paid by Guarantor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or Bank's Prime Pate in effect from time to time. 11. SUCCESSORS; ASSIGNMENT. This Guaranty shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Guarantor may not assign or transfer any or its interests or rights hereunder without Bank's prior written consent. Guarantor acknowledges that Bank has the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, any Indebtedness of Borrowers to Bank and any obligations with respect thereto, including this Guaranty. In connection therewith, Bank may disclose all documents and information which Bank now has or hereafter acquires relating to Guarantor and/or this Guaranty, whether furnished by Borrowers, Guarantor or otherwise. Guarantor further agrees that Bank may disclose such documents and information to Borrowers. 12. AMENDMENT. This Guaranty may be amended or modified only in writing signed by Bank and Guarantor. 13. APPLICATION OF SINGULAR AND PLURAL. In all cases where there is but a single Borrower, then all words used herein in the plural shall be deemed to have bean used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the word "Borrowers" and the word "Guarantor" respectively shall mean all or any one or more of them as the context requires. 14. UNDERSTANDING WITH RESPECT TO WAIVERS; SEVERABILITY OF PROVISIONS. Guarantor warrants and agrees that each of the waivers set forth herein is made with Guarantors full knowledge of its significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any waiver or other provision of this Agreement shall be held to be prohibited by or invalid under applicable public policy or law, such waiver or other provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such waiver or other provision or any remaining provisions of this Agreement. 15. GOVERNING LAW. This Guaranty shall be governed by and construed in accordance with the laws of the State of Colorado. 16. ARBITRATION. 16.1 ARBITRATION. The parties hereto agree, upon demand by arty party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether In tort, contract or otherwise arising out of or relating to in any way (a) the loan and related loan and security documents which are the subject of this Guaranty and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (b) requests for additional credit. 16.2 GOVERNING RULES. Any arbitration proceeding will (a) proceed in a location in Colorado selected by the American Arbitration Association ("AAA"); (b) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (c) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the `Rules"). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. ss.91 or any similar applicable state law. 16.3 NO WAIVER OF PROVISIONAL REMEDIES. SELF-HELP AND FORECLOSURE. The arbitration requirement does not limit the right of arty party to (a) foreclose against real or personal property collateral; (b) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (c) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (a), (b) and (c) of this paragraph. 16.4 ARBITRATOR QUALIFICATIONS AND POWERS. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules and who shall not enter an award greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators: provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of Colorado or a neutral retired judge of the state or federal judiciary of Colorado, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents Only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Colorado and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Colorado Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration it any other party contests such action for judicial relief. 16.5 DISCOVERY. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available. 16.6 CLASS PROCEEDINGS AND CONSIDERATIONS. The resolution of any dispute arising pursuant to the terms of this Guaranty shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding. 16.7 PAYMENT OF ARBITRATION COSTS AND FEES, The arbitrator shall award all costs and expenses of the arbitration proceeding. 16.8 MISCELLANEOUS. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the documents between the parties or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the documents or any relationship between the parties. IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as of February 18, 2005. INCENTRA SOLUTIONS, INC. By: /s/ THOMAS P. SWEENEY III --------------------------- Thomas P. Sweeney III Chief Executive Officer EX-10.8 10 c35715_ex10-8.txt CONTINUING SECURITY AGREEMENT WELLS FARGO RIGHTS TO PAYMENT AND INVENTORY - -------------------------------------------------------------------------------- 1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned STAR SOLUTIONS OF DELAWARE, INC., or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO BANK NATIONAL ASSOCIATION (`Bank") a security interest in all accounts, deposit accounts, chattel paper (whether electronic or tangible), instruments, promissory notes, documents, general intangibles, payment intangibles, software, letter of credit rights, health-care insurance receivables and other rights to payment (collectively called "Rights to Payments"), now existing or at any time hereafter, and prior to the termination hereof, arising (whether they arise from the sale, lease or other disposition of inventory or from performance of contracts for service, manufacture, construction, repair or otherwise or from any other source whatsoever), including all securities guaranties, warranties, indemnity agreements, insurance policies, supporting obligations and other agreements pertaining to the same or the property described therein, and in all goods returned by or repossessed from Debtor's customers, together with a security interest in all inventory, good held for sale or lease or to be furnished under contracts for service, goods so leased or furnished, raw materials, component parts and embedded software, work in process or materials used or consumed in Debtor's business and all warehouse receipts, bills of lading and other documents evidencing goods owned or acquired by Debtor, and all goods covered thereby, now or at any time hereafter, and prior to the termination hereof, owned or acquired by Debtor, wherever located, and all products thereof (collectively called "Inventory"), whether in the possession of Debtor, warehousemen, bailees or any other person, or in process of delivery and whether located at Debtor's places of business or elsewhere (with all Rights to Payment and Inventory referred to herein collectively as the "Collateral'), together with whatever is receivable or received when any of the Collateral or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including without limitation, all rights to payment, including returned premiums, with respect to any insurance relating to any of the foregoing, and all rights to payment with respect to any claim or cause of action affecting or relating to any of the foregoing (hereinafter called "Proceeds"). 2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and performance of: (a) all present and future Indebtedness of Debtor to Bank; (b) all obligations of Debtor and rights of Bank under this Agreement; and (c) all present and future obligations of Debtor to Bank of other kinds. The word "indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Debtor, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Debtor may be liable individually or jointly, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 3. TERMINATION. This Agreement Will terminate upon the performance of all obligations of Debtor to Bank, including without limitation, the payment of all Indebtedness of Debtor to Bank, and the termination of all commitments of Bank to extend credit to Debtor, existing at the time Bank receives written notice from Debtor of the termination of this Agreement. 4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any money received by Bank in respect of the Collateral may be deposited, at Bank's option, into a non-interest bearing account over which Debtor shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. 