8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest reported) October 1, 2003

Microfield Group, Inc.

(Exact name of registrant as specified in its charter

Oregon	000-26226	93-0935149
(State or other jurisdiction of incorporation)	Commission file number	(IRS Employer Identification No.)
1631 NW Thurman, Suite 310, Portland, OR		97209
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (503) 419-3580

(Former name or former address, if changed since last report)

TABLE OF CONTENTS

	Item 2. Acquisition or Disposition of Assets.
	Item 7. Financial Statements and Exhibits
SIGNATURES
Exhibit Index
EXHIBIT 2.1
EXHIBIT 2.2
EXHIBIT 99.1

Item 2. Acquisition or Disposition of Assets.

On September 16, 2003, Microfield acquired Velagio, Inc., an Oregon corporation (“Velagio”), and Christenson Technology Services, Inc., an Oregon corporation (“CTS”) through mergers of these companies with two of Microfield’s wholly owned subsidiaries. The values of the mergers were determined based on a Microfield per share price of $0.24, which was the closing price for Microfield’s common stock at the close of trading on September 15, 2003.

Microfield’s acquisition of Velagio and CTS occurred in two separate transactions closing on the same day as follows:

Transaction 1: Pursuant to an Agreement and Plan of Merger dated September 15, 2003, which had as its parties Microfield, VSI Acquisition Co., an Oregon corporation, Velagio, Kurt A. Underwood and TSI Telecommunication Services, Inc., a Delaware corporation (“TSI”), Microfield issued 4,193,143 shares of its common stock and assumed 473,907 stock options in exchange for 100% of the outstanding common stock and common stock options of Velagio. Microfield’s wholly owned subsidiary VSI Acquisition Co. merged with and into Velagio. Mr. Underwood received 3,404,958 shares of Microfield common stock which constitutes 20.3% of the issued and outstanding shares of Microfield. TSI received 788,185 shares of common stock of Microfield which constitutes 4.7% of the issued and outstanding shares of Microfield. Mr. Underwood and TSI have placed 203,008 and 46,992 shares of common stock of Microfield, respectively, in escrow pursuant to the terms of an Indemnification Escrow Agreement dated September 15, 2003, attached hereto as an exhibit.

Transaction 2: Pursuant to an Agreement and Plan of Merger dated September 15, 2003, which had as its parties Microfield, CTS Acquisition Co., an Oregon corporation, CTS and Christenson Group LLC, an Oregon limited liability company, Microfield issued 4,193,142 shares of its common stock in exchange for 100% of the common stock of CTS. Microfield’s wholly owned subsidiary CTS Acquisition Co., merged with and into CTS. Christenson Group LLC was issued 4,193,142 shares of common stock of Microfield which constitutes 25% of the issued and outstanding shares of Microfield. Christenson Group has placed 250,000 of these shares in escrow pursuant to the terms of an Indemnification Escrow Agreement dated September 15, 2003, and attached hereto as an exhibit.

The description of these transactions contained herein are qualified in their entirety by reference to both of the Agreement and Plan of Mergers each dated September 15, 2003 and attached hereto as Exhibits 2.1 and 2.2, and incorporated herein by reference (“Merger Agreements”).

Mr. Underwood and Mr. Jesenik were appointed as directors by the board of directors of Microfield, pursuant to the terms of the Merger Agreements.

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Pursuant to the terms of the Merger Agreements, Mr. Underwood was also appointed President and Chief Executive Officer of Microfield. Mr. Wright, the former President and Chief Executive Officer of Microfield, was appointed the Chief Operating Officer.

The total issued and outstanding shares of common stock of Microfield on September 16, 2003 was 16,772,570 shares.

CTS provides installation and implementation of business information systems and electrical systems. Velagio provides business and information systems integration and development consulting. Microfield intends to continue the historic business of these two companies and expand their services to integrate its current product Internet Observation Systems® with the products and services provided by CTS and Velagio to provide one point of contact for consultation and implementation of business information systems.

Item 7. Financial Statements and Exhibits

(a) Financial Statements.

As of the date of filing of this Current Report on Form 8-K, it is impractical for Microfield to provide the financial statements required by this Item 7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial statements shall be filed by amendment to this Form 8-K no later than 60 days after October 1, 2003.

(b) Pro Forma Financial Information

As of the date of filing of this Current Report on Form 8-K, it is impractical for the Registrant to provide the pro forma financial information required by this Item 7(b). In accordance with Item 7(b) of Form 8-K, such financial statements shall be filed by amendment to this Form 8-K no later than 60 days after October 1, 2003.

(c) Exhibits.

Exhibit 2.1 Agreement and Plan of Merger dated September 15, 2003, by and between Microfield Group, Inc., Christenson Technology Services, Inc., and Christenson Group LLC.

Exhibit 2.2 Agreement and Plan of Merger dated September 15, 2003 by and between Microfield Group, Inc., Velagio, Inc., Kurt A. Underwood, and TSI Telecommunication Services, Inc.

Exhibit 99.1 Indemnification Escrow Agreement dated September 15, 2003.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

     Date: October 1, 2003.

MICROFIELD GROUP, INC.

/s/ Kurt A. Underwood

Kurt A. Underwood, Chief
Executive Officer and President

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Exhibit Index

2.1 Agreement and Plan of Merger dated September 15, 2003, by and between Microfield Group, Inc., CTS Acquisition Co., Christenson Technology Services, Inc. and Christenson Group LLC.

2.2 Agreement and Plan of Merger dated September 15, 2003, by and between Microfield Group, Inc., VSI Acquisition Co., Velagio, Inc., Kurt A. Underwood, and TSI Telecommunication Services, Inc.

99.1 Indemnification Escrow Agreement dated September 15, 2003.

Page - 5 EX-2.1 3 v93371exv2w1.txt EXHIBIT 2.1 EXHIBIT 2.1 ================================================================================ AGREEMENT AND PLAN OF MERGER BY AND AMONG MICROFIELD GROUP, INC. AND CTS ACQUISITION CO. AND CHRISTENSON TECHNOLOGY SERVICES, INC. AND CHRISTENSON GROUP, LLC DATED AS OF SEPTEMBER 15, 2003 ================================================================================ TABLE OF CONTENTS Article 1 Definitions........................................................................ 1 Article 2 The Merger......................................................................... 5 2.1 The Merger............................................................................ 5 2.2 Effective Time........................................................................ 5 2.3 Articles of Incorporation of Surviving Corporation.................................... 6 2.4 Bylaws of Surviving Corporation....................................................... 6 2.5 Directors and Officers of Surviving Corporation....................................... 6 2.6 Conversion of CTS Stock............................................................... 6 2.7 Indemnification Escrow................................................................ 7 2.8 Procedure for Payment................................................................. 7 2.9 Unregistered Shares................................................................... 7 2.10 Stock Certificate Legends............................................................. 7 2.11 Appointment of Representative......................................................... 8 2.12 Registration Rights................................................................... 8 2.13 Reserved.............................................................................. 8 Article 3 Representations and Warranties of CTS and CTS Shareholder.......................... 9 3.1 Organization.......................................................................... 9 3.2 Capitalization........................................................................ 9 3.3 Subsidiaries.......................................................................... 9 3.4 Authorization; Binding Agreement...................................................... 9 3.5 Governmental Approvals................................................................ 9 3.6 No Violations......................................................................... 10 3.7 CTS Financial Statements.............................................................. 10 3.8 Absence of Certain Changes or Events.................................................. 10 3.9 No Undisclosed Liabilities............................................................ 10 3.10 Compliance with Laws.................................................................. 11 3.11 Permits............................................................................... 11 3.12 Litigation............................................................................ 11 3.13 Contracts............................................................................. 11 3.14 Employee Benefit Plans................................................................ 11 3.15 Taxes and Tax Returns................................................................. 14 3.16 Intellectual Property................................................................. 15 3.17 Employee and Labor Matters............................................................ 16 3.18 Limitation on Business Conduct........................................................ 16 3.19 Title to Property..................................................................... 16 3.20 Owned and Leased Premises............................................................. 17 3.21 Environmental Matters................................................................. 17 3.22 Insurance............................................................................. 18 3.23 Product Liability and Recalls......................................................... 18 3.24 Customers............................................................................. 18 3.25 Interested Party Transactions......................................................... 19 3.26 Full Disclosure....................................................................... 19 Article 4 Representations and Warranties of Microfield and Merger Sub........................ 19 4.1 Organization and Good Standing........................................................ 19 1-TABLE OF CONTENTS 4.2 Capitalization........................................................................ 19 4.3 Subsidiaries.......................................................................... 19 4.4 Authorization; Binding Agreement...................................................... 19 4.5 Governmental Approvals................................................................ 20 4.6 No Violations......................................................................... 20 4.7 Litigation............................................................................ 20 4.8 SEC Reports and Financial Statements.................................................. 20 4.9 No Undisclosed Liabilities............................................................ 21 4.10 Taxes and Tax Returns................................................................. 21 4.11 Compliance with Laws.................................................................. 21 4.12 Permits............................................................................... 21 4.13 Contracts............................................................................. 22 4.14 Employee Benefit Plans................................................................ 22 4.15 Intellectual Property................................................................. 24 4.16 Employee and Labor Matters............................................................ 25 4.17 Title to Property..................................................................... 25 4.18 Owned and Leased Premises............................................................. 25 4.19 Environmental Matters................................................................. 25 4.20 Insurance............................................................................. 26 4.21 Full Disclosure....................................................................... 26 4.22 No Prior Activities................................................................... 26 Article 5 Additional Covenants of CTS........................................................ 27 5.1 Conduct of Business of CTS............................................................ 27 5.2 Notification of Certain Matters....................................................... 28 5.3 Access and Information................................................................ 29 5.4 Shareholder Approval.................................................................. 29 5.5 Reasonable Best Efforts............................................................... 29 5.6 Public Announcements.................................................................. 29 5.7 Compliance............................................................................ 29 5.8 CTS Shareholder Approval.............................................................. 29 Article 6 Additional Covenants of Microfield and Merger Sub.................................. 30 6.1 Conduct of Business of Microfield..................................................... 30 6.2 Notification of Certain Matters....................................................... 31 6.3 Access and Information................................................................ 32 6.4 Reasonable Best Efforts............................................................... 32 6.5 Public Announcements.................................................................. 32 6.6 Compliance............................................................................ 32 Article 7 Survival; Indemnification.......................................................... 32 7.1 Survival.............................................................................. 32 7.2 Indemnification by the CTS Shareholder................................................ 33 7.3 Indemnification by Microfield......................................................... 33 7.4 Limits on Indemnification............................................................. 33 7.5 Indemnification Procedure............................................................. 35 7.6 Payment with Microfield Common Stock.................................................. 36 Article 8 Conditions Precedent............................................................... 36 8.1 Merger Conditions..................................................................... 36 2-TABLE OF CONTENTS 8.2 Conditions Precedent to the Obligations of Microfield and Merger Sub.................. 37 8.3 Conditions Precedent to the Obligations of CTS........................................ 38 Article 9 Termination and Abandonment........................................................ 39 9.1 Termination........................................................................... 39 9.2 Effect of Termination and Abandonment................................................. 40 Article 10 Miscellaneous................................................................... 40 10.1 Confidentiality....................................................................... 40 10.2 Amendment and Modification............................................................ 41 10.3 Waiver of Compliance; Consents........................................................ 41 10.4 Survival.............................................................................. 41 10.5 Notices............................................................................... 42 10.6 Binding Effect; Assignment............................................................ 42 10.7 Fees and Expenses..................................................................... 42 10.8 Governing Law......................................................................... 43 10.9 Counterparts.......................................................................... 43 10.10 Interpretation..................................................................... 43 10.11 Entire Agreement................................................................... 43 10.12 Severability....................................................................... 43 10.13 Specific Performance............................................................... 43 10.14 Third Parties...................................................................... 43 10.15 Disclosure Schedules............................................................... 43 3-TABLE OF CONTENTS LIST OF SCHEDULES

SCHEDULE: CONTAINS: 3.2 CTS capitalization 3.8 CTS material changes 3.9 CTS liabilities 3.11 CTS permits 3.13 CTS contracts 3.14(a) CTS employee benefit plans 3.14(c) CTS current and former employees with stock rights, options and restrictions 3.14(d) CTS employment agreements 3.14(e) CTS employee stock ownership plan 3.14(f) CTS employee stock ownership plan for non-U.S. employees 3.15 CTS tax claims or assessments 3.16(a) CTS intellectual property 3.17(a) CTS employees 3.19 CTS property and assets 3.21 CTS environmental matters 3.22 CTS insurance 3.23 CTS product liability and recalls 3.24 CTS 10 largest customers 3.25 CTS interested party transactions 4.7 Microfield litigation 4.12 Microfield permits 4.13 Microfield material contracts 4.14(a) Microfield employee benefit plans 4.14(c) Microfield current and former employees with stock rights, options and restrictions 4.14(d) Microfield employment agreements 4.14(e) Microfield employee stock ownership plan 4.14(f) Microfield employee stock ownership plan for non-U.S. employees 4.15(a) Microfield intellectual property 4.16(a) Microfield employees 4.17 Microfield property and assets 4.19 Microfield environmental matters 4.20 Microfield insurance

1-LIST OF SCHEDULES AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER is made as of September 15, 2003 by and among MICROFIELD GROUP, INC., an Oregon corporation, CTS ACQUISITION CO., an Oregon corporation, CHRISTENSON TECHNOLOGY SERVICES, INC., an Oregon corporation, and CHRISTENSON GROUP LLC, an Oregon limited liability company. RECITALS A. The respective boards of directors of Microfield, Merger Sub and CTS have: (a) determined that the Merger of CTS with and into Merger Sub pursuant and subject to all of the terms and conditions of this Agreement is advisable, fair and in the best interests of Microfield, CTS and Merger Sub and their respective shareholders; and (b) approved the Merger, this Agreement and the transactions contemplated by this Agreement. B. The board of directors of Microfield has authorized the issuance of Microfield Common Stock pursuant to this Agreement. C. Microfield, CTS and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with the Merger. D. Simultaneously with the closing of the Merger described in this Agreement, the VSI Merger shall close and become effective. E. The parties intend that the structure of the Merger described in this Agreement be a tax-free reorganization within the meaning of Section 368(a) of the Code. NOW, THEREFORE, in consideration of the covenants, conditions and agreements set forth herein and for other good and valuable consideration, the sufficiency of which are acknowledged, the parties agree as follows: ARTICLE 1 DEFINITIONS When used in this Agreement, the following terms shall have the meanings specified: "AGREEMENT" means this Agreement and Plan of Merger, together with the attached Exhibits and Disclosure Schedules, as the same may be amended from time to time in accordance with the terms hereof. "ARTICLES OF MERGER" means Articles of Merger in a form approved for filing in accordance with the OBCA. "CLOSING" means the conference to be held at 10:00 a.m., on the Closing Date at the offices of Microfield, or such other time and place as the parties may mutually agree to in writing. 1-AGREEMENT AND PLAN OF MERGER "CLOSING DATE" means September 15, 2003, or such other date as the parties may mutually agree in writing. "CODE" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, as the same may be in effect from time to time. "CTS" means Christenson Technology Services, Inc., an Oregon corporation. "CTS SHAREHOLDER" means the sole shareholder of CTS immediately prior to the Effective Time, namely, Christenson Group LLC, an Oregon limited liability company. "CTS STOCK" means shares of common stock, without par value, of CTS. "DISCLOSURE SCHEDULES" means the Disclosure Schedules attached to this Agreement. "EFFECTIVE TIME" means the date and time when the Merger becomes effective pursuant to the OBCA. "ENFORCEABILITY EXCEPTIONS" means the limits with respect to the enforceability of any agreement imposed by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by principles of equity regarding the availability of remedies. "ESCROW AGENT" means the escrow agent appointed in the Indemnification Escrow Agreement. "ESCROWED SHARES" means the Microfield Common Stock placed in the Indemnification Escrow pursuant to Section 2.7. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof or any entity, authority or body exercising executive, legislative, judicial or regulatory functions of or pertaining to government, including, without limitation, any governmental or regulatory authority, agency, department, board, commission or instrumentality, any court, tribunal or arbitrator and any self-regulatory organization. "INDEMNIFICATION ESCROW" means the Escrow Account opened for the purpose of holding the Microfield Common Stock held back pursuant to Section 2.7. "KNOWLEDGE" with respect to a party, means the actual knowledge of the existence or nonexistence of a fact or matter, after reasonable inquiry, by any of the executive officers or directors of Microfield or CTS, as applicable. "LAW" means any federal, state, local or other law, rule, regulation or governmental requirement of any kind, and the rules, regulations and orders promulgated thereunder by any regulatory agencies. 2-AGREEMENT AND PLAN OF MERGER "LIEN" means (a) any mortgage, pledge, lien, covenant, lease, security interest or encumbrance of any kind and (b) with respect to any asset, the interest of a vendor or lessor under any conditional sale agreement, financing lease or other title retention agreement relating to such asset. "MAJOR SHAREHOLDERS" means the following persons: Kurt A. Underwood, TSI Telecommunications, Inc., Christenson Group LLC, Robert J. Jesenik, Steven M. Wright, R. Patrick Hanlin, JMW-MICG Holdings, LLC, Michael Stansell and John B. Conroy. "MATERIAL ADVERSE CHANGE" means any materially adverse change in the financial condition, properties, business or results of operations of a party that exceeds the sum of $50,000 or more, whether taken separately or together in the aggregate with other similar events, other than changes arising out of general economic conditions unrelated to the business in which the party is engaged. "MATERIAL ADVERSE EFFECT" means any event, condition or fact that is, or reasonably may be expected to be, materially adverse to the financial condition, properties, business, results of operations or prospects of a party that exceeds the sum of $50,000 or more, whether taken separately or together in the aggregate with other similar events, other than events, conditions or facts arising out of general economic conditions unrelated to the business in which the party is engaged. "MATERIAL CONTRACTS" means any agreement or contract to which a party, or by which its properties or assets, is bound, which could result in a Material Adverse Change or have a Material Adverse Effect, including, but not limited, to: (a) all loan agreements, indentures, mortgages, pledges, conditional sale or title retention agreements, security agreements, guaranties, standby letters of credit, equipment leases or lease purchase agreements, each in an amount equal to or exceeding $50,000; (b) all contracts, agreements, commitments or other understandings or arrangements, but excluding contracts, agreements, commitments or other understandings or arrangements entered into in the ordinary course of business and involving individual payments or receipts by the party of less than $50,000 over the term of such contract, agreement, commitment or other understanding or arrangement; and (c) all other agreements that are material to the party and not excluded under the foregoing clauses. "MERGER" means the merger of Merger Sub with and into CTS pursuant to this Agreement and the OBCA. "MERGER CONSIDERATION" means the aggregate number of shares of Microfield Common Stock issuable to the CTS Shareholders pursuant to Section 2.6, subject to any rounding for fractional shares pursuant to Section 2.8(b). "MERGER SUB" means CTS Acquisition Co., an Oregon corporation and a wholly owned Subsidiary of Microfield. "MICROFIELD" means Microfield Group, Inc., an Oregon corporation. 3-AGREEMENT AND PLAN OF MERGER "MICROFIELD COMMON STOCK" means shares of common stock, no par value, of Microfield. "MICROFIELD STOCK VALUE" means the average bid price as reported on the OCTBB or NASDAQ or other exchange upon which Microfield Common Stock is trading for the thirty (30) days immediately prior to and including the last trading day prior to the applicable date for which the value is determined. "OBCA" means the Oregon Business Corporation Act, as the same shall be in effect from time to time. "PERMITS" means all permits, licenses, approvals, qualifications, governmental authorizations, registrations and franchises that CTS has or holds, all of which are listed and briefly described in the Disclosure Schedules. "PERSON" means a natural person, corporation, trust, partnership, limited liability company, governmental entity, agency or branch or department thereof, or any other legal entity. "REPRESENTATIVE" means Robert J. Jesenik, or his successor, who shall act as representative of the CTS Shareholders under the Agreement. "SUBSIDIARY" means any entity (a) at least a majority of the outstanding capital stock or ownership interest of which shall at the time be owned by Microfield or CTS, as applicable, directly or through one (1) or more entities that are themselves Subsidiaries or (b) with respect to which Microfield or CTS, as applicable, may elect a majority of the board of directors. "SURVIVING CORPORATION" means CTS, which shall survive the Merger of Merger Sub with and into CTS. "TSI" means TSI Telecommunication Services, Inc., a Delaware corporation. "UNDERWOOD" means Kurt A Underwood, individually. "VELAGIO" means Velagio, Inc., an Oregon corporation. "VELAGIO SHAREHOLDERS" means Underwood and TSI. "VSI MERGER" means the merger whereby VSI Acquisition Co. shall merge with and into Velagio and Velagio shall be the surviving corporation, effective simultaneously with the Effective Time. "VSI MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of the same date as this Agreement by and among Microfield, VSI Acquisition Co., Velagio, and the Velagio Shareholders in connection with the VSI Merger. 4-AGREEMENT AND PLAN OF MERGER OTHER TERMS. The following terms shall have the meanings specified in the following noted sections of this Agreement:

- -------------------------------------------------------------------- TERM SECTION - -------------------------------------------------------------------- Balance Sheet 3.9 - -------------------------------------------------------------------- Consent 3.5 - -------------------------------------------------------------------- Conversion Ratio 2.6 - -------------------------------------------------------------------- Damages 7.2 - -------------------------------------------------------------------- Employee Plans 3.14(a) - -------------------------------------------------------------------- Environmental Claim 3.21(e)(i) - -------------------------------------------------------------------- Environmental Laws 3.21(e)(ii) - -------------------------------------------------------------------- ERISA 3.14(a) - -------------------------------------------------------------------- ERISA Affiliate 3.14(a) - -------------------------------------------------------------------- Indemnification Escrow Agreement 2.7 - -------------------------------------------------------------------- Intellectual Property Rights 3.16(b) - -------------------------------------------------------------------- IRS 3.14(b) - -------------------------------------------------------------------- ISO 3.14(c) - -------------------------------------------------------------------- Litigation 3.12 - -------------------------------------------------------------------- Material of Environmental Concern 3.21(e)(iii) - -------------------------------------------------------------------- Microfield Balance Sheet 4.9 - -------------------------------------------------------------------- Microfield Indemnified Persons 7.2 - -------------------------------------------------------------------- Microfield SEC Reports 4.8 - -------------------------------------------------------------------- Preferred Shares 4.2 - -------------------------------------------------------------------- Related Documents 7.1 - -------------------------------------------------------------------- Rule 144 2.9 - -------------------------------------------------------------------- Securities Act 2.9 - -------------------------------------------------------------------- Tax 3.15(b) - -------------------------------------------------------------------- Tax Returns 3.15(b) - -------------------------------------------------------------------- Third Party Claims 7.5(a)(i) - -------------------------------------------------------------------- CTS Balance Sheet 3.9 - -------------------------------------------------------------------- CTS Financial Statements 3.7 - -------------------------------------------------------------------- CTS Indemnified Persons 7.3 - --------------------------------------------------------------------

ARTICLE 2 THE MERGER 2.1 THE MERGER. At the Effective Time and upon and subject to the terms and conditions of this Agreement, Merger Sub will be merged with and into CTS. CTS shall be the Surviving Corporation in the Merger and shall continue to be governed by the Laws of the State of Oregon, and the separate existence of Merger Sub shall cease. The Merger shall be pursuant to the provisions of, and shall be with the effects provided in, the OBCA. 2.2 EFFECTIVE TIME. Subject to the terms and conditions of this Agreement, on the Closing Date, Merger Sub and CTS will cause the Articles of Merger to be executed, delivered 5-AGREEMENT AND PLAN OF MERGER and filed as provided in the OBCA. The Merger shall become effective at the time of the filing of the Articles of Merger with the Oregon Secretary of State, Corporation Division, or at such later time as Microfield and CTS may agree and as may be set forth in the Articles of Merger. 2.3 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of Incorporation of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until amended in accordance with the OBCA. 2.4 BYLAWS OF SURVIVING CORPORATION. The Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until amended in accordance with the OBCA. 2.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The board of directors of the Surviving Corporation shall consist of one (1) director position. The following director is hereby elected and shall serve as the sole director of the Surviving Corporation to hold office as provided in the Bylaws: Kurt A. Underwood The following officers shall be the officers of the Surviving Corporation, to hold office as provided in the Bylaws: CEO/President Kurt A. Underwood CFO/Treasurer Thomas A. Sidley Senior Vice President - Services and Development Robert Hancock Vice President - Electrical Services A. Mark Walter Secretary Andrew S. Craig 2.6 CONVERSION OF CTS STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, CTS or Microfield, the CTS Shareholder of record immediately prior to the Effective Time shall be entitled to receive a total of 4,193,143 shares of Microfield Common Stock in exchange for all of the CTS Stock outstanding. The CTS Shareholder will receive the following shares of Microfield Common Stock:

- ----------------------------------------------------------------------------------------- CTS STOCK TOTAL CONVERTED ESCROWED CTS SHAREHOLDER OWNED SHARES SHARES - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- CHRISTENSON GROUP LLC 54,826,875 4,193,142 250,000 - -----------------------------------------------------------------------------------------

