-----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, EFOKlHfTHh7ny7ILr3wLhABH4ZA5Cmhs+dE989AhRbeMevofdovV1hkdTcw9+LHf 18NH7gX9Myc7Gy9+x/Gg6A== 0000930413-05-002422.txt : 20050404 0000930413-05-002422.hdr.sgml : 20050404 20050404162114 ACCESSION NUMBER: 0000930413-05-002422 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20050329 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050404 DATE AS OF CHANGE: 20050404 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: 05730109 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 c36819_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: MARCH 29, 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 PWI Technologies, Inc., a Washington corporation ("PWI"), as discussed in Item 2.01 below, on March 30, 2005, we entered into several material agreements. The material agreements include a stock purchase agreement, registration rights agreements and an employment agreement. The descriptions of such agreements contained in Item 2.01 below are incorporated herein by reference. (b) On March 29, 2005, STAR Solutions of Delaware, Inc., one of our wholly-owned subsidiaries ("SSI"), amended its existing revolving line of credit from Wells Fargo Bank, N. A. ("Wells Fargo") to make PWI a co-borrower thereunder. In connection with the amendment, SSI and PWI executed a First Amendment to Credit Agreement (the "First Amendment") with Wells Fargo and PWI executed in favor of Wells Fargo 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"). Pursuant to the First Amendment, the maximum principal amount of all borrowings under the line of credit was increased to an amount that cannot exceed 80% of the combined eligible accounts receivable of SSI and PWI, plus the amount of $350,000 from March 29, 2005 through April 15, 2005. Certain financial covenants contained in the original credit agreement were also amended. There were no other material amendments to the original credit agreement with Wells Fargo, a copy of which was filed as Exhibit 10.5 to our Current Report on Form 8-K dated February 23, 2005. Pursuant to the Security Agreements, borrowings under the line of credit will be further secured by a first priority lien on all of PWI's assets. The repayment of borrowings under the line of credit are guaranteed by us pursuant to that certain Continuing Guaranty in favor of Wells Fargo, dated as of February 18, 2005 (the "Guaranty"), a copy of which was filed previously with our Current Report on Form 8-K dated February 23, 2005. Pursuant to a Standstill Agreement among Wells Fargo, Laurus Master Fund, Ltd., a Cayman Islands company ("Laurus") and us, dated as of March 23, 2005, 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. (c) On March 23, 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 to cause PWI 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 PWI. SECTION 2 - FINANCIAL INFORMATION ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS. On March 30, 2005 (the "Closing Date"), we acquired all of the outstanding capital stock (the "PWI Stock") of PWI Technologies, Inc., a Washington corporation ("PWI"). The acquisition was effected pursuant to a Stock Purchase Agreement, dated as of the Closing Date (the "Stock Purchase Agreement"), by and among our company, Barry R. Andersen ("Andersen") and Gary L. Henderson ("Henderson" and together with Andersen, the "Former PWI Shareholders"). The consideration paid for the PWI Stock on the Closing Date was approximately $3.9 million, which consisted of $2.1 million in cash and the issuance of 8.4 million shares of our common stock. Also as consideration for the purchase, we agreed to pay $235,000 to Henderson over the 12-month period subsequent to the Closing Date. In addition, the Stock Purchase Agreement contains an earn-out provision pursuant to which the Former PWI Shareholders may receive an amount of cash and a number of unregistered shares of our common stock based upon certain levels of EBITDA achieved by PWI during the period from February 1, 2005 until January 31, 2006. The maximum earn-out payable under the Stock Purchase Agreement is $200,000 in cash plus a number of unregistered shares of our common stock determined by dividing PWI's EBITDA for the aforementioned period by $0.21 (subject to customary adjustments for stock splits, stock dividends and similar transactions). The cash amounts paid on the Closing Date were provided pursuant to our existing line of credit from Wells Fargo Bank, N.A, which was amended on the Closing Date to make PWI a co-borrower thereunder. At the time of the acquisition, the assets of PWI were pledged to a trade creditor to secure PWI's payment of outstanding trade payables. Concurrently with the consummation of the acquisition, we granted registration rights with respect to the shares of our common stock issued in the acquisition. Pursuant to the registration rights agreements executed on the Closing Date, at any time after March 31, 2006, the holders of such rights shall have the right to cause us to register under the Securities Act of 1933, as amended, the shares of our common stock issued on the Closing Date and the shares of common stock issuable pursuant to the earn-out described above. The agreements also provide that, after March 31, 2006, the holders shall have `piggy-back' registration rights with respect to such shares. In connection with the consummation of the acquisition, Barry R. Andersen, the Chief Executive Officer of PWI prior to the acquisition, was appointed President of PWI. PWI entered into an "at-will" employment agreement dated as of the Closing Date with Mr. Anderson that provides that Mr. Andersen will receive an initial annual base salary of $211,500. The employment agreement also provides that Mr. Andersen may terminate the agreement upon thirty (30) days prior written notice and that PWI may terminate Mr. Andersen's employment, with or without cause, at any time upon written notice to Mr. Andersen. In addition, Mr. Andersen's right to receive his pro rata share of the earn-out described above is subject to his continued employment with PWI for a period of at least one year from the date of the agreement, except in cases of his death or disability. 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 $250,000. On March 30, 2005, we issued a press release announcing the completion of our acquisition of PWI and the other transactions described above. A copy of such press release is filed herewith as Exhibit 99.1. 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 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION On March 30, 2005, we issued a press release announcing our preliminary financial results for the three and twelve-months ended December 31, 2004. A copy of the press release is attached hereto as Exhibit 99.2. The foregoing information (including Exhibit 99.2 hereto) is being furnished under Item 2.02, "Results of Operations and Financial Condition." As such, the information (including the exhibit) herein (and therein) shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that Section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. This Current Report (including Exhibit 99.2 hereto) will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD. SECTION 3 - SECURITIES AND TRADING MARKETS ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES. On March 30, 2005, in connection with the closing of the transactions discussed in Item 2.01 above, we issued an aggregate of 8,419,340 shares of common stock to the Former PWI Shareholders, or their 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 each Former PWI Shareholder represented to us that he was an "accredited investor," as defined in the Securities Act of 1933, as amended. 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 Stock Purchase Agreement, dated as of March 30, 2005, by and among Incentra Solutions, Inc., Incentra Merger Corp., Barry R. Andersen and Gary L. Henderson. 10.1 Registration Rights Agreement, dated as of March 30, 2005, by and among Incentra Solutions, Inc., Barry R. Andersen and Gary L. Henderson. 10.2 Employment Agreement, dated as of March 30, 2005, by and between PWI Technologies, Inc. and Barry R. Andersen. 10.3 Registration Rights Agreement, dated as of March 30, 2005, by and between Incentra Solutions, Inc. and MRA Systems, Inc. (d/b/a GE Access). NUMBER DOCUMENTS ------ --------- 10.4 First Amendment to Credit Agreement, dated as of March 29, 2005, by and between STAR Solutions of Delaware, Inc. and Wells Fargo Bank, N.A. 10.5 Continuing Security Agreement, dated as of March 29, 2005, by PWI Technologies, Inc. in favor of Wells Fargo Bank, N.A. 10.6 Security Agreement, dated as of March 29, 2005, by PWI Technologies, Inc. in favor of Wells Fargo Bank, N.A. 10.7 Waiver and Subordination Agreement, dated as of March 23, 2005, by and between Incentra Solutions, Inc. and Laurus Master Fund, Ltd. 10.8 Standstill Agreement, dated as of March 23, 2005, by and among Incentra Solutions, Inc., Laurus Master Fund, Ltd. and Wells Fargo Bank, N.A. 99.1 Press Release, dated March 30, 2005, relating to the acquisition of PWI Technologies, Inc. 99.2 Press release, dated March 30, 2005, relating to preliminary results of operations for the three months and year ended December 31, 2005. 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: March 31, 2005 By: /s/ THOMAS P. SWEENEY III ------------------------------ Thomas P. Sweeney III Chief Executive Officer EXHBIT INDEX NUMBER DOCUMENTS ------ --------- 2.1 Stock Purchase Agreement, dated as of March 30, 2005, by and among Incentra Solutions, Inc., Incentra Merger Corp., Barry R. Andersen and Gary L. Henderson. 10.1 Registration Rights Agreement, dated as of March 30, 2005, by and among Incentra Solutions, Inc., Barry R. Andersen and Gary L. Henderson. 10.2 Employment Agreement, dated as of March 30, 2005, by and between PWI Technologies, Inc. and Barry R. Andersen. 10.3 Registration Rights Agreement, dated as of March 30, 2005, by and between Incentra Solutions, Inc. and MRA Systems, Inc. (d/b/a GE Access). 10.4 First Amendment to Credit Agreement, dated as of March 29, 2005, by and between STAR Solutions of Delaware, Inc. and Wells Fargo Bank, N.A. 10.5 Continuing Security Agreement, dated as of March 29, 2005, by PWI Technologies, Inc. in favor of Wells Fargo Bank, N.A. 10.6 Security Agreement, dated as of March 29, 2005, by PWI Technologies, Inc. in favor of Wells Fargo Bank, N.A. 10.7 Waiver and Subordination Agreement, dated as of March 23, 2005, by and between Incentra Solutions, Inc. and Laurus Master Fund, Ltd. 10.8 Standstill Agreement, dated as of March 23, 2005, by and among Incentra Solutions, Inc., Laurus Master Fund, Ltd. and Wells Fargo Bank, N.A. 99.1 Press Release, dated March 30, 2005, relating to the acquisition of PWI Technologies, Inc. 99.2 Press release, dated March 30, 2005, relating to preliminary results of operations for the three months and year ended December 31, 2005. EX-2.1 2 c36819_ex2-1.txt EXHIBIT 2.1 STOCK PURCHASE AGREEMENT BY AND BETWEEN THE SHAREHOLDERS OF PWI TECHNOLOGIES, INC. AND INCENTRA SOLUTIONS, INC. DATED AS OF MARCH 30, 2005 TABLE OF CONTENTS PAGE ---- RECITALS 8 ARTICLE I PURCHASE AND SALE OF SHARES 8 SECTION 1.1. PURCHASE AND SALE OF SHARES 8 SECTION 1.2. CONSIDERATION 8 SECTION 1.3 CLOSING 11 ARTICLE II REPRESENTATIONS AND WARANTIES OF THE COMPANY 12 SECTION 2.1 ORGANIZATION, STANDING AND CORPORATE POWER 12 SECTION 2.2 SUBSIDIARIES 12 SECTION 2.3 CAPITAL STRUCTURE 12 SECTION 2.4 AUTHORITY; NONCONTRAVENTION 13 SECTION 2.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES 14 SECTION 2.6 MATERIAL CONTRACTS 16 SECTION 2.7 PERMITS; COMPLIANCE WITH APPLICABLE LAWS 17 SECTION 2.8 ABSENCE OF LITIGATION 17 SECTION 2.9 TAX MATTERS 17 SECTION 2.10 EMPLOYEE BENEFIT PLANS 19 SECTION 2.11 LABOR MATTERS 22 SECTION 2.12 ENVIRONMENTAL MATTERS 23 SECTION 2.13 INTELLECTUAL PROPERTY 25 SECTION 2.14 INSURANCE MATTERS 27 SECTION 2.15 TRANSACTIONS WITH AFFILIATES 27 SECTION 2.16 VOTING REQUIREMENTS 27 SECTION 2.17 BROKERS 28 SECTION 2.18 REAL PROPERTY 28 SECTION 2.19 TANGIBLE PERSONAL PROPERTY 29 SECTION 2.20 INVESTMENT COMPANY 29 SECTION 2.21 BOARD APPROVAL 29 SECTION 2.22 BOOKS AND RECORDS 29 SECTION 2.23 STATUS OF SHARES BEING TRANSFERRED 29 SECTION 2.24 INVESTMENT IN PURCHASER COMMON STOCK 29 SECTION 2.25 DISCLOSURE 30 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER 31 SECTION 3.1 ORGANIZATION; STANDING AND CORPORATE POWER 31 Page 2 SECTION 3.2 CAPITAL STRUCTURE 31 SECTION 3.3 AUTHORITY; NONCONTRAVENTION 32 SECTION 3.4 PURCHASER DOCUMENTS 33 SECTION 3.5 VOTING REQUIREMENTS 33 SECTION 3.6 BROKERS 34 SECTION 3.7 BOARD APPROVAL 34 SECTION 3.8 BOOKS AND RECORDS 34 SECTION 3.9 SARBANES OXLEY ACT COMPLIANCE 34 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 34 SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY 34 SECTION 4.2 ADVICE OF CHANGES 36 SECTION 4.3 NO SOLICITATION BY THE COMPANY 36 SECTION 4.4 CONDUCT OF BUSINESS BY PURCHASER 37 SECTION 4.5 TRANSITION 37 ARTICLE V ADDITIONAL AGREEMENTS 37 SECTION 5.1 ACCESS TO INFORMATION; CONFIDENTIALITY 37 SECTION 5.2 COMMERCIALLY REASONABLE EFFORTS 38 SECTION 5.3 FEES AND EXPENSES 38 SECTION 5.4 PUBLIC ANNOUNCEMENTS 38 SECTION 5.5 REGULATION D 38 SECTION 5.6 PURCHASER'S STOP TRANSFER ON ALLEGED BREACH OF SHAREHOLDER REPRESENTATIONS AND WARRANTIES 39 SECTION 5.7 PURCHASER'S ASSUMPTION AND PAYMENT OF OBLIGATIONS PERSONALLY GUARANTEED BY SHAREHOLDERS 39 SECTION 5.8 RULE 144 COMPLIANCE 37 SECTION 5.9 SHAREHOLDERS COVENANT NOT TO COMPETE 39 SECTION 5.10 SHAREHOLDER AFFILIATED COMPANIES TRADE PAYABLES TO THE COMPANY; SECURITY INTEREST 40 ARTICLE VI CONDITIONS PRECEDENT 40 SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE PURCHASE 40 SECTION 6.2 CONDITIONS TO OBLIGATIONS OF PURCHASER 41 SECTION 6.3 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS 43 SECTION 6.4 FRUSTRATION OF CLOSING CONDITIONS 44 Page 3 ARTICLE VII INDEMNIFICATION; ARBITRATION 44 SECTION 7.1 INDEMNIFICATION 44 SECTION 7.2 CLAIMS AND PROCEDURE 46 SECTION 7.3 ARBITRATION 47 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 48 SECTION 8.1 TERMINATION 48 SECTION 8.2 EFFECT OF TERMINATION 49 SECTION 8.3 AMENDMENT 50 SECTION 8.4 EXTENSION; WAIVER 50 ARTICLE IX GENERAL PROVISIONS 50 SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS 50 SECTION 9.2 NOTICES 50 SECTION 9.3 DEFINITIONS 51 SECTION 9.4 INTERPRETATION 52 SECTION 9.5 COUNTERPARTS 52 SECTION 9.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES 52 SECTION 9.7 GOVERNING LAW 52 SECTION 9.8 ASSIGNMENT 53 SECTION 9.9 CONSENT TO JURISDICTION 53 SECTION 9.10 HEADINGS 53 SECTION 9.11 SEVERABILITY 53 SECTION 9.12 ENFORCEMENT 53 Page 4 EXHIBITS Exhibit A - Form of Employment Agreements Exhibit B - Form of Registration Rights Agreement Exhibit C - Form of Security Agreement Exhibit D - Form of Settlement Agreement Exhibit E - Form of Debt Assignment Exhibit F - Form of Debt Forgiveness SCHEDULES Company Disclosure Schedule Addendum to Company Disclosure Schedule Page 5 INDEX OF DEFINED TERMS DEFINED TERMS DEFINED SECTION - ------------- ------- affiliate Section 9.3(a) Agreement Preamble AI Section 5.10 Closing Section 1.3 Closing Date Section 1.3 Closing Payment Section 1.2(a) Code Section 2.9(e) Company Preamble Company Acquisition Proposal Section 4.3(a) Company Certificate of Incorporation Section 2.2(b) Company Common Stock Section 2.3(a) Company Disclosure Schedule Article II Company Financial Statements Section 2.5(a) Company IP Agreements Section 2.13(g) Company Material Contracts Section 2.6(b) Company Permitted Lien Section 2.19 Competing Business Section 5.9 Dispute Section 7.3 Earn Out Payment Section 1.1 EBITDA Section 1.2(b) Employee Plans Section 2.10(a) Employment Agreements Section 6.2(h) encumbrance Section 9.3(b) Environmental Laws Section 2.12(d)(i) Environmental Permits Section 2.12(d)(ii) ERISA Section 2.10(a) ERISA Affiliate Section 2.10(a) Fiduciary Section 2.10(e) GAAP Section 2.5(a) Government Entities Section 2.4(c) Governmental Entity Section 2.4(c) Hazardous Substances Section 2.12(d)(iii) indemnified party Section 7.2(a) indemnifying party Section 7.2(a) Initial Consideration Section 1.1 Intellectual Property Section 2.13(a) IRS Section 2.10(g) knowledge Section 9.3(c) Liens Section 2.4(d) material adverse change Section 9.3(d) Page 6 material adverse effect Section 9.3(d) Multi-Employer Plans Section 2.10(d) Other Company Documents Section 2.7(c) person Section 9.3(e) Purchaser Preamble Purchaser Common Stock Section 3.2(a) Purchaser Employee Stock Options Section 3.2(a) Purchaser Purchaser Indemnified Parties Section 7.1(a) Purchaser Losses Section 7.1(a) Purchaser SEC Documents Section 3.4(a) Purchaser Preferred Stock Section 3.2(a) Purchaser Stock Plans Section 3.2(a) Permits Section 2.7(a) Release Section 2.12(d)(iv) Registration Rights Agreement Section 6.2(i) Requisite Regulatory Approvals Section 6.1(b) Restraints Section 6.1(c) Sarbanes Oxley Act Section 3.9 SEC Section 3.4(a) Securities Act Section 2.24(a) Seller Indemnified Parties Section 7.1(b) Seller Losses Section 7.1(b) Shareholder Affiliated Companies Section 5.9 Shareholders Preamble Shares Recitals Software Section 2.13(a) subsidiary Section 9.3(f) Tangible Personal Property Section 2.18 Tax Section 2.9(i)(i) Taxes Section 2.9(i)(i) Tax Return Section 2.9(i)(ii) Third Party Rights Section 2.13(d) Page 7 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (this "Agreement") dated as of March ___, 2005, by and between INCENTRA SOLUTIONS, INC., a Nevada corporation ("Purchaser") and the persons whose names and signatures appear at the end of this Agreement, all of whom are shareholders of PWI TECHNOLOGIES, INC., a Washington corporation (the "Company"), referred to collectively as "Shareholders" and individually as "Shareholder". RECITALS WHEREAS, Shareholders own all of the outstanding shares of capital stock (the "Shares") of the Company; WHEREAS, Shareholders intend to sell and Purchaser intends to purchase the Shares; 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 PURCHASE AND SALE OF THE SHARES SECTION 1.1. PURCHASE AND SALE OF THE SHARES. Upon the terms and subject to the conditions of this Agreement, Shareholders agree to sell, convey, assign and transfer, and Purchaser agrees to purchase, the Shares, free and clear of all Encumbrances (as defined in Section 9.3(b) hereof) for the initial aggregate sum of One Million One Hundred Thirty Five Thousand Dollars ($1,135,000.00), consisting of Three Hundred Thirty Five Thousand Dollars ($335,000.00) in cash and Eight Hundred Thousand Dollars ($800,000.00) in Purchaser's unregistered common stock (together the "Initial Consideration"); together with further consideration consisting of the transfer to or retention by the Shareholders of the receivables and debt instruments referenced in Section 2.15 of the Company Disclosure Schedule, as described and limited in Section 5.11. Purchaser shall pay Shareholders additional consideration pursuant to the provisions of Section 1.2(b), if, and only if, the conditions of such Section 1.2(b) are satisfied and only to the extent satisfied (the "Earn Out Payment"). At the Closing (as defined in Section 1.3) each Shareholder will transfer to Purchaser the Shares listed after his or her name in Section 1.1 of the Company Disclosure Schedule, which together will constitute all of the issued and outstanding Shares of the Company. Page 8 SECTION 1.2. CONSIDERATION. (a) Upon the terms and subject to the conditions of this Agreement, in consideration of the sale, conveyance, assignment and transfer of the Shares to Purchaser at the Closing, Purchaser agrees to: (1) Pay to each Shareholder his or her pro rata share, as defined below, of One Hundred Thousand Dollars ($100,000.00) at the Closing (the "Closing Payment"); (2) As of the Closing Date, issue to each Shareholder, or to his or her designee, his or her pro rata share, as defined below, of Eight Hundred Thousand Dollars ($800,000.00) of Purchaser's unregistered common stock. The total number of shares of Purchaser's unregistered common stock to be issued pursuant to this Section 1.2(a)(2) shall be determined by dividing Eight Hundred Thousand Dollars ($800,000.00) by the average closing price of Purchaser's publicly traded common stock for the fifteen (15) trading day period ending, and including, one day prior to the Closing Date. (b) Purchaser shall pay Shareholder Gary Henderson ("Henderson") the sum of Two Hundred Thirty Five Thousand Dollars ($235,000.00) in twelve (12) equal monthly installments of Nineteen Thousand Five Hundred Eighty Three and 33/100 Dollars ($19,583.33) on the first day of each month beginning May 1, 2005 and ending April 1, 2006. (c) On or before March 31, 2006, and subject to the conditions set forth below, Purchaser will pay Shareholders an Earn Out Payment as follows: (1) In the event Earnings Before Interest, Taxes, Depreciation and Amortization, as defined below, ("EBITDA") of PWI Technologies, Inc. for the twelve (12) month period beginning February 1, 2005 and ending January 31, 2006 reaches Four Hundred Fifty Thousand Dollars ($450,000.00), Purchaser shall pay to each Shareholder his or her pro rata share, as defined below, of One Hundred Thousand Dollars ($100,000.00) within forty-five (45) days of the end of the month in which such EBITDA level is reached; and, (2) In the event Earnings Before Interest, Taxes, Depreciation and Amortization, as defined below, ("EBITDA") of PWI Technologies, Inc. for the twelve (12) month period beginning February 1, 2005 and ending January 31, 2006 is equal to or greater than Seven Hundred Fifty Thousand Dollars ($750,000.00), but less than One Million Dollars ($1,000,000.00), Purchaser shall issue to each Shareholder his or her pro rata share, as defined below, of Five Hundred Thousand Dollars ($500,000.00) of Purchaser's unregistered common stock, with the total Page 9 number of shares to be issued determined by dividing Five Hundred Thousand Dollars ($500,000.00) by the average closing price of Purchaser's publicly traded common stock for the fifteen (15) trading day period ending, and including, one day prior to the Closing Date, adjusted for any stock split, reverse split, stock dividends or other adjustments to Purchaser common stock; or, (3) In the event EBITDA of PWI Technologies, Inc. for the twelve (12) month period beginning February 1, 2005 and ending January 31, 2006 is equal to or greater than One Million Dollars ($1,000,000.00) but less than One Million Fifty Thousand Dollars ($1,050,000.00), Purchaser shall and shall issue to each Shareholder his or her pro rata share, as defined below, of One Million Dollars ($1,000,000.00) of Purchaser's unregistered common stock plus One Dollar ($1.00) of Purchaser's unregistered common stock for each One Dollar ($1.00) of EBITDA