5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that: (a) Debtor's legal name is exactly as set forth on the first page of this Agreement, and alt of Debtor's organizational documents or agreements delivered to Bank are complete and accurate in every respect; (b) Debtor is the Owner and has possession or control of the Collateral and Proceeds; (c) Debtor has the exclusive right to grant a security interest in the Collateral and Proceeds; (d) all Collateral and Proceeds are genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except the lien created hereby or as otherwise agreed to by Bank, or heretofore disclosed by Debtor to Bank, in writing; (e) all statements contained herein and, where applicable, in the Collateral are true and complete in all material respects: (f) no financing statement covering any of the Collateral or Proceeds, and naming any secured party other than Bank, is on file in any public office; (g) all persons appearing to be obligated on Rights to Payment and Proceeds have authority and capacity to contract and are bound as they appear to be; (h) all property subject to chattel paper has been properly registered and filed in compliance with law and to perfect the interest of Debtor in such property; and (i) all Rights to Payment and Proceeds comply with all applicable laws concerning form. content and manner of preparation and execution, including where applicable Federal Reserve Regulation 1 and any State consumer credit laws. 6. COVENANTS OF DEBTOR. 6.1 Debtor Agrees in general: (a) to pay Indebtedness secured hereby when due; (b) to indemnify sank against all losses, claims demands, liabilities and expenses of every kind caused by property subject hereto (c) to pay all costs and expenses, including reasonable attorneys' fees, incurred by the Bank in the perfection and preservation of the Collateral or Bank's interest therein and/or the realization, enforcement and exercise of Bank's rights, powers and remedies hereunder; (d) to permit Bank to exercise its powers; (e) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interest contemplated hereby; (f) not to change its name, and as applicable, its chief executive office, its principal residence or the jurisdiction in which it is organized and/or registered without giving Bank prior written notice thereof: (9) not to change the places where Debtor keeps any Collateral or Debtor's records concerning the Collateral and Proceeds without giving Bank prior written notice of the address to which Debtor is moving same; and (h) to cooperate with Bank in perfecting all security interests granted herein and in obtaining such agreements from third parties as Bank deems necessary, proper or convenient in connection with the preservation, perfection or enforcement of any of its rights hereunder. 6.2 Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing: (a) that Bank is authorized to file financing statements in the name of Debtor to perfect Bank's security interest in Collateral and Proceeds; (b) to insure Inventory and, where applicable, Rights to Payment with Bank named as loss payee, in form, substance and amounts,, under agreements, against risks and liabilities, and with insurance companies satisfactory to Bank; (c) not to use any Inventory for any unlawful purpose or in any way that would void any insurance required to be carried in connection therewith; (d) not to remove Inventory from Debtor's premises, except for deliveries to buyers in the ordinary course of Debtor's business and except Inventory which consists of mobile goods as defined in the Colorado Uniform Commercial Code, in which case Debtor agrees not to remove or permit the removal of the Inventory from its state of domicile for a period in excess of 30 calendar days; (e) not to permit any security interest in or lien on the Collateral or Proceeds, including without limitation, liens arising from the storage of Inventory, except in favor of Bank; (f) not to sell, hypothecate or otherwise dispose of, nor permit the transfer by operation of law of, any of the Collateral or Proceeds or any interest therein, except sales of Inventory to buyers in the ordinary course of Debtor's business; (g) to furnish reports to Bank of all acquisitions, returns, sales and other dispositions of the Inventory in such form and detail and at such times as Bank may require; (h) to permit Bank to inspect the Collateral at any time; (i) to keep, in accordance with generally accepted accounting principles, complete and accurate records regarding all Collateral and Proceeds, and to permit Bank to inspect the same and make copies thereof at any reasonable time; (j) if requested by Bank, to receive and use reasonable diligence to collect Rights to Payment and Proceeds, in trust and as the property of Bank, and to immediately endorse as appropriate and deliver such Rights to Payment and Proceeds to Bank daily in the exact form in which they are received together with a collection report in form satisfactory to Bank; (k) not to commingle Rights to Payment, Proceeds or collections thereunder with other property; (l) to give only normal allowances and credits and to advise Bank thereof immediately in writing if they affect any Rights to Payment or Proceeds in any material respect; (m) on demand, to deliver to Bank returned property resulting from, or payment equal to, such allowances or credits on any Rights to Payment or Proceeds or to execute such documents and do such other things as Bank may reasonably request for the purpose of perfecting, preserving and enforcing its security interest in such returned property; (n) from time to time, when requested by Bank, to prepare and deliver a schedule of all Collateral and Proceeds subject to this Agreement and to assign in writing and deliver to Bank all accounts, contracts, leases and other chattel paper, instruments, documents and other evidences thereof; (o) in the event Bank elects to receive payments of Rights to Payment or Proceeds hereunder, to pay all expenses incurred by Bank in connection therewith, including expenses of accounting, correspondence, collection efforts, reporting to account or contract debtors, filing, recording. record keeping and expenses incidental thereto; and (p) to provide any service and do any other acts which may be necessary to maintain, preserve and protect all Collateral and, as appropriate and applicable, to keep all Collateral in good and saleable condition in accordance with the standards and practices adhered to generally by users and manufacturers of like property, and to keep all Collateral and Proceeds free and clear of all defenses, rights of offset and counterclaims. 7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not Debtor is in default: (a) to perform any obligation of Debtor hereunder in Debtor's name or otherwise; (b) to give notice to account debtors or others of Bank's rights in the Collateral and Proceeds, to enforce or forebear from enforcing the same and make extension or modification agreements with respect thereto; (c) to release persons liable on Proceeds and to give receipts and acquittances and compromise disputes in connection therewith; (d) to release or substitute security; (e) to resort to security in any order; (f) to prepare, execute, file, record or deliver notes, assignments, schedules, designation statements, financing statements, continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect, preserve or release Bank's interest in the Collateral and Proceeds; (g) to receive, open and read mall addressed to Debtor; (h) to take cash, instruments for the payment of money and other property to which Bank is entitled; (i) to verify facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to endorse, collect, deliver and receive payment under instruments for the payment of money constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver and receive payment under insurance claims, and to collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts received by Bank, at Bank's sole option, toward repayment of the Indebtedness or replacement of the Collateral; (l) to exercise all rights, powers and remedies which Debtor would have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises in inspecting the Collateral; (n) to make withdrawals from and to close deposit accounts or other accounts with any financial institution, wherever located, into which Proceeds may have been deposited, and to apply funds so withdrawn to payment of the Indebtedness; (o) to preserve or release the interest evidenced by chattel paper to which Bank is entitled hereunder and to endorse and deliver any evidence of title incidental thereto; and (p) to do all acts and things and execute all documents in the name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder. 8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same Any such payments made by Bank shall be obligations of Debtor to Bank, due and payable immediately upon demand, together with interest at a rate determined in accordance with the provisions of this Agreement, and shall be secured by the Collateral and Proceeds, subject to all terms and conditions of this Agreement. 