The Escrowed Shares will be placed in the Indemnification Escrow as provided for in Section 2.7. 6-AGREEMENT AND PLAN OF MERGER 2.7 INDEMNIFICATION ESCROW. At the Effective Time, the Velagio Shareholders, the CTS Shareholder, Microfield and the Escrow Agent shall enter into an Indemnification Escrow Agreement in the form attached as Exhibit A ("INDEMNIFICATION ESCROW AGREEMENT"). The Indemnification Escrow Agreement will require that simultaneously with the Effective Time the Velagio Shareholders will place 250,000 shares, and the CTS Shareholder will place 250,000 shares, of Microfield Common Stock (for an aggregate of 500,000 shares of Microfield Common Stock) into an escrow account for the purposes of satisfying claims arising under this Agreement or the VSI Merger Agreement. The Indemnification Escrow Agreement shall also provide the manner and method upon which claims will be satisfied by the Microfield Common Stock placed in escrow. 2.8 PROCEDURE FOR PAYMENT. (a) SURRENDER OF STOCK. From and after the Effective Time, the CTS Shareholder of record immediately prior to the Effective Time, upon surrender to Microfield or its agent designated for such purpose of any letters of transmittal or other documents as may be reasonably requested by Microfield or its agent, shall be entitled to receive one or more certificates representing the number of shares of Microfield Common Stock into which such CTS Stock shall have been converted pursuant to the provisions of Section 2.6; provided, however, that a certificate representing the escrowed shares described in Section 2.7 shall be delivered to the escrow agent and held pursuant to the Indemnification Escrow Agreement. (b) NO FRACTIONAL SHARES. No certificates or scrip evidencing fractional shares of Microfield Common Stock shall be issued in the Merger, and such fractional share interests will not entitle the owner thereof to any rights as a shareholder of Microfield. Merger Consideration to be paid to the CTS Shareholder will be rounded to the nearest whole share. (c) NO FURTHER RIGHTS IN CTS STOCK. All shares of Microfield Common Stock issued upon conversion of the CTS Stock in accordance with the terms of this Agreement shall be deemed to have been issued (and paid) in full satisfaction of all rights of the CTS Shareholder pertaining to the CTS Stock. Following the Effective Time, the CTS Shareholders shall cease to have any rights with respect to such CTS Stock except as otherwise provided in this Agreement or by law. 2.9 UNREGISTERED SHARES. The CTS Shareholder has been informed by Microfield that the Microfield Common Stock conveyed hereunder as Merger Consideration has not been registered under the Securities Act of 1933 (the "SECURITIES ACT") and that such Microfield Common Stock must be held for the time required by Rule 144 promulgated under the Securities Act ("RULE 144"), unless (i) the distribution for sale of the Microfield Common Stock has been registered under the Securities Act, (ii) a sale of the Microfield Common Stock is made in conformity with the provisions of Rule 144, or (iii) in the opinion of counsel, which opinion is reasonably acceptable to Microfield, some other exemption from registration is available with respect to any such sale, transfer or other disposition of such Microfield Common Stock. 2.10 STOCK CERTIFICATE LEGENDS. The CTS Shareholder acknowledges and understands that stock transfer instructions will be given to Microfield's transfer agent with 7-AGREEMENT AND PLAN OF MERGER respect to the Merger Consideration and that there will be placed on the certificates for such shares, or any substitution therefor, the following legend: "The securities evidenced by this certificate have not been registered under the Securities Act of 1933 (the "Act") or any applicable state law, and no interest therein may be sold, distributed, assigned, offered, pledged or otherwise transferred unless (a) there is an effective registration statement under such Act and applicable state securities laws covering any such transaction involving these securities or (b) the Company receives an opinion of legal counsel for the holder of these securities (concurred in by legal counsel for the Company) to the effect that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration." 2.11 APPOINTMENT OF REPRESENTATIVE. The Representative is hereby appointed as representative of the CTS Shareholder for purposes of this Agreement. The CTS Shareholder's approval of this Agreement shall include confirmation of the authority of the Representative. 2.12 REGISTRATION RIGHTS. Major Shareholders will receive the following registration rights as set forth more specifically in the Registration Rights Agreement attached hereto as Exhibit B: (a) For a period of five (5) years following the Closing Date, unlimited piggyback registration rights for all shares owned by the Major Shareholders; (b) If during the two (2) years following the Closing Date, piggyback registration rights become available to the Major Shareholders, but a Major Shareholder is unable to register fifty percent or more of the Major Shareholder's Microfield Common Stock such shareholder elects to register at the date the piggyback registration rights become available, in spite of the Major Shareholder's election to register the shares through the piggyback rights registration, then the Major Shareholder will have two (2) demand registration rights as to those shares remaining unregistered contrary to the Major Shareholder's election on the date the piggyback registration rights become effective. Such Demand Registration Rights shall be available beginning two (2) years after the Closing Date and ending five (5) years after the Closing Date. Such demand registration rights shall apply only to stock not registered contrary to the election of each Major Shareholder and may be exercised if the registration is intended to result in aggregate gross proceeds of the offering, net of underwriting expenses, of at least Five Hundred Thousand Dollars ($500,000.00). 2.13 RESERVED. 8-AGREEMENT AND PLAN OF MERGER ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF CTS AND CTS SHAREHOLDER CTS and the CTS Shareholder represent and warrant to Microfield and Merger Sub that, except as set forth in the correspondingly numbered sections of the Disclosure Schedules: 3.1 ORGANIZATION. CTS is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. CTS is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not reasonably be expected to have a Material Adverse Effect. CTS has delivered to Microfield accurate and complete copies of its Articles of Incorporation and Bylaws, as currently in effect. 3.2 CAPITALIZATION. As of the Date of Closing, the CTS Stock and the holders thereof are as set forth in Section 3.2 of the Disclosure Schedules. As of the Closing Date, all issued and outstanding CTS Stock will be duly authorized, validly issued, fully paid and non-assessable. Section 3.2 of the Disclosure Schedules sets forth the name of the holder and the exercise price of all options and warrants to purchase CTS Stock. Except as disclosed in Section 3.2 of the Disclosure Schedules, there are no outstanding rights, subscriptions, warrants, puts, calls, unsatisfied preemptive rights, options or other agreements of any kind relating to any of the outstanding or unissued CTS Stock or any other security of CTS, and there is no authorized or outstanding security of any kind convertible into or exchangeable for any CTS Stock or other security. There are no obligations, contingent or otherwise, of CTS to repurchase, redeem or otherwise acquire any CTS Stock or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity. 3.3 SUBSIDIARIES. CTS has no Subsidiaries. 3.4 AUTHORIZATION; BINDING AGREEMENT. CTS has all requisite corporate power and authority to execute and deliver this Agreement and to complete the transactions contemplated hereby. The execution and delivery of this Agreement and the completion of the transactions contemplated hereby, including, but not limited to, the Merger, have been duly and validly authorized by CTS's board of directors, and no other corporate proceedings on the part of CTS are necessary to authorize the execution and delivery of this Agreement or to complete the transactions contemplated hereby (other than adoption of this Agreement by the CTS Shareholders in accordance with the OBCA and the Articles of Incorporation and Bylaws of CTS). This Agreement has been duly and validly executed and delivered by CTS and constitutes the legal, valid and binding agreement of CTS, enforceable against CTS in accordance with its terms, except to the extent that enforceability thereof may be limited by the Enforceability Exceptions. 3.5 GOVERNMENTAL APPROVALS. No consent, approval, waiver or authorization of, notice to or declaration or filing with ("CONSENT") any Governmental Authority, on the part of CTS is required in connection with the execution or delivery by CTS of this Agreement or the 9-AGREEMENT AND PLAN OF MERGER completion by CTS of the transactions contemplated hereby other than (a) the filing of the Articles of Merger with the Secretary of State of Oregon, Corporation Division, in accordance with the OBCA, and (b) those Consents that, if they were not obtained or made, would not reasonably be expected to have a Material Adverse Effect. 3.6 NO VIOLATIONS. The execution and delivery of this Agreement, the completion of the transactions contemplated hereby and compliance by CTS with any of the provisions hereof will not (a) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws of CTS, (b) require any Consent under or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of, any Material Contract, (c) result in the creation or imposition of any Lien upon any of the assets of CTS or (d) subject to obtaining the Consents from Governmental Authorities referred to in Section 3.5, violate any applicable provision of any Law to which CTS or its assets or properties are subject, except, in the case of each of clauses (b), (c) and (d) above, for any deviations from the foregoing that would not reasonably be expected to have a Material Adverse Effect. 3.7 CTS FINANCIAL STATEMENTS. CTS has delivered to Microfield the financial statements for the years ending December 31, 2000, 2001 and 2002, and for the six (6) months ended June 30, 2003 (the "CTS FINANCIAL STATEMENTS"). The CTS Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied, and they present fairly, in all material respects, the financial position of CTS as at the dates thereof and the results of its operations and cash flows for the periods then ended, subject to any adjustments described therein, except that unaudited financial statements do not contain footnotes. 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section 3.8 of the Disclosure Schedules, from the date of issuance of each of the CTS Financial Statements through the date of this Agreement, there has not been: (a) any event that has had or would reasonably be expected to have a Material Adverse Effect; (b) any declaration, payment or setting aside for payment of any dividend or other distribution or any redemption or other acquisition of any stock or securities of CTS by CTS; (c) any material damage or loss to any material asset or property, whether or not covered by insurance; (d) any change by CTS in accounting principles or practices; (e) any material revaluation by CTS of any of its assets, including writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; (f) any sale of a material amount of property of CTS, except in the ordinary course of business; (g) any payments to CTS employees or service providers outside of CTS's regular course of business; or (h) any other action or event, involving an amount exceeding $5,000 that would have required the consent of Microfield pursuant to Section 5.1 had such action or event occurred after the date of this Agreement. 3.9 NO UNDISCLOSED LIABILITIES. Except as set forth in Section 3.9 of the Disclosure Schedules, CTS has no liabilities (absolute, accrued, contingent or other), except liabilities (a) adequately provided for in CTS Financial Statements; or (b) incurred in the ordinary course of business on or before the dates of the CTS Financial Statements and not required under GAAP 10-AGREEMENT AND PLAN OF MERGER to be reflected on the Balance Sheet, (c) incurred since the issuing of the CTS Financial Statements in the ordinary course of business consistent with past practice, (d) incurred in connection with this Agreement or (e) that would not reasonably be expected to have a Material Adverse Effect. Attached in Section 3.9 of the Disclosure Schedule is a list of all of the outstanding liabilities of CTS greater than $50,000 as of the date of this Agreement. Except as disclosed in section 3.9(b) of the Disclosure Schedules, CTS has no debt or liabilities owed to any creditor, excluding current trade payables incurred in the ordinary course of business. 3.10 COMPLIANCE WITH LAWS. The business of CTS has been operated in compliance with all Laws applicable thereto, except for any non-compliance that would not reasonably be expected to have a Material Adverse Effect. 3.11 PERMITS. Section 3.11 of the Disclosure Schedules contains a complete and accurate list of each material Permit that is held by CTS or that otherwise relates to the business of, or to any of the assets owned or used by, CTS. Each Permit is valid and in full force and effect. Except as set forth in Section 3.11 of the Disclosure Schedules, (a) CTS has all Permits required in connection with the operation of its business, (b) CTS is not in violation of any Permit and (c) no proceedings are pending or, to the Knowledge of CTS, threatened, to revoke or limit any Permit, except, in the case of each of clauses (a) and (b), where the absence or violation would not reasonably be expected to have a Material Adverse Effect. 3.12 LITIGATION. There is no suit, action or proceeding ("LITIGATION") pending or, to the Knowledge of CTS, threatened against CTS, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority outstanding against CTS. 3.13 CONTRACTS. Section 3.13 of the Disclosure Schedules sets forth, as of the date hereof, a list of Material Contracts to which CTS is a party or by which its properties or assets is bound that are outside the ordinary course of the business of CTS. CTS is not a party to any agreements to acquire in the future the capital stock or substantially all the assets of another Person. Except as disclosed in Section 3.13 of the Disclosure Schedules, to the Knowledge of CTS all the Material Contracts are valid and binding and are in full force and effect and enforceable against CTS in accordance with their respective terms, subject to the Enforceability Exceptions, and CTS is not in violation or breach of or default under any Material Contract, except where the failure to be in full force and effect or where such violation or breach would not reasonably be expected to have a Material Adverse Effect. To the Knowledge of CTS, no party is in default, violation or breach of any Material Contract where such violation or breach would reasonably be expected to have a Material Adverse Effect. 3.14 EMPLOYEE BENEFIT PLANS. (a) Section 3.14(a) of the Disclosure Schedules lists all employee pension benefit plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA")), all employee welfare benefit plans (as defined in Section 3(1) of ERISA) and all other bonus, option, membership purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, programs or arrangements, and any employment, executive compensation or severance agreements, written or 11-AGREEMENT AND PLAN OF MERGER otherwise, as amended, modified or supplemented, for the benefit of, or relating to, any former or current employee, officer or consultant who is an individual or an individual doing business in a corporate form (or any of their beneficiaries) of CTS or any other entity (whether or not incorporated) or which is under common control (an "ERISA AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) or (b) of ERISA, or any CTS Subsidiary, with respect to which CTS has or could have any current (actual or contingent) material liability (together for purposes of this Section 3.14 and Section 4.14, "EMPLOYEE PLANS"). Prior to the date of this Agreement, CTS has provided or made available to Microfield copies of (i) each such written Employee Plan (or a written description of any Employee Plan which is not written) and all related trust agreements, insurance and other contracts (including policies), summary plan descriptions, summaries of material modifications and any material communications to plan participants, (ii) the three (3) most recent annual reports on Form 5500 series, with accompanying schedules and attachments, filed with respect to each Employee Plan required to make such a filing, and (iii) the most recent favorable determination letters issued for each Employee Plan and related trust which is intended to qualify under Section 401(a) of the Code (and, if an application for such determination is pending, a copy of the application for such determination). (b) (i) None of the Employee Plans promises or provides retiree medical or other retiree welfare benefits to any Person (other than in accordance with Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA and none of the Employee Plans is subject to Title IV of ERISA or Section 412 of the Code); (ii) neither CTS nor any ERISA Affiliate has ever contributed to a "MULTI-EMPLOYER PLAN" as such term is defined in Section 3(37) of ERISA; (iii) to the Knowledge of CTS, no "PARTY IN INTEREST" or "DISQUALIFIED PERSON" (as defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time engaged in a transaction with respect to any Employee Plan that could subject CTS or any ERISA Affiliate, directly or indirectly, to a tax, penalty or other liability for prohibited transactions under ERISA or Section 4975 of the Code, except for any such tax, penalty or liability that would not reasonably be expected to result in a Material Adverse Effect; (iv) to the Knowledge of CTS, no fiduciary of any Employee Plan has breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA, except where such breach would not reasonably be expected to result in a Material Adverse Effect; (v) all Employee Plans have been established and maintained substantially in accordance with their terms and have operated in compliance with the requirements prescribed by any and all statutes (including ERISA and the Code), orders, or governmental rules and regulations currently in effect with respect thereto (including all applicable requirements for notification to participants or the Department of Labor, the Internal Revenue Service (the "IRS") or the Secretary of the Treasury), except where failure to do so would not reasonably be expected to result in a Material Adverse Effect; and CTS and each CTS Subsidiary have performed all obligations required to be performed by them under, are not in default under or in violation of any Employee Plan except where failure to do so would not reasonably be expected to result in a Material Adverse Effect, and have no Knowledge of any default or violation by any other party to, any of the Employee Plans; (vi) each Employee Plan which is intended to be qualified under Sections 401 and 501 of the Code is the subject of a favorable determination letter from the IRS, and to the Knowledge of CTS nothing has occurred that may reasonably be expected to impair such determination; (vii) all contributions required to be made with respect to any Employee Plan pursuant to the terms of the Employee Plan have 12-AGREEMENT AND PLAN OF MERGER been made on or before their due dates, including due dates with respect to employee deferrals; and (viii) there are no complaints, charges or claims against CTS pending or to CTS's Knowledge threatened to be brought by or filed with any Governmental Authority based on, arising out of, in connection with or otherwise relating to the classification of any individual by CTS as an independent contractor or "LEASED EMPLOYEE" (within the meaning of Section 414(n) of the Code) rather than as an employee. (c) Section 3.14(c) of the Disclosure Schedules sets forth a true and complete list of each current or former employee, officer or director of CTS or any of its Subsidiaries who holds (i) any option to purchase CTS Stock as of the date hereof, together with the number of shares of CTS Stock subject to such option, the option price of such option (to the extent determined as of the date hereof), whether such option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code (an "ISO"), and the expiration date of such option; (ii) any CTS Stock that is restricted as a result of an agreement with or equity participation plan of CTS; and (iii) any other right, directly or indirectly, to receive CTS Stock, except as otherwise disclosed in Section 3.14 of the Disclosure Schedules, together with the percentage of CTS Stock subject to such right. Section 3.14(c) of the Disclosure Schedules also sets forth the total number of any such ISO's and any such nonqualified options and other such rights. (d) Unless otherwise disclosed in Section 3.14(a) of the Disclosure Schedules, Section 3.14(d) of the Disclosure Schedules sets forth a true and complete list of (i) all employment agreements with officers of CTS or any of its Subsidiaries; (ii) all agreements with consultants who are individuals obligating CTS or any of its Subsidiaries to make annual cash payments in an amount exceeding $10,000; (iii) all agreements that individually or in the aggregate are or could be material with respect to the services of independent contractors or leased employees who are individuals or individuals doing business in a corporate form whether or not they participate in any of the Employee Plans; (iv) all officers of CTS or any of its Subsidiaries who have executed a non-competition agreement with CTS or any of its Subsidiaries; (v) all severance agreements, programs and policies of CTS or any of its Subsidiaries with or relating to its employees, in each case with outstanding commitments exceeding $25,000, excluding programs and policies required to be maintained by Law; and (vi) all plans, programs, agreements and other arrangements of CTS that contain change in control provisions. (e) (i) Except as set forth in Section 3.14(e) of the Disclosure Schedules, no Employee Plan is an employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in CTS Stock; and (ii) the completion of the transactions contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee except as disclosed in Section 3.14(e) of the Disclosure Schedules or except where such increase or acceleration would not reasonably be expected to result in a Material Adverse Effect. (f) Except as set forth in Section 3.14(f) of the Disclosure Schedules, CTS maintains no Employee Plan covering non-U.S. employees. 13-AGREEMENT AND PLAN OF MERGER 3.15 TAXES AND TAX RETURNS. (a) CTS has timely filed, or caused to be timely filed, all material Tax Returns required to be filed by it, and all such Tax Returns are true, complete and correct in all material respects, and has timely paid, collected or withheld, or caused to be paid, collected or withheld, all material amounts of Taxes required to be paid, collected or withheld, other than such Taxes for which adequate reserves in CTS Financial Statements have been established and which are being contested in good faith and as identified in Section 3.15 of the Disclosure Schedules. Except as set forth in Section 3.15 of the Disclosure Schedules, there are no material claims or assessments pending against CTS (or the CTS Shareholder with respect to CTS) for any alleged deficiency in any Tax, and CTS has not been notified in writing of any proposed Tax claims or assessments against CTS (or the CTS Shareholder with respect to CTS) (other than in each case, claims or assessments for which adequate reserves in the Financial Statements have been established and which are being contested in good faith and as identified in Section 3.15 of the Disclosure Schedules or claims or assessments which are immaterial in amount). Neither CTS nor the CTS Shareholder with respect to CTS has executed any waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by CTS (or the CTS Shareholder with respect to CTS) for any extension of time within which to file any material Tax Return or within which to pay any material amounts of Taxes shown to be due on any Tax Return. There are no Liens for material amounts of Taxes on the assets of CTS (or the CTS Shareholder with respect to CTS) except for statutory liens for current Taxes not yet due and payable. There are no outstanding powers of attorney enabling any party to represent CTS (or the CTS Shareholder with respect to CTS) or any of its Subsidiaries with respect to Tax matters. (b) For purposes of this Agreement, the term "TAX" means any federal, state, local, foreign or provincial income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, alternative or add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty imposed by any Governmental Authority. The term "TAX RETURN" means a report, return or other information (including any attached schedules or any amendments to such report, return or other information) supplied to or filed with or required to be supplied to or filed with a governmental entity with respect to any Tax, including an information return, claim for refund, amended return or declaration or estimated Tax. (c) Except as set forth in Section 3.15 of the Disclosure Schedules, (i) CTS has been a corporation for federal and state income tax purposes at all times since its inception; (ii) CTS has not been included in a combined, consolidated or unitary Tax Return and other than with respect to CTS, CTS is not currently liable for Taxes of any other Person, or is currently under any contractual obligation to indemnify any Person with respect to Taxes (except for customary agreements to indemnify lenders or security holders in respect of taxes other than income taxes), or is a party to any tax sharing agreement or any other agreement providing for payments by CTS with respect to Taxes; (iii) CTS is not a party to any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income tax 14-AGREEMENT AND PLAN OF MERGER purposes; (iv) CTS has not entered into any sale leaseback or any leveraged lease transaction that fails to satisfy the requirements of Revenue Procedure 75-21 (or similar provisions of foreign law); (v) CTS has not agreed nor is required, as a result of a change in method of accounting or otherwise, to include any adjustment under Section 481 of the Code (or any corresponding provision of state, local or foreign law) in taxable income; (vi) CTS is not a party to any agreement, contract, arrangement or plan that would result (taking into account the transactions contemplated by this Agreement), separately or in the aggregate, in the payment of any "EXCESS PARACHUTE PAYMENTS" within the meaning of Section 280G of the Code; (vii) CTS is not liable with respect to any indebtedness the interest of which is not deductible for applicable federal, foreign, state or local income tax purposes; (viii) CTS is not a "CONSENTING CORPORATION" under Section 341(f) of the Code or any corresponding provision of state, local or foreign law; (ix) CTS has complied with all applicable laws, rules, and regulations relating to the withholding and payment of Taxes except where the amount of taxes involved is not material; and (x) none of the assets owned by CTS is property that is required to be treated as owned by any other Person pursuant to Section 168(g)(8) of the Internal Revenue Code of 1954, as amended, as in effect immediately prior to the enactment of the Tax Reform Act of 1986, or is "TAX-EXEMPT USE PROPERTY" within the meaning of Section 168(h) of the Code. 3.16 INTELLECTUAL PROPERTY. (a) Section 3.16(a) of the Disclosure Schedules sets forth a list of (i) all patents and patent applications owned by CTS worldwide; (ii) all trademark and service mark registrations and all trademark and service mark applications, material common law trademarks, material trade dress and material slogans, and all trade names owned by CTS worldwide; (iii) all copyright registrations and copyright applications owned by CTS worldwide; and (iv) all licenses in which CTS is (A) a licensor with respect to any of the patents, trademarks, service marks, trade names or copyrights listed in Section 3.16 of the Disclosure Schedules or (B) a licensee of any other Person's patents, trade names, trademarks, service marks or copyrights except for any licenses of software programs that are commercially available "OFF THE SHELF." (b) CTS owns, or is licensed or otherwise possesses legal enforceable rights to use, all patents, trademarks, trade names, service marks, trade dress, slogans, copyrights and any applications therefor, technology, know-how, trade secrets, computer software programs or applications, domain names and tangible or intangible proprietary information or materials that are used in the respective businesses of CTS as currently conducted (the "INTELLECTUAL PROPERTY RIGHTS"), except for any such failures to own, be licensed or possess that would not reasonably be expected to have a Material Adverse Effect. (c) CTS has made all necessary filings and recordations for the patents, patent applications, trademark and service mark registrations, trademark and service mark applications, copyright registrations and copyright applications set forth in Section 3.16(a) of the Disclosure Schedules, except where the failure to make such filings or recordations would not reasonably be expected to have a Material Adverse Effect. There are not currently pending, and to the Knowledge of CTS there are no valid grounds for, any bona fide claims (i) that the business of CTS infringes on any copyright, patent, trademark, service mark or trade secret; (ii) against the use by CTS of any trademarks, trade names, trade secrets, copyrights, patents, technology, know- 15-AGREEMENT AND PLAN OF MERGER how or computer software programs and applications used in the business of CTS as currently conducted or as proposed to be conducted; (iii) challenging the exclusive ownership, validity or effectiveness of any of Intellectual Property Rights; or (iv) challenging the license or legally enforceable right to use of any third-party patents, trademarks, service marks and copyrights by CTS, except, in the case of each of clauses (i), (ii), (iii) and (iv) above, for matters that, if determined adversely to CTS, would not reasonably be expected to have a Material Adverse Effect. (d) Except as set forth in Section 3.16 of the Disclosure Schedules, to the Knowledge of CTS, there is no material unauthorized use, infringement or misappropriation of any of Intellectual Property Rights by any third party, including any employee or former employee of CTS. (e) Except as set forth in Section 3.16 of the Disclosure Schedules, there are no valid royalty agreements, license agreements (except for any license implied by the sale or products) or similar arrangements with respect to the Intellectual Property. 3.17 EMPLOYEE AND LABOR MATTERS. (a) Section 3.17(a) of the Disclosure Schedules sets forth a list of all employees of CTS. (b) Except as set forth in Section 3.17 of the Disclosure Schedules, (i) there are no controversies pending or, to the Knowledge of CTS, threatened, between CTS and any of its employees, which controversies would reasonably be expected to have a Material Adverse Effect; (ii) CTS is not a party to any collective bargaining agreement or other labor union contract applicable to Persons employed by CTS, nor, as of the date of this Agreement, does CTS know of any activities or proceedings of any labor union to organize any such employees; and (iii) CTS has no Knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of CTS that would reasonably be expected to have a Material Adverse Effect. 3.18 LIMITATION ON BUSINESS CONDUCT. CTS is not a party to, nor has any obligation under, any contract or agreement, written or oral, that contains any covenants currently or prospectively limiting in any material respect the freedom of CTS to engage in any line of business or to compete with any entity. 3.19 TITLE TO PROPERTY. Except as set forth in Section 3.19 of the Disclosure Schedules, CTS owns the properties and assets that it purports to own free and clear of all Liens, except for Liens that arise in the ordinary course of business and do not materially impair CTS's ownership or use of such properties or assets, Liens for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which reserves have been established in accordance with GAAP and Liens securing obligations under CTS's credit agreements, loan agreements and equipment leases. Except as set forth in Schedule 3.19 of the Disclosure Schedules, with respect to the property and assets it leases, CTS, and to the best of CTS's Knowledge, each of the other parties thereto, is in material compliance with such leases, and 16-AGREEMENT AND PLAN OF MERGER CTS holds a valid leasehold interest free of any Liens, except those referred to above. The rights, properties and assets presently owned, leased or licensed by CTS include all rights, properties and assets necessary to permit CTS to conduct its business in all material respects in the same manner as its businesses have been conducted prior to the date hereof. 3.20 OWNED AND LEASED PREMISES. Each of the buildings, structures and premises owned or leased by CTS is in reasonably good repair and operating condition. 3.21 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.21 of the Disclosure Schedules: (a) CTS is in material compliance with the Environmental Laws, which compliance includes the possession by CTS of all material Permits and governmental authorizations required under applicable Environmental Laws, and compliance in all material respects with the terms and conditions thereof, except in each case where such non-compliance would not reasonably be expected to have a Material Adverse Effect. CTS has not received any written communication from a Governmental Authority that alleges that it is not in such material compliance except where such non-compliance would not reasonably be expected to have a Material Adverse Effect. (b) There are no Environmental Claims, including claims based on "ARRANGER LIABILITY," pending or, to the Knowledge of CTS, threatened against CTS or to the Knowledge of CTS, pending or threatened against any Person or entity whose liability for any Environmental Claim CTS has to the Knowledge of CTS retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (c) To the Knowledge of CTS, there are no past or present actions, inactions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that would form the basis of any Environmental Claim against CTS or against any Person whose liability for any Environmental Claim CTS has retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (d) CTS is in compliance in all material respects with Environmental Laws as they relate to (i) any on-site or off-site locations where to CTS's Knowledge, CTS has stored, disposed or arranged for the disposal of Materials of Environmental Concern for itself (but not on behalf of others) or (ii) any underground storage tanks located on property owned or leased by CTS of which CTS has Knowledge. (e) For purposes of this Agreement: (i) "ENVIRONMENTAL CLAIM" means any written claim, action, cause of action, investigation or written notice by any Person alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural 17-AGREEMENT AND PLAN OF MERGER resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (A) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned or operated by CTS, or (B) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. (ii) "ENVIRONMENTAL LAWS" means all Federal, state, local and foreign laws or regulations relating to pollution or protection of human health and the environment (including ambient air, surface water, ground water, land surface or sub-surface strata), including laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. (iii) "MATERIAL OF ENVIRONMENTAL CONCERN" means chemicals, pollutants, contaminants, hazardous materials, hazardous substances and hazardous wastes, toxic substances, petroleum and petroleum products that are regulated under the Environmental Laws. 3.22 INSURANCE. Section 3.22 of the Disclosure Schedules contains a complete and accurate list of all fire, liability, worker's compensation and other forms of insurance insuring CTS, and its respective officers and directors, assets and operations. The insurance polices maintained by CTS are with reputable insurance carriers and have no premium delinquencies. 3.23 PRODUCT LIABILITY AND RECALLS. (a) Except as disclosed in Section 3.23 of the Disclosure Schedules, to CTS's Knowledge, there is no claim, pending or overtly threatened, against CTS for injury to Person or property of employees or any third parties suffered as a result of the sale of any product or performance of any service by CTS, including claims arising out of the defective or unsafe nature of its products or services, that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (b) Except as disclosed in Section 3.23 of the Disclosure Schedules, there is no pending or, to the Knowledge of CTS, overtly threatened recall or investigation of any product sold by CTS, which recall or investigation would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. 3.24 CUSTOMERS. Section 3.24 of the Disclosure Schedules sets forth a list of CTS's ten (10) largest customers (detailed, in the case of government agencies, by separate government agency) in terms of gross sales for the twelve-month period ended June 30, 2003. Except as set forth in Section 3.24 of the Disclosure Schedules, since June 30, 2003, there have not been any changes in the business relationships of CTS with any of the customers named therein that would constitute a Material Adverse Effect. Except as set forth in Section 3.24 of the Disclosure Schedules, no customer of CTS, on a combined basis, accounted for more than five percent (5%) of the revenues of CTS for the twelve month period ended June 30, 2003. 18-AGREEMENT AND PLAN OF MERGER 3.25 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section 3.25 of the Disclosure Schedules, no event has occurred that would be required to be reported, if CTS were a reporting company under Section 13 of the Securities Exchange Act of 1934, pursuant to Item 404 of Regulation S-B promulgated by the Securities and Exchange Commission (without regard to the $60,000 threshold contained in Item 404). 3.26 FULL DISCLOSURE. No statement contained in any certificate or schedule, including, without limitation, the Disclosure Schedules, furnished or to be furnished by CTS to Microfield or Merger Sub in, or pursuant to the provisions of, this Agreement contains or shall contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in the light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER SUB Microfield and Merger Sub jointly and severally represent and warrant to CTS that, except as set forth in the correspondingly numbered sections of the Disclosure Schedules: 4.1 ORGANIZATION AND GOOD STANDING. Each of Microfield and Merger Sub is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. 4.2 CAPITALIZATION. The authorized capital stock of Microfield consists of (a) 25,000,000 shares of Microfield Common Stock and (b) 10,000,000 shares of preferred stock (the "PREFERRED SHARES"). As of July 17, 2003, (i) 8,386,285 shares of Microfield Common Stock were issued and outstanding, (ii) no shares of Preferred Shares were issued and outstanding, (iii) 261,188 shares of Microfield Common Stock were reserved for future issuance pursuant to outstanding options to purchase Microfield Common Stock, (iv) 650,000 shares of Microfield Common Stock are available for issuance pursuant to the 1995 Stock Option Agreement, as amended; and (v) 2,197,308 shares of Microfield Common Stock were reserved for future issuance upon exercise of warrants to purchase Microfield Common Stock. No other capital stock of Microfield is authorized or issued. Microfield has agreed to issue shares of Microfield Common Stock pursuant to the Common Stock Purchase Agreement. The shares of Microfield Common Stock to be issued to the CTS Shareholder in the Merger will be duly authorized, validly issued, fully paid and nonassessable. 4.3 SUBSIDIARIES. Innovative Safety Technologies, Inc., an Oregon corporation, Merger Sub and VSI Acquisition Co. are wholly owned subsidiaries of Microfield. Microfield has no other subsidiaries. 4.4 AUTHORIZATION; BINDING AGREEMENT. Microfield and Merger Sub have all requisite corporate power and authority to execute and deliver this Agreement and to complete the transactions contemplated hereby. The execution and delivery of this Agreement and the completion of the transactions contemplated hereby, including, but not limited to, the Merger, have been duly and validly authorized by the respective boards of directors of Microfield and 19-AGREEMENT AND PLAN OF MERGER Merger Sub, and no other corporate proceedings on the part of Microfield or Merger Sub are necessary to authorize the execution and delivery of this Agreement or to complete the transactions contemplated hereby (other than the requisite approval by the sole shareholder of Merger Sub of this Agreement and the Merger). This Agreement has been duly and validly executed and delivered by each of Microfield and Merger Sub and constitutes the legal, valid and binding agreement of Microfield and Merger Sub, enforceable against each of Microfield and Merger Sub in accordance with its terms, subject to the Enforceability Exceptions. 4.5 GOVERNMENTAL APPROVALS. No Consent from or with any Governmental Authority on the part of Microfield or Merger Sub is required in connection with the execution or delivery by Microfield and Merger Sub of this Agreement or the completion by Microfield and Merger Sub of the transactions contemplated hereby other than (a) the filing of the Articles of Merger with the Secretary of State of Oregon in accordance with the OBCA, and (b) those Consents that, if they were not obtained or made, would not reasonably be expected to have a Material Adverse Effect. 4.6 NO VIOLATIONS. The execution and delivery of this Agreement, the completion of the transactions contemplated hereby and compliance by Microfield or Merger Sub with any of the provisions hereof will not (a) conflict with or result in any breach of any provision of the Articles of Incorporation and Bylaws of Microfield or other similar documents of any Subsidiary of Microfield, or (b) require any Consent under or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of, any material note, bond, mortgage, indenture, contract, lease, license, agreement or instrument to which Microfield or any Subsidiary of Microfield is a party or by which any of them or any of their respective assets or property is subject, except in any such case for any such conflicts, violations, breaches, defaults or other occurrences that would not prevent or delay completion of the Merger, or otherwise materially and adversely affect the ability of Microfield or Merger Sub to perform their respective obligations under this Agreement. 4.7 LITIGATION. Except as disclosed in Section 4.7 of the Disclosure Schedules, there is no Litigation pending or, to the Knowledge of Microfield, threatened against Microfield or any of its Subsidiaries which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority outstanding against Microfield or any of its Subsidiaries which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 4.8 SEC REPORTS AND FINANCIAL STATEMENTS. Microfield has furnished CTS and the CTS Shareholder with complete copies of all registration statements, reports and proxy statements, including amendments thereto, filed with the SEC since December 31, 2000, and prior to the date of this Agreement (collectively, the "MICROFIELD SEC REPORTS"). Each of the Microfield SEC Reports, as of the date filed, complied in all material respects with the applicable requirements of the Act, the Securities Exchange Act of 1934 and the rules and regulations promulgated by the Securities and Exchange Commission thereunder. 20-AGREEMENT AND PLAN OF MERGER 4.9 NO UNDISCLOSED LIABILITIES. Except as disclosed in Section 4.9 of the Disclosure Schedules and in the Microfield SEC Reports, Microfield has no liabilities (absolute, accrued, contingent or other), except liabilities (a) adequately provided for in Microfield's unaudited balance sheet (including any related notes thereto) as of June 29, 2003, (the "MICROFIELD BALANCE SHEET") (b) incurred in the ordinary course of business on or before June 29, 2003, and not required under GAAP to be reflected on the Microfield Balance Sheet, (c) incurred since June 29, 2003, in the ordinary course of business consistent with past practice, (d) incurred in connection with this Agreement or (e) that would not reasonably be expected to have a Material Adverse Effect. 4.10 TAXES AND TAX RETURNS. Except as disclosed in Section 4.10 of the Disclosure Schedules, Microfield has timely filed, or caused to be timely filed, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and correct in all material respects, and has timely paid, collected or withheld, or caused to be paid, collected or withheld, all material amounts of Taxes required to be paid, collected or withheld, other than such Taxes for which adequate reserves in the financial statements contained in the Microfield SEC Reports have been established and which are being contested in good faith. There are no material claims or assessments pending against Microfield for any alleged deficiency in any Tax, and neither Microfield nor any of its officers, directors or employees has been notified of any proposed Tax claims or assessments against Microfield. Microfield has not executed any currently effective waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by Microfield for any extension of time within which to file any Tax Return or within which to pay any material amounts of Taxes shown to be due on any Tax Return. There are no Liens for material amounts of Taxes on the assets of Microfield except for statutory liens for current Taxes not yet due and payable. There are no outstanding powers of attorney enabling any party to represent Microfield with respect to Tax matters. 4.11 COMPLIANCE WITH LAWS. The business of Microfield has been operated in compliance with all Laws applicable thereto, except for any non-compliance that would not reasonably be expected to have a Material Adverse Effect. 4.12 PERMITS. Section 4.12 of the Disclosure Schedules contains a complete and accurate list of each material Permit that is held by Microfield or that otherwise relates to the business of, or to any of the assets owned or used by, Microfield. Each Permit is valid and in full force and effect. Except as set forth in Section 4.12 of the Disclosure Schedules, (a) Microfield has all Permits required in connection with the operation of its business, (b) Microfield is not in violation of any Permit and (c) no proceedings are pending or, to the Knowledge of Microfield, threatened, to revoke or limit any Permit, except, in the case of each of clauses (a) and (b), where the absence or violation would not reasonably be expected to have a Material Adverse Effect. 21-AGREEMENT AND PLAN OF MERGER 4.13 CONTRACTS. Section 4.13 of the Disclosure Schedules sets forth, as of the date hereof, a list of the Material Contracts to which Microfield is a party or by which its properties or assets are bound that are outside the ordinary course of business. Microfield is not a party to any agreements to acquire in the future the capital stock or substantially all the assets of another Person. Except as disclosed in Section 4.13 of the Disclosure Schedules, to the Knowledge of Microfield all the Material Contracts are valid and binding and are in full force and effect and enforceable against Microfield in accordance with their respective terms, subject to the Enforceability Exceptions, and Microfield is not in violation or breach of or default under any Material Contract, except where the failure to be in full force and effect or where such violation or breach would not reasonably be expected to have a Material Adverse Effect. To the Knowledge of Microfield, no party is in default, violation or breach of any Material Contract where such violation or breach would reasonably be expected to have a Material Adverse Effect. 4.14 EMPLOYEE BENEFIT PLANS. (a) Section 4.14(a) of the Disclosure Schedules lists Microfield's Employee Plans and any ERISA Affiliate or Subsidiary. Prior to the date of this Agreement, Microfield has provided or made available to CTS copies of (i) each such written Employee Plan (or a written description of any such Employee Plan which is not written) and all related trust agreements, insurance and other contracts (including policies), summary plan descriptions, summaries of material modifications and any material communications to plan participants, (ii) the three (3) most recent annual reports on Form 5500 series, with accompanying schedules and attachments, filed with respect to each such Employee Plan required to make such a filing, and (iii) the most recent favorable determination letters issued for each such Employee Plan and related trust which is intended to qualify under Section 401(a) of the Code (and, if an application for such determination is pending, a copy of the application for such determination). (b) (i) None of the Employee Plans promises or provides retiree medical or other retiree welfare benefits to any Person (other than in accordance with Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA and none of the Employee Plans is subject to Title IV of ERISA or Section 412 of the Code); (ii) neither Microfield nor any ERISA Affiliate has ever contributed to a "MULTI-EMPLOYER PLAN" as such term is defined in Section 3(37) of ERISA; (iii) to the Knowledge of Microfield, no "PARTY IN INTEREST" or "DISQUALIFIED PERSON" (as defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time engaged in a transaction with respect to any Employee Plan that could subject Microfield or any ERISA Affiliate, directly or indirectly, to a tax, penalty or other liability for prohibited transactions under ERISA or Section 4975 of the Code, except for any such tax, penalty or liability that would not reasonably be 22-AGREEMENT AND PLAN OF MERGER expected to result in a Material Adverse Effect; (iv) to the Knowledge of Microfield, no fiduciary of any Employee Plan has breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA, except where such breach would not reasonably be expected to result in a Material Adverse Effect; (v) all Employee Plans have been established and maintained substantially in accordance with their terms and have operated in compliance with the requirements prescribed by any and all statutes (including ERISA and the Code), orders, or governmental rules and regulations currently in effect with respect thereto (including all applicable requirements for notification to participants or the Department of Labor, the IRS or the Secretary of the Treasury), except where failure to do so would not reasonably be expected to result in a Material Adverse Effect; and Microfield and each Microfield Subsidiary have performed all obligations required to be performed by them under, are not in default under or in violation of any Employee Plan except where failure to do so would not reasonably be expected to result in a Material Adverse Effect, and have no Knowledge of any default or violation by any other party to, any of the Employee Plans; (vi) each Employee Plan which is intended to be qualified under Sections 401 and 501 of the Code is the subject of a favorable determination letter from the IRS, and to the Knowledge of Microfield nothing has occurred that may reasonably be expected to impair such determination; (vii) all contributions required to be made with respect to any Employee Plan pursuant to the terms of the Employee Plan have been made on or before their due dates, including due dates with respect to employee deferrals; and (viii) there are no complaints, charges or claims against Microfield pending or to Microfield's Knowledge threatened to be brought by or filed with any Governmental Authority based on, arising out of, in connection with or otherwise relating to the classification of any individual by Microfield as an independent contractor or "LEASED EMPLOYEE" (within the meaning of Section 414(n) of the Code) rather than as an employee. (c) Section 4.14(c) of the Disclosure Schedules sets forth a true and complete list of each current or former employee, officer or director of Microfield or any of its Subsidiaries who holds (i) any option to purchase Microfield Stock as of the date hereof, together with the number of shares of Microfield Stock subject to such option, the option price of such option (to the extent determined as of the date hereof), whether such option is intended to qualify as an ISO, and the expiration date of such option; (ii) any Microfield Stock that is restricted as a result of an agreement with or equity participation plan of Microfield; and (iii) any other right, directly or indirectly, to receive Microfield Stock, except as otherwise disclosed in Section 4.14 of the Disclosure Schedules, together with the percentage of Microfield Stock subject to such right. Section 4.14(c) of the Disclosure Schedules also sets forth the total number of any such ISO's and any such nonqualified options and other such rights. (d) Unless otherwise disclosed in Section 4.14(a) of the Disclosure Schedules, Section 4.14(d) of the Disclosure Schedules sets forth a true and complete list of (i) all employment agreements with officers of Microfield or any of its Subsidiaries; (ii) all agreements with consultants who are individuals obligating Microfield or any of its Subsidiaries to make annual cash payments in an amount exceeding $10,000; (iii) all agreements that individually or in the aggregate are or could be material with respect to the services of independent contractors or leased employees who are individuals or individuals doing business in a corporate form whether or not they participate in any of the Employee Plans; (iv) all officers of Microfield or any of its Subsidiaries who have executed a non-competition agreement with Microfield or any of its Subsidiaries; (v) all severance agreements, programs and policies of Microfield or any of its Subsidiaries with or relating to its employees, in each case with outstanding commitments exceeding $25,000, excluding programs and policies required to be maintained by Law; and (vi) all plans, programs, agreements and other arrangements of Microfield that contain change in control provisions. (e) (i) Except as set forth in Section 4.14(e) of the Disclosure Schedules, no Employee Plan is an employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in Microfield Stock; and (ii) the completion of the transactions 23-AGREEMENT AND PLAN OF MERGER contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee except as disclosed in Section 4.14(e) of the Disclosure Schedules or except where such increase or acceleration would not reasonably be expected to result in a Material Adverse Effect. (f) Except as set forth in Section 4.14(f) of the Disclosure Schedules, Microfield maintains no Employee Plan covering non-U.S. employees. 4.15 INTELLECTUAL PROPERTY. (a) Section 4.15(a) of the Disclosure Schedules sets forth a list of (i) all patents and patent applications owned by Microfield worldwide; (ii) all trademark and service mark registrations and all trademark and service mark applications, material common law trademarks, material trade dress and material slogans, and all trade names owned by Microfield worldwide; (iii) all copyright registrations and copyright applications owned by Microfield worldwide; and (iv) all licenses in which Microfield is (A) a licensor with respect to any of the patents, trademarks, service marks, trade names or copyrights listed in Section 4.15 of the Disclosure Schedules or (B) a licensee of any other Person's patents, trade names, trademarks, service marks or copyrights except for any licenses of software programs that are commercially available "OFF THE SHELF." (b) Microfield owns, or is licensed or otherwise possesses legal enforceable rights to use, all Intellectual Property Rights, except for any such failures to own, be licensed or possess that would not reasonably be expected to have a Material Adverse Effect. (c) Microfield has made all necessary filings and recordations for the patents, patent applications, trademark and service mark registrations, trademark and service mark applications, copyright registrations and copyright applications set forth in Section 4.15(a) of the Disclosure Schedules, except where the failure to make such filings or recordations would not reasonably be expected to have a Material Adverse Effect. There are not currently pending, and to the Knowledge of Microfield there are no valid grounds for, any bona fide claims (i) that the business of Microfield infringes on any copyright, patent, trademark, service mark or trade secret; (ii) against the use by Microfield of any trademarks, trade names, trade secrets, copyrights, patents, technology, know-how or computer software programs and applications used in the business of Microfield as currently conducted or as proposed to be conducted; (iii) challenging the exclusive ownership, validity or effectiveness of any of Intellectual Property Rights; or (iv) challenging the license or legally enforceable right to use of any third-party patents, trademarks, service marks and copyrights by Microfield, except, in the case of each of clauses (i), (ii), (iii) and (iv) above, for matters that, if determined adversely to Microfield, would not reasonably be expected to have a Material Adverse Effect. (d) Except as set forth in Section 4.15 of the Disclosure Schedules, to the Knowledge of Microfield, there is no material unauthorized use, infringement or misappropriation of any of Intellectual Property Rights by any third party, including any employee or former employee of Microfield. 24-AGREEMENT AND PLAN OF MERGER (e) Except as set forth in Section 4.15 of the Disclosure Schedules, there are no valid royalty agreements, license agreements (except for any license implied by the sale or products) or similar arrangements with respect to the Intellectual Property. 4.16 EMPLOYEE AND LABOR MATTERS. (a) Section 4.16(a) of the Disclosure Schedules sets forth a list of all employees of Microfield. (b) Except as set forth in Section 4.16 of the Disclosure Schedules, (i) there are no controversies pending or, to the Knowledge of Microfield, threatened, between Microfield and any of its employees, which controversies would reasonably be expected to have a Material Adverse Effect; (ii) Microfield is not a party to any collective bargaining agreement or other labor union contract applicable to Persons employed by Microfield, nor, as of the date of this Agreement, does Microfield know of any activities or proceedings of any labor union to organize any such employees; and (iii) Microfield has no Knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of Microfield that would reasonably be expected to have a Material Adverse Effect. 4.17 TITLE TO PROPERTY. Except as set forth in Section 4.17 of the Disclosure Schedules, Microfield owns the properties and assets that it purports to own free and clear of all Liens, except for Liens that arise in the ordinary course of business and do not materially impair Microfield's ownership or use of such properties or assets, Liens for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which reserves have been established in accordance with GAAP and Liens securing obligations under Microfield's credit agreements, loan agreements and equipment leases. Except as set forth in Schedule 4.17 of the Disclosure Schedules, with respect to the property and assets it leases, Microfield, and to the best of Microfield's Knowledge, each of the other parties thereto, is in material compliance with such leases, and Microfield holds a valid leasehold interest free of any Liens, except those referred to above. The rights, properties and assets presently owned, leased or licensed by Microfield include all rights, properties and assets necessary to permit Microfield to conduct its business in all material respects in the same manner as its businesses have been conducted prior to the date hereof. 4.18 OWNED AND LEASED PREMISES. Each of the buildings, structures and premises owned or leased by Microfield is in reasonably good repair and operating condition. 4.19 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.19 of the Disclosure Schedules: (a) Microfield is in material compliance with the Environmental Laws, which compliance includes the possession by Microfield of all material Permits and governmental authorizations required under applicable Environmental Laws, and compliance in all material respects with the terms and conditions thereof, except in each case where such non-compliance would not reasonably be expected to have a Material Adverse Effect. Microfield has not received 25-AGREEMENT AND PLAN OF MERGER any written communication from a Governmental Authority that alleges that is not in such material compliance except where such non-compliance would not reasonably be expected to have a Material Adverse Effect. (b) There are no Environmental Claims, including claims based on "ARRANGER LIABILITY," pending or, to the Knowledge of Microfield, threatened against Microfield or to the Knowledge of Microfield, pending or threatened against any Person or entity whose liability for any Environmental Claim Microfield has to the Knowledge of Microfield retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (c) To the Knowledge of Microfield, there are no past or present actions, inactions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that would form the basis of any Environmental Claim against Microfield or against any Person whose liability for any Environmental Claim Microfield has retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (d) Microfield is in compliance in all material respects with Environmental Laws as they relate to (i) any on-site or off-site locations where to Microfield's Knowledge, Microfield has stored, disposed or arranged for the disposal of Materials of Environmental Concern for itself (but not on behalf of others) or (ii) any underground storage tanks located on property owned or leased by Microfield of which Microfield has Knowledge. 4.20 INSURANCE. Section 4.20 of the Disclosure Schedules contains a complete and accurate list of all fire, liability, worker's compensation and other forms of insurance insuring Microfield, and its respective officers and directors, assets and operations. The insurance polices maintained by Microfield are with reputable insurance carriers and have no premium delinquencies. 4.21 FULL DISCLOSURE. No statement contained in any certificate or schedule, including, without limitation, the Disclosure Schedules, furnished or to be furnished by Microfield to CTS in, or pursuant to the provisions of, this Agreement contains or shall contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in the light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. 4.22 NO PRIOR ACTIVITIES. Except for obligations or liabilities incurred in connection with its incorporation or organization or the negotiation and completion of this Agreement and the transactions contemplated hereby (including any financing in connection therewith), Merger Sub has not incurred any obligations or liabilities and has not engaged in any business or activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person. 26-AGREEMENT AND PLAN OF MERGER ARTICLE 5 ADDITIONAL COVENANTS OF CTS CTS covenants and agrees as follows: 5.1 CONDUCT OF BUSINESS OF CTS. (a) Unless Microfield shall otherwise consent in writing (which consent, in the case of paragraphs (iv), (v), (ix), (xi), (xii), or (xiii) below, shall not be unreasonably withheld) and except as expressly contemplated by this Agreement or in the Disclosure Schedules, during the period from the date of this Agreement to the Effective Time, (i) CTS shall conduct its business in the ordinary course and consistent with past practice, and CTS shall use its reasonable best efforts to preserve substantially intact its business organization, to keep available the services of its present officers and employees and to preserve the present commercial relationships of CTS with Persons with whom CTS does significant business and (ii) without limiting the generality of the foregoing, CTS will not: (i) Amend or propose to amend its Articles of Incorporation or Bylaws (or similar organizational documents); (ii) Authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any equity interests in CTS, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any equity interests in or other securities of CTS, including, but not limited to, any securities convertible into or exchangeable for equity interests in CTS; (iii) Split, combine or reclassify any of its Stock or declare, pay or set aside any dividend or other distribution (whether in cash, equity interests or property or any combination thereof) in respect of its Stock, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any of its equity interests or other securities; (iv) Create or incur any indebtedness for borrowed money in excess of $5,000 or issue any debt securities or make any loans or advances, outside the ordinary course of business; (v) Sell, pledge, dispose of or encumber any assets of CTS, outside the ordinary course of business; (vi) Authorize any capital expenditures or purchases of fixed assets in excess of $5,000, outside the ordinary course of business; (vii) Assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances; (viii) Voluntarily incur any material liability or obligation (absolute, contingent or otherwise) in excess of $5,000, outside the ordinary course of business. 27-AGREEMENT AND PLAN OF MERGER (ix) Increase in any manner the compensation of any of its officers or employees or enter into, establish, amend or terminate any employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, deferred compensation or other compensation or benefit plan, policy, agreement, trust, fund or arrangement with, for or in respect of, any shareholder, officer, director, employee, consultant or affiliate other than, in any such case referred to above, as may be required by Law or as required pursuant to the terms of agreements in effect on the date of this Agreement; (x) Alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of CTS; (xi) Except as may be required as a result of a change in Law, change any of the accounting principles or practices used by it; (xii) Make any tax election or settle or compromise any income tax liability; (xiii) Pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or other), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the Financial Statements (or the notes thereto) of CTS or incurred in the ordinary course of business consistent with past practice; (xiv) Take, or agree in writing or otherwise to take, any of the foregoing actions or any action that would make any of the representations or warranties of CTS contained in this Agreement untrue or incorrect in any material respect at or prior to the Effective Time; or (xv) Acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof. (b) CTS shall comply with all Laws applicable to it or any of its properties, assets or business and to maintain in full force and effect all Permits necessary for such business, except in any such case for any failure so to comply or maintain that would not reasonably be expected to result in a Material Adverse Effect. 5.2 NOTIFICATION OF CERTAIN MATTERS. CTS shall give prompt notice to Microfield if any of the following occur after the date of this Agreement: (a) receipt of any notice or other communication in writing from any party alleging that the Consent of such party is or may be required in connection with the transactions contemplated by this Agreement; (b) receipt of any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (c) the occurrence of an event that would be reasonably likely (i) to have a Material Adverse Effect or (ii) to cause any condition set forth in Section 8.1 or 8.2 to be unsatisfied; or (d) the commencement or threat of any Litigation involving or affecting Velagio or CTS, or any of their respective properties or assets, or, to 28-AGREEMENT AND PLAN OF MERGER CTS's Knowledge, any employee, agent, director, officer or shareholder, in his or her capacity as such, of CTS which, if pending on the date hereof, would have been required to have been disclosed pursuant to this Agreement or which relates to the completion of the Merger. 5.3 ACCESS AND INFORMATION. Between the date of this Agreement and the Effective Time, and without intending by this Section 5.3 to limit any of the other obligations of the parties under this Agreement, CTS will give, and shall direct its accountants and legal counsel to give, Microfield and its authorized representatives (including, without limitation, its financial advisors, accountants and legal counsel), at reasonable times and without undue disruption to or interference with the normal conduct of the business and affairs of CTS, access as reasonably required in connection with the transactions provided for in this Agreement to all offices and other facilities and to all contracts, agreements, commitments, books and records of or pertaining to CTS and will furnish Microfield with such financial and operating data and other information with respect to the business and properties of CTS as Microfield may from time to time reasonably request in connection with such transactions. 5.4 SHAREHOLDER APPROVAL. As soon as practicable, CTS will take all steps necessary to duly call, give notice of, convene and hold the Special Meeting for the purpose of voting upon the Merger, this Agreement and the transactions contemplated hereby, or provide unanimous written consent of the Shareholder approving this Agreement and the transactions contemplated hereby. 5.5 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein provided, CTS agrees to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to complete and make effective as promptly as practicable the transactions contemplated by this Agreement, including, but not limited to, obtaining all Consents from Governmental Authorities and other parties required for the completion of the Merger and the transactions contemplated thereby, including without limitation all Consents required under any Material Contract. Upon the terms and subject to the conditions hereof, CTS agrees to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to satisfy the other conditions of the Closing set forth herein. 5.6 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, CTS shall not, and shall use reasonable best efforts to cause its affiliates not to, issue or cause the publication of any press release or any other announcement with respect to the Merger or the transactions contemplated hereby without the consent of Microfield, except where such release or announcement is required by applicable Law, in which case CTS, prior to making such announcement, will consult with Microfield regarding the same. 5.7 COMPLIANCE. In completing the transactions contemplated hereby, CTS shall comply with all applicable Laws. 5.8 CTS SHAREHOLDER APPROVAL. CTS and the CTS Shareholder covenant and agree to vote in favor of or consent to this Merger Agreement and the transaction contemplated herein. 29-AGREEMENT AND PLAN OF MERGER ARTICLE 6 ADDITIONAL COVENANTS OF MICROFIELD AND MERGER SUB Microfield and Merger Sub covenant and agree as follows: 6.1 CONDUCT OF BUSINESS OF MICROFIELD. (a) Unless Microfield shall otherwise consent in writing (which consent, in the case of paragraphs (ii), (iii), (iv), (v), (ix), (x), (xii), or (xiii) below, shall not be unreasonably withheld) and except as expressly contemplated by this Agreement or in the Disclosure Schedules, during the period from the date of this Agreement to the Effective Time, (i) Microfield shall conduct its business in the ordinary course and consistent with past practice, and Microfield shall use its reasonable best efforts to preserve substantially intact its business organization, to keep available the services of its present officers and employees and to preserve the present commercial relationships of Microfield with Persons with whom Microfield does significant business and (ii) without limiting the generality of the foregoing, Microfield will not: (i) Amend or propose to amend its Articles of Incorporation or Bylaws (or similar organizational documents); (ii) Authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any equity interests in Microfield, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any equity interests in or other securities of Microfield, including, but not limited to, any securities convertible into or exchangeable for equity interests in Microfield; (iii) Split, combine or reclassify any of its Stock or declare, pay or set aside any dividend or other distribution (whether in cash, equity interests or property or any combination thereof) in respect of its Stock, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any of its equity interests or other securities; (iv) Create or incur any indebtedness for borrowed money in excess of $5,000 or issue any debt securities or make any loans or advances, outside the ordinary course of business; (v) Sell, pledge, dispose of or encumber any assets of Microfield, outside the ordinary course of business; (vi) Authorize any capital expenditures or purchases of fixed assets in excess of $5,000, outside the ordinary course of business; (vii) Assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances; (viii) Voluntarily incur any material liability or obligation (absolute, contingent or otherwise) in excess of $5,000, outside the ordinary course of business; 30-AGREEMENT AND PLAN OF MERGER (ix) Increase in any manner the compensation of any of its officers or employees or enter into, establish, amend or terminate any employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, deferred compensation or other compensation or benefit plan, policy, agreement, trust, fund or arrangement with, for or in respect of, any shareholder, officer, director, employee, consultant or affiliate other than, in any such case referred to above, as may be required by Law or as required pursuant to the terms of agreements in effect on the date of this Agreement; (x) Alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of Microfield; (xi) Except as may be required as a result of a change in Law, change any of the accounting principles or practices used by it; (xii) Make any tax election or settle or compromise any income tax liability; (xiii) Pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or other), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the Financial Statements (or the notes thereto) of Microfield or incurred in the ordinary course of business consistent with past practice; (xiv) Take, or agree in writing or otherwise to take, any of the foregoing actions or any action that would make any of the representations or warranties of Microfield contained in this Agreement untrue or incorrect in any material respect at or prior to the Effective Time; or (xv) Acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof, other than the transaction contemplated in the VSI Merger Agreement. (b) Microfield shall comply with all Laws applicable to it or any of its properties, assets or business and to maintain in full force and effect all Permits necessary for such business, except in any such case for any failure so to comply or maintain that would not reasonably be expected to result in a Material Adverse Effect. 6.2 NOTIFICATION OF CERTAIN MATTERS. Microfield shall give prompt notice to CTS if any of the following occur after the date of this Agreement: (a) receipt of any notice or other communication in writing from any party alleging that the Consent of such party is or may be required in connection with the transactions contemplated by this Agreement; (b) receipt of any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (c) the occurrence of an event that would be reasonably likely (i) to have a Material Adverse Effect or (ii) to cause any condition set forth in 31-AGREEMENT AND PLAN OF MERGER Section 8.1 or 8.3 to be unsatisfied; or (d) the commencement or threat of any Litigation involving or affecting Microfield, or any of its respective properties or assets, or, to Microfield's Knowledge, any employee, agent, director, or officer, in his or her capacity as such, of Microfield which, if pending on the date hereof, would have been required to have been disclosed pursuant to this Agreement or which relates to the completion of the Merger. 6.3 ACCESS AND INFORMATION. Between the date of this Agreement and the Effective Time, and without intending by this Section 6.3 to limit any of the other obligations of the parties under this Agreement, Microfield will give, and shall direct its accountants and legal counsel to give, CTS and its authorized representatives (including, without limitation, its financial advisors, accountants and legal counsel), at reasonable times and without undue disruption to or interference with the normal conduct of the business and affairs of Microfield, access as reasonably required in connection with the transactions provided for in this Agreement to all offices and other facilities and to all contracts, agreements, commitments, books and records of or pertaining to Microfield and will furnish CTS with such financial and operating data and other information with respect to the business and properties of Microfield as CTS may from time to time reasonably request in connection with such transactions. 6.4 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein provided, Microfield and Merger Sub agree to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to complete and make effective as promptly as practicable the transactions contemplated by this Agreement, including, but not limited to, obtaining all Consents from Governmental Authorities and other third parties required for the completion of the Merger and the transactions contemplated by this Agreement, including without limitation all Consents required under any of Microfield's Material Contracts. Upon the terms and subject to the conditions hereof, Microfield and Merger Sub agree to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to satisfy the other conditions of the Closing set forth herein. 6.5 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, Microfield and Merger Sub shall not, and shall use reasonable best efforts to cause their affiliates not to, issue or cause the publication of any press release or any other announcement with respect to the Merger or the transactions contemplated by this Agreement without the consent of the Surviving Corporation (such consent not to be unreasonably withheld or delayed), except where such release or announcement is required by applicable Law, in which case Microfield, prior to making such announcement, will consult with CTS regarding the same. 6.6 COMPLIANCE. In completing the transactions contemplated by this Agreement, Microfield and Merger Sub shall comply in, and cause their Subsidiaries to comply or to be in compliance, in all material respects, with all applicable Laws. ARTICLE 7 SURVIVAL; INDEMNIFICATION 7.1 SURVIVAL. All representations, warranties, covenants and agreements made in this Agreement or in any exhibit, including but not limited to the representations and warranties 32-AGREEMENT AND PLAN OF MERGER contained in the VSI Merger Agreement, schedule, certificate or agreement delivered in accordance with this Agreement (collectively, the "RELATED DOCUMENTS"), shall survive any investigation by or on behalf of any party, the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and any termination or expiration of this Agreement. 7.2 INDEMNIFICATION BY THE CTS SHAREHOLDER. Notwithstanding any investigation by Microfield, from and after the Closing, the CTS Shareholder shall indemnify, hold harmless and, to the extent provided in Section 7.5(a), defend Microfield, its subsidiaries, shareholders, affiliates, officers, directors, employees, agents, successors and assigns (collectively, "MICROFIELD'S INDEMNIFIED PERSONS") from and against, and reimburse each of Microfield's Indemnified Persons with respect to, any and all losses, damages, liabilities, costs, and expenses, including interest from the Closing Date to the time of payment, penalties and reasonable attorney fees (collectively, "DAMAGES") incurred by any of Microfield's Indemnified Persons by reason of or arising out of or in connection with (a) any breach or inaccuracy of any representation or warranty of CTS or the CTS Shareholder made in this Agreement or any Related Document or (b) any failure by CTS or the CTS Shareholder to perform any covenant required to be performed by it pursuant to this Agreement or any Related Document. This indemnification extends to any Damages suffered by any of Microfield's Indemnified Persons, whether or not a claim is made against any of Microfield's Indemnified Persons by any third party. 7.3 INDEMNIFICATION BY MICROFIELD. Notwithstanding any investigation by CTS or the CTS Shareholder, from and after the Closing, Microfield shall indemnify, hold harmless and, to the extent provided in Section 7.5(a), defend the CTS Shareholder (collectively, "CTS INDEMNIFIED PERSONS") from and against, and reimburse each of CTS Indemnified Persons with respect to, any and all Damages incurred by any of CTS Indemnified Persons by reason of or arising out of or in connection with: (a) any breach or inaccuracy of any representation or warranty of Microfield or Merger Sub made in this Agreement or any Related Document; (b) any failure by Microfield or Merger Sub to perform any covenant required to be performed by it pursuant to this Agreement or any Related Document; or (c) any liability or obligation of CTS to any third party expressly assumed by Microfield in accordance with the terms of this Agreement. This indemnification extends to any Damages suffered by any of CTS Indemnified Persons, whether or not a claim is made against any of CTS Indemnified Persons by any third party. 7.4 LIMITS ON INDEMNIFICATION. Notwithstanding the foregoing, the liability of the CTS Shareholder and Microfield under Sections 7.2 and 7.3 above shall be subject to the following limitations: (a) CTS SHAREHOLDER LIABILITY. The liability of the CTS Shareholder pursuant to Section 7.2 is limited as follows: (i) No claim for indemnity will be effective if not made within one (1) year after the Closing Date, other than claims based upon the assertion that the CTS Shareholder had actual knowledge that a representation or warranty made by the CTS Shareholder was 33-AGREEMENT AND PLAN OF MERGER materially false when made or was made with the intent to deceive, which claims may be made at any time up to the applicable statute of limitations; (ii) The maximum aggregate amount of the liability of the CTS Shareholder is 250,000 shares of Microfield Common Stock. The 250,000 shares of Microfield Common Stock will be held in escrow as provided in Section 2.7 and the Indemnification Escrow Agreement; and (iii) The CTS Shareholder shall not have any indemnification obligation with respect to the first $500,000 of Damages incurred by Microfield's Indemnified Persons, as a group and in the aggregate, including all similar Damages incurred by Microfield's Indemnified Persons pursuant to the VSI Merger Agreement, unless Damages of Microfield's Indemnified Persons, as a group and in the aggregate, including all Damages arising pursuant to the VSI Merger Agreement equal or exceed such amount, in which case the CTS Shareholder's obligations under Section 7.2 shall include only the amount of such Damages in excess of $500,000. (b) MICROFIELD'S LIABILITY. Microfield's obligations pursuant to Section 7.3 are limited as follows: (i) No claim for indemnity will be effective if not made within one (1) year after the Closing Date, other than claims based upon the assertion that Microfield had actual knowledge that a representation or warranty made by Microfield was materially false when made or was made with the intent to deceive, which claims may be made at any time up to the applicable statute of limitations; (ii) The maximum aggregate amount of Microfield's liability calculated under both this Agreement and the VSI Merger Agreement is 250,000 shares of Microfield Common Stock. In the event that the aggregate claims of by CTS Indemnified Persons and Velagio's Indemnified Persons exceed the threshold amount set forth in Section 7.4(b)(iii), below and exceed the 250,000 shares of Microfield Common Stock the 250,000 shares shall be divided pro rata based on the CTS Indemnified Persons and Velagio's Indemnified Persons' aggregate claims; and (iii) Microfield shall not have any indemnification obligation with respect to the first $500,000 of Damages incurred by CTS Indemnified Persons and Velagio's Indemnified Persons (as defined in the VSI Merger Agreement) as a group and in the aggregate, unless Damages of Velagio's Indemnified Persons and CTS Indemnified Persons, as a group and in the aggregate, equal or exceed such amount, in which case Microfield's obligations under Section 7.3 shall include only the amount of Damages in excess of $500,000. 34-AGREEMENT AND PLAN OF MERGER 7.5 INDEMNIFICATION PROCEDURE. (a) THIRD PARTY CLAIMS. (i) Each indemnified party will, with reasonable promptness after obtaining knowledge thereof, provide the indemnifying party with written notice of all third party actions, suits, proceedings, claims, demands or assessments that may be subject to the indemnification provisions of this Article 7 (collectively, "THIRD PARTY CLAIMS"), including, in reasonable detail, the basis for the claim, the nature of Damages and a good faith estimate of the amount of Damages. (ii) The indemnifying party or, in the case where the CTS Shareholder is the indemnifying party, the Representative, shall have 15 days after receipt of the claim notice to notify the indemnified party in writing whether the indemnifying party agrees that the claim is subject to this Article 7 and, if so, whether the indemnifying party elects to undertake, conduct and control, through counsel of its choosing (subject to the consent of the indemnified party, such consent not to be withheld unreasonably), and at its sole risk and expense, the good faith settlement or defense of the Third Party Claim. (iii) If within 15 days after receipt of the claim notice the indemnifying party or, in the case where the CTS Shareholder is the indemnifying party, the Representative, notifies the indemnified party that the indemnifying party elects to undertake the good faith settlement or defense of the Third Party Claim, the indemnified party shall reasonably cooperate with the indemnifying party in connection therewith including, without limitation, by making available to the indemnifying party all relevant information material to the defense of the Third Party Claim. The indemnified party shall be entitled to participate in the settlement or defense of the Third Party Claim through counsel chosen by the indemnified party, at its expense, and to approve any proposed settlement that would impose any obligation or duty on the indemnified party, which approval may, in the sole discretion of the indemnified party, be withheld. So long as the indemnifying party is contesting the Third Party Claim in good faith and with reasonable diligence, the indemnified party shall not pay or settle the Third Party Claim. Notwithstanding the foregoing, the indemnified party shall have the right to pay or settle any Third Party Claim at any time, provided that in such event it waives any right to indemnification therefor by the indemnifying party. (iv) If the indemnifying party or, in the case where the CTS Shareholder is the indemnifying party, the Representative, does not provide notice that it elects to undertake the good faith settlement or defense of the Third Party Claim, or if the indemnifying party or, in the case where the CTS Shareholder is the indemnifying party, the Representative, fails to contest the Third Party Claim or undertake or approve settlement, in good faith and with reasonable diligence, the indemnified party shall thereafter have the right to contest, settle or compromise the Third Party Claim at its exclusive discretion, at the risk and expense of the indemnifying party and the indemnifying party will thereby waive any claim, defense or argument that the indemnified party's defense or settlement of such Third Party Claim is in any respect inadequate or unreasonable. 35-AGREEMENT AND PLAN OF MERGER (v) A party's failure to give timely notice will not constitute a defense (in part or in whole) to any claim for indemnification by such party, except if, and only to the extent that, such failure results in any material prejudice to the indemnifying party. (b) NON-THIRD PARTY CLAIMS. (i) Each indemnified party will, with reasonable promptness, deliver to the indemnifying party written notice of all claims for indemnification under this Article 7 in the form set forth in the Indemnification Escrow Agreement. (ii) The indemnifying party or, in the case where the CTS Shareholder is the indemnifying party, the Representative, shall have thirty (30) days after receipt of the claim notice to notify the indemnified party in writing whether the indemnifying party accepts liability for all or any part of the Damages described in the claim notice. If the indemnifying party or, in the case where the CTS Shareholder is the indemnifying party, the Representative, does not so notify the indemnified party the indemnifying party shall be deemed to accept liability for all the Damages described in the claim notice. (iii) A party's failure to give timely notice will not constitute a defense (in part or in whole) to any claim for indemnification by such party, except if, and only to the extent that, such failure results in any material prejudice to the indemnifying party. If there is a contradiction between the terms of this Section 7.5(b) and the terms of the Indemnification Escrow Agreement, the terms of the Indemnification Escrow Agreement shall control. 7.6 PAYMENT WITH MICROFIELD COMMON STOCK. Any Damages payable hereunder shall be by delivery of the equivalent value of Microfield Common Stock using the Microfield Stock Value calculated as of the last trading day prior to the delivery of the certificates. In the case of payment by the CTS Shareholder, such payment will be accomplished by delivery by the Escrow Agent of certificates representing shares of Microfield Common Stock together with duly executed stock powers to Mellon Investor Services, LLC, the transfer agent for Microfield Common Stock, or its successor, with instructions to transfer and deliver to Microfield a stock certificate evidencing the requisite number of shares to be transferred to Microfield or instructing that the shares be cancelled, as the case may be, with certificates representing the balance to be returned to Escrow Agent. In the case of payment by Microfield, such payment will be accomplished by the issuance and delivery of certificates representing the requisite number of shares of Microfield Common Stock to the CTS Shareholder. ARTICLE 8 CONDITIONS PRECEDENT 8.1 MERGER CONDITIONS. The respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) VSI MERGER. All of the conditions precedent to the VSI Merger of all parties shall have been satisfied or waived in writing by the appropriate party or parties, such that the VSI Merger shall close and become effective simultaneously with the Effective Time. 36-AGREEMENT AND PLAN OF MERGER (b) CTS SHAREHOLDER APPROVAL. The Merger, this Agreement and the transactions contemplated by this Agreement shall have been approved at or prior to the Effective Time by the required vote or unanimous written consent of the CTS Shareholder in accordance with the OBCA and the Articles and Bylaws of CTS. (c) NO INJUNCTION OR ACTION. No order, statute, rule, regulation, executive order, stay, decree, judgment or injunction shall have been enacted, entered, promulgated or enforced by any court or other Governmental Authority that prohibits or prevents the completion of the Merger which has not been vacated, dismissed or withdrawn prior to the Effective Time. CTS and Microfield shall use all reasonable best efforts to have any of the foregoing vacated, dismissed or withdrawn by the Effective Time. (d) EXHIBITS AND SCHEDULES. The parties to this Agreement, in their sole discretion, shall have approved and attached the Exhibits and Schedules called for in this Agreement at the Closing. 8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MICROFIELD AND MERGER SUB. The obligations of Microfield and Merger Sub to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of the following express conditions precedent: (a) COMPLIANCE WITH AGREEMENT. CTS shall have performed and complied: (i) in all respects with all of its obligations under Section 5.1; and (ii) in all respects with all of its other obligations under this Agreement that are to be performed or complied with by it prior to or on the Closing Date, except where the failure to perform or comply, individually or in the aggregate, would not or would not be reasonably likely to result in a Material Adverse Effect. (b) REPRESENTATIONS AND WARRANTIES OF CTS. The representations and warranties made by CTS in this Agreement shall be true and correct in all respects when made and as of the Closing Date with the same force and effect as though made on the Closing Date, except where the effect of any breaches of the representations and warranties of CTS made in this Agreement, individually or in the aggregate, would not be reasonably likely to result in a Material Adverse Effect. (c) NO MATERIAL ADVERSE EFFECT. During the period from the date of this Agreement to the Closing Date there shall not have occurred, and be continuing on the Closing Date, any Material Adverse Effect. (d) CLOSING CERTIFICATES. CTS shall have delivered to Microfield (a) a certificate signed on behalf of CTS by the Chief Executive Officer of CTS, dated on the Closing Date, to the effect that, to the best of such person's Knowledge, the conditions set forth in Sections 8.2(a), (b) and (c) have been satisfied; and (b) a secretary's certificate as to such CTS corporate matters in connection with the Merger as Microfield may reasonably request. 37-AGREEMENT AND PLAN OF MERGER 8.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CTS. The obligations of CTS to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of the following express conditions precedent: (a) COMPLIANCE WITH AGREEMENT. Microfield and Merger Sub shall have performed and complied in all respects with all of their obligations under this Agreement which are to be performed or complied with by them prior to or on the Closing Date, except where the failure to perform or comply, individually or in the aggregate, would not or would not be reasonably likely to result in a Microfield Material Adverse Effect. (b) REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER SUB. The representations and warranties made by Microfield and Merger Sub in this Agreement shall be true and correct in all respects when made and as of the Closing Date with the same force and effect as though such representations and warranties had been made on the Closing Date, except where the effect of any breaches of the representations and warranties of Microfield and Merger Sub made in this Agreement, individually or in the aggregate, would not or would not be reasonably likely to result in a Material Adverse Effect. (c) CLOSING CERTIFICATE. Microfield shall have delivered to CTS (i) a certificate signed on behalf of Microfield by the Chief Executive Officer of Microfield, dated the Closing Date, to the effect that, to the best of such officers' knowledge, the conditions set forth in Sections 8.3(a) and (b) of this Agreement have been satisfied; and (ii) secretary's certificates of Microfield and Merger Sub as to such corporate matters in connection with the Merger as CTS may reasonably request. (d) APPOINTMENT OF CHIEF EXECUTIVE OFFICER AND PRESIDENT. The board of directors of Microfield shall have appointed Underwood Chief Executive Officer and President of Microfield, effective immediately after the Effective Time. (e) APPOINTMENT OF CHIEF OPERATING OFFICER. The board of directors of Microfield shall have appointed Steven M. Wright Chief Operating Officer of Microfield immediately after the Effective Time. (f) BOARD OF DIRECTORS. Underwood and Robert J. Jesenik shall have been duly elected to Microfield's board of directors, effective immediately after the Effective Time. (g) UNDERWOOD EMPLOYMENT AGREEMENT. Underwood shall have executed and delivered an employment agreement with Microfield in the form attached as Exhibit C. (h) WRIGHT EMPLOYMENT AGREEMENT. Steven M. Wright shall have executed and delivered an employment agreement with Microfield in the form attached as Exhibit D. 38-AGREEMENT AND PLAN OF MERGER ARTICLE 9 TERMINATION AND ABANDONMENT 9.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the CTS Shareholder described herein: (a) By mutual written consent of Microfield and CTS; (b) By either Microfield or CTS if (i) any Governmental Authority shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the completion of the transactions contemplated by this Agreement and such order, decree or ruling or other action shall have become final and nonappealable, or (ii) the CTS Shareholders does not approve the Merger; (c) By Microfield if: (i) CTS shall have breached or failed to perform in any material respect any of its covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to CTS; (ii) Any representation or warranty of CTS shall not have been true and correct when made (without for this purpose giving effect to qualifications of materiality contained in such representation and warranty), if such failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; (iii) Any representation or warranty of CTS shall cease to be true and correct at any later date (without for this purpose giving effect to qualifications of materiality contained in such representation and warranty) as if made on such date (other than representations and warranties made as of a specified date) other than as a result of a breach or failure to perform by Microfield of any of its covenants or agreements under this Agreement if such failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; provided, however, that such representation or warranty is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to CTS; (iv) Since the date of the issuance of the CTS Financial Statements, CTS shall have suffered a Material Adverse Change, or any representation or warranty contained in the VSI Merger Agreement shall cease to be true and correct at any later date, as if made on such date. (d) By CTS if: (i) Microfield or Merger Sub shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to Microfield; 39-AGREEMENT AND PLAN OF MERGER (ii) Any representation or warranty of Microfield or Merger Sub shall not have been true and correct when made (without for this purpose giving effect to qualifications of materiality contained in such representation and warranty), if such failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; (iii) Any representation or warranty of Microfield or Merger Sub shall cease to be true and correct at any later date (without for this purpose giving effect to qualifications of materiality contained in such representation and warranty) as if made on such date (other than representations and warranties made as of a specified date) other than as a result of a breach or failure to perform by CTS of any of its covenants or agreements under this Agreement if such failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; provided, however, that such representation or warranty is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to Microfield or Merger Sub; (iv) Since June 29, 2003, Microfield shall have suffered a Material Adverse Change. (e) By either Microfield or CTS if the Merger is not completed on or before October 1, 2003, provided that the right to terminate this Agreement pursuant to this Section 9.1(e) shall not be available to any party where failure to perform any of its obligations under this Agreement results in the failure of the Merger to be completed by such time. The party desiring to terminate this Agreement pursuant to the preceding paragraphs shall give written notice of such termination to the other party in accordance with Section 10.5 hereof. 9.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article 9, this Agreement (other than Sections 9.2, 10.1, 10.3, 10.5, 10.6, 10.7, 10.8, 10.10, 10.11, 10.12, 10.14 and 10.15) shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, members, employees, agents, legal or financial advisors or other representatives); provided, however, that no such termination shall relieve any party hereto from any liability for any willful breach of this Agreement prior to termination. If this Agreement is terminated as provided herein, each party shall use all reasonable best efforts to redeliver all documents, work papers and other material (including any copies thereof) of any other party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same. ARTICLE 10 MISCELLANEOUS 10.1 CONFIDENTIALITY. (a) Unless (i) otherwise expressly provided in this Agreement, (ii) required by applicable Law, (iii) necessary to secure any required Consents as to which the other party has 40-AGREEMENT AND PLAN OF MERGER been advised or (iv) consented to in writing by Microfield and CTS, all information (whether oral or written) and documents furnished in connection herewith together with analyses, compilations, studies or other documents prepared by such party which contain or otherwise reflect such information shall be kept strictly confidential by Microfield, CTS, Merger Sub and their respective officers, directors, employees, agents, and the CTS Shareholder. Prior to any disclosure permitted pursuant to the preceding sentence, the party intending to make such disclosure shall consult with the other party regarding the nature and extent of the disclosure. Nothing contained herein shall preclude disclosures to the extent necessary to comply with obligations imposed by applicable Law. (b) In the event the transactions contemplated by this Agreement are not completed, each party shall return to the other any documents furnished by the other and all copies thereof that any of them may have made and will hold in confidence any information obtained from the other party except to the extent (i) such party is required to disclose such information by Law or such disclosure is necessary or desirable in connection with the pursuit or defense of a claim, (ii) such information was known by such party prior to such disclosure (and provided that, except with respect to information referred to in the following clause (iii), such party shall have advised the other party of such knowledge upon or promptly after its receipt of such information) or was thereafter developed or obtained by such party independent of such disclosure, or (iii) such information is or becomes generally available to the public other than by breach of this Section 10.1 (or, to such party's Knowledge, breach of a confidentiality agreement with the other party). Prior to any disclosure of information pursuant to the exception in clause (i) of the preceding sentence, the party intending to disclose the same shall so notify the party which provided the same in order that such party may seek a protective order or other appropriate remedy should it choose to do so. 10.2 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or supplemented only by a written agreement among CTS, Microfield and Merger Sub. 10.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of CTS on the one hand, or Microfield and Merger Sub on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived by Microfield on the one hand, or CTS on the other hand, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 10.3. 10.4 SURVIVAL. The respective representations, warranties, covenants and agreements of CTS and Microfield contained herein or in any certificates or other documents delivered prior to or at the Closing shall survive the execution and delivery of this Agreement, notwithstanding any investigation made or information obtained by the other party, but shall terminate at the Effective Time, except for those contained in Article 7 and Sections 2.8, 2.9, 2.10, 10.4 and 10.8, which shall survive beyond the Effective Time. 41-AGREEMENT AND PLAN OF MERGER 10.5 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, or on the next business day when sent by overnight courier or on the second succeeding business day when sent by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) IF TO CTS, TO: Christenson Technology Services, Inc. Suite 400 1631 NW Thurman Street Portland, OR 97209 Attn: Robert J. Jesenik and Andrew S. Craig Tel: (503) 419-3500 (b) IF TO MICROFIELD OR MERGER SUB, TO: Microfield Group, Inc. Suite 310 1631 NW Thurman Portland, OR 97209 Attn: Steven M. Wright Tel: (503) 419-3581 WITH A COPY TO: Dunn Carney Allen Higgins & Tongue LLP Suite 1500 851 SW 6th Avenue Portland, OR 97204 Attn: Jonathan A. Bennett Tel: (503) 224-6440 10.6 BINDING EFFECT; ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto prior to the Effective Time without the prior written consent of CTS, in the case of a proposed assignment by Microfield or Merger Sub, or by Microfield, in the case of a proposed assignment by CTS. 10.7 FEES AND EXPENSES. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. 42-AGREEMENT AND PLAN OF MERGER 10.8 GOVERNING LAW. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with the laws of, the state of Oregon. Each party consents to jurisdiction and venue in Multnomah County, Oregon. 10.9 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.10 INTERPRETATION. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 10.11 ENTIRE AGREEMENT. This Agreement and the documents or instruments referred to herein including, but not limited to, the attached Exhibits and Disclosure Schedules, which Exhibits and Disclosure Schedules are incorporated herein by reference, embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants, or undertakings other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter. 10.12 SEVERABILITY. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. 10.13 SPECIFIC PERFORMANCE. The parties hereto 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. Accordingly, the parties further agree that each party shall be entitled to an injunction or restraining order to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other right or remedy to which such party may be entitled under this Agreement, at law or in equity. 10.14 THIRD PARTIES. Nothing contained in this Agreement or in any instrument or document executed by any party in connection with the transactions contemplated hereby shall create any rights in, or be deemed to have been executed for the benefit of, any Person that is not a party hereto or thereto or a successor or permitted assign of such a party. 10.15 DISCLOSURE SCHEDULES. Each Microfield and CTS acknowledges that the Disclosure Schedules (a) relate to certain matters concerning the disclosures required and transactions contemplated by this Agreement, (b) are qualified in their entirety by reference to specific provisions of this Agreement, and (c) are not intended to constitute and shall not be construed as indicating that any such matter is required to be disclosed, nor should such 43-AGREEMENT AND PLAN OF MERGER disclosure be construed as an admission that such information is material with respect to CTS or Microfield, as the case may be, except to the extent required by this Agreement. [SIGNATURES ON FOLLOWING PAGE] 44-AGREEMENT AND PLAN OF MERGER IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written. MICROFIELD GROUP, INC. an Oregon corporation By: ____________________________ Steven M. Wright, President CHRISTENSON TECHNOLOGY SERVICES, INC. CTS ACQUISITION CO. an Oregon corporation an Oregon corporation By: ____________________________ By: ____________________________ Robert J. Jesenik, Steven M. Wright, President Chief Executive Officer The undersigned CTS Shareholder agrees to be bound by the applicable terms and conditions of this Agreement. CHRISTENSON GROUP, LLC an Oregon limited liability company By: JMW CAPITAL PARTNERS, INC. Its Manager By: ____________________________ Robert J. Jesenik, Chief Executive Officer 45-AGREEMENT AND PLAN OF MERGER EXHIBIT A INDEMNIFICATION ESCROW AGREEMENT [See attached] 1-EXHIBIT A EXHIBIT B REGISTRATION RIGHTS AGREEMENT [See attached] 1-EXHIBIT B EXHIBIT C UNDERWOOD EMPLOYMENT AGREEMENT [See attached] 1-EXHIBIT C EXHIBIT D WRIGHT EMPLOYMENT AGREEMENT [See attached] 1-EXHIBIT D EX-2.2 4 v93371exv2w2.txt EXHIBIT 2.2 Exhibit 2.2 ================================================================================ AGREEMENT AND PLAN OF MERGER by and among MICROFIELD GROUP, INC. and VSI ACQUISITION CO. and VELAGIO, INC. and KURT A. UNDERWOOD and TSI TELECOMMUNICATION SERVICES, INC. DATED AS OF SEPTEMBER 15, 2003 ================================================================================ TABLE OF CONTENTS Article 1 Definitions............................................................. 1 Article 2 The Merger.............................................................. 6 2.1 The Merger................................................................. 6 2.2 Effective Time............................................................. 6 2.3 Articles of Incorporation of Surviving Corporation......................... 6 2.4 Bylaws of Surviving Corporation............................................ 6 2.5 Directors and Officers of Surviving Corporation............................ 6 2.6 Conversion of Velagio Stock................................................ 6 2.7 Indemnification Escrow..................................................... 7 2.8 Procedure for Payment...................................................... 7 2.9 Unregistered Shares........................................................ 8 2.10 Stock Certificate Legends.................................................. 8 2.11 Appointment of Representative.............................................. 8 2.12 Registration Rights........................................................ 8 2.13 Velagio Options............................................................ 9 Article 3 Representations and Warranties of Velagio and Velagio Shareholders...... 10 3.1 Organization............................................................... 10 3.2 Capitalization............................................................. 10 3.3 Subsidiaries............................................................... 10 3.4 Authorization; Binding Agreement........................................... 10 3.5 Governmental Approvals..................................................... 11 3.6 No Violations.............................................................. 11 3.7 Velagio Financial Statements............................................... 11 3.8 Absence of Certain Changes or Events....................................... 11 3.9 No Undisclosed Liabilities................................................. 12 3.10 Compliance with Laws....................................................... 12 3.11 Permits.................................................................... 12 3.12 Litigation................................................................. 12 3.13 Contracts.................................................................. 12 3.14 Employee Benefit Plans..................................................... 12 3.15 Taxes and Tax Returns...................................................... 15 3.16 Intellectual Property...................................................... 16 3.17 Employee and Labor Matters................................................. 17 3.18 Limitation on Business Conduct............................................. 17 3.19 Title to Property.......................................................... 18 3.20 Owned and Leased Premises.................................................. 18 3.21 Environmental Matters...................................................... 18 3.22 Insurance.................................................................. 19 3.23 Product Liability and Recalls.............................................. 19 3.24 Customers.................................................................. 20 3.25 Interested Party Transactions.............................................. 20 3.26 Full Disclosure............................................................ 20 Article 4 Representations and Warranties of Microfield and Merger Sub............. 20 4.1 Organization and Good Standing............................................. 20 1 - TABLE OF CONTENTS 4.2 Capitalization............................................................. 20 4.3 Subsidiaries............................................................... 21 4.4 Authorization; Binding Agreement........................................... 21 4.5 Governmental Approvals..................................................... 21 4.6 No Violations.............................................................. 21 4.7 Litigation................................................................. 21 4.8 SEC Reports and Financial Statements....................................... 22 4.9 No Undisclosed Liabilities................................................. 22 4.10 Taxes and Tax Returns...................................................... 22 4.11 Compliance with Laws....................................................... 22 4.12 Permits.................................................................... 22 4.13 Contracts.................................................................. 23 4.14 Employee Benefit Plans..................................................... 23 4.15 Intellectual Property...................................................... 25 4.16 Employee and Labor Matters................................................. 26 4.17 Title to Property.......................................................... 26 4.18 Owned and Leased Premises.................................................. 26 4.19 Environmental Matters...................................................... 26 4.20 Insurance.................................................................. 27 4.21 Full Disclosure............................................................ 27 4.22 No Prior Activities........................................................ 27 Article 5 Additional Covenants of Velagio......................................... 28 5.1 Conduct of Business of Velagio............................................. 28 5.2 Notification of Certain Matters............................................ 29 5.3 Access and Information..................................................... 30 5.4 Shareholder Approval....................................................... 30 5.5 Reasonable Best Efforts.................................................... 30 5.6 Public Announcements....................................................... 30 5.7 Compliance................................................................. 31 5.8 Velagio Shareholder Approval............................................... 31 Article 6 Additional Covenants of Microfield and Merger Sub....................... 31 6.1 Conduct of Business of Microfield.......................................... 31 6.2 Notification of Certain Matters............................................ 33 6.3 Access and Information..................................................... 33 6.4 Reasonable Best Efforts.................................................... 33 6.5 Public Announcements....................................................... 33 6.6 Compliance................................................................. 34 Article 7 Survival; Indemnification............................................... 34 7.1 Survival................................................................... 34 7.2 Indemnification by the Velagio Shareholders................................ 34 7.3 Indemnification by Microfield.............................................. 34 7.4 Limits on Indemnification.................................................. 35 7.5 Indemnification Procedure.................................................. 36 7.6 Payment with Microfield Common Stock....................................... 37 Article 8 Conditions Precedent.................................................... 37 8.1 Merger Conditions.......................................................... 37 2 - TABLE OF CONTENTS 8.2 Conditions Precedent to the Obligations of Microfield and Merger Sub....... 38 8.3 Conditions Precedent to the Obligations of Velagio......................... 39 Article 9 Termination and Abandonment............................................. 40 9.1 Termination................................................................ 40 9.2 Effect of Termination and Abandonment...................................... 41 Article 10 Miscellaneous........................................................ 42 10.1 Confidentiality............................................................ 42 10.2 Amendment and Modification................................................. 42 10.3 Waiver of Compliance; Consents............................................. 42 10.4 Survival................................................................... 43 10.5 Notices.................................................................... 43 10.6 Binding Effect; Assignment................................................. 44 10.7 Fees and Expenses.......................................................... 44 10.8 Governing Law.............................................................. 44 10.9 Counterparts............................................................... 44 10.10 Interpretation.......................................................... 44 10.11 Entire Agreement........................................................ 44 10.12 Severability............................................................ 44 10.13 Specific Performance.................................................... 45 10.14 Third Parties........................................................... 45 10.15 Disclosure Schedules.................................................... 45 3 - TABLE OF CONTENTS LIST OF SCHEDULES