in excess of One Million Dollars ($1,000,000.00) for such period, with the total number of shares to be issued determined by dividing the sum of One Million Dollars ($1,000,000.00) plus One Dollar ($1.00) of Purchaser's unregistered common stock for each One Dollar ($1.00) of EBITDA in excess of One Million Dollars ($1,000,000.00) for such period by the average closing price of Purchaser's publicly traded common stock for the fifteen (15) trading day period ending, and including, one day prior to the Closing Date; adjusted for any stock split, reverse split, stock dividends or other adjustments to Purchaser common stock; or, (4) In the event EBITDA of PWI Technologies, Inc. for the twelve (12) month period beginning February 1, 2005 and ending January 31, 2006 is equal to or greater than One Million Fifty Thousand Dollars ($1,050,000.00), Purchaser shall pay to each Shareholder his or her pro rata share, as defined below, of One Hundred Thousand Dollars ($100,000.00) and shall issue to each Shareholder his or her pro rata share, as defined below, of One Million Dollars ($1,000,000.00) of Purchaser's unregistered common stock plus One Dollar ($1.00) of Purchaser's unregistered common stock for each One Dollar ($1.00) of EBITDA in excess of One Million Dollars ($1,000,000.00) for such period, with the total number of shares to be issued determined by dividing the sum of One Million Dollars ($1,000,000.00) plus One Dollar ($1.00) of Purchaser's unregistered common stock for each One Dollar ($1.00) of EBITDA in excess of One Million Dollars ($1,000,000.00) for such period by the average closing price of Purchaser's publicly traded common stock for the fifteen (15) trading day period ending, and including, one day prior to the Closing Date; adjusted for any stock split, reverse split, stock dividends or other adjustments to Purchaser common stock. Page 10 (5) For purposes of this Agreement, EBITDA shall be defined as the net income of the Company, as determined by generally accepted accounting principles, plus interest, taxes, depreciation and amortization and subject to the other restrictions or limitations on allocation of expenses as provided in this Agreement. The parties agree that no headquarters or overhead expenses or costs of Purchaser or its affiliates or subsidiaries or other charges of or from Purchaser will be allocated or charged to Company for purposes of determining EBITDA under this Agreement. Page 11 (c) For purposes of this Agreement, a Shareholder's pro rata share shall be determined by dividing the number of Shares held and transferred by such Shareholder by the total number of the Shares. (d) For purposes of the Earn Out Payment only, the right of Shareholder Barry Andersen ("Andersen") to receive his pro rata share of any such payment shall be subject to his continued employment with the Company as follows: (1) In the event Andersen terminates his employment with the Company or such employment is terminated for cause, as defined in his employment agreement with the Company, within 180 days of the Closing, Andersen shall not be entitled to receive any portion of his pro rata share of any Earn Out Payment that otherwise becomes due; and (2) in the event Andersen terminates his employment with the Company or such employment is terminated for cause, as defined in his employment agreement with the Company, more than 180 days after the Closing but within 365 days of the Closing, then Andersen shall be entitled to receive a portion of any Earn Out Payment that otherwise becomes due that is equal to his pro rata share of such payment times a fraction the numerator of which is the number of days employment he completed after the Closing and the denominator of which is 365 days. (3) Notwithstanding anything herein to the contrary, the termination of Andersen's employment by reason of his death or disability shall not affect his entitlement to receive his pro rata share of any Earn Out Payment. SECTION 1.3 CLOSING. Subject to the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to consummation of the Purchase contained in Article VI hereof, the closing of the Purchase (the "Closing") shall take place at 10:00 a.m., Denver time, on a date specified by the parties (the "Closing Date"), which date shall not be later than the third business day following satisfaction or, to the extent permitted by applicable law, waiver of the conditions to consummation of the Purchase contained in Article VI (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 Purchaser, located at 1140 Pearl Street, Boulder, CO 80302 or at such other location as is agreed to by the parties hereto. Page 12 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on the Disclosure Schedule delivered by the Company to Purchaser 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 Shareholders hereby represent and warrant to Purchaser as follows: SECTION 2.1 ORGANIZATION, STANDING AND CORPORATE POWER. (a) Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization and has the requisite corporate power and authority to carry on its business as presently being conducted. Each of the Company and its subsidiaries 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 Purchaser prior to the execution of this Agreement complete and correct copies of the certificate of incorporation and by-laws of the Company and each of its subsidiaries, each as in effect at the date of this Agreement. (c) SECTION 2.2. SUBSIDIARIES. Section 2.2 of the Company Disclosure Schedule lists the names and jurisdiction of incorporation or organization of all the subsidiaries of the Company, whether consolidated or unconsolidated. The outstanding securities of the subsidiaries of Company are set forth in Section 2.2 of the Company Disclosure Schedules and all outstanding shares of capital stock of, or other equity interests in, each such subsidiary: (i) have been duly authorized, validly issued and are fully paid and nonassessable and (ii) are owned directly or indirectly by Company, free and clear of all Liens. Except as set forth above or in Section 2.2 of the Company Disclosure Schedule, the Company does not own, directly or indirectly, any capital stock of or other equity or voting interests in any person. SECTION 2.3. CAPITAL STRUCTURE. As of the date hereof: (a) (i) The only class of capital stock authorized by the Company is common stock ("Company Common Stock"); (ii) 1,000,000 shares of Company Common Stock are authorized and 800,000 shares of Company Common Stock are issued and outstanding, all held by Shareholders in the amounts set forth next to their respective names in Section 2.3(a) of the Company Disclosure Schedule; and (iii) no shares of Page 13 Company Common Stock are held by the Company in its treasury and no shares of Company Common Stock are held by subsidiaries of the Company (b) Except as set forth on Section 2.3(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's Certificate of Incorporation (the "COMPANY CERTIFICATE OF INCORPORATION") or any agreement to which the Company is a party or by which the Company may be bound. (c) Except as set forth in Section 2.3(c) of the Company Disclosure Schedule, 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) 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 2.4. AUTHORITY; NONCONTRAVENTION. (a) Shareholders have the power and authority to execute, deliver and perform this Agreement and the other agreements to be executed and delivered by Shareholders 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 Shareholders to authorize Shareholders to execute, deliver and perform this Agreement and the other agreements to be executed and delivered by Shareholders in connection herewith 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 other agreements to be executed and delivered by Shareholders in connection herewith when so executed and delivered will constitute valid and binding agreements, of Shareholders. (b) Except as set forth in Section 2.4(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 or by-laws, (ii) any material loan or credit agreement, note, mortgage, indenture, lease or other material agreement or (iii) material instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. Page 14 (c) The execution, delivery and performance by the Shareholders of this Agreement and the consummation of the purchase and sale of the Shares by the Shareholders require no consent, approval, order or authorization of, action by or in respect of, or registration or filing with, any governmental body, court, agency, official or authority (each, a "GOVERNMENTAL ENTITY", collectively "GOVERNMENT ENTITIES"). (d) The execution and delivery of this Agreement and the consummation of the purchase and sale of the Shares will not result in the creation of any pledges, claims, liens, charges, encumbrances, 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 2.4(e) of the Company Disclosure Schedule, no consent, approval, waiver or other action by any person (other than the Governmental Entities referred to in (d) 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 Shareholders or the consummation of the purchase and sale of the Shares. SECTION 2.5. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. (a) The Company has furnished to the Purchaser true, correct and complete copies of: (i) balance sheets of the Company as of December 31, 2001, December 31, 2002 and December 31, 2003 compiled by the Company; (ii) income statements of the Company 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 Shareholders' equity of the Company for the fiscal year ended December 31, 2004 audited by the Company's independent accountants, and (iv) an income statement and statement of cash flows for the Company for the period from January 1, 2005 through and including March 21, 2005, and a balance sheet for the Company as of March 21, 2005 (collectively, the "Company Financial Statements"). Except as set forth in Section 2.5(a) of the Company Disclosure Schedule, 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. Except as set forth in Section 2.5(a) of the Company Disclosure Schedule, The Company Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") and fairly present in all material respects the financial condition of the Company and its subsidiaries as at the respective dates thereof. Page 15 (b) Except for liabilities (i) set forth in Section 2.5 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, neither the Company nor any of its subsidiaries has any material liabilities or obligations 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, and at the Closing Date there will be, no changes in the financial condition of the Company. None of these changes is, and at the Closing Date none will be, materially adverse. Specifically, but, not by way of limitation, since its balance sheet of December 31, 2004 the Company has not, and prior to the Closing Date will not have: (i) Issued or sold any stock, bond, or other Company securities; (ii) Except for current liabilities incurred and obligations under contracts entered into in the ordinary course of business and except as set forth in Section 2.5(b)(ii) of the Company Disclosure Schedule, incurred any 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 and except as set forth in Section 2.5(b)(iii) of the Company Disclosure Schedule, discharged or satisfied any lien or encumbrance, or paid any obligation or liability, absolute or contingent; (iv) Mortgaged, pledged or subjected to lien or any other encumbrance, any of its assets, tangible or intangible; (v) Except in the ordinary course of business, sold or transferred any of its tangible assets or canceled any debts or claims; (vi) Sold, assigned, or transferred any patents, formulas, trademarks, trade names, copyrights, licenses, or other 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 Page 16 (viii) Except for transactions contemplated by this Agreement, entered into any 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 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, all accounts receivable and notes receivable of the Company are current and collectible. 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 Purchaser pursuant to this Agreement is in saleable condition. SECTION 2.6. MATERIAL CONTRACTS. (a) Each Company Material Contract is valid and binding on and enforceable against the Company (or, to the extent a subsidiary is a party, such subsidiary) and each other party thereto and is in full force and effect. Except as set forth in Section 2.6 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is in breach or default under any Company Material Contract. Except as set forth in Section 2.6 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries knows of, and has not received notice of, any violation or default under (nor, to the knowledge of the Shareholders, 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 Purchaser 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 or any of its subsidiaries is bound or to which any of the Company's or any of its subsidiaries' assets are subject which involve payments to or from the Company of at least $50,000. Page 17 SECTION 2.7. PERMITS; COMPLIANCE WITH APPLICABLE LAWS. (a) The Company and its subsidiaries own and/or possess 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 and its subsidiaries (the "PERMITS") as presently conducted. The Company and its subsidiaries are in compliance in all material respects with the terms of the Permits. All the Permits are in full force and effect and no suspension, modification or revocation of any of them is pending or threatened nor do grounds exist for any such action. (b) Except as set forth in Section 2.7(b) of the Company Disclosure Schedule, each of the Company and its subsidiaries is in compliance in all material respects with all applicable statutes, laws, regulations, ordinances, Permits, rules, writs, judgments, orders, decrees and arbitration awards of each Governmental Entity applicable to the Company or any of its subsidiaries. (c) Except for filings with respect to Taxes, which are the subject of Section 2.9 and not covered by this Section 2.7(c) and except as set forth in Section 2.7(c) of the Company Disclosure Schedule, the Company 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 (the "OTHER COMPANY DOCUMENTS"), 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 the Company. SECTION 2.8. ABSENCE OF LITIGATION. Section 2.8 of the Company Disclosure Schedule contains a true and current summary description of each pending and, to the Shareholders' knowledge, threatened litigation, action, suit, case, proceeding, investigation or arbitration. Except as set forth in Section 2.8 of the Company Disclosure Schedule, no action, inquiry, demand, charge, requirement 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 subsidiaries or any of their respective properties or Permits, is pending or, to the knowledge of the Shareholders, threatened. SECTION 2.9. TAX MATTERS. (a) Except as set forth in Section 2.9 of the Company Disclosure Schedule, each of the Company and its subsidiaries has (i) filed with the appropriate Governmental Entities all United States federal and state income and other material Tax Page 18 Returns required to be filed by it (giving effect to all extensions) and such Tax Returns are true, correct and complete in all material respects; (ii) paid in full all United States federal income and other material Taxes required to have been paid by it; and (iii) made adequate provision for all accrued Taxes not yet due. The accruals and provisions for Taxes reflected in the Company Financial Statements are adequate in accordance with GAAP for all Taxes accrued or accruable through the date of such statements. (b) Except as set forth in Section 2.9 of the Company Disclosure Schedule, 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 or any of its subsidiaries, and neither the Company nor any of its subsidiaries has received a written notice of any material pending or proposed claims, audits or proceedings with respect to Taxes. (c) Except as set forth in Section 2.9 of the Company Disclosure Schedule, 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 or any of its subsidiaries. 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 or any of its subsidiaries with respect to any material Tax. (d) Neither the Company nor any of its subsidiaries has 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 election under Section 341(f) of the Internal Revenue Code as from time to time amended (the "Code") has been made by the Company or any of its subsidiaries. (f) No claim has been made in writing by any Governmental Entities in a jurisdiction where the Company or any of its subsidiaries does not file Tax Returns that the Company is, or may be, subject to taxation by that jurisdiction. (g) Except as set forth in Section 2.9 of the Company Disclosure Schedule, each of the Company and its subsidiaries has made available to Purchaser correct and complete copies of (i) all of its material Tax Returns filed within the past three (3) years, (ii) 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 or any of its subsidiaries, and (iii) any closing letters or agreements entered Page 19 into by the Company with any Governmental Entities within the past three (3) years with respect to Taxes. (h) Except as set forth in Section 2.9 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has 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. (i) 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 2.10. EMPLOYEE BENEFIT PLANS. (a) Section 2.10 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 or any of its subsidiaries 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 2.10 of the Company Disclosure Schedule identifies and includes but is not limited to, each of the Employee Plans that is Page 20 subject to Section 302 or Title IV of ERISA or Section 412 of the Code. Neither the Company, any of its subsidiaries nor any ERISA Affiliate of the Company or any of its subsidiaries 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. (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 2.10 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) 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 Purchase 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 or imminent 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. Page 21 (f) 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. Except as set forth in Section 2.10 of the Company Disclosure Schedule, 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. 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 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) 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 Shareholders, 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. Each Employee Plan intended to satisfy the requirements of Section 125, 501(c)(9) or 501(c)(17) of the Code has 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 Shareholders, 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 2.10 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 Page 22 (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) 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 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 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) 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 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 2.11. LABOR MATTERS. (a) With respect to employees of the Company or its subsidiaries: (i) to the knowledge of the Shareholders, no senior executive or key employee has any plans to terminate employment with the Company or any of its subsidiaries; (ii) there is no unfair labor practice charge or complaint against the Company pending or, to the knowledge of the Shareholders, 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 Shareholders, 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 Page 23 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 Shareholders, proposed or threatened against the Company relating to employment, employment practices, terms and conditions of employment or wages, benefits, severance and hours. (b) Section 2.11(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 or any of its subsidiaries, from the Company or any of its subsidiaries 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 2.11(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, 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 Purchase 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's Shareholders, and true and complete copies of all of which have heretofore been delivered to Purchaser. 