9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) any default in the payment or performance of any obligation, or any defined event of default, under (i) any contract or instrument evidencing any Indebtedness, or (ii) any other agreement between Debtor and Bank, including without limitation any loan agreement, relating to or executed in connection with any Indebtedness; (b) any representation or warranty made by Debtor herein shall prove to be incorrect, false or misleading in any material respect when made; (c) Debtor shall fail to observe or perform any obligation or agreement contained herein; (d) any impairment of the rights of Bank in any Collateral or Proceeds or any attachment or like levy on any property of Debtor; and (e) Bank, in good faith, believes any or all of the Collateral and/or Proceeds to be in danger of misuse, dissipation, commingling, loss, theft, damage or destruction, or otherwise in jeopardy or unsatisfactory in character or value. 10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the right to declare immediately due and payable all or any Indebtedness secured hereby and to terminate any commitments to make loans or otherwise extend credit to Debtor. Bank shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the Colorado Uniform Commercial Code or otherwise provided by law, including without limitation, the right (a) to contact all persons obligated to Debtor on any Collateral or Proceeds and to instruct such persons to deliver all Collateral anchor Proceeds directly to Bank, and (b) to sell, lease, license or otherwise dispose of any or all Collateral. All rights, powers, privileges and remedies of Bank shall be cumulative. No delay, failure or discontinuance of Bank In exercising any right, power, privilege or remedy hereunder shall affect or operate as a waiver of such right, power, privilege or remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Any waiver, permit, consent or approval of any kind by Bank of any default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. It is agreed that public or private sales or other dispositions, for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement, or public auctions are all commercially reasonable since differences in the prices generally realized in the different kinds of dispositions are ordinarily offset by the differences in the costs and credit risks of such dispositions. While an Event of Default exists: (a) Debtor will deliver to Bank from time to time, as requested by Bank, current lists of all Collateral and Proceeds; (b) Debtor will not dispose of any Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all Collateral and Proceeds, and books and records pertaining thereto, to Bank at a reasonably convenient place designated by Bank; and (d) Bank may, without notice to Debtor, enter onto Debtor1s premises and lake possession of the Collateral. With respect to any sale by Bank of any Collateral subject to this Agreement. Debtor hereby expressly grants to Sank the right to sell such Collateral using any or all of Debtor's trademarks, trade names, trade name rights and/or proprietary labels or marks. Debtor further agrees that Bank shall have no obligation to process or prepare any Collateral for sale or other disposition. 11. DISPOSITION OF COLLATERAL AND PROCEEDS; TRANSFER OF INDEBTEDNESS. In disposing of Collateral hereunder, Bank may disclaim all warranties of bile, possession, quiet enjoyment and the like. Any proceeds of any disposition of any Collateral or Proceeds, or any part thereof, may be applied by Bank to the payment of expenses incurred by Bank in connection with the foregoing, including reasonable attorneys' fees, and the balance of such proceeds may be applied by Bank toward the payment of the Indebtedness in such order of application as Bank may from time to time elect. Upon the transfer of all or any part of the Indebtedness, Bank may transfer all or any part of the Collateral or Proceeds and shall be fully discharged thereafter from all liability and responsibility with respect to any of the foregoing so transferred, and the transferee shall be vested with all rights and powers of Bank hereunder with respect to any of the foregoing so transferred; but with respect to any Collateral or Proceeds not so transferred Bank shall retain all rights, powers, privileges and remedies herein given. 12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in full and all commitments by Bank to extend credit to Debtor have been terminated, the power of sale or other disposition and all other rights, powers, privileges and remedies granted to Bank hereunder shall continue to exist and may be exercised by Bank at any time and from time to time irrespective of the fact that the Indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor may have ceased, unless such liability shall have ceased due to the payment in full of all Indebtedness secured hereunder. 13. MISCELLANEOUS, When there is more than one Debtor named herein: (a) the word "Debtor" shall mean all or any one or more of them as the context requires; (b} the obligations of each Debtor hereunder are joint and several; and (c) until all Indebtedness shall have been paid in full, no Debtor shall have any right of subrogation or contribution, and each Debtor hereby waives any benefit of or right to participate in any of the Collateral or Proceeds or any other security now or hereafter held by Bank. Debtor hereby waives any right to require Bank to (I) proceed against Debtor or any other person, (ii) proceed against or exhaust any security from Debtor or any other person, (iii) perform any obligation of Debtor with respect to any Collateral or Proceeds, and (d) make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any Collateral or Proceeds. Debtor further waives any right to direct the application of payments or security for any Indebtedness of Debtor or indebtedness of customers of Debtor. 14. NOTICES. All notices, requests and demands required under this Agreement must be in writing, addressed to Bank at the address specified in any other loan documents entered into between Debtor and Bank and to Debtor at the address of its chief executive office (or principal residence, if applicable) specified below or to such other address as any party may designate by written notice to each other party, and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or 3 days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. 15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expensed or incurred by Bank in exercising any right, power, privilege or remedy conferred by this Agreement or in the enforcement thereof, whether incurred at trial or appellate level, in an arbitration proceeding or otherwise, and including any of foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Debtor or in any way affecting any of the Collateral or Bank's ability to exercise any of its rights or remedies with respect thereto. All of the foregoing shall be paid by Debtor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or Bank's Prime Rate in effect from time to time. 16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, and may be amended or modified only in writing signed by Bank and Debtor. 17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. 