SCHEDULE: CONTAINS: 3.2 Velagio capitalization 3.8 Velagio material changes 3.9 Velagio liabilities 3.11 Velagio permits 3.13 Velagio contracts 3.14(a) Velagio employee benefit plans 3.14(c) Velagio current and former employees with stock rights, options and restrictions 3.14(d) Velagio employment agreements 3.14(e) Velagio employee stock ownership plan 3.14(f) Velagio employee stock ownership plan for non-U.S. employees 3.15 Velagio tax claims or assessments 3.16(a) Velagio intellectual property 3.17(a) Velagio employees 3.19 Velagio property and assets 3.21 Velagio environmental matters 3.22 Velagio insurance 3.23 Velagio product liability and recalls 3.24 Velagio 10 largest customers 3.25 Velagio interested party transactions 4.7 Microfield litigation 4.12 Microfield permits 4.13 Microfield material contracts 4.14(a) Microfield employee benefit plans 4.14(c) Microfield current and former employees with stock rights, options and restrictions 4.14(d) Microfield employment agreements 4.14(e) Microfield employee stock ownership plan 4.14(f) Microfield employee stock ownership plan for non-U.S. employees 4.15(a) Microfield intellectual property 4.16(a) Microfield employees 4.17 Microfield property and assets 4.19 Microfield environmental matters 4.20 Microfield insurance

1 - LIST OF SCHEDULES AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER is made as of September 15, 2003 by and among MICROFIELD GROUP, INC., an Oregon corporation, VSI ACQUISITION CO., an Oregon corporation, VELAGIO, INC., an Oregon corporation, KURT A. UNDERWOOD, and TSI TELECOMMUNICATION SERVICES, INC., a Delaware corporation. RECITALS A. The respective boards of directors of Microfield, Merger Sub and Velagio have: (a) determined that the Merger of Velagio with and into Merger Sub pursuant and subject to all of the terms and conditions of this Agreement is advisable, fair and in the best interests of Microfield, Velagio and Merger Sub and their respective shareholders; and (b) approved the Merger, this Agreement and the transactions contemplated by this Agreement. B. The board of directors of Microfield has authorized the issuance of Microfield Common Stock pursuant to this Agreement. C. Microfield, Velagio and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with the Merger. D. Simultaneously with the closing of the Merger described in this Agreement, the CTS Merger shall close and become effective. E. The parties intend that the structure of the Merger described in this Agreement be a tax-free reorganization within the meaning of Section 368(a) of the Code. NOW, THEREFORE, in consideration of the covenants, conditions and agreements set forth herein and for other good and valuable consideration, the sufficiency of which are acknowledged, the parties agree as follows: ARTICLE 1 DEFINITIONS When used in this Agreement, the following terms shall have the meanings specified: "AGREEMENT" means this Agreement and Plan of Merger, together with the attached Exhibits and Disclosure Schedules, as the same may be amended from time to time in accordance with the terms hereof. "ARTICLES OF MERGER" means Articles of Merger in a form approved for filing in accordance with the OBCA. "CLOSING" means the conference to be held at 10:00 a.m., on the Closing Date at the offices of Microfield, or such other time and place as the parties may mutually agree to in writing. 1 - AGREEMENT AND PLAN OF MERGER "CLOSING DATE" means September 15, 2003, or such other date as the parties may mutually agree in writing. "CODE" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, as the same may be in effect from time to time. "CTS" means Christenson Technology Services, Inc., an Oregon corporation. "CTS MERGER" means the merger whereby CTS Acquisition Co. shall merge with and into CTS and CTS shall be the surviving corporation, effective simultaneously with the Effective Time. "CTS MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of the same date as this Agreement by and among Microfield, CTS Acquisition Co., CTS, and CTS Shareholder in connection with the CTS Merger. "CTS SHAREHOLDER" means the sole shareholder of CTS immediately prior to the Effective Time, namely, Christenson Group LLC, an Oregon limited liability company. "DISCLOSURE SCHEDULES" means the Disclosure Schedules attached to this Agreement. "EFFECTIVE TIME" means the date and time when the Merger becomes effective. "ENFORCEABILITY EXCEPTIONS" means the limits with respect to the enforceability of any agreement imposed by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by principles of equity regarding the availability of remedies. "ESCROW AGENT" means the escrow agent appointed in the Indemnification Escrow Agreement. "ESCROWED SHARES" means the Microfield Common Stock placed in the Indemnification Escrow pursuant to Section 2.7. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof or any entity, authority or body exercising executive, legislative, judicial or regulatory functions of or pertaining to government, including, without limitation, any governmental or regulatory authority, agency, department, board, commission or instrumentality, any court, tribunal or arbitrator and any self-regulatory organization. "INDEMNIFICATION ESCROW" means the Escrow Account opened for the purpose of holding the Microfield Common Stock held back pursuant to Section 2.7. 2 - AGREEMENT AND PLAN OF MERGER "KNOWLEDGE" with respect to a party, means the actual knowledge of the existence or nonexistence of a fact or matter, after reasonable inquiry, by any of the executive officers or directors of Microfield or Velagio, as applicable. "LAW" means any federal, state, local or other law, rule, regulation or governmental requirement of any kind, and the rules, regulations and orders promulgated thereunder by any regulatory agencies. "LIEN" means (a) any mortgage, pledge, lien, covenant, lease, security interest or encumbrance of any kind and (b) with respect to any asset, the interest of a vendor or lessor under any conditional sale agreement, financing lease or other title retention agreement relating to such asset. "MAJOR SHAREHOLDERS" the following persons: Kurt A. Underwood, TSI Telecommunications, Inc., Christenson Group LLC, Robert J. Jesenik, Steven M. Wright, R. Patrick Hanlin, JMW-MICG Holdings, LLC, Michael Stansell and John Conroy. "MATERIAL ADVERSE CHANGE" means any materially adverse change in the financial condition, properties, business or results of operations of a party that exceeds the sum of $50,000 or more, whether taken separately or together in the aggregate with other similar events, other than changes arising out of general economic conditions unrelated to the business in which the party is engaged. "MATERIAL ADVERSE EFFECT" means any event, condition or fact that is, or reasonably may be expected to be, materially adverse to the financial condition, properties, business, results of operations or prospects of a party that exceeds the sum of $50,000 or more, whether taken separately or together in the aggregate with other similar events, other than events, conditions or facts arising out of general economic conditions unrelated to the business in which the party is engaged. "MATERIAL CONTRACTS" means any agreement or contract to which a party, or by which its properties or assets, is bound, which could result in a Material Adverse Change or have a Material Adverse Effect, including, but not limited, to: (a) all loan agreements, indentures, mortgages, pledges, conditional sale or title retention agreements, security agreements, guaranties, standby letters of credit, equipment leases or lease purchase agreements, each in an amount equal to or exceeding $50,000; (b) all contracts, agreements, commitments or other understandings or arrangements, but excluding contracts, agreements, commitments or other understandings or arrangements entered into in the ordinary course of business and involving individual payments or receipts by the party of less than $50,000 over the term of such contract, agreement, commitment or other understanding or arrangement; and (c) all other agreements that are material to the party and not excluded under the foregoing clauses. "MERGER" means the merger of Merger Sub with and into Velagio pursuant to this Agreement and the OBCA. 3 - AGREEMENT AND PLAN OF MERGER "MERGER CONSIDERATION" means the aggregate number of shares of Microfield Common Stock issuable to the Velagio Shareholders pursuant to Section 2.6, subject to any rounding for fractional shares pursuant to Section 2.8(b). "MERGER SUB" means VSI Acquisition Co., an Oregon corporation and a wholly owned Subsidiary of Microfield. "MICROFIELD" means Microfield Group, Inc., an Oregon corporation. "MICROFIELD COMMON STOCK" means shares of common stock, no par value, of Microfield. "MICROFIELD STOCK VALUE" means the average bid price as reported on the OCTBB or NASDAQ or other exchange upon which Microfield Common Stock is trading for the thirty (30) days immediately prior to and including the last trading day prior to the applicable date for which the value is determined. "OBCA" means the Oregon Business Corporation Act, as the same shall be in effect from time to time. "OPTION CONVERSION RATIO" means .085124. "PERMITS" means all permits, licenses, approvals, qualifications, governmental authorizations, registrations and franchises that Velagio has or holds, all of which are listed and briefly described in the Disclosure Schedules. "PERSON" means a natural person, corporation, trust, partnership, limited liability company, governmental entity, agency or branch or department thereof, or any other legal entity. "REPRESENTATIVE" means Kurt A. Underwood, or his successor, who shall act as representative of the Velagio Shareholders under the Agreement. "SUBSIDIARY" means any entity (a) at least a majority of the outstanding capital stock or ownership interest of which shall at the time be owned by Microfield or Velagio, as applicable, directly or through one (1) or more entities that are themselves Subsidiaries or (b) with respect to which Microfield or Velagio, as applicable, may elect a majority of the board of directors. "SURVIVING CORPORATION" means Velagio, which shall survive the Merger of Merger Sub with and into Velagio. "TSI" means TSI Telecommunication Services, Inc., a Delaware corporation. "UNDERWOOD" means Kurt A Underwood, individually. "VELAGIO" means Velagio, Inc., an Oregon corporation. 4 - AGREEMENT AND PLAN OF MERGER "VELAGIO OPTIONS" means options to purchase shares of common stock of Velagio granted to employees or directors of, or consultants or advisors to, Velagio, pursuant to the terms of the 2000 Velagio Stock Incentive Plan as adopted by Velagio, that are outstanding immediately prior to the Effective Time. "VELAGIO SHAREHOLDERS" means Underwood and TSI. "VELAGIO STOCK" means shares of common stock, $0.001 par value, of Velagio. OTHER TERMS. The following terms shall have the meanings specified in the following noted sections of this Agreement:

- ---------------------------------------------------------------------------- TERM SECTION - ---------------------------------------------------------------------------- Balance Sheet 3.9 - ---------------------------------------------------------------------------- Consent 3.5 - ---------------------------------------------------------------------------- Conversion Ratio 2.6 - ---------------------------------------------------------------------------- Damages 7.2 - ---------------------------------------------------------------------------- Employee Plans 3.14(a) - ---------------------------------------------------------------------------- Environmental Claim 3.21(e)(i) - ---------------------------------------------------------------------------- Environmental Laws 3.21(e)(ii) - ---------------------------------------------------------------------------- ERISA 3.14(a) - ---------------------------------------------------------------------------- ERISA Affiliate 3.14(a) - ---------------------------------------------------------------------------- Indemnification Escrow Agreement 2.7 - ---------------------------------------------------------------------------- Intellectual Property Rights 3.16(b) - ---------------------------------------------------------------------------- IRS 3.14(b) - ---------------------------------------------------------------------------- ISO 3.14(c) - ---------------------------------------------------------------------------- Litigation 3.12 - ---------------------------------------------------------------------------- Material of Environmental Concern 3.21(e)(iii) - ---------------------------------------------------------------------------- Microfield Balance Sheet 4.9 - ---------------------------------------------------------------------------- Microfield Indemnified Persons 7.2 - ---------------------------------------------------------------------------- Microfield SEC Reports 4.8 - ---------------------------------------------------------------------------- Preferred Shares 4.2 - ---------------------------------------------------------------------------- Related Documents 7.1 - ---------------------------------------------------------------------------- Rule 144 2.9 - ---------------------------------------------------------------------------- Securities Act 2.9 - ---------------------------------------------------------------------------- Tax 3.15(b) - ---------------------------------------------------------------------------- Tax Returns 3.15(b) - ---------------------------------------------------------------------------- Third Party Claims 7.5(a)(i) - ---------------------------------------------------------------------------- Velagio Balance Sheet 3.9 - ---------------------------------------------------------------------------- Velagio Financial Statements 3.7 - ---------------------------------------------------------------------------- Velagio Indemnified Persons 7.3 - ----------------------------------------------------------------------------

5 - AGREEMENT AND PLAN OF MERGER ARTICLE 2 THE MERGER 2.1 THE MERGER. At the Effective Time and upon and subject to the terms and conditions of this Agreement, Merger Sub will be merged with and into Velagio. Velagio shall be the Surviving Corporation in the Merger and shall continue to be governed by the Laws of the State of Oregon, and the separate existence of Merger Sub shall cease. The Merger shall be pursuant to the provisions of, and shall be with the effects provided in, the OBCA. 2.2 EFFECTIVE TIME. Subject to the terms and conditions of this Agreement, on the Closing Date, Merger Sub and Velagio will cause the Articles of Merger to be executed, delivered and filed as provided in the OBCA. The Merger shall become effective at the time of the filing of the Articles of Merger with the Oregon Secretary of State, Corporation Division, or at such later time as Microfield and Velagio may agree and as may be set forth in the Articles of Merger. 2.3 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of Incorporation of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until amended in accordance with the OBCA. 2.4 BYLAWS OF SURVIVING CORPORATION. The Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until amended in accordance with the OBCA. 2.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The board of directors of the Surviving Corporation shall consist of one (1) director position. The following director is hereby elected and shall serve as the sole director of the Surviving Corporation to hold office as provided in the Bylaws: Kurt A. Underwood The following officers shall be the officers of the Surviving Corporation, to hold office as provided in the Bylaws: CEO/President Kurt A. Underwood CFO/Treasurer Thomas A. Sidley Senior Vice President - Services and Development Robert Hancock Vice President - Electrical Services A. Mark Walter Secretary Andrew S. Craig 2.6 CONVERSION OF VELAGIO STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, Velagio or Microfield, the Velagio Shareholders of record immediately prior to the Effective Time shall be entitled to receive a total of 4,193,143 shares of Microfield Common Stock in exchange for all of the Velagio Stock 6 - AGREEMENT AND PLAN OF MERGER outstanding. The Velagio Shareholders will receive the following shares of Microfield Common Stock:

- -------------------------------------------------------------------- VELAGIO VELAGIO STOCK TOTAL CONVERTED ESCROWED SHAREHOLDERS OWNED SHARES SHARES - -------------------------------------------------------------------- TSI 9,259,260 788,185 46,992 - -------------------------------------------------------------------- Underwood 40,000,000 3,404,958 203,008 - -------------------------------------------------------------------- - -------------------------------------------------------------------- TOTAL 49,259,260 4,193,143 250,000 - --------------------------------------------------------------------