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 2.12 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 2.12 of the Company Disclosure Schedule, to the best of Shareholder's knowledge: (a) COMPLIANCE. (i) The Company and its subsidiaries are in compliance in all material respects with all applicable Environmental Laws; (ii) neither the Company nor any of its subsidiaries has received any written communication from any person or governmental entity that alleges that the Company or any of its subsidiaries is not in compliance with applicable Environmental Laws; and (iii) there have not been any Page 24 Releases of Hazardous Substances by the Company or any of its subsidiaries, or, by any other party, at any property currently or formerly owned or operated by the Company or any of its subsidiaries that occurred during the period of the Company's or any of its subsidiaries' ownership or operation of such property. (b) ENVIRONMENTAL PERMITS. The Company and its subsidiaries have 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 the Company or its subsidiaries are 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 are no Environmental Claims 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, code of practice, 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 and practices), with respect to buildings, equipment, soil, sub-surface strata, air, surface water, or ground water, whether set forth in applicable law or applied in practice, 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. (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. Page 25 (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 2.13 INTELLECTUAL PROPERTY. (a) Section 2.13(a) of the Company Disclosure Schedule sets forth, for the Intellectual Property (as defined below) owned or purported to be owned by the Company or any of its subsidiaries, a complete and accurate list of all 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 or one of its subsidiaries 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 purports to own 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) Except as set forth in Section 2.13(b) of the Company Disclosure Schedule, all of the Intellectual Property owned or purported to be owned by the Company or any of its subsidiaries is free and clear of all Liens. The Company or one of its subsidiaries is listed in the records of the appropriate United States, state or foreign agency as, the sole owner of record for each patent and patent application and trademark, service mark and copyright which is registered or the subject of an application for registration that is listed in Section 2.13(a) of the Company Disclosure Schedule. (c) All of the patents, patent applications, trademarks, service marks and copyrights owned or purported to be owned by the Company which have been Page 26 issued by, or registered or the subject of an 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 the items listed in Section 2.13(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 Shareholders' knowledge, valid. There is no pending or, to the Shareholders' 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 2.13(a) of the Company Disclosure Schedule or, to the Shareholders' knowledge, against any other Intellectual Property used by the Company or its subsidiaries. (d) The conduct of the Company's or each of its subsidiaries' 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 Shareholders' knowledge, the rights of any third party under any patent. There are no pending, or, to the knowledge of the Shareholders, threatened claims against the Company or any of its subsidiaries alleging that the operation of the business as currently conducted, infringes on or conflicts with any Third Party Rights. (e) To the Shareholders' 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 or its subsidiaries and no such claims have been made against a third party by the Company or any of its subsidiaries. (f) Each material item of Software, which is used by the Company or any of its subsidiaries in connection with the operation of its business as currently conducted, is either (i) owned by the Company or any of its subsidiaries, (ii) currently in the public domain or otherwise available to the Company without the need of a license, lease or consent of any third party, or (iii) used under rights granted to the Company or any of its subsidiaries pursuant to a written agreement, license or lease from a third party. (g) Section 2.13(g) of the Company Disclosure Schedule sets forth a complete list of all agreements under which the Company or any of its subsidiaries is granted rights to acquire or use the Intellectual Property of a third party (other than shrink-wrap or click on-downloadable general purpose software) (the "COMPANY IP AGREEMENTS"). Except as set forth in Section 2.13(g) of the Company Disclosure Schedule, the Company is not under any obligation to pay royalties or other payments in connection with any Company IP Agreement, nor Page 27 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 Shareholders, 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 Shareholders' knowledge, the Company does not sell any products that intentionally contain any "viruses", "time-bombs", "key-locks", or any other devices intentionally created that could 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, any of its subsidiaries or any licensee or recipient. (i) To the Shareholders' knowledge, neither the Company nor any of its subsidiaries has 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 2.14 INSURANCE MATTERS. Subject to Section 2.14 of the Company Disclosure Schedule, The Company and its subsidiaries have all material primary insurance providing insurance coverage that is customary in amount and scope for other companies in the industry in which the Company and its subsidiaries operate. All such policies are in full force and effect, all premiums due and payable thereon have been paid and no written or oral notice of cancellation or termination has been received and is outstanding. SECTION 2.15 TRANSACTIONS WITH AFFILIATES. Except as set forth on Section 2.15 of the Company Disclosure Schedule, there are no outstanding amounts payable to or receivable from, loans, leases or other existing agreements between the Company or any of its subsidiaries, on the one hand, and any member, officer, manager, employee or affiliate of the Company or any of its subsidiaries or any of the Shareholder Affiliated Companies, as defined in Section 5.9 below or any family member or affiliate of such member, officer, manager, employee or affiliate on the other hand. SECTION 2.16 VOTING REQUIREMENTS. The affirmative vote (in person or by duly authorized and valid proxy at a Company Shareholders' meeting or by written consent) of the holders of all of the outstanding Shares in favor of the adoption of this Agreement is the only vote of the holders of any class Page 28 or series of the Company's Shares required by applicable law and the Company's organizational instruments to duly effect such adoption. SECTION 2.17 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 Purchase and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. SECTION 2.18 REAL PROPERTY. (a) Each of the Company and its subsidiaries has good and marketable title in fee simple to all real properties owned by it and all buildings, structures and other improvements located thereon and valid leaseholds in all real estate leased by it, other than Company Permitted Liens. Section 2.18(a) of the Company Disclosure Schedule sets forth a complete list of all (i) real property owned by the Company or its subsidiaries as of the date hereof and (ii) real property leased, subleased, or otherwise occupied or used by the Company or any of its subsidiaries as lessee. With respect to each parcel of real property leased, subleased, or otherwise occupied or used by the Company or any of its subsidiaries as lessee: (i) the Company or the applicable subsidiary has a valid leasehold interest or other right of use and occupancy, free and clear of any Liens on such leasehold interest or other rights of use and occupancy, or any covenants, easements or title defects known to or created by the Company or the applicable subsidiary, except as do not materially affect the occupancy or uses of such property. Each of the Company's and its subsidiaries' agreement 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. Neither the Company nor the applicable subsidiary nor, to the knowledge of the Shareholders or the applicable subsidiary, any other party thereto, is in material default or material breach under any such 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 or the applicable subsidiary under any of such agreement and, to the knowledge of the Company or the applicable subsidiary, there is no breach or anticipated 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 2.18(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 in accordance with GAAP, (iii) with respect to real property, any Lien, encumbrance or other title defect 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) and (iv) inchoate materialmen's, mechanics', carriers', workmen's and repairmen's liens arising in Page 29 the ordinary course and not past due and payable or the payment of which is being contested in good faith by appropriate proceedings. SECTION 2.19 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 or any of its subsidiaries 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 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 those set forth in Section 2.19 of the Company Disclosure Schedule ("Company Permitted Liens"). SECTION 2.20 INVESTMENT COMPANY. Neither the Company nor any of its subsidiaries is an investment company required to be registered as an investment company pursuant to the Investment Company Act. SECTION 2.21 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 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 transactions contemplated hereby and (iii) directed that the Purchase be submitted for consideration by the holders of the Shares. SECTION 2.22 BOOKS AND RECORDS. Each of the Company 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 2.23 STATUS OF SHARES BEING TRANSFERRED. Subject to Section 2.23 of the Company Disclosure Schedule, the Shareholders own all of the issued and outstanding shares of capital stock of the Company. The Shareholders have full power to convey good and marketable title to their Shares, free of any liens, charges, or encumbrances of any nature. SECTION 2.24 INVESTMENT IN PURCHASER COMMON STOCK. (a) Each Shareholder is an "accredited investor" as defined in Rule 501(a)(3) under the Securities Act of 1933, as amended (the "Securities Act"). Page 30 (b) Except as to shares designated by Shareholders to be issued to GE Access pursuant to the Settlement Agreement (as defined in Section 6.2(g)(i)), each Shareholder is acquiring the shares of common stock of Purchaser to be issued hereunder for investment for his or her 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. Except as to shares designated by Shareholders to be issued to GE Access pursuant to the Settlement Agreement (as defined in Section 6.2(g)(i)), each Shareholder understands that the shares of Purchaser Common Stock to be issued to him or her hereunder have not, and will not be, registered in the United States under the Securities Act or applicable state securities laws, except as provided in the Registration Rights Agreement and may not be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or unless disposed of in a transaction exempt from such laws, such as in compliance with Rule 144 promulgated by the SEC, and that certificates representing the shares of Purchaser Common Stock shall bear legends to this effect. Each Shareholder understands that Purchaser's issuance of the shares of Purchaser 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 Shareholders' representations as expressed herein. Each of Shareholders is neither a party to nor bound by any agreement regarding the ownership or disposition of the shares of Purchaser Common Stock other than this Agreement, the Settlement Agreement. (c) Shareholders, and each of them, have made independent investigation of Purchaser and related matters as (i) he or she deems to be necessary or advisable in connection with the his or her investment in and acceptance of the shares of Purchaser Common Stock to be issued to him or her hereunder and (ii) he or she 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 Purchaser Common Stock to be issued to him or her hereunder. Without limiting the foregoing, each Shareholder has reviewed the Purchaser SEC Documents (as hereinafter defined) and the Purchaser's other publicly-available SEC filings. In evaluating his or her investment in and acceptance of the shares of Purchaser Common Stock to be issued to them hereunder, Shareholders have not relied upon any representation or other information (oral or written) other than as set forth in this Agreement or in such Purchaser SEC Documents and other SEC filings. (d) Each Shareholder 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 Purchaser Common Stock as contemplated by this Agreement, and is able to bear the economic risk of such investment for an indefinite period of time. Shareholders are not relying on Purchaser for advice with respect to economic considerations involved in its acquisition and acceptance of the shares of Purchaser Common Stock. SECTION 2.25 DISCLOSURE. On the date of this Agreement, the Shareholders have, and at the Closing Date they will have, disclosed all events, conditions, and facts materially affecting the business and prospects of the Company. Page 31 Shareholders have not now and will not have, at the Closing Date, withheld knowledge of any such events, conditions, and facts which they know, or have reasonable ground to know, may materially affect the business and prospects of the Company. None of the representations and warranties made by Shareholders in this Agreement and contained in any certificate or other instrument furnished or to be furnished to Purchaser 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 III REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to the Shareholders as follows: SECTION 3.1 ORGANIZATION, STANDING AND CORPORATE POWER. (a) Each of Purchaser and its subsidiaries 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 Purchaser 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 Purchaser. (b) Purchaser has delivered or made available to the Company prior to the execution of this Agreement complete and correct copies of the certificate of incorporation and by-laws or other organizational documents of Purchaser and its subsidiaries, each as in effect at the date of this Agreement. SECTION 3.2 CAPITAL STRUCTURE. (a) The authorized capital stock of Purchaser consists of 200,000,000 shares of common stock, $.001 par value (the "Purchaser Common Stock"), and 5,000,000 shares of Series A Preferred Stock, par value $.001 per share, of Purchaser ("PURCHASER PREFERRED STOCK"). As of the date hereof: (i) 116,233,895 shares of Purchaser Common Stock were issued and outstanding; (ii) 1,433,639 shares of Purchaser Common Stock were held by Purchaser in its treasury; (iii) no shares of Purchaser Common Stock were held by subsidiaries of Purchaser; (iv) approximately 21,563,337 shares of Purchaser Page 32 Common Stock were reserved for issuance pursuant to stock-based plans (such plans, collectively, the "PURCHASER STOCK PLANS"), all of which are subject to outstanding employee stock options or other rights to purchase or receive Purchaser Common Stock granted under the Purchaser Stock Plans (collectively, "PURCHASER EMPLOYEE STOCK OPTIONS"); (v) 21,143,333 shares of Purchaser Common Stock are reserved for issuance pursuant to convertible notes, (vi) 15,101,026 shares of Purchaser Common Stock were reserved for issuance pursuant to outstanding warrants. As of the date hereof, (w) 2,466,971 shares of Purchaser Preferred Stock were issued and outstanding; (x) no shares of Purchaser Preferred Stock were held by Purchaser in its treasury; (y) no shares of Purchaser Preferred Stock were held by subsidiaries of Purchaser; and (z) 33,029 shares of Purchaser Preferred Stock were reserved for issuance pursuant to outstanding warrants. (b) All outstanding shares of capital stock of Purchaser have been, and all shares thereof which may be issued pursuant to this Agreement or otherwise (including upon the conversion of the Purchaser 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 Purchaser's articles of incorporation or any agreement to which Purchaser is a party or by which Purchaser 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 Purchaser's employee stock options outstanding on such date, there are outstanding (i) no shares of capital stock or other voting securities of Purchaser, (ii) no securities of Purchaser convertible into or exchangeable for shares of capital stock or voting securities of Purchaser, and (iii) no options or other rights to acquire from Purchaser, other than Employee Stock Options, and no obligation of Purchaser to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock of Purchaser. (c) Purchaser has a sufficient number of duly authorized but unissued shares of Purchaser Common Stock to issue the maximum number of such shares contemplated by Article I of this Agreement as the Purchase Consideration. As soon as practicable after the Closing, Purchaser shall take all necessary actions, including but not limited to, amending Purchaser's articles of incorporation, to ensure that Purchaser will have sufficient shares of duly authorized but unissued Purchaser Common Stock reserved to issue upon any such shares being due as a part of the Earn Out Payment. The shares of Purchaser common stock to be issued and delivered hereunder will be duly and validly issued, fully paid and non-assessable, free and clear of all Encumbrances. SECTION 3.3 AUTHORITY; NONCONTRAVENTION. Purchaser has the corporate power and authority to execute, deliver and perform this Agreement and the other agreements to be executed and delivered by Purchaser in connection herewith and to consummate the transactions contemplated hereby and thereby. All corporate acts and proceedings required to be taken by or on the part of Purchaser to authorize Purchaser to execute, deliver and perform this Agreement and the other agreements to be executed and delivered by Purchaser in connection herewith and to consummate the transactions Page 33 contemplated hereby and thereby have been duly and validly taken. This Agreement constitutes a valid and binding agreement, and the other agreements to be executed and delivered by Purchaser in connection herewith when so executed and delivered will constitute valid and binding agreements, of Purchaser. SECTION 3.4 PURCHASER DOCUMENTS. (a) As of their respective filing dates, (i) all reports filed by Purchaser and which must be filed by Purchaser in the future with the Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act (the "PURCHASER SEC DOCUMENTS") complied and, with respect to future filings, will comply 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 Purchaser SEC Documents, and (ii) no Purchaser SEC Documents, as of their respective dates contained any untrue statement of a material fact or omitted, and no Purchaser 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 Purchaser under the Securities Act, in light of the circumstances under which they were made) not misleading. (b) The financial statements of Purchaser included in the Purchaser 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 Purchaser and its subsidiaries at the dates thereof and the consolidated results of operations and cash flows of Purchaser 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 Purchaser'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), or (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, neither Purchaser nor any of its subsidiaries has any material liabilities or obligations of any nature. SECTION 3.5 VOTING REQUIREMENTS. No consent or approval of the holders of the outstanding shares of Purchaser Common Stock or any other class of Purchaser capital stock is required to approve the Purchase and the transactions contemplated by this Agreement under applicable law or the Purchaser's organizational instruments. Page 34 SECTION 3.6 BROKERS. Except for Inveraray Partners, LLC, 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 Purchase and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser. Purchaser shall be solely responsible for any fees charged by Inveraray Partners LLC. and such fees will not be included as an expense of the Company for the purpose of computing Company's EBITDA for 2005 pursuant to Section 1.2(b). SECTION 3.7 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 Purchaser, after full and deliberate consideration, unanimously (other than for directors who abstain) has duly adopted this Agreement and resolved that the Purchase and the transactions contemplated hereby are fair to, advisable and in the best interests of Purchaser's Shareholders. The Board of Directors of Purchaser unanimously has duly approved this Agreement and has determined that the Purchase is advisable. SECTION 3.8 BOOKS AND RECORDS. Each of Purchaser 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 3.9 SARBANES OXLEY ACT COMPLIANCE. Purchaser is in 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 Purchaser of such provisions. Purchaser is currently in compliance and will use its reasonable efforts to continue to comply in all material respects with all public reporting requirements necessary to permit sales of its restricted shares by Shareholders pursuant to Rule 144. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS SECTION 4.1 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, and shall cause each of its subsidiaries to, conduct its and their respective businesses in the ordinary course and consistent with past practices. Except as set forth in Section 4.1 of the Company Disclosure Schedule, as required by applicable law or regulation and except as otherwise contemplated by this Agreement or except as previously consented to by Purchaser, in writing, after the date hereof and until the earlier Page 35 of the termination of this Agreement or the Closing Date, the Company shall not and shall not permit any of its subsidiaries to: (a) amend or otherwise change its Certificate of Incorporation or by-laws; (b) issue, sell, pledge, dispose of, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of any class, or options, warrants, convertible securities or other rights of any kind to acquire shares, or any other ownership interest, thereof, or (ii) any of its assets, tangible or intangible; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, property or otherwise, with respect to its shares; (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its shares; (e) (i) acquire (including, without limitation, for cash or shares of 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, 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) enter into any Company Material Contract; (f) make any capital expenditure in excess of $25,000 or enter into any contract or commitment therefore; (b) amend, terminate or extend any 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 Page 36 (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. SECTION 4.2 ADVICE OF CHANGES. Each of the Shareholders and the Company shall promptly advise the Purchaser 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, termination, limitation, modification, change or other alteration of any agreement, arrangement, business or other relationship with any of the Company's customers, suppliers or sales or design personnel; or (iv) any change or event having, or which, insofar as reasonably can be foreseen, could have a material adverse effect on the Company or on the accuracy and completeness of its representations and warranties or the ability of the Shareholders or the Company 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 4.2 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 4.3 NO SOLICITATION BY THE COMPANY. (a) The Company will promptly notify Purchaser after receipt of any offer or indication that any person is considering making an offer with respect to a Company Acquisition Proposal or any request for nonpublic information relating to the Company or for access to the properties, books or records of the Company by any person that may be considering making, or has made, an offer with respect to a Company Acquisition Proposal and will keep Purchaser fully informed of the status and details of any such offer, indication or request. "Company Acquisition Proposal" means any proposal for a Purchase 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 8.1, the Company and the officers of the Company will not and the Company will use its best 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 Page 37 Company or (iii) afford access to the properties, books or records of the Company to, any person or entity that may be considering making, or has made, an offer with respect to a Company Acquisition Proposal. SECTION 4.4 CONDUCT OF BUSINESS BY PURCHASER. Purchaser will conduct its business in substantially the same manner as before. SECTION 4.5 TRANSITION. To the extent permitted by applicable law, Purchaser 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 and its subsidiaries with the businesses of Purchaser and its subsidiaries to be effective as of the Closing Date. ARTICLE V ADDITIONAL AGREEMENTS SECTION 5.1 ACCESS TO INFORMATION; CONFIDENTIALITY. (c) The Company and Shareholders shall, and shall cause the Company's subsidiaries to, afford to Purchaser and to the officers, current employees, accountants, counsel, financial advisors, agents, lenders and other representatives of Purchaser, reasonable access during normal business hours during the period prior to the Effective Date to all the Company's properties, books, contracts, commitments, personnel and records and, during such period, shall furnish promptly to Purchaser (i) a copy of each material report, schedule, registration statement and other document filed by it with any Governmental Entity, and (ii) all other information concerning its business, properties and personnel as Purchaser may reasonably request. (b) The parties will hold, and will use their best efforts to cause their officers, directors, employees, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the other party and its subsidiaries furnished to it in connection with the transactions contemplated hereby, 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; PROVIDED that each party may disclose such information to its officers, directors, employees, consultants, advisors and agents in connection with the Purchase so long as such persons are informed of the confidential nature of such information and are directed to treat such information confidentially. Each parties' 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 Page 38 confidentiality of its own similar information. Notwithstanding any other provision of this Agreement, if this Agreement is terminated, such confidentiality shall be maintained and all confidential materials shall be destroyed or delivered to their owner, upon request. SECTION 5.2 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 Purchase as soon as practicable after the satisfaction of the conditions set forth in Article VI hereof, PROVIDED that the foregoing shall not require the Company or Purchaser to take any action or agree to any condition that might, in the reasonable judgment of the Company or Purchaser, as the case may be, have a material adverse effect on the Company or Purchaser, respectively. SECTION 5.3 FEES AND EXPENSES. All costs, fees and expenses incurred in connection with the Purchase, 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; provided, however, notwithstanding anything herein to the contrary, Purchaser shall bear the expense of the audit of the Company's financial statements for the year ended December 31, 2004, and all such costs, fees and expenses will not be included as an expense of the Company for the purpose of computing Company's EBITDA for 2005 pursuant to Section 1.2(b). SECTION 5.4 PUBLIC ANNOUNCEMENTS. Purchaser, Shareholders 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 Purchase, 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). The parties agree that the initial press releases (or joint press release if the parties so determine) to be issued with respect to the Purchase, this Agreement and the transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties. SECTION 5.5 REGULATION D. Each party hereto shall use all reasonable efforts to cause the shares of Purchaser Common Stock to be issued hereunder in connection with the Purchase 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 Page 39 action or failure to act would jeopardize the issuance of the shares of Purchaser Common Stock hereunder in accordance with such Regulation D. SECTION 5.6 PURCHASER'S STOP TRANSFER ON ALLEGED BREACH OF SHAREHOLDER REPRESENTATIONS AND WARRANTIES. In the event of an alleged breach of a Shareholder representation and warranty contained in Article II of this Agreement, Purchaser shall be entitled to stop the transfer of Purchaser Common Stock held by the Shareholders equal in value to the amount of the damages alleged to have resulted from the such breach until such time as the dispute over the breach is resolved by mutual agreement, binding arbitration, or entry of a final non-appealable judgment by a court of competent jurisdiction. The number of shares of Purchaser Common Stock subject to this provision shall be determined by dividing the amount of the alleged damages by value per share as determined pursuant to Section 1.2(a)(2) at the time of Closing. SECTION 5.7 PURCHASER'S ASSUMPTION AND PAYMENTS OF OBLIGATIONS PERSONALLY GUARANTEED BY SHAREHOLDERS. Purchaser shall use its reasonable efforts to obtain the release at Closing of all Shareholder personal guarantees of Company debts set forth in Section 5.7 of the Company Disclosure Schedule. If after reasonable efforts such releases cannot be obtained, then Purchaser shall indemnify and hold Shareholders harmless from any claims and/or liability arising from such personal guarantees of Shareholders. Purchaser's obligation under this Section to indemnify and hold Shareholder's harmless from such guarantees shall not be subject to or limited by the minimum damage amounts and time limitations for bringing claims which are described in Section 7.1 (b), (c) and (e) below. SECTION 5.8 RULE 144 COMPLIANCE. Until the earlier of thirty-one (31) months after the Closing Date or such time as Shareholders have sold all of the Purchaser Common Stock issued to them as consideration pursuant to this Agreement, Purchaser shall use it reasonable efforts to ensure in all material respects it meets the public reporting requirements necessary to permit Shareholders to sell shares of Purchaser common stock in accordance with Rule 144 as promulgated by the SEC. Purchaser's obligation under Section 7.1 to indemnify and hold Shareholder's harmless from the failure to maintain Purchaser's reporting obligations shall be subject to and limited by a 33 month (from the date of Closing) time limitation for bringing a claim rather than the lesser time limitation described in Section 7.1 (c) and (e) below. SECTION 5.9 SHAREHOLDERS COVENANT NOT TO COMPETE. Without the prior written consent of the Purchaser's Chief Executive Officer, for two (2) years after the Closing Date, Shareholders (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 Company or Purchaser; and (iii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business relationship with the Company or Purchaser. Each of the Shareholders understands that the restrictions set forth in this Section 5.9 are intended to protect the Purchaser's and Company's interests in Page 40 their respective 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 the same or similar types of services or products as those currently provided by the Company in any geographic area now served or targeted by the Company. Notwithstanding the foregoing, each of Shareholders may own up to two percent (2%) of the outstanding stock of a publicly held corporation that is engaged in a Competing Business and Shareholders' ownership and involvement with the following companies and the businesses and industries they are currently involved in as and to the extent described in Section 5.9 of the Company Disclosure Schedule is not a violation of this Section 5.9: TradeTrans, Inc., CAE Northwest, Inc., AI Acquisition, Inc. d/b/a Arcessa and CAE Northwest Export, Inc. (together the "Shareholder Affiliated Companies") SECTION 5.10 SHAREHOLDER AFFILIATED COMPANIES TRADE PAYABLES TO THE COMPANY; SECURITY Interest. (a) Shareholders shall cause the Shareholder Affiliated Companies to pay their trade payables due the Company as follows:(i) The commission due from AI Acquisition, Inc. d/b/a Arcessa ("AI") in the amount of Seventy Thousand Dollars ($70,000.00) shall be paid to the Company not later than May 15, 2005; and (ii) The trade payable due from AI in the amount of Three Hundred Eighty Three Thousand Dollars One Hundred Fourteen ($383,114.00) shall be paid to the Company not later than March 31, 2006. (b) Shareholders shall grant to the Company a security interest in the form attached hereto as Exhibit C (the "Security Agreement"), which shall be a first lien on all of the assets of AI, other than with respect to the equipment leased from Puget Sound Leasing. (c) All other payables due from the Shareholder Affiliated Companies to the Company shall be paid prior to or at the Closing in accordance with Section 6.2(g). SECTION 5.11 PAYMENT OF DEBTS IN THE ORDINARY COURSE OF BUSINESS; RECEIPT OR RETENTION OF CERTAIN RECEIVABLES BY SHAREHOLDERS. Incentra shall perform all of its obligations under the Settlement Agreement. Whether or not clearly described in the Company Disclosure Sshecule, the parties acknowledge that the following receivables and debt instruments will be transferred to or retained by the Shareholders and that the Company will not have the right to enforce or collect such obligations, which obligations were owed to Company, endorsed to GE Access and are being released as provided in the Settlement Agreement: the Barry R. Andersen receivable of approximately $591,596.37 owed to Company, the Gary L. Henderson receivable of approximately $ 576,596.37 owed to Company, the TradeTrans, Inc. receivable of approximately $821,967.17 owed to Company, the AI Page 41 Acquisition, Inc. dba Arcessa receivable of approximately $508,422.93 owed to Company and the H&A Associates receivable of approximately $176,298.00 owed to Company. ARTICLE VI CONDITIONS PRECEDENT SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE PURCHASE. The respective obligation of each party to affect the Purchase is subject to the satisfaction or, to the extent permitted by applicable law, waiver by each of Purchaser and the Company on or prior to the Closing Date of the following conditions: (a) SHAREHOLDER APPROVALS. Each of the Company and Purchaser shall have obtained the consent of its Board of Directors to the Purchase, this Agreement and the transactions contemplated hereby as in each case required. (b) GOVERNMENTAL AND REGULATORY APPROVALS. All consents, approvals and actions of, filings with and notices to any Governmental Entity required by the Company, Purchaser or any of their subsidiaries under applicable law or regulation to consummate the Purchase and the transactions contemplated by this Agreement, the failure of which to be obtained or made would result in a material adverse effect on Purchaser'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 Purchase; PROVIDED, HOWEVER, that each of the parties shall have used its commercially reasonable efforts to have such Restraint lifted, vacated or rescinded. SECTION 6.2 CONDITIONS TO OBLIGATIONS OF PURCHASER . The obligation of Purchaser to affect the Purchase is further subject to satisfaction or waiver as part of Closing or on or prior to the Closing Date 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 Page 42 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 as of such date). Purchaser shall have received a certificate of the Company's Chief Executive Officer and Treasurer to the foregoing effect. (b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and the Shareholders 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. Purchaser shall have received a certificate of the Company's Chief Executive Officer and Treasurer 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 Purchase that requires the Company or any of its subsidiaries to be operated in a manner that would have a material adverse effect on the Company. (d) NO COMPANY MATERIAL ADVERSE EFFECT. 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) INTEREST TO GE ACCESS. Prior to the Closing, the Company shall have paid all interest due to GE Access through the day immediately prior to the Closing Date. (f) GE ACCESS AND SHAREHOLDER AFFILIATED COMPANIES DEBT. The Shareholders, the Company, each of the Shareholder Affiliated Companies, Purchaser and GE Access shall have executed a Settlement Agreement in the form attached hereto as Exhibit D and made a part hereof (the "Settlement Agreement") which provides in substantial part that as part of Closing and at the Closing, the Company debt to GE Access shall be satisfied in full. Page 43 (g) EMPLOYMENT AGREEMENTS. Each of the Company employees designated below shall have executed Employment Agreements in the respective forms attached hereto as EXHIBIT A (the "Employment Agreements"): (1) Barry R. Andersen (h) REGISTRATION RIGHTS AGREEMENT. Purchaser and the Shareholders shall have entered into a Registration Rights Agreement in the form attached hereto as Exhibit B (the "Registration Rights Agreement"). (i) SATISFACTORY COMPLETION OF DUE DILIGENCE. Purchaser shall have completed to its satisfaction legal, accounting and business due diligence as to the Company. (j) RESIGNATION OF DIRECTORS. There shall have been delivered to Purchaser the written resignations of the directors of the Company. (k) REMOVAL OF SHAREHOLDER AFFILIATED COMPANY EMPLOYEES FROM COMPANY BENEFITS AND COMPANY PAYROLL. In accordance with the Addendum to Company Disclosure Schedule, on or prior to April 1, 2005, all employee benefits of Shareholder Affiliated Companies shall have been removed and separated from those of the Company and all employees of Shareholder Affiliated Companies shall have been removed from the Company payroll system. (l) PAYMENT OF GENERAL ELECTRIC CAPITAL CORPORATION JUDGMENT. AI shall have paid the balance due on those judgments entered against AI and the Company in connection with King County Superior Court Cause No. 04-13562-1SEA and that Forbearance Agreement by and among General Electric Capital Corporation, AI and the Company on or about September 24, 2004. (m) SECURITY AGREEMENT. AI shall have executed the Security Agreement as defined in Section 5.10(b) above. (n) CERTIFICATE OF GOOD STANDING. Purchaser shall have received prior to or at the Closing a certificate of good standing regarding the Company from the Secretary of State of the State of Washington dated not more than fifteen (15) days prior to Closing. Page 44 SECTION 6.3 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS. The obligation of the Shareholders to affect the Purchase is further subject to satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Purchaser set forth herein and in the Purchaser 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 as of such date). The Company shall have received a certificate of Purchaser's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (b) PERFORMANCE OF OBLIGATIONS OF PURCHASER. Purchaser 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 shall have received a certificate of Purchaser'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 Purchase that requires Purchaser or any of its subsidiaries to be operated in a manner that would have a material adverse effect on Purchaser. (d) NO PURCHASER MATERIAL ADVERSE EFFECT. 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 Purchaser. (e) REGISTRATION RIGHTS AGREEMENT. Purchaser and the Shareholders shall have entered into the Registration Rights Agreement. SECTION 6.4 FRUSTRATION OF CLOSING CONDITIONS. Neither Purchaser nor the Company may rely on the failure of any condition set forth in Section 6.1, 6.2 or 6.3, 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 Purchase and the other transactions contemplated by this Agreement, as required by and subject to Section 5.2. Page 45 ARTICLE VII INDEMNIFICATION; ARBITRATION SECTION 7.1. INDEMNIFICATION. (a) Subject to the limitations and compliance with the procedure set forth herein and in Section 7.2 below, Purchaser and its officers, directors and Affiliates (the "Purchaser Indemnified Parties") shall be indemnified and held harmless by the Shareholders, and each of them, jointly and severally, against all claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses of investigation (hereinafter individually a "Purchaser Loss" and collectively "Purchaser Losses") incurred by the Purchaser Indemnified Parties directly or indirectly as a result of: (i) any inaccuracy of a representation or warranty of Shareholders contained in this Agreement, (ii) any failure by Shareholders to perform or comply with any covenant contained in this Agreement, (iii) the settlement agreement by and between General Electric Capital, Arcessa, Inc, and the Company dated as of September 24, 2004 and the stipulated judgment entered against the Company in King County Superior Court Case No. 04-2-13562-1SEA, (iv) any and all liability which may arise from any automobile leases to which the Company is a party at the Closing and/or the operation of the automobiles that are the subject of such leases, whether such liability arises from breach of contract negligence or otherwise, and (v) liability of the Company in excess of Ten Thousand Dollars ($10,000.00) for sales tax liability currently being reviewed by the State of Washington ; PROVIDED that, except as specifically provided above, no Purchaser Indemnified Party shall be entitled to receive indemnification payments under clause (i) above with respect to any Purchaser Loss unless and until the aggregate deductible amount of the Purchaser Losses exceeds $25,000 and then only to the extent of the Purchaser Losses in excess of such aggregate amount; and PROVIDED FURTHER that in determining the amount of any Purchaser Losses suffered by any Purchaser Indemnified Party which give rise to liability of Shareholders hereunder, there shall have been taken into account (x) the amount of any tax benefits actually realized by such Purchaser Indemnified Party attributable to such Purchaser Losses or derived therefrom in any period to and including the end of the taxable year following the year in which the Loss was incurred; and (y) the amount of any insurance benefits actually realized by such Purchaser Indemnified Party attributable to such Purchaser Losses or derived therefrom. In the event liability for any Purchaser Losses hereunder shall be incurred prior to the payment of the cash portion of any Earn Out Payment that may become due under this Agreement, such Purchaser Losses shall, at the option of Purchaser, be satisfied first from and to the extent of such cash portion of the Earn Out Payment that becomes due. (b) Shareholders (the "Seller Indemnified Parties") shall be indemnified and held harmless by Purchaser 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 Purchaser contained in this Agreement or (ii) any failure by Purchaser to perform or comply with any covenant Page 46 contained in this Agreement; PROVIDED that the Seller Indemnifies Parties shall not be entitled to receive indemnification payments with respect to any Seller Loss under (i) above unless and until the aggregate deductible amount of the Seller Losses incurred by any Seller Indemnified Parties exceeds $25,000 and then only to the extent of the Seller Losses in excess of such aggregate amount; and PROVIDED FURTHER that, in determining the amount of any Seller Losses suffered by any Seller Indemnified Party which give rise to liability of Purchaser 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, Shareholders' indemnification obligations for Purchaser Losses incurred by the Purchaser Indemnified Parties directly or indirectly as a result of any inaccuracy of a representation or warranty of Shareholders contained in this Agreement or any failure by Shareholders to perform or comply with any covenant contained in this Agreement shall terminate on April 1, 2007 and the aggregate of all claims for indemnity by Purchaser Indemnified Parties under this Agreement shall be limited to and not exceed the actual purchase price paid to Shareholders. Notwithstanding anything to the contrary herein, Purchaser'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 of Purchaser contained in this Agreement shall terminate on April 1, 2007. (d) Notwithstanding anything to the contrary herein, the existence of this Article VII and of the rights and restrictions set forth herein do not limit any legal remedy for claims based on common law fraud. (e) Any claim for the recovery of Seller Losses or Purchaser Losses shall be made by giving notice thereof in accordance with Section 7.2 below and, such notice shall be given prior to April 1, 2007. SECTION 7.2 CLAIMS AND PROCEDURE (a) Claims. Whenever any claim shall arise for indemnification, the party seeking indemnification hereunder (the "INDEMNIFIED PARTY") shall notify the party or parties from whom indemnification is sought (collectively, the "INDEMNIFYING PARTY") of the claim pursuant to SECTION 7.2 (C) hereunder and, when known, the facts constituting the basis for such claim and the amount or estimate of the amount of the liability arising from such claim. The indemnified party shall not settle or compromise any claim by a third party for which the indemnified party is entitled to indemnification hereunder without the prior written consent of the indemnifying party (which shall not be unreasonably withheld or delayed) unless (i) suit shall have been instituted against the indemnified party and (ii) the indemnifying party shall not have taken control of such suit as provided in SECTION 7.2 (B) within 25 days after notification thereof. Page 47 (b) Defense by Indemnifying Party. In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any claim or legal proceeding by a third party, the indemnifying party, at its sole cost and expense, may, upon written notice to the indemnified party, assume the defense of any such claim or legal proceeding. If the indemnifying party assumes the defense of any such claim or legal proceeding, the indemnifying party shall select counsel reasonably acceptable to the indemnified party to conduct the defense of such claims or legal proceedings and at the indemnifying party's sole cost and expense shall take all reasonable steps necessary in the defense or settlement thereof. The indemnifying party shall not consent to a settlement of, or the entry of any judgment arising from, any such claim or legal proceeding, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld, conditioned or delayed, unless (a) the indemnifying party admits in writing its liability to hold the indemnified party harmless from and against any losses, damages, expenses and liabilities arising out