18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. Debtor warrants that Debtor is an organization registered under the laws of the State of Delaware. Debtor warrants that its chief executive office (or principal residence, if applicable) is located at the following address: 5910 Pacific Center Blvd., San Diego, CA 92121 Debtor warrants that the Collateral (except goods in transit) is located or domiciled at the following additional addresses: NONE IN WITNESS WHEREOF, this Agreement has been duly executed as of February 18, 2005. STAR SOLUTIONS OF DELAWARE, INC. By: /s/ THOMAS P. SWEENEY III ----------------------------------------------- Thomas P. Sweeney. III, Chief Executive Officer EX-10.9 11 c35715_ex10-9.txt Exhibit 10.9 SECURITY AGREEMENT WELLS FARGO EQUIPMENT - -------------------------------------------------------------------------------- 1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned STAR SOLUTIONS OF DELAWARE, INC., or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security interest in all goods, tools, machinery, furnishings, furniture and other equipment, now or at any time hereafter, and prior to the termination hereof, owned or acquired by Debtor, wherever located, whether in the possession of Debtor or any other person and whether located on Debtor's property or elsewhere, and all improvements, replacements, accessions and additions thereto and embedded software included therein (collectively called "Collateral"), together with whatever is receivable or received when any of the Collateral or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including without limitation, (a) all accounts, contract rights, chattel paper (whether electronic or tangible), instruments, promissory notes, documents, general intangibles, payment intangibles and other rights to payment of every kind now or at any time hereafter arising from any such sale, lease, collection, exchange or other disposition o any of the foregoing, (b) all rights to payment, including returned premiums, with respect to any insurance relating to any of the foregoing, and (c) all rights to payment with respect to any claim or cause of action affecting or relating to any of the foregoing (hereinafter called "Proceeds"). 2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and performance of: (a) all present and future Indebtedness of Debtor to Bank; (b) all obligations of Debtor and rights of Bank under this Agreement; and (c) all present and future obligations of Debtor to Bank of other kinds. The word "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Debtor, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Debtor may be liable individually or jointly, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 3. TERMINATION. This Agreement will terminate upon the performance of all obligations of Debtor to Bank, including without limitation, the payment of all Indebtedness of Debtor to Bank, and the termination of all commitments of Bank to extend credit to Debtor, existing at the time Bank receives written notice from Debtor of the termination of this Agreement. 4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any money received by Bank in respect of the Collateral may be deposited, at Bank's option, into a non-interest bearing account over which Debtor shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. 5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that: (a) Debtor's legal name is exactly as set forth on the first page of this Agreement, and all of Debtor's organizational documents or agreements delivered to Bank are complete and accurate In every respect; (b) Debtor is the owner and has possession or control of the Collateral and Proceeds; (c) Debtor has the exclusive right to grant a security interest in the Collateral and Proceeds; (d) all Collateral and Proceeds are genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except the lien created hereby or as otherwise agreed to by Bank. or heretofore disclosed by Debtor to Bank, in writing; (e) all statements contained herein are true and complete in all material respects; (f) no financing statement covering any of the Collateral or Proceeds, and naming any secured party other than Bank, is on file in any public office; and (g) Debtor is not in the business of selling goods of the kind included within the Collateral subject to this Agreement, and Debtor acknowledges that no sale or other disposition of any Collateral, including without limitation any Collateral which Debtor may deem to be surplus, has been or shall be consented to or acquiesced In by Bank, except as specifically set forth in writing by Bank 6. COVENANTS OF DEBTOR. 6.1 Debtor Agrees in general: (a) to pay Indebtedness secured hereby when due; (b) to indemnity Bank against all losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (C) to pay all costs and expenses, including reasonable attorneys' fees, incurred by Bank in the perfection and preservation of the Collateral or Bank's interest therein and/or the realization, enforcement and exercise of Bank rights, powers and remedies hereunder; (d) to permit. Bank to exercise its powers; (e) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interests contemplated hereby; (f) not to change its name, and as applicable, its chief executive office, its principal residence or the jurisdiction in which it is organized and for registered without giving Bank prior written notice thereof; (g) not to change the places where Debtor keeps any Collateral or Debtor's records concerning the collateral and Proceeds without giving Bank prior written notice of the address to which Debtor is moving same; and (h) to cooperate with Bank in perfecting all security interests granted herein and in obtaining such agreements from third parties as Bank deems necessary proper or convenient in connection with the preservation, perfection or enforcement of any of its rights hereunder. 6.2 Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing: (a) that Bank is authorized to file financing statements in the name of Debtor to perfect Bank's security interest in Collateral and Proceeds; (b) to insure the Collateral with Bank named as loss payee, in form, substance and amounts, under agreements, against risks and liabilities, and with insurance companies satisfactory to Bank; (c) to operate the Collateral in accordance with all applicable statutes, rules and regulations relating to the use and control thereof, and not to use the Collateral for any unlawful purpose or in any way that would void any insurance required to be carried in connection therewith; (d) not to permit any security interest in or lien On the Collateral or Proceeds, including without limitation, liens arising from repairs to or storage of the Collateral, except in favor of Bank; (e) to pay when due all license fees registration fees and other charges in connection with any Collateral; (f) not to remove the Collateral from Debtor's premises unless the Collateral consists of mobile goods as defined in the Colorado Uniform Commercial Code, in which Case Debtor agrees not to remove or permit the removal or the Collateral from its state of domicile for a period in excess of 30 calendar days; (g) not to sell, hypothecate or otherwise dispose of, nor permit the transfer by operation of law of, any of the Collateral or Proceeds or any interest therein; (h) not to rent, lease or charter the Collateral; (i) to permit Bank to inspect the Collateral at any time; (j) to keep, in accordance with generally accepted accounting principles, complete and accurate records regarding all Collateral and Proceeds, and to permit Bank to inspect the same and make copies thereof at any reasonable time; (k) if requested by Bank, to receive and use reasonable diligence to collect Proceeds, in trust and as the property of Bank. and to immediately endorse as appropriate and deliver such Proceeds to Bank daily in the exact form in which they are received together with a collection report in form satisfactory to Bank; (l) not to commingle Proceeds or collections thereunder with other property; (m) to give only normal allowances and credits and to advise Bank thereof immediately in writing if they affect any Collateral or Proceeds in any material respect- (n) in the event Bank elects to receive payments of Proceeds hereunder, to pay all expenses incurred by Bank in connection therewith, including expenses of accounting, correspondence. collection efforts, reporting to account or contract debtors, filing, recording, record keeping and expenses incidental thereto; and (o) to provide any service and do any other acts which may be necessary to maintain, preserve and protect all Collateral and, as appropriate and applicable, to Keep the Collateral in good and saleable condition and repair, to deal with the Collateral in accordance with the standards and practices adhered to generally by owners of like property, and to keep all Collateral and Proceeds free and clear of all defenses, rights of offset and counterclaims. 