The Escrowed Shares will be placed in the Indemnification Escrow as provided for in Section 2.7. 2.7 INDEMNIFICATION ESCROW. At the Effective Time, the Velagio Shareholders, the CTS Shareholder, Microfield and the Escrow Agent shall enter into an Indemnification Escrow Agreement in the form attached as Exhibit A ("INDEMNIFICATION ESCROW AGREEMENT"). The Indemnification Escrow Agreement will require that simultaneously with the Effective Time the Velagio Shareholders will place 250,000 shares, and the CTS Shareholder will place 250,000 shares, of Microfield Common Stock (for an aggregate of 500,000 shares of Microfield Common Stock) into an escrow account for the purposes of satisfying claims arising under this Agreement or the CTS Merger Agreement. The Indemnification Escrow Agreement shall also provide the manner and method upon which claims will be satisfied by the Microfield Common Stock placed in escrow. 2.8 PROCEDURE FOR PAYMENT. (a) SURRENDER OF STOCK. From and after the Effective Time, each Velagio Shareholder of record immediately prior to the Effective Time, upon surrender to Microfield or its agent designated for such purpose of any letters of transmittal or other documents as may be reasonably requested by Microfield or its agent, shall be entitled to receive one or more certificates representing the number of shares of Microfield Common Stock into which such Velagio Stock shall have been converted pursuant to the provisions of Section 2.6; provided, however, that a certificate representing the escrowed shares described in Section 2.7 shall be delivered to the escrow agent and held pursuant to the Indemnification Escrow Agreement.. (b) NO FRACTIONAL SHARES. No certificates or scrip evidencing fractional shares of Microfield Common Stock shall be issued in the Merger, and such fractional share interests will not entitle the owner thereof to any rights as a shareholder of Microfield. Merger Consideration to be paid to each Velagio Shareholder will be rounded to the nearest whole share. (c) NO FURTHER RIGHTS IN VELAGIO STOCK. All shares of Microfield Common Stock issued upon conversion of the Velagio Stock in accordance with the terms of this Agreement shall be deemed to have been issued (and paid) in full satisfaction of all rights of the Velagio Shareholders pertaining to the Velagio Stock. Following the Effective Time, the 7 - AGREEMENT AND PLAN OF MERGER Velagio Shareholders shall cease to have any rights with respect to such Velagio Stock except as otherwise provided in this Agreement or by law. 2.9 UNREGISTERED SHARES. The Velagio Shareholders have been informed by Microfield that the Microfield Common Stock conveyed hereunder as Merger Consideration has not been registered under the Securities Act of 1933 (the "SECURITIES ACT") and that such Microfield Common Stock must be held for the time required by Rule 144 promulgated under the Securities Act ("RULE 144"), unless (i) the distribution for sale of the Microfield Common Stock has been registered under the Securities Act, (ii) a sale of the Microfield Common Stock is made in conformity with the provisions of Rule 144, or (iii) in the opinion of counsel, which opinion is reasonably acceptable to Microfield, some other exemption from registration is available with respect to any such sale, transfer or other disposition of such Microfield Common Stock. 2.10 STOCK CERTIFICATE LEGENDS. Each Velagio Shareholder acknowledges and understands that stock transfer instructions will be given to Microfield's transfer agent with respect to the Merger Consideration and that there will be placed on the certificates for such shares, or any substitution therefor, the following legend: "The securities evidenced by this certificate have not been registered under the Securities Act of 1933 (the "Act") or any applicable state law, and no interest therein may be sold, distributed, assigned, offered, pledged or otherwise transferred unless (a) there is an effective registration statement under such Act and applicable state securities laws covering any such transaction involving these securities or (b) the Company receives an opinion of legal counsel for the holder of these securities (concurred in by legal counsel for the Company) to the effect that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration." 2.11 APPOINTMENT OF REPRESENTATIVE. The Representative is hereby appointed as representative of the Velagio Shareholders for purposes of this Agreement. The Velagio Shareholders' approval of this Agreement shall include confirmation of the authority of the Representative. 2.12 REGISTRATION RIGHTS. Major Shareholders will receive the following registration rights as set forth more specifically in the Registration Rights Agreement attached hereto as Exhibit B: (a) For a period of five (5) years following the Closing Date, unlimited piggyback registration rights for all shares owned by the Major Shareholders; (b) If during the two (2) years following the Closing Date, piggyback registration rights become available to the Major Shareholders, but a Major Shareholder is 8 - AGREEMENT AND PLAN OF MERGER unable to register fifty percent or more of the Major Shareholder's Microfield Common Stock such shareholder elects to register at the date the piggyback registration rights become available, in spite of the Major Shareholder's election to register the shares through the piggyback rights registration, then the Major Shareholder will have two (2) demand registration rights as to those shares remaining unregistered contrary to the Major Shareholder's election on the date the piggyback registration rights become effective. Such Demand Registration Rights shall be available beginning two (2) years after the Closing Date and ending five (5) years after the Closing Date. Such demand registration rights shall apply only to stock not registered contrary to the election of each Major Shareholder and may be exercised if the registration is intended to result in aggregate gross proceeds of the offering, net of underwriting expenses, of at least Five Hundred Thousand Dollars ($500,000.00). 2.13 VELAGIO OPTIONS. (a) Assumption of Options. At the Effective Time, each of the Velagio Options, whether vested or unvested, shall be assumed by Microfield in accordance with the terms of this Section 2.13. Each of the Velagio Options assumed by Microfield under this Agreement shall continue to have, and be subject to, the terms and conditions as were applicable to such Velagio Options immediately prior to the Effective Time; provided, that those terms and conditions are not contrary to the Microfield 1995 Stock Option Plan, as amended, and that (i) such Velagio Options shall be exercisable for the number of shares of Microfield determined by multiplying (A) the number of shares of Velagio Stock that were issuable upon exercise of such Velagio Option immediately prior to the Effective Time by (B) the Option Conversion Ratio, with the result rounded to the nearest whole number of shares of Microfield, and (ii) the per share exercise price for shares of the Surviving Corporation issuable upon the exercise of such assumed Velagio Option shall be a fraction where the numerator is (1) the exercise price per share of Velagio Stock at which such Velagio Option was exercisable immediately prior to the Effective Time, and the denominator is the Option Conversion Ratio (for example, if the exercise price per share is equal to $ .05, the fraction is .05/.085124 = $ .597378 per share); provided, further, that in the case of any option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code, the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in order to comply with Section 424(a) of the Code. (b) Notice to Holders. As soon as practicable after the Effective Time, Microfield shall deliver to the holders of Velagio Options appropriate notices setting forth such holders' rights pursuant to the 2000 Velagio Stock Incentive Plan and that the agreements evidencing the grants of such Velagio Options shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 2.13 after giving effect to the Merger). The Velagio Options converted as provided in this Section 2.13 shall be subject to the terms of the Microfield 1995 Stock Option Plan, as amended. (c) Corporate Action. Microfield shall take all corporate action necessary to reserve for issuance a sufficient number of Microfield shares for delivery upon exercise of the Velagio Options assumed in accordance with this Section 2.13. 9 - AGREEMENT AND PLAN OF MERGER (d) Amendment to Plan. At or before the Effective Time, Velagio shall cause to be effected any necessary amendments to the 2000 Velagio Stock Incentive Plan and to the agreements evidencing the grants of the Velagio Options to give effect to the foregoing provisions of this Section 2.13. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF VELAGIO AND VELAGIO SHAREHOLDERS Velagio and the Velagio Shareholders represent and warrant to Microfield and Merger Sub that, except as set forth in the correspondingly numbered sections of the Disclosure Schedules: 3.1 ORGANIZATION. Velagio is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Velagio is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not reasonably be expected to have a Material Adverse Effect. Velagio has delivered to Microfield accurate and complete copies of its Articles of Incorporation and Bylaws, as currently in effect. 3.2 CAPITALIZATION. As of the Date of Closing, the Velagio Stock and the holders thereof are as set forth in Section 3.2 of the Disclosure Schedules. As of the Closing Date, all issued and outstanding Velagio Stock will be duly authorized, validly issued, fully paid and non-assessable. Section 3.2 of the Disclosure Schedules sets forth the name of the holder and the exercise price of all options and warrants to purchase Velagio Stock. Except as disclosed in Section 3.2 of the Disclosure Schedules, there are no outstanding rights, subscriptions, warrants, puts, calls, unsatisfied preemptive rights, options or other agreements of any kind relating to any of the outstanding or unissued Velagio Stock or any other security of Velagio, and there is no authorized or outstanding security of any kind convertible into or exchangeable for any Velagio Stock or other security. There are no obligations, contingent or otherwise, of Velagio to repurchase, redeem or otherwise acquire any Velagio Stock or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity. 3.3 SUBSIDIARIES. Velagio has no Subsidiaries. 3.4 AUTHORIZATION; BINDING AGREEMENT. Velagio has all requisite corporate power and authority to execute and deliver this Agreement and to complete the transactions contemplated hereby. The execution and delivery of this Agreement and the completion of the transactions contemplated hereby, including, but not limited to, the Merger, have been duly and validly authorized by Velagio's board of directors, and no other corporate proceedings on the part of Velagio are necessary to authorize the execution and delivery of this Agreement or to complete the transactions contemplated hereby (other than adoption of this Agreement by the Velagio Shareholders in accordance with the OBCA and the Articles of Incorporation and Bylaws of Velagio). This Agreement has been duly and validly executed and delivered by Velagio and constitutes the legal, valid and binding agreement of Velagio, enforceable against 10 - AGREEMENT AND PLAN OF MERGER Velagio in accordance with its terms, except to the extent that enforceability thereof may be limited by the Enforceability Exceptions. 3.5 GOVERNMENTAL APPROVALS. No consent, approval, waiver or authorization of, notice to or declaration or filing with ("CONSENT") any Governmental Authority, on the part of Velagio is required in connection with the execution or delivery by Velagio of this Agreement or the completion by Velagio of the transactions contemplated hereby other than (a) the filing of the Articles of Merger with the Secretary of State of Oregon, Corporation Division, in accordance with the OBCA, and (b) those Consents that, if they were not obtained or made, would not reasonably be expected to have a Material Adverse Effect. 3.6 NO VIOLATIONS. The execution and delivery of this Agreement, the completion of the transactions contemplated hereby and compliance by Velagio with any of the provisions hereof will not (a) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws of Velagio, (b) require any Consent under or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of, any Material Contract, (c) result in the creation or imposition of any Lien upon any of the assets of Velagio or (d) subject to obtaining the Consents from Governmental Authorities referred to in Section 3.5, violate any applicable provision of any Law to which Velagio or its assets or properties are subject, except, in the case of each of clauses (b), (c) and (d) above, for any deviations from the foregoing that would not reasonably be expected to have a Material Adverse Effect. 3.7 VELAGIO FINANCIAL STATEMENTS. Velagio has delivered to Microfield the financial statements for the years ending December 31, 2000, 2001 and 2002, and for the six (6) months ended June 30, 2003 (the "VELAGIO FINANCIAL STATEMENTS"). The Velagio Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied, and they present fairly, in all material respects, the financial position of Velagio as at the dates thereof and the results of its operations and cash flows for the periods then ended, subject to any adjustments described therein, except that unaudited financial statements do not contain footnotes. 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section 3.8 of the Disclosure Schedules, from the date of issuance of each of the Velagio Financial Statements through the date of this Agreement, there has not been: (a) any event that has had or would reasonably be expected to have a Material Adverse Effect; (b) any declaration, payment or setting aside for payment of any dividend or other distribution or any redemption or other acquisition of any stock or securities of Velagio by Velagio; (c) any material damage or loss to any material asset or property, whether or not covered by insurance; (d) any change by Velagio in accounting principles or practices; (e) any material revaluation by Velagio of any of its assets, including writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; (f) any sale of a material amount of property of Velagio, except in the ordinary course of business; (g) any payments to Velagio employees or service providers outside of Velagio's regular course of business; or (h) any other action or event, 11 - AGREEMENT AND PLAN OF MERGER involving an amount exceeding $5,000 that would have required the consent of Microfield pursuant to Section 5.1 had such action or event occurred after the date of this Agreement. 3.9 NO UNDISCLOSED LIABILITIES. Except as set forth in Section 3.9 of the Disclosure Schedules, Velagio has no liabilities (absolute, accrued, contingent or other), except liabilities (a) adequately provided for in Velagio Financial Statements; or (b) incurred in the ordinary course of business on or before the dates of the Velagio Financial Statements and not required under GAAP to be reflected on the Balance Sheet, (c) incurred since the issuing of the Velagio Financial Statements in the ordinary course of business consistent with past practice, (d) incurred in connection with this Agreement or (e) that would not reasonably be expected to have a Material Adverse Effect. 3.10 COMPLIANCE WITH LAWS. The business of Velagio has been operated in compliance with all Laws applicable thereto, except for any non-compliance that would not reasonably be expected to have a Material Adverse Effect. 3.11 PERMITS. Section 3.11 of the Disclosure Schedules contains a complete and accurate list of each material Permit that is held by Velagio or that otherwise relates to the business of, or to any of the assets owned or used by, Velagio. Each Permit is valid and in full force and effect. Except as set forth in Section 3.11 of the Disclosure Schedules, (a) Velagio has all Permits required in connection with the operation of its business, (b) Velagio is not in violation of any Permit and (c) no proceedings are pending or, to the Knowledge of Velagio, threatened, to revoke or limit any Permit, except, in the case of each of clauses (a) and (b), where the absence or violation would not reasonably be expected to have a Material Adverse Effect. 3.12 LITIGATION. There is no suit, action or proceeding ("LITIGATION") pending or, to the Knowledge of Velagio, threatened against Velagio, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority outstanding against Velagio. 3.13 CONTRACTS. Section 3.13 of the Disclosure Schedules sets forth, as of the date hereof, a list of Material Contracts to which Velagio is a party or by which its properties or assets is bound that are outside the ordinary course of the business of Velagio. Velagio is not a party to any agreements to acquire in the future the capital stock or substantially all the assets of another Person. Except as disclosed in Section 3.13 of the Disclosure Schedules, to the Knowledge of Velagio all the Material Contracts are valid and binding and are in full force and effect and enforceable against Velagio in accordance with their respective terms, subject to the Enforceability Exceptions, and Velagio is not in violation or breach of or default under any Material Contract, except where the failure to be in full force and effect or where such violation or breach would not reasonably be expected to have a Material Adverse Effect. To the Knowledge of Velagio, no party is in default, violation or breach of any Material Contract where such violation or breach would reasonably be expected to have a Material Adverse Effect. 3.14 EMPLOYEE BENEFIT PLANS. (a) Section 3.14(a) of the Disclosure Schedules lists all employee pension benefit plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 12 - AGREEMENT AND PLAN OF MERGER 1974 ("ERISA")), all employee welfare benefit plans (as defined in Section 3(1) of ERISA) and all other bonus, option, membership purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, programs or arrangements, and any employment, executive compensation or severance agreements, written or otherwise, as amended, modified or supplemented, for the benefit of, or relating to, any former or current employee, officer or consultant who is an individual or an individual doing business in a corporate form (or any of their beneficiaries) of Velagio or any other entity (whether or not incorporated) or which is under common control (an "ERISA AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) or (b) of ERISA, or any Velagio Subsidiary, with respect to which Velagio has or could have any current (actual or contingent) material liability (together for purposes of this Section 3.14 and Section 4.14, "EMPLOYEE PLANS"). Prior to the date of this Agreement, Velagio has provided or made available to Microfield copies of (i) each such written Employee Plan (or a written description of any Employee Plan which is not written) and all related trust agreements, insurance and other contracts (including policies), summary plan descriptions, summaries of material modifications and any material communications to plan participants, (ii) the three (3) most recent annual reports on Form 5500 series, with accompanying schedules and attachments, filed with respect to each Employee Plan required to make such a filing, and (iii) the most recent favorable determination letters issued for each Employee Plan and related trust which is intended to qualify under Section 401(a) of the Code (and, if an application for such determination is pending, a copy of the application for such determination). (b) (i) None of the Employee Plans promises or provides retiree medical or other retiree welfare benefits to any Person (other than in accordance with Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA and none of the Employee Plans is subject to Title IV of ERISA or Section 412 of the Code); (ii) neither Velagio nor any ERISA Affiliate has ever contributed to a "MULTI-EMPLOYER PLAN" as such term is defined in Section 3(37) of ERISA; (iii) to the Knowledge of Velagio, no "PARTY IN INTEREST" or "DISQUALIFIED PERSON" (as defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time engaged in a transaction with respect to any Employee Plan that could subject Velagio or any ERISA Affiliate, directly or indirectly, to a tax, penalty or other liability for prohibited transactions under ERISA or Section 4975 of the Code, except for any such tax, penalty or liability that would not reasonably be expected to result in a Material Adverse Effect; (iv) to the Knowledge of Velagio, no fiduciary of any Employee Plan has breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA, except where such breach would not reasonably be expected to result in a Material Adverse Effect; (v) all Employee Plans have been established and maintained substantially in accordance with their terms and have operated in compliance with the requirements prescribed by any and all statutes (including ERISA and the Code), orders, or governmental rules and regulations currently in effect with respect thereto (including all applicable requirements for notification to participants or the Department of Labor, the Internal Revenue Service (the "IRS") or the Secretary of the Treasury), except where failure to do so would not reasonably be expected to result in a Material Adverse Effect; and Velagio and each Velagio Subsidiary have performed all obligations required to be performed by them under, are not in default under or in violation of any Employee Plan except where failure to do so would not reasonably be expected to result in a Material Adverse Effect, and have no Knowledge of any default or violation by any other party to, any of the Employee Plans; (vi) each Employee 13 - AGREEMENT AND PLAN OF MERGER Plan which is intended to be qualified under Sections 401 and 501 of the Code is the subject of a favorable determination letter from the IRS, and to the Knowledge of Velagio nothing has occurred that may reasonably be expected to impair such determination; (vii) all contributions required to be made with respect to any Employee Plan pursuant to the terms of the Employee Plan have been made on or before their due dates, including due dates with respect to employee deferrals; and (viii) there are no complaints, charges or claims against Velagio pending or to Velagio's Knowledge threatened to be brought by or filed with any Governmental Authority based on, arising out of, in connection with or otherwise relating to the classification of any individual by Velagio as an independent contractor or "LEASED EMPLOYEE" (within the meaning of Section 414(n) of the Code) rather than as an employee. (c) Section 3.14(c) of the Disclosure Schedules sets forth a true and complete list of each current or former employee, officer or director of Velagio or any of its Subsidiaries who holds (i) any option to purchase Velagio Stock as of the date hereof, together with the number of shares of Velagio Stock subject to such option, the option price of such option (to the extent determined as of the date hereof), whether such option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code (an "ISO"), and the expiration date of such option; (ii) any Velagio Stock that is restricted as a result of an agreement with or equity participation plan of Velagio; and (iii) any other right, directly or indirectly, to receive Velagio Stock, except as otherwise disclosed in Section 3.14 of the Disclosure Schedules, together with the percentage of Velagio Stock subject to such right. Section 3.14(c) of the Disclosure Schedules also sets forth the total number of any such ISO's and any such nonqualified options and other such rights. (d) Unless otherwise disclosed in Section 3.14(a) of the Disclosure Schedules, Section 3.14(d) of the Disclosure Schedules sets forth a true and complete list of (i) all employment agreements with officers of Velagio or any of its Subsidiaries; (ii) all agreements with consultants who are individuals obligating Velagio or any of its Subsidiaries to make annual cash payments in an amount exceeding $10,000; (iii) all agreements that individually or in the aggregate are or could be material with respect to the services of independent contractors or leased employees who are individuals or individuals doing business in a corporate form whether or not they participate in any of the Employee Plans; (iv) all officers of Velagio or any of its Subsidiaries who have executed a non-competition agreement with Velagio or any of its Subsidiaries; (v) all severance agreements, programs and policies of Velagio or any of its Subsidiaries with or relating to its employees, in each case with outstanding commitments exceeding $25,000, excluding programs and policies required to be maintained by Law; and (vi) all plans, programs, agreements and other arrangements of Velagio that contain change in control provisions. (e) (i) Except as set forth in Section 3.14(e) of the Disclosure Schedules, no Employee Plan is an employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in Velagio Stock; and (ii) the completion of the transactions contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee except as disclosed in Section 3.14(e) of the Disclosure Schedules or 14 - AGREEMENT AND PLAN OF MERGER except where such increase or acceleration would not reasonably be expected to result in a Material Adverse Effect. (f) Except as set forth in Section 3.14(f) of the Disclosure Schedules, Velagio maintains no Employee Plan covering non-U.S. employees. 3.15 TAXES AND TAX RETURNS. (a) Velagio has timely filed, or caused to be timely filed, all material Tax Returns required to be filed by it, and all such Tax Returns are true, complete and correct in all material respects, and has timely paid, collected or withheld, or caused to be paid, collected or withheld, all material amounts of Taxes required to be paid, collected or withheld, other than such Taxes for which adequate reserves in Velagio Financial Statements have been established and which are being contested in good faith and as identified in Section 3.15 of the Disclosure Schedules. Except as set forth in Section 3.15 of the Disclosure Schedules, there are no material claims or assessments pending against Velagio (or the Velagio Shareholders with respect to Velagio) for any alleged deficiency in any Tax, and Velagio has not been notified in writing of any proposed Tax claims or assessments against Velagio (or the Velagio Shareholders with respect to Velagio) (other than in each case, claims or assessments for which adequate reserves in the Financial Statements have been established and which are being contested in good faith and as identified in Section 3.15 of the Disclosure Schedules or claims or assessments which are immaterial in amount). Neither Velagio nor the Velagio Shareholders with respect to Velagio has executed any waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by Velagio (or the Velagio Shareholders with respect to Velagio) for any extension of time within which to file any material Tax Return or within which to pay any material amounts of Taxes shown to be due on any Tax Return. There are no Liens for material amounts of Taxes on the assets of Velagio (or the Velagio Shareholders with respect to Velagio) except for statutory liens for current Taxes not yet due and payable. There are no outstanding powers of attorney enabling any party to represent Velagio (or the Velagio Shareholders with respect to Velagio) or any of its Subsidiaries with respect to Tax matters. (b) For purposes of this Agreement, the term "TAX" means any federal, state, local, foreign or provincial income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, alternative or add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty imposed by any Governmental Authority. The term "TAX RETURN" means a report, return or other information (including any attached schedules or any amendments to such report, return or other information) supplied to or filed with or required to be supplied to or filed with a governmental entity with respect to any Tax, including an information return, claim for refund, amended return or declaration or estimated Tax. (c) Except as set forth in Section 3.15 of the Disclosure Schedules, (i) Velagio has been a corporation for federal and state income tax purposes at all times since its inception; (ii) Velagio has not been included in a combined, consolidated or unitary Tax Return and other 15 - AGREEMENT AND PLAN OF MERGER than with respect to Velagio, Velagio is not currently liable for Taxes of any other Person, or is currently under any contractual obligation to indemnify any Person with respect to Taxes (except for customary agreements to indemnify lenders or security holders in respect of taxes other than income taxes), or is a party to any tax sharing agreement or any other agreement providing for payments by Velagio with respect to Taxes; (iii) Velagio is not a party to any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income tax purposes; (iv) Velagio has not entered into any sale leaseback or any leveraged lease transaction that fails to satisfy the requirements of Revenue Procedure 75-21 (or similar provisions of foreign law); (v) Velagio has not agreed nor is required, as a result of a change in method of accounting or otherwise, to include any adjustment under Section 481 of the Code (or any corresponding provision of state, local or foreign law) in taxable income; (vi) Velagio is not a party to any agreement, contract, arrangement or plan that would result (taking into account the transactions contemplated by this Agreement), separately or in the aggregate, in the payment of any "EXCESS PARACHUTE PAYMENTS" within the meaning of Section 280G of the Code; (vii) Velagio is not liable with respect to any indebtedness the interest of which is not deductible for applicable federal, foreign, state or local income tax purposes; (viii) Velagio is not a "CONSENTING CORPORATION" under Section 341(f) of the Code or any corresponding provision of state, local or foreign law; (ix) Velagio has complied with all applicable laws, rules, and regulations relating to the withholding and payment of Taxes except where the amount of taxes involved is not material; and (x) none of the assets owned by Velagio is property that is required to be treated as owned by any other Person pursuant to Section 168(g)(8) of the Internal Revenue Code of 1954, as amended, as in effect immediately prior to the enactment of the Tax Reform Act of 1986, or is "TAX-EXEMPT USE PROPERTY" within the meaning of Section 168(h) of the Code. 3.16 INTELLECTUAL PROPERTY. (a) Section 3.16(a) of the Disclosure Schedules sets forth a list of (i) all patents and patent applications owned by Velagio worldwide; (ii) all trademark and service mark registrations and all trademark and service mark applications, material common law trademarks, material trade dress and material slogans, and all trade names owned by Velagio worldwide; (iii) all copyright registrations and copyright applications owned by Velagio worldwide; and (iv) all licenses in which Velagio is (A) a licensor with respect to any of the patents, trademarks, service marks, trade names or copyrights listed in Section 3.16 of the Disclosure Schedules or (B) a licensee of any other Person's patents, trade names, trademarks, service marks or copyrights except for any licenses of software programs that are commercially available "OFF THE SHELF." (b) Velagio owns, or is licensed or otherwise possesses legal enforceable rights to use, all patents, trademarks, trade names, service marks, trade dress, slogans, copyrights and any applications therefor, technology, know-how, trade secrets, computer software programs or applications, domain names and tangible or intangible proprietary information or materials that are used in the respective businesses of Velagio as currently conducted (the "INTELLECTUAL PROPERTY RIGHTS"), except for any such failures to own, be licensed or possess that would not reasonably be expected to have a Material Adverse Effect. 16 - AGREEMENT AND PLAN OF MERGER (c) Velagio has made all necessary filings and recordations for the patents, patent applications, trademark and service mark registrations, trademark and service mark applications, copyright registrations and copyright applications set forth in Section 3.16(a) of the Disclosure Schedules, except where the failure to make such filings or recordations would not reasonably be expected to have a Material Adverse Effect. There are not currently pending, and to the Knowledge of Velagio there are no valid grounds for, any bona fide claims (i) that the business of Velagio infringes on any copyright, patent, trademark, service mark or trade secret; (ii) against the use by Velagio of any trademarks, trade names, trade secrets, copyrights, patents, technology, know-how or computer software programs and applications used in the business of Velagio as currently conducted or as proposed to be conducted; (iii) challenging the exclusive ownership, validity or effectiveness of any of Intellectual Property Rights; or (iv) challenging the license or legally enforceable right to use of any third-party patents, trademarks, service marks and copyrights by Velagio, except, in the case of each of clauses (i), (ii), (iii) and (iv) above, for matters that, if determined adversely to Velagio, would not reasonably be expected to have a Material Adverse Effect. (d) Except as set forth in Section 3.16 of the Disclosure Schedules, to the Knowledge of Velagio, there is no material unauthorized use, infringement or misappropriation of any of Intellectual Property Rights by any third party, including any employee or former employee of Velagio. (e) Except as set forth in Section 3.16 of the Disclosure Schedules, there are no valid royalty agreements, license agreements (except for any license implied by the sale or products) or similar arrangements with respect to the Intellectual Property. 3.17 EMPLOYEE AND LABOR MATTERS. (a) Section 3.17(a) of the Disclosure Schedules sets forth a list of all employees of Velagio. (b) Except as set forth in Section 3.17 of the Disclosure Schedules, (i) there are no controversies pending or, to the Knowledge of Velagio, threatened, between Velagio and any of its employees, which controversies would reasonably be expected to have a Material Adverse Effect; (ii) Velagio is not a party to any collective bargaining agreement or other labor union contract applicable to Persons employed by Velagio, nor, as of the date of this Agreement, does Velagio know of any activities or proceedings of any labor union to organize any such employees; and (iii) Velagio has no Knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of Velagio that would reasonably be expected to have a Material Adverse Effect. 3.18 LIMITATION ON BUSINESS CONDUCT. Velagio is not a party to, nor has any obligation under, any contract or agreement, written or oral, that contains any covenants currently or prospectively limiting in any material respect the freedom of Velagio to engage in any line of business or to compete with any entity. 17 - AGREEMENT AND PLAN TO MERGER 3.19 TITLE TO PROPERTY. Except as set forth in Section 3.19 of the Disclosure Schedules, Velagio owns the properties and assets that it purports to own free and clear of all Liens, except for Liens that arise in the ordinary course of business and do not materially impair Velagio's ownership or use of such properties or assets, Liens for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which reserves have been established in accordance with GAAP and Liens securing obligations under Velagio's credit agreements, loan agreements and equipment leases. Except as set forth in Schedule 3.19 of the Disclosure Schedules, with respect to the property and assets it leases, Velagio, and to the best of Velagio's Knowledge, each of the other parties thereto, is in material compliance with such leases, and Velagio holds a valid leasehold interest free of any Liens, except those referred to above. The rights, properties and assets presently owned, leased or licensed by Velagio include all rights, properties and assets necessary to permit Velagio to conduct its business in all material respects in the same manner as its businesses have been conducted prior to the date hereof. 3.20 OWNED AND LEASED PREMISES. Each of the buildings, structures and premises owned or leased by Velagio is in reasonably good repair and operating condition. 3.21 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.21 of the Disclosure Schedules: (a) Velagio is in material compliance with the Environmental Laws, which compliance includes the possession by Velagio of all material Permits and governmental authorizations required under applicable Environmental Laws, and compliance in all material respects with the terms and conditions thereof, except in each case where such non-compliance would not reasonably be expected to have a Material Adverse Effect. Velagio has not received any written communication from a Governmental Authority that alleges that it is not in such material compliance except where such non-compliance would not reasonably be expected to have a Material Adverse Effect. (b) There are no Environmental Claims, including claims based on "ARRANGER LIABILITY," pending or, to the Knowledge of Velagio, threatened against Velagio or to the Knowledge of Velagio, pending or threatened against any Person or entity whose liability for any Environmental Claim Velagio has to the Knowledge of Velagio retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (c) To the Knowledge of Velagio, there are no past or present actions, inactions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that would form the basis of any Environmental Claim against Velagio or against any Person whose liability for any Environmental Claim Velagio has retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (d) Velagio is in compliance in all material respects with Environmental Laws as they relate to (i) any on-site or off-site locations where to Velagio's Knowledge, Velagio has 18 - AGREEMENT AND PLAN TO MERGER stored, disposed or arranged for the disposal of Materials of Environmental Concern for itself (but not on behalf of others) or (ii) any underground storage tanks located on property owned or leased by Velagio of which Velagio has Knowledge. (e) For purposes of this Agreement: (i) "ENVIRONMENTAL CLAIM" means any written claim, action, cause of action, investigation or written notice by any Person alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (A) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned or operated by Velagio, or (B) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. (ii) "ENVIRONMENTAL LAWS" means all Federal, state, local and foreign laws or regulations relating to pollution or protection of human health and the environment (including ambient air, surface water, ground water, land surface or sub-surface strata), including laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. (iii) "MATERIAL OF ENVIRONMENTAL CONCERN" means chemicals, pollutants, contaminants, hazardous materials, hazardous substances and hazardous wastes, toxic substances, petroleum and petroleum products that are regulated under the Environmental Laws. 3.22 INSURANCE. Section 3.22 of the Disclosure Schedules contains a complete and accurate list of all fire, liability, worker's compensation and other forms of insurance insuring Velagio, and its respective officers and directors, assets and operations. The insurance polices maintained by Velagio are with reputable insurance carriers and have no premium delinquencies. 3.23 PRODUCT LIABILITY AND RECALLS. (a) Except as disclosed in Section 3.23 of the Disclosure Schedules, to Velagio's Knowledge, there is no claim, pending or overtly threatened, against Velagio for injury to Person or property of employees or any third parties suffered as a result of the sale of any product or performance of any service by Velagio, including claims arising out of the defective or unsafe nature of its products or services, that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (b) Except as disclosed in Section 3.23 of the Disclosure Schedules, there is no pending or, to the Knowledge of Velagio, overtly threatened recall or investigation of any product sold by Velagio, which recall or investigation would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. 19 - AGREEMENT AND PLAN TO MERGER 3.24 CUSTOMERS. Section 3.24 of the Disclosure Schedules sets forth a list of Velagio's ten (10) largest customers (detailed, in the case of government agencies, by separate government agency) in terms of gross sales for the twelve-month period ended June 30, 2003. Except as set forth in Section 3.24 of the Disclosure Schedules, since June 30, 2003, there have not been any changes in the business relationships of Velagio with any of the customers named therein that would constitute a Material Adverse Effect. Except as set forth in Section 3.24 of the Disclosure Schedules, no customer of Velagio, on a combined basis, accounted for more than five percent (5%) of the revenues of Velagio for the twelve month period ended June 30, 2003. 3.25 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section 3.25 of the Disclosure Schedules, no event has occurred that would be required to be reported, if Velagio were a reporting company under Section 13 of the Securities Exchange Act of 1934, pursuant to Item 404 of Regulation S-B promulgated by the Securities and Exchange Commission (without regard to the $60,000 threshold contained in Item 404). 3.26 FULL DISCLOSURE. No statement contained in any certificate or schedule, including, without limitation, the Disclosure Schedules, furnished or to be furnished by Velagio to Microfield or Merger Sub in, or pursuant to the provisions of, this Agreement contains or shall contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in the light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER SUB Microfield and Merger Sub jointly and severally represent and warrant to Velagio that, except as set forth in the correspondingly numbered sections of the Disclosure Schedules: 4.1 ORGANIZATION AND GOOD STANDING. Each of Microfield and Merger Sub is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. 4.2 CAPITALIZATION. The authorized capital stock of Microfield consists of (a) 25,000,000 shares of Microfield Common Stock and (b) 10,000,000 shares of preferred stock (the "PREFERRED SHARES"). As of July 17, 2003, (i) 8,386,285 shares of Microfield Common Stock were issued and outstanding, (ii) no shares of Preferred Shares were issued and outstanding, (iii) 261,188 shares of Microfield Common Stock were reserved for future issuance pursuant to outstanding options to purchase Microfield Common Stock, (iv) 650,000 shares of Microfield Common Stock are available for issuance pursuant to the 1995 Stock Option Agreement, as amended; and (v) 2,197,308 shares of Microfield Common Stock were reserved for future issuance upon exercise of warrants to purchase Microfield Common Stock. No other capital stock of Microfield is authorized or issued. Microfield has agreed to issue shares of Microfield Common Stock pursuant to the Common Stock Purchase Agreement. The shares of Microfield Common Stock to be issued to the Velagio Shareholders in the Merger will be duly authorized, validly issued, fully paid and nonassessable. 20 - AGREEMENT AND PLAN TO MERGER 4.3 SUBSIDIARIES. Innovative Safety Technologies, Inc., an Oregon corporation, Merger Sub and CTS Acquisition Co. are wholly owned subsidiaries of Microfield. Microfield has no other subsidiaries. 4.4 AUTHORIZATION; BINDING AGREEMENT. Microfield and Merger Sub have all requisite corporate power and authority to execute and deliver this Agreement and to complete the transactions contemplated hereby. The execution and delivery of this Agreement and the completion of the transactions contemplated hereby, including, but not limited to, the Merger, have been duly and validly authorized by the respective boards of directors of Microfield and Merger Sub, and no other corporate proceedings on the part of Microfield or Merger Sub are necessary to authorize the execution and delivery of this Agreement or to complete the transactions contemplated hereby (other than the requisite approval by the sole shareholder of Merger Sub of this Agreement and the Merger). This Agreement has been duly and validly executed and delivered by each of Microfield and Merger Sub and constitutes the legal, valid and binding agreement of Microfield and Merger Sub, enforceable against each of Microfield and Merger Sub in accordance with its terms, subject to the Enforceability Exceptions. 4.5 GOVERNMENTAL APPROVALS. No Consent from or with any Governmental Authority on the part of Microfield or Merger Sub is required in connection with the execution or delivery by Microfield and Merger Sub of this Agreement or the completion by Microfield and Merger Sub of the transactions contemplated hereby other than (a) the filing of the Articles of Merger with the Secretary of State of Oregon in accordance with the OBCA, and (b) those Consents that, if they were not obtained or made, would not reasonably be expected to have a Material Adverse Effect. 4.6 NO VIOLATIONS. The execution and delivery of this Agreement, the completion of the transactions contemplated hereby and compliance by Microfield or Merger Sub with any of the provisions hereof will not (a) conflict with or result in any breach of any provision of the Articles of Incorporation and Bylaws of Microfield or other similar documents of any Subsidiary of Microfield, or (b) require any Consent under or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of, any material note, bond, mortgage, indenture, contract, lease, license, agreement or instrument to which Microfield or any Subsidiary of Microfield is a party or by which any of them or any of their respective assets or property is subject, except in any such case for any such conflicts, violations, breaches, defaults or other occurrences that would not prevent or delay completion of the Merger, or otherwise materially and adversely affect the ability of Microfield or Merger Sub to perform their respective obligations under this Agreement. 4.7 LITIGATION. Except as disclosed in Section 4.7 of the Disclosure Schedules, there is no Litigation pending or, to the Knowledge of Microfield, threatened against Microfield or any of its Subsidiaries which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority outstanding against Microfield or any of its Subsidiaries which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 21 - AGREEMENT AND PLAN TO MERGER 4.8 SEC REPORTS AND FINANCIAL STATEMENTS. Microfield has furnished Velagio and the Velagio Shareholders with complete copies of all registration statements, reports and proxy statements, including amendments thereto, filed with the SEC since December 31, 2000, and prior to the date of this Agreement (collectively, the "MICROFIELD SEC REPORTS"). Each of the Microfield SEC Reports, as of the date filed, complied in all material respects with the applicable requirements of the Act, the Securities Exchange Act of 1934 and the rules and regulations promulgated by the Securities and Exchange Commission thereunder. 4.9 NO UNDISCLOSED LIABILITIES. Except as disclosed in Section 4.9 of the Disclosure Schedules and in the Microfield SEC Reports, Microfield has no liabilities (absolute, accrued, contingent or other), except liabilities (a) adequately provided for in Microfield's unaudited balance sheet (including any related notes thereto) as of June 29, 2003, (the "MICROFIELD BALANCE SHEET") (b) incurred in the ordinary course of business on or before June 29, 2003, and not required under GAAP to be reflected on the Microfield Balance Sheet, (c) incurred since June 29, 2003, in the ordinary course of business consistent with past practice, (d) incurred in connection with this Agreement or (e) that would not reasonably be expected to have a Material Adverse Effect. 4.10 TAXES AND TAX RETURNS. Except as disclosed in Section 4.10 of the Disclosure Schedules, Microfield has timely filed, or caused to be timely filed, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and correct in all material respects, and has timely paid, collected or withheld, or caused to be paid, collected or withheld, all material amounts of Taxes required to be paid, collected or withheld, other than such Taxes for which adequate reserves in the financial statements contained in the Microfield SEC Reports have been established and which are being contested in good faith. There are no material claims or assessments pending against Microfield for any alleged deficiency in any Tax, and neither Microfield nor any of its officers, directors or employees has been notified of any proposed Tax claims or assessments against Microfield. Microfield has not executed any currently effective waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by Microfield for any extension of time within which to file any Tax Return or within which to pay any material amounts of Taxes shown to be due on any Tax Return. There are no Liens for material amounts of Taxes on the assets of Microfield except for statutory liens for current Taxes not yet due and payable. There are no outstanding powers of attorney enabling any party to represent Microfield with respect to Tax matters. 4.11 COMPLIANCE WITH LAWS. The business of Microfield has been operated in compliance with all Laws applicable thereto, except for any non-compliance that would not reasonably be expected to have a Material Adverse Effect. 4.12 PERMITS. Section 4.12 of the Disclosure Schedules contains a complete and accurate list of each material Permit that is held by Microfield or that otherwise relates to the business of, or to any of the assets owned or used by, Microfield. Each Permit is valid and in full force and effect. Except as set forth in Section 4.12 of the Disclosure Schedules, (a) Microfield has all Permits required in connection with the operation of its business, (b) Microfield is not in violation of any Permit and (c) no proceedings are pending or, to the Knowledge of Microfield, 22 - AGREEMENT AND PLAN TO MERGER threatened, to revoke or limit any Permit, except, in the case of each of clauses (a) and (b), where the absence or violation would not reasonably be expected to have a Material Adverse Effect. 4.13 CONTRACTS. Section 4.13 of the Disclosure Schedules sets forth, as of the date hereof, a list of the Material Contracts to which Microfield is a party or by which its properties or assets are bound that are outside the ordinary course of business. Microfield is not a party to any agreements to acquire in the future the capital stock or substantially all the assets of another Person. Except as disclosed in Section 4.13 of the Disclosure Schedules, to the Knowledge of Microfield all the Material Contracts are valid and binding and are in full force and effect and enforceable against Microfield in accordance with their respective terms, subject to the Enforceability Exceptions, and Microfield is not in violation or breach of or default under any Material Contract, except where the failure to be in full force and effect or where such violation or breach would not reasonably be expected to have a Material Adverse Effect. To the Knowledge of Microfield, no party is in default, violation or breach of any Material Contract where such violation or breach would reasonably be expected to have a Material Adverse Effect. 4.14 EMPLOYEE BENEFIT PLANS. (a) Section 4.14(a) of the Disclosure Schedules lists Microfield's Employee Plans and any ERISA Affiliate or Subsidiary. Prior to the date of this Agreement, Microfield has provided or made available to Velagio copies of (i) each such written Employee Plan (or a written description of any such Employee Plan which is not written) and all related trust agreements, insurance and other contracts (including policies), summary plan descriptions, summaries of material modifications and any material communications to plan participants, (ii) the three (3) most recent annual reports on Form 5500 series, with accompanying schedules and attachments, filed with respect to each such Employee Plan required to make such a filing, and (iii) the most recent favorable determination letters issued for each such Employee Plan and related trust which is intended to qualify under Section 401(a) of the Code (and, if an application for such determination is pending, a copy of the application for such determination). (b) (i) None of the Employee Plans promises or provides retiree medical or other retiree welfare benefits to any Person (other than in accordance with Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA and none of the Employee Plans is subject to Title IV of ERISA or Section 412 of the Code); (ii) neither Microfield nor any ERISA Affiliate has ever contributed to a "MULTI-EMPLOYER PLAN" as such term is defined in Section 3(37) of ERISA; (iii) to the Knowledge of Microfield, no "PARTY IN INTEREST" or "DISQUALIFIED PERSON" (as defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time engaged in a transaction with respect to any Employee Plan that could subject Microfield or any ERISA Affiliate, directly or indirectly, to a tax, penalty or other liability for prohibited transactions under ERISA or Section 4975 of the Code, except for any such tax, penalty or liability that would not reasonably be expected to result in a Material Adverse Effect; (iv) to the Knowledge of Microfield, no fiduciary of any Employee Plan has breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA, except where such breach would not reasonably be expected to result in a Material Adverse Effect; (v) all Employee Plans have been established and maintained substantially in accordance with their terms and have operated in compliance with the requirements prescribed by any and all statutes (including ERISA and the 23 - AGREEMENT AND PLAN TO MERGER Code), orders, or governmental rules and regulations currently in effect with respect thereto (including all applicable requirements for notification to participants or the Department of Labor, the IRS or the Secretary of the Treasury), except where failure to do so would not reasonably be expected to result in a Material Adverse Effect; and Microfield and each Microfield Subsidiary have performed all obligations required to be performed by them under, are not in default under or in violation of any Employee Plan except where failure to do so would not reasonably be expected to result in a Material Adverse Effect, and have no Knowledge of any default or violation by any other party to, any of the Employee Plans; (vi) each Employee Plan which is intended to be qualified under Sections 401 and 501 of the Code is the subject of a favorable determination letter from the IRS, and to the Knowledge of Microfield nothing has occurred that may reasonably be expected to impair such determination; (vii) all contributions required to be made with respect to any Employee Plan pursuant to the terms of the Employee Plan have been made on or before their due dates, including due dates with respect to employee deferrals; and (viii) there are no complaints, charges or claims against Microfield pending or to Microfield's Knowledge threatened to be brought by or filed with any Governmental Authority based on, arising out of, in connection with or otherwise relating to the classification of any individual by Microfield as an independent contractor or "LEASED EMPLOYEE" (within the meaning of Section 414(n) of the Code) rather than as an employee. (c) Section 4.14(c) of the Disclosure Schedules sets forth a true and complete list of each current or former employee, officer or director of Microfield or any of its Subsidiaries who holds (i) any option to purchase Microfield Stock as of the date hereof, together with the number of shares of Microfield Stock subject to such option, the option price of such option (to the extent determined as of the date hereof), whether such option is intended to qualify as an ISO, and the expiration date of such option; (ii) any Microfield Stock that is restricted as a result of an agreement with or equity participation plan of Microfield; and (iii) any other right, directly or indirectly, to receive Microfield Stock, except as otherwise disclosed in Section 4.14 of the Disclosure Schedules, together with the percentage of Microfield Stock subject to such right. Section 4.14(c) of the Disclosure Schedules also sets forth the total number of any such ISO's and any such nonqualified options and other such rights. (d) Unless otherwise disclosed in Section 4.14(a) of the Disclosure Schedules, Section 4.14(d) of the Disclosure Schedules sets forth a true and complete list of (i) all employment agreements with officers of Microfield or any of its Subsidiaries; (ii) all agreements with consultants who are individuals obligating Microfield or any of its Subsidiaries to make annual cash payments in an amount exceeding $10,000; (iii) all agreements that individually or in the aggregate are or could be material with respect to the services of independent contractors or leased employees who are individuals or individuals doing business in a corporate form whether or not they participate in any of the Employee Plans; (iv) all officers of Microfield or any of its Subsidiaries who have executed a non-competition agreement with Microfield or any of its Subsidiaries; (v) all severance agreements, programs and policies of Microfield or any of its Subsidiaries with or relating to its employees, in each case with outstanding commitments exceeding $25,000, excluding programs and policies required to be maintained by Law; and (vi) all plans, programs, agreements and other arrangements of Microfield that contain change in control provisions. 24 - AGREEMENT AND PLAN TO MERGER (e) (i) Except as set forth in Section 4.14(e) of the Disclosure Schedules, no Employee Plan is an employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in Microfield Stock; and (ii) the completion of the transactions contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee except as disclosed in Section 4.14(e) of the Disclosure Schedules or except where such increase or acceleration would not reasonably be expected to result in a Material Adverse Effect. (f) Except as set forth in Section 4.14(f) of the Disclosure Schedules, Microfield maintains no Employee Plan covering non-U.S. employees. 4.15 INTELLECTUAL PROPERTY. (a) Section 4.15(a) of the Disclosure Schedules sets forth a list of (i) all patents and patent applications owned by Microfield worldwide; (ii) all trademark and service mark registrations and all trademark and service mark applications, material common law trademarks, material trade dress and material slogans, and all trade names owned by Microfield worldwide; (iii) all copyright registrations and copyright applications owned by Microfield worldwide; and (iv) all licenses in which Microfield is (A) a licensor with respect to any of the patents, trademarks, service marks, trade names or copyrights listed in Section 4.15 of the Disclosure Schedules or (B) a licensee of any other Person's patents, trade names, trademarks, service marks or copyrights except for any licenses of software programs that are commercially available "OFF THE SHELF." (b) Microfield owns, or is licensed or otherwise possesses legal enforceable rights to use, all Intellectual Property Rights, except for any such failures to own, be licensed or possess that would not reasonably be expected to have a Material Adverse Effect. (c) Microfield has made all necessary filings and recordations for the patents, patent applications, trademark and service mark registrations, trademark and service mark applications, copyright registrations and copyright applications set forth in Section 4.15(a) of the Disclosure Schedules, except where the failure to make such filings or recordations would not reasonably be expected to have a Material Adverse Effect. There are not currently pending, and to the Knowledge of Microfield there are no valid grounds for, any bona fide claims (i) that the business of Microfield infringes on any copyright, patent, trademark, service mark or trade secret; (ii) against the use by Microfield of any trademarks, trade names, trade secrets, copyrights, patents, technology, know-how or computer software programs and applications used in the business of Microfield as currently conducted or as proposed to be conducted; (iii) challenging the exclusive ownership, validity or effectiveness of any of Intellectual Property Rights; or (iv) challenging the license or legally enforceable right to use of any third-party patents, trademarks, service marks and copyrights by Microfield, except, in the case of each of clauses (i), (ii), (iii) and (iv) above, for matters that, if determined adversely to Microfield, would not reasonably be expected to have a Material Adverse Effect. 25 - AGREEMENT AND PLAN TO MERGER (d) Except as set forth in Section 4.15 of the Disclosure Schedules, to the Knowledge of Microfield, there is no material unauthorized use, infringement or misappropriation of any of Intellectual Property Rights by any third party, including any employee or former employee of Microfield. (e) Except as set forth in Section 4.15 of the Disclosure Schedules, there are no valid royalty agreements, license agreements (except for any license implied by the sale or products) or similar arrangements with respect to the Intellectual Property. 4.16 EMPLOYEE AND LABOR MATTERS. (a) Section 4.16(a) of the Disclosure Schedules sets forth a list of all employees of Microfield. (b) Except as set forth in Section 4.16 of the Disclosure Schedules, (i) there are no controversies pending or, to the Knowledge of Microfield, threatened, between Microfield and any of its employees, which controversies would reasonably be expected to have a Material Adverse Effect; (ii) Microfield is not a party to any collective bargaining agreement or other labor union contract applicable to Persons employed by Microfield, nor, as of the date of this Agreement, does Microfield know of any activities or proceedings of any labor union to organize any such employees; and (iii) Microfield has no Knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of Microfield that would reasonably be expected to have a Material Adverse Effect. 4.17 TITLE TO PROPERTY. Except as set forth in Section 4.17 of the Disclosure Schedules, Microfield owns the properties and assets that it purports to own free and clear of all Liens, except for Liens that arise in the ordinary course of business and do not materially impair Microfield's ownership or use of such properties or assets, Liens for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which reserves have been established in accordance with GAAP and Liens securing obligations under Microfield's credit agreements, loan agreements and equipment leases. Except as set forth in Schedule 4.17 of the Disclosure Schedules, with respect to the property and assets it leases, Microfield, and to the best of Microfield's Knowledge, each of the other parties thereto, is in material compliance with such leases, and Microfield holds a valid leasehold interest free of any Liens, except those referred to above. The rights, properties and assets presently owned, leased or licensed by Microfield include all rights, properties and assets necessary to permit Microfield to conduct its business in all material respects in the same manner as its businesses have been conducted prior to the date hereof. 4.18 OWNED AND LEASED PREMISES. Each of the buildings, structures and premises owned or leased by Microfield is in reasonably good repair and operating condition. 4.19 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.19 of the Disclosure Schedules: 26 - AGREEMENT AND PLAN TO MERGER (a) Microfield is in material compliance with the Environmental Laws, which compliance includes the possession by Microfield of all material Permits and governmental authorizations required under applicable Environmental Laws, and compliance in all material respects with the terms and conditions thereof, except in each case where such non-compliance would not reasonably be expected to have a Material Adverse Effect. Microfield has not received any written communication from a Governmental Authority that alleges that is not in such material compliance except where such non-compliance would not reasonably be expected to have a Material Adverse Effect. (b) There are no Environmental Claims, including claims based on "ARRANGER LIABILITY," pending or, to the Knowledge of Microfield, threatened against Microfield or to the Knowledge of Microfield, pending or threatened against any Person or entity whose liability for any Environmental Claim Microfield has to the Knowledge of Microfield retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (c) To the Knowledge of Microfield, there are no past or present actions, inactions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that would form the basis of any Environmental Claim against Microfield or against any Person whose liability for any Environmental Claim Microfield has retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (d) Microfield is in compliance in all material respects with Environmental Laws as they relate to (i) any on-site or off-site locations where to Microfield's Knowledge, Microfield has stored, disposed or arranged for the disposal of Materials of Environmental Concern for itself (but not on behalf of others) or (ii) any underground storage tanks located on property owned or leased by Microfield of which Microfield has Knowledge. 4.20 INSURANCE. Section 4.20 of the Disclosure Schedules contains a complete and accurate list of all fire, liability, worker's compensation and other forms of insurance insuring Microfield, and its respective officers and directors, assets and operations. The insurance polices maintained by Microfield are with reputable insurance carriers and have no premium delinquencies. 4.21 FULL DISCLOSURE. No statement contained in any certificate or schedule, including, without limitation, the Disclosure Schedules, furnished or to be furnished by Microfield to Velagio in, or pursuant to the provisions of, this Agreement contains or shall contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in the light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. 4.22 NO PRIOR ACTIVITIES. Except for obligations or liabilities incurred in connection with its incorporation or organization or the negotiation and completion of this Agreement and the transactions contemplated hereby (including any financing in connection therewith), Merger 27 - AGREEMENT AND PLAN TO MERGER Sub has not incurred any obligations or liabilities and has not engaged in any business or activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person. ARTICLE 5 ADDITIONAL COVENANTS OF VELAGIO Velagio covenants and agrees as follows: 5.1 CONDUCT OF BUSINESS OF VELAGIO. (a) Unless Microfield shall otherwise consent in writing (which consent, in the case of paragraphs (iv), (v), (ix), (xi), (xii), or (xiii) below, shall not be unreasonably withheld) and except as expressly contemplated by this Agreement or in the Disclosure Schedules, during the period from the date of this Agreement to the Effective Time, (i) Velagio shall conduct its business in the ordinary course and consistent with past practice, and Velagio shall use its reasonable best efforts to preserve substantially intact its business organization, to keep available the services of its present officers and employees and to preserve the present commercial relationships of Velagio with Persons with whom Velagio does significant business and (ii) without limiting the generality of the foregoing, Velagio will not: (i) Amend or propose to amend its Articles of Incorporation or Bylaws (or similar organizational documents); (ii) Authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any equity interests in Velagio, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any equity interests in or other securities of Velagio, including, but not limited to, any securities convertible into or exchangeable for equity interests in Velagio; (iii) Split, combine or reclassify any of its Stock or declare, pay or set aside any dividend or other distribution (whether in cash, equity interests or property or any combination thereof) in respect of its Stock, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any of its equity interests or other securities; (iv) Create or incur any indebtedness for borrowed money in excess of $5,000 or issue any debt securities or make any loans or advances, outside the ordinary course of business; (v) Sell, pledge, dispose of or encumber any assets of Velagio, outside the ordinary course of business; (vi) Authorize any capital expenditures or purchases of fixed assets in excess of $5,000, outside the ordinary course of business; (vii) Assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances; 28 - AGREEMENT AND PLAN TO MERGER (viii) Voluntarily incur any material liability or obligation (absolute, contingent or otherwise) in excess of $5,000, outside the ordinary course of business. (ix) Increase in any manner the compensation of any of its officers or employees or enter into, establish, amend or terminate any employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, deferred compensation or other compensation or benefit plan, policy, agreement, trust, fund or arrangement with, for or in respect of, any shareholder, officer, director, employee, consultant or affiliate other than, in any such case referred to above, as may be required by Law or as required pursuant to the terms of agreements in effect on the date of this Agreement; (x) Alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of Velagio; (xi) Except as may be required as a result of a change in Law, change any of the accounting principles or practices used by it; (xii) Make any tax election or settle or compromise any income tax liability; (xiii) Pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or other), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the Financial Statements (or the notes thereto) of Velagio or incurred in the ordinary course of business consistent with past practice; (xiv) Take, or agree in writing or otherwise to take, any of the foregoing actions or any action that would make any of the representations or warranties of Velagio contained in this Agreement untrue or incorrect in any material respect at or prior to the Effective Time; or (xv) Acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof. (b) Velagio shall comply with all Laws applicable to it or any of its properties, assets or business and to maintain in full force and effect all Permits necessary for such business, except in any such case for any failure so to comply or maintain that would not reasonably be expected to result in a Material Adverse Effect. 5.2 NOTIFICATION OF CERTAIN MATTERS. Velagio shall give prompt notice to Microfield if any of the following occur after the date of this Agreement: (a) receipt of any notice or other communication in writing from any party alleging that the Consent of such party is or may be required in connection with the transactions contemplated by this Agreement; (b) receipt of any 29 - AGREEMENT AND PLAN TO MERGER notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (c) the occurrence of an event that would be reasonably likely (i) to have a Material Adverse Effect or (ii) to cause any condition set forth in Section 8.1 or 8.2 to be unsatisfied; or (d) the commencement or threat of any Litigation involving or affecting Velagio or CTS, or any of their respective properties or assets, or, to Velagio's Knowledge, any employee, agent, director, officer or shareholder, in his or her capacity as such, of Velagio which, if pending on the date hereof, would have been required to have been disclosed pursuant to this Agreement or which relates to the completion of the Merger. 5.3 ACCESS AND INFORMATION. Between the date of this Agreement and the Effective Time, and without intending by this Section 5.3 to limit any of the other obligations of the parties under this Agreement, Velagio will give, and shall direct its accountants and legal counsel to give, Microfield and its authorized representatives (including, without limitation, its financial advisors, accountants and legal counsel), at reasonable times and without undue disruption to or interference with the normal conduct of the business and affairs of Velagio, access as reasonably required in connection with the transactions provided for in this Agreement to all offices and other facilities and to all contracts, agreements, commitments, books and records of or pertaining to Velagio and will furnish Microfield with such financial and operating data and other information with respect to the business and properties of Velagio as Microfield may from time to time reasonably request in connection with such transactions. 5.4 SHAREHOLDER APPROVAL. As soon as practicable, Velagio will take all steps necessary to duly call, give notice of, convene and hold the Special Meeting for the purpose of voting upon the Merger, this Agreement and the transactions contemplated hereby, or provide unanimous written consent of the Shareholders approving this Agreement and the transactions contemplated hereby. 5.5 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein provided, Velagio agrees to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to complete and make effective as promptly as practicable the transactions contemplated by this Agreement, including, but not limited to, obtaining all Consents from Governmental Authorities and other parties required for the completion of the Merger and the transactions contemplated thereby, including without limitation all Consents required under any Material Contract. Upon the terms and subject to the conditions hereof, Velagio agrees to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to satisfy the other conditions of the Closing set forth herein. 5.6 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, Velagio shall not, and shall use reasonable best efforts to cause its affiliates not to, issue or cause the publication of any press release or any other announcement with respect to the Merger or the transactions contemplated hereby without the consent of Microfield, except where such release or announcement is required by applicable Law, in which case Velagio, prior to making such announcement, will consult with Microfield regarding the same. 30 - AGREEMENT AND PLAN TO MERGER 5.7 COMPLIANCE. In completing the transactions contemplated hereby, Velagio shall comply with all applicable Laws. 5.8 VELAGIO SHAREHOLDER APPROVAL. Velagio and the Velagio Shareholders covenant and agree to vote in favor of or consent to this Merger Agreement and the transaction contemplated herein. ARTICLE 6 ADDITIONAL COVENANTS OF MICROFIELD AND MERGER SUB Microfield and Merger Sub covenant and agree as follows: 6.1 CONDUCT OF BUSINESS OF MICROFIELD. (a) Unless Microfield shall otherwise consent in writing (which consent, in the case of paragraphs (ii), (iii), (iv), (v), (ix), (x), (xii), or (xiii) below, shall not be unreasonably withheld) and except as expressly contemplated by this Agreement or in the Disclosure Schedules, during the period from the date of this Agreement to the Effective Time, (i) Microfield shall conduct its business in the ordinary course and consistent with past practice, and Microfield shall use its reasonable best efforts to preserve substantially intact its business organization, to keep available the services of its present officers and employees and to preserve the present commercial relationships of Microfield with Persons with whom Microfield does significant business and (ii) without limiting the generality of the foregoing, Microfield will not: (i) Amend or propose to amend its Articles of Incorporation or Bylaws (or similar organizational documents); (ii) Authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any equity interests in Microfield, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any equity interests in or other securities of Microfield, including, but not limited to, any securities convertible into or exchangeable for equity interests in Microfield; (iii) Split, combine or reclassify any of its Stock or declare, pay or set aside any dividend or other distribution (whether in cash, equity interests or property or any combination thereof) in respect of its Stock, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any of its equity interests or other securities; (iv) Create or incur any indebtedness for borrowed money in excess of $5,000 or issue any debt securities or make any loans or advances, outside the ordinary course of business; (v) Sell, pledge, dispose of or encumber any assets of Microfield, outside the ordinary course of business; (vi) Authorize any capital expenditures or purchases of fixed assets in excess of $5,000, outside the ordinary course of business; 31 - AGREEMENT AND PLAN OF MERGER (vii) Assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances; (viii) Voluntarily incur any material liability or obligation (absolute, contingent or otherwise) in excess of $5,000, outside the ordinary course of business; (ix) Increase in any manner the compensation of any of its officers or employees or enter into, establish, amend or terminate any employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, deferred compensation or other compensation or benefit plan, policy, agreement, trust, fund or arrangement with, for or in respect of, any shareholder, officer, director, employee, consultant or affiliate other than, in any such case referred to above, as may be required by Law or as required pursuant to the terms of agreements in effect on the date of this Agreement; (x) Alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of Microfield; (xi) Except as may be required as a result of a change in Law, change any of the accounting principles or practices used by it; (xii) Make any tax election or settle or compromise any income tax liability; (xiii) Pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or other), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the Financial Statements (or the notes thereto) of Microfield or incurred in the ordinary course of business consistent with past practice; (xiv) Take, or agree in writing or otherwise to take, any of the foregoing actions or any action that would make any of the representations or warranties of Microfield contained in this Agreement untrue or incorrect in any material respect at or prior to the Effective Time; or (xv) Acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof, other than the transaction contemplated in the CTS Merger Agreement. (b) Microfield shall comply with all Laws applicable to it or any of its properties, assets or business and to maintain in full force and effect all Permits necessary for such business, except in any such case for any failure so to comply or maintain that would not reasonably be expected to result in a Material Adverse Effect. 32 - AGREEMENT AND PLAN OF MERGER 6.2 NOTIFICATION OF CERTAIN MATTERS. Microfield shall give prompt notice to Velagio if any of the following occur after the date of this Agreement: (a) receipt of any notice or other communication in writing from any party alleging that the Consent of such party is or may be required in connection with the transactions contemplated by this Agreement; (b) receipt of any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (c) the occurrence of an event that would be reasonably likely (i) to have a Material Adverse Effect or (ii) to cause any condition set forth in Section 8.1 or 8.3 to be unsatisfied; or (d) the commencement or threat of any Litigation involving or affecting Microfield, or any of its respective properties or assets, or, to Microfield's Knowledge, any employee, agent, director, or officer, in his or her capacity as such, of Microfield which, if pending on the date hereof, would have been required to have been disclosed pursuant to this Agreement or which relates to the completion of the Merger. 6.3 ACCESS AND INFORMATION. Between the date of this Agreement and the Effective Time, and without intending by this Section 6.3 to limit any of the other obligations of the parties under this Agreement, Microfield will give, and shall direct its accountants and legal counsel to give, Velagio and its authorized representatives (including, without limitation, its financial advisors, accountants and legal counsel), at reasonable times and without undue disruption to or interference with the normal conduct of the business and affairs of Microfield, access as reasonably required in connection with the transactions provided for in this Agreement to all offices and other facilities and to all contracts, agreements, commitments, books and records of or pertaining to Microfield and will furnish Velagio with such financial and operating data and other information with respect to the business and properties of Microfield as Velagio may from time to time reasonably request in connection with such transactions. 6.4 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein provided, Microfield and Merger Sub agree to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to complete and make effective as promptly as practicable the transactions contemplated by this Agreement, including, but not limited to, obtaining all Consents from Governmental Authorities and other third parties required for the completion of the Merger and the transactions contemplated by this Agreement, including without limitation all Consents required under any of Microfield's Material Contracts. Upon the terms and subject to the conditions hereof, Microfield and Merger Sub agree to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to satisfy the other conditions of the Closing set forth herein. 6.5 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, Microfield and Merger Sub shall not, and shall use reasonable best efforts to cause their affiliates not to, issue or cause the publication of any press release or any other announcement with respect to the Merger or the transactions contemplated by this Agreement without the consent of the Surviving Corporation (such consent not to be unreasonably withheld or delayed), except where such release or announcement is required by applicable Law, in which case Microfield, prior to making such announcement, will consult with Velagio regarding the same. 33 - AGREEMENT AND PLAN OF MERGER 6.6 COMPLIANCE. In completing the transactions contemplated by this Agreement, Microfield and Merger Sub shall comply in, and cause their Subsidiaries to comply or to be in compliance, in all material respects, with all applicable Laws. ARTICLE 7 SURVIVAL; INDEMNIFICATION 7.1 SURVIVAL. All representations, warranties, covenants and agreements made in this Agreement or in any exhibit, including but not limited to the representations and warranties contained in the CTS Merger Agreement, schedule, certificate or agreement delivered in accordance with this Agreement (collectively, the "RELATED DOCUMENTS"), shall survive any investigation by or on behalf of any party, the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and any termination or expiration of this Agreement. 7.2 INDEMNIFICATION BY THE VELAGIO SHAREHOLDERS. Notwithstanding any investigation by Microfield, from and after the Closing, the Velagio Shareholders shall indemnify, hold harmless and, to the extent provided in Section 7.5(a), defend Microfield, its subsidiaries, shareholders, affiliates, officers, directors, employees, agents, successors and assigns (collectively, "MICROFIELD'S INDEMNIFIED PERSONS") from and against, and reimburse each of Microfield's Indemnified Persons with respect to, any and all losses, damages, liabilities, costs, and expenses, including interest from the Closing Date to the time of payment, penalties and reasonable attorney fees (collectively, "DAMAGES") incurred by any of Microfield's Indemnified Persons by reason of or arising out of or in connection with (a) any breach or inaccuracy of any representation or warranty of Velagio or the Velagio Shareholders made in this Agreement or any Related Document or (b) any failure by Velagio or the Velagio Shareholders to perform any covenant required to be performed by it pursuant to this Agreement or any Related Document. This indemnification extends to any Damages suffered by any of Microfield's Indemnified Persons, whether or not a claim is made against any of Microfield's Indemnified Persons by any third party. 7.3 INDEMNIFICATION BY MICROFIELD. Notwithstanding any investigation by Velagio or the Velagio Shareholders, from and after the Closing, Microfield shall indemnify, hold harmless and, to the extent provided in Section 7.5(a), defend the Velagio Shareholders (collectively, "VELAGIO'S INDEMNIFIED PERSONS") from and against, and reimburse each of Velagio's Indemnified Persons with respect to, any and all Damages incurred by any of Velagio's Indemnified Persons by reason of or arising out of or in connection with: (a) any breach or inaccuracy of any representation or warranty of Microfield or Merger Sub made in this Agreement or any Related Document; (b) any failure by Microfield or Merger Sub to perform any covenant required to be performed by it pursuant to this Agreement or any Related Document; or (c) any liability or obligation of Velagio to any third party expressly assumed by Microfield in accordance with the terms of this Agreement. This indemnification extends to any Damages suffered by any of Velagio's Indemnified Persons, whether or not a claim is made against any of Velagio's Indemnified Persons by any third party. 34 - AGREEMENT AND PLAN OF MERGER 7.4 LIMITS ON INDEMNIFICATION. Notwithstanding the foregoing, the liability of the Velagio Shareholders and Microfield under Sections 7.2 and 7.3 above shall be subject to the following limitations: (a) VELAGIO SHAREHOLDERS LIABILITY. The liability of the Velagio Shareholders pursuant to Section 7.2 is limited as follows: (i) No claim for indemnity will be effective if not made within one (1) year after the Closing Date, other than claims based upon the assertion that the Velagio Shareholders had actual knowledge that a representation or warranty made by the Velagio Shareholders was materially false when made or was made with the intent to deceive, which claims may be made at any time up to the applicable statute of limitations; (ii) The maximum aggregate amount of the liability of the Velagio Shareholders is 250,000 shares of Microfield Common Stock. The 250,000 shares of Microfield Common Stock will be held in escrow as provided in Section 2.7 and the Indemnification Escrow Agreement; and (iii) The Velagio Shareholders shall not have any indemnification obligation with respect to the first $500,000 of Damages incurred by Microfield's Indemnified Persons, as a group and in the aggregate, with similar Damages incurred by Microfield's Indemnified Persons pursuant to the CTS Merger Agreement, unless Damages of Microfield's Indemnified Persons, as a group and in the aggregate, with Damages arising pursuant to the CTS Merger Agreement equal or exceed such amount, in which case the Velagio Shareholders' obligations under Section 7.2 shall include only the amount of such Damages in excess of $500,000. (b) MICROFIELD'S LIABILITY. Microfield's obligations pursuant to Section 7.3 are limited as follows: (i) No claim for indemnity will be effective if not made within one (1) year after the Closing Date, other than claims based upon the assertion that Microfield had actual knowledge that a representation or warranty made by Microfield was materially false when made or was made with the intent to deceive, which claims may be made at any time up to the applicable statute of limitations; (ii) The maximum aggregate amount of Microfield's liability pursuant to this Agreement and the CTS Merger Agreement is 250,000 shares of Microfield Common Stock. In the event that the aggregate claims of by CTS Indemnified Persons and Velagio's Indemnified Persons exceed the threshold amount set forth in Section 7.4(b)(iii), below and exceed the 250,000 shares of Microfield Common Stock the 250,000 shares shall be divided pro rata based on the CTS Indemnified Persons and Velagio's Indemnified Persons' aggregate claims; and (iii) Microfield shall not have any indemnification obligation with respect to the first $500,000 of Damages incurred by Velagio's Indemnified Persons and CTS 35 - AGREEMENT AND PLAN OF MERGER Indemnified Persons (as defined in the CTS Merger Agreement) as a group and in the aggregate, unless Damages incurred by Velagio's Indemnified Persons and CTS Indemnified Persons, as a group and in the aggregate, equal or exceed such amount, in which case Microfield's obligations under Section 7.3 shall include only the amount of Damages in excess of $500,000. 7.5 INDEMNIFICATION PROCEDURE. (a) THIRD PARTY CLAIMS. (i) Each indemnified party will, with reasonable promptness after obtaining knowledge thereof, provide the indemnifying party with written notice of all third party actions, suits, proceedings, claims, demands or assessments that may be subject to the indemnification provisions of this Article 7 (collectively, "THIRD PARTY CLAIMS"), including, in reasonable detail, the basis for the claim, the nature of Damages and a good faith estimate of the amount of Damages. (ii) The indemnifying party or, in the case where the Velagio Shareholders are the indemnifying party, the Representative, shall have 15 days after receipt of the claim notice to notify the indemnified party in writing whether the indemnifying party agrees that the claim is subject to this Article 7 and, if so, whether the indemnifying party elects to undertake, conduct and control, through counsel of its choosing (subject to the consent of the indemnified party, such consent not to be withheld unreasonably), and at its sole risk and expense, the good faith settlement or defense of the Third Party Claim. (iii) If within 15 days after receipt of the claim notice the indemnifying party or, in the case where the Velagio Shareholders are the indemnifying party, the Representative, notifies the indemnified party that the indemnifying party elects to undertake the good faith settlement or defense of the Third Party Claim, the indemnified party shall reasonably cooperate with the indemnifying party in connection therewith including, without limitation, by making available to the indemnifying party all relevant information material to the defense of the Third Party Claim. The indemnified party shall be entitled to participate in the settlement or defense of the Third Party Claim through counsel chosen by the indemnified party, at its expense, and to approve any proposed settlement that would impose any obligation or duty on the indemnified party, which approval may, in the sole discretion of the indemnified party, be withheld. So long as the indemnifying party is contesting the Third Party Claim in good faith and with reasonable diligence, the indemnified party shall not pay or settle the Third Party Claim. Notwithstanding the foregoing, the indemnified party shall have the right to pay or settle any Third Party Claim at any time, provided that in such event it waives any right to indemnification therefor by the indemnifying party. (iv) If the indemnifying party or, in the case where the Velagio Shareholders are the indemnifying party, the Representative, does not provide notice that it elects to undertake the good faith settlement or defense of the Third Party Claim, or if the indemnifying party or, in the case where the Velagio Shareholders are the indemnifying party, the Representative, fails to contest the Third Party Claim or undertake or approve settlement, in good faith and with reasonable diligence, the indemnified party shall thereafter have the right to contest, settle or compromise the Third Party Claim at its exclusive discretion, at the risk and 36 - AGREEMENT AND PLAN OF MERGER expense of the indemnifying party and the indemnifying party will thereby waive any claim, defense or argument that the indemnified party's defense or settlement of such Third Party Claim is in any respect inadequate or unreasonable. (v) A party's failure to give timely notice will not constitute a defense (in part or in whole) to any claim for indemnification by such party, except if, and only to the extent that, such failure results in any material prejudice to the indemnifying party. (b) NON-THIRD PARTY CLAIMS. (i) Each indemnified party will, with reasonable promptness, deliver to the indemnifying party written notice of all claims for indemnification under this Article 7, in the form set forth in the Indemnification Escrow Agreement. (ii) The indemnifying party or, in the case where the Velagio Shareholders are the indemnifying party, the Representative, shall have thirty (30) days after receipt of the claim notice to notify the indemnified party in writing whether the indemnifying party accepts liability for all or any part of the Damages described in the claim notice. If the indemnifying party or, in the case where the Velagio Shareholders are the indemnifying party, the Representative, does not so notify the indemnified party the indemnifying party shall be deemed to accept liability for all the Damages described in the claim notice. (iii) A party's failure to give timely notice will not constitute a defense (in part or in whole) to any claim for indemnification by such party, except if, and only to the extent that, such failure results in any material prejudice to the indemnifying party. 7.6 PAYMENT WITH MICROFIELD COMMON STOCK. Any Damages payable hereunder shall be by delivery of the equivalent value of Microfield Common Stock using the Microfield Stock Value calculated as of the last trading day prior to the delivery of the certificates. In the case of payment by the Velagio Shareholders, such payment will be accomplished by delivery by the Escrow Agent of certificates representing shares of Microfield Common Stock together with duly executed stock powers to Mellon Investor Services, LLC, the transfer agent for Microfield Common Stock, or its successor, with instructions to transfer and deliver to Microfield a stock certificate evidencing the requisite number of shares to be transferred to Microfield or instructing that the shares be cancelled, as the case may be, with certificates representing the balance to be returned to Escrow Agent. In the case of payment by Microfield, such payment will be accomplished by the issuance and delivery of certificates representing the requisite number of shares of Microfield Common Stock to each Velagio Shareholder. ARTICLE 8 CONDITIONS PRECEDENT 8.1 MERGER CONDITIONS. The respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: 37 - AGREEMENT AND PLAN OF MERGER (a) CTS MERGER. All of the conditions precedent to the CTS Merger of all parties shall have been satisfied or waived in writing by the appropriate party or parties, such that the CTS Merger shall close and become effective simultaneously with the Effective Time. (b) VELAGIO SHAREHOLDERS APPROVAL. The Merger, this Agreement and the transactions contemplated by this Agreement shall have been approved at or prior to the Effective Time by the required vote or unanimous written consent of the Velagio Shareholders in accordance with the OBCA and the Articles and Bylaws of Velagio. (c) NO INJUNCTION OR ACTION. No order, statute, rule, regulation, executive order, stay, decree, judgment or injunction shall have been enacted, entered, promulgated or enforced by any court or other Governmental Authority that prohibits or prevents the completion of the Merger which has not been vacated, dismissed or withdrawn prior to the Effective Time. Velagio and Microfield shall use all reasonable best efforts to have any of the foregoing vacated, dismissed or withdrawn by the Effective Time. (d) EXHIBITS AND SCHEDULES. The parties to this Agreement, in their sole discretion, shall have approved and attached the Exhibits and Schedules called for in this Agreement at the Closing. (e) CONVERSION BY TSI. TSI has converted all of the shares of Velagio's Series A Preferred Stock held by TSI into shares of Velagio Stock on or before the Closing of the Merger. 8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MICROFIELD AND MERGER SUB. The obligations of Microfield and Merger Sub to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of the following express conditions precedent: (a) COMPLIANCE WITH AGREEMENT. Velagio shall have performed and complied: (i) in all respects with all of its obligations under Section 5.1; and (ii) in all respects with all of its other obligations under this Agreement that are to be performed or complied with by it prior to or on the Closing Date, except where the failure to perform or comply, individually or in the aggregate, would not or would not be reasonably likely to result in a Material Adverse Effect. (b) REPRESENTATIONS AND WARRANTIES OF VELAGIO. The representations and warranties made by Velagio in this Agreement shall be true and correct in all respects when made and as of the Closing Date with the same force and effect as though made on the Closing Date, except where the effect of any breaches of the representations and warranties of Velagio made in this Agreement, individually or in the aggregate, would not be reasonably likely to result in a Material Adverse Effect. (c) NO MATERIAL ADVERSE EFFECT. During the period from the date of this Agreement to the Closing Date there shall not have occurred, and be continuing on the Closing Date, any Material Adverse Effect. 38 - AGREEMENT AND PLAN OF MERGER (d) CLOSING CERTIFICATES. Velagio shall have delivered to Microfield (a) a certificate signed on behalf of Velagio by the Chief Executive Officer of Velagio, dated on the Closing Date, to the effect that, to the best of such person's Knowledge, the conditions set forth in Sections 8.2(a), (b) and (c) have been satisfied; and (b) a secretary's certificate as to such Velagio corporate matters in connection with the Merger as Microfield may reasonably request. 8.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF VELAGIO. The obligations of Velagio to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of the following express conditions precedent: (a) COMPLIANCE WITH AGREEMENT. Microfield and Merger Sub shall have performed and complied in all respects with all of their obligations under this Agreement which are to be performed or complied with by them prior to or on the Closing Date, except where the failure to perform or comply, individually or in the aggregate, would not or would not be reasonably likely to result in a Microfield Material Adverse Effect. (b) REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER SUB. The representations and warranties made by Microfield and Merger Sub in this Agreement shall be true and correct in all respects when made and as of the Closing Date with the same force and effect as though such representations and warranties had been made on the Closing Date, except where the effect of any breaches of the representations and warranties of Microfield and Merger Sub made in this Agreement, individually or in the aggregate, would not or would not be reasonably likely to result in a Material Adverse Effect. (c) CLOSING CERTIFICATE. Microfield shall have delivered to Velagio (i) a certificate signed on behalf of Microfield by the Chief Executive Officer of Microfield, dated the Closing Date, to the effect that, to the best of such officers' knowledge, the conditions set forth in Sections 8.3(a) and (b) of this Agreement have been satisfied; and (ii) secretary's certificates of Microfield and Merger Sub as to such corporate matters in connection with the Merger as Velagio may reasonably request. (d) APPOINTMENT OF CHIEF EXECUTIVE OFFICER AND PRESIDENT. The board of directors of Microfield shall have appointed Underwood Chief Executive Officer and President of Microfield, effective immediately after the Effective Time. (e) APPOINTMENT OF CHIEF OPERATING OFFICER. The board of directors of Microfield shall have appointed Steven M. Wright Chief Operating Officer of Microfield immediately after the Effective Time. (f) BOARD OF DIRECTORS. Underwood and Robert J. Jesenik shall have been duly elected to Microfield's board of directors, effective immediately after the Effective Time. (g) UNDERWOOD EMPLOYMENT AGREEMENT. Underwood shall have executed and delivered an employment agreement with Microfield in the form attached as Exhibit C. 39 - AGREEMENT AND PLAN OF MERGER (h) WRIGHT EMPLOYMENT AGREEMENT. Steven M. Wright shall have executed and delivered an employment agreement with Microfield in the form attached as Exhibit D. ARTICLE 9 TERMINATION AND ABANDONMENT 9.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Velagio Shareholders described herein: (a) By mutual written consent of Microfield and Velagio; (b) By either Microfield or Velagio if (i) any Governmental Authority shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the completion of the transactions contemplated by this Agreement and such order, decree or ruling or other action shall have become final and nonappealable, or (ii) the Velagio Shareholders do not approve the Merger; (c) By Microfield if: (i) Velagio shall have breached or failed to perform in any material respect any of its covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to Velagio; (ii) Any representation or warranty of Velagio shall not have been true and correct when made (without for this purpose giving effect to qualifications of materiality contained in such representation and warranty), if such failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; (iii) Any representation or warranty of Velagio shall cease to be true and correct at any later date (without for this purpose giving effect to qualifications of materiality contained in such representation and warranty) as if made on such date (other than representations and warranties made as of a specified date) other than as a result of a breach or failure to perform by Microfield of any of its covenants or agreements under this Agreement if such failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; provided, however, that such representation or warranty is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to Velagio; (iv) Since the date of the issuance of the Velagio Financial Statements, Velagio shall have suffered a Material Adverse Change, or any representation or warranty contained in the CTS Merger Agreement shall cease to be true and correct at any later date, as if made on such date. (d) By Velagio if: 40 - AGREEMENT AND PLAN OF MERGER (i) Microfield or Merger Sub shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to Microfield; (ii) Any representation or warranty of Microfield or Merger Sub shall not have been true and correct when made (without for this purpose giving effect to qualifications of materiality contained in such representation and warranty), if such failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; (iii) Any representation or warranty of Microfield or Merger Sub shall cease to be true and correct at any later date (without for this purpose giving effect to qualifications of materiality contained in such representation and warranty) as if made on such date (other than representations and warranties made as of a specified date) other than as a result of a breach or failure to perform by Velagio of any of its covenants or agreements under this Agreement if such failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; provided, however, that such representation or warranty is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to Microfield or Merger Sub; (iv) Since June 29, 2003, Microfield shall have suffered a Material Adverse Change. (e) By either Microfield or Velagio if the Merger is not completed on or before October 1, 2003, provided that the right to terminate this Agreement pursuant to this Section 9.1(e) shall not be available to any party where failure to perform any of its obligations under this Agreement results in the failure of the Merger to be completed by such time. The party desiring to terminate this Agreement pursuant to the preceding paragraphs shall give written notice of such termination to the other party in accordance with Section 10.5 hereof. 9.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article 9, this Agreement (other than Sections 9.2, 10.1, 10.3, 10.5, 10.6, 10.7, 10.8, 10.10, 10.11, 10.12, 10.14 and 10.15) shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, members, employees, agents, legal or financial advisors or other representatives); provided, however, that no such termination shall relieve any party hereto from any liability for any willful breach of this Agreement prior to termination. If this Agreement is terminated as provided herein, each party shall use all reasonable best efforts to redeliver all documents, work papers and other material (including any copies thereof) of any other party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same. 41 - AGREEMENT AND PLAN OF MERGER ARTICLE 10 MISCELLANEOUS 10.1 CONFIDENTIALITY. (a) Unless (i) otherwise expressly provided in this Agreement, (ii) required by applicable Law, (iii) necessary to secure any required Consents as to which the other party has been advised or (iv) consented to in writing by Microfield and Velagio, all information (whether oral or written) and documents furnished in connection herewith together with analyses, compilations, studies or other documents prepared by such party which contain or otherwise reflect such information shall be kept strictly confidential by Microfield, Velagio, Merger Sub and their respective officers, directors, employees, agents, and the Velagio Shareholders. Prior to any disclosure permitted pursuant to the preceding sentence, the party intending to make such disclosure shall consult with the other party regarding the nature and extent of the disclosure. Nothing contained herein shall preclude disclosures to the extent necessary to comply with obligations imposed by applicable Law. (b) In the event the transactions contemplated by this Agreement are not completed, each party shall return to the other any documents furnished by the other and all copies thereof that any of them may have made and will hold in confidence any information obtained from the other party except to the extent (i) such party is required to disclose such information by Law or such disclosure is necessary or desirable in connection with the pursuit or defense of a claim, (ii) such information was known by such party prior to such disclosure (and provided that, except with respect to information referred to in the following clause (iii), such party shall have advised the other party of such knowledge upon or promptly after its receipt of such information) or was thereafter developed or obtained by such party independent of such disclosure, or (iii) such information is or becomes generally available to the public other than by breach of this Section 10.1 (or, to such party's Knowledge, breach of a confidentiality agreement with the other party). Prior to any disclosure of information pursuant to the exception in clause (i) of the preceding sentence, the party intending to disclose the same shall so notify the party which provided the same in order that such party may seek a protective order or other appropriate remedy should it choose to do so. 10.2 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or supplemented only by a written agreement among Velagio, Microfield and Merger Sub. 10.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Velagio on the one hand, or Microfield and Merger Sub on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived by Microfield on the one hand, or Velagio on the other hand, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 10.3. 42 - AGREEMENT AND PLAN OF MERGER 10.4 SURVIVAL. The respective representations, warranties, covenants and agreements of Velagio and Microfield contained herein or in any certificates or other documents delivered prior to or at the Closing shall survive the execution and delivery of this Agreement, notwithstanding any investigation made or information obtained by the other party, but shall terminate at the Effective Time, except for those contained in Article 7 and Sections 2.8, 2.9, 2.10, 10.4 and 10.8, which shall survive beyond the Effective Time. 10.5 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, or on the next business day when sent by overnight courier or on the second succeeding business day when sent by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) IF TO VELAGIO, TO: Velagio, Inc. Suite 400 1631 NW Thurman Street Portland, OR 97209 Attn: Kurt A. Underwood Tel: (503) 467-7777 WITH A COPY TO: White & Lee, LLP Suite 2440 805 SW Broadway, Portland, OR 97205 Attn: Jon R. Summers Tel: (503) 419-3000 (b) IF TO MICROFIELD OR MERGER SUB, TO: Microfield Group, Inc. Suite 310 1631 NW Thurman Portland, OR 97209 Attn: Steven M. Wright Tel: (503) 419-3581 43 - AGREEMENT AND PLAN OF MERGER WITH A COPY TO: Dunn Carney Allen Higgins & Tongue LLP Suite 1500 851 SW 6th Avenue Portland, OR 97204 Attn: Jonathan A. Bennett Tel: (503) 224-6440 10.6 BINDING EFFECT; ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto prior to the Effective Time without the prior written consent of Velagio, in the case of a proposed assignment by Microfield or Merger Sub, or by Microfield, in the case of a proposed assignment by Velagio. 10.7 FEES AND EXPENSES. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. 10.8 GOVERNING LAW. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with the laws of, the state of Oregon. Each party consents to jurisdiction and venue in Multnomah County, Oregon. 10.9 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.10 INTERPRETATION. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 10.11 ENTIRE AGREEMENT. This Agreement and the documents or instruments referred to herein including, but not limited to, the attached Exhibits and Disclosure Schedules, which Exhibits and Disclosure Schedules are incorporated herein by reference, embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants, or undertakings other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter. 10.12 SEVERABILITY. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall 44 - AGREEMENT AND PLAN OF MERGER not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. 10.13 SPECIFIC PERFORMANCE. The parties hereto 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. Accordingly, the parties further agree that each party shall be entitled to an injunction or restraining order to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other right or remedy to which such party may be entitled under this Agreement, at law or in equity. 10.14 THIRD PARTIES. Nothing contained in this Agreement or in any instrument or document executed by any party in connection with the transactions contemplated hereby shall create any rights in, or be deemed to have been executed for the benefit of, any Person that is not a party hereto or thereto or a successor or permitted assign of such a party. 10.15 DISCLOSURE SCHEDULES. Each Microfield and Velagio acknowledges that the Disclosure Schedules (a) relate to certain matters concerning the disclosures required and transactions contemplated by this Agreement, (b) are qualified in their entirety by reference to specific provisions of this Agreement, and (c) are not intended to constitute and shall not be construed as indicating that any such matter is required to be disclosed, nor should such disclosure be construed as an admission that such information is material with respect to Velagio or Microfield, as the case may be, except to the extent required by this Agreement. [SIGNATURES ON FOLLOWING PAGE] 45 - AGREEMENT AND PLAN OF MERGER IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written. MICROFIELD GROUP, INC. an Oregon corporation By: -------------------------------- Steven M. Wright, President VELAGIO, INC. VSI ACQUISITION CO. an Oregon corporation an Oregon corporation By: By: -------------------------------- -------------------------------- Kurt A. Underwood, Steven M. Wright, President Chief Executive Officer The undersigned Velagio Shareholders agree to be bound by the applicable terms and conditions of this Agreement. TSI TELECOMMUNICATION SERVICES, INC. a Delaware corporation By: ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- - --------------------------------------- KURT A. UNDERWOOD, individually 46 - AGREEMENT AND PLAN OF MERGER EXHIBIT A INDEMNIFICATION ESCROW AGREEMENT [See attached] 1 - EXHIBIT A EXHIBIT B REGISTRATION RIGHTS AGREEMENT [See attached] 1 - EXHIBIT B EXHIBIT C UNDERWOOD EMPLOYMENT AGREEMENT [See attached] 1 - EXHIBIT C EXHIBIT D WRIGHT EMPLOYMENT AGREEMENT [See attached] 1 - EXHIBIT D EX-99.1 5 v93371exv99w1.txt EXHIBIT 99.1 Exhibit 99.1 INDEMNIFICATION ESCROW AGREEMENT THIS INDEMNIFICATION ESCROW AGREEMENT (this "AGREEMENT") is made and entered into as of September 15, 2003 (the "EFFECTIVE DATE"), by and among MICROFIELD GROUP, INC., an Oregon corporation ("MICROFIELD"); KURT A. UNDERWOOD and TSI TELECOMMUNICATION SERVICES, INC., a Delaware corporation (collectively, the "VELAGIO SHAREHOLDERS"), KURT A. UNDERWOOD, as representative for the Velagio Shareholders (the "VELAGIO REPRESENTATIVE"); CHRISTENSON GROUP LLC, an Oregon limited liability company (the "CTS SHAREHOLDER"); ROBERT J. JESENIK, as representative for the CTS Shareholder (the "CTS REPRESENTATIVE"); and ANTHONY J. MOTSCHENBACHER (the "ESCROW AGENT"). All capitalized terms used in this Agreement and not otherwise defined herein will have the meanings given them in the Agreement and Plan of Merger dated the same date as this Agreement (the "VSI MERGER AGREEMENT"), by and among Microfield, VSI Acquisition Co., an Oregon corporation ("VSI ACQUISITION"), Velagio, Inc., an Oregon corporation ("VELAGIO"), and the Velagio Shareholders, pursuant to which VSI Acquisition will merge with and into Velagio (the "VSI MERGER"), and in the Agreement and Plan of Merger dated the same date as this Agreement (the "CTS MERGER AGREEMENT"), by and among Microfield, CTS Acquisition Co., an Oregon corporation ("CTS ACQUISITION"), Christenson Technology Services, Inc., an Oregon corporation ("CTS"), and the CTS Shareholder, pursuant to which CTS Acquisition will merge with and into CTS (the "CTS MERGER"). The VSI Merger and CTS Merger will be referred together as the "MERGERS", the VSI Merger Agreement and CTS Merger Agreement will be referred together as the "MERGER AGREEMENTS" or individually as a "MERGER AGREEMENT", the Velagio Shareholders and CTS Shareholder will be referred together as the "SHAREHOLDERS", and the Velagio Representative and CTS Representative will be referred together as the "REPRESENTATIVES" or individually as a "REPRESENTATIVE". RECITALS A. Section 12.7 of each of the Merger Agreements provides that the Escrow Shares (as defined below) are to be deducted and withheld from the shares of Common Stock of Microfield (the "MICROFIELD COMMON STOCK") to be issued in the Mergers to the Shareholders and placed in an escrow account (the "ESCROW ACCOUNT") to secure certain indemnification obligations of Velagio, CTS and the Shareholders under Article 7 of the Merger Agreements on the terms and conditions set forth in this Agreement. Attached EXHIBIT A sets forth the name and address of each Shareholder, the number of Escrow Shares required to be deposited in the Escrow Account by each Shareholder pursuant to the Merger Agreements, and each Shareholder's pro rata percentage of the Escrow Shares. B. The Representatives and each Shareholder are entering into this Agreement as a material inducement and consideration for Microfield to enter into the Merger Agreements and to 1 - INDEMNIFICATION ESCROW AGREEMENT consummate the transactions contemplated therein. As a condition precedent to consummate such transactions, the parties desire to set forth in this Agreement the terms and conditions pursuant to which the Escrow Shares shall be deposited, held in, and disbursed from the Escrow Account. AGREEMENT NOW, THEREFORE, the parties hereto hereby agree as follows: 1. ESCROW AND INDEMNIFICATION. 1.1 ESCROW OF SHARES. Promptly after the Closing Date, Microfield will, or will cause its transfer agent to, deposit with the Escrow Agent in the manner contemplated by Section 2, the Escrow Shares registered in the names of each of the Shareholders, together with Stock Powers in blank and in the form required by Microfield's transfer agent, and a written notice making reference to this Agreement, setting forth the Closing Date, and identifying the shares so deposited as the Escrow Shares. The Escrow Agent shall hold the Escrow Shares and stock powers in escrow as a source of collateral for the indemnification obligations of the Shareholders under Article 7 of the Merger Agreements until the Escrow Agent is required to release such Escrow Shares in accordance with the terms of this Agreement. As used in this Agreement, the term "ESCROW SHARES" shall include all "INITIAL ESCROW SHARES" and "ADDITIONAL ESCROW SHARES" as those terms are defined in Section 2 of this Agreement. The Escrow Agent agrees to accept delivery of the Escrow Shares and stock powers and to hold such Escrow Shares and stock powers in escrow subject to the terms and conditions of this Agreement. 1.2 INDEMNIFICATION. The Indemnified Persons are indemnified by the Shareholders pursuant to the terms of Section 7 of the Merger Agreements (which terms are incorporated herein by reference) from and against any Claims (as defined below), subject to the limitations set forth in Section 7.4 of the Merger Agreements and in this Agreement. The Escrow Shares shall be a resource of security for these indemnity obligations, subject to the terms and conditions of Article 7 of the Merger Agreements and this Agreement. The Velagio Representative on behalf of the Velagio Shareholders, and the CTS Representative on behalf of the CTS Shareholder, shall each act as the Shareholders' representative and attorney in fact for purposes of acting on their behalf and taking all actions necessary to perform this Agreement, and resolve and settle Claims under the Merger Agreements and this Agreement on behalf of the respective Shareholders. 1.3 NOTICE OF CLAIM. As used herein, the term "CLAIM" means a claim for indemnification under Article 7 of the Merger Agreements made by an Indemnified Person. Microfield shall give written notice of a Claim (a "NOTICE OF CLAIM") to the respective Representative and the Escrow Agent as promptly as reasonably practicable after either: (i) the Indemnified Person's discovery, after the Closing Date, of any fact or circumstance that gives rise to indemnification rights under Section 7.2 of either Merger Agreement; or (ii) the Indemnified Person's discovery, after the Closing Date, of written notice to Microfield or to any other Indemnified Person of any claim, demand, suit, action, arbitration, investigation, inquiry or 2 - INDEMNIFICATION ESCROW AGREEMENT proceeding brought by a third party against such Indemnified Person that is based upon or includes facts or assertions that would, if true, give rise to indemnification rights under Section 7.2 of either Merger Agreement (a "THIRD PARTY CLAIM"). Each Indemnified Person agrees with the Shareholders and the Representatives that it will make Claims only as permitted by Article 7 of the Merger Agreements. No delay on the part of any Indemnified Person, and Microfield, in giving the appropriate Representative notice of a Claim shall relieve the Representative or any Shareholder from any of its obligations under Section 7.2 of the Merger Agreements or this Agreement unless (and then only to the extent that) the Representative and the Shareholders are materially prejudiced thereby or the applicable survival period in Section 7.1 of the Merger Agreements has expired. 1.4 ESCROW PERIOD. As used herein, the term "ESCROW PERIOD" means that one (1) year time period set forth in Section 7.4(a)(i) of the Merger Agreements, but shall terminate prior to such period if all of the Escrow Shares have been released pursuant to Section 2.4. 2. DEPOSIT OF ESCROW SHARES; RELEASE FROM ESCROW. 2.1 DELIVERY OF ESCROW SHARES. On the Closing Date or as soon thereafter as is reasonably practicable: (i) Microfield shall deliver to the Escrow Agent, or cause its transfer agent to deliver to the Escrow Agent, for deposit to the Escrow Account, the written notice contemplated in Section 1.1 accompanied by one or more duly authorized stock certificates in the name of each of the Shareholders as shown on attached EXHIBIT A (the "INITIAL ESCROW SHARES"). The Representatives agree to execute and deliver to the Escrow Agent such additional stock powers relating to the Escrow Shares as may be necessary, in the Escrow Agent's reasonable opinion, to carry out its responsibilities under this Agreement. In the event Microfield issues any Additional Escrow Shares (as defined below), Microfield shall deliver, or cause its transfer agent to deliver, such Additional Escrow Shares to the Escrow Agent, in the same manner as the Initial Escrow Shares. Unless and until stock certificates representing Additional Escrow Shares are received by the Escrow Agent, the Escrow Agent may assume that none have been issued. 2.2 DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Except for dividends paid in shares of Microfield stock that are declared and paid with respect to the Escrow Shares or shares of Microfield Common Stock issued with respect to Escrow Shares and resulting from a stock split or other subdivision ("ADDITIONAL ESCROW SHARES"), any cash dividends, dividends payable in securities or other distributions of any kind made or paid in respect of the Escrow Shares shall be distributed by Microfield to each Shareholder at the time of such dividend or other distribution. Each Shareholder shall have the right to vote the Escrow Shares deposited in the Escrow Account for the account of such Shareholder so long as such Escrow Shares are held in escrow and not the subject of a Claim, and Microfield shall take all reasonable steps necessary to allow the exercise of such rights. So long as the Escrow Shares remain in the Escrow Agent's possession pursuant to this Agreement and have not been canceled as provided herein or repurchased by Microfield AND ARE NOT THE SUBJECT OF A CLAIM, the Shareholders shall retain and shall be able to exercise voting rights with respect to such Escrow Shares and all other incidents of ownership of the Escrow Shares that are not inconsistent with the terms and conditions of this 3 - INDEMNIFICATION ESCROW AGREEMENT Agreement or the Merger Agreements. Microfield and the Shareholders will arrange for the payment of ordinary dividends and the delivery of proxies and other notices among themselves, and the Escrow Agent need not be involved. Neither the Escrow Agent nor its nominee shall be under any duty to take any action to preserve, protect, exercise or enforce any rights or remedies under or with respect to the Escrow Shares (including without limitation with respect to the exercise of any voting or consent rights, conversion or exchange rights, defense of title, preservation or rights against prior matters or otherwise). Notwithstanding the foregoing, if the Escrow Agent is so requested in a written request of a Representative received by the Escrow Agent at least three (3) Business Days prior to the date on which the Escrow Agent is requested therein to take such action (or such later date as may be acceptable to the Escrow Agent), the Escrow Agent shall execute or cause its nominee to execute, and deliver to the Representative a proxy or other instrument in the form supplied to it by the Representative for voting or otherwise exercising any right of consent with respect to any of the Escrow Shares hold by it hereunder, to authorize therein the Representative to exercise such voting or consent authority in respect of the Escrow Shares (provided, that the Escrow Agent shall not be obliged to execute any such proxy or other instrument if, in its judgment, the terms thereof may subject the Escrow Agent to any liabilities or obligations in its individual capacity). The Escrow Agent shall not be under any duty or responsibility to forward to Microfield, Shareholders and the Representatives (each, an "INTERESTED PARTY"), or to notify any Interested Party with respect to, or to take any action with respect to, any notice, solicitation or other document or information, written or otherwise, received from an issuer or other person with respect to the Escrow Shares, including but not limited to, proxy material, tenders, options, the pendency of calls and maturities and expiration of rights. 2.3 DISTRIBUTIONS TO SHAREHOLDERS. Promptly after the Escrow Agent receives notice of the date on which the Escrow Period expired (the "FINAL RELEASE DATE"), the Escrow Agent shall release, or cause the transfer agent of the Escrow Shares to release, from escrow to each Shareholder at each Shareholders' address as set forth in EXHIBIT A, in proportion to each such Shareholders' pro rata portion as set forth in EXHIBIT A, that number of shares that is equal to the positive difference between (i) the total number of Escrow Shares then remaining subject to this Agreement, less (ii) the total number of such Shareholder's Escrow Shares that are owed to Microfield and are to be canceled and forfeited in accordance with Section 4 in satisfaction of Claims by Microfield or that are otherwise being held in escrow subject to a pending Claim by Microfield. As used in this Agreement, a "SHAREHOLDER'S ESCROW SHARES" refers to and means: (i) if no Additional Escrow Shares are issued, the Initial Escrow Shares allocable to such Shareholder as set forth in EXHIBIT A; and (ii) if Additional Escrow Shares are issued, that number of Escrow Shares obtained by multiplying the total number of all Escrow Shares in the Escrow Account at the time in question by such Shareholder's pro rata portion as set forth in EXHIBIT A. Except for Additional Escrow Shares, in no event shall any Shareholder be required to contribute additional shares to the Escrow. 2.4 RELEASE OF ESCROW SHARES. The Escrow Shares shall be held by the Escrow Agent until such Escrow Shares are required to be released pursuant to either: (i) Section 2.3; or (ii) when required under applicable provisions of Section 4 (each such day, "RELEASE DATE"). The Escrow Agent shall deliver to Microfield's transfer agent for further 4 - INDEMNIFICATION ESCROW AGREEMENT delivery to the Shareholders or to Microfield, as applicable hereunder, the requisite number of Escrow Shares to be released on each applicable date as is called for by this Agreement. Such delivery of Escrow Shares shall be in the form of stock certificate(s) registered in the name of such Shareholders or Microfield, as applicable, in accordance with this Agreement. The Escrow Agent shall coordinate with Microfield's transfer agent who shall cause such stock certificates to be registered in the appropriate names as determined by the Escrow Agent in accordance with this Agreement. Microfield shall give the Escrow Agent prompt written notice of the name and address of the current and any new transfer agent for Microfield's Common Stock. Microfield and the Representatives shall undertake to deliver a prompt written notice to the Escrow Agent identifying the number of Escrow Shares to be released to each of the Shareholders and/or Microfield, as applicable, in accordance with this Agreement. Escrow Shares released to the Shareholders shall be released to them in proportion to their respective pro rata portions as set forth in EXHIBIT A. The Escrow Agent may, from time to time, request from Microfield or from the Representatives written confirmation of the accuracy and completeness of information respecting the Shareholders set forth in EXHIBIT A. Cash, which shall be furnished to the Escrow Agent by Microfield, shall be paid in lieu of any distribution of a fraction of an Escrow Share held by any Shareholder (computed for each Shareholder by aggregating all Escrow Shares held by such Shareholder) in an amount equal to the applicable fraction of an Escrow Share multiplied by the per share market value of Microfield Common Stock (as set forth in Section 4.5) as set forth in a certificate of Microfield delivered to and received by the Escrow Agent (such price per share to be adjusted to reflect any stock dividend, stock split, reverse stock split, combination of shares, reclassification, recapitalization or other similar event affecting Microfield Common Stock (each a "CAPITAL CHANGE"), whether occurring at or after the Closing Date if the written notice described below has been received by the Escrow Agent). Within five (5) business days Microfield shall give the Escrow Agent and the Representatives written notice of the occurrence of any Capital Change and the impact thereof on such price per share of Microfield Common Stock referred to above. Within two (2) business days prior to the scheduled date for releasing shares to the Shareholders hereby, Microfield shall submit to the Escrow Agent and the Representatives a certified schedule of the cash amounts payable for fractional shares (if any) to each of the Shareholders as set forth in EXHIBIT A and shall deposit with the Escrow Agent sufficient funds to pay such cash amounts for fractional shares. The Escrow Agent may be required by the Internal Revenue Code, as it may be amended from time to time, to withhold a portion of any cash distribution to any Shareholder unless such Shareholder delivers to the Escrow Agent an IRS Form W-9 (or Form W-8 for non-U.S. persons) for tax reporting purposes, duly completed and executed by such Shareholder prior to such distribution. 2.5 NO ENCUMBRANCE. No Escrow Shares or any beneficial interest therein may be pledged, encumbered, sold, assigned or transferred (including any transfer by operation of law), by a Shareholder or be taken or reached by any legal or equitable process in satisfaction of any debt or other liability of such Shareholder, prior to the delivery to such Shareholder of such Escrow Shares by the Escrow Agent in accordance with this Agreement. The Escrow Agent shall have no responsibility for determining or enforcing compliance with this Section 2.5, except that the Escrow Agent shall retain possession of the stock certificates evidencing the Escrow Shares as required by this Agreement. 5 - INDEMNIFICATION ESCROW AGREEMENT 2.6 POWER TO TRANSFER ESCROW SHARES. The Escrow Agent is hereby granted the power to effect any transfer of Escrow Shares contemplated by this Agreement. Microfield shall cooperate with the Escrow Agent in causing Microfield's transfer agent to promptly issue stock certificates to effect such transfers. 3. CONTENTS OF NOTICE OF CLAIM. 3.1 WRITTEN CLAIM. Each Notice of Claim given by Microfield pursuant to Section 1.3 shall be in writing and shall contain the following information to the extent it is reasonably available to Microfield: (a) Microfield's statement of the amount of the damages that Microfield believes have been actually incurred by Microfield and/or any other Indemnified Person in connection with the Claim and/or Microfield's statement of its good faith estimate of the reasonably foreseeable amount of the alleged damages that will ultimately be incurred by Microfield and/or any other Indemnified Person in connection with such Claim; and (b) A brief description in reasonable detail of the facts, circumstances or events giving rise to the alleged Damages based on Microfield's or any other affected Indemnified Person's good faith belief thereof, and, if applicable, the identity and address of any third-party claimant (to the extent reasonably available to Microfield) and copies of any formal demand or complaint of any such third-party claimant. 3.2 NO TRANSFER. The Escrow Agent shall not transfer any of the Escrow Shares held in the Escrow Account to Microfield pursuant to a Notice of Claim until such Notice of has been resolved in accordance with Section 4. 4. RESOLUTION OF CLAIMS AND TRANSFERS OF ESCROW SHARES. Any Notice of Claim received by the Shareholders' Representative and the Escrow Agent pursuant to Section 1.3 and Section 3 shall be resolved as follows: 4.1 UNCONTESTED CLAIMS. If, within thirty (30) calendar days after a Notice of Claim containing a statement of claimed damages has been received by, or is deemed to have been delivered by Microfield to, the respective Representative and the Escrow Agent pursuant to Section 7, the appropriate Representative has not contested such Notice of Claim in a written notice received by Escrow Agent as provided in Section 4.2 (an "UNCONTESTED CLAIM"), then the Escrow Agent shall: (i) promptly release or cause the transfer agent of the Escrow Shares to release from escrow and transfer to Microfield for cancellation and forfeiture that number of Escrow Shares having a value (as determined in accordance with Section 4.5) equal to the amount of damages specified in such Notice of Claim, which transferred and forfeited Escrow Shares shall be taken from and forfeited by the Shareholders as set forth in Section 4.5; and (ii) notify the Representatives in writing of such transfer and forfeiture of Escrow Shares as promptly as reasonably practicable. 6 - INDEMNIFICATION ESCROW AGREEMENT 4.2 CONTESTED CLAIMS. In the event that the respective Representative delivers to Microfield and the Escrow Agent a written notice contesting all, or a portion of, a Notice of Claim (a "CONTESTED CLAIM") and such written notice has been received by, or is deemed, under the provisions of Section 7, to have been delivered to, Microfield and the Escrow Agent within the thirty (30) day period described in Section 4.1, then: (i) such Contested Claim shall be resolved by either (1) a written settlement agreement executed by Microfield and appropriate Representative, or (2) in the absence of such a written settlement agreement, by nonbinding arbitration in accordance with the provisions of Section 4.3. Any portion of the Notice of Claim that is not contested by the Representative in accordance with the foregoing provisions of this Section 4.2 shall be treated as an Uncontested Claim and resolved in accordance with Section 4.1. 4.3 NONBINDING ARBITRATION OF CONTESTED CLAIMS. Microfield and the Representatives agree that they shall use best reasonable efforts to settle amicably disagreements arising from or in connection with this Agreement. To this effect, following notice of either to the other (with copy to the Escrow Agent) of a disagreement, which shall include any failure to agree upon a matter to be agreed upon (a "DISPUTE"), the parties shall consult and negotiate with one another in good faith an understanding to reach a just and equitable solution. If those attempts fail after a period of ten (10) business days from the time the parties have been notified of the Dispute, then every such Dispute shall be settled by nonbinding arbitration in Multnomah County, Oregon, in accordance with the commercial arbitration rules of Arbitration Services of Portland, Inc. ("ASP") then in effect. Upon completion of the arbitration, any award rendered by the arbitrator may be entered by the parties in the circuit court for Multnomah County, Oregon; provided, however, that such award may be appealed as set forth below. The arbitrator shall have the authority to grant any equitable and legal remedies that would be available in a judicial proceeding instituted to resolve the Dispute. (A) SELECTION OF ARBITRATOR. ASP will have the authority to select an arbitrator from a list of arbitrators who are lawyers familiar with Oregon contract law; provided, however, that such lawyers cannot work for a firm then performing services for either party, that each party will have the opportunity to make such reasonable objection to any of the arbitrators listed as such party may wish and that ASP will select the arbitrator from the list of arbitrators as to whom neither party makes any such objection. In the event that the foregoing procedure is not followed, each party will choose one person from the list of arbitrators provided by ASP (provided that such person does not have a conflict of interest), and the two persons so selected will select from the list provided by ASP the person who will act as arbitrator. (B) PAYMENT OF COSTS. Microfield and the respective Shareholders will bear the expense of deposits and advances required by the arbitrator. Microfield shall pay fifty percent (50%) and the Shareholders collectively shall pay fifty percent (50%) of such deposits and advances, with each Shareholder paying in proportion to their respective escrow percentage, but either party may advance such amounts, subject to recovery as an addition or offset to any award. The arbitrator will award to the prevailing party, as determined by the arbitrator, all costs, fees and expenses related to the arbitration, including reasonable fees and expenses of attorneys, accountants and other professionals incurred by the prevailing party. 7 - INDEMNIFICATION ESCROW AGREEMENT (C) AWARD AND APPEAL. Upon the conclusion of the arbitration proceedings hereunder, the arbitrator will render findings of fact and conclusions of law and a written opinion setting forth the basis and reasons for any decision reached and will deliver such documents to each party to this Agreement along with a signed copy of the award. The parties shall then have thirty (30) days to enter the award as a judgment in the circuit court of Multnomah County, Oregon, and then thirty (30) additional days after entry of the award as a judgment to appeal it in the circuit court. The judge at trial or appeal will award to the prevailing party, as determined by the judge, all costs, fees and expenses related to any trial or appeal, including reasonable fees and expenses of attorneys, accountants and other professionals incurred by the prevailing party. (D) TERMS OF ARBITRATION. The arbitrator chosen in accordance with these provisions will not have the power to alter, amend or otherwise affect the terms of these arbitration provisions or the provisions of this Agreement. (E) TREATMENT OF DAMAGES. Upon (i) issuance of a final written opinion by the arbitrator or the judge in any trial or appeal, and (ii) after all appeal periods have expired (a "FINAL AWARD"), Microfield will immediately be entitled to recover solely from the Escrow Account the amount of any incurred damages determined and awarded to Microfield under such Final Award, all in accordance with Section 4.3(f), and such incurred damages will be deemed to be owed to Microfield for purposes of this Agreement; provided, however, that the limitation on damages set forth in Section 7.4 of the Merger Agreements shall limit the total damages payable to Microfield under this Agreement. (F) RELEASE OF ESCROW SHARES PURSUANT TO ARBITRATION AWARD. Upon its receipt of a copy of the Final Award and after all appeal periods have expired, the Escrow Agent shall (i) promptly release from escrow and transfer to Microfield for cancellation that number of Escrow Shares having a value (determined in accordance with Section 4.5) equal to the amount of damages (if any) owed to Microfield (as determined under Section 4.3(e)), which transferred and forfeited Escrow Shares shall be taken from and forfeited by each of the Shareholders in proportion to such Shareholder's respective pro rata portion of the Escrow Shares as set forth on EXHIBIT A, and (ii) notify the appropriate Representative in writing of such transfer and forfeiture of Escrow Shares as promptly as reasonably practicable. 4.4 SETTLED CLAIMS. If a Claim (including a Contested Claim) is settled by a written settlement agreement executed by a Representative and Microfield (a "SETTLED CLAIM"), then the Representative and Microfield shall promptly deliver a copy of such executed settlement agreement to the Escrow Agent together with written instructions executed by both Microfield and the Representative to the Escrow Agent ("SETTLEMENT INSTRUCTIONS") which shall, in accordance with and subject to the terms of the written settlement agreement, instruct the Escrow Agent: (i) to release a stated number of Escrow Shares to Microfield pursuant to such settlement agreement; (ii) that no action need be taken by the Escrow Agent with respect to such Claim; or (iii) that a stated number of Escrow Shares shall be released to the Shareholders pursuant to such settlement agreement. Upon its receipt of such settlement agreement and Settlement Instructions instructing the Escrow Agent to release Escrow Shares to Microfield, the Escrow Agent shall: 8 - INDEMNIFICATION ESCROW AGREEMENT (i) promptly release or cause to be released from escrow and transfer to Microfield for cancellation that number of Escrow Shares that Microfield and the Representative have agreed shall be transferred and forfeited by the Shareholders in such Settlement Instructions, which transferred and forfeited Escrow Shares shall be forfeited by each of the Shareholders as set forth in Section 4.5; and (ii) notify the Representative in writing of such transfer and forfeiture of Escrow Shares as promptly as reasonably practicable. 4.5 DETERMINATION OF NUMBER OF ESCROW SHARES FORFEITED. (a) Any amount of damages owed to Microfield or any other Indemnified Person hereunder, determined pursuant to the foregoing provisions of Section 4, but limited by Section 7.4 of the Merger Agreements, shall be payable to Microfield as provided in this Agreement out of the Escrow Shares then held by the Escrow Agent. For any Claim or Claims arising under either or both of the Merger Agreements, Microfield shall be entitled to receive all of the Escrow Shares; provided, however, that the Escrow Shares shall first be forfeited by the CTS Shareholder in the event of a Claim under the CTS Merger Agreement, or first by the Velagio Shareholders in the event of a Claim under the VSI Merger Agreement (each of the Velagio Shareholders in proportion to their respective pro rata percentage of the Escrow Shares as set forth on EXHIBIT A). For example, if a Claim arises under the CTS Merger Agreement that represents 450,000 Escrow Shares, Microfield shall receive all of the CTS Shareholder's Escrow Shares and then the balance from the Velagio Shareholders' Escrow Shares. If for example, a subsequent Claim arises under the CTS Merger Agreement that represents an additional 100,000 Escrow Shares, Microfield shall receive the remaining 50,000 Escrow Shares from the Velagio Shareholders, at which time the limitation of Section 7.4 of the Merger Agreements shall be reached. (b) For purposes of this Agreement, Escrow Shares shall be deemed to have a per share value equal to the per share market value of Microfield Common Stock (based on the Microfield Stock Value as set forth in the Merger Agreements, which is defined as the average bid price as reported on the OCTBB or NASDAQ or other exchange upon which Microfield Common Stock is trading for the thirty (30) days immediately prior to and including the last trading day prior to the applicable date for which the value is determined) which will be set forth in a certificate of Microfield delivered to and received by the Escrow Agent (such price per share and certificate to be adjusted to reflect any Capital Change, whether occurring at or after the Closing Date, if the written notice contemplated by Section 2.4 has been received by the Escrow Agent). Microfield shall promptly give the Escrow Agent and the Representative written notice of the occurrence of any Capital Change and the impact thereof on such price per share of Microfield Common Stock referred to above. 4.6 MULTIPLE CLAIMS PERMITTED. The assertion of any single Claim for indemnification hereunder shall not bar Microfield from asserting any other Claims hereunder. 9 - INDEMNIFICATION ESCROW AGREEMENT 5. LIMITATION OF ESCROW AGENT'S LIABILITY. 5.1 LIMITATION OF LIABILITY. The Escrow Agent shall incur no liability with respect to any action taken or suffered by it in reliance upon any notice, direction, instruction, consent, statement or other document believed by it to be genuine and duly authorized, nor for any other action or inaction, except its own willful misconduct, fraud or gross negligence. The Escrow Agent shall have no duty to inquire into or investigate the validity, accuracy or content of any document delivered to it. The Escrow Agent shall not be responsible for the validity or sufficiency of this Agreement. In all questions arising under this Agreement, the Escrow Agent may rely on the advice or opinion of counsel, and for anything done, omitted or suffered in good faith by the Escrow Agent based on such advice, the Escrow Agent shall not be liable to anyone. The Escrow Agent shall not be required to take any action hereunder involving any expense unless the payment of such expense is made or provided for in a manner satisfactory to it. The Escrow Agent shall have no duties or responsibilities other than those expressly set forth in this Agreement and the implied duty of good faith and fair dealing. 5.2 RESOLUTION OF CONFLICTING DEMANDS. In the event conflicting demands are made or conflicting notices are served upon the Escrow Agent with respect to the Escrow Account, the Escrow Agent shall have the absolute right, at the Escrow Agent's election, to do either or both of the following: (i) file a suit in interpleader with a court of competent jurisdiction, deposit the Escrow Shares at issue with the clerk of such court and obtain an order from such court requiring the parties to interplead and litigate in such court their several claims and rights among themselves; or (ii) give written notice to the Representative(s) and Microfield that it has received conflicting instructions and is refraining from taking action with respect to the subject matter of the conflicting instructions until it receives instructions consented to in writing by both Microfield and the respective Representative. In the event an interpleader suit as described in clause (i) above is brought, the Escrow Agent shall thereby be fully released and discharged from all further obligations imposed upon it under this Agreement with respect to the matters that are the subject of such interpleader suit, and Microfield and the Shareholders shall pay the Escrow Agent all costs, expenses and reasonable attorney fees expended or incurred by the Escrow Agent pursuant to the exercise of Escrow Agent's rights under this Section 5.2 (such costs, fees and expenses shall be treated as extraordinary fees and expenses for the purposes of Section 9). 5.3 INDEMNIFICATION. Each party to this Agreement other than the Escrow Agent (each an "INDEMNIFYING PARTY" and together the "INDEMNIFYING PARTIES"), hereby jointly and severally covenants and agrees to reimburse, indemnify and hold harmless Escrow Agent, the Escrow Agent's officers, directors, employees, counsel and agents (severally and collectively for purposes of this Sections 5.3, 5.4 and 5.5 only, "ESCROW AGENT"), from and against any loss, damage, liability or loss suffered, incurred by, or asserted against Escrow Agent (including amounts paid in settlement of any action, suit, proceeding, or claim brought or threatened to be brought and including reasonable expenses of legal counsel) arising out of, in connection with or based upon, any act or omission by Escrow Agent (not involving gross negligence, willful misconduct or fraud on Escrow Agent's part) relating in any way to this Agreement or the Escrow Agent's services hereunder. The aggregate liability of the Shareholders and Microfield 10 - INDEMNIFICATION ESCROW AGREEMENT to the Escrow Agent under this indemnity shall be limited to the Escrow Shares then in escrow hereunder. Anything in this Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. Any Indemnifying Party who reimburses or indemnifies the Escrow Agent pursuant to this Section 5.3 shall have a right to seek contribution from any and all other Indemnifying Parties according to their relative fault or, if such relative fault is not determinable, in accordance with each Shareholder's pro rata ownership of Escrow Shares; provided, that the aggregate liability of the Shareholders for any such contribution shall be limited to the Escrow Shares then in escrow hereunder. 5.4 DEFENSE. Each Indemnifying Party may participate at its own expense in the defense of any claim or action that may be asserted against Escrow Agent, and if the Indemnifying Parties so elect, the Indemnifying Parties may assume the defense of such claim or action; provided, however, that if there exists a conflict of interest that would make it inappropriate, in the sole discretion of the Escrow Agent, for the same counsel to represent both Escrow Agent and the Indemnifying Parties, Escrow Agent's retention of separate counsel shall be reimbursable as hereinabove provided. Escrow Agent's right to indemnification hereunder shall survive Escrow Agent's resignation or removal as Escrow Agent and shall survive the termination of this Agreement by lapse of time or otherwise. 5.5 NOTICE TO INDEMNIFYING PARTIES. The Escrow Agent shall notify each Indemnifying Party by letter, or by telephone or telecopy confirmed by letter, of any receipt by Escrow Agent of a written assertion of a claim against Escrow Agent, or any action commenced against Escrow Agent, for which indemnification is required under Section 5.3, within ten (10) days after Escrow Agent's receipt of written notice of such claim. The Indemnifying Parties will be relieved of their indemnification obligations under this Section 5 if Escrow Agent fails to timely give such notice and such failure adversely affects the Indemnifying Parties' ability to defend such claim. However, Escrow Agent's failure to so notify each Indemnifying Party shall not operate in any manner whatsoever to relieve an Indemnifying Party from any liability that it may have otherwise than on account of this Section 5. 5.6 USE OF AGENTS. The Escrow Agent may execute any of its powers or responsibilities hereunder and exercise any rights hereunder either directly or by or through its agents or attorneys and shall be entitled to consult with its legal counsel, including in-house legal counsel, as to any questions or matters arising hereunder and the reasonable, good faith written opinion of such legal counsel shall be full and complete authorization and protection to Escrow Agent in respect of any act or omission by Escrow Agent undertaken in good faith and in accordance with the opinion of such legal counsel. The Escrow Agent shall have no liability for the conduct of any outside attorneys, accountants or other similar professionals it retains. Nothing in this Agreement shall be deemed to impose upon Escrow Agent any duty to qualify to do business or to act as a fiduciary or otherwise in any jurisdiction other than the State of Oregon. 11 - INDEMNIFICATION ESCROW AGREEMENT 6. REPRESENTATIVES OF THE SHAREHOLDERS. The Representatives each represent and warrant to the Escrow Agent that he has the irrevocable right, power and authority (i) to enter into and perform this Agreement and to bind the CTS Shareholder with respect to the CTS Representative, and the Velagio Shareholders with respect to the Velagio Representative, to the terms of this Agreement, (ii) to give and receive directions and notices hereunder; and (iii) to make all determinations. Unless and until the Escrow Agent receives written notice of the appointment of a successor Representative, the Escrow Agent may assume without inquiry that the last Representative of which it has notice remains in that capacity. The Representative shall not be entitled to receive any compensation from Microfield in connection with this Agreement. 7. NOTICES. All notices, instructions and other communications required or permitted to be given hereunder or necessary or convenient in connection herewith must be in writing and shall be deemed delivered (i) when personally served, or (ii) when delivered by an overnight courier service as shown by the records of such delivery service, addressed as follows: 12 - INDEMNIFICATION ESCROW AGREEMENT (i) IF TO THE ESCROW AGENT: Anthony J. Motschenbacher Motschenbacher & Blattner, LLP Suite 200 117 SW Taylor Street Portland, Oregon 97204 Telephone: (503) 417-0501 (ii) IF TO MICROFIELD: Microfield Group, Inc. Suite 310 1631 Thurman Street Portland, Oregon 97209 Attention: Steven M. Wright Phone: (503) 419-3581 WITH A COPY TO: Dunn, Carney, Allen, Higgins & Tongue LLP Suite 1500 851 SW Sixth Avenue Portland, Oregon 97204 Attention: Jonathan A. Bennett Phone: (503) 224-6440 (iii) IF TO THE VELAGIO SHAREHOLDERS OR THE VELAGIO REPRESENTATIVE: Kurt A. Underwood Suite 400 1631 Thurman Street Portland, Oregon 97209 Phone: (503) 467-7777 WITH A COPY TO: White & Lee LLP Suite 2440 805 SW Broadway Portland, Oregon 97205 Attention: Jon R. Summers Phone: (503) 419-3000 13 - INDEMNIFICATION ESCROW AGREEMENT (v) IF TO THE CTS SHAREHOLDER OR THE CTS REPRESENTATIVE: Christenson Group LLC Suite 400 1631 Thurman Street Portland, Oregon 97209 Attention: Robert J. Jesenik and Andrew S. Craig (503) 419-3500 or to such other address as the parties designate in a writing delivered to each of the other parties hereto in accordance with this Section 7. Notwithstanding the foregoing, notices and the like addressed to the Escrow Agent shall be effective only upon receipt. The Escrow Agent may assume without inquiry (unless the Escrow Agent has written notice to the contrary) that notices received by it, which are also required to be delivered to another party have, in fact, been delivered to such other party. 8. MISCELLANEOUS. 8.1 CHOICE OF LAW. The internal laws of the State of Oregon (irrespective of its choice of law principles) will govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto. 8.2 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts (including by facsimile), with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 8.3 SEVERABILITY. Should any one or more of the provisions of this Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement, shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. 8.4 PARTIES IN INTEREST. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and 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 such person. Neither this Agreement nor any right or obligation hereunder shall be assignable or delegable by the Shareholders except with the prior written consent of Microfield. This Agreement shall be assignable or delegable by Microfield, with or without the prior written consent of the other parties hereto, including to any successor in interest of Microfield, whether by merger, reorganization, sale of assets or otherwise so long as such successor assumes the obligations hereof. 14 - INDEMNIFICATION ESCROW AGREEMENT 8.5 HEADINGS. The headings of the Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 8.6 NO STRICT CONSTRUCTION. The parties hereto 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 hereto, 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. 8.7 ENTIRE AGREEMENT. As between Microfield, the Representatives and the Shareholders, except as otherwise provided in the Merger Agreements, this Agreement constitutes the entire understanding and agreement of the parties with respect to the subject matter of this Agreement and supersedes all prior agreements or understandings, written or oral, between the parties with respect to the subject matter hereof. As between the Escrow Agent and the other parties hereto, all such parties agree that the Escrow Agent's duties are defined only in this Agreement, any contrary provisions of the Merger Agreements notwithstanding. 8.8 FURTHER ASSURANCES. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to 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 legal requirements or otherwise, to consummate and make effective the transactions contemplated by this Agreement. If at any time after the date hereof any further action is necessary or desirable to carry out the purposes of this Agreement, all parties shall use their commercially reasonable efforts to take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation. 8.9 FORCE MAJEURE. Neither Microfield nor the Shareholders nor Escrow Agent shall be responsible for any delays or failures in performance resulting from acts beyond its control. Such acts shall include but not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, earthquakes or other disasters. 8.10 REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, and (b) certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, optical disk, micro-card, miniature photographic or other similar process. The parties hereto agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction shall likewise be admissible in evidence. 15 - INDEMNIFICATION ESCROW AGREEMENT 8.11 AMENDMENT. This Agreement may be amended by the written agreement of Microfield, the Escrow Agent and the Representatives, provided that, if the Escrow Agent does not agree to an amendment agreed upon by Microfield and the Representatives, the Escrow Agent shall resign and Microfield shall appoint a successor Escrow Agent in accordance with Section 10. No amendment of the Merger Agreements shall increase Escrow Agent's responsibilities or liability hereunder without Escrow Agent's written agreement. 9. COMPENSATION AND EXPENSES OF ESCROW AGENT. All fees and expenses of the Escrow Agent incurred in the ordinary course of performing its responsibilities hereunder in accordance with the fee schedule attached hereto as EXHIBIT B shall be paid by Microfield upon receipt of a written invoice by Escrow Agent. Any extraordinary fees and expenses, including without limitation any fees or expenses incurred by the Escrow Agent in connection with a dispute over the distribution of Escrow Shares or the validity of a Notice of Claim, shall be paid fifty percent (50%) by Microfield and fifty percent (50%) by the Shareholders (each Shareholder paying it or his escrow percentage) upon receipt of a written invoice by Escrow Agent, and subject to the provisions of Section 4.3(b) shall be allocated to the non-prevailing party in any action, arbitration, trial or appeal. 10. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes unable or unwilling to continue in its capacity herewith, the Escrow Agent may resign and be discharged from its duties or obligations hereunder by giving notice of its resignation to the other parties to this Agreement, specifying a date not less than thirty (30) days following the date of receipt of such notice when such resignation shall take effect. Microfield and the Representatives shall designate a successor escrow agent prior to the expiration of such thirty (30) day period by giving written notice of such successor to the Escrow Agent. Microfield and the Representatives may only appoint a successor escrow agent upon their mutual agreement. If no successor escrow agent is named by Microfield and the Representatives, the Escrow Agent may apply to a court of competent jurisdiction for the appointment of a successor escrow agent. The Escrow Agent shall promptly transfer the Escrow Shares to such designated successor. 11. LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are limited to those set forth in this Agreement, and Escrow Agent, acting as such under this Agreement, is not charged with knowledge of or any duties or responsibilities under any other document or agreement, including without limitation the Merger Agreements. Escrow Agent may execute any of its powers or responsibilities hereunder and exercise any rights hereunder either directly or by or through its agents or attorneys. Nothing in this Escrow Agreement shall be deemed to impose upon the Escrow Agent any duty to qualify to do business or to act as a fiduciary or otherwise in any jurisdiction other than the State of Oregon. Escrow Agent shall not be responsible for and shall not be under a duty to examine into or pass upon the validity, binding effect, execution or sufficiency of this Escrow Agreement or of any agreement amendatory or supplemental hereto. In no event shall the Escrow Agent have any duty or obligation to determine or enforce compliance with the requirements of any agreement or instrument other than this Agreement (including without limitation the Merger Agreements). [SIGNATURES ON FOLLOWING PAGE] 16 - INDEMNIFICATION ESCROW AGREEMENT IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written. ESCROW AGENT: MICROFIELD: MICROFIELD GROUP, INC. an Oregon corporation _____________________________________________ By: _____________________________ ANTHONY J. MOTSCHENBACHER, as the Escrow Agent Steven M. Wright, President SHAREHOLDERS: REPRESENTATIVES: CHRISTENSON GROUP, LLC an Oregon limited liability company By: JMW CAPITAL PARTNERS, INC. Its Manager By: ___________________________________ _________________________________ Robert J. Jesenik, ROBERT J. JESENIK, as the CTS Chief Executive Officer Representative TSI TELECOMMUNICATION SERVICES INC. a Delaware corporation By:__________________________________________ _________________________________ Name:________________________________________ KURT A. UNDERWOOD, as the Velagio Its:_________________________________________ Representative _____________________________________________ KURT A. UNDERWOOD, individually 17 - INDEMNIFICATION ESCROW AGREEMENT EXHIBIT A SHAREHOLDER LIST