of such settlement, (b) concurrently with such settlement the indemnifying party pays into court the full amount of all losses, damages, expenses and liabilities to be paid by the indemnifying party in connection with such settlement and obtains a full release of any liability of the indemnified party which is not conditioned upon any further payment and (c) such settlement would not otherwise have a material adverse effect on the indemnified party. The indemnified party shall be entitled to participate in (but not control) the defense of any such action, with its own counsel and at its own expense. If the indemnifying party does not assume the defense of any such claim or litigation resulting therefrom in accordance with the terms hereof, the indemnified party may defend against such claim or litigation in such manner as it may deem appropriate including, but not limited to, settling such claim or litigation, after giving notice of the same to the indemnifying party, on such terms as the indemnified party may deem appropriate. The indemnifying party shall be entitled to participate in the defense of any action by the indemnified party, which participation shall be limited to contributing information to the defense and being advised of its status. In any action by the indemnified party seeking indemnification from the indemnifying party in accordance with the provisions of this Section, if the indemnifying party did not assume the defense of any such claim or litigation, the indemnifying party shall not be entitled to question the manner in which the indemnified party defended such claim or litigation or the amount or nature of any such settlement. (c) Notice. In the event of any occurrence which may give rise to a claim by an indemnified party against an indemnifying party hereunder, the indemnified party will give notice thereof to the indemnifying party within 20 days of the indemnified party becoming aware of events giving rise to the possibility of a right to indemnification and the first opportunity to reduce, remedy or incur the damages or potential damages caused by such occurrence; PROVIDED, HOWEVER, that failure of the indemnified party to timely give the notice provided in this SECTION 7.2 (C) shall not be a defense to the liability of an indemnifying party for such claim, but such indemnifying party may recover from the indemnified party any actual damages arising from the indemnified party's failure to give such timely notice; provided, further that Purchaser may take preemptive legal action of a pressing nature, with respect to a third party Claim, without first contacting the Shareholders, if reasonable to do so. Page 48 (d) Manner of Indemnification. All claims by Purchaser Indemnified Parties for indemnification shall be recovered first by way of set-off from or against any contingent payments due Shareholders pursuant to Section_1.2(b) before such parties may recover from Shareholders directly. If EBITDA for calendar year 2005, as described in Section 1.2 (b) above, has not yet been computed at the time a claim is made by Purchaser Indemnified Parties, Purchaser Indemnified Parties agree that collection or indemnity enforcement activity against Shareholders shall be suspended until EBITDA is calculated and the additional consideration, if any, described in Section 1.2 (b) is also calculated, at which time Purchaser Indemnified Parties would have to first set off the amount of any claims against such consideration before pursuing Shareholders for claims in excess of the value of such additional consideration (as such value is determined at Closing). (e) Access to Information. Regardless of which party shall assume the defense of a claim, each party shall provide to the other parties, upon written request, all information and documentation in the possession or control of such party and reasonably necessary to support and verify any Purchaser or Seller Losses which give rise to such claim for indemnification and shall provide reasonable access to all books, records and personnel in such party's possession or control which would have a bearing on such claim. SECTION 7.3 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 Shareholders and Purchaser. In the event that within 45 days after submission of any Dispute to arbitration, Shareholders and Purchaser cannot mutually agree on one arbitrator, Shareholders and Purchaser shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator who will arbitrate the case on his own. The agreed upon arbitrator or the third arbitrator , 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 third arbitrator, as the case may be, to discover relevant information from the opposing parties about the subject matter of the Dispute. The arbitrator or the third arbitrator, as the case may be, shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys' fees and costs, to the same extent as a competent court of law or equity, should the arbitrator or third arbitrator, 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 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 Seattle, WA 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. Page 49 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of Purchaser and the Shareholders; (b) by either Purchaser or the Shareholders; (i) if the Purchase shall not have been consummated at or prior to 5:00 p.m., Denver, CO, time, on April 1, 2005, PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this Section 8.1(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 Purchase to be consummated by such time and date; provided further that either party may extend the Closing Date by notice to the other to a date not later than April 10, 2005. (ii) if any Restraint having any of the effects set forth in Section 6.1(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 8.1(b) (ii) shall have used its commercially reasonable efforts to prevent the entry of such Restraint and to have such Restraint vacated or removed; (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 Purchaser, if the Shareholders 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 6.2(a) or (b), and (ii) is either incapable of being cured by the Company or the Shareholders, or if curable, is not cured within 15 days of receipt from Purchaser of written notice thereof; or (d) by the Shareholders, if Purchaser shall have breached any of its 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 6.3(a) or Page 50 (b), and (ii) is either incapable of being cured by Purchaser or, if curable, is not cured within 15 days of receipt from the Company of written notice thereof. The party desiring to terminate this Agreement pursuant to this Section 8.1 shall provide written notice of such termination to the other party in accordance with Section 8.2, specifying in reasonable detail the provision hereof pursuant to which such termination is effected. SECTION 8.2 EFFECT OF TERMINATION. (a) If this Agreement is terminated by either the Shareholders or Purchaser as provided in Section 8.1, this Agreement forthwith shall become void and have no effect, without any liability or obligation on the part of Purchaser or the Shareholders; 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 VIII, Section 5.1(b), Section 5.3, Section 5.4, Section 9.8 and Section 9.11 shall survive any termination of this Agreement. (b) Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Article VI hereof for its benefit have not been satisfied, Purchaser and/or the Shareholders (as applicable) shall have the right to waive the satisfaction thereof and to proceed with the transactions contemplated hereby. SECTION 8.3 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. SECTION 8.4 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 8.3, 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. Page 51 ARTICLE IX GENERAL PROVISIONS SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES ANDAGREEMENTS. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Closing Date for a period of one (1) year. This Section 9.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Closing Date. SECTION 9.2 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 Purchaser, 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 9.2 to: Reed Guest, Esq. 94 Underhill Road Orinda, CA 94563 Fax No.: (925) 254-9226. (b) if to the Shareholders, to: Barry Andersen 10508 Exeter Ave. NE. Seattle WA 98125 and to: Gary Henderson 5511 105th Ave NE Kirkland WA 98033 with a copy (which shall not constitute notice pursuant to this Section 9.2) to: Daniel M. Hendrickson O'Shea Barnard Martin P.S. Suite 1500 10900 NE 4th Street Bellevue WA 98004 Fax No.: 425-454-6575 Page 52 SECTION 9.3 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 Shareholders, the actual knowledge, of either of the Shareholders or of the Company's executive officers and (ii) with respect to Purchaser, the actual knowledge, of any of Purchaser's executive officers. (d) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when used in reference to the Company or Purchaser, 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) 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. SECTION 9.4 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 Page 53 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 9.5 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 9.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement (including the documents and instruments referred to herein) (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 any rights or remedies and (c) all Exhibits and Schedules to this Agreement are incorporated into this Agreement by reference. SECTION 9.7 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the internal substantive and procedural laws of the State of Washington, regardless of the laws that might otherwise govern under applicable principles of conflicts of law of such state. SECTION 9.8 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 9.9 CONSENT TO JURISDICTION. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any State or Federal court located in the State of Washington in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement and arbitration is first demanded or suit is first filed by Purchaser, (b) consents to submit itself to the personal jurisdiction of any Federal court located in the State of Colorado in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement and arbitration is first demanded or suit is first filed by Shareholders, (c) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (d) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a court as provided in (a) above with respect to claims by Purchaser or (b) with respect to claims by Shareholders. The parties irrevocably and unconditionally waive any objection to the Page 54 laying of venue of any action, suit or proceeding arising out of this Agreement or any of the transactions contemplated by this Agreement in any State or Federal court as provided above, 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. SECTION 9.10 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 9.11 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. 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 9.12 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. [The remainder of this page is intentionally left blank.] Page 55 IN WITNESS WHEREOF, Shareholders, and Purchaser 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 SHAREHOLDERS: /s/ BARRY R. ANDERSEN --------------------- Barry R. Andersen /s/ GARY L. HENDERSON --------------------- Gary L. Henderson Page 56 EX-10.1 3 c36819_ex10-1.txt Exhibit 10.1 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of March 30, 2005, between INCENTRA SOLUTIONS, INC., a Nevada corporation (the "Company"), and Barry R. Andersen and Gary L. Henderson (each a "Shareholder" and collectively "Shareholders"). W I T N E S S E T H: WHEREAS, pursuant to the terms of a Stock Purchase Agreement dated as of March 30, 2005 (the "Purchase Agreement") between the Company and the Shareholders, the Company has agreed to issue to the Shareholders such number of shares of Common Stock, $.001 par value, of the Company (the "Common Stock") as determined pursuant to the Purchase Agreement; and WHEREAS, as a condition precedent to the consummation of the transactions contemplated by the Purchase 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 1 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 between the Company and Equity Pier LLC dated February 28, 2001, (iv) the Form SB-2 filed on or about June 29, 2004, (v) the Registration Rights Agreement between the Company and former ManagedStorage International, Inc. shareholders dated August 18, 2004, and (vi) the Registration Rights Agreement dated as of February 18, 2005 between the Company and Alfred Curmi. 1.5 "Holder" shall mean any holder of Registrable Securities; 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. 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 the Shareholders pursuant to the Purchase Agreement and (B) 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); 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, and the expense of any special audits incident to or required by any such registration 2 (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). 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 31, 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 registration declared or ordered effective other than a registration on Form S-3 or Form S-8; 3 (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 transaction, 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. 4 (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; provided that no Holder shall be required to make any representations or warranties to or agreements (other than a lock-up agreement pursuant to Section 11) with the Company or the underwriters, other than representations, warranties or agreements regarding the Holder, its Registrable Securities and its intended method of distribution and any other representation required by law. 2.4 Limitations on Shares to be Included. Notwithstanding any other provision of this Section 2, if the representative of the underwriters of a firm commitment underwriting 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 as follows: first, 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; second, 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; 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 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. 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. 5 3. Company Registration. 3.1 At any time after March 31, 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 Form SB-2 filed on or about June 29, 2004, (or any successor forms thereto), the Company will: (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 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; provided that no Holder shall be required to make any representations or warranties to or agreements (other than a lock-up agreement pursuant to Section 11) with the Company or the underwriters, other than representations, warranties or agreements regarding the Holder, its Registrable Securities and its intended method of distribution and any other representation required by law. 3.3 Limitations on Shares to be Included. Notwithstanding any other provision of this Section 3, if the representative of the underwriters of a firm commitment underwriting 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. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated as follows: first, if such underwritten offering 6 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 Additional Shares which they had requested to be included in such registration pursuant to 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; fourth, if such underwritten offering 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 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) 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; (b) Prepare and file with the Commission such 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; 7 (c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (d) Notify each seller of Registrable Securities covered by such registration statement at any time 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; (e) 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; (f) 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; (g) 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; (h) 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 8 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; (i) 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 (j) 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. 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; provided that no Holder shall be required to make any representations or warranties to or agreements (other than a lock-up agreement pursuant to Section 11) with the Company or the underwriters, other than representations, warranties or agreements regarding the Holder, its Registrable Securities and its intended method of distribution and any other representation required by law. 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 9 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 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 10 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. 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; provided that no Holder shall be required to make any representations or warranties to or agreements (other than a lock-up agreement pursuant to Section 11) with the Company or the underwriters, other than representations, warranties or agreements regarding the Holder, its Registrable Securities and its intended method of distribution and any other representation required by law. 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 11 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. After any sale of Registrable Securities pursuant to the provisions of Rule 144 or 144A, the Company will, to the extent allowed by law, cause any restrictive legends to be removed and any transfer restrictions to be rescinded with respect to such Registrable Securities. In order to permit a Holder to sell the same, if it so desires, pursuant to Rule 144A promulgated by the Commission (or any successor to such rule), the Company will comply with all rules and regulations of the Commission applicable in connection with use of Rule 144A (or any successor thereto). Prospective transferees of Registrable Securities that are Qualified Institutional Buyers (as defined in Rule 144A) that would be purchasing such Registrable Securities in reliance upon Rule 144A may request from the Company information regarding the business, operations and assets of the Company. Within five (5) business days of any such request, the Company shall deliver to any such prospective transferee copies of annual audited and quarterly unaudited financial statements of the Company and such other information as may be required to be supplied by the Company for it to comply with Rule 144A. 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 equal or higher priority to the rights granted to the Holders under Sections 2 and 3 of this Agreement. 11. Lockup Agreement. In consideration for the Company agreeing to its obligations hereunder, the Holders of Registrable Securities agree in connection with any registration of the Company's securities (which includes Registrable Securities of at least $75,000 in value) pursuant to Section 3 hereof that, upon the request of the Company not to sell, make any short sale of, loan, grant any option for the purchase of or otherwise dispose of any Registrable Securities (other than those shares included in such registration) without the prior written consent of the Company for such period of time (not to exceed 180 days) from the effective date of such registration as the Company may specify. 12. 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 13. 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. 14. 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. 15. 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 the Shareholders, to Barry Andersen, 10508 Exeter Ave. NE, Seattle, WA 98125, Gary Henderson, 5522 105th Ave NE, Kirkland, WA 98033, with a copy to Daniel M. Hendrickson, O'Shea Barnard Martin P.S., Suite 1500, 10900 NE 4th Street, Bellevue, WA 98004, or at such other address or addresses 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. 16. 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. 17. 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. 18. 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. [Remainder of page 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 ----------------------- Name: Thomas P. Sweeney III Title: Chief Executive Officer THE SHAREHOLDERS /s/ Barry R. Andersen --------------------- Barry R. Andersen /s/ Gary L. Henderson --------------------- Gary L. Henderson 14 EX-10.2 4 c36819_ex10-2.txt EXHIBIT 10.2 EMPLOYMENT AGREEMENT This AGREEMENT (the "Agreement") is made as of the date signed (the "Effective Date"), by and between PWI Technologies, Inc., a Washington corporation ("Employer") with its headquarters located in Boulder, Colorado (the "Employer"), and Barry R. Andersen (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. In his capacity as President, Executive will report to Thomas P. Sweeney III, Chief Executive Officer (the "CEO") of Incentra Solutions, Inc., a Nevada corporation and parent of Employer ("Parent"), and shall be responsible for strategic and operational matters relating to the Employer's general business subject to the direction of the CEO. 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 CEO. 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 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 Eleven Thousand Five Hundred Dollars ($211,500.00), 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) 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 1 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. (c) 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. (d) 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. (e) 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. (f) 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 2 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. 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; (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 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. (c) TERMINATION BY THE EMPLOYER WITHOUT CAUSE. 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"). 3 (d) 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 4 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). (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. 