7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not Debtor is in default: (a) to perform any obligation of Debtor hereunder in Debtors name or otherwise; (b) to give notice to account debtors or others of Bank's rights in the Collateral and proceeds to enforce or forebear from enforcing the same and make extension or modification agreements with respect thereto; (c) to release persons liable on Proceeds and to give receipts and acquittances and compromise disputes in connection therewith; (d) to release or substitute security; (e) to resort to security in any order; (f) to prepare, execute, file, record or deliver notes assignments, schedules, designation statements, financing statements, continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect preserve or release Bank's interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to take cash, instruments for the payment of money and other property to which Bank is entitled; (i) to verify facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to endorse. collect, deliver and receive payment under instruments for the payment of money constituting or relating to Proceeds; (k) to prepare,, adjust, execute, deliver and receive payment under insurance claims, and to collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts, received by Bank, at Bank's sole option, toward repayment of the Indebtedness or replacement of the Collateral; (l) to exercise all rights, powers and remedies which Debtor would have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Debtors premises in inspecting the Collateral; and (n) to do all acts and things and execute all documents in the name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder. 8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. Any such payments made by Bank shall be obligations of Debtor to Bank due and payable immediately upon demand, together with interest at a rate determined in accordance with the provisions of this Agreement, and shall be secured by the Collateral and Proceeds, subject to all terms and conditions of this Agreement. 9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this `Agreement: (a) any default in the payment or performance of any obligation, or any defined event of default, under (i) any contract or instrument evidencing any Indebtedness, or (ii) any other agreement between Debtor and Bank including without limitation any loan agreement, relating to or executed in connection with any Indebtedness; (b) any representation or warranty made by Debtor herein shall prove to be incorrect, false or misleading in any material respect when made; (c) Debtor shall fail to observe or perform any obligation or agreement contained herein; (d) any impairment of the rights of Bank in any Collateral or Proceeds or any attachment or like levy on any property of Debtor; and (e) Bank. in good faith, believes any or all of the Collateral and/or Proceeds to be in danger of misuse, dissipation, commingling, loss, theft, damage or destruction, or otherwise in jeopardy or unsatisfactory in character or value. 10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the right to declare immediately due and payable all or any Indebtedness secured hereby and to terminate any commitments to make loans or otherwise extend credit to Debtor. Bank shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the Colorado Uniform Commercial Code or otherwise provided by law, including without limitation, the right (a) to contact all persons obligated to Debtor on any Collateral or Proceeds and to instruct such persons to deliver all Collateral and/or Proceeds directly to Bank, and (b) to sell, lease, license or otherwise dispose of any or all Collateral. All rights, powers, privileges and remedies of Bank shall be cumulative. No delay, failure or discontinuance of Bank in exercising any right, power, privilege or remedy hereunder shall affect or operate as a waiver of such right, power, privilege or remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Any waiver, permit, consent or approval of any kind by Bank of any default hereunder, or any such waiver of any provisions or conditions hereof must be in writing and shall be effective only to the extent set forth in writing. It is agreed that public or private sales or other dispositions, for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement, or public auctions, are all commercially reasonable since differences in the prices generally realized in the different kinds of dispositions are ordinarily offset by the differences in the costs and credit risks of such dispositions. While an Event of Default exists: (a) Debtor will deliver to Bank from time to time, as requested by Bank, current lists of all Collateral and Proceeds; (b) Debtor will not dispose bf any Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all Collateral and Proceeds, and books and records pertaining thereto, to Bank at a reasonably convenient place designated by Bank; and (d) Bank may, without notice to Debtor, enter onto Debtor's premises and take possession of the Collateral. Debtor further agrees that Bank shall have no obligation to process or prepare any Collateral for sale or other disposition. 11. DISPOSITION OF COLLATERAL AND PROCEEDS: TRANSFER OF INDEBTEDNESS. In disposing of Collateral hereunder Bank may disclaim all warranties of title, possession, quiet enjoyment and the like- Any proceeds of any disposition of any Collateral or Proceeds, or any part thereof, may be applied by Bank to the payment of expenses incurred by Bank in connection with the foregoing including reasonable attorneys' fees, and the balance of such proceeds may be applied by Bank toward the payment of the Indebtedness in such order of application as Bank may from time to time elect. Upon the transfer of all or any part of the Indebtedness. Bank may transfer all or any part of the Collateral or Proceeds and shall be fully discharged thereafter from all liability and responsibility with respect to any of the foregoing so transferred, and the transferee shall be vested with all rights and powers of Bank hereunder with respect to any of the foregoing so transferred; but with respect to any Collateral or Proceeds not so transferred Bank shall retain all rights, powers, privileges and remedies herein given. 12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in full and all commitments by Bank to extend credit to Debtor have been terminated the power of sale or other disposition and all other rights, powers, privileges and remedies granted to Bank hereunder shall continue to exist and may be exercised by Bank at any time and from time to time irrespective of the fact that the Indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor may have ceased, unless such liability shall have ceased due to the payment in full of all Indebtedness secured hereunder. 13. MISCELLANEOUS When there is more than one Debtor named herein: (a) the word "Debtor shall mean all or any one or more of them as the context requires; (b) the obligations of each Debtor hereunder are joint and several; and (c) until all Indebtedness shall have been paid in full no Debtor shall have any right of subrogation or contribution, and each Debtor hereby waives any benefit of or right to participate in any of the Collateral or Proceeds or any other security now or hereafter held by Bank. Debtor hereby waives any right to require Bank to (i) proceed against Debtor or any other person. (ii) proceed against or exhaust any security from Debtor or any other person (iii) perform any obligation of Debtor with respect to any Collateral or Proceeds, and (d) make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any Collateral or Proceeds. Debtor further waives any right to direct the application of payments or security for any Indebtedness of Debtor or indebtedness of customers of Debtor. 14. NOTICES. All notices requests and demands required under this Agreement must be in writing. addressed to Bank at the address specified in any other loan documents entered into between Debtor and Bank and to Debtor at the address of its chief executive office (or principal residence, if applicable) specified below or to such other address as any party may designate by written notice to each other party, and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or 3 days after deposit in the U- S. mail first class and postage prepaid: and (c) if sent by telecopy, upon receipt. 