INITIAL PRO RATA SHAREHOLDER NAME ADDRESS ESCROW SHARES PERCENTAGE ---------------- ------- ------------- ---------- KURT A. UNDERWOOD Suite 400 1631 Thurman Street 203,008 40.60% Portland, Oregon 97209 TSI TELECOMMUNICATION SERVICES INC. 46,992 9.40% CHRISTENSON GROUP LLC Suite 400 1631 Thurman Street Portland, Oregon 97209 250,000 50.00% TOTAL 500,000 100.00%

EXHIBIT B FEES AND EXPENSES OF ESCROW AGENT -----END PRIVACY-ENHANCED MESSAGE-----

EX-2.1

                                                                     EXHIBIT 2.1

================================================================================

                          AGREEMENT AND PLAN OF MERGER

                                  BY AND AMONG

                             MICROFIELD GROUP, INC.

                                       AND

                               CTS ACQUISITION CO.

                                       AND

                      CHRISTENSON TECHNOLOGY SERVICES, INC.

                                       AND

                             CHRISTENSON GROUP, LLC

                         DATED AS OF SEPTEMBER 15, 2003

================================================================================



                                TABLE OF CONTENTS

                                                                                                       
Article 1      Definitions........................................................................         1
Article 2      The Merger.........................................................................         5
   2.1      The Merger............................................................................         5
   2.2      Effective Time........................................................................         5
   2.3      Articles of Incorporation of Surviving Corporation....................................         6
   2.4      Bylaws of Surviving Corporation.......................................................         6
   2.5      Directors and Officers of Surviving Corporation.......................................         6
   2.6      Conversion of CTS Stock...............................................................         6
   2.7      Indemnification Escrow................................................................         7
   2.8      Procedure for Payment.................................................................         7
   2.9      Unregistered Shares...................................................................         7
   2.10     Stock Certificate Legends.............................................................         7
   2.11     Appointment of Representative.........................................................         8
   2.12     Registration Rights...................................................................         8
   2.13     Reserved..............................................................................         8
Article 3      Representations and Warranties of CTS and CTS Shareholder..........................         9
   3.1      Organization..........................................................................         9
   3.2      Capitalization........................................................................         9
   3.3      Subsidiaries..........................................................................         9
   3.4      Authorization; Binding Agreement......................................................         9
   3.5      Governmental Approvals................................................................         9
   3.6      No Violations.........................................................................        10
   3.7      CTS Financial Statements..............................................................        10
   3.8      Absence of Certain Changes or Events..................................................        10
   3.9      No Undisclosed Liabilities............................................................        10
   3.10     Compliance with Laws..................................................................        11
   3.11     Permits...............................................................................        11
   3.12     Litigation............................................................................        11
   3.13     Contracts.............................................................................        11
   3.14     Employee Benefit Plans................................................................        11
   3.15     Taxes and Tax Returns.................................................................        14
   3.16     Intellectual Property.................................................................        15
   3.17     Employee and Labor Matters............................................................        16
   3.18     Limitation on Business Conduct........................................................        16
   3.19     Title to Property.....................................................................        16
   3.20     Owned and Leased Premises.............................................................        17
   3.21     Environmental Matters.................................................................        17
   3.22     Insurance.............................................................................        18
   3.23     Product Liability and Recalls.........................................................        18
   3.24     Customers.............................................................................        18
   3.25     Interested Party Transactions.........................................................        19
   3.26     Full Disclosure.......................................................................        19
Article 4      Representations and Warranties of Microfield and Merger Sub........................        19
   4.1      Organization and Good Standing........................................................        19



1-TABLE OF CONTENTS



                                                                                                       
   4.2      Capitalization........................................................................        19
   4.3      Subsidiaries..........................................................................        19
   4.4      Authorization; Binding Agreement......................................................        19
   4.5      Governmental Approvals................................................................        20
   4.6      No Violations.........................................................................        20
   4.7      Litigation............................................................................        20
   4.8      SEC Reports and Financial Statements..................................................        20
   4.9      No Undisclosed Liabilities............................................................        21
   4.10     Taxes and Tax Returns.................................................................        21
   4.11     Compliance with Laws..................................................................        21
   4.12     Permits...............................................................................        21
   4.13     Contracts.............................................................................        22
   4.14     Employee Benefit Plans................................................................        22
   4.15     Intellectual Property.................................................................        24
   4.16     Employee and Labor Matters............................................................        25
   4.17     Title to Property.....................................................................        25
   4.18     Owned and Leased Premises.............................................................        25
   4.19     Environmental Matters.................................................................        25
   4.20     Insurance.............................................................................        26
   4.21     Full Disclosure.......................................................................        26
   4.22     No Prior Activities...................................................................        26
Article 5      Additional Covenants of CTS........................................................        27
   5.1      Conduct of Business of CTS............................................................        27
   5.2      Notification of Certain Matters.......................................................        28
   5.3      Access and Information................................................................        29
   5.4      Shareholder Approval..................................................................        29
   5.5      Reasonable Best Efforts...............................................................        29
   5.6      Public Announcements..................................................................        29
   5.7      Compliance............................................................................        29
   5.8      CTS Shareholder Approval..............................................................        29
Article 6      Additional Covenants of Microfield and Merger Sub..................................        30
   6.1      Conduct of Business of Microfield.....................................................        30
   6.2      Notification of Certain Matters.......................................................        31
   6.3      Access and Information................................................................        32
   6.4      Reasonable Best Efforts...............................................................        32
   6.5      Public Announcements..................................................................        32
   6.6      Compliance............................................................................        32
Article 7      Survival; Indemnification..........................................................        32
   7.1      Survival..............................................................................        32
   7.2      Indemnification by the CTS Shareholder................................................        33
   7.3      Indemnification by Microfield.........................................................        33
   7.4      Limits on Indemnification.............................................................        33
   7.5      Indemnification Procedure.............................................................        35
   7.6      Payment with Microfield Common Stock..................................................        36
Article 8      Conditions Precedent...............................................................        36
   8.1      Merger Conditions.....................................................................        36



2-TABLE OF CONTENTS



                                                                                                       
   8.2      Conditions Precedent to the Obligations of Microfield and Merger Sub..................        37
   8.3      Conditions Precedent to the Obligations of CTS........................................        38
Article 9      Termination and Abandonment........................................................        39
   9.1      Termination...........................................................................        39
   9.2      Effect of Termination and Abandonment.................................................        40
Article 10        Miscellaneous...................................................................        40
   10.1     Confidentiality.......................................................................        40
   10.2     Amendment and Modification............................................................        41
   10.3     Waiver of Compliance; Consents........................................................        41
   10.4     Survival..............................................................................        41
   10.5     Notices...............................................................................        42
   10.6     Binding Effect; Assignment............................................................        42
   10.7     Fees and Expenses.....................................................................        42
   10.8     Governing Law.........................................................................        43
   10.9     Counterparts..........................................................................        43
   10.10       Interpretation.....................................................................        43
   10.11       Entire Agreement...................................................................        43
   10.12       Severability.......................................................................        43
   10.13       Specific Performance...............................................................        43
   10.14       Third Parties......................................................................        43
   10.15       Disclosure Schedules...............................................................        43



3-TABLE OF CONTENTS



                                LIST OF SCHEDULES



SCHEDULE:               CONTAINS:
                     
   3.2                  CTS capitalization
   3.8                  CTS material changes
   3.9                  CTS liabilities
  3.11                  CTS permits
  3.13                  CTS contracts
 3.14(a)                CTS employee benefit plans
 3.14(c)                CTS current and former employees with stock rights, options and restrictions
 3.14(d)                CTS employment agreements
 3.14(e)                CTS employee stock ownership plan
 3.14(f)                CTS employee stock ownership plan for non-U.S. employees
  3.15                  CTS tax claims or assessments
 3.16(a)                CTS intellectual property
 3.17(a)                CTS employees
  3.19                  CTS property and assets
  3.21                  CTS environmental matters
  3.22                  CTS insurance
  3.23                  CTS product liability and recalls
  3.24                  CTS 10 largest customers
  3.25                  CTS interested party transactions
   4.7                  Microfield litigation
  4.12                  Microfield permits
  4.13                  Microfield material contracts
 4.14(a)                Microfield employee benefit plans
 4.14(c)                Microfield current and former employees with stock rights, options and
                        restrictions
 4.14(d)                Microfield employment agreements
 4.14(e)                Microfield employee stock ownership plan
 4.14(f)                Microfield employee stock ownership plan for non-U.S. employees
 4.15(a)                Microfield intellectual property
 4.16(a)                Microfield employees

  4.17                  Microfield property and assets
  4.19                  Microfield environmental matters
  4.20                  Microfield insurance


1-LIST OF SCHEDULES



                          AGREEMENT AND PLAN OF MERGER

         THIS AGREEMENT AND PLAN OF MERGER is made as of September 15, 2003 by
and among MICROFIELD GROUP, INC., an Oregon corporation, CTS ACQUISITION CO., an
Oregon corporation, CHRISTENSON TECHNOLOGY SERVICES, INC., an Oregon
corporation, and CHRISTENSON GROUP LLC, an Oregon limited liability company.

                                    RECITALS

         A.       The respective boards of directors of Microfield, Merger Sub
and CTS have: (a) determined that the Merger of CTS with and into Merger Sub
pursuant and subject to all of the terms and conditions of this Agreement is
advisable, fair and in the best interests of Microfield, CTS and Merger Sub and
their respective shareholders; and (b) approved the Merger, this Agreement and
the transactions contemplated by this Agreement.

         B.       The board of directors of Microfield has authorized the
issuance of Microfield Common Stock pursuant to this Agreement.

         C.       Microfield, CTS and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.

         D.       Simultaneously with the closing of the Merger described in
this Agreement, the VSI Merger shall close and become effective.

         E.       The parties intend that the structure of the Merger described
in this Agreement be a tax-free reorganization within the meaning of Section
368(a) of the Code.

         NOW, THEREFORE, in consideration of the covenants, conditions and
agreements set forth herein and for other good and valuable consideration, the
sufficiency of which are acknowledged, the parties agree as follows:

         ARTICLE 1         DEFINITIONS

         When used in this Agreement, the following terms shall have the
meanings specified:

         "AGREEMENT" means this Agreement and Plan of Merger, together with the
attached Exhibits and Disclosure Schedules, as the same may be amended from time
to time in accordance with the terms hereof.

         "ARTICLES OF MERGER" means Articles of Merger in a form approved for
filing in accordance with the OBCA.

         "CLOSING" means the conference to be held at 10:00 a.m., on the Closing
Date at the offices of Microfield, or such other time and place as the parties
may mutually agree to in writing.

1-AGREEMENT AND PLAN OF MERGER



         "CLOSING DATE" means September 15, 2003, or such other date as the
parties may mutually agree in writing.

         "CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder, as the same may be in effect from time to
time.

         "CTS" means Christenson Technology Services, Inc., an Oregon
corporation.

         "CTS SHAREHOLDER" means the sole shareholder of CTS immediately prior
to the Effective Time, namely, Christenson Group LLC, an Oregon limited
liability company.

         "CTS STOCK" means shares of common stock, without par value, of CTS.

         "DISCLOSURE SCHEDULES" means the Disclosure Schedules attached to this
Agreement.

         "EFFECTIVE TIME" means the date and time when the Merger becomes
effective pursuant to the OBCA.

         "ENFORCEABILITY EXCEPTIONS" means the limits with respect to the
enforceability of any agreement imposed by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by principles of equity regarding the availability of
remedies.

         "ESCROW AGENT" means the escrow agent appointed in the Indemnification
Escrow Agreement.

         "ESCROWED SHARES" means the Microfield Common Stock placed in the
Indemnification Escrow pursuant to Section 2.7.

         "GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof or any entity, authority or body exercising
executive, legislative, judicial or regulatory functions of or pertaining to
government, including, without limitation, any governmental or regulatory
authority, agency, department, board, commission or instrumentality, any court,
tribunal or arbitrator and any self-regulatory organization.

         "INDEMNIFICATION ESCROW" means the Escrow Account opened for the
purpose of holding the Microfield Common Stock held back pursuant to Section
2.7.

         "KNOWLEDGE" with respect to a party, means the actual knowledge of the
existence or nonexistence of a fact or matter, after reasonable inquiry, by any
of the executive officers or directors of Microfield or CTS, as applicable.

         "LAW" means any federal, state, local or other law, rule, regulation or
governmental requirement of any kind, and the rules, regulations and orders
promulgated thereunder by any regulatory agencies.

2-AGREEMENT AND PLAN OF MERGER



         "LIEN" means (a) any mortgage, pledge, lien, covenant, lease, security
interest or encumbrance of any kind and (b) with respect to any asset, the
interest of a vendor or lessor under any conditional sale agreement, financing
lease or other title retention agreement relating to such asset.

         "MAJOR SHAREHOLDERS" means the following persons: Kurt A. Underwood,
TSI Telecommunications, Inc., Christenson Group LLC, Robert J. Jesenik, Steven
M. Wright, R. Patrick Hanlin, JMW-MICG Holdings, LLC, Michael Stansell and John
B. Conroy.

         "MATERIAL ADVERSE CHANGE" means any materially adverse change in the
financial condition, properties, business or results of operations of a party
that exceeds the sum of $50,000 or more, whether taken separately or together in
the aggregate with other similar events, other than changes arising out of
general economic conditions unrelated to the business in which the party is
engaged.

         "MATERIAL ADVERSE EFFECT" means any event, condition or fact that is,
or reasonably may be expected to be, materially adverse to the financial
condition, properties, business, results of operations or prospects of a party
that exceeds the sum of $50,000 or more, whether taken separately or together in
the aggregate with other similar events, other than events, conditions or facts
arising out of general economic conditions unrelated to the business in which
the party is engaged.

         "MATERIAL CONTRACTS" means any agreement or contract to which a party,
or by which its properties or assets, is bound, which could result in a Material
Adverse Change or have a Material Adverse Effect, including, but not limited,
to: (a) all loan agreements, indentures, mortgages, pledges, conditional sale or
title retention agreements, security agreements, guaranties, standby letters of
credit, equipment leases or lease purchase agreements, each in an amount equal
to or exceeding $50,000; (b) all contracts, agreements, commitments or other
understandings or arrangements, but excluding contracts, agreements, commitments
or other understandings or arrangements entered into in the ordinary course of
business and involving individual payments or receipts by the party of less than
$50,000 over the term of such contract, agreement, commitment or other
understanding or arrangement; and (c) all other agreements that are material to
the party and not excluded under the foregoing clauses.

         "MERGER" means the merger of Merger Sub with and into CTS pursuant to
this Agreement and the OBCA.

         "MERGER CONSIDERATION" means the aggregate number of shares of
Microfield Common Stock issuable to the CTS Shareholders pursuant to Section
2.6, subject to any rounding for fractional shares pursuant to Section 2.8(b).

         "MERGER SUB" means CTS Acquisition Co., an Oregon corporation and a
wholly owned Subsidiary of Microfield.

         "MICROFIELD" means Microfield Group, Inc., an Oregon corporation.

3-AGREEMENT AND PLAN OF MERGER



         "MICROFIELD COMMON STOCK" means shares of common stock, no par value,
of Microfield.

         "MICROFIELD STOCK VALUE" means the average bid price as reported on the
OCTBB or NASDAQ or other exchange upon which Microfield Common Stock is trading
for the thirty (30) days immediately prior to and including the last trading day
prior to the applicable date for which the value is determined.

         "OBCA" means the Oregon Business Corporation Act, as the same shall be
in effect from time to time.

         "PERMITS" means all permits, licenses, approvals, qualifications,
governmental authorizations, registrations and franchises that CTS has or holds,
all of which are listed and briefly described in the Disclosure Schedules.

         "PERSON" means a natural person, corporation, trust, partnership,
limited liability company, governmental entity, agency or branch or department
thereof, or any other legal entity.

         "REPRESENTATIVE" means Robert J. Jesenik, or his successor, who shall
act as representative of the CTS Shareholders under the Agreement.

         "SUBSIDIARY" means any entity (a) at least a majority of the
outstanding capital stock or ownership interest of which shall at the time be
owned by Microfield or CTS, as applicable, directly or through one (1) or more
entities that are themselves Subsidiaries or (b) with respect to which
Microfield or CTS, as applicable, may elect a majority of the board of
directors.

         "SURVIVING CORPORATION" means CTS, which shall survive the Merger of
Merger Sub with and into CTS.

         "TSI" means TSI Telecommunication Services, Inc., a Delaware
corporation.

         "UNDERWOOD" means Kurt A Underwood, individually.

         "VELAGIO" means Velagio, Inc., an Oregon corporation.

         "VELAGIO SHAREHOLDERS" means Underwood and TSI.

         "VSI MERGER" means the merger whereby VSI Acquisition Co. shall merge
with and into Velagio and Velagio shall be the surviving corporation, effective
simultaneously with the Effective Time.

         "VSI MERGER AGREEMENT" means the Agreement and Plan of Merger dated as
of the same date as this Agreement by and among Microfield, VSI Acquisition Co.,
Velagio, and the Velagio Shareholders in connection with the VSI Merger.

4-AGREEMENT AND PLAN OF MERGER



         OTHER TERMS. The following terms shall have the meanings specified in
the following noted sections of this Agreement:



- --------------------------------------------------------------------
       TERM                                               SECTION
- --------------------------------------------------------------------
                                                      
Balance Sheet                                            3.9
- --------------------------------------------------------------------
Consent                                                  3.5
- --------------------------------------------------------------------
Conversion Ratio                                         2.6
- --------------------------------------------------------------------
Damages                                                  7.2
- --------------------------------------------------------------------
Employee Plans                                           3.14(a)
- --------------------------------------------------------------------
Environmental Claim                                      3.21(e)(i)
- --------------------------------------------------------------------
Environmental Laws                                       3.21(e)(ii)
- --------------------------------------------------------------------
ERISA                                                    3.14(a)
- --------------------------------------------------------------------
ERISA Affiliate                                          3.14(a)
- --------------------------------------------------------------------
Indemnification Escrow Agreement                         2.7
- --------------------------------------------------------------------
Intellectual Property Rights                             3.16(b)
- --------------------------------------------------------------------
IRS                                                      3.14(b)
- --------------------------------------------------------------------
ISO                                                      3.14(c)
- --------------------------------------------------------------------
Litigation                                               3.12
- --------------------------------------------------------------------
Material of Environmental Concern                        3.21(e)(iii)
- --------------------------------------------------------------------
Microfield Balance Sheet                                 4.9
- --------------------------------------------------------------------
Microfield Indemnified Persons                           7.2
- --------------------------------------------------------------------
Microfield SEC Reports                                   4.8
- --------------------------------------------------------------------
Preferred Shares                                         4.2
- --------------------------------------------------------------------
Related Documents                                        7.1
- --------------------------------------------------------------------
Rule 144                                                 2.9
- --------------------------------------------------------------------
Securities Act                                           2.9
- --------------------------------------------------------------------
Tax                                                      3.15(b)
- --------------------------------------------------------------------
Tax Returns                                              3.15(b)
- --------------------------------------------------------------------
Third Party Claims                                       7.5(a)(i)
- --------------------------------------------------------------------
CTS Balance Sheet                                        3.9
- --------------------------------------------------------------------
CTS Financial Statements                                 3.7
- --------------------------------------------------------------------
CTS Indemnified Persons                                  7.3
- --------------------------------------------------------------------


         ARTICLE 2         THE MERGER

         2.1      THE MERGER. At the Effective Time and upon and subject to the
terms and conditions of this Agreement, Merger Sub will be merged with and into
CTS. CTS shall be the Surviving Corporation in the Merger and shall continue to
be governed by the Laws of the State of Oregon, and the separate existence of
Merger Sub shall cease. The Merger shall be pursuant to the provisions of, and
shall be with the effects provided in, the OBCA.