5 (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 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 6 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 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. 7 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 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 Washington, without giving effect to the conflict of laws principles of such State. 8 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 30th day of March 2005. PWI TECHNOLOGIES, INC.: By: /s/ THOMAS P. SWEENEY ---------------------- Name: Thomas P. Sweeney III Title: Chief Executive Officer EXECUTIVE: /s/ BARRY R. ANDERSEN --------------------- Barry R. Andersen 9 EX-10.3 5 c36819_ex10-3.txt EXHIBIT 10.3 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 30, 2005, between INCENTRA SOLUTIONS, INC., a Nevada corporation (the "COMPANY"), and MRA SYSTEMS, INC., dba GE ACCESS, a Delaware corporation, ("PURCHASER"). RECITALS WHEREAS, pursuant to the terms of a Stock Purchase Agreement dated as of March 30, 2005 (the "PURCHASE AGREEMENT") between the Company and Purchaser, and in connection with that certain Payoff and Settlement Agreement dated contemporaneously herewith (the "SETTLEMENT AGREEMENT"), the Company has agreed to issue to the Purchaser such number of shares of Common Stock, $0.001 par value, of the Company (the "COMMON STOCK") as determined pursuant to the Purchase Agreement and the Settlement Agreement; and WHEREAS, as a condition precedent to the consummation of the transactions contemplated by the Purchase Agreement and the Settlement 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 1 October 10, 2000 between the Company and Equity Pier LLC (iii) the warrant agreement between the Company and Equity Pier LLC dated February 28, 2001, (iv) the Form SB-2 filed on or about June 29, 2004, (v) the Registration Rights Agreement between the Company and former Managed Storage International, Inc. shareholders dated August 18, 2004, and (vi) the Registration Rights Agreement dated as of February 18, 2005 between the Company and Alfred Curmi. 1.5 "HOLDER" shall mean any holder of Registrable Securities; 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. 1.7 "ORIGINAL WARRANTHOLDERS" shall mean Hawke Company Ltd, Tillgrove Investments Ltd and Notel Group Limited. 1.8 "OTHER STOCKHOLDERS" shall have the meaning given in Section 2.2. 1.9 "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. 1.10 "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. 1.11 "REGISTRABLE SECURITIES" shall mean (A) the shares of Common Stock issued to the Purchaser pursuant to the Purchase Agreement and (B) 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); 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. 1.12 "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 this Agreement or any of the Existing Rights Agreements, and the expense of any special audits incident to or required by any 2 such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). 1.13 "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. 1.14 "SELLING EXPENSES" shall mean all underwriting discounts and commissions applicable to the sale of Registrable Securities. 2. DEMAND REGISTRATION. 2.1 REQUEST FOR REGISTRATION. At any time after March 31, 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 its best 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 registration declared or ordered effective other than a registration on Form S-3 or Form S-8; 3 (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 transaction, 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 Section 2.4, 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. 4 (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; provided that no Holder shall be required to make any representations or warranties to or agreements (other than a lock-up agreement pursuant to Section 11) with the Company or the underwriters, other than representations, warranties or agreements regarding the Holder, its Registrable Securities and its intended method of distribution and any other representation required by law. 2.4 LIMITATIONS ON SHARES TO BE INCLUDED. Notwithstanding any other provision of this Section 2. 4, if the representative of the underwriters of a firm commitment underwriting 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 as follows: 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; 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, the underwriter and the Initiating Holders. Any Registrable Securities or other securities excluded 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. 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. 5 3. COMPANY REGISTRATION. 3.1 If at any time after the date of this Agreement 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 transaction described in Rule 145(a) of the Securities Act, or a registration on Form S-4 or S-8, the Company will: (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 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; provided that no Holder shall be required to make any representations or warranties to or agreements (other than a lock-up agreement pursuant to Section 11) with the Company or the underwriters, other than representations, warranties or agreements regarding the Holder, its Registrable Securities and its intended method of distribution and any other representation required by law. 3.3 LIMITATIONS ON SHARES TO BE INCLUDED. Notwithstanding any other provision of this Section 3, if the representative of the underwriters of a firm commitment underwriting a Company-initiated registration of shares 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 as follows: first, 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 Additional Shares which they had requested to be included in such registration pursuant to the Existing Rights Agreements; third, among the Holders, in proportion, as nearly as practicable, to the respective amounts of 6 Registrable Securities which they had requested to be included in such registration; 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, the underwriter and the Initiating Holders. Any Registrable Securities or other securities excluded 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 3.3, 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. 3.4 OTHER STOCKHOLDERS. The Company represents and warrants for the benefit of Purchaser, as of the date hereof, that (x) each of (i) the Registration Rights Agreement dated as of October 10, 2000 between the Company and Equity Pier LLC (ii) the Registration Rights Agreement between the Company and former Managed Storage International, Inc. shareholders dated August 18, 2004, and (iii) the Registration Rights Agreement dated as of February 18, 2005 between the Company and Alfred Curmi, represent current, valid and enforceable obligations of the Company with respect to unregistered stock issued to the entities referred to in this clause (x), and (y) each of the registration rights agreements referred to in clause (x) requires that the stated beneficiary (or any proper assignee thereof) shall have a priority interest relative to any subsequent recipient of a registration rights agreement from the Company with respect to the inclusion of such beneficiary's unregistered shares in a registered offering of the kind provided for in this Section 3. 4. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to 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) 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 7 longer than 180 days if the costs and expenses associated with such extended registration are borne by the selling Holders; (b) Prepare and file with the Commission such 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; (c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (d) Notify each seller of Registrable Securities covered by such registration statement at any time 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; (e) 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; (f) 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; (g) 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; 8 (h) 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; (i) 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 (j) 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. 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; provided that no Holder shall be required to make any representations or warranties to or agreements (other than a lock-up agreement pursuant to Section 11) with the Company or the underwriters, other than representations, warranties or agreements regarding the Holder, its Registrable Securities and its intended method of distribution and any other representation required by law. 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 9 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, any state securities law, 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 solely 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 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 10 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. Anything in this Agreement to the contrary notwithstanding, Purchaser's aggregate liability for any and all claims asserted by the Company under this Agreement, including this Section 6.2, shall be the amount of proceeds received by Purchaser from the sale of any Registered Securities (net of underwriter's discounts and commissions) submitted by it for inclusion in any and all registration statements hereunder. 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. 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; provided that no Holder shall be required to make any representations or warranties to or 11 agreements (other than a lock-up agreement pursuant to Section 11) with the Company or the underwriters, other than representations, warranties or agreements regarding the Holder, its Registrable Securities and its intended method of distribution and any other representation required by law. 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. After any sale of Registrable Securities pursuant to the provisions of Rule 144 or 144A, the Company will, to the extent allowed by law, promptly cause any restrictive legends to be removed and any transfer restrictions to be rescinded with respect to such Registrable Securities. In order to permit a Holder to sell the same, if it so desires, pursuant to Rule 144A promulgated by the Commission (or any successor to such rule), the Company will comply with all rules and regulations of the Commission applicable to the Company in connection with use of Rule 144A (or any successor thereto). Prospective transferees of Registrable Securities that are Qualified Institutional Buyers (as defined in Rule 144A) that would be purchasing such Registrable Securities in reliance upon Rule 144A may request from the Company information regarding the business, operations and assets of the Company. Within five (5) business days of any such request, the Company shall deliver to any such prospective transferee copies of annual audited and quarterly unaudited financial statements of the Company and such other information as may be required to be supplied by the Company for it to comply with Rule 144A. 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 equal or higher priority to the rights granted to the Holders under Sections 2 and 3 of this Agreement. 12 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. 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 the Purchaser, to Timothy Heiman, Financial Services Regional Manager, 11300 Westmoor Circle Westminster, CO 80021, with a copy to Gil Elon, GE Commercial Finance, 10 Riverview Drive, Danbury, CT 06810, 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. 16. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York without giving effect to the provisions, policies or principles thereof respecting conflict or choice of laws. 17. 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. 13 18. 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. 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 ------------------------ Name: Thomas P. Sweeney III Title: Chief Executive Officer THE PURCHASER MRA SYSTEMS, INC. DBA GE ACCESS By: /s/ Valerie Pagliano ------------------------------- Name: Valerie Pagliano -------------------------- Title: Chief Financial Officer ------------------------- 14 EX-10.4 6 c36819_ex10-4.txt EXHIBIT 10.4 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of March 29, 2005, by and between STAR SOLUTIONS OF DELAWARE, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of February 28, 2005, as amended from time to time ("Credit Agreement"). WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows: 1. Section 1.1. (b) is hereby deleted in its entirety, and the following substituted therefor: " (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, plus the amount of $350,000.00 from March 29, 2005 through April 15, 2005. 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: (i) any account which is more than ninety (90) days past due; -1- (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. (x) that portion of any account from Standard Insurance or Washington Mutual which represents the amount by which Borrower's total accounts from said account debtor exceeds forty percent (40%) of Borrower's total accounts; " 2. Section 1.3. is hereby deleted in its entirety, and the following substituted therefor: "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 payment, general intangibles, inventory and equipment. As security for all indebtedness of Borrower to Bank subject hereto, Borrower shall cause PWI Technologies, Inc. to grant to Bank security interests of first priority in all accounts receivable and other rights to payment, general intangibles, inventory and equipment. 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 -2- 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." 3. Section 4.3 (e) is hereby deleted in its entirety, and the following substituted therefor: " (e) not later than 60 days after and as of the end of each quarter end, a 10 Q report; " 4. The following is hereby added to the Credit Agreement as Section 4.3 (f): " (f) from time to time such other information as Bank may reasonably request. " 5. Section 4.9. is hereby deleted in its entirety, and the following substituted therefor: " 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 at any time greater than zero as of March 31, 2006; $450,000.00 as of June 30, 2006; $750,000.00 as of September 30, 2006 and $1,000,000.00 as of December 31, 2006, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (b) Total Funded Debt to Annualized EBITDA as of fiscal quarters ending March 31, 2005, June 30, 2005 and September 30, 2005, not greater than 2.25 to 1.0, with "Funded Debt" defined as the sum of all obligations for borrowed money (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 on an annualized basis, with the March 31, 2005, calculation to be revised to include adjustments for elimination, as approved by Bank in Bank's discretion. (c) Total Funded Debt to EBITDA as of the end of each fiscal quarter, on a rolling four quarter basis, commencing as of fiscal quarter ending December 31, 2005, not greater than 2.25 to 1.0, with "Funded Debt" as defined above, and with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, with the December 31, 2005, calculation to be revised to include adjustments for elimination, as approved by Bank in Bank's discretion. (d) Net income after taxes not less than $1,000,000.00 on an annual basis, determined as of each fiscal year end. " 6. Section 5.4. is hereby deleted in its entirety, and the following substituted therefor: -3- "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 other than PWI Technologies, Inc.; 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." 7. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 8. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. WELLS FARGO BANK, STAR SOLUTIONS OF NATIONAL ASSOCIATION DELAWARE, INC. By: /s/ Thomas P. Sweeney, III By: /s/ Joseph Gavan --------------------------- --------------------------------- Thomas P. Sweeney, III, Joseph Gavan, Relationship Manager Chief Executive Officer -4- EX-10.5 7 c36819_ex10-5.txt EXHIBIT 10.5 THIRD PARTY SECURITY AGREEMENT WELLS FARGO RIGHTS TO PAYMENT AND INVENTORY 1. GRANT OF SECURITY' INTEREST. 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 security for the payment of all indebtedness of Borrowers to Bank, the undersigned PWI TECHNOLOGIES, INC. ("Owner") hereby grants and transfers to 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 Payment"), now existing or at any time hereafter, and prior to the t hereof, arising (whether they arise from the sale, lease or other disposition of inventory or from performance or contracts for service, manufacture, construction, repair or otherwise or from any other source whatsoever including all security, 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 Owner's customers, to with a security interest in all inventory, goods 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 Owner's business, and all warehouse receipts, bills of lading and other documents evidencing goods owned or acquired by Owner, and all goods covered thereby, now or at any time hereafter and prior to the termination hereof, owned or acquired by Owner wherever located, and all products thereof (collectively called "Inventory"), whether in the possession of Owner, warehousemen, bailees or any other person, or in process of delivery, and whether located at Owner'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, 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"). The word "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, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 2. CONTINUING AGREEMENT; REVOCATION: OBLIGATION UNDER OTHER AGREEMENTS. This a continuing agreement 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 Owner or any other event or proceeding affecting any of the Borrow or Owner. This Agreement 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 at 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 US 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. The obligations of Owner hereunder shall be in addition to any obligations of Owner under any other grants or pledges of security for any liabilities or obligations of any of the Borrowers or any other persons heretofore or hereafter given to Bank unless said other grants or pledges of security are expressly modified or revoked in writing; and this Agreement shall not, unless expressly herein provided, affect or invalidate any such other grants or pledges of security. 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 Owner whether action is brought against any of the Borrowers or any other person, or whether any of the Borrowers or any other person is joined in any such action or actions. Owner acknowledges that this Agreement is absolute and unconditional, there are no conditions precedent to the effectiveness of this Agreement, and this Agreement is in full force and effect and is binding on Owner as of the date written below, regardless o whether Bank obtains collateral or any guaranties from others or takes any other action contemplated by Owner. Owner waives the benefit of any statute of limitations affecting Owner liability hereunder or the enforcement thereof, and Owner 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 Owner's liability hereunder. The liability of Owner 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 secured hereby is rescinded or must otherwise be restored by Bank, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, all as 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 Owner, Owner agrees to indemnity 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. OBLIGATIONS OF BANK. 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 Owner shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. 5. REPRESENTATIONS AND WARRANTIES. 5.1 Owner represents and warrants to Bank that: (a) Owner's legal name is exactly as set forth on the first page of this Agreement, and all of Owners organizational documents or agreements delivered to Bank are complete and accurate in every respect; (b) Owner is the owner and has possession or control of the Collateral and Proceeds; (c) Owner 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 Owner 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 Owner 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 Z and any State consumer credit laws. 5.2 Owner further represents and warrants to Bank that: (a) the Collateral pledged hereunder is so pledged at Borrowers' request; (b) Bank has made no representation to Owner as to the creditworthiness of any of the Borrowers; and (c) Owner has established adequate means of obtaining from each of the Borrowers on a continuing basis financial and other information pertaining to Borrowers' financial condition. Owner agrees to keep adequately informed from such means of any facts, events or circumstances which might in any way affect Owner's risks hereunder, and Owner further agrees that Bank shall have no obligation to disclose to Owner any information or material about any of the Borrowers which is acquired by Bank in any manner. 6. COVENANTS OF OWNER. 6.1 Owner agrees in general: (a) to indemnify Bank against a losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (b) to pay all costs and expenses, including reasonable attorneys' fees, incurred by Bank in the perfection and preservation at the Collateral or Bank's interest therein interest therein and/or the realization, enforcement and exercise of Bank's rights, powers and remedies hereunder; (c) to permit Bank to exercise its powers; (d) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interests contemplated hereby; (e) not to change Owner's 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; (f) not to change the places where Owner keeps any Collateral or Owner's records concerning the Collateral and Proceeds without giving Bank prior written notice of the address to which Owner is moving same; and (g) 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 Owner 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 Owner to perfect Bank's security interest in the 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 Owner's premises, except for deliveries to buyers in the ordinary course of Owner's business and except Inventory which consists of mobile goods as defined in the Colorado Uniform Commercial Code, in which case Owner 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 Owner'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 anytime; (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 received 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. Owner 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 the Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not any of the Borrowers or Owner is in default: (a) to perform any obligation of Owner hereunder in Owner's name or otherwise; (b) to give notice to account debtors or others of Banks 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 interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Owner; (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 return 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 Owner would have but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Owner'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 Owner or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder. 8. OWNERS WAIVERS. 