15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately upon demand the full amount of all payments advances, charges, costs and expenses, including reasonable attorneys' lees (to include outside counsel fees and all allocated costs of Banks n-house counsel), expended or Incurred by Bank in exercising any right power, privilege or remedy conferred by this Agreement or in the enforcement thereof, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Debtor or in any way affecting any of the Collateral or Bank's ability to exercise any of its rights or remedies with respect thereto, All of the foregoing shall be paid by Debtor with interest from the date of demand until pa id in full at a rate per annum equal to the greater of ten percent (10%) or Bank's Prime Rate in effect from time to time. 16. SUCCESSORS: ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, and may be amended or modified only in writing signed by Bank and Debtor. 17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. 18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. Debtor warrants that Debtor is an organization registered under the laws of the State of Delaware. Debtor warrants that its chief executive office (or principal residence, if applicable) is located at the following address: 5910 Pacific Center Blvd., San Diego, CA 92121 Debtor warrants that the Collateral (except goods in transit) is located or domiciled at the following additional addresses: None IN WITNESS WHEREOF, this Agreement has been duly executed as of February 18, 2005. STAR SOLUTIONS OF DELAWARE, INC. By: /s/ THOMAS P. SWEENEY ---------------------------------------- Thomas P. Sweeney III, Chief Executive Officer EX-10.10 12 c35715_ex10-10.txt AMENDMENT AND WAIVER This Amendment and Waiver (this "AMENDMENT"), dated as of February 17, 2005, is entered into by and between INCENTRA SOLUTIONS INC. (f/k/a Front Porch Digital Inc.), a Nevada corporation (the "COMPANY"), and LAURUS MASTER FUND, LTD., a Cayman Islands company ("LAURUS"), for the purpose of amending the terms of the Registration Rights Agreement by and between the Company and Laurus, dated as of May 13, 2004 (as amended, modified or supplemented from time to time, the "REGISTRATION RIGHTS AGREEMENT" and, together with the Securities Purchase Agreement (as defined below) and the Term Note (as defined below), the "LOAN DOCUMENTS"). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Securities Purchase Agreement. WHEREAS, the Company has issued to Laurus a Secured Convertible Term Note, dated May 13, 2004 (as amended, modified and/or supplemented from time to time, the "TERM NOTE") pursuant to the Securities Purchase Agreement, dated as of May 13, 2004, between the Company and Laurus (as amended, modified and/or supplemented from time to time, the "SECURITIES PURCHASE AGREEMENT"); and WHEREAS, the Company has failed to maintain the effectiveness of the registration statement required to be filed and maintained by it pursuant to Section 2(b)(iii) of the Registration Rights Agreement and owes Laurus pursuant to Section 2(b) of the Registration Rights Agreement, certain liquidated damages (the "LIQUIDATED Damages") as a result thereof; and WHEREAS, the Company has failed to pay to Laurus when due the Liquidated Damages; and WHEREAS, Laurus has agreed to waive on the terms and conditions set forth herein, the Events of Default that may have occurred and are continuing as a result of the failure by the Company to pay to Laurus the Liquidated Damages when due and, in consideration therefore and in consideration of the other agreements set forth herein, the receipt and sufficiency of which is hereby acknowledged, the Company has agreed to issue the Additional Warrant (as defined below) to Laurus; WHEREAS, the Company and Laurus have agreed to make certain changes to the Registration Rights Agreement as set forth herein; NOW, THEREFORE, in consideration of the above, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. The Company and Laurus agree that on the date hereof an Event of Default has occurred and is continuing (beyond any applicable cure or grace period) under Section 4.1(b) of the Note relating to the failure by the Company to pay to Laurus the Liquidated Damages as set forth in the Registration Rights Agreement. Laurus hereby (i) waives such Event of Default and all fees and default interest rates otherwise applicable to such Event of Default; and (ii) hereby further waives any Liquidated Damages due and payable to Laurus by the Company up to and including the date hereof. In consideration of the waivers in this Section 1, the Company will, on the date hereof, issue a seven year warrant to Laurus to purchase 3,625,000 shares of the common stock of the Company with an exercise price of $0.26 per share (the "ADDITIONAL WARRANT"), such Additional Warrant to be in the form attached hereto as Exhibit 1. The Company further agrees to amend its Registration Statement, initially filed on the Filing Date (as defined in the Registration Rights Agreement), to include the Additional Warrant, such amendment to be filed on or before April 10, 2005 and to be made effective by the Securities and Exchange Commission no later than May 10, 2005. The provisions of Section 2 of the Registration Rights Agreement regarding liquidated damages will resume on April 11, 2005 with respect to the filing of the registration statement, and will resume on May 11, 2005 with respect to the effectiveness of the registration statement. 2. Each amendment and waiver set forth herein shall be effective as of the date hereof following (i) the execution and delivery of this Amendment by each of the Company and Laurus and (ii) the execution by the Company and delivery to Laurus of the Additional Warrant. 3. Except as specifically set forth in this Amendment, there are no other amendments, modifications or waivers to the Loan Documents, and all of the other forms, terms and provisions of the Loan Documents remain in full force and effect. 4. The Company hereby represents and warrants to Laurus that as of the date hereof all representations, warranties and covenants made by the Company in connection with the Loan Documents are true, correct and complete and all of the Company's and its Subsidiaries' covenant requirements have been met. 5. This Amendment shall be binding upon the parties hereto and their respective successors and permitted assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and their respective successors and permitted assigns. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. 2 IN WITNESS WHEREOF, each of the Company and Laurus has caused this Amendment to the Loan Documents to be signed in its name effective as of this 17th day of February 2005. INCENTRA SOLUTIONS INC., (f/k/a Front Porch Digital Inc.) By:/s/Thomas P. Sweeney III -------------------------------- Name: Thomas P. Sweeney III Title: Chief Executive Officer LAURUS MASTER FUND, LTD. By: /s/David Grin ------------------------------- Name: David Grin Title: Director 3 EXHIBIT 1 FORM OF ADDITIONAL WARRANT EX-10.11 13 c35715_ex10-11.txt THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INCENTRA SOLUTIONS INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase up to 3,625,000 Shares of Common Stock of Incentra Solutions Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. _________________ Issue Date: February 17, 2005 INCENTRA SOLUTIONS INC. (f/k/a Front Porch Digital Inc.), a corporation organized under the laws of the State of Nevada ("ICEN"), hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through the close of business February 17, 2012 (the "Expiration Date"), up to 3,625,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), at the applicable Exercise Price (as defined below) per share. The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include ICEN and any corporation which shall succeed, or assume the obligations of, ICEN hereunder. (b) The term "Common Stock" includes (i) the Company's Common Stock, par value $0.001 per share; and (ii) any other securities into which or for which any of the securities described in (a) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the Holder of this Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. (d) The "Exercise Price" applicable under this Warrant shall be $0.26. 1. EXERCISE OF WARRANT. 