         2.2      EFFECTIVE TIME. Subject to the terms and conditions of this
Agreement, on the Closing Date, Merger Sub and CTS will cause the Articles of
Merger to be executed, delivered

5-AGREEMENT AND PLAN OF MERGER



and filed as provided in the OBCA. The Merger shall become effective at the time
of the filing of the Articles of Merger with the Oregon Secretary of State,
Corporation Division, or at such later time as Microfield and CTS may agree and
as may be set forth in the Articles of Merger.

         2.3      ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The
Articles of Incorporation of Merger Sub in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until amended in accordance with the OBCA.

         2.4      BYLAWS OF SURVIVING CORPORATION. The Bylaws of Merger Sub in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until amended in accordance with the OBCA.

         2.5      DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The board of
directors of the Surviving Corporation shall consist of one (1) director
position. The following director is hereby elected and shall serve as the sole
director of the Surviving Corporation to hold office as provided in the Bylaws:

                                Kurt A. Underwood

         The following officers shall be the officers of the Surviving
Corporation, to hold office as provided in the Bylaws:

                 CEO/President                                 Kurt A. Underwood
                 CFO/Treasurer                                 Thomas A. Sidley
                 Senior Vice President -
                 Services and Development                      Robert Hancock
                 Vice President - Electrical Services          A. Mark Walter
                 Secretary                                     Andrew S. Craig

         2.6      CONVERSION OF CTS STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, CTS or Microfield,
the CTS Shareholder of record immediately prior to the Effective Time shall be
entitled to receive a total of 4,193,143 shares of Microfield Common Stock in
exchange for all of the CTS Stock outstanding. The CTS Shareholder will receive
the following shares of Microfield Common Stock:



- -----------------------------------------------------------------------------------------
                                     CTS STOCK         TOTAL CONVERTED           ESCROWED
        CTS SHAREHOLDER                OWNED               SHARES                 SHARES
- -----------------------------------------------------------------------------------------
                                                                        
- -----------------------------------------------------------------------------------------
CHRISTENSON GROUP LLC                54,826,875           4,193,142              250,000
- -----------------------------------------------------------------------------------------


         The Escrowed Shares will be placed in the Indemnification Escrow as
provided for in Section 2.7.

6-AGREEMENT AND PLAN OF MERGER



         2.7      INDEMNIFICATION ESCROW. At the Effective Time, the Velagio
Shareholders, the CTS Shareholder, Microfield and the Escrow Agent shall enter
into an Indemnification Escrow Agreement in the form attached as Exhibit A
("INDEMNIFICATION ESCROW AGREEMENT"). The Indemnification Escrow Agreement will
require that simultaneously with the Effective Time the Velagio Shareholders
will place 250,000 shares, and the CTS Shareholder will place 250,000 shares, of
Microfield Common Stock (for an aggregate of 500,000 shares of Microfield Common
Stock) into an escrow account for the purposes of satisfying claims arising
under this Agreement or the VSI Merger Agreement. The Indemnification Escrow
Agreement shall also provide the manner and method upon which claims will be
satisfied by the Microfield Common Stock placed in escrow.

         2.8      PROCEDURE FOR PAYMENT.

                  (a)      SURRENDER OF STOCK. From and after the Effective
Time, the CTS Shareholder of record immediately prior to the Effective Time,
upon surrender to Microfield or its agent designated for such purpose of any
letters of transmittal or other documents as may be reasonably requested by
Microfield or its agent, shall be entitled to receive one or more certificates
representing the number of shares of Microfield Common Stock into which such CTS
Stock shall have been converted pursuant to the provisions of Section 2.6;
provided, however, that a certificate representing the escrowed shares described
in Section 2.7 shall be delivered to the escrow agent and held pursuant to the
Indemnification Escrow Agreement.

                  (b)      NO FRACTIONAL SHARES. No certificates or scrip
evidencing fractional shares of Microfield Common Stock shall be issued in the
Merger, and such fractional share interests will not entitle the owner thereof
to any rights as a shareholder of Microfield. Merger Consideration to be paid to
the CTS Shareholder will be rounded to the nearest whole share.

                  (c)      NO FURTHER RIGHTS IN CTS STOCK. All shares of
Microfield Common Stock issued upon conversion of the CTS Stock in accordance
with the terms of this Agreement shall be deemed to have been issued (and paid)
in full satisfaction of all rights of the CTS Shareholder pertaining to the CTS
Stock. Following the Effective Time, the CTS Shareholders shall cease to have
any rights with respect to such CTS Stock except as otherwise provided in this
Agreement or by law.

         2.9      UNREGISTERED SHARES. The CTS Shareholder has been informed by
Microfield that the Microfield Common Stock conveyed hereunder as Merger
Consideration has not been registered under the Securities Act of 1933 (the
"SECURITIES ACT") and that such Microfield Common Stock must be held for the
time required by Rule 144 promulgated under the Securities Act ("RULE 144"),
unless (i) the distribution for sale of the Microfield Common Stock has been
registered under the Securities Act, (ii) a sale of the Microfield Common Stock
is made in conformity with the provisions of Rule 144, or (iii) in the opinion
of counsel, which opinion is reasonably acceptable to Microfield, some other
exemption from registration is available with respect to any such sale, transfer
or other disposition of such Microfield Common Stock.

         2.10     STOCK CERTIFICATE LEGENDS. The CTS Shareholder acknowledges
and understands that stock transfer instructions will be given to Microfield's
transfer agent with

7-AGREEMENT AND PLAN OF MERGER



respect to the Merger Consideration and that there will be placed on the
certificates for such shares, or any substitution therefor, the following
legend:

                  "The securities evidenced by this certificate have not been
                  registered under the Securities Act of 1933 (the "Act") or any
                  applicable state law, and no interest therein may be sold,
                  distributed, assigned, offered, pledged or otherwise
                  transferred unless (a) there is an effective registration
                  statement under such Act and applicable state securities laws
                  covering any such transaction involving these securities or
                  (b) the Company receives an opinion of legal counsel for the
                  holder of these securities (concurred in by legal counsel for
                  the Company) to the effect that such transaction is exempt
                  from registration or the Company otherwise satisfies itself
                  that such transaction is exempt from registration."

         2.11     APPOINTMENT OF REPRESENTATIVE. The Representative is hereby
appointed as representative of the CTS Shareholder for purposes of this
Agreement. The CTS Shareholder's approval of this Agreement shall include
confirmation of the authority of the Representative.

         2.12     REGISTRATION RIGHTS. Major Shareholders will receive the
following registration rights as set forth more specifically in the Registration
Rights Agreement attached hereto as Exhibit B:

                  (a)      For a period of five (5) years following the Closing
Date, unlimited piggyback registration rights for all shares owned by the Major
Shareholders;

                  (b)      If during the two (2) years following the Closing
Date, piggyback registration rights become available to the Major Shareholders,
but a Major Shareholder is unable to register fifty percent or more of the Major
Shareholder's Microfield Common Stock such shareholder elects to register at the
date the piggyback registration rights become available, in spite of the Major
Shareholder's election to register the shares through the piggyback rights
registration, then the Major Shareholder will have two (2) demand registration
rights as to those shares remaining unregistered contrary to the Major
Shareholder's election on the date the piggyback registration rights become
effective. Such Demand Registration Rights shall be available beginning two (2)
years after the Closing Date and ending five (5) years after the Closing Date.
Such demand registration rights shall apply only to stock not registered
contrary to the election of each Major Shareholder and may be exercised if the
registration is intended to result in aggregate gross proceeds of the offering,
net of underwriting expenses, of at least Five Hundred Thousand Dollars
($500,000.00).

         2.13     RESERVED.

8-AGREEMENT AND PLAN OF MERGER



         ARTICLE 3         REPRESENTATIONS AND WARRANTIES OF CTS AND CTS
                           SHAREHOLDER

         CTS and the CTS Shareholder represent and warrant to Microfield and
Merger Sub that, except as set forth in the correspondingly numbered sections of
the Disclosure Schedules:

         3.1      ORGANIZATION. CTS is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. CTS is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
character of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not reasonably be expected to have a Material Adverse Effect. CTS has delivered
to Microfield accurate and complete copies of its Articles of Incorporation and
Bylaws, as currently in effect.

         3.2      CAPITALIZATION. As of the Date of Closing, the CTS Stock and
the holders thereof are as set forth in Section 3.2 of the Disclosure Schedules.
As of the Closing Date, all issued and outstanding CTS Stock will be duly
authorized, validly issued, fully paid and non-assessable. Section 3.2 of the
Disclosure Schedules sets forth the name of the holder and the exercise price of
all options and warrants to purchase CTS Stock. Except as disclosed in Section
3.2 of the Disclosure Schedules, there are no outstanding rights, subscriptions,
warrants, puts, calls, unsatisfied preemptive rights, options or other
agreements of any kind relating to any of the outstanding or unissued CTS Stock
or any other security of CTS, and there is no authorized or outstanding security
of any kind convertible into or exchangeable for any CTS Stock or other
security. There are no obligations, contingent or otherwise, of CTS to
repurchase, redeem or otherwise acquire any CTS Stock or to provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any other entity.

         3.3      SUBSIDIARIES. CTS has no Subsidiaries.

         3.4      AUTHORIZATION; BINDING AGREEMENT. CTS has all requisite
corporate power and authority to execute and deliver this Agreement and to
complete the transactions contemplated hereby. The execution and delivery of
this Agreement and the completion of the transactions contemplated hereby,
including, but not limited to, the Merger, have been duly and validly authorized
by CTS's board of directors, and no other corporate proceedings on the part of
CTS are necessary to authorize the execution and delivery of this Agreement or
to complete the transactions contemplated hereby (other than adoption of this
Agreement by the CTS Shareholders in accordance with the OBCA and the Articles
of Incorporation and Bylaws of CTS). This Agreement has been duly and validly
executed and delivered by CTS and constitutes the legal, valid and binding
agreement of CTS, enforceable against CTS in accordance with its terms, except
to the extent that enforceability thereof may be limited by the Enforceability
Exceptions.

         3.5      GOVERNMENTAL APPROVALS. No consent, approval, waiver or
authorization of, notice to or declaration or filing with ("CONSENT") any
Governmental Authority, on the part of CTS is required in connection with the
execution or delivery by CTS of this Agreement or the

9-AGREEMENT AND PLAN OF MERGER



completion by CTS of the transactions contemplated hereby other than (a) the
filing of the Articles of Merger with the Secretary of State of Oregon,
Corporation Division, in accordance with the OBCA, and (b) those Consents that,
if they were not obtained or made, would not reasonably be expected to have a
Material Adverse Effect.

         3.6      NO VIOLATIONS. The execution and delivery of this Agreement,
the completion of the transactions contemplated hereby and compliance by CTS
with any of the provisions hereof will not (a) conflict with or result in any
breach of any provision of the Articles of Incorporation or Bylaws of CTS, (b)
require any Consent under or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of, any Material Contract, (c) result in the creation
or imposition of any Lien upon any of the assets of CTS or (d) subject to
obtaining the Consents from Governmental Authorities referred to in Section 3.5,
violate any applicable provision of any Law to which CTS or its assets or
properties are subject, except, in the case of each of clauses (b), (c) and (d)
above, for any deviations from the foregoing that would not reasonably be
expected to have a Material Adverse Effect.

         3.7      CTS FINANCIAL STATEMENTS. CTS has delivered to Microfield the
financial statements for the years ending December 31, 2000, 2001 and 2002, and
for the six (6) months ended June 30, 2003 (the "CTS FINANCIAL STATEMENTS"). The
CTS Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied, and they present fairly, in
all material respects, the financial position of CTS as at the dates thereof and
the results of its operations and cash flows for the periods then ended, subject
to any adjustments described therein, except that unaudited financial statements
do not contain footnotes.

         3.8      ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 3.8 of the Disclosure Schedules, from the date of issuance of each of
the CTS Financial Statements through the date of this Agreement, there has not
been: (a) any event that has had or would reasonably be expected to have a
Material Adverse Effect; (b) any declaration, payment or setting aside for
payment of any dividend or other distribution or any redemption or other
acquisition of any stock or securities of CTS by CTS; (c) any material damage or
loss to any material asset or property, whether or not covered by insurance; (d)
any change by CTS in accounting principles or practices; (e) any material
revaluation by CTS of any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business; (f) any sale of a material amount of property of CTS, except
in the ordinary course of business; (g) any payments to CTS employees or service
providers outside of CTS's regular course of business; or (h) any other action
or event, involving an amount exceeding $5,000 that would have required the
consent of Microfield pursuant to Section 5.1 had such action or event occurred
after the date of this Agreement.

         3.9      NO UNDISCLOSED LIABILITIES. Except as set forth in Section 3.9
of the Disclosure Schedules, CTS has no liabilities (absolute, accrued,
contingent or other), except liabilities (a) adequately provided for in CTS
Financial Statements; or (b) incurred in the ordinary course of business on or
before the dates of the CTS Financial Statements and not required under GAAP

10-AGREEMENT AND PLAN OF MERGER



to be reflected on the Balance Sheet, (c) incurred since the issuing of the CTS
Financial Statements in the ordinary course of business consistent with past
practice, (d) incurred in connection with this Agreement or (e) that would not
reasonably be expected to have a Material Adverse Effect. Attached in Section
3.9 of the Disclosure Schedule is a list of all of the outstanding liabilities
of CTS greater than $50,000 as of the date of this Agreement. Except as
disclosed in section 3.9(b) of the Disclosure Schedules, CTS has no debt or
liabilities owed to any creditor, excluding current trade payables incurred in
the ordinary course of business.

         3.10     COMPLIANCE WITH LAWS. The business of CTS has been operated in
compliance with all Laws applicable thereto, except for any non-compliance that
would not reasonably be expected to have a Material Adverse Effect.

         3.11     PERMITS. Section 3.11 of the Disclosure Schedules contains a
complete and accurate list of each material Permit that is held by CTS or that
otherwise relates to the business of, or to any of the assets owned or used by,
CTS. Each Permit is valid and in full force and effect. Except as set forth in
Section 3.11 of the Disclosure Schedules, (a) CTS has all Permits required in
connection with the operation of its business, (b) CTS is not in violation of
any Permit and (c) no proceedings are pending or, to the Knowledge of CTS,
threatened, to revoke or limit any Permit, except, in the case of each of
clauses (a) and (b), where the absence or violation would not reasonably be
expected to have a Material Adverse Effect.

         3.12     LITIGATION. There is no suit, action or proceeding
("LITIGATION") pending or, to the Knowledge of CTS, threatened against CTS, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Authority outstanding against CTS.

         3.13     CONTRACTS. Section 3.13 of the Disclosure Schedules sets
forth, as of the date hereof, a list of Material Contracts to which CTS is a
party or by which its properties or assets is bound that are outside the
ordinary course of the business of CTS. CTS is not a party to any agreements to
acquire in the future the capital stock or substantially all the assets of
another Person. Except as disclosed in Section 3.13 of the Disclosure Schedules,
to the Knowledge of CTS all the Material Contracts are valid and binding and are
in full force and effect and enforceable against CTS in accordance with their
respective terms, subject to the Enforceability Exceptions, and CTS is not in
violation or breach of or default under any Material Contract, except where the
failure to be in full force and effect or where such violation or breach would
not reasonably be expected to have a Material Adverse Effect. To the Knowledge
of CTS, no party is in default, violation or breach of any Material Contract
where such violation or breach would reasonably be expected to have a Material
Adverse Effect.

         3.14     EMPLOYEE BENEFIT PLANS.

                  (a)      Section 3.14(a) of the Disclosure Schedules lists all
employee pension benefit plans (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974 ("ERISA")), all employee welfare benefit
plans (as defined in Section 3(1) of ERISA) and all other bonus, option,
membership purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar fringe or employee benefit plans, programs or
arrangements, and any employment, executive compensation or severance
agreements, written or

11-AGREEMENT AND PLAN OF MERGER



otherwise, as amended, modified or supplemented, for the benefit of, or relating
to, any former or current employee, officer or consultant who is an individual
or an individual doing business in a corporate form (or any of their
beneficiaries) of CTS or any other entity (whether or not incorporated) or which
is under common control (an "ERISA AFFILIATE") within the meaning of Section
414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) or (b) of ERISA, or
any CTS Subsidiary, with respect to which CTS has or could have any current
(actual or contingent) material liability (together for purposes of this Section
3.14 and Section 4.14, "EMPLOYEE PLANS"). Prior to the date of this Agreement,
CTS has provided or made available to Microfield copies of (i) each such written
Employee Plan (or a written description of any Employee Plan which is not
written) and all related trust agreements, insurance and other contracts
(including policies), summary plan descriptions, summaries of material
modifications and any material communications to plan participants, (ii) the
three (3) most recent annual reports on Form 5500 series, with accompanying
schedules and attachments, filed with respect to each Employee Plan required to
make such a filing, and (iii) the most recent favorable determination letters
issued for each Employee Plan and related trust which is intended to qualify
under Section 401(a) of the Code (and, if an application for such determination
is pending, a copy of the application for such determination).

                  (b)      (i) None of the Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any Person (other than in
accordance with Section 4980B of the Code or Part 6 of Subtitle B of Title I of
ERISA and none of the Employee Plans is subject to Title IV of ERISA or Section
412 of the Code); (ii) neither CTS nor any ERISA Affiliate has ever contributed
to a "MULTI-EMPLOYER PLAN" as such term is defined in Section 3(37) of ERISA;
(iii) to the Knowledge of CTS, no "PARTY IN INTEREST" or "DISQUALIFIED PERSON"
(as defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any
time engaged in a transaction with respect to any Employee Plan that could
subject CTS or any ERISA Affiliate, directly or indirectly, to a tax, penalty or
other liability for prohibited transactions under ERISA or Section 4975 of the
Code, except for any such tax, penalty or liability that would not reasonably be
expected to result in a Material Adverse Effect; (iv) to the Knowledge of CTS,
no fiduciary of any Employee Plan has breached any of the responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA, except where such
breach would not reasonably be expected to result in a Material Adverse Effect;
(v) all Employee Plans have been established and maintained substantially in
accordance with their terms and have operated in compliance with the
requirements prescribed by any and all statutes (including ERISA and the Code),
orders, or governmental rules and regulations currently in effect with respect
thereto (including all applicable requirements for notification to participants
or the Department of Labor, the Internal Revenue Service (the "IRS") or the
Secretary of the Treasury), except where failure to do so would not reasonably
be expected to result in a Material Adverse Effect; and CTS and each CTS
Subsidiary have performed all obligations required to be performed by them
under, are not in default under or in violation of any Employee Plan except
where failure to do so would not reasonably be expected to result in a Material
Adverse Effect, and have no Knowledge of any default or violation by any other
party to, any of the Employee Plans; (vi) each Employee Plan which is intended
to be qualified under Sections 401 and 501 of the Code is the subject of a
favorable determination letter from the IRS, and to the Knowledge of CTS nothing
has occurred that may reasonably be expected to impair such determination; (vii)
all contributions required to be made with respect to any Employee Plan pursuant
to the terms of the Employee Plan have

12-AGREEMENT AND PLAN OF MERGER



been made on or before their due dates, including due dates with respect to
employee deferrals; and (viii) there are no complaints, charges or claims
against CTS pending or to CTS's Knowledge threatened to be brought by or filed
with any Governmental Authority based on, arising out of, in connection with or
otherwise relating to the classification of any individual by CTS as an
independent contractor or "LEASED EMPLOYEE" (within the meaning of Section
414(n) of the Code) rather than as an employee.

                  (c)      Section 3.14(c) of the Disclosure Schedules sets
forth a true and complete list of each current or former employee, officer or
director of CTS or any of its Subsidiaries who holds (i) any option to purchase
CTS Stock as of the date hereof, together with the number of shares of CTS Stock
subject to such option, the option price of such option (to the extent
determined as of the date hereof), whether such option is intended to qualify as
an incentive stock option within the meaning of Section 422(b) of the Code (an
"ISO"), and the expiration date of such option; (ii) any CTS Stock that is
restricted as a result of an agreement with or equity participation plan of CTS;
and (iii) any other right, directly or indirectly, to receive CTS Stock, except
as otherwise disclosed in Section 3.14 of the Disclosure Schedules, together
with the percentage of CTS Stock subject to such right. Section 3.14(c) of the
Disclosure Schedules also sets forth the total number of any such ISO's and any
such nonqualified options and other such rights.

                  (d)      Unless otherwise disclosed in Section 3.14(a) of the
Disclosure Schedules, Section 3.14(d) of the Disclosure Schedules sets forth a
true and complete list of (i) all employment agreements with officers of CTS or
any of its Subsidiaries; (ii) all agreements with consultants who are
individuals obligating CTS or any of its Subsidiaries to make annual cash
payments in an amount exceeding $10,000; (iii) all agreements that individually
or in the aggregate are or could be material with respect to the services of
independent contractors or leased employees who are individuals or individuals
doing business in a corporate form whether or not they participate in any of the
Employee Plans; (iv) all officers of CTS or any of its Subsidiaries who have
executed a non-competition agreement with CTS or any of its Subsidiaries; (v)
all severance agreements, programs and policies of CTS or any of its
Subsidiaries with or relating to its employees, in each case with outstanding
commitments exceeding $25,000, excluding programs and policies required to be
maintained by Law; and (vi) all plans, programs, agreements and other
arrangements of CTS that contain change in control provisions.

                  (e)      (i) Except as set forth in Section 3.14(e) of the
Disclosure Schedules, no Employee Plan is an employee stock ownership plan
(within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in
CTS Stock; and (ii) the completion of the transactions contemplated by this
Agreement will not result in an increase in the amount of compensation or
benefits or accelerate the vesting or timing of payment of any benefits or
compensation payable in respect of any employee except as disclosed in Section
3.14(e) of the Disclosure Schedules or except where such increase or
acceleration would not reasonably be expected to result in a Material Adverse
Effect.

                  (f)      Except as set forth in Section 3.14(f) of the
Disclosure Schedules, CTS maintains no Employee Plan covering non-U.S.
employees.

13-AGREEMENT AND PLAN OF MERGER



         3.15     TAXES AND TAX RETURNS.

                  (a)      CTS has timely filed, or caused to be timely filed,
all material Tax Returns required to be filed by it, and all such Tax Returns
are true, complete and correct in all material respects, and has timely paid,
collected or withheld, or caused to be paid, collected or withheld, all material
amounts of Taxes required to be paid, collected or withheld, other than such
Taxes for which adequate reserves in CTS Financial Statements have been
established and which are being contested in good faith and as identified in
Section 3.15 of the Disclosure Schedules. Except as set forth in Section 3.15 of
the Disclosure Schedules, there are no material claims or assessments pending
against CTS (or the CTS Shareholder with respect to CTS) for any alleged
deficiency in any Tax, and CTS has not been notified in writing of any proposed
Tax claims or assessments against CTS (or the CTS Shareholder with respect to
CTS) (other than in each case, claims or assessments for which adequate reserves
in the Financial Statements have been established and which are being contested
in good faith and as identified in Section 3.15 of the Disclosure Schedules or
claims or assessments which are immaterial in amount). Neither CTS nor the CTS
Shareholder with respect to CTS has executed any waivers or extensions of any
applicable statute of limitations to assess any material amount of Taxes. There
are no outstanding requests by CTS (or the CTS Shareholder with respect to CTS)
for any extension of time within which to file any material Tax Return or within
which to pay any material amounts of Taxes shown to be due on any Tax Return.
There are no Liens for material amounts of Taxes on the assets of CTS (or the
CTS Shareholder with respect to CTS) except for statutory liens for current
Taxes not yet due and payable. There are no outstanding powers of attorney
enabling any party to represent CTS (or the CTS Shareholder with respect to CTS)
or any of its Subsidiaries with respect to Tax matters.

                  (b)      For purposes of this Agreement, the term "TAX" means
any federal, state, local, foreign or provincial income, gross receipts,
property, sales, use, license, excise, franchise, employment, payroll,
alternative or add-on minimum, ad valorem, transfer or excise tax, or any other
tax, custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty imposed by any
Governmental Authority. The term "TAX RETURN" means a report, return or other
information (including any attached schedules or any amendments to such report,
return or other information) supplied to or filed with or required to be
supplied to or filed with a governmental entity with respect to any Tax,
including an information return, claim for refund, amended return or declaration
or estimated Tax.

                  (c)      Except as set forth in Section 3.15 of the Disclosure
Schedules, (i) CTS has been a corporation for federal and state income tax
purposes at all times since its inception; (ii) CTS has not been included in a
combined, consolidated or unitary Tax Return and other than with respect to CTS,
CTS is not currently liable for Taxes of any other Person, or is currently under
any contractual obligation to indemnify any Person with respect to Taxes (except
for customary agreements to indemnify lenders or security holders in respect of
taxes other than income taxes), or is a party to any tax sharing agreement or
any other agreement providing for payments by CTS with respect to Taxes; (iii)
CTS is not a party to any joint venture, partnership or other arrangement or
contract that could be treated as a partnership for federal income tax

14-AGREEMENT AND PLAN OF MERGER



purposes; (iv) CTS has not entered into any sale leaseback or any leveraged
lease transaction that fails to satisfy the requirements of Revenue Procedure
75-21 (or similar provisions of foreign law); (v) CTS has not agreed nor is
required, as a result of a change in method of accounting or otherwise, to
include any adjustment under Section 481 of the Code (or any corresponding
provision of state, local or foreign law) in taxable income; (vi) CTS is not a
party to any agreement, contract, arrangement or plan that would result (taking
into account the transactions contemplated by this Agreement), separately or in
the aggregate, in the payment of any "EXCESS PARACHUTE PAYMENTS" within the
meaning of Section 280G of the Code; (vii) CTS is not liable with respect to any
indebtedness the interest of which is not deductible for applicable federal,
foreign, state or local income tax purposes; (viii) CTS is not a "CONSENTING
CORPORATION" under Section 341(f) of the Code or any corresponding provision of
state, local or foreign law; (ix) CTS has complied with all applicable laws,
rules, and regulations relating to the withholding and payment of Taxes except
where the amount of taxes involved is not material; and (x) none of the assets
owned by CTS is property that is required to be treated as owned by any other
Person pursuant to Section 168(g)(8) of the Internal Revenue Code of 1954, as
amended, as in effect immediately prior to the enactment of the Tax Reform Act
of 1986, or is "TAX-EXEMPT USE PROPERTY" within the meaning of Section 168(h) of
the Code.

         3.16     INTELLECTUAL PROPERTY.

                  (a)      Section 3.16(a) of the Disclosure Schedules sets
forth a list of (i) all patents and patent applications owned by CTS worldwide;
(ii) all trademark and service mark registrations and all trademark and service
mark applications, material common law trademarks, material trade dress and
material slogans, and all trade names owned by CTS worldwide; (iii) all
copyright registrations and copyright applications owned by CTS worldwide; and
(iv) all licenses in which CTS is (A) a licensor with respect to any of the
patents, trademarks, service marks, trade names or copyrights listed in Section
3.16 of the Disclosure Schedules or (B) a licensee of any other Person's
patents, trade names, trademarks, service marks or copyrights except for any
licenses of software programs that are commercially available "OFF THE SHELF."

                  (b)      CTS owns, or is licensed or otherwise possesses legal
enforceable rights to use, all patents, trademarks, trade names, service marks,
trade dress, slogans, copyrights and any applications therefor, technology,
know-how, trade secrets, computer software programs or applications, domain
names and tangible or intangible proprietary information or materials that are
used in the respective businesses of CTS as currently conducted (the
"INTELLECTUAL PROPERTY RIGHTS"), except for any such failures to own, be
licensed or possess that would not reasonably be expected to have a Material
Adverse Effect.

                  (c)      CTS has made all necessary filings and recordations
for the patents, patent applications, trademark and service mark registrations,
trademark and service mark applications, copyright registrations and copyright
applications set forth in Section 3.16(a) of the Disclosure Schedules, except
where the failure to make such filings or recordations would not reasonably be
expected to have a Material Adverse Effect. There are not currently pending, and
to the Knowledge of CTS there are no valid grounds for, any bona fide claims (i)
that the business of CTS infringes on any copyright, patent, trademark, service
mark or trade secret; (ii) against the use by CTS of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-

15-AGREEMENT AND PLAN OF MERGER



how or computer software programs and applications used in the business of CTS
as currently conducted or as proposed to be conducted; (iii) challenging the
exclusive ownership, validity or effectiveness of any of Intellectual Property
Rights; or (iv) challenging the license or legally enforceable right to use of
any third-party patents, trademarks, service marks and copyrights by CTS,
except, in the case of each of clauses (i), (ii), (iii) and (iv) above, for
matters that, if determined adversely to CTS, would not reasonably be expected
to have a Material Adverse Effect.

                  (d)      Except as set forth in Section 3.16 of the Disclosure
Schedules, to the Knowledge of CTS, there is no material unauthorized use,
infringement or misappropriation of any of Intellectual Property Rights by any
third party, including any employee or former employee of CTS.

                  (e)      Except as set forth in Section 3.16 of the Disclosure
Schedules, there are no valid royalty agreements, license agreements (except for
any license implied by the sale or products) or similar arrangements with
respect to the Intellectual Property.

         3.17     EMPLOYEE AND LABOR MATTERS.

                  (a)      Section 3.17(a) of the Disclosure Schedules sets
forth a list of all employees of CTS.

                  (b)      Except as set forth in Section 3.17 of the Disclosure
Schedules, (i) there are no controversies pending or, to the Knowledge of CTS,
threatened, between CTS and any of its employees, which controversies would
reasonably be expected to have a Material Adverse Effect; (ii) CTS is not a
party to any collective bargaining agreement or other labor union contract
applicable to Persons employed by CTS, nor, as of the date of this Agreement,
does CTS know of any activities or proceedings of any labor union to organize
any such employees; and (iii) CTS has no Knowledge of any strikes, slowdowns,
work stoppages, lockouts, or threats thereof, by or with respect to any
employees of CTS that would reasonably be expected to have a Material Adverse
Effect.

         3.18     LIMITATION ON BUSINESS CONDUCT. CTS is not a party to, nor has
any obligation under, any contract or agreement, written or oral, that contains
any covenants currently or prospectively limiting in any material respect the
freedom of CTS to engage in any line of business or to compete with any entity.

         3.19     TITLE TO PROPERTY. Except as set forth in Section 3.19 of the
Disclosure Schedules, CTS owns the properties and assets that it purports to own
free and clear of all Liens, except for Liens that arise in the ordinary course
of business and do not materially impair CTS's ownership or use of such
properties or assets, Liens for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which reserves have been
established in accordance with GAAP and Liens securing obligations under CTS's
credit agreements, loan agreements and equipment leases. Except as set forth in
Schedule 3.19 of the Disclosure Schedules, with respect to the property and
assets it leases, CTS, and to the best of CTS's Knowledge, each of the other
parties thereto, is in material compliance with such leases, and

16-AGREEMENT AND PLAN OF MERGER



CTS holds a valid leasehold interest free of any Liens, except those referred to
above. The rights, properties and assets presently owned, leased or licensed by
CTS include all rights, properties and assets necessary to permit CTS to conduct
its business in all material respects in the same manner as its businesses have
been conducted prior to the date hereof.

         3.20     OWNED AND LEASED PREMISES. Each of the buildings, structures
and premises owned or leased by CTS is in reasonably good repair and operating
condition.

         3.21     ENVIRONMENTAL MATTERS. Except as set forth in Section 3.21 of
the Disclosure Schedules:

                  (a)      CTS is in material compliance with the Environmental
Laws, which compliance includes the possession by CTS of all material Permits
and governmental authorizations required under applicable Environmental Laws,
and compliance in all material respects with the terms and conditions thereof,
except in each case where such non-compliance would not reasonably be expected
to have a Material Adverse Effect. CTS has not received any written
communication from a Governmental Authority that alleges that it is not in such
material compliance except where such non-compliance would not reasonably be
expected to have a Material Adverse Effect.

                  (b)      There are no Environmental Claims, including claims
based on "ARRANGER LIABILITY," pending or, to the Knowledge of CTS, threatened
against CTS or to the Knowledge of CTS, pending or threatened against any Person
or entity whose liability for any Environmental Claim CTS has to the Knowledge
of CTS retained or assumed either contractually or by operation of law, except
for such Environmental Claims that would not reasonably be expected to have a
Material Adverse Effect.

                  (c)      To the Knowledge of CTS, there are no past or present
actions, inactions, activities, circumstances, conditions, events or incidents,
including the release, emission, discharge, presence or disposal of any Material
of Environmental Concern, that would form the basis of any Environmental Claim
against CTS or against any Person whose liability for any Environmental Claim
CTS has retained or assumed either contractually or by operation of law, except
for such Environmental Claims that would not reasonably be expected to have a
Material Adverse Effect.

                  (d)      CTS is in compliance in all material respects with
Environmental Laws as they relate to (i) any on-site or off-site locations where
to CTS's Knowledge, CTS has stored, disposed or arranged for the disposal of
Materials of Environmental Concern for itself (but not on behalf of others) or
(ii) any underground storage tanks located on property owned or leased by CTS of
which CTS has Knowledge.

                  (e)      For purposes of this Agreement:

                           (i)      "ENVIRONMENTAL CLAIM" means any written
claim, action, cause of action, investigation or written notice by any Person
alleging potential liability (including potential liability for investigatory
costs, cleanup costs, governmental response costs, natural

17-AGREEMENT AND PLAN OF MERGER



resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (A) the presence, or release into the
environment, of any Material of Environmental Concern at any location, whether
or not owned or operated by CTS, or (B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.

                           (ii)     "ENVIRONMENTAL LAWS" means all Federal,
state, local and foreign laws or regulations relating to pollution or protection
of human health and the environment (including ambient air, surface water,
ground water, land surface or sub-surface strata), including laws and
regulations relating to emissions, discharges, releases or threatened releases
of Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern.

                           (iii)    "MATERIAL OF ENVIRONMENTAL CONCERN" means
chemicals, pollutants, contaminants, hazardous materials, hazardous substances
and hazardous wastes, toxic substances, petroleum and petroleum products that
are regulated under the Environmental Laws.

         3.22     INSURANCE. Section 3.22 of the Disclosure Schedules contains a
complete and accurate list of all fire, liability, worker's compensation and
other forms of insurance insuring CTS, and its respective officers and
directors, assets and operations. The insurance polices maintained by CTS are
with reputable insurance carriers and have no premium delinquencies.

         3.23     PRODUCT LIABILITY AND RECALLS.

                  (a)      Except as disclosed in Section 3.23 of the Disclosure
Schedules, to CTS's Knowledge, there is no claim, pending or overtly threatened,
against CTS for injury to Person or property of employees or any third parties
suffered as a result of the sale of any product or performance of any service by
CTS, including claims arising out of the defective or unsafe nature of its
products or services, that would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.

                  (b)      Except as disclosed in Section 3.23 of the Disclosure
Schedules, there is no pending or, to the Knowledge of CTS, overtly threatened
recall or investigation of any product sold by CTS, which recall or
investigation would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.

         3.24     CUSTOMERS. Section 3.24 of the Disclosure Schedules sets forth
a list of CTS's ten (10) largest customers (detailed, in the case of government
agencies, by separate government agency) in terms of gross sales for the
twelve-month period ended June 30, 2003. Except as set forth in Section 3.24 of
the Disclosure Schedules, since June 30, 2003, there have not been any changes
in the business relationships of CTS with any of the customers named therein
that would constitute a Material Adverse Effect. Except as set forth in Section
3.24 of the Disclosure Schedules, no customer of CTS, on a combined basis,
accounted for more than five percent (5%) of the revenues of CTS for the twelve
month period ended June 30, 2003.

18-AGREEMENT AND PLAN OF MERGER



         3.25     INTERESTED PARTY TRANSACTIONS. Except as set forth in Section
3.25 of the Disclosure Schedules, no event has occurred that would be required
to be reported, if CTS were a reporting company under Section 13 of the
Securities Exchange Act of 1934, pursuant to Item 404 of Regulation S-B
promulgated by the Securities and Exchange Commission (without regard to the
$60,000 threshold contained in Item 404).

         3.26     FULL DISCLOSURE. No statement contained in any certificate or
schedule, including, without limitation, the Disclosure Schedules, furnished or
to be furnished by CTS to Microfield or Merger Sub in, or pursuant to the
provisions of, this Agreement contains or shall contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary, in
the light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.

         ARTICLE 4         REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND
                           MERGER SUB

         Microfield and Merger Sub jointly and severally represent and warrant
to CTS that, except as set forth in the correspondingly numbered sections of the
Disclosure Schedules:

         4.1      ORGANIZATION AND GOOD STANDING. Each of Microfield and Merger
Sub is a corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.

         4.2      CAPITALIZATION. The authorized capital stock of Microfield
consists of (a) 25,000,000 shares of Microfield Common Stock and (b) 10,000,000
shares of preferred stock (the "PREFERRED SHARES"). As of July 17, 2003, (i)
8,386,285 shares of Microfield Common Stock were issued and outstanding, (ii) no
shares of Preferred Shares were issued and outstanding, (iii) 261,188 shares of
Microfield Common Stock were reserved for future issuance pursuant to
outstanding options to purchase Microfield Common Stock, (iv) 650,000 shares of
Microfield Common Stock are available for issuance pursuant to the 1995 Stock
Option Agreement, as amended; and (v) 2,197,308 shares of Microfield Common
Stock were reserved for future issuance upon exercise of warrants to purchase
Microfield Common Stock. No other capital stock of Microfield is authorized or
issued. Microfield has agreed to issue shares of Microfield Common Stock
pursuant to the Common Stock Purchase Agreement. The shares of Microfield Common
Stock to be issued to the CTS Shareholder in the Merger will be duly authorized,
validly issued, fully paid and nonassessable.

         4.3      SUBSIDIARIES. Innovative Safety Technologies, Inc., an Oregon
corporation, Merger Sub and VSI Acquisition Co. are wholly owned subsidiaries of
Microfield. Microfield has no other subsidiaries.

         4.4      AUTHORIZATION; BINDING AGREEMENT. Microfield and Merger Sub
have all requisite corporate power and authority to execute and deliver this
Agreement and to complete the transactions contemplated hereby. The execution
and delivery of this Agreement and the completion of the transactions
contemplated hereby, including, but not limited to, the Merger, have been duly
and validly authorized by the respective boards of directors of Microfield and

19-AGREEMENT AND PLAN OF MERGER



Merger Sub, and no other corporate proceedings on the part of Microfield or
Merger Sub are necessary to authorize the execution and delivery of this
Agreement or to complete the transactions contemplated hereby (other than the
requisite approval by the sole shareholder of Merger Sub of this Agreement and
the Merger). This Agreement has been duly and validly executed and delivered by
each of Microfield and Merger Sub and constitutes the legal, valid and binding
agreement of Microfield and Merger Sub, enforceable against each of Microfield
and Merger Sub in accordance with its terms, subject to the Enforceability
Exceptions.

         4.5      GOVERNMENTAL APPROVALS. No Consent from or with any
Governmental Authority on the part of Microfield or Merger Sub is required in
connection with the execution or delivery by Microfield and Merger Sub of this
Agreement or the completion by Microfield and Merger Sub of the transactions
contemplated hereby other than (a) the filing of the Articles of Merger with the
Secretary of State of Oregon in accordance with the OBCA, and (b) those Consents
that, if they were not obtained or made, would not reasonably be expected to
have a Material Adverse Effect.

         4.6      NO VIOLATIONS. The execution and delivery of this Agreement,
the completion of the transactions contemplated hereby and compliance by
Microfield or Merger Sub with any of the provisions hereof will not (a) conflict
with or result in any breach of any provision of the Articles of Incorporation
and Bylaws of Microfield or other similar documents of any Subsidiary of
Microfield, or (b) require any Consent under or result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of, any material note, bond,
mortgage, indenture, contract, lease, license, agreement or instrument to which
Microfield or any Subsidiary of Microfield is a party or by which any of them or
any of their respective assets or property is subject, except in any such case
for any such conflicts, violations, breaches, defaults or other occurrences that
would not prevent or delay completion of the Merger, or otherwise materially and
adversely affect the ability of Microfield or Merger Sub to perform their
respective obligations under this Agreement.

         4.7      LITIGATION. Except as disclosed in Section 4.7 of the
Disclosure Schedules, there is no Litigation pending or, to the Knowledge of
Microfield, threatened against Microfield or any of its Subsidiaries which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, nor is there any judgment, decree, injunction, rule or
order of any Governmental Authority outstanding against Microfield or any of its
Subsidiaries which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.

         4.8      SEC REPORTS AND FINANCIAL STATEMENTS. Microfield has furnished
CTS and the CTS Shareholder with complete copies of all registration statements,
reports and proxy statements, including amendments thereto, filed with the SEC
since December 31, 2000, and prior to the date of this Agreement (collectively,
the "MICROFIELD SEC REPORTS"). Each of the Microfield SEC Reports, as of the
date filed, complied in all material respects with the applicable requirements
of the Act, the Securities Exchange Act of 1934 and the rules and regulations
promulgated by the Securities and Exchange Commission thereunder.

20-AGREEMENT AND PLAN OF MERGER



         4.9      NO UNDISCLOSED LIABILITIES. Except as disclosed in Section 4.9
of the Disclosure Schedules and in the Microfield SEC Reports, Microfield has no
liabilities (absolute, accrued, contingent or other), except liabilities (a)
adequately provided for in Microfield's unaudited balance sheet (including any
related notes thereto) as of June 29, 2003, (the "MICROFIELD BALANCE SHEET") (b)
incurred in the ordinary course of business on or before June 29, 2003, and not
required under GAAP to be reflected on the Microfield Balance Sheet, (c)
incurred since June 29, 2003, in the ordinary course of business consistent with
past practice, (d) incurred in connection with this Agreement or (e) that would
not reasonably be expected to have a Material Adverse Effect.

         4.10     TAXES AND TAX RETURNS. Except as disclosed in Section 4.10 of
the Disclosure Schedules, Microfield has timely filed, or caused to be timely
filed, all Tax Returns required to be filed by it, and all such Tax Returns are
true, complete and correct in all material respects, and has timely paid,
collected or withheld, or caused to be paid, collected or withheld, all material
amounts of Taxes required to be paid, collected or withheld, other than such
Taxes for which adequate reserves in the financial statements contained in the
Microfield SEC Reports have been established and which are being contested in
good faith. There are no material claims or assessments pending against
Microfield for any alleged deficiency in any Tax, and neither Microfield nor any
of its officers, directors or employees has been notified of any proposed Tax
claims or assessments against Microfield. Microfield has not executed any
currently effective waivers or extensions of any applicable statute of
limitations to assess any material amount of Taxes. There are no outstanding
requests by Microfield for any extension of time within which to file any Tax
Return or within which to pay any material amounts of Taxes shown to be due on
any Tax Return. There are no Liens for material amounts of Taxes on the assets
of Microfield except for statutory liens for current Taxes not yet due and
payable. There are no outstanding powers of attorney enabling any party to
represent Microfield with respect to Tax matters.

         4.11     COMPLIANCE WITH LAWS. The business of Microfield has been
operated in compliance with all Laws applicable thereto, except for any
non-compliance that would not reasonably be expected to have a Material Adverse
Effect.

         4.12     PERMITS. Section 4.12 of the Disclosure Schedules contains a
complete and accurate list of each material Permit that is held by Microfield or
that otherwise relates to the business of, or to any of the assets owned or used
by, Microfield. Each Permit is valid and in full force and effect. Except as set
forth in Section 4.12 of the Disclosure Schedules, (a) Microfield has all
Permits required in connection with the operation of its business, (b)
Microfield is not in violation of any Permit and (c) no proceedings are pending
or, to the Knowledge of Microfield, threatened, to revoke or limit any Permit,
except, in the case of each of clauses (a) and (b), where the absence or
violation would not reasonably be expected to have a Material Adverse Effect.

21-AGREEMENT AND PLAN OF MERGER



         4.13     CONTRACTS. Section 4.13 of the Disclosure Schedules sets
forth, as of the date hereof, a list of the Material Contracts to which
Microfield is a party or by which its properties or assets are bound that are
outside the ordinary course of business. Microfield is not a party to any
agreements to acquire in the future the capital stock or substantially all the
assets of another Person. Except as disclosed in Section 4.13 of the Disclosure
Schedules, to the Knowledge of Microfield all the Material Contracts are valid
and binding and are in full force and effect and enforceable against Microfield
in accordance with their respective terms, subject to the Enforceability
Exceptions, and Microfield is not in violation or breach of or default under any
Material Contract, except where the failure to be in full force and effect or
where such violation or breach would not reasonably be expected to have a
Material Adverse Effect. To the Knowledge of Microfield, no party is in default,
violation or breach of any Material Contract where such violation or breach
would reasonably be expected to have a Material Adverse Effect.

         4.14     EMPLOYEE BENEFIT PLANS.

                  (a)      Section 4.14(a) of the Disclosure Schedules lists
Microfield's Employee Plans and any ERISA Affiliate or Subsidiary. Prior to the
date of this Agreement, Microfield has provided or made available to CTS copies
of (i) each such written Employee Plan (or a written description of any such
Employee Plan which is not written) and all related trust agreements, insurance
and other contracts (including policies), summary plan descriptions, summaries
of material modifications and any material communications to plan participants,
(ii) the three (3) most recent annual reports on Form 5500 series, with
accompanying schedules and attachments, filed with respect to each such Employee
Plan required to make such a filing, and (iii) the most recent favorable
determination letters issued for each such Employee Plan and related trust which
is intended to qualify under Section 401(a) of the Code (and, if an application
for such determination is pending, a copy of the application for such
determination).

                  (b)      (i) None of the Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any Person (other than in
accordance with Section 4980B of the Code or Part 6 of Subtitle B of Title I of
ERISA and none of the Employee Plans is subject to Title IV of ERISA or Section
412 of the Code); (ii) neither Microfield nor any ERISA Affiliate has ever
contributed to a "MULTI-EMPLOYER PLAN" as such term is defined in Section 3(37)
of ERISA; (iii) to the Knowledge of Microfield, no "PARTY IN INTEREST" or
"DISQUALIFIED PERSON" (as defined in Section 3(14) of ERISA and Section 4975 of
the Code) has at any time engaged in a transaction with respect to any Employee
Plan that could subject Microfield or any ERISA Affiliate, directly or
indirectly, to a tax, penalty or other liability for prohibited transactions
under ERISA or Section 4975 of the Code, except for any such tax, penalty or
liability that would not reasonably be

22-AGREEMENT AND PLAN OF MERGER



expected to result in a Material Adverse Effect; (iv) to the Knowledge of
Microfield, no fiduciary of any Employee Plan has breached any of the
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA,
except where such breach would not reasonably be expected to result in a
Material Adverse Effect; (v) all Employee Plans have been established and
maintained substantially in accordance with their terms and have operated in
compliance with the requirements prescribed by any and all statutes (including
ERISA and the Code), orders, or governmental rules and regulations currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, the IRS or the
Secretary of the Treasury), except where failure to do so would not reasonably
be expected to result in a Material Adverse Effect; and Microfield and each
Microfield Subsidiary have performed all obligations required to be performed by
them under, are not in default under or in violation of any Employee Plan except
where failure to do so would not reasonably be expected to result in a Material
Adverse Effect, and have no Knowledge of any default or violation by any other
party to, any of the Employee Plans; (vi) each Employee Plan which is intended
to be qualified under Sections 401 and 501 of the Code is the subject of a
favorable determination letter from the IRS, and to the Knowledge of Microfield
nothing has occurred that may reasonably be expected to impair such
determination; (vii) all contributions required to be made with respect to any
Employee Plan pursuant to the terms of the Employee Plan have been made on or
before their due dates, including due dates with respect to employee deferrals;
and (viii) there are no complaints, charges or claims against Microfield pending
or to Microfield's Knowledge threatened to be brought by or filed with any
Governmental Authority based on, arising out of, in connection with or otherwise
relating to the classification of any individual by Microfield as an independent
contractor or "LEASED EMPLOYEE" (within the meaning of Section 414(n) of the
Code) rather than as an employee.

                  (c)      Section 4.14(c) of the Disclosure Schedules sets
forth a true and complete list of each current or former employee, officer or
director of Microfield or any of its Subsidiaries who holds (i) any option to
purchase Microfield Stock as of the date hereof, together with the number of
shares of Microfield Stock subject to such option, the option price of such
option (to the extent determined as of the date hereof), whether such option is
intended to qualify as an ISO, and the expiration date of such option; (ii) any
Microfield Stock that is restricted as a result of an agreement with or equity
participation plan of Microfield; and (iii) any other right, directly or
indirectly, to receive Microfield Stock, except as otherwise disclosed in
Section 4.14 of the Disclosure Schedules, together with the percentage of
Microfield Stock subject to such right. Section 4.14(c) of the Disclosure
Schedules also sets forth the total number of any such ISO's and any such
nonqualified options and other such rights.

                  (d)      Unless otherwise disclosed in Section 4.14(a) of the
Disclosure Schedules, Section 4.14(d) of the Disclosure Schedules sets forth a
true and complete list of (i) all employment agreements with officers of
Microfield or any of its Subsidiaries; (ii) all agreements with consultants who
are individuals obligating Microfield or any of its Subsidiaries to make annual
cash payments in an amount exceeding $10,000; (iii) all agreements that
individually or in the aggregate are or could be material with respect to the
services of independent contractors or leased employees who are individuals or
individuals doing business in a corporate form whether or not they participate
in any of the Employee Plans; (iv) all officers of Microfield or any of its
Subsidiaries who have executed a non-competition agreement with Microfield or
any of its Subsidiaries; (v) all severance agreements, programs and policies of
Microfield or any of its Subsidiaries with or relating to its employees, in each
case with outstanding commitments exceeding $25,000, excluding programs and
policies required to be maintained by Law; and (vi) all plans, programs,
agreements and other arrangements of Microfield that contain change in control
provisions.

                  (e)      (i) Except as set forth in Section 4.14(e) of the
Disclosure Schedules, no Employee Plan is an employee stock ownership plan
(within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in
Microfield Stock; and (ii) the completion of the transactions

23-AGREEMENT AND PLAN OF MERGER



contemplated by this Agreement will not result in an increase in the amount of
compensation or benefits or accelerate the vesting or timing of payment of any
benefits or compensation payable in respect of any employee except as disclosed
in Section 4.14(e) of the Disclosure Schedules or except where such increase or
acceleration would not reasonably be expected to result in a Material Adverse
Effect.

                  (f)      Except as set forth in Section 4.14(f) of the
Disclosure Schedules, Microfield maintains no Employee Plan covering non-U.S.
employees.

         4.15     INTELLECTUAL PROPERTY.

                  (a)      Section 4.15(a) of the Disclosure Schedules sets
forth a list of (i) all patents and patent applications owned by Microfield
worldwide; (ii) all trademark and service mark registrations and all trademark
and service mark applications, material common law trademarks, material trade
dress and material slogans, and all trade names owned by Microfield worldwide;
(iii) all copyright registrations and copyright applications owned by Microfield
worldwide; and (iv) all licenses in which Microfield is (A) a licensor with
respect to any of the patents, trademarks, service marks, trade names or
copyrights listed in Section 4.15 of the Disclosure Schedules or (B) a licensee
of any other Person's patents, trade names, trademarks, service marks or
copyrights except for any licenses of software programs that are commercially
available "OFF THE SHELF."

                  (b)      Microfield owns, or is licensed or otherwise
possesses legal enforceable rights to use, all Intellectual Property Rights,
except for any such failures to own, be licensed or possess that would not
reasonably be expected to have a Material Adverse Effect.

                  (c)      Microfield has made all necessary filings and
recordations for the patents, patent applications, trademark and service mark
registrations, trademark and service mark applications, copyright registrations
and copyright applications set forth in Section 4.15(a) of the Disclosure
Schedules, except where the failure to make such filings or recordations would
not reasonably be expected to have a Material Adverse Effect. There are not
currently pending, and to the Knowledge of Microfield there are no valid grounds
for, any bona fide claims (i) that the business of Microfield infringes on any
copyright, patent, trademark, service mark or trade secret; (ii) against the use
by Microfield of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in the business of Microfield as currently conducted or as proposed to be
conducted; (iii) challenging the exclusive ownership, validity or effectiveness
of any of Intellectual Property Rights; or (iv) challenging the license or
legally enforceable right to use of any third-party patents, trademarks, service
marks and copyrights by Microfield, except, in the case of each of clauses (i),
(ii), (iii) and (iv) above, for matters that, if determined adversely to
Microfield, would not reasonably be expected to have a Material Adverse Effect.

                  (d)      Except as set forth in Section 4.15 of the Disclosure
Schedules, to the Knowledge of Microfield, there is no material unauthorized
use, infringement or misappropriation of any of Intellectual Property Rights by
any third party, including any employee or former employee of Microfield.

24-AGREEMENT AND PLAN OF MERGER



                  (e)      Except as set forth in Section 4.15 of the Disclosure
Schedules, there are no valid royalty agreements, license agreements (except for
any license implied by the sale or products) or similar arrangements with
respect to the Intellectual Property.

         4.16     EMPLOYEE AND LABOR MATTERS.

                  (a)      Section 4.16(a) of the Disclosure Schedules sets
forth a list of all employees of Microfield.

                  (b)      Except as set forth in Section 4.16 of the Disclosure
Schedules, (i) there are no controversies pending or, to the Knowledge of
Microfield, threatened, between Microfield and any of its employees, which
controversies would reasonably be expected to have a Material Adverse Effect;
(ii) Microfield is not a party to any collective bargaining agreement or other
labor union contract applicable to Persons employed by Microfield, nor, as of
the date of this Agreement, does Microfield know of any activities or
proceedings of any labor union to organize any such employees; and (iii)
Microfield has no Knowledge of any strikes, slowdowns, work stoppages, lockouts,
or threats thereof, by or with respect to any employees of Microfield that would
reasonably be expected to have a Material Adverse Effect.

         4.17     TITLE TO PROPERTY. Except as set forth in Section 4.17 of the
Disclosure Schedules, Microfield owns the properties and assets that it purports
to own free and clear of all Liens, except for Liens that arise in the ordinary
course of business and do not materially impair Microfield's ownership or use of
such properties or assets, Liens for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which reserves have been
established in accordance with GAAP and Liens securing obligations under
Microfield's credit agreements, loan agreements and equipment leases. Except as
set forth in Schedule 4.17 of the Disclosure Schedules, with respect to the
property and assets it leases, Microfield, and to the best of Microfield's
Knowledge, each of the other parties thereto, is in material compliance with
such leases, and Microfield holds a valid leasehold interest free of any Liens,
except those referred to above. The rights, properties and assets presently
owned, leased or licensed by Microfield include all rights, properties and
assets necessary to permit Microfield to conduct its business in all material
respects in the same manner as its businesses have been conducted prior to the
date hereof.

         4.18     OWNED AND LEASED PREMISES. Each of the buildings, structures
and premises owned or leased by Microfield is in reasonably good repair and
operating condition.