8.1 Owner 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 Banks power; or (e) 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 any obligations or evidences of indebtedness held by Bank's security for or which constitute in whole or in part the Indebtedness secured hereunder, or in connection with the creation of new or additional Indebtedness. 8.2 Owner 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 any 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 of 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 Owner; (e) any act or omission by Bank which directly or indirectly results in or aids the discharge 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 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 any 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 Agreement. Until all Indebtedness shall have been paid in full, Owner shall have no right of subrogation, and Owner 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 her held by Bank. Owner further waives all rights and defenses Owner 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 Owners rights of subrogation or Owners rights to proceed against any of the Borrowers for reimbursement, or (ii) any loss of rights Owner may suffer by reason of any rights, powers or remedies of any of the Borrowers in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging Borrowers' 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. 9. AUTHORIZATIONS TO BANK. Owner authorizes Bank either before or after revocation hereof with notice to or demand on Owner, and without affecting Owners 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, other than the Collateral and Proceeds, for the payment of the Indebtedness or any portion thereof, and exchange, enforce, waive, subordinate or release the Collateral and Proceeds, or any part thereof or any such other security: (c) apply the Collateral and Proceeds or such other 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 discretion may determine; (d) release or substitute any one or more of the endorsers or guarantors of the Indebtedness, or any portion thererof, 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 Agreement, and Owner hereby waives any provision of law regarding application of payments which specifies otherwise. Bank may without notice assign this Agreement in whole or in part. 10. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Owner agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Owner 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 Owner 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. 11. 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 any of the Borrowers and Bank, including without limitation any loan agreement, relating to or executed in connection with any Indebtedness; (b) any representation or warranty made by Owner herein shall prove o be incorrect, false or misleading in any material respect when made; (c) Owner shall fall 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 Owner; 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. 12. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have and may exercise without demand any and all 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 Owner 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 price 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) Owner will deliver to Bank from time to time as requested by Bank, current lists of all Collateral and Proceeds; (b) Owner will not dispose of any Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request, Owner 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 Owner enter onto Owner's premises and take possession of the Collateral with respect to any sale by Bank of any Collateral subject to this Agreement, Owner hereby expressly grants to Bank the right to sell such Collateral using any or all of Owner trademarks, trade names, trade name rights and/or proprietary labels or marks. Owner further agrees that Bank shall have no obligation to process or prepare any Collateral for sale or other disposition. 13. DISPOSITION OF COLLATERAL ANP PROCEEDS; TRANSFER OF INIDEBTEDNESS. 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 on as Bank may from time to time elect. Upon the transfer of an 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. 14. NOTICES. All notices, requests and demands required under this Agreement must be in writing addressed to Bank at the address specified in Section 2 hereof and to Owner 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 ATTOPRNEYS' FEES, Owner 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 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 Owner 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 Owner 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: 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 Owner may not assign or transfer any of its interests or rights hereunder without Bank's prior written consent. Owner 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 Agreement. In connection therewith, Bank may disclose all documents and information which Bank now has or hereafter acquires relating to Owner and/or this Agreement, whether furnished by Borrowers; Owner or otherwise. Owner further agrees that Bank may disclose such documents and information to Borrowers. 17. AMENDMENT. This Agreement may be amended or modified only in writing signed by Bank and Owner. 18. 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 been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Agreement is executed by more than one Owner, the word "Borrowers" and the word "Owner" respectively shall mean all or any one or more of them as the context requires. 19. 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. 20. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. 21. ARBITRATION. 21.1 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 (a) the loan and related loan and security documents which are the subject of this Agreement and its negotiation, execution, collateratization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (b) requests for ?additional credit. 21.2 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 US 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. Section 91 or any similar applicable state law. 21.3 NO WAIVER OF PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. The arbitration requirement does not limit the right of any 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. 21.4 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 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. 21.5 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. 21.6 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. 21.7 PAYMENT OF ARBITRATION COSTS AND FEES. The arbitrator shall award all costs and expenses of the arbitration proceeding. 21.8 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. Owner warrants that Owner is an organization registered under the laws of the State of Washington. Owner warrants that its chief executive office (or principal residence, if applicable) is located at the following address: 10210 NE Point Drive, Ste. 310, Kirkland, WA 98033 Owner 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 March 29, 2005. PWI Technologies, Inc. By: /s/ THOMAS P. SWEENEY III ---------------------------------- Thomas P. Sweeney III, Chief Executive Officer/Chairman EX-10.6 8 c36819_ex10-6.txt EXHIBIT 10.6 SECURITY AGREEMENT WELLS FARGO EQUIPMENT - -------------------------------------------------------------------------------- 1. GRANT OF SECUR INTEREST. In consideration of any credit or other financial accommodation heretofore, now or hereafter extended or made to STAR SOLUTIONS OF OELAWARE INC. ("Borrowers'), or any of them, by WELLS FARGO BANK NATIONAL ASSOCIATION ("Bank"), and for other valuable consideration, as security for the payment of all Indebtedness of Borrowers to Bank, the undersigned PWI Technologies, Inc.("Owner) hereby grants and transfers to 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 Owner, wherever located, whether in the possession of Owner or any other person and whether located on Owner'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 ri4hts, 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 of 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 an of the foregoing (hereinafter called "Proceeds"). The word "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, or whether recovery upon such indebtedness may be or hereafter becomes unenforceable. 2. CONTINUING AGREEMENT; REVOCATION: OBLIGATION UNDER OTHER AGREEMENTS. This a continuing agreement 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 Owner or any other event or proceeding affecting any of the Borrow or Owner. This Agreement 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 at 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 US 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. The obligations of Owner hereunder shall be in addition to any obligations of Owner under any other grants or pledges of security for any liabilities or obligations of any of the Borrowers or any other persons heretofore or hereafter given to Bank unless said other grants or pledges of security are expressly modified or revoked in writing; and this Agreement shall not, unless expressly herein provided, affect or invalidate any such other grants or pledges of security. 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 Owner whether action is brought against any of the Borrowers or any other person, or whether any of the Borrowers or any other person is joined in any such action or actions. Owner acknowledges that this Agreement is absolute and unconditional, there are no conditions precedent to the effectiveness of this Agreement, and this Agreement is in full force and effect and is binding on Owner as of the date written below, regardless o whether Bank obtains collateral or any guaranties from others or takes any other action contemplated by Owner. Owner waives the benefit of any statute of limitations affecting Owner liability hereunder or the enforcement thereof, and Owner 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 Owner's liability hereunder. The liability of Owner 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 secured hereby is rescinded or must otherwise be restored by Bank, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, all as 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 Owner, Owner agrees to indemnity 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. OBLIGATIONS OF BANK. 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 Owner shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. 5. REPRESENTATIONS AND WARRANTIES. 5.1 Owner represents and warrants to Bank that: (a) Owner's legal name is exactly as set forth on the first page of this Agreement, and all of Owners organizational documents or agreements delivered to Bank are complete and accurate in every respect; (b) Owner is the owner and has possession or control of the Collateral and Proceeds; (c) Owner 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 Owner 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; and (g) Owner is not in the business of selling goods of the kind included within the Collateral subject to this Agreement, and Owner acknowledges that no sale or other disposition of any Collateral, including without limitation, any Collateral which Owner 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. 5.2 Owner further represents and warrants to Bank that: (a) the Collateral pledged hereunder is so pledged at Borrowers' request; (b) Bank has made no representation to Owner as to the creditworthiness of any of the Borrowers; and (c) Owner has established adequate means of obtaining from each of the Borrowers on a continuing basis financial and other information pertaining to Borrowers' financial condition. Owner agrees to keep adequately informed from such means of any facts, events or circumstances which might in any way affect Owner's risks hereunder, and Owner further agrees that Bank shall have no obligation to disclose to Owner any information or material about any of the Borrowers which is acquired by Bank in any manner. 6. COVENANTS OF OWNER. 6.1 Owner agrees in general: (a) to indemnify Bank against a losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (b) to pay all costs and expenses, including reasonable attorneys' fees, incurred by Bank in the perfection and preservation at the Collateral or Bank's interest therein interest therein and/or the realization, enforcement and exercise of Bank's rights, powers and remedies hereunder; (c) to permit Bank to exercise its powers; (d) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interests contemplated hereby; (e) not to change Owner's 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; (f) not to change the places where Owner keeps any Collateral or Owner's records concerning the Collateral and Proceeds without giving Bank prior written notice of the address to which Owner is moving same; and (g) 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 Owner 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 Owner to perfect Bank's security interest in the 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) 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 the storage of Inventory, 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 Owner's premises unless the Collateral consists of mobile goods as defined in the Colorado Uniform Commercial Code, in which case Owner agrees not to remove or permit the removal of 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, except sales of Inventory to buyers in the ordinary course of Owner's business; (h) not to rent, lease or charter the Collateral; (i) to permit Bank to inspect the Collateral at anytime; (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 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; (l) not to commingle Rights to Payment, 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 Rights to Payment or Proceeds in any material respect; (n) in the event Bank elects to received 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. Owner 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 the Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not any of the Borrowers or Owner is in default: (a) to perform any obligation of Owner hereunder in Owner's name or otherwise; (b) to give notice to account debtors or others of Banks 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 interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Owner; (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 return 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 Owner would have but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Owner's premises in inspecting the Collateral; and (n) to do all acts and things and execute all documents in the name of Owner or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder. 8. OWNERS WAIVERS. 8.1 Owner 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 Banks power; or (e) 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 any obligations or evidences of indebtedness held by Bank's security for or which constitute in whole or in part the Indebtedness secured hereunder, or in connection with the creation of new or additional Indebtedness. 8.2 Owner 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 any 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 of 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 Owner; (e) any act or omission by Bank which directly or indirectly results in or aids the discharge 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 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 any 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 Agreement. Until all Indebtedness shall have been paid in full, Owner shall have no right of subrogation, and Owner 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 her held by Bank. Owner further waives all rights and defenses Owner 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 Owners rights of subrogation or Owners rights to proceed against any of the Borrowers for reimbursement, or (ii) any loss of rights Owner may suffer by reason of any rights, powers or remedies of any of the Borrowers in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging Borrowers' 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. 9. AUTHORIZATIONS TO BANK. Owner authorizes Bank either before or after revocation hereof with notice to or demand on Owner, and without affecting Owners 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, other than the Collateral and Proceeds, for the payment of the Indebtedness or any portion thereof, and exchange, enforce, waive, subordinate or release the Collateral and Proceeds, or any part thereof or any such other security: (c) apply the Collateral and Proceeds or such other 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 discretion may determine; (d) release or substitute any one or more of the endorsers or guarantors of the Indebtedness, 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 Agreement, and Owner hereby waives any provision of law regarding application of payments which specifies otherwise. Bank may without notice assign this Agreement in whole or in part. 10. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Owner agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Owner 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 Owner 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. 11. 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 any of the Borrowers and Bank, including without limitation any loan agreement, relating to or executed in connection with any Indebtedness; (b) any representation or warranty made by Owner herein shall prove o be incorrect, false or misleading in any material respect when made; (c) Owner shall fall 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 Owner; 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. 12. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have and may exercise without demand any and all 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 Owner 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 price 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) Owner will deliver to Bank from time to time as requested by Bank, current lists of all Collateral and Proceeds; (b) Owner will not dispose of any Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request, Owner 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 Owner enter onto Owner's premises and take possession of the Collateral with respect to any sale by Bank of any Collateral subject to this Agreement, Owner hereby expressly grants to Bank the right to sell such Collateral using any or all of Owner trademarks, trade names, trade name rights and/or proprietary labels or marks. Owner further agrees that Bank shall have no obligation to process or prepare any Collateral for sale or other disposition. 13. DISPOSITION OF COLLATERAL ANP PROCEEDS; TRANSFER OF INIDEBTEDNESS. 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 on as Bank may from time to time elect. Upon the transfer of an 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. 14. NOTICES. All notices, requests and demands required under this Agreement must be in writing addressed to Bank at the address specified in Section 2 hereof and to Owner 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 ATTOPRNEYS' FEES, Owner 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 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 Owner 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 Owner 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: 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 Owner may not assign or transfer any of its interests or rights hereunder without Bank's prior written consent. Owner 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 Agreement. In connection therewith, Bank may disclose all documents and information which Bank now has or hereafter acquires relating to Owner and/or this Agreement, whether furnished by Borrowers; Owner or otherwise. Owner further agrees that Bank may disclose such documents and information to Borrowers. 17. AMENDMENT. This Agreement may be amended or modified only in writing signed by Bank and Owner. 18. 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 been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Agreement is executed by more than one Owner, the word "Borrowers" and the word "Owner" respectively shall mean all or any one or more of them as the context requires 19. 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. 20. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. 21. ARBITRATION. 21.1 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 (a) the loan and related loan and security documents which are the subject of this Agreement and its negotiation, execution, collateratization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (b) requests for ?additional credit. 21.2 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 US 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. Section 91 or any similar applicable state law. 21.3 NO WAIVER OF PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. The arbitration requirement does not limit the right of any 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. 21.4 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 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. 21.5 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. 21.6 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. 21.7 PAYMENT OF ARBITRATION COSTS AND FEES. The arbitrator shall award all costs and expenses of the arbitration proceeding. 