1.1 NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the "Exercise Notice") up to 3,625,000 shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2 FAIR MARKET VALUE. For purposes hereof, the "Fair Market Value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (a) If the Company's Common Stock is traded on the American Stock Exchange or another national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock Market, Inc. ("Nasdaq"), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the National Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided. (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date. 1.3 COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing its continuing obligation to afford to such Holder any rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the Holder 2 shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights. 1.4 TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust company shall have been appointed as trustee for the Holder of this Warrant pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. PROCEDURE FOR EXERCISE. 2.1 DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 2.2 EXERCISE. Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of this Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of this Warrant in accordance with Section (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant); provided, however, that if at the time of delivery of an Exercise Notice the shares of Common Stock to be issued upon payment of the Exercise Price have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and are covered by an effective registration statement under the Securities Act, payment of the Exercise Price may only be made pursuant to clause (i) above and may not be made pursuant to clause (ii) or (iii) above. Upon receipt by the Company of an Exercise Notice and proper payment of the aggregate Exercise Price, the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by 3 surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice, in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X=Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under this Warrant or, if only a portion of this Warrant is being exercised, the portion of this Warrant being exercised (at the date of such calculation) A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B = the Exercise Price (as adjusted to the date of such calculation) 3. EFFECT OF REORGANIZATION, ETC.; ADJUSTMENT OF EXERCISE PRICE. 3.1 REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2 DISSOLUTION. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder of this Warrant pursuant to Section 3.1, or, if the Holder shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder of this Warrant (the "Trustee"). 3.3 CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of 4 dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company's securities and property (including cash, where applicable) receivable by the Holders of the Warrant will be delivered to Holder or the Trustee as contemplated by Section 3.2. 4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the Holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise. 5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of this Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANT. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. 5 7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") in whole or in part. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, the provision of a legal opinion from the Transferor's counsel that such transfer is exempt from the registration requirements of applicable securities laws, and with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Registration Rights Agreement dated as of May 13, 2004 entered into by the Company and the initial Holder of this Warrant. 10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on such exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this proviso is being made on such exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Notwithstanding the foregoing, the restriction described in this paragraph may be revoked upon 75 days prior notice from the Holder to the Company and is automatically null and void upon an Event of Default under the Note. 11. WARRANT AGENT. The Company may, by written notice to the Holder of this Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 6 12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 14. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of State of New York without regard to principles of conflicts of laws. Any action brought concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in the state of New York; provided, however, that the Holder may choose to waive this provision and bring an action outside the State of New York. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof. The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.] 7 IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. INCENTRA SOLUTIONS INC. WITNESS: By: /s/Thomas P. Sweeney III ---------------------------------- Name: Thomas P. Sweeney III ---------------------------------- /s/Matthew Richman Title: Chief Executive Officer - ---------------------------------- ---------------------------------- Matthew Richman 8 EXHIBIT A FORM OF SUBSCRIPTION (To Be Signed Only On Exercise Of Warrant) TO: INCENTRA SOLUTIONS INC. 1140 Pearl Street Boulder, CO 80302 Attention: Chief Financial Officer The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): _________ _______ shares of the Common Stock covered by such Warrant; or _________ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): _________ $__________ in lawful money of the United States; and/or _________ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or _________ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ________________________________________ whose address is ______________________________________________________________. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated: __________________________ _________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) Address: ________________________________ ________________________________ A-1 EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To Be Signed Only On Transfer Of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of INCENTRA SOLUTIONS INC. into which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of INCENTRA SOLUTIONS INC. with full power of substitution in the premises.
Percentage Number Transferees Address Transferred Transferred - ----------- ------- ----------- ----------- - -------------------------------------- ----------------------------------- ----------------- ---------------- - -------------------------------------- ----------------------------------- ----------------- ---------------- - -------------------------------------- ----------------------------------- ----------------- ---------------- - -------------------------------------- ----------------------------------- ----------------- ---------------- Dated: --------------------------------------- -------------------------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: ----------------------------------------------------- ----------------------------------------------------- SIGNED IN THE PRESENCE OF: -------------------------------------------------------------- (Name)
ACCEPTED AND AGREED: [TRANSFEREE] - ------------------------------------------------------- (Name) B-1 EX-10.12 14 c35715_ex10-12.txt WAIVER AND SUBORDINATION AGREEMENT This Waiver and Subordination Agreement ("Waiver"), dated as of February 18, 2005, is entered into by and between INCENTRA SOLUTIONS, INC., a Nevada corporation (the "Company") and LAURUS MASTER FUND, LTD., a Cayman Islands company ("Laurus"), for the purpose of amending or waiving certain terms of (i) the Securities Purchase Agreement, dated as of May 13, 2004, by and between the Company and Laurus (as amended, modified or supplemented from time to time, the "SPA") and (ii) the Master Security Agreement, dated as of May 13, 2004, by and between the Company and Laurus (as amended, modified or supplemented from time to time, the "MSA"). Capitalized terms used herein without definition shall have the meaning ascribed to such terms in the SPA or MSA, as applicable. WHEREAS, on February 14, 2005, the Company created Incentra Merger Corp., a Delaware corporation ("Merger Corp"), with and into which Star Solutions of Delaware, Inc., a Delaware corporation shall be merged; and, WHEREAS Merger Corp shall be the surviving corporation in such merger, continuing to do business under the name of Star Solutions of Delaware, Inc.; and WHEREAS, Wells Fargo Bank, National Association ("WFB") is providing funding for the merger and a continuing credit facility for Merger Corp after the merger and is requiring a security interest in certain assets of Merger Corp; NOW, THEREFORE, in consideration of the above, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Laurus hereby waives the provisions of Section 6.12(e)(ii) of the SPA as to Merger Corp. 2. Laurus hereby subordinates to WFB the rights of Laurus in and to the following: Accounts receivable and other rights to payments, general intangibles, equipment and inventory of Star Solutions of Delaware, Inc., a Delaware corporation and wholly owned subsidiary of Incentra Solutions, Inc. 3. Each waiver and amendment set forth herein shall be effective as of the date hereof following the execution and delivery of same by each of the Company and Laurus. 