         4.19     ENVIRONMENTAL MATTERS. Except as set forth in Section 4.19 of
the Disclosure Schedules:

                  (a)      Microfield is in material compliance with the
Environmental Laws, which compliance includes the possession by Microfield of
all material Permits and governmental authorizations required under applicable
Environmental Laws, and compliance in all material respects with the terms and
conditions thereof, except in each case where such non-compliance would not
reasonably be expected to have a Material Adverse Effect. Microfield has not
received

25-AGREEMENT AND PLAN OF MERGER


any written communication from a Governmental Authority that alleges that is not
in such material compliance except where such non-compliance would not
reasonably be expected to have a Material Adverse Effect.

                  (b)      There are no Environmental Claims, including claims
based on "ARRANGER LIABILITY," pending or, to the Knowledge of Microfield,
threatened against Microfield or to the Knowledge of Microfield, pending or
threatened against any Person or entity whose liability for any Environmental
Claim Microfield has to the Knowledge of Microfield retained or assumed either
contractually or by operation of law, except for such Environmental Claims that
would not reasonably be expected to have a Material Adverse Effect.

                  (c)      To the Knowledge of Microfield, there are no past or
present actions, inactions, activities, circumstances, conditions, events or
incidents, including the release, emission, discharge, presence or disposal of
any Material of Environmental Concern, that would form the basis of any
Environmental Claim against Microfield or against any Person whose liability for
any Environmental Claim Microfield has retained or assumed either contractually
or by operation of law, except for such Environmental Claims that would not
reasonably be expected to have a Material Adverse Effect.

                  (d)      Microfield is in compliance in all material respects
with Environmental Laws as they relate to (i) any on-site or off-site locations
where to Microfield's Knowledge, Microfield has stored, disposed or arranged for
the disposal of Materials of Environmental Concern for itself (but not on behalf
of others) or (ii) any underground storage tanks located on property owned or
leased by Microfield of which Microfield has Knowledge.

         4.20     INSURANCE. Section 4.20 of the Disclosure Schedules contains a
complete and accurate list of all fire, liability, worker's compensation and
other forms of insurance insuring Microfield, and its respective officers and
directors, assets and operations. The insurance polices maintained by Microfield
are with reputable insurance carriers and have no premium delinquencies.

         4.21     FULL DISCLOSURE. No statement contained in any certificate or
schedule, including, without limitation, the Disclosure Schedules, furnished or
to be furnished by Microfield to CTS in, or pursuant to the provisions of, this
Agreement contains or shall contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.

         4.22     NO PRIOR ACTIVITIES. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and completion of this Agreement and the transactions contemplated hereby
(including any financing in connection therewith), Merger Sub has not incurred
any obligations or liabilities and has not engaged in any business or activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any Person.

26-AGREEMENT AND PLAN OF MERGER



         ARTICLE 5         ADDITIONAL COVENANTS OF CTS

         CTS covenants and agrees as follows:

         5.1      CONDUCT OF BUSINESS OF CTS.

                  (a)      Unless Microfield shall otherwise consent in writing
(which consent, in the case of paragraphs (iv), (v), (ix), (xi), (xii), or
(xiii) below, shall not be unreasonably withheld) and except as expressly
contemplated by this Agreement or in the Disclosure Schedules, during the period
from the date of this Agreement to the Effective Time, (i) CTS shall conduct its
business in the ordinary course and consistent with past practice, and CTS shall
use its reasonable best efforts to preserve substantially intact its business
organization, to keep available the services of its present officers and
employees and to preserve the present commercial relationships of CTS with
Persons with whom CTS does significant business and (ii) without limiting the
generality of the foregoing, CTS will not:

                           (i)      Amend or propose to amend its Articles of
Incorporation or Bylaws (or similar organizational documents);

                           (ii)     Authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any
equity interests in CTS, or any options, warrants, commitments, subscriptions or
rights of any kind to acquire or sell any equity interests in or other
securities of CTS, including, but not limited to, any securities convertible
into or exchangeable for equity interests in CTS;

                           (iii)    Split, combine or reclassify any of its
Stock or declare, pay or set aside any dividend or other distribution (whether
in cash, equity interests or property or any combination thereof) in respect of
its Stock, or directly or indirectly redeem, purchase or otherwise acquire or
offer to acquire any of its equity interests or other securities;

                           (iv)     Create or incur any indebtedness for
borrowed money in excess of $5,000 or issue any debt securities or make any
loans or advances, outside the ordinary course of business;

                           (v)      Sell, pledge, dispose of or encumber any
assets of CTS, outside the ordinary course of business;

                           (vi)     Authorize any capital expenditures or
purchases of fixed assets in excess of $5,000, outside the ordinary course of
business;

                           (vii)    Assume, guarantee or endorse or otherwise as
an accommodation become responsible for, the obligations of any Person, or make
any loans or advances;

                           (viii)   Voluntarily incur any material liability or
obligation (absolute, contingent or otherwise) in excess of $5,000, outside the
ordinary course of business.

27-AGREEMENT AND PLAN OF MERGER



                           (ix)     Increase in any manner the compensation of
any of its officers or employees or enter into, establish, amend or terminate
any employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any shareholder, officer,
director, employee, consultant or affiliate other than, in any such case
referred to above, as may be required by Law or as required pursuant to the
terms of agreements in effect on the date of this Agreement;

                           (x)      Alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate structure or
ownership of CTS;

                           (xi)     Except as may be required as a result of a
change in Law, change any of the accounting principles or practices used by it;

                           (xii)    Make any tax election or settle or
compromise any income tax liability;

                           (xiii)   Pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or other), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of liabilities
reflected or reserved against in, or contemplated by, the Financial Statements
(or the notes thereto) of CTS or incurred in the ordinary course of business
consistent with past practice;

                           (xiv)    Take, or agree in writing or otherwise to
take, any of the foregoing actions or any action that would make any of the
representations or warranties of CTS contained in this Agreement untrue or
incorrect in any material respect at or prior to the Effective Time; or

                           (xv)     Acquire (by merger, consolidation, or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof.

                  (b)      CTS shall comply with all Laws applicable to it or
any of its properties, assets or business and to maintain in full force and
effect all Permits necessary for such business, except in any such case for any
failure so to comply or maintain that would not reasonably be expected to result
in a Material Adverse Effect.

         5.2      NOTIFICATION OF CERTAIN MATTERS. CTS shall give prompt notice
to Microfield if any of the following occur after the date of this Agreement:
(a) receipt of any notice or other communication in writing from any party
alleging that the Consent of such party is or may be required in connection with
the transactions contemplated by this Agreement; (b) receipt of any notice or
other communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; (c) the occurrence of an event that
would be reasonably likely (i) to have a Material Adverse Effect or (ii) to
cause any condition set forth in Section 8.1 or 8.2 to be unsatisfied; or (d)
the commencement or threat of any Litigation involving or affecting Velagio or
CTS, or any of their respective properties or assets, or, to

28-AGREEMENT AND PLAN OF MERGER



CTS's Knowledge, any employee, agent, director, officer or shareholder, in his
or her capacity as such, of CTS which, if pending on the date hereof, would have
been required to have been disclosed pursuant to this Agreement or which relates
to the completion of the Merger.

         5.3      ACCESS AND INFORMATION. Between the date of this Agreement and
the Effective Time, and without intending by this Section 5.3 to limit any of
the other obligations of the parties under this Agreement, CTS will give, and
shall direct its accountants and legal counsel to give, Microfield and its
authorized representatives (including, without limitation, its financial
advisors, accountants and legal counsel), at reasonable times and without undue
disruption to or interference with the normal conduct of the business and
affairs of CTS, access as reasonably required in connection with the
transactions provided for in this Agreement to all offices and other facilities
and to all contracts, agreements, commitments, books and records of or
pertaining to CTS and will furnish Microfield with such financial and operating
data and other information with respect to the business and properties of CTS as
Microfield may from time to time reasonably request in connection with such
transactions.

         5.4      SHAREHOLDER APPROVAL. As soon as practicable, CTS will take
all steps necessary to duly call, give notice of, convene and hold the Special
Meeting for the purpose of voting upon the Merger, this Agreement and the
transactions contemplated hereby, or provide unanimous written consent of the
Shareholder approving this Agreement and the transactions contemplated hereby.

         5.5      REASONABLE BEST EFFORTS. Subject to the terms and conditions
herein provided, CTS agrees to use reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to complete and make effective as promptly as practicable
the transactions contemplated by this Agreement, including, but not limited to,
obtaining all Consents from Governmental Authorities and other parties required
for the completion of the Merger and the transactions contemplated thereby,
including without limitation all Consents required under any Material Contract.
Upon the terms and subject to the conditions hereof, CTS agrees to use
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary to satisfy the other conditions of the
Closing set forth herein.

         5.6      PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect,
CTS shall not, and shall use reasonable best efforts to cause its affiliates not
to, issue or cause the publication of any press release or any other
announcement with respect to the Merger or the transactions contemplated hereby
without the consent of Microfield, except where such release or announcement is
required by applicable Law, in which case CTS, prior to making such
announcement, will consult with Microfield regarding the same.

         5.7      COMPLIANCE. In completing the transactions contemplated
hereby, CTS shall comply with all applicable Laws.

         5.8      CTS SHAREHOLDER APPROVAL. CTS and the CTS Shareholder covenant
and agree to vote in favor of or consent to this Merger Agreement and the
transaction contemplated herein.

29-AGREEMENT AND PLAN OF MERGER



         ARTICLE 6         ADDITIONAL COVENANTS OF MICROFIELD AND MERGER SUB

         Microfield and Merger Sub covenant and agree as follows:

         6.1      CONDUCT OF BUSINESS OF MICROFIELD.

                  (a)      Unless Microfield shall otherwise consent in writing
(which consent, in the case of paragraphs (ii), (iii), (iv), (v), (ix), (x),
(xii), or (xiii) below, shall not be unreasonably withheld) and except as
expressly contemplated by this Agreement or in the Disclosure Schedules, during
the period from the date of this Agreement to the Effective Time, (i) Microfield
shall conduct its business in the ordinary course and consistent with past
practice, and Microfield shall use its reasonable best efforts to preserve
substantially intact its business organization, to keep available the services
of its present officers and employees and to preserve the present commercial
relationships of Microfield with Persons with whom Microfield does significant
business and (ii) without limiting the generality of the foregoing, Microfield
will not:

                           (i)      Amend or propose to amend its Articles of
Incorporation or Bylaws (or similar organizational documents);

                           (ii)     Authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any
equity interests in Microfield, or any options, warrants, commitments,
subscriptions or rights of any kind to acquire or sell any equity interests in
or other securities of Microfield, including, but not limited to, any securities
convertible into or exchangeable for equity interests in Microfield;

                           (iii)    Split, combine or reclassify any of its
Stock or declare, pay or set aside any dividend or other distribution (whether
in cash, equity interests or property or any combination thereof) in respect of
its Stock, or directly or indirectly redeem, purchase or otherwise acquire or
offer to acquire any of its equity interests or other securities;

                           (iv)     Create or incur any indebtedness for
borrowed money in excess of $5,000 or issue any debt securities or make any
loans or advances, outside the ordinary course of business;

                           (v)      Sell, pledge, dispose of or encumber any
assets of Microfield, outside the ordinary course of business;

                           (vi)     Authorize any capital expenditures or
purchases of fixed assets in excess of $5,000, outside the ordinary course of
business;

                           (vii)    Assume, guarantee or endorse or otherwise as
an accommodation become responsible for, the obligations of any Person, or make
any loans or advances;

                           (viii)   Voluntarily incur any material liability or
obligation (absolute, contingent or otherwise) in excess of $5,000, outside the
ordinary course of business;

30-AGREEMENT AND PLAN OF MERGER



                           (ix)     Increase in any manner the compensation of
any of its officers or employees or enter into, establish, amend or terminate
any employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any shareholder, officer,
director, employee, consultant or affiliate other than, in any such case
referred to above, as may be required by Law or as required pursuant to the
terms of agreements in effect on the date of this Agreement;

                           (x)      Alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate structure or
ownership of Microfield;

                           (xi)     Except as may be required as a result of a
change in Law, change any of the accounting principles or practices used by it;

                           (xii)    Make any tax election or settle or
compromise any income tax liability;

                           (xiii)   Pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or other), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of liabilities
reflected or reserved against in, or contemplated by, the Financial Statements
(or the notes thereto) of Microfield or incurred in the ordinary course of
business consistent with past practice;

                           (xiv)    Take, or agree in writing or otherwise to
take, any of the foregoing actions or any action that would make any of the
representations or warranties of Microfield contained in this Agreement untrue
or incorrect in any material respect at or prior to the Effective Time; or

                           (xv)     Acquire (by merger, consolidation, or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof, other than the transaction contemplated in the
VSI Merger Agreement.

                  (b)      Microfield shall comply with all Laws applicable to
it or any of its properties, assets or business and to maintain in full force
and effect all Permits necessary for such business, except in any such case for
any failure so to comply or maintain that would not reasonably be expected to
result in a Material Adverse Effect.

         6.2      NOTIFICATION OF CERTAIN MATTERS. Microfield shall give prompt
notice to CTS if any of the following occur after the date of this Agreement:
(a) receipt of any notice or other communication in writing from any party
alleging that the Consent of such party is or may be required in connection with
the transactions contemplated by this Agreement; (b) receipt of any notice or
other communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; (c) the occurrence of an event that
would be reasonably likely (i) to have a Material Adverse Effect or (ii) to
cause any condition set forth in

31-AGREEMENT AND PLAN OF MERGER



Section 8.1 or 8.3 to be unsatisfied; or (d) the commencement or threat of any
Litigation involving or affecting Microfield, or any of its respective
properties or assets, or, to Microfield's Knowledge, any employee, agent,
director, or officer, in his or her capacity as such, of Microfield which, if
pending on the date hereof, would have been required to have been disclosed
pursuant to this Agreement or which relates to the completion of the Merger.

         6.3      ACCESS AND INFORMATION. Between the date of this Agreement and
the Effective Time, and without intending by this Section 6.3 to limit any of
the other obligations of the parties under this Agreement, Microfield will give,
and shall direct its accountants and legal counsel to give, CTS and its
authorized representatives (including, without limitation, its financial
advisors, accountants and legal counsel), at reasonable times and without undue
disruption to or interference with the normal conduct of the business and
affairs of Microfield, access as reasonably required in connection with the
transactions provided for in this Agreement to all offices and other facilities
and to all contracts, agreements, commitments, books and records of or
pertaining to Microfield and will furnish CTS with such financial and operating
data and other information with respect to the business and properties of
Microfield as CTS may from time to time reasonably request in connection with
such transactions.

         6.4      REASONABLE BEST EFFORTS. Subject to the terms and conditions
herein provided, Microfield and Merger Sub agree to use reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to complete and make effective as promptly
as practicable the transactions contemplated by this Agreement, including, but
not limited to, obtaining all Consents from Governmental Authorities and other
third parties required for the completion of the Merger and the transactions
contemplated by this Agreement, including without limitation all Consents
required under any of Microfield's Material Contracts. Upon the terms and
subject to the conditions hereof, Microfield and Merger Sub agree to use
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary to satisfy the other conditions of the
Closing set forth herein.

         6.5      PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect,
Microfield and Merger Sub shall not, and shall use reasonable best efforts to
cause their affiliates not to, issue or cause the publication of any press
release or any other announcement with respect to the Merger or the transactions
contemplated by this Agreement without the consent of the Surviving Corporation
(such consent not to be unreasonably withheld or delayed), except where such
release or announcement is required by applicable Law, in which case Microfield,
prior to making such announcement, will consult with CTS regarding the same.

         6.6      COMPLIANCE. In completing the transactions contemplated by
this Agreement, Microfield and Merger Sub shall comply in, and cause their
Subsidiaries to comply or to be in compliance, in all material respects, with
all applicable Laws.

         ARTICLE 7         SURVIVAL; INDEMNIFICATION

         7.1      SURVIVAL. All representations, warranties, covenants and
agreements made in this Agreement or in any exhibit, including but not limited
to the representations and warranties

32-AGREEMENT AND PLAN OF MERGER



contained in the VSI Merger Agreement, schedule, certificate or agreement
delivered in accordance with this Agreement (collectively, the "RELATED
DOCUMENTS"), shall survive any investigation by or on behalf of any party, the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and any termination or expiration of this Agreement.

         7.2      INDEMNIFICATION BY THE CTS SHAREHOLDER. Notwithstanding any
investigation by Microfield, from and after the Closing, the CTS Shareholder
shall indemnify, hold harmless and, to the extent provided in Section 7.5(a),
defend Microfield, its subsidiaries, shareholders, affiliates, officers,
directors, employees, agents, successors and assigns (collectively,
"MICROFIELD'S INDEMNIFIED PERSONS") from and against, and reimburse each of
Microfield's Indemnified Persons with respect to, any and all losses, damages,
liabilities, costs, and expenses, including interest from the Closing Date to
the time of payment, penalties and reasonable attorney fees (collectively,
"DAMAGES") incurred by any of Microfield's Indemnified Persons by reason of or
arising out of or in connection with (a) any breach or inaccuracy of any
representation or warranty of CTS or the CTS Shareholder made in this Agreement
or any Related Document or (b) any failure by CTS or the CTS Shareholder to
perform any covenant required to be performed by it pursuant to this Agreement
or any Related Document. This indemnification extends to any Damages suffered by
any of Microfield's Indemnified Persons, whether or not a claim is made against
any of Microfield's Indemnified Persons by any third party.

         7.3      INDEMNIFICATION BY MICROFIELD. Notwithstanding any
investigation by CTS or the CTS Shareholder, from and after the Closing,
Microfield shall indemnify, hold harmless and, to the extent provided in Section
7.5(a), defend the CTS Shareholder (collectively, "CTS INDEMNIFIED PERSONS")
from and against, and reimburse each of CTS Indemnified Persons with respect to,
any and all Damages incurred by any of CTS Indemnified Persons by reason of or
arising out of or in connection with: (a) any breach or inaccuracy of any
representation or warranty of Microfield or Merger Sub made in this Agreement or
any Related Document; (b) any failure by Microfield or Merger Sub to perform any
covenant required to be performed by it pursuant to this Agreement or any
Related Document; or (c) any liability or obligation of CTS to any third party
expressly assumed by Microfield in accordance with the terms of this Agreement.
This indemnification extends to any Damages suffered by any of CTS Indemnified
Persons, whether or not a claim is made against any of CTS Indemnified Persons
by any third party.

         7.4      LIMITS ON INDEMNIFICATION. Notwithstanding the foregoing, the
liability of the CTS Shareholder and Microfield under Sections 7.2 and 7.3 above
shall be subject to the following limitations:

                  (a)      CTS SHAREHOLDER LIABILITY. The liability of the CTS
Shareholder pursuant to Section 7.2 is limited as follows:

                           (i)      No claim for indemnity will be effective if
not made within one (1) year after the Closing Date, other than claims based
upon the assertion that the CTS Shareholder had actual knowledge that a
representation or warranty made by the CTS Shareholder was

33-AGREEMENT AND PLAN OF MERGER



materially false when made or was made with the intent to deceive, which claims
may be made at any time up to the applicable statute of limitations;

                           (ii)     The maximum aggregate amount of the
liability of the CTS Shareholder is 250,000 shares of Microfield Common Stock.
The 250,000 shares of Microfield Common Stock will be held in escrow as provided
in Section 2.7 and the Indemnification Escrow Agreement; and

                           (iii)    The CTS Shareholder shall not have any
indemnification obligation with respect to the first $500,000 of Damages
incurred by Microfield's Indemnified Persons, as a group and in the aggregate,
including all similar Damages incurred by Microfield's Indemnified Persons
pursuant to the VSI Merger Agreement, unless Damages of Microfield's Indemnified
Persons, as a group and in the aggregate, including all Damages arising pursuant
to the VSI Merger Agreement equal or exceed such amount, in which case the CTS
Shareholder's obligations under Section 7.2 shall include only the amount of
such Damages in excess of $500,000.

                  (b)      MICROFIELD'S LIABILITY. Microfield's obligations
pursuant to Section 7.3 are limited as follows:

                           (i)      No claim for indemnity will be effective if
not made within one (1) year after the Closing Date, other than claims based
upon the assertion that Microfield had actual knowledge that a representation or
warranty made by Microfield was materially false when made or was made with the
intent to deceive, which claims may be made at any time up to the applicable
statute of limitations;

                           (ii)     The maximum aggregate amount of Microfield's
liability calculated under both this Agreement and the VSI Merger Agreement is
250,000 shares of Microfield Common Stock. In the event that the aggregate
claims of by CTS Indemnified Persons and Velagio's Indemnified Persons exceed
the threshold amount set forth in Section 7.4(b)(iii), below and exceed the
250,000 shares of Microfield Common Stock the 250,000 shares shall be divided
pro rata based on the CTS Indemnified Persons and Velagio's Indemnified Persons'
aggregate claims; and

                           (iii)    Microfield shall not have any
indemnification obligation with respect to the first $500,000 of Damages
incurred by CTS Indemnified Persons and Velagio's Indemnified Persons (as
defined in the VSI Merger Agreement) as a group and in the aggregate, unless
Damages of Velagio's Indemnified Persons and CTS Indemnified Persons, as a group
and in the aggregate, equal or exceed such amount, in which case Microfield's
obligations under Section 7.3 shall include only the amount of Damages in excess
of $500,000.

34-AGREEMENT AND PLAN OF MERGER



         7.5      INDEMNIFICATION PROCEDURE.

                  (a)      THIRD PARTY CLAIMS.

                           (i)      Each indemnified party will, with reasonable
promptness after obtaining knowledge thereof, provide the indemnifying party
with written notice of all third party actions, suits, proceedings, claims,
demands or assessments that may be subject to the indemnification provisions of
this Article 7 (collectively, "THIRD PARTY CLAIMS"), including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.

                           (ii)     The indemnifying party or, in the case where
the CTS Shareholder is the indemnifying party, the Representative, shall have 15
days after receipt of the claim notice to notify the indemnified party in
writing whether the indemnifying party agrees that the claim is subject to this
Article 7 and, if so, whether the indemnifying party elects to undertake,
conduct and control, through counsel of its choosing (subject to the consent of
the indemnified party, such consent not to be withheld unreasonably), and at its
sole risk and expense, the good faith settlement or defense of the Third Party
Claim.

                           (iii)    If within 15 days after receipt of the claim
notice the indemnifying party or, in the case where the CTS Shareholder is the
indemnifying party, the Representative, notifies the indemnified party that the
indemnifying party elects to undertake the good faith settlement or defense of
the Third Party Claim, the indemnified party shall reasonably cooperate with the
indemnifying party in connection therewith including, without limitation, by
making available to the indemnifying party all relevant information material to
the defense of the Third Party Claim. The indemnified party shall be entitled to
participate in the settlement or defense of the Third Party Claim through
counsel chosen by the indemnified party, at its expense, and to approve any
proposed settlement that would impose any obligation or duty on the indemnified
party, which approval may, in the sole discretion of the indemnified party, be
withheld. So long as the indemnifying party is contesting the Third Party Claim
in good faith and with reasonable diligence, the indemnified party shall not pay
or settle the Third Party Claim. Notwithstanding the foregoing, the indemnified
party shall have the right to pay or settle any Third Party Claim at any time,
provided that in such event it waives any right to indemnification therefor by
the indemnifying party.

                           (iv)     If the indemnifying party or, in the case
where the CTS Shareholder is the indemnifying party, the Representative, does
not provide notice that it elects to undertake the good faith settlement or
defense of the Third Party Claim, or if the indemnifying party or, in the case
where the CTS Shareholder is the indemnifying party, the Representative, fails
to contest the Third Party Claim or undertake or approve settlement, in good
faith and with reasonable diligence, the indemnified party shall thereafter have
the right to contest, settle or compromise the Third Party Claim at its
exclusive discretion, at the risk and expense of the indemnifying party and the
indemnifying party will thereby waive any claim, defense or argument that the
indemnified party's defense or settlement of such Third Party Claim is in any
respect inadequate or unreasonable.

35-AGREEMENT AND PLAN OF MERGER



                           (v)      A party's failure to give timely notice will
not constitute a defense (in part or in whole) to any claim for indemnification
by such party, except if, and only to the extent that, such failure results in
any material prejudice to the indemnifying party.

                  (b)      NON-THIRD PARTY CLAIMS.

                           (i)      Each indemnified party will, with reasonable
promptness, deliver to the indemnifying party written notice of all claims for
indemnification under this Article 7 in the form set forth in the
Indemnification Escrow Agreement.

                           (ii)     The indemnifying party or, in the case where
the CTS Shareholder is the indemnifying party, the Representative, shall have
thirty (30) days after receipt of the claim notice to notify the indemnified
party in writing whether the indemnifying party accepts liability for all or any
part of the Damages described in the claim notice. If the indemnifying party or,
in the case where the CTS Shareholder is the indemnifying party, the
Representative, does not so notify the indemnified party the indemnifying party
shall be deemed to accept liability for all the Damages described in the claim
notice.

                           (iii)    A party's failure to give timely notice will
not constitute a defense (in part or in whole) to any claim for indemnification
by such party, except if, and only to the extent that, such failure results in
any material prejudice to the indemnifying party. If there is a contradiction
between the terms of this Section 7.5(b) and the terms of the Indemnification
Escrow Agreement, the terms of the Indemnification Escrow Agreement shall
control.

         7.6      PAYMENT WITH MICROFIELD COMMON STOCK. Any Damages payable
hereunder shall be by delivery of the equivalent value of Microfield Common
Stock using the Microfield Stock Value calculated as of the last trading day
prior to the delivery of the certificates. In the case of payment by the CTS
Shareholder, such payment will be accomplished by delivery by the Escrow Agent
of certificates representing shares of Microfield Common Stock together with
duly executed stock powers to Mellon Investor Services, LLC, the transfer agent
for Microfield Common Stock, or its successor, with instructions to transfer and
deliver to Microfield a stock certificate evidencing the requisite number of
shares to be transferred to Microfield or instructing that the shares be
cancelled, as the case may be, with certificates representing the balance to be
returned to Escrow Agent. In the case of payment by Microfield, such payment
will be accomplished by the issuance and delivery of certificates representing
the requisite number of shares of Microfield Common Stock to the CTS
Shareholder.

         ARTICLE 8         CONDITIONS PRECEDENT

         8.1      MERGER CONDITIONS. The respective obligations of each party to
effect the Merger shall be subject to the fulfillment or waiver at or prior to
the Effective Time of the following conditions:

                  (a)      VSI MERGER. All of the conditions precedent to the
VSI Merger of all parties shall have been satisfied or waived in writing by the
appropriate party or parties, such that the VSI Merger shall close and become
effective simultaneously with the Effective Time.

36-AGREEMENT AND PLAN OF MERGER



                  (b)      CTS SHAREHOLDER APPROVAL. The Merger, this Agreement
and the transactions contemplated by this Agreement shall have been approved at
or prior to the Effective Time by the required vote or unanimous written consent
of the CTS Shareholder in accordance with the OBCA and the Articles and Bylaws
of CTS.

                  (c)      NO INJUNCTION OR ACTION. No order, statute, rule,
regulation, executive order, stay, decree, judgment or injunction shall have
been enacted, entered, promulgated or enforced by any court or other
Governmental Authority that prohibits or prevents the completion of the Merger
which has not been vacated, dismissed or withdrawn prior to the Effective Time.
CTS and Microfield shall use all reasonable best efforts to have any of the
foregoing vacated, dismissed or withdrawn by the Effective Time.

                  (d)      EXHIBITS AND SCHEDULES. The parties to this
Agreement, in their sole discretion, shall have approved and attached the
Exhibits and Schedules called for in this Agreement at the Closing.

         8.2      CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MICROFIELD AND
MERGER SUB. The obligations of Microfield and Merger Sub to be performed on the
Closing Date shall be subject to the satisfaction prior to or at the Closing of
the following express conditions precedent:

                  (a)      COMPLIANCE WITH AGREEMENT. CTS shall have performed
and complied: (i) in all respects with all of its obligations under Section 5.1;
and (ii) in all respects with all of its other obligations under this Agreement
that are to be performed or complied with by it prior to or on the Closing Date,
except where the failure to perform or comply, individually or in the aggregate,
would not or would not be reasonably likely to result in a Material Adverse
Effect.

                  (b)      REPRESENTATIONS AND WARRANTIES OF CTS. The
representations and warranties made by CTS in this Agreement shall be true and
correct in all respects when made and as of the Closing Date with the same force
and effect as though made on the Closing Date, except where the effect of any
breaches of the representations and warranties of CTS made in this Agreement,
individually or in the aggregate, would not be reasonably likely to result in a
Material Adverse Effect.

                  (c)      NO MATERIAL ADVERSE EFFECT. During the period from
the date of this Agreement to the Closing Date there shall not have occurred,
and be continuing on the Closing Date, any Material Adverse Effect.

                  (d)      CLOSING CERTIFICATES. CTS shall have delivered to
Microfield (a) a certificate signed on behalf of CTS by the Chief Executive
Officer of CTS, dated on the Closing Date, to the effect that, to the best of
such person's Knowledge, the conditions set forth in Sections 8.2(a), (b) and
(c) have been satisfied; and (b) a secretary's certificate as to such CTS
corporate matters in connection with the Merger as Microfield may reasonably
request.

37-AGREEMENT AND PLAN OF MERGER



         8.3      CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CTS. The
obligations of CTS to be performed on the Closing Date shall be subject to the
satisfaction prior to or at the Closing of the following express conditions
precedent:

                  (a)      COMPLIANCE WITH AGREEMENT. Microfield and Merger Sub
shall have performed and complied in all respects with all of their obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing Date, except where the failure to perform or comply,
individually or in the aggregate, would not or would not be reasonably likely to
result in a Microfield Material Adverse Effect.

                  (b)      REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND
MERGER SUB. The representations and warranties made by Microfield and Merger Sub
in this Agreement shall be true and correct in all respects when made and as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on the Closing Date, except where the effect of any
breaches of the representations and warranties of Microfield and Merger Sub made
in this Agreement, individually or in the aggregate, would not or would not be
reasonably likely to result in a Material Adverse Effect.

                  (c)      CLOSING CERTIFICATE. Microfield shall have delivered
to CTS (i) a certificate signed on behalf of Microfield by the Chief Executive
Officer of Microfield, dated the Closing Date, to the effect that, to the best
of such officers' knowledge, the conditions set forth in Sections 8.3(a) and (b)
of this Agreement have been satisfied; and (ii) secretary's certificates of
Microfield and Merger Sub as to such corporate matters in connection with the
Merger as CTS may reasonably request.

                  (d)      APPOINTMENT OF CHIEF EXECUTIVE OFFICER AND PRESIDENT.
The board of directors of Microfield shall have appointed Underwood Chief
Executive Officer and President of Microfield, effective immediately after the
Effective Time.

                  (e)      APPOINTMENT OF CHIEF OPERATING OFFICER. The board of
directors of Microfield shall have appointed Steven M. Wright Chief Operating
Officer of Microfield immediately after the Effective Time.

                  (f)      BOARD OF DIRECTORS. Underwood and Robert J. Jesenik
shall have been duly elected to Microfield's board of directors, effective
immediately after the Effective Time.

                  (g)      UNDERWOOD EMPLOYMENT AGREEMENT. Underwood shall have
executed and delivered an employment agreement with Microfield in the form
attached as Exhibit C.

                  (h)      WRIGHT EMPLOYMENT AGREEMENT. Steven M. Wright shall
have executed and delivered an employment agreement with Microfield in the form
attached as Exhibit D.

38-AGREEMENT AND PLAN OF MERGER



         ARTICLE 9         TERMINATION AND ABANDONMENT

         9.1      TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the CTS
Shareholder described herein:

                  (a)      By mutual written consent of Microfield and CTS;

                  (b)      By either Microfield or CTS if (i) any Governmental
Authority shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the completion of
the transactions contemplated by this Agreement and such order, decree or ruling
or other action shall have become final and nonappealable, or (ii) the CTS
Shareholders does not approve the Merger;

                  (c)      By Microfield if:

                           (i)      CTS shall have breached or failed to perform
in any material respect any of its covenants or other agreements contained in
this Agreement, which breach or failure to perform is incapable of being cured
or has not been cured within 5 days after the giving of written notice thereof
to CTS;

                           (ii)     Any representation or warranty of CTS shall
not have been true and correct when made (without for this purpose giving effect
to qualifications of materiality contained in such representation and warranty),
if such failure to be true and correct, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect;

                           (iii)    Any representation or warranty of CTS shall
cease to be true and correct at any later date (without for this purpose giving
effect to qualifications of materiality contained in such representation and
warranty) as if made on such date (other than representations and warranties
made as of a specified date) other than as a result of a breach or failure to
perform by Microfield of any of its covenants or agreements under this Agreement
if such failure to be true and correct, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect; provided, however,
that such representation or warranty is incapable of being cured or has not been
cured within 5 days after the giving of written notice thereof to CTS;

                           (iv)     Since the date of the issuance of the CTS
Financial Statements, CTS shall have suffered a Material Adverse Change, or any
representation or warranty contained in the VSI Merger Agreement shall cease to
be true and correct at any later date, as if made on such date.

                  (d)      By CTS if:

                           (i)      Microfield or Merger Sub shall have breached
or failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this Agreement, which
breach or failure to perform is incapable of being cured or has not been cured
within 5 days after the giving of written notice thereof to Microfield;

39-AGREEMENT AND PLAN OF MERGER



                           (ii)     Any representation or warranty of Microfield
or Merger Sub shall not have been true and correct when made (without for this
purpose giving effect to qualifications of materiality contained in such
representation and warranty), if such failure to be true and correct,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect;

                           (iii)    Any representation or warranty of Microfield
or Merger Sub shall cease to be true and correct at any later date (without for
this purpose giving effect to qualifications of materiality contained in such
representation and warranty) as if made on such date (other than representations
and warranties made as of a specified date) other than as a result of a breach
or failure to perform by CTS of any of its covenants or agreements under this
Agreement if such failure to be true and correct, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect;
provided, however, that such representation or warranty is incapable of being
cured or has not been cured within 5 days after the giving of written notice
thereof to Microfield or Merger Sub;

                           (iv)     Since June 29, 2003, Microfield shall have
suffered a Material Adverse Change.

                  (e)      By either Microfield or CTS if the Merger is not
completed on or before October 1, 2003, provided that the right to terminate
this Agreement pursuant to this Section 9.1(e) shall not be available to any
party where failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be completed by such time.

         The party desiring to terminate this Agreement pursuant to the
preceding paragraphs shall give written notice of such termination to the other
party in accordance with Section 10.5 hereof.

         9.2      EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article 9, this Agreement (other than Sections 9.2, 10.1, 10.3, 10.5, 10.6,
10.7, 10.8, 10.10, 10.11, 10.12, 10.14 and 10.15) shall become void and of no
effect with no liability on the part of any party hereto (or of any of its
directors, officers, members, employees, agents, legal or financial advisors or
other representatives); provided, however, that no such termination shall
relieve any party hereto from any liability for any willful breach of this
Agreement prior to termination. If this Agreement is terminated as provided
herein, each party shall use all reasonable best efforts to redeliver all
documents, work papers and other material (including any copies thereof) of any
other party relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof, to the party furnishing the same.

         ARTICLE 10        MISCELLANEOUS

         10.1     CONFIDENTIALITY.

                  (a)      Unless (i) otherwise expressly provided in this
Agreement, (ii) required by applicable Law, (iii) necessary to secure any
required Consents as to which the other party has

40-AGREEMENT AND PLAN OF MERGER



been advised or (iv) consented to in writing by Microfield and CTS, all
information (whether oral or written) and documents furnished in connection
herewith together with analyses, compilations, studies or other documents
prepared by such party which contain or otherwise reflect such information shall
be kept strictly confidential by Microfield, CTS, Merger Sub and their
respective officers, directors, employees, agents, and the CTS Shareholder.
Prior to any disclosure permitted pursuant to the preceding sentence, the party
intending to make such disclosure shall consult with the other party regarding
the nature and extent of the disclosure. Nothing contained herein shall preclude
disclosures to the extent necessary to comply with obligations imposed by
applicable Law.

                  (b)      In the event the transactions contemplated by this
Agreement are not completed, each party shall return to the other any documents
furnished by the other and all copies thereof that any of them may have made and
will hold in confidence any information obtained from the other party except to
the extent (i) such party is required to disclose such information by Law or
such disclosure is necessary or desirable in connection with the pursuit or
defense of a claim, (ii) such information was known by such party prior to such
disclosure (and provided that, except with respect to information referred to in
the following clause (iii), such party shall have advised the other party of
such knowledge upon or promptly after its receipt of such information) or was
thereafter developed or obtained by such party independent of such disclosure,
or (iii) such information is or becomes generally available to the public other
than by breach of this Section 10.1 (or, to such party's Knowledge, breach of a
confidentiality agreement with the other party). Prior to any disclosure of
information pursuant to the exception in clause (i) of the preceding sentence,
the party intending to disclose the same shall so notify the party which
provided the same in order that such party may seek a protective order or other
appropriate remedy should it choose to do so.

         10.2     AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement among CTS, Microfield and
Merger Sub.

         10.3     WAIVER OF COMPLIANCE; CONSENTS. Any failure of CTS on the one
hand, or Microfield and Merger Sub on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by Microfield
on the one hand, or CTS on the other hand, only by a written instrument signed
by the party granting such waiver, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
10.3.

         10.4     SURVIVAL. The respective representations, warranties,
covenants and agreements of CTS and Microfield contained herein or in any
certificates or other documents delivered prior to or at the Closing shall
survive the execution and delivery of this Agreement, notwithstanding any
investigation made or information obtained by the other party, but shall
terminate at the Effective Time, except for those contained in Article 7 and
Sections 2.8, 2.9, 2.10, 10.4 and 10.8, which shall survive beyond the Effective
Time.

41-AGREEMENT AND PLAN OF MERGER



         10.5     NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when delivered in
person, or on the next business day when sent by overnight courier or on the
second succeeding business day when sent by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):

                  (a)      IF TO CTS, TO:

                                    Christenson Technology Services, Inc.
                                    Suite 400
                                    1631 NW Thurman Street
                                    Portland, OR  97209
                                    Attn: Robert J. Jesenik and Andrew S. Craig
                                    Tel: (503) 419-3500

                  (b)      IF TO MICROFIELD OR MERGER SUB, TO:

                                    Microfield Group, Inc.
                                    Suite 310
                                    1631 NW Thurman
                                    Portland, OR  97209
                                    Attn: Steven M. Wright
                                    Tel: (503) 419-3581

                  WITH A COPY TO:

                                    Dunn Carney Allen Higgins & Tongue LLP
                                    Suite 1500
                                    851 SW 6th Avenue
                                    Portland, OR  97204
                                    Attn: Jonathan A. Bennett
                                    Tel: (503) 224-6440

         10.6     BINDING EFFECT; ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto prior to the Effective Time without the
prior written consent of CTS, in the case of a proposed assignment by Microfield
or Merger Sub, or by Microfield, in the case of a proposed assignment by CTS.

         10.7     FEES AND EXPENSES. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs or expenses.

42-AGREEMENT AND PLAN OF MERGER



         10.8     GOVERNING LAW. This Agreement shall be deemed to be made in,
and in all respects shall be interpreted, construed and governed by and in
accordance with the laws of, the state of Oregon. Each party consents to
jurisdiction and venue in Multnomah County, Oregon.

         10.9     COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         10.10    INTERPRETATION. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.

         10.11    ENTIRE AGREEMENT. This Agreement and the documents or
instruments referred to herein including, but not limited to, the attached
Exhibits and Disclosure Schedules, which Exhibits and Disclosure Schedules are
incorporated herein by reference, embody the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants, or
undertakings other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter.

         10.12    SEVERABILITY. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable in a jurisdiction, such provision shall
be modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby nor shall the validity, legality or
enforceability of such provision be affected thereby in any other jurisdiction.

         10.13    SPECIFIC PERFORMANCE. The parties hereto 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. Accordingly, the parties further agree that each party shall
be entitled to an injunction or restraining order to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other right or remedy to which such party may be entitled under
this Agreement, at law or in equity.

         10.14    THIRD PARTIES. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any Person that is not a party hereto or thereto or
a successor or permitted assign of such a party.

         10.15    DISCLOSURE SCHEDULES. Each Microfield and CTS acknowledges
that the Disclosure Schedules (a) relate to certain matters concerning the
disclosures required and transactions contemplated by this Agreement, (b) are
qualified in their entirety by reference to specific provisions of this
Agreement, and (c) are not intended to constitute and shall not be construed as
indicating that any such matter is required to be disclosed, nor should such

43-AGREEMENT AND PLAN OF MERGER



disclosure be construed as an admission that such information is material with
respect to CTS or Microfield, as the case may be, except to the extent required
by this Agreement.

                         [SIGNATURES ON FOLLOWING PAGE]

44-AGREEMENT AND PLAN OF MERGER



         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.

                                                MICROFIELD GROUP, INC.
                                                an Oregon corporation

                                                By: ____________________________
                                                    Steven M. Wright, President

CHRISTENSON TECHNOLOGY
SERVICES, INC.                                  CTS ACQUISITION CO.
an Oregon corporation                           an Oregon corporation

By: ____________________________                By: ____________________________
     Robert J. Jesenik,                             Steven M. Wright, President
     Chief Executive Officer

         The undersigned CTS Shareholder agrees to be bound by the applicable
terms and conditions of this Agreement.

CHRISTENSON GROUP, LLC
an Oregon limited liability company

By: JMW CAPITAL PARTNERS, INC.
    Its Manager

    By: ____________________________
        Robert J. Jesenik,
        Chief Executive Officer

45-AGREEMENT AND PLAN OF MERGER



                                    EXHIBIT A

                        INDEMNIFICATION ESCROW AGREEMENT

                                 [See attached]

1-EXHIBIT A



                                    EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

                                 [See attached]

1-EXHIBIT B



                                    EXHIBIT C

                         UNDERWOOD EMPLOYMENT AGREEMENT

                                 [See attached]

1-EXHIBIT C



                                    EXHIBIT D

                           WRIGHT EMPLOYMENT AGREEMENT

                                 [See attached]

1-EXHIBIT D

EX-2.2

                                                                     Exhibit 2.2



================================================================================






                          AGREEMENT AND PLAN OF MERGER


                                  by and among

                             MICROFIELD GROUP, INC.

                                       and

                               VSI ACQUISITION CO.

                                       and

                                  VELAGIO, INC.

                                       and

                                KURT A. UNDERWOOD

                                       and

                      TSI TELECOMMUNICATION SERVICES, INC.



                         DATED AS OF SEPTEMBER 15, 2003






================================================================================

                                TABLE OF CONTENTS

                                                                                  
Article 1      Definitions.............................................................  1
Article 2      The Merger..............................................................  6
   2.1      The Merger.................................................................  6
   2.2      Effective Time.............................................................  6
   2.3      Articles of Incorporation of Surviving Corporation.........................  6
   2.4      Bylaws of Surviving Corporation............................................  6
   2.5      Directors and Officers of Surviving Corporation............................  6
   2.6      Conversion of Velagio Stock................................................  6
   2.7      Indemnification Escrow.....................................................  7
   2.8      Procedure for Payment......................................................  7
   2.9      Unregistered Shares........................................................  8
   2.10     Stock Certificate Legends..................................................  8
   2.11     Appointment of Representative..............................................  8
   2.12     Registration Rights........................................................  8
   2.13     Velagio Options............................................................  9
Article 3      Representations and Warranties of Velagio and Velagio Shareholders...... 10
   3.1      Organization............................................................... 10
   3.2      Capitalization............................................................. 10
   3.3      Subsidiaries............................................................... 10
   3.4      Authorization; Binding Agreement........................................... 10
   3.5      Governmental Approvals..................................................... 11
   3.6      No Violations.............................................................. 11
   3.7      Velagio Financial Statements............................................... 11
   3.8      Absence of Certain Changes or Events....................................... 11
   3.9      No Undisclosed Liabilities................................................. 12
   3.10     Compliance with Laws....................................................... 12
   3.11     Permits.................................................................... 12
   3.12     Litigation................................................................. 12
   3.13     Contracts.................................................................. 12
   3.14     Employee Benefit Plans..................................................... 12
   3.15     Taxes and Tax Returns...................................................... 15
   3.16     Intellectual Property...................................................... 16
   3.17     Employee and Labor Matters................................................. 17
   3.18     Limitation on Business Conduct............................................. 17
   3.19     Title to Property.......................................................... 18
   3.20     Owned and Leased Premises.................................................. 18
   3.21     Environmental Matters...................................................... 18
   3.22     Insurance.................................................................. 19
   3.23     Product Liability and Recalls.............................................. 19
   3.24     Customers.................................................................. 20
   3.25     Interested Party Transactions.............................................. 20
   3.26     Full Disclosure............................................................ 20
Article 4      Representations and Warranties of Microfield and Merger Sub............. 20
   4.1      Organization and Good Standing............................................. 20



1 - TABLE OF CONTENTS

                                                                                  
   4.2      Capitalization............................................................. 20
   4.3      Subsidiaries............................................................... 21
   4.4      Authorization; Binding Agreement........................................... 21
   4.5      Governmental Approvals..................................................... 21
   4.6      No Violations.............................................................. 21
   4.7      Litigation................................................................. 21
   4.8      SEC Reports and Financial Statements....................................... 22
   4.9      No Undisclosed Liabilities................................................. 22
   4.10     Taxes and Tax Returns...................................................... 22
   4.11     Compliance with Laws....................................................... 22
   4.12     Permits.................................................................... 22
   4.13     Contracts.................................................................. 23
   4.14     Employee Benefit Plans..................................................... 23
   4.15     Intellectual Property...................................................... 25
   4.16     Employee and Labor Matters................................................. 26
   4.17     Title to Property.......................................................... 26
   4.18     Owned and Leased Premises.................................................. 26
   4.19     Environmental Matters...................................................... 26
   4.20     Insurance.................................................................. 27
   4.21     Full Disclosure............................................................ 27
   4.22     No Prior Activities........................................................ 27
Article 5      Additional Covenants of Velagio......................................... 28
   5.1      Conduct of Business of Velagio............................................. 28
   5.2      Notification of Certain Matters............................................ 29
   5.3      Access and Information..................................................... 30
   5.4      Shareholder Approval....................................................... 30
   5.5      Reasonable Best Efforts.................................................... 30
   5.6      Public Announcements....................................................... 30
   5.7      Compliance................................................................. 31
   5.8      Velagio Shareholder Approval............................................... 31
Article 6      Additional Covenants of Microfield and Merger Sub....................... 31
   6.1      Conduct of Business of Microfield.......................................... 31
   6.2      Notification of Certain Matters............................................ 33
   6.3      Access and Information..................................................... 33
   6.4      Reasonable Best Efforts.................................................... 33
   6.5      Public Announcements....................................................... 33
   6.6      Compliance................................................................. 34
Article 7      Survival; Indemnification............................................... 34
   7.1      Survival................................................................... 34
   7.2      Indemnification by the Velagio Shareholders................................ 34
   7.3      Indemnification by Microfield.............................................. 34
   7.4      Limits on Indemnification.................................................. 35
   7.5      Indemnification Procedure.................................................. 36
   7.6      Payment with Microfield Common Stock....................................... 37
Article 8      Conditions Precedent.................................................... 37
   8.1      Merger Conditions.......................................................... 37



2 - TABLE OF CONTENTS

                                                                                  
   8.2      Conditions Precedent to the Obligations of Microfield and Merger Sub....... 38
   8.3      Conditions Precedent to the Obligations of Velagio......................... 39
Article 9      Termination and Abandonment............................................. 40
   9.1      Termination................................................................ 40
   9.2      Effect of Termination and Abandonment...................................... 41
Article 10        Miscellaneous........................................................ 42
   10.1     Confidentiality............................................................ 42
   10.2     Amendment and Modification................................................. 42
   10.3     Waiver of Compliance; Consents............................................. 42
   10.4     Survival................................................................... 43
   10.5     Notices.................................................................... 43
   10.6     Binding Effect; Assignment................................................. 44
   10.7     Fees and Expenses.......................................................... 44
   10.8     Governing Law.............................................................. 44
   10.9     Counterparts............................................................... 44
   10.10       Interpretation.......................................................... 44
   10.11       Entire Agreement........................................................ 44
   10.12       Severability............................................................ 44
   10.13       Specific Performance.................................................... 45
   10.14       Third Parties........................................................... 45
   10.15       Disclosure Schedules.................................................... 45



3 - TABLE OF CONTENTS

                                LIST OF SCHEDULES



SCHEDULE:      CONTAINS:
            
   3.2         Velagio capitalization
   3.8         Velagio material changes
   3.9         Velagio liabilities
  3.11         Velagio permits
  3.13         Velagio contracts
 3.14(a)       Velagio employee benefit plans
 3.14(c)       Velagio current and former employees with stock rights, options
               and restrictions
 3.14(d)       Velagio employment agreements
 3.14(e)       Velagio employee stock ownership plan
 3.14(f)       Velagio employee stock ownership plan for non-U.S. employees
  3.15         Velagio tax claims or assessments
 3.16(a)       Velagio intellectual property
 3.17(a)       Velagio employees
  3.19         Velagio property and assets
  3.21         Velagio environmental matters
  3.22         Velagio insurance
  3.23         Velagio product liability and recalls
  3.24         Velagio 10 largest customers
  3.25         Velagio interested party transactions
   4.7         Microfield litigation
  4.12         Microfield permits
  4.13         Microfield material contracts
 4.14(a)       Microfield employee benefit plans
 4.14(c)       Microfield current and former employees with stock rights,
               options and restrictions
 4.14(d)       Microfield employment agreements
 4.14(e)       Microfield employee stock ownership plan
 4.14(f)       Microfield employee stock ownership plan for non-U.S. employees
 4.15(a)       Microfield intellectual property
 4.16(a)       Microfield employees
  4.17         Microfield property and assets
  4.19         Microfield environmental matters
  4.20         Microfield insurance


1 - LIST OF SCHEDULES

                          AGREEMENT AND PLAN OF MERGER


     THIS AGREEMENT AND PLAN OF MERGER is made as of September 15, 2003 by and
among MICROFIELD GROUP, INC., an Oregon corporation, VSI ACQUISITION CO., an
Oregon corporation, VELAGIO, INC., an Oregon corporation, KURT A. UNDERWOOD, and
TSI TELECOMMUNICATION SERVICES, INC., a Delaware corporation.


                                    RECITALS

     A. The respective boards of directors of Microfield, Merger Sub and Velagio
have: (a) determined that the Merger of Velagio with and into Merger Sub
pursuant and subject to all of the terms and conditions of this Agreement is
advisable, fair and in the best interests of Microfield, Velagio and Merger Sub
and their respective shareholders; and (b) approved the Merger, this Agreement
and the transactions contemplated by this Agreement.

     B. The board of directors of Microfield has authorized the issuance of
Microfield Common Stock pursuant to this Agreement.

     C. Microfield, Velagio and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.

     D. Simultaneously with the closing of the Merger described in this
Agreement, the CTS Merger shall close and become effective.

     E. The parties intend that the structure of the Merger described in this
Agreement be a tax-free reorganization within the meaning of Section 368(a) of
the Code.

     NOW, THEREFORE, in consideration of the covenants, conditions and
agreements set forth herein and for other good and valuable consideration, the
sufficiency of which are acknowledged, the parties agree as follows:


     ARTICLE 1  DEFINITIONS

     When used in this Agreement, the following terms shall have the meanings
specified:

     "AGREEMENT" means this Agreement and Plan of Merger, together with the
attached Exhibits and Disclosure Schedules, as the same may be amended from time
to time in accordance with the terms hereof.

     "ARTICLES OF MERGER" means Articles of Merger in a form approved for filing
in accordance with the OBCA.

     "CLOSING" means the conference to be held at 10:00 a.m., on the Closing
Date at the offices of Microfield, or such other time and place as the parties
may mutually agree to in writing.

1 - AGREEMENT AND PLAN OF MERGER

     "CLOSING DATE" means September 15, 2003, or such other date as the parties
may mutually agree in writing.

     "CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder, as the same may be in effect from time to
time.

     "CTS" means Christenson Technology Services, Inc., an Oregon corporation.

     "CTS MERGER" means the merger whereby CTS Acquisition Co. shall merge with
and into CTS and CTS shall be the surviving corporation, effective
simultaneously with the Effective Time.

     "CTS MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of
the same date as this Agreement by and among Microfield, CTS Acquisition Co.,
CTS, and CTS Shareholder in connection with the CTS Merger.

     "CTS SHAREHOLDER" means the sole shareholder of CTS immediately prior to
the Effective Time, namely, Christenson Group LLC, an Oregon limited liability
company.

     "DISCLOSURE SCHEDULES" means the Disclosure Schedules attached to this
Agreement.

     "EFFECTIVE TIME" means the date and time when the Merger becomes effective.

     "ENFORCEABILITY EXCEPTIONS" means the limits with respect to the
enforceability of any agreement imposed by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by principles of equity regarding the availability of
remedies.

     "ESCROW AGENT" means the escrow agent appointed in the Indemnification
Escrow Agreement.

     "ESCROWED SHARES" means the Microfield Common Stock placed in the
Indemnification Escrow pursuant to Section 2.7.

     "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other
political subdivision thereof or any entity, authority or body exercising
executive, legislative, judicial or regulatory functions of or pertaining to
government, including, without limitation, any governmental or regulatory
authority, agency, department, board, commission or instrumentality, any court,
tribunal or arbitrator and any self-regulatory organization.

     "INDEMNIFICATION ESCROW" means the Escrow Account opened for the purpose of
holding the Microfield Common Stock held back pursuant to Section 2.7.

2 - AGREEMENT AND PLAN OF MERGER

     "KNOWLEDGE" with respect to a party, means the actual knowledge of the
existence or nonexistence of a fact or matter, after reasonable inquiry, by any
of the executive officers or directors of Microfield or Velagio, as applicable.

     "LAW" means any federal, state, local or other law, rule, regulation or
governmental requirement of any kind, and the rules, regulations and orders
promulgated thereunder by any regulatory agencies.

     "LIEN" means (a) any mortgage, pledge, lien, covenant, lease, security
interest or encumbrance of any kind and (b) with respect to any asset, the
interest of a vendor or lessor under any conditional sale agreement, financing
lease or other title retention agreement relating to such asset.

     "MAJOR SHAREHOLDERS" the following persons: Kurt A. Underwood, TSI
Telecommunications, Inc., Christenson Group LLC, Robert J. Jesenik, Steven M.
Wright, R. Patrick Hanlin, JMW-MICG Holdings, LLC, Michael Stansell and John
Conroy.

     "MATERIAL ADVERSE CHANGE" means any materially adverse change in the
financial condition, properties, business or results of operations of a party
that exceeds the sum of $50,000 or more, whether taken separately or together in
the aggregate with other similar events, other than changes arising out of
general economic conditions unrelated to the business in which the party is
engaged.

     "MATERIAL ADVERSE EFFECT" means any event, condition or fact that is, or
reasonably may be expected to be, materially adverse to the financial condition,
properties, business, results of operations or prospects of a party that exceeds
the sum of $50,000 or more, whether taken separately or together in the
aggregate with other similar events, other than events, conditions or facts
arising out of general economic conditions unrelated to the business in which
the party is engaged.

     "MATERIAL CONTRACTS" means any agreement or contract to which a party, or
by which its properties or assets, is bound, which could result in a Material
Adverse Change or have a Material Adverse Effect, including, but not limited,
to: (a) all loan agreements, indentures, mortgages, pledges, conditional sale or
title retention agreements, security agreements, guaranties, standby letters of
credit, equipment leases or lease purchase agreements, each in an amount equal
to or exceeding $50,000; (b) all contracts, agreements, commitments or other
understandings or arrangements, but excluding contracts, agreements, commitments
or other understandings or arrangements entered into in the ordinary course of
business and involving individual payments or receipts by the party of less than
$50,000 over the term of such contract, agreement, commitment or other
understanding or arrangement; and (c) all other agreements that are material to
the party and not excluded under the foregoing clauses.

     "MERGER" means the merger of Merger Sub with and into Velagio pursuant to
this Agreement and the OBCA.