21.8 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. Owner warrants that Owner is an organization registered under the laws of the State of Washington. Owner warrants that its chief executive office (or principal residence, if applicable) is located at the following address: 10210 NE Point Drive, Ste. 310, Kirkland, WA 98033 Owner 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 March 29, 2005. PWI Technologies, Inc. By: /s/ THOMAS P. SWEENEY III ---------------------------------------- Thomas P. Sweeney III, Chief Executive Officer/Chairman EX-10.7 9 c36819_ex10-7.txt Exhibit 10.7 WAIVER AND SUBORDINATION AGREEMENT This Waiver and Subordination Agreement ("Waiver"), dated as of March 23, 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 or about March 24, 2005, the Company will acquire PWI Technologies, Inc., a Washington corporation ("PWI"); and, WHEREAS, the Company shall hold PWI as a wholly owned subsidiary; and WHEREAS, Wells Fargo Bank, National Association ("WFB") is providing funding for the acquisition and a continuing credit facility for PWI after the acquisition and is requiring a security interest in certain assets of PWI; 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 PWI. 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 PWI Technologies, Inc., a Washington 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 23 day of March, 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-10.8 10 c36819_ex10-8.txt Exhibit 10.8 STANDSTILL AGREEMENT This Standstill Agreement ("Agreement"), dated as of March 23, 2005, is entered into by and between INCENTRA SOLUTIONS, INC., a Nevada corporation (the "Company"), LAURUS MASTER FUND, LTD., a Cayman Islands company ("Laurus"), and Wells Fargo Bank, National Association ("WFB") The Company and Laurus are parties to (i) a Securities Purchase Agreement, dated as of May 13, 2004, (as amended, modified or supplemented from time to time, the "SPA") and (ii) a Master Security Agreement, dated as of May 13, 2004, (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 or about March 24, 2005, the Company will acquire PWI Technologies, Inc., a Washington corporation ("PWI"); and, WHEREAS, the Company shall hold PWI as a wholly owned subsidiary; and WHEREAS, Wells Fargo Bank, National Association ("WFB") is providing funding for the acquisition and a continuing credit facility for PWI after the acquisition and is requiring a guaranty by the Company of the PWI indebtedness to WFB (the "Guaranty"); 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. WFB hereby acknowledges that Laurus has a first priority security interest in all of the assets of the Company. 2. WFB will be unsecured as to the obligations of the Company pursuant to the Guaranty. 3. WFB hereby agrees that it will not take any action to enforce the Guaranty against the Company or otherwise satisfy the obligations of the Company pursuant to the Guaranty without the prior written consent of Laurus for so long as Laurus is a secured creditor of the Company. 4. This 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. 5. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York. 6. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. 1 IN WITNESS WHEREOF, each of the Company, Laurus and WFB has caused this Agreement to be signed in its name effective as of this 23 day of March, 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 WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ JOSEPH GAVAN -------------------------------- Name: Joseph Gavan Title: Relationship Manager 2 EX-99.1 11 c36819_ex99-1.txt [INCENTRA LOGO OMITTED] 1140 PEARL STREET, BOULDER, COLORADO 80302 EXHIBIT 99.1 NEWS RELEASE FOR MARCH 30, 2005 AT 7:00 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 Len Hall (financial media) mail to: mknaisch@fpdigital.com (303) 449-8279 len@allencaron.com (949) 474-4300 INCENTRA SOLUTIONS ACQUIRES PWI TECHNOLOGIES, LARGEST SOLUTIONS PROVIDER/SYSTEMS INTEGRATOR IN NORTHWEST IMMEDIATELY ACCRETIVE, FURTHER EXPANDS DISTRIBUTION AND MARKET REACH BOULDER, CO, MARCH 30, 2005 - Incentra Solutions, Inc. (OTCBB: ICEN) today announced that it has acquired privately-held PWI Technologies (www.pwi.com) of Kirkland, WA, the leading systems integrator in the Northwest. The acquisition, which follows Incentra's purchase last month of STAR Solutions, LLC, a leading systems integrator headquartered in San Diego, is immediately accretive. The acquisition of the PWI and STAR businesses adds more than $38 million of annualized revenue based upon their 2004 historical performance. Chairman and CEO Thomas P. Sweeney said the acquisitions of both PWI and STAR are cornerstones of Incentra's strategy to substantially grow revenues by augmenting its product offerings and expanding its market reach throughout the western US through acquiring systems integrators with existing direct sales organizations serving the enterprise market. PWI Technologies is a leading systems integrator and solutions provider of Information Technology consulting, storage solutions, hardware, software and selected managed services to a large base of customers in financial services, communications, government, healthcare and manufacturing. PWI revenue in 2004 was approximately $21.3 million. The purchase price of PWI consisted of $2.3 million in cash and approximately $1.7 million in Incentra Solutions common stock. In addition, the former shareholders have the opportunity to earn an additional $200,000 in cash and $1.0 million in Incentra common stock based upon achieving certain earn out requirements. Should PWI exceed the earn out requirements, its former shareholders can earn additional Incentra Solutions common stock equitable to PWI's EBITDA contribution over the earn out requirement. With the acquisition of PWI, Incentra Solutions further expands its opportunities to deliver complete solutions, which include professional services, hardware & software, remote monitoring and management services and solution financing. This offering includes higher margin opportunities with first call maintenance support delivered 24x7 from the Incentra Solutions network operations center. "The acquisition of PWI positions Incentra Solutions to deliver complete solutions to customers in the Northwest region and positions it as an unique provider of complete solutions with first call support," Sweeney said. "PWI management and employees have built a solid track record of delivering high quality products, services and support and have established a respected and loyal customer base. Customers are increasingly seeking an IT partner that can provide complete solutions and PWI can now expand its offerings through Incentra to be this trusted solutions provider. Combining Incentra Solutions managed services and storage products and engineering expertise with PWI's offerings provides the opportunity to take a larger percentage of the total spend per project and increases our capability to solve customers' on-going operations and outsourcing needs," Sweeney added. PWI will operate as a wholly-owned subsidiary of Incentra Solutions and be managed by PWI Technologies President Barry R. Andersen. PWI's 35 employees will continue to be based in its offices in Kirland, WA and Beaverton, OR. "Becoming part of Incentra Solutions is a positive transaction for our business, our customers and our employees," Andersen said. "In our 15 years in business, we have always been proud of the superior products and services we deliver to our customers in the Northwest. With Incentra Solutions skills in storage solutions, its expanded services set and 24x7 Storage Network Operations center, we can now increase the scope of our product offerings including an expanded support organization and remote monitoring and backup services. This will provide us with a number of new revenue opportunities in the near-term and position us for solid long term growth." Inveraray Partners headquartered in the San Francisco Bay Area advised Incentra Solutions regarding the acquisition. The required financing was provided by Wells Fargo Bank, N.A. ABOUT PWI TECHNOLOGIES PWI Technologies is the largest systems integrator providing outsourced Information Technology solutions to a large base of customers in the Pacific Northwest. The Company's engineers are the first to test the latest systems and software, and PWI has built a solid record and reputation as a leader in the integration of disparate technologies and legacy systems into seamless business solutions. ABOUT INCENTRA SOLUTIONS, INC. Incentra Solutions, Inc. (www.incentrasolutions.com, OTCBB:ICEN) is a provider of complete IT & 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 total digital archive management and transcoding solutions. Wholly-owned subsidiaries, ManagedStorage International (MSI, www.msiservice.com) and STAR Solutions (www.star-solutions.com) provide professional services, hardware & software products, IT outsourcing solutions and financing options to enterprise and service provider markets. 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. # # # # EX-99.2 12 c36819_ex99-2.txt EXHIBIT 99.2 [INCENTRA SOLUTIONS, INC. LETTERHEAD] NEWS RELEASE for March, 30 2005 at 7:30 AM EST - ---------------------------------------------- Contacts for Incentra Solutions: Allen & Caron Inc. Incentra Solutions Jill Bertotti (investors) Paul McKnight jill@allencaron.com Chief Financial Officer ------------------- pmcknight@incentrasolutions.com Len Hall (financial media) ------------------------------- len@allencaron.com (303) 449-8279 ------------------ (949) 474-4300 INCENTRA SOLUTIONS ANNOUNCES RECORD FOURTH QUARTER, YEAR-END RESULTS YEAR-OVER-YEAR PRO FORMA REVENUES UP 52% TO $4.6 MILLION FOR QUARTER, 39% TO $17.7 MILLION FOR YEAR; 2004 PRO FORMA GROSS MARGINS INCREASE 93% FROM PRIOR YEAR BOULDER, CO, MARCH 30, 2005 - Incentra Solutions, Inc. (OTCBB: ICEN) today reported significant year-over-year improvements in top- and bottom-line performance for its fourth quarter and year ended December 31, 2004. Chairman and CEO Thomas P. Sweeney said that results for the 2004 fourth quarter and year were driven by year-over-year improvements in gross margins and continued strong sales globally by the Front Porch Digital Media and Broadcast division and increased volume of storage under management by its ManagedStorage International (MSI) subsidiary. During 2004, Incentra sold and delivered a fully integrated digital archive and storage infrastructure to a major cable provider in the United States, which was the Company's first sale of a complete DIVArchive solution to include hardware, software and professional services. During the first quarter of 2005, the Company successfully sold two additional complete archive solutions. "2004 was a remarkable year for our Company and it is continuing into 2005," Sweeney said. "We have made several important acquisitions, starting in August with ManagedStorage International, that is based on our overall strategy to substantially increase revenues, improve our bottom-line performance and enhance shareholder value. These steps are essential to both accelerate our penetration of existing markets and expand further into related markets." In the first quarter 2005, Incentra completed the acquisitions of STAR Solutions and PWI Technologies, two leading system integrators in the western United States. These businesses and their established customer bases will serve as a platform for the sale of Incentra's managed storage and monitoring solutions. "These two acquisitions are key steps in building Incentra into a rapidly growing and profitable company," Sweeney added. "The acquisitions of PWI and STAR provide us with established direct sales and services organizations serving the enterprise market." For the year ended December 31, 2004, STAR and PWI had aggregate revenues of over $38 million. PRO FORMA RESULTS OF OPERATIONS - ------------------------------- Pro forma revenue for the 2004 fourth quarter increased approximately 52 percent to $4.6 million from $3.0 million for the comparable prior year quarter, and for all of 2004, pro forma revenue increased approximately 39 percent to $17.7 million, up from $12.7 million in 2003. Pro forma gross margin for the fourth quarter of 2004 increased 51 percent to $2.4 million from $1.6 million for the fourth quarter of the MORE-MORE-MORE INCENTRA SOLUTIONS ANNOUNCES RECORD FOURTH QUARTER, YEAR-END RESULTS Page 2-2-2 prior year. Gross margin for all of 2004 increased 93 percent on a pro forma basis to $9.2 million from the prior year of $4.8 million. Pro forma EBITDA loss for the quarter and the year ended December 31, 2004 improved substantially from the prior year as the pro forma EBITDA loss declined to $0.8 million and $3.7 million compared to an EBITDA loss of $3.4 million and $10.2 million for the quarter and full year ended December 31, 2003, respectively. Included in the EBITDA loss for 2004 was $1.4 million of merger related expense.1 "We believe our EBITDA performance demonstrates that we are moving in the right direction," Sweeney said. "Our pro forma operating expenses for the year increased slightly, only 2 percent, and our losses decreased dramatically despite charges for one-time items and an increase in non-cash charges. We are increasing our sales of DIVArchive and increasing the volumes of storage under management, creating the momentum we need going forward." Pro forma net losses before amounts attributable to common shareholders2 for the fourth quarter and year ended December 31, 2004 were $3.1 million and $13.0 million, respectively, which compares to pro forma net losses of $5.7 million and $19.1 million, respectively, for the 2003 comparable periods. Included in the net loss for 2004 was $1.4 million of costs included in SG&A expenses that were related to the acquisition of ManagedStorage International (MSI) in the 2004 third quarter, of which approximately $800,000 were non-cash charges. Pro forma results of operations discussed below, include 100 percent of the operating results of Front Porch and MSI for all periods presented. Results of operations determined in accordance with generally accepted accounting principles (GAAP) exclude the results of operations of Front Porch prior to the completion of the MSI acquisition on August 18, 2004. The pro forma results of operations discussed below exclude consideration of the Company's first quarter acquisitions of STAR and PWI. "A key factor in our revenue profile is the growing recurring revenue base we are building, which is driven in large part by sales of our proprietary Gridworks Operations System Support solution and our first call support," Sweeney said. "As our recurring revenue base continues to grow, it will provide added stability and predictability to our revenues, and create a significant growth opportunity for expanded sales of solutions and services to existing customers." The Company continues to invest in hardware and the development of its software and digital archiving in the data storage and infrastructure areas. During the year ended December 31, 2004, the Company invested approximately $1.4 million in software development and approximately $1.8 million in data storage infrastructure. "These investments have already yielded results and have positioned us to execute a key part of our strategic plan to grow revenues across both the enterprise and broadcast markets," Sweeney said. RESULTS OF OPERATIONS IN ACCORDANCE WITH GAAP - --------------------------------------------- For the fourth quarter and year ended December 31, 2004, total revenues were approximately $4.6 million and $13.3 million, respectively, compared to approximately $2.1 million and $9.8 million, respectively, for the comparable prior year periods. Gross margins as a percentage of revenue for the 2004 fourth quarter and year were 52 percent and 45 percent, respectively, compared to 46 percent and 29 percent MORE-MORE-MORE INCENTRA SOLUTIONS ANNOUNCES RECORD FOURTH QUARTER, YEAR-END RESULTS Page 3-3-3 for the respective periods in 2003. Net losses attributable to common shareholders2 for the 2004 fourth quarter and year were $3.1 million and $10.4 million, respectively, which compares to net losses of $2.4 million and $11.0 million, respectively, for the prior year comparable periods. Included in the net loss for 2004 was approximately $1.3 million in expenses that was related to the acquisition of MSI. The EBITDA loss for the quarter and the year ended December 31, 2004 improved substantially from the prior year as the EBITDA loss declined to $0.8 million and $2.4 million compared to an EBITDA loss of $1.0 million and $5.5 million for the quarter and full year ended 2003, respectively. CONFERENCE CALL INFORMATION - --------------------------- As previously announced, management will host a conference call to be broadcast live on the Internet on Wednesday, March 30, 2005 at 11:30 a.m. (Eastern time) on the Investors section of the Company's website, www.incentrasolutions.com. After you register your name and company, you will be given access to the live webcast. Additionally, an archive of the conference call will be available at this site. ABOUT INCENTRA SOLUTIONS, INC. - ------------------------------ Incentra Solutions, Inc. (www.incentrasolutions.com, OTCBB:ICEN) is a provider of complete IT & 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 total digital archive management and transcoding solutions. Wholly-owned subsidiaries, ManagedStorage International (MSI, www.MSIservice.com), STAR Solutions (www.star-solutions.com), and PWI Technologies (www.pwi.com) provide professional services, hardware & software products, IT outsourcing solutions and financing options to the enterprise and service provider markets. (1) EBITDA is defined as earnings before interest, taxes, depreciation and amortization and cumulative effect of changes in accounting principles. Although EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles (GAAP), the Company believes the use of the non-GAAP financial measure EBITDA enhances an overall understanding of the Company's past financial performance and is a widely-used measure of operating performance in practice. In addition, the Company believes the use of EBITDA provides useful information to the investor because EBITDA excludes significant non-cash interest and amortization charges related to past financings by the Company that, when excluded, the Company believes produces more meaningful operating information. EBITDA also excludes depreciation expense incurred primarily in the MSI subsidiary and amortization expense for intangible assets which arose out from the acquisition of MSI, which are significant when compared to such levels prior to the acquisition of MSI. However, investors should not consider this measure in isolation or as a substitute for net income (loss), operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that are calculated in accordance with GAAP, and this measure may not necessarily be comparable to similarly titled measures employed by other companies. A reconciliation of EBITDA to the most comparable GAAP financial measure, loss before income taxes, is included in the adjoining tables. (2) Net loss before amounts attributable to common shareholders excludes deemed dividends and accretion related to the Company's preferred stock. 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 INCENTRA SOLUTIONS ANNOUNCES RECORD FOURTH QUARTER, YEAR-END RESULTS Page 4-4-4 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. TABLES FOLLOW INCENTRA SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEAR ENDED *DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------- ------------- ------------- ------------- 2004 2003 2004 2003 ---- ---- ---- ---- all amounts in (000's) Revenues 4,599 2,088 13,285 9,811 ------------- ------------- ------------- ------------- Cost of revenue 2,196 1,118 7,300 6,952 ------------- ------------- ------------- ------------- Gross margin 2,403 969 5,984 2,859 ------------- ------------- ------------- ------------- Total Operating Expenses 4,482 2,562 13,696 11,345 ------------- ------------- ------------- ------------- Loss from operations (2,079) (1,593) (7,711) (8,486) ------------- ------------- ------------- ------------- Net loss before income tax (2,663) (2,398) (10,038) (10,991) ------------- ------------- ------------- ------------- Net loss (3,063) (2,398) (10,438) (10,991) ------------- ------------- ------------- ------------- Net loss applicable to common stockholders (3,717) (2,558) (11,778) (12,735) ============= ============= ============= ============= * certain adjustments and reclassifications were made in the fourth quarter 2004, due to the MSI acquisition EBITDA RECONCILIATION Net Loss (3,063) (2,398) (10,438) (10,991) Income tax expense 400 - 400 - Non-cash interest 397 643 2,226 2,141 Cash interest 72 7 180 45 Depreciation 563 516 2,192 2,338 Amortization 785 237 1,782 929 ------------- ---------------------------------------------------- EBITDA (846) (994) (3,658) (5,539) ================================================================== Merger costs - - 1,275 - EBITDA, AS ADJUSTED (846) (994) (2,383) (5,539)
INCENTRA SOLUTIONS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------- THREE MONTHS ENDED YEAR ENDED ================================================================================== DECEMBER 31, 2004 DECEMBER 31,2003 DECEMBER 31, 2004 DECEMBER 31, 2003 ----------------- ---------------- ----------------- ----------------- all amounts in (000's) Revenues 4,599 3,018 17,740 12,728 ----------------- ---------------- ----------------- ----------------- Cost of revenue 2,196 1,424 8,531 7,955 ----------------- ---------------- ----------------- ----------------- Gross margin 2,403 1,594 9,208 4,772 ----------------- ---------------- ----------------- ----------------- Total Operating Expenses 4,482 4,292 18,542 18,114 ----------------- ---------------- ----------------- ----------------- Income (Loss) from operations (2,079) (2,698) (9,334) (13,341) ----------------- ---------------- ----------------- ----------------- Net loss before income taxes (2,663) (5,661) (12,631) (19,131) ----------------- ---------------- ----------------- ----------------- Net loss (3,063) (5,661) (13,031) (19,131) ----------------- ---------------- ----------------- ----------------- Net loss applicable to common stockholders $ (3,717) $ (5,820) $ (16,987) $ (20,875) ================= ================ ================= ================= EBITDA RECONCILIATION Net loss (3,063) (5,661) (13,031) (19,131) Income tax expense 400 - 400 - Non-cash interest 397 827 3,177 2,823 Cash interest 72 26 273 135 Depreciation 563 600 2,233 2,631 Amortization 785 831 3,244 3,301 ---------------------------------------------------------------------------------- EBITDA (846) (3,377) (3,704) (10,240) ================================================================================== Merger costs - - 1,425 - EBITDA, AS ADJUSTED (846) (3,377) (2,279) (10,240)
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