4. Except as specifically set forth in this Waiver and Amendment Agreement, or as previously amended, modified or supplemented, there are no other amendments to the Loan Documents, and all of the other 1 forms, terms and provisions of the Loan Documents remain in full force and effect. 5. This Waiver and Amendment Agreement shall be binding upon the parties hereto and their respective successors and permitted assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and permitted assigns. 6. This Waiver and Amendment Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York. 7. This Waiver and Amendment Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. IN WITNESS WHEREOF, each of the Company and Laurus has caused this Waiver and Amendment Agreement to be signed in its name effective as of this 18th day of February, 2005. INCENTRA SOLUTIONS, INC. By: /s/Thomas P. Sweeney III --------------------------- Name: Thomas P. Sweeney III Title: Chief Executive Officer LAURUS MASTER FUND, LTD. By: /s/David Grin --------------------------- Name: David Grin Title: Director 2 EX-99.1 15 c35715_ex99-1.txt EXHIBIT 99.1 NEWS RELEASE for February 22, 2005 at 7:30 am EST - ------------------------------------------------- CONTACTS FOR INCENTRA SOLUTIONS: Allen & Caron Inc. Incentra Solutions, Inc. Jill Bertotti (investors) Thomas P. Sweeney, III jill@allencaron.com Chairman and CEO ------------------- (303) 449-8279 Len Hall (financial media) len@allencaron.com ------------------ (949) 474-4300 INCENTRA SOLUTIONS COMPLETES ACQUISITION OF STAR SOLUTIONS ALMOST DOUBLES ANNUALIZED REVENUES, PROVIDES PLATFORM FOR SALE OF HIGHER MARGIN STORAGE SOLUTIONS AND SERVICES BOULDER, CO, FEBRUARY 22, 2005 - Incentra Solutions, Inc. (OTCBB: ICEN) announced today that it has acquired privately-held STAR Solutions, Inc. (www.star-solutions.com) of San Diego in a transaction that almost doubles the Company's annualized revenue and is expected to be immediately accretive. Chairman and CEO, Thomas P. Sweeney, said that the acquisition of STAR is a key first step in implementing the Company's strategy to substantially grow revenues in its target markets by acquiring established direct sales and service organizations. STAR is a leading systems integrator that provides Information Technology (IT) products, professional services and outsourcing solutions to enterprise markets in the western United States. The purchase price for STAR consisted of $1.5 million in cash, approximately 12.6 million shares of unregistered Incentra common stock, and an unsecured promissory note for $2.5 million. Incentra acquired all of the outstanding shares of capital stock of STAR. At the time of the acquisition, STAR had $1.6 million in cash and no outstanding debt. Financing for the acquisition was provided by Wells Fargo Bank, N.A. through a new $5 million commercial loan facility. The facility paid all costs of the acquisition and is expected to provide sufficient capacity to finance the growth of the business and subsequent acquisitions. The acquisition of STAR increases Incentra's direct sales resources in the enterprise market, and will provide the Company direct access to customers for its unique monitoring and management services. The Company intends to introduce its GridWorks services this year to STAR's customers and will introduce over time first call support services for all products sold by STAR. "We expect to see increasing gross margins throughout the year, as well as increases in our monthly recurring revenues as a direct result of this acquisition" Sweeney said. STAR provides IT consulting, systems, storage and outsourcing services to a large base of customers in financial services, hospitality, retail, security and manufacturing verticals. STAR revenues in 2004 amounted to approximately $17 million which generated net income. "STAR has an excellent management team, top flight personnel and an exceptional record of providing high quality IT solutions to its growing customer base," Sweeney said. "The acquisition of STAR will significantly expand our ability to deliver complete storage solutions, including hardware, software and services, to a larger number of mid-sized enterprises." STAR will operate as a wholly-owned subsidiary of Incentra Solutions and be managed by STAR President Elaine A. Bellock. Ms. Bellock has been with STAR for the past five years and has been President since early 2003, when she assumed the management of all day-to-day operations from the founder and principal owner. STAR's 45 employees will continue to be based in San Diego, the San Francisco Bay Area, Los Angeles, Las Vegas, Phoenix and Delray Beach, FL. "It had become increasingly clear to us over the last few years," Bellock said, "that customers continue to experience changes in their IT environments, and those changes present an increased need for services to augment their existing staff. Partnering with Incentra Solutions enables STAR to now offer a broader set of services to our customers, which will create additional competitive advantages." Inveraray Partners headquartered in the San Francisco Bay Area advised Incentra Solutions on the acquisition. "Mike Orbach and the team at Inveraray did a tremendous job from start to finish," Sweeney said. ABOUT STAR SOLUTIONS, INC. Systems Technology and Resources (STAR Solutions) is committed to providing clients with affordable and flexible Information Technology solutions to overcome the challenges found in today's complex business environments. Established in 1997 with personnel in San Diego, Los Angeles, Las Vegas, Fort Lauderdale, San Francisco Bay Area and Phoenix, STAR Solutions expanded from a traditional Hardware/Software Solution Provider to a full-service Technology Consulting Company supporting clients nationwide. As Professional Development Specialists, STAR Solutions specializes in designing, building, implementing and knowledge transfer of technology solutions across the complete infrastructure. ABOUT INCENTRA SOLUTIONS, INC. Incentra Solutions, Inc. (OTCBB:ICEN) (WWW.INCENTRASOLUTIONS.COM), is a provider of storage management solutions to broadcasters, enterprises and managed service providers worldwide. The Company operates a Broadcast & Media Division, Front Porch Digital (WWW.FPDIGITAL.COM), that provides digital archive management and transcoding solutions and a wholly-owned subsidiary, ManagedStorage International (MSI, WWW.MSISERVICE.COM), that provides storage management software, hardware and outsourcing services facilitated by its GridWorks online storage resource management product. INCENTRA SOLUTIONS FORWARD LOOKING STATEMENTS Certain information discussed in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the federal securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, it can give no assurance that its expectations will be achieved. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements are inherently subject to unpredictable and unanticipated risks, trends and uncertainties such as the Company's inability to accurately forecast its operating results; the Company's potential inability to achieve profitability or generate positive cash flow; the availability of financing; and other risks associated with the Company's business. For further information on factors which could impact the Company and the statements contained herein, reference should be made to the Company's filings with the Securities and Exchange Commission, including Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB and Current Reports on Form 8-K. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. # # # # -----END PRIVACY-ENHANCED MESSAGE-----