3 - AGREEMENT AND PLAN OF MERGER

     "MERGER CONSIDERATION" means the aggregate number of shares of Microfield
Common Stock issuable to the Velagio Shareholders pursuant to Section 2.6,
subject to any rounding for fractional shares pursuant to Section 2.8(b).

     "MERGER SUB" means VSI Acquisition Co., an Oregon corporation and a wholly
owned Subsidiary of Microfield.

     "MICROFIELD" means Microfield Group, Inc., an Oregon corporation.

     "MICROFIELD COMMON STOCK" means shares of common stock, no par value, of
Microfield.

     "MICROFIELD STOCK VALUE" means the average bid price as reported on the
OCTBB or NASDAQ or other exchange upon which Microfield Common Stock is trading
for the thirty (30) days immediately prior to and including the last trading day
prior to the applicable date for which the value is determined.

     "OBCA" means the Oregon Business Corporation Act, as the same shall be in
effect from time to time.

     "OPTION CONVERSION RATIO" means .085124.

     "PERMITS" means all permits, licenses, approvals, qualifications,
governmental authorizations, registrations and franchises that Velagio has or
holds, all of which are listed and briefly described in the Disclosure
Schedules.

     "PERSON" means a natural person, corporation, trust, partnership, limited
liability company, governmental entity, agency or branch or department thereof,
or any other legal entity.

     "REPRESENTATIVE" means Kurt A. Underwood, or his successor, who shall act
as representative of the Velagio Shareholders under the Agreement.

     "SUBSIDIARY" means any entity (a) at least a majority of the outstanding
capital stock or ownership interest of which shall at the time be owned by
Microfield or Velagio, as applicable, directly or through one (1) or more
entities that are themselves Subsidiaries or (b) with respect to which
Microfield or Velagio, as applicable, may elect a majority of the board of
directors.

     "SURVIVING CORPORATION" means Velagio, which shall survive the Merger of
Merger Sub with and into Velagio.

     "TSI" means TSI Telecommunication Services, Inc., a Delaware corporation.

     "UNDERWOOD" means Kurt A Underwood, individually.

     "VELAGIO" means Velagio, Inc., an Oregon corporation.

4 - AGREEMENT AND PLAN OF MERGER

     "VELAGIO OPTIONS" means options to purchase shares of common stock of
Velagio granted to employees or directors of, or consultants or advisors to,
Velagio, pursuant to the terms of the 2000 Velagio Stock Incentive Plan as
adopted by Velagio, that are outstanding immediately prior to the Effective
Time.

     "VELAGIO SHAREHOLDERS" means Underwood and TSI.

     "VELAGIO STOCK" means shares of common stock, $0.001 par value, of Velagio.

     OTHER TERMS. The following terms shall have the meanings specified in the
following noted sections of this Agreement:



- ----------------------------------------------------------------------------
TERM                                                     SECTION
- ----------------------------------------------------------------------------
                                                      
Balance Sheet                                            3.9
- ----------------------------------------------------------------------------
Consent                                                  3.5
- ----------------------------------------------------------------------------
Conversion Ratio                                         2.6
- ----------------------------------------------------------------------------
Damages                                                  7.2
- ----------------------------------------------------------------------------
Employee Plans                                           3.14(a)
- ----------------------------------------------------------------------------
Environmental Claim                                      3.21(e)(i)
- ----------------------------------------------------------------------------
Environmental Laws                                       3.21(e)(ii)
- ----------------------------------------------------------------------------
ERISA                                                    3.14(a)
- ----------------------------------------------------------------------------
ERISA Affiliate                                          3.14(a)
- ----------------------------------------------------------------------------
Indemnification Escrow Agreement                         2.7
- ----------------------------------------------------------------------------
Intellectual Property Rights                             3.16(b)
- ----------------------------------------------------------------------------
IRS                                                      3.14(b)
- ----------------------------------------------------------------------------
ISO                                                      3.14(c)
- ----------------------------------------------------------------------------
Litigation                                               3.12
- ----------------------------------------------------------------------------
Material of Environmental Concern                        3.21(e)(iii)
- ----------------------------------------------------------------------------
Microfield Balance Sheet                                 4.9
- ----------------------------------------------------------------------------
Microfield Indemnified Persons                           7.2
- ----------------------------------------------------------------------------
Microfield SEC Reports                                   4.8
- ----------------------------------------------------------------------------
Preferred Shares                                         4.2
- ----------------------------------------------------------------------------
Related Documents                                        7.1
- ----------------------------------------------------------------------------
Rule 144                                                 2.9
- ----------------------------------------------------------------------------
Securities Act                                           2.9
- ----------------------------------------------------------------------------
Tax                                                      3.15(b)
- ----------------------------------------------------------------------------
Tax Returns                                              3.15(b)
- ----------------------------------------------------------------------------
Third Party Claims                                       7.5(a)(i)
- ----------------------------------------------------------------------------
Velagio Balance Sheet                                    3.9
- ----------------------------------------------------------------------------
Velagio Financial Statements                             3.7
- ----------------------------------------------------------------------------
Velagio Indemnified Persons                              7.3
- ----------------------------------------------------------------------------


5 - AGREEMENT AND PLAN OF MERGER

ARTICLE 2  THE MERGER

     2.1 THE MERGER. At the Effective Time and upon and subject to the terms and
conditions of this Agreement, Merger Sub will be merged with and into Velagio.
Velagio shall be the Surviving Corporation in the Merger and shall continue to
be governed by the Laws of the State of Oregon, and the separate existence of
Merger Sub shall cease. The Merger shall be pursuant to the provisions of, and
shall be with the effects provided in, the OBCA.

     2.2 EFFECTIVE TIME. Subject to the terms and conditions of this Agreement,
on the Closing Date, Merger Sub and Velagio will cause the Articles of Merger to
be executed, delivered and filed as provided in the OBCA. The Merger shall
become effective at the time of the filing of the Articles of Merger with the
Oregon Secretary of State, Corporation Division, or at such later time as
Microfield and Velagio may agree and as may be set forth in the Articles of
Merger.

     2.3 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Incorporation of Merger Sub in effect immediately prior to the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation until
amended in accordance with the OBCA.

     2.4 BYLAWS OF SURVIVING CORPORATION. The Bylaws of Merger Sub in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until amended in accordance with the OBCA.

     2.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The board of directors
of the Surviving Corporation shall consist of one (1) director position. The
following director is hereby elected and shall serve as the sole director of the
Surviving Corporation to hold office as provided in the Bylaws:

         Kurt A. Underwood

     The following officers shall be the officers of the Surviving Corporation,
to hold office as provided in the Bylaws:

         CEO/President                                   Kurt A. Underwood
         CFO/Treasurer                                   Thomas A. Sidley
         Senior Vice President -
          Services and Development                       Robert Hancock
         Vice President - Electrical Services            A. Mark Walter
         Secretary                                       Andrew S. Craig

     2.6 CONVERSION OF VELAGIO STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Velagio or Microfield,
the Velagio Shareholders of record immediately prior to the Effective Time shall
be entitled to receive a total of 4,193,143 shares of Microfield Common Stock in
exchange for all of the Velagio Stock

6 - AGREEMENT AND PLAN OF MERGER

outstanding. The Velagio Shareholders will receive the following shares of
Microfield Common Stock:



- --------------------------------------------------------------------
  VELAGIO         VELAGIO STOCK     TOTAL CONVERTED     ESCROWED
SHAREHOLDERS          OWNED               SHARES         SHARES
- --------------------------------------------------------------------
                                               
TSI                  9,259,260            788,185         46,992
- --------------------------------------------------------------------
Underwood           40,000,000          3,404,958        203,008
- --------------------------------------------------------------------

- --------------------------------------------------------------------
TOTAL               49,259,260          4,193,143        250,000
- --------------------------------------------------------------------


     The Escrowed Shares will be placed in the Indemnification Escrow as
provided for in Section 2.7.

     2.7 INDEMNIFICATION ESCROW. At the Effective Time, the Velagio
Shareholders, the CTS Shareholder, Microfield and the Escrow Agent shall enter
into an Indemnification Escrow Agreement in the form attached as Exhibit A
("INDEMNIFICATION ESCROW AGREEMENT"). The Indemnification Escrow Agreement will
require that simultaneously with the Effective Time the Velagio Shareholders
will place 250,000 shares, and the CTS Shareholder will place 250,000 shares, of
Microfield Common Stock (for an aggregate of 500,000 shares of Microfield Common
Stock) into an escrow account for the purposes of satisfying claims arising
under this Agreement or the CTS Merger Agreement. The Indemnification Escrow
Agreement shall also provide the manner and method upon which claims will be
satisfied by the Microfield Common Stock placed in escrow.

     2.8 PROCEDURE FOR PAYMENT.

     (a) SURRENDER OF STOCK. From and after the Effective Time, each Velagio
Shareholder of record immediately prior to the Effective Time, upon surrender to
Microfield or its agent designated for such purpose of any letters of
transmittal or other documents as may be reasonably requested by Microfield or
its agent, shall be entitled to receive one or more certificates representing
the number of shares of Microfield Common Stock into which such Velagio Stock
shall have been converted pursuant to the provisions of Section 2.6; provided,
however, that a certificate representing the escrowed shares described in
Section 2.7 shall be delivered to the escrow agent and held pursuant to the
Indemnification Escrow Agreement..

     (b) NO FRACTIONAL SHARES. No certificates or scrip evidencing fractional
shares of Microfield Common Stock shall be issued in the Merger, and such
fractional share interests will not entitle the owner thereof to any rights as a
shareholder of Microfield. Merger Consideration to be paid to each Velagio
Shareholder will be rounded to the nearest whole share.

     (c) NO FURTHER RIGHTS IN VELAGIO STOCK. All shares of Microfield Common
Stock issued upon conversion of the Velagio Stock in accordance with the terms
of this Agreement shall be deemed to have been issued (and paid) in full
satisfaction of all rights of the Velagio Shareholders pertaining to the Velagio
Stock. Following the Effective Time, the

7 - AGREEMENT AND PLAN OF MERGER

Velagio Shareholders shall cease to have any rights with respect to such Velagio
Stock except as otherwise provided in this Agreement or by law.

     2.9 UNREGISTERED SHARES. The Velagio Shareholders have been informed by
Microfield that the Microfield Common Stock conveyed hereunder as Merger
Consideration has not been registered under the Securities Act of 1933 (the
"SECURITIES ACT") and that such Microfield Common Stock must be held for the
time required by Rule 144 promulgated under the Securities Act ("RULE 144"),
unless (i) the distribution for sale of the Microfield Common Stock has been
registered under the Securities Act, (ii) a sale of the Microfield Common Stock
is made in conformity with the provisions of Rule 144, or (iii) in the opinion
of counsel, which opinion is reasonably acceptable to Microfield, some other
exemption from registration is available with respect to any such sale, transfer
or other disposition of such Microfield Common Stock.

     2.10 STOCK CERTIFICATE LEGENDS. Each Velagio Shareholder acknowledges and
understands that stock transfer instructions will be given to Microfield's
transfer agent with respect to the Merger Consideration and that there will be
placed on the certificates for such shares, or any substitution therefor, the
following legend:

          "The securities evidenced by this certificate have not been
          registered under the Securities Act of 1933 (the "Act") or any
          applicable state law, and no interest therein may be sold,
          distributed, assigned, offered, pledged or otherwise
          transferred unless (a) there is an effective registration
          statement under such Act and applicable state securities laws
          covering any such transaction involving these securities or
          (b) the Company receives an opinion of legal counsel for the
          holder of these securities (concurred in by legal counsel for
          the Company) to the effect that such transaction is exempt
          from registration or the Company otherwise satisfies itself
          that such transaction is exempt from registration."

     2.11 APPOINTMENT OF REPRESENTATIVE. The Representative is hereby appointed
as representative of the Velagio Shareholders for purposes of this Agreement.
The Velagio Shareholders' approval of this Agreement shall include confirmation
of the authority of the Representative.

     2.12 REGISTRATION RIGHTS. Major Shareholders will receive the following
registration rights as set forth more specifically in the Registration Rights
Agreement attached hereto as Exhibit B:

          (a) For a period of five (5) years following the Closing Date,
unlimited piggyback registration rights for all shares owned by the Major
Shareholders;

          (b) If during the two (2) years following the Closing Date, piggyback
registration rights become available to the Major Shareholders, but a Major
Shareholder is

8 - AGREEMENT AND PLAN OF MERGER

unable to register fifty percent or more of the Major Shareholder's Microfield
Common Stock such shareholder elects to register at the date the piggyback
registration rights become available, in spite of the Major Shareholder's
election to register the shares through the piggyback rights registration, then
the Major Shareholder will have two (2) demand registration rights as to those
shares remaining unregistered contrary to the Major Shareholder's election on
the date the piggyback registration rights become effective. Such Demand
Registration Rights shall be available beginning two (2) years after the Closing
Date and ending five (5) years after the Closing Date. Such demand registration
rights shall apply only to stock not registered contrary to the election of each
Major Shareholder and may be exercised if the registration is intended to result
in aggregate gross proceeds of the offering, net of underwriting expenses, of at
least Five Hundred Thousand Dollars ($500,000.00).

     2.13 VELAGIO OPTIONS.

          (a) Assumption of Options. At the Effective Time, each of the Velagio
Options, whether vested or unvested, shall be assumed by Microfield in
accordance with the terms of this Section 2.13. Each of the Velagio Options
assumed by Microfield under this Agreement shall continue to have, and be
subject to, the terms and conditions as were applicable to such Velagio Options
immediately prior to the Effective Time; provided, that those terms and
conditions are not contrary to the Microfield 1995 Stock Option Plan, as
amended, and that (i) such Velagio Options shall be exercisable for the number
of shares of Microfield determined by multiplying (A) the number of shares of
Velagio Stock that were issuable upon exercise of such Velagio Option
immediately prior to the Effective Time by (B) the Option Conversion Ratio, with
the result rounded to the nearest whole number of shares of Microfield, and (ii)
the per share exercise price for shares of the Surviving Corporation issuable
upon the exercise of such assumed Velagio Option shall be a fraction where the
numerator is (1) the exercise price per share of Velagio Stock at which such
Velagio Option was exercisable immediately prior to the Effective Time, and the
denominator is the Option Conversion Ratio (for example, if the exercise price
per share is equal to $ .05, the fraction is .05/.085124 = $ .597378 per share);
provided, further, that in the case of any option to which Section 421 of the
Code applies by reason of its qualification under Section 422 of the Code, the
option price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be determined in order to
comply with Section 424(a) of the Code.

          (b) Notice to Holders. As soon as practicable after the Effective
Time, Microfield shall deliver to the holders of Velagio Options appropriate
notices setting forth such holders' rights pursuant to the 2000 Velagio Stock
Incentive Plan and that the agreements evidencing the grants of such Velagio
Options shall continue in effect on the same terms and conditions (subject to
the adjustments required by this Section 2.13 after giving effect to the
Merger). The Velagio Options converted as provided in this Section 2.13 shall be
subject to the terms of the Microfield 1995 Stock Option Plan, as amended.

          (c) Corporate Action. Microfield shall take all corporate action
necessary to reserve for issuance a sufficient number of Microfield shares for
delivery upon exercise of the Velagio Options assumed in accordance with this
Section 2.13.

9 - AGREEMENT AND PLAN OF MERGER

          (d) Amendment to Plan. At or before the Effective Time, Velagio shall
cause to be effected any necessary amendments to the 2000 Velagio Stock
Incentive Plan and to the agreements evidencing the grants of the Velagio
Options to give effect to the foregoing provisions of this Section 2.13.

     ARTICLE 3  REPRESENTATIONS AND WARRANTIES OF VELAGIO AND VELAGIO
                SHAREHOLDERS

     Velagio and the Velagio Shareholders represent and warrant to Microfield
and Merger Sub that, except as set forth in the correspondingly numbered
sections of the Disclosure Schedules:

     3.1 ORGANIZATION. Velagio is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Velagio is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the character of the property owned, leased or operated by it or the nature of
the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not reasonably be expected to have a Material Adverse Effect.
Velagio has delivered to Microfield accurate and complete copies of its Articles
of Incorporation and Bylaws, as currently in effect.

     3.2 CAPITALIZATION. As of the Date of Closing, the Velagio Stock and the
holders thereof are as set forth in Section 3.2 of the Disclosure Schedules. As
of the Closing Date, all issued and outstanding Velagio Stock will be duly
authorized, validly issued, fully paid and non-assessable. Section 3.2 of the
Disclosure Schedules sets forth the name of the holder and the exercise price of
all options and warrants to purchase Velagio Stock. Except as disclosed in
Section 3.2 of the Disclosure Schedules, there are no outstanding rights,
subscriptions, warrants, puts, calls, unsatisfied preemptive rights, options or
other agreements of any kind relating to any of the outstanding or unissued
Velagio Stock or any other security of Velagio, and there is no authorized or
outstanding security of any kind convertible into or exchangeable for any
Velagio Stock or other security. There are no obligations, contingent or
otherwise, of Velagio to repurchase, redeem or otherwise acquire any Velagio
Stock or to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity.

     3.3 SUBSIDIARIES. Velagio has no Subsidiaries.

     3.4 AUTHORIZATION; BINDING AGREEMENT. Velagio has all requisite corporate
power and authority to execute and deliver this Agreement and to complete the
transactions contemplated hereby. The execution and delivery of this Agreement
and the completion of the transactions contemplated hereby, including, but not
limited to, the Merger, have been duly and validly authorized by Velagio's board
of directors, and no other corporate proceedings on the part of Velagio are
necessary to authorize the execution and delivery of this Agreement or to
complete the transactions contemplated hereby (other than adoption of this
Agreement by the Velagio Shareholders in accordance with the OBCA and the
Articles of Incorporation and Bylaws of Velagio). This Agreement has been duly
and validly executed and delivered by Velagio and constitutes the legal, valid
and binding agreement of Velagio, enforceable against

10 - AGREEMENT AND PLAN OF MERGER

Velagio in accordance with its terms, except to the extent that enforceability
thereof may be limited by the Enforceability Exceptions.

     3.5 GOVERNMENTAL APPROVALS. No consent, approval, waiver or authorization
of, notice to or declaration or filing with ("CONSENT") any Governmental
Authority, on the part of Velagio is required in connection with the execution
or delivery by Velagio of this Agreement or the completion by Velagio of the
transactions contemplated hereby other than (a) the filing of the Articles of
Merger with the Secretary of State of Oregon, Corporation Division, in
accordance with the OBCA, and (b) those Consents that, if they were not obtained
or made, would not reasonably be expected to have a Material Adverse Effect.

     3.6 NO VIOLATIONS. The execution and delivery of this Agreement, the
completion of the transactions contemplated hereby and compliance by Velagio
with any of the provisions hereof will not (a) conflict with or result in any
breach of any provision of the Articles of Incorporation or Bylaws of Velagio,
(b) require any Consent under or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of, any Material Contract, (c) result in the
creation or imposition of any Lien upon any of the assets of Velagio or (d)
subject to obtaining the Consents from Governmental Authorities referred to in
Section 3.5, violate any applicable provision of any Law to which Velagio or its
assets or properties are subject, except, in the case of each of clauses (b),
(c) and (d) above, for any deviations from the foregoing that would not
reasonably be expected to have a Material Adverse Effect.

     3.7 VELAGIO FINANCIAL STATEMENTS. Velagio has delivered to Microfield the
financial statements for the years ending December 31, 2000, 2001 and 2002, and
for the six (6) months ended June 30, 2003 (the "VELAGIO FINANCIAL STATEMENTS").
The Velagio Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied, and they present fairly, in
all material respects, the financial position of Velagio as at the dates thereof
and the results of its operations and cash flows for the periods then ended,
subject to any adjustments described therein, except that unaudited financial
statements do not contain footnotes.

     3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section
3.8 of the Disclosure Schedules, from the date of issuance of each of the
Velagio Financial Statements through the date of this Agreement, there has not
been: (a) any event that has had or would reasonably be expected to have a
Material Adverse Effect; (b) any declaration, payment or setting aside for
payment of any dividend or other distribution or any redemption or other
acquisition of any stock or securities of Velagio by Velagio; (c) any material
damage or loss to any material asset or property, whether or not covered by
insurance; (d) any change by Velagio in accounting principles or practices; (e)
any material revaluation by Velagio of any of its assets, including writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business; (f) any sale of a material amount of property
of Velagio, except in the ordinary course of business; (g) any payments to
Velagio employees or service providers outside of Velagio's regular course of
business; or (h) any other action or event,

11 - AGREEMENT AND PLAN OF MERGER

involving an amount exceeding $5,000 that would have required the consent of
Microfield pursuant to Section 5.1 had such action or event occurred after the
date of this Agreement.

     3.9 NO UNDISCLOSED LIABILITIES. Except as set forth in Section 3.9 of the
Disclosure Schedules, Velagio has no liabilities (absolute, accrued, contingent
or other), except liabilities (a) adequately provided for in Velagio Financial
Statements; or (b) incurred in the ordinary course of business on or before the
dates of the Velagio Financial Statements and not required under GAAP to be
reflected on the Balance Sheet, (c) incurred since the issuing of the Velagio
Financial Statements in the ordinary course of business consistent with past
practice, (d) incurred in connection with this Agreement or (e) that would not
reasonably be expected to have a Material Adverse Effect.

     3.10 COMPLIANCE WITH LAWS. The business of Velagio has been operated in
compliance with all Laws applicable thereto, except for any non-compliance that
would not reasonably be expected to have a Material Adverse Effect.

     3.11 PERMITS. Section 3.11 of the Disclosure Schedules contains a complete
and accurate list of each material Permit that is held by Velagio or that
otherwise relates to the business of, or to any of the assets owned or used by,
Velagio. Each Permit is valid and in full force and effect. Except as set forth
in Section 3.11 of the Disclosure Schedules, (a) Velagio has all Permits
required in connection with the operation of its business, (b) Velagio is not in
violation of any Permit and (c) no proceedings are pending or, to the Knowledge
of Velagio, threatened, to revoke or limit any Permit, except, in the case of
each of clauses (a) and (b), where the absence or violation would not reasonably
be expected to have a Material Adverse Effect.

     3.12 LITIGATION. There is no suit, action or proceeding ("LITIGATION")
pending or, to the Knowledge of Velagio, threatened against Velagio, nor is
there any judgment, decree, injunction, rule or order of any Governmental
Authority outstanding against Velagio.

     3.13 CONTRACTS. Section 3.13 of the Disclosure Schedules sets forth, as of
the date hereof, a list of Material Contracts to which Velagio is a party or by
which its properties or assets is bound that are outside the ordinary course of
the business of Velagio. Velagio is not a party to any agreements to acquire in
the future the capital stock or substantially all the assets of another Person.
Except as disclosed in Section 3.13 of the Disclosure Schedules, to the
Knowledge of Velagio all the Material Contracts are valid and binding and are in
full force and effect and enforceable against Velagio in accordance with their
respective terms, subject to the Enforceability Exceptions, and Velagio is not
in violation or breach of or default under any Material Contract, except where
the failure to be in full force and effect or where such violation or breach
would not reasonably be expected to have a Material Adverse Effect. To the
Knowledge of Velagio, no party is in default, violation or breach of any
Material Contract where such violation or breach would reasonably be expected to
have a Material Adverse Effect.

     3.14 EMPLOYEE BENEFIT PLANS.

          (a) Section 3.14(a) of the Disclosure Schedules lists all employee
pension benefit plans (as defined in Section 3(2) of the Employee Retirement
Income Security Act of

12 - AGREEMENT AND PLAN OF MERGER

1974 ("ERISA")), all employee welfare benefit plans (as defined in Section 3(1)
of ERISA) and all other bonus, option, membership purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, and any employment, executive
compensation or severance agreements, written or otherwise, as amended, modified
or supplemented, for the benefit of, or relating to, any former or current
employee, officer or consultant who is an individual or an individual doing
business in a corporate form (or any of their beneficiaries) of Velagio or any
other entity (whether or not incorporated) or which is under common control (an
"ERISA AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of the
Code or Section 4001(a)(14) or (b) of ERISA, or any Velagio Subsidiary, with
respect to which Velagio has or could have any current (actual or contingent)
material liability (together for purposes of this Section 3.14 and Section 4.14,
"EMPLOYEE PLANS"). Prior to the date of this Agreement, Velagio has provided or
made available to Microfield copies of (i) each such written Employee Plan (or a
written description of any Employee Plan which is not written) and all related
trust agreements, insurance and other contracts (including policies), summary
plan descriptions, summaries of material modifications and any material
communications to plan participants, (ii) the three (3) most recent annual
reports on Form 5500 series, with accompanying schedules and attachments, filed
with respect to each Employee Plan required to make such a filing, and (iii) the
most recent favorable determination letters issued for each Employee Plan and
related trust which is intended to qualify under Section 401(a) of the Code
(and, if an application for such determination is pending, a copy of the
application for such determination).

     (b) (i) None of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any Person (other than in accordance with
Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA and none
of the Employee Plans is subject to Title IV of ERISA or Section 412 of the
Code); (ii) neither Velagio nor any ERISA Affiliate has ever contributed to a
"MULTI-EMPLOYER PLAN" as such term is defined in Section 3(37) of ERISA; (iii)
to the Knowledge of Velagio, no "PARTY IN INTEREST" or "DISQUALIFIED PERSON" (as
defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time
engaged in a transaction with respect to any Employee Plan that could subject
Velagio or any ERISA Affiliate, directly or indirectly, to a tax, penalty or
other liability for prohibited transactions under ERISA or Section 4975 of the
Code, except for any such tax, penalty or liability that would not reasonably be
expected to result in a Material Adverse Effect; (iv) to the Knowledge of
Velagio, no fiduciary of any Employee Plan has breached any of the
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA,
except where such breach would not reasonably be expected to result in a
Material Adverse Effect; (v) all Employee Plans have been established and
maintained substantially in accordance with their terms and have operated in
compliance with the requirements prescribed by any and all statutes (including
ERISA and the Code), orders, or governmental rules and regulations currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, the Internal Revenue
Service (the "IRS") or the Secretary of the Treasury), except where failure to
do so would not reasonably be expected to result in a Material Adverse Effect;
and Velagio and each Velagio Subsidiary have performed all obligations required
to be performed by them under, are not in default under or in violation of any
Employee Plan except where failure to do so would not reasonably be expected to
result in a Material Adverse Effect, and have no Knowledge of any default or
violation by any other party to, any of the Employee Plans; (vi) each Employee

13 - AGREEMENT AND PLAN OF MERGER

Plan which is intended to be qualified under Sections 401 and 501 of the Code is
the subject of a favorable determination letter from the IRS, and to the
Knowledge of Velagio nothing has occurred that may reasonably be expected to
impair such determination; (vii) all contributions required to be made with
respect to any Employee Plan pursuant to the terms of the Employee Plan have
been made on or before their due dates, including due dates with respect to
employee deferrals; and (viii) there are no complaints, charges or claims
against Velagio pending or to Velagio's Knowledge threatened to be brought by or
filed with any Governmental Authority based on, arising out of, in connection
with or otherwise relating to the classification of any individual by Velagio as
an independent contractor or "LEASED EMPLOYEE" (within the meaning of Section
414(n) of the Code) rather than as an employee.

          (c) Section 3.14(c) of the Disclosure Schedules sets forth a true and
complete list of each current or former employee, officer or director of Velagio
or any of its Subsidiaries who holds (i) any option to purchase Velagio Stock as
of the date hereof, together with the number of shares of Velagio Stock subject
to such option, the option price of such option (to the extent determined as of
the date hereof), whether such option is intended to qualify as an incentive
stock option within the meaning of Section 422(b) of the Code (an "ISO"), and
the expiration date of such option; (ii) any Velagio Stock that is restricted as
a result of an agreement with or equity participation plan of Velagio; and (iii)
any other right, directly or indirectly, to receive Velagio Stock, except as
otherwise disclosed in Section 3.14 of the Disclosure Schedules, together with
the percentage of Velagio Stock subject to such right. Section 3.14(c) of the
Disclosure Schedules also sets forth the total number of any such ISO's and any
such nonqualified options and other such rights.

          (d) Unless otherwise disclosed in Section 3.14(a) of the Disclosure
Schedules, Section 3.14(d) of the Disclosure Schedules sets forth a true and
complete list of (i) all employment agreements with officers of Velagio or any
of its Subsidiaries; (ii) all agreements with consultants who are individuals
obligating Velagio or any of its Subsidiaries to make annual cash payments in an
amount exceeding $10,000; (iii) all agreements that individually or in the
aggregate are or could be material with respect to the services of independent
contractors or leased employees who are individuals or individuals doing
business in a corporate form whether or not they participate in any of the
Employee Plans; (iv) all officers of Velagio or any of its Subsidiaries who have
executed a non-competition agreement with Velagio or any of its Subsidiaries;
(v) all severance agreements, programs and policies of Velagio or any of its
Subsidiaries with or relating to its employees, in each case with outstanding
commitments exceeding $25,000, excluding programs and policies required to be
maintained by Law; and (vi) all plans, programs, agreements and other
arrangements of Velagio that contain change in control provisions.

          (e) (i) Except as set forth in Section 3.14(e) of the Disclosure
Schedules, no Employee Plan is an employee stock ownership plan (within the
meaning of Section 4975(e)(7) of the Code) or otherwise invests in Velagio
Stock; and (ii) the completion of the transactions contemplated by this
Agreement will not result in an increase in the amount of compensation or
benefits or accelerate the vesting or timing of payment of any benefits or
compensation payable in respect of any employee except as disclosed in Section
3.14(e) of the Disclosure Schedules or

14 - AGREEMENT AND PLAN OF MERGER

except where such increase or acceleration would not reasonably be expected to
result in a Material Adverse Effect.

          (f) Except as set forth in Section 3.14(f) of the Disclosure
Schedules, Velagio maintains no Employee Plan covering non-U.S. employees.

     3.15 TAXES AND TAX RETURNS.

          (a) Velagio has timely filed, or caused to be timely filed, all
material Tax Returns required to be filed by it, and all such Tax Returns are
true, complete and correct in all material respects, and has timely paid,
collected or withheld, or caused to be paid, collected or withheld, all material
amounts of Taxes required to be paid, collected or withheld, other than such
Taxes for which adequate reserves in Velagio Financial Statements have been
established and which are being contested in good faith and as identified in
Section 3.15 of the Disclosure Schedules. Except as set forth in Section 3.15 of
the Disclosure Schedules, there are no material claims or assessments pending
against Velagio (or the Velagio Shareholders with respect to Velagio) for any
alleged deficiency in any Tax, and Velagio has not been notified in writing of
any proposed Tax claims or assessments against Velagio (or the Velagio
Shareholders with respect to Velagio) (other than in each case, claims or
assessments for which adequate reserves in the Financial Statements have been
established and which are being contested in good faith and as identified in
Section 3.15 of the Disclosure Schedules or claims or assessments which are
immaterial in amount). Neither Velagio nor the Velagio Shareholders with respect
to Velagio has executed any waivers or extensions of any applicable statute of
limitations to assess any material amount of Taxes. There are no outstanding
requests by Velagio (or the Velagio Shareholders with respect to Velagio) for
any extension of time within which to file any material Tax Return or within
which to pay any material amounts of Taxes shown to be due on any Tax Return.
There are no Liens for material amounts of Taxes on the assets of Velagio (or
the Velagio Shareholders with respect to Velagio) except for statutory liens for
current Taxes not yet due and payable. There are no outstanding powers of
attorney enabling any party to represent Velagio (or the Velagio Shareholders
with respect to Velagio) or any of its Subsidiaries with respect to Tax matters.

          (b) For purposes of this Agreement, the term "TAX" means any federal,
state, local, foreign or provincial income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, alternative or add-on
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty imposed by any Governmental Authority. The
term "TAX RETURN" means a report, return or other information (including any
attached schedules or any amendments to such report, return or other
information) supplied to or filed with or required to be supplied to or filed
with a governmental entity with respect to any Tax, including an information
return, claim for refund, amended return or declaration or estimated Tax.

          (c) Except as set forth in Section 3.15 of the Disclosure Schedules,
(i) Velagio has been a corporation for federal and state income tax purposes at
all times since its inception; (ii) Velagio has not been included in a combined,
consolidated or unitary Tax Return and other

15 - AGREEMENT AND PLAN OF MERGER

than with respect to Velagio, Velagio is not currently liable for Taxes of any
other Person, or is currently under any contractual obligation to indemnify any
Person with respect to Taxes (except for customary agreements to indemnify
lenders or security holders in respect of taxes other than income taxes), or is
a party to any tax sharing agreement or any other agreement providing for
payments by Velagio with respect to Taxes; (iii) Velagio is not a party to any
joint venture, partnership or other arrangement or contract that could be
treated as a partnership for federal income tax purposes; (iv) Velagio has not
entered into any sale leaseback or any leveraged lease transaction that fails to
satisfy the requirements of Revenue Procedure 75-21 (or similar provisions of
foreign law); (v) Velagio has not agreed nor is required, as a result of a
change in method of accounting or otherwise, to include any adjustment under
Section 481 of the Code (or any corresponding provision of state, local or
foreign law) in taxable income; (vi) Velagio is not a party to any agreement,
contract, arrangement or plan that would result (taking into account the
transactions contemplated by this Agreement), separately or in the aggregate, in
the payment of any "EXCESS PARACHUTE PAYMENTS" within the meaning of Section
280G of the Code; (vii) Velagio is not liable with respect to any indebtedness
the interest of which is not deductible for applicable federal, foreign, state
or local income tax purposes; (viii) Velagio is not a "CONSENTING CORPORATION"
under Section 341(f) of the Code or any corresponding provision of state, local
or foreign law; (ix) Velagio has complied with all applicable laws, rules, and
regulations relating to the withholding and payment of Taxes except where the
amount of taxes involved is not material; and (x) none of the assets owned by
Velagio is property that is required to be treated as owned by any other Person
pursuant to Section 168(g)(8) of the Internal Revenue Code of 1954, as amended,
as in effect immediately prior to the enactment of the Tax Reform Act of 1986,
or is "TAX-EXEMPT USE PROPERTY" within the meaning of Section 168(h) of the
Code.

     3.16 INTELLECTUAL PROPERTY.

          (a) Section 3.16(a) of the Disclosure Schedules sets forth a list of
(i) all patents and patent applications owned by Velagio worldwide; (ii) all
trademark and service mark registrations and all trademark and service mark
applications, material common law trademarks, material trade dress and material
slogans, and all trade names owned by Velagio worldwide; (iii) all copyright
registrations and copyright applications owned by Velagio worldwide; and (iv)
all licenses in which Velagio is (A) a licensor with respect to any of the
patents, trademarks, service marks, trade names or copyrights listed in Section
3.16 of the Disclosure Schedules or (B) a licensee of any other Person's
patents, trade names, trademarks, service marks or copyrights except for any
licenses of software programs that are commercially available "OFF THE SHELF."

          (b) Velagio owns, or is licensed or otherwise possesses legal
enforceable rights to use, all patents, trademarks, trade names, service marks,
trade dress, slogans, copyrights and any applications therefor, technology,
know-how, trade secrets, computer software programs or applications, domain
names and tangible or intangible proprietary information or materials that are
used in the respective businesses of Velagio as currently conducted (the
"INTELLECTUAL PROPERTY RIGHTS"), except for any such failures to own, be
licensed or possess that would not reasonably be expected to have a Material
Adverse Effect.

16 - AGREEMENT AND PLAN OF MERGER

          (c) Velagio has made all necessary filings and recordations for the
patents, patent applications, trademark and service mark registrations,
trademark and service mark applications, copyright registrations and copyright
applications set forth in Section 3.16(a) of the Disclosure Schedules, except
where the failure to make such filings or recordations would not reasonably be
expected to have a Material Adverse Effect. There are not currently pending, and
to the Knowledge of Velagio there are no valid grounds for, any bona fide claims
(i) that the business of Velagio infringes on any copyright, patent, trademark,
service mark or trade secret; (ii) against the use by Velagio of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the business of Velagio as
currently conducted or as proposed to be conducted; (iii) challenging the
exclusive ownership, validity or effectiveness of any of Intellectual Property
Rights; or (iv) challenging the license or legally enforceable right to use of
any third-party patents, trademarks, service marks and copyrights by Velagio,
except, in the case of each of clauses (i), (ii), (iii) and (iv) above, for
matters that, if determined adversely to Velagio, would not reasonably be
expected to have a Material Adverse Effect.

          (d) Except as set forth in Section 3.16 of the Disclosure Schedules,
to the Knowledge of Velagio, there is no material unauthorized use, infringement
or misappropriation of any of Intellectual Property Rights by any third party,
including any employee or former employee of Velagio.

          (e) Except as set forth in Section 3.16 of the Disclosure Schedules,
there are no valid royalty agreements, license agreements (except for any
license implied by the sale or products) or similar arrangements with respect to
the Intellectual Property.

     3.17 EMPLOYEE AND LABOR MATTERS.

          (a) Section 3.17(a) of the Disclosure Schedules sets forth a list of
all employees of Velagio.

          (b) Except as set forth in Section 3.17 of the Disclosure Schedules,
(i) there are no controversies pending or, to the Knowledge of Velagio,
threatened, between Velagio and any of its employees, which controversies would
reasonably be expected to have a Material Adverse Effect; (ii) Velagio is not a
party to any collective bargaining agreement or other labor union contract
applicable to Persons employed by Velagio, nor, as of the date of this
Agreement, does Velagio know of any activities or proceedings of any labor union
to organize any such employees; and (iii) Velagio has no Knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of Velagio that would reasonably be expected to have a
Material Adverse Effect.

     3.18 LIMITATION ON BUSINESS CONDUCT. Velagio is not a party to, nor has any
obligation under, any contract or agreement, written or oral, that contains any
covenants currently or prospectively limiting in any material respect the
freedom of Velagio to engage in any line of business or to compete with any
entity.

17 - AGREEMENT AND PLAN TO MERGER

     3.19 TITLE TO PROPERTY. Except as set forth in Section 3.19 of the
Disclosure Schedules, Velagio owns the properties and assets that it purports to
own free and clear of all Liens, except for Liens that arise in the ordinary
course of business and do not materially impair Velagio's ownership or use of
such properties or assets, Liens for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which reserves have been
established in accordance with GAAP and Liens securing obligations under
Velagio's credit agreements, loan agreements and equipment leases. Except as set
forth in Schedule 3.19 of the Disclosure Schedules, with respect to the property
and assets it leases, Velagio, and to the best of Velagio's Knowledge, each of
the other parties thereto, is in material compliance with such leases, and
Velagio holds a valid leasehold interest free of any Liens, except those
referred to above. The rights, properties and assets presently owned, leased or
licensed by Velagio include all rights, properties and assets necessary to
permit Velagio to conduct its business in all material respects in the same
manner as its businesses have been conducted prior to the date hereof.

     3.20 OWNED AND LEASED PREMISES. Each of the buildings, structures and
premises owned or leased by Velagio is in reasonably good repair and operating
condition.

     3.21 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.21 of the
Disclosure Schedules:

          (a) Velagio is in material compliance with the Environmental Laws,
which compliance includes the possession by Velagio of all material Permits and
governmental authorizations required under applicable Environmental Laws, and
compliance in all material respects with the terms and conditions thereof,
except in each case where such non-compliance would not reasonably be expected
to have a Material Adverse Effect. Velagio has not received any written
communication from a Governmental Authority that alleges that it is not in such
material compliance except where such non-compliance would not reasonably be
expected to have a Material Adverse Effect.

          (b) There are no Environmental Claims, including claims based on
"ARRANGER LIABILITY," pending or, to the Knowledge of Velagio, threatened
against Velagio or to the Knowledge of Velagio, pending or threatened against
any Person or entity whose liability for any Environmental Claim Velagio has to
the Knowledge of Velagio retained or assumed either contractually or by
operation of law, except for such Environmental Claims that would not reasonably
be expected to have a Material Adverse Effect.

          (c) To the Knowledge of Velagio, there are no past or present actions,
inactions, activities, circumstances, conditions, events or incidents, including
the release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that would form the basis of any Environmental Claim
against Velagio or against any Person whose liability for any Environmental
Claim Velagio has retained or assumed either contractually or by operation of
law, except for such Environmental Claims that would not reasonably be expected
to have a Material Adverse Effect.

          (d) Velagio is in compliance in all material respects with
Environmental Laws as they relate to (i) any on-site or off-site locations where
to Velagio's Knowledge, Velagio has

18 - AGREEMENT AND PLAN TO MERGER

stored, disposed or arranged for the disposal of Materials of Environmental
Concern for itself (but not on behalf of others) or (ii) any underground storage
tanks located on property owned or leased by Velagio of which Velagio has
Knowledge.

          (e) For purposes of this Agreement:

               (i) "ENVIRONMENTAL CLAIM" means any written claim, action, cause
of action, investigation or written notice by any Person alleging potential
liability (including potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (A)
the presence, or release into the environment, of any Material of Environmental
Concern at any location, whether or not owned or operated by Velagio, or (B)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.

               (ii) "ENVIRONMENTAL LAWS" means all Federal, state, local and
foreign laws or regulations relating to pollution or protection of human health
and the environment (including ambient air, surface water, ground water, land
surface or sub-surface strata), including laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.

               (iii) "MATERIAL OF ENVIRONMENTAL CONCERN" means chemicals,
pollutants, contaminants, hazardous materials, hazardous substances and
hazardous wastes, toxic substances, petroleum and petroleum products that are
regulated under the Environmental Laws.

     3.22 INSURANCE. Section 3.22 of the Disclosure Schedules contains a
complete and accurate list of all fire, liability, worker's compensation and
other forms of insurance insuring Velagio, and its respective officers and
directors, assets and operations. The insurance polices maintained by Velagio
are with reputable insurance carriers and have no premium delinquencies.

     3.23 PRODUCT LIABILITY AND RECALLS.

          (a) Except as disclosed in Section 3.23 of the Disclosure Schedules,
to Velagio's Knowledge, there is no claim, pending or overtly threatened,
against Velagio for injury to Person or property of employees or any third
parties suffered as a result of the sale of any product or performance of any
service by Velagio, including claims arising out of the defective or unsafe
nature of its products or services, that would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.

          (b) Except as disclosed in Section 3.23 of the Disclosure Schedules,
there is no pending or, to the Knowledge of Velagio, overtly threatened recall
or investigation of any product sold by Velagio, which recall or investigation
would reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.

19 - AGREEMENT AND PLAN TO MERGER

     3.24 CUSTOMERS. Section 3.24 of the Disclosure Schedules sets forth a list
of Velagio's ten (10) largest customers (detailed, in the case of government
agencies, by separate government agency) in terms of gross sales for the
twelve-month period ended June 30, 2003. Except as set forth in Section 3.24 of
the Disclosure Schedules, since June 30, 2003, there have not been any changes
in the business relationships of Velagio with any of the customers named therein
that would constitute a Material Adverse Effect. Except as set forth in Section
3.24 of the Disclosure Schedules, no customer of Velagio, on a combined basis,
accounted for more than five percent (5%) of the revenues of Velagio for the
twelve month period ended June 30, 2003.

     3.25 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section 3.25 of
the Disclosure Schedules, no event has occurred that would be required to be
reported, if Velagio were a reporting company under Section 13 of the Securities
Exchange Act of 1934, pursuant to Item 404 of Regulation S-B promulgated by the
Securities and Exchange Commission (without regard to the $60,000 threshold
contained in Item 404).

     3.26 FULL DISCLOSURE. No statement contained in any certificate or
schedule, including, without limitation, the Disclosure Schedules, furnished or
to be furnished by Velagio to Microfield or Merger Sub in, or pursuant to the
provisions of, this Agreement contains or shall contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary, in
the light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.

     ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER SUB

     Microfield and Merger Sub jointly and severally represent and warrant to
Velagio that, except as set forth in the correspondingly numbered sections of
the Disclosure Schedules:

     4.1 ORGANIZATION AND GOOD STANDING. Each of Microfield and Merger Sub is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.

     4.2 CAPITALIZATION. The authorized capital stock of Microfield consists of
(a) 25,000,000 shares of Microfield Common Stock and (b) 10,000,000 shares of
preferred stock (the "PREFERRED SHARES"). As of July 17, 2003, (i) 8,386,285
shares of Microfield Common Stock were issued and outstanding, (ii) no shares of
Preferred Shares were issued and outstanding, (iii) 261,188 shares of Microfield
Common Stock were reserved for future issuance pursuant to outstanding options
to purchase Microfield Common Stock, (iv) 650,000 shares of Microfield Common
Stock are available for issuance pursuant to the 1995 Stock Option Agreement, as
amended; and (v) 2,197,308 shares of Microfield Common Stock were reserved for
future issuance upon exercise of warrants to purchase Microfield Common Stock.
No other capital stock of Microfield is authorized or issued. Microfield has
agreed to issue shares of Microfield Common Stock pursuant to the Common Stock
Purchase Agreement. The shares of Microfield Common Stock to be issued to the
Velagio Shareholders in the Merger will be duly authorized, validly issued,
fully paid and nonassessable.

20 - AGREEMENT AND PLAN TO MERGER

     4.3 SUBSIDIARIES. Innovative Safety Technologies, Inc., an Oregon
corporation, Merger Sub and CTS Acquisition Co. are wholly owned subsidiaries of
Microfield. Microfield has no other subsidiaries.

     4.4 AUTHORIZATION; BINDING AGREEMENT. Microfield and Merger Sub have all
requisite corporate power and authority to execute and deliver this Agreement
and to complete the transactions contemplated hereby. The execution and delivery
of this Agreement and the completion of the transactions contemplated hereby,
including, but not limited to, the Merger, have been duly and validly authorized
by the respective boards of directors of Microfield and Merger Sub, and no other
corporate proceedings on the part of Microfield or Merger Sub are necessary to
authorize the execution and delivery of this Agreement or to complete the
transactions contemplated hereby (other than the requisite approval by the sole
shareholder of Merger Sub of this Agreement and the Merger). This Agreement has
been duly and validly executed and delivered by each of Microfield and Merger
Sub and constitutes the legal, valid and binding agreement of Microfield and
Merger Sub, enforceable against each of Microfield and Merger Sub in accordance
with its terms, subject to the Enforceability Exceptions.

     4.5 GOVERNMENTAL APPROVALS. No Consent from or with any Governmental
Authority on the part of Microfield or Merger Sub is required in connection with
the execution or delivery by Microfield and Merger Sub of this Agreement or the
completion by Microfield and Merger Sub of the transactions contemplated hereby
other than (a) the filing of the Articles of Merger with the Secretary of State
of Oregon in accordance with the OBCA, and (b) those Consents that, if they were
not obtained or made, would not reasonably be expected to have a Material
Adverse Effect.

     4.6 NO VIOLATIONS. The execution and delivery of this Agreement, the
completion of the transactions contemplated hereby and compliance by Microfield
or Merger Sub with any of the provisions hereof will not (a) conflict with or
result in any breach of any provision of the Articles of Incorporation and
Bylaws of Microfield or other similar documents of any Subsidiary of Microfield,
or (b) require any Consent under or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of, any material note, bond, mortgage,
indenture, contract, lease, license, agreement or instrument to which Microfield
or any Subsidiary of Microfield is a party or by which any of them or any of
their respective assets or property is subject, except in any such case for any
such conflicts, violations, breaches, defaults or other occurrences that would
not prevent or delay completion of the Merger, or otherwise materially and
adversely affect the ability of Microfield or Merger Sub to perform their
respective obligations under this Agreement.

     4.7 LITIGATION. Except as disclosed in Section 4.7 of the Disclosure
Schedules, there is no Litigation pending or, to the Knowledge of Microfield,
threatened against Microfield or any of its Subsidiaries which, individually or
in the aggregate, would reasonably be expected to have a Material Adverse
Effect, nor is there any judgment, decree, injunction, rule or order of any
Governmental Authority outstanding against Microfield or any of its Subsidiaries
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.

21 - AGREEMENT AND PLAN TO MERGER

     4.8 SEC REPORTS AND FINANCIAL STATEMENTS. Microfield has furnished Velagio
and the Velagio Shareholders with complete copies of all registration
statements, reports and proxy statements, including amendments thereto, filed
with the SEC since December 31, 2000, and prior to the date of this Agreement
(collectively, the "MICROFIELD SEC REPORTS"). Each of the Microfield SEC
Reports, as of the date filed, complied in all material respects with the
applicable requirements of the Act, the Securities Exchange Act of 1934 and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder.

     4.9 NO UNDISCLOSED LIABILITIES. Except as disclosed in Section 4.9 of the
Disclosure Schedules and in the Microfield SEC Reports, Microfield has no
liabilities (absolute, accrued, contingent or other), except liabilities (a)
adequately provided for in Microfield's unaudited balance sheet (including any
related notes thereto) as of June 29, 2003, (the "MICROFIELD BALANCE SHEET") (b)
incurred in the ordinary course of business on or before June 29, 2003, and not
required under GAAP to be reflected on the Microfield Balance Sheet, (c)
incurred since June 29, 2003, in the ordinary course of business consistent with
past practice, (d) incurred in connection with this Agreement or (e) that would
not reasonably be expected to have a Material Adverse Effect.

     4.10 TAXES AND TAX RETURNS. Except as disclosed in Section 4.10 of the
Disclosure Schedules, Microfield has timely filed, or caused to be timely filed,
all Tax Returns required to be filed by it, and all such Tax Returns are true,
complete and correct in all material respects, and has timely paid, collected or
withheld, or caused to be paid, collected or withheld, all material amounts of
Taxes required to be paid, collected or withheld, other than such Taxes for
which adequate reserves in the financial statements contained in the Microfield
SEC Reports have been established and which are being contested in good faith.
There are no material claims or assessments pending against Microfield for any
alleged deficiency in any Tax, and neither Microfield nor any of its officers,
directors or employees has been notified of any proposed Tax claims or
assessments against Microfield. Microfield has not executed any currently
effective waivers or extensions of any applicable statute of limitations to
assess any material amount of Taxes. There are no outstanding requests by
Microfield for any extension of time within which to file any Tax Return or
within which to pay any material amounts of Taxes shown to be due on any Tax
Return. There are no Liens for material amounts of Taxes on the assets of
Microfield except for statutory liens for current Taxes not yet due and payable.
There are no outstanding powers of attorney enabling any party to represent
Microfield with respect to Tax matters.

     4.11 COMPLIANCE WITH LAWS. The business of Microfield has been operated in
compliance with all Laws applicable thereto, except for any non-compliance that
would not reasonably be expected to have a Material Adverse Effect.

     4.12 PERMITS. Section 4.12 of the Disclosure Schedules contains a complete
and accurate list of each material Permit that is held by Microfield or that
otherwise relates to the business of, or to any of the assets owned or used by,
Microfield. Each Permit is valid and in full force and effect. Except as set
forth in Section 4.12 of the Disclosure Schedules, (a) Microfield has all
Permits required in connection with the operation of its business, (b)
Microfield is not in violation of any Permit and (c) no proceedings are pending
or, to the Knowledge of Microfield,

22 - AGREEMENT AND PLAN TO MERGER

threatened, to revoke or limit any Permit, except, in the case of each of
clauses (a) and (b), where the absence or violation would not reasonably be
expected to have a Material Adverse Effect.

     4.13 CONTRACTS. Section 4.13 of the Disclosure Schedules sets forth, as of
the date hereof, a list of the Material Contracts to which Microfield is a party
or by which its properties or assets are bound that are outside the ordinary
course of business. Microfield is not a party to any agreements to acquire in
the future the capital stock or substantially all the assets of another Person.
Except as disclosed in Section 4.13 of the Disclosure Schedules, to the
Knowledge of Microfield all the Material Contracts are valid and binding and are
in full force and effect and enforceable against Microfield in accordance with
their respective terms, subject to the Enforceability Exceptions, and Microfield
is not in violation or breach of or default under any Material Contract, except
where the failure to be in full force and effect or where such violation or
breach would not reasonably be expected to have a Material Adverse Effect. To
the Knowledge of Microfield, no party is in default, violation or breach of any
Material Contract where such violation or breach would reasonably be expected to
have a Material Adverse Effect.

     4.14 EMPLOYEE BENEFIT PLANS.

          (a) Section 4.14(a) of the Disclosure Schedules lists Microfield's
Employee Plans and any ERISA Affiliate or Subsidiary. Prior to the date of this
Agreement, Microfield has provided or made available to Velagio copies of (i)
each such written Employee Plan (or a written description of any such Employee
Plan which is not written) and all related trust agreements, insurance and other
contracts (including policies), summary plan descriptions, summaries of material
modifications and any material communications to plan participants, (ii) the
three (3) most recent annual reports on Form 5500 series, with accompanying
schedules and attachments, filed with respect to each such Employee Plan
required to make such a filing, and (iii) the most recent favorable
determination letters issued for each such Employee Plan and related trust which
is intended to qualify under Section 401(a) of the Code (and, if an application
for such determination is pending, a copy of the application for such
determination).

          (b) (i) None of the Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any Person (other than in
accordance with Section 4980B of the Code or Part 6 of Subtitle B of Title I of
ERISA and none of the Employee Plans is subject to Title IV of ERISA or Section
412 of the Code); (ii) neither Microfield nor any ERISA Affiliate has ever
contributed to a "MULTI-EMPLOYER PLAN" as such term is defined in Section 3(37)
of ERISA; (iii) to the Knowledge of Microfield, no "PARTY IN INTEREST" or
"DISQUALIFIED PERSON" (as defined in Section 3(14) of ERISA and Section 4975 of
the Code) has at any time engaged in a transaction with respect to any Employee
Plan that could subject Microfield or any ERISA Affiliate, directly or
indirectly, to a tax, penalty or other liability for prohibited transactions
under ERISA or Section 4975 of the Code, except for any such tax, penalty or
liability that would not reasonably be expected to result in a Material Adverse
Effect; (iv) to the Knowledge of Microfield, no fiduciary of any Employee Plan
has breached any of the responsibilities or obligations imposed upon fiduciaries
under Title I of ERISA, except where such breach would not reasonably be
expected to result in a Material Adverse Effect; (v) all Employee Plans have
been established and maintained substantially in accordance with their terms and
have operated in compliance with the requirements prescribed by any and all
statutes (including ERISA and the

23 - AGREEMENT AND PLAN TO MERGER

Code), orders, or governmental rules and regulations currently in effect with
respect thereto (including all applicable requirements for notification to
participants or the Department of Labor, the IRS or the Secretary of the
Treasury), except where failure to do so would not reasonably be expected to
result in a Material Adverse Effect; and Microfield and each Microfield
Subsidiary have performed all obligations required to be performed by them
under, are not in default under or in violation of any Employee Plan except
where failure to do so would not reasonably be expected to result in a Material
Adverse Effect, and have no Knowledge of any default or violation by any other
party to, any of the Employee Plans; (vi) each Employee Plan which is intended
to be qualified under Sections 401 and 501 of the Code is the subject of a
favorable determination letter from the IRS, and to the Knowledge of Microfield
nothing has occurred that may reasonably be expected to impair such
determination; (vii) all contributions required to be made with respect to any
Employee Plan pursuant to the terms of the Employee Plan have been made on or
before their due dates, including due dates with respect to employee deferrals;
and (viii) there are no complaints, charges or claims against Microfield pending
or to Microfield's Knowledge threatened to be brought by or filed with any
Governmental Authority based on, arising out of, in connection with or otherwise
relating to the classification of any individual by Microfield as an independent
contractor or "LEASED EMPLOYEE" (within the meaning of Section 414(n) of the
Code) rather than as an employee.

          (c) Section 4.14(c) of the Disclosure Schedules sets forth a true and
complete list of each current or former employee, officer or director of
Microfield or any of its Subsidiaries who holds (i) any option to purchase
Microfield Stock as of the date hereof, together with the number of shares of
Microfield Stock subject to such option, the option price of such option (to the
extent determined as of the date hereof), whether such option is intended to
qualify as an ISO, and the expiration date of such option; (ii) any Microfield
Stock that is restricted as a result of an agreement with or equity
participation plan of Microfield; and (iii) any other right, directly or
indirectly, to receive Microfield Stock, except as otherwise disclosed in
Section 4.14 of the Disclosure Schedules, together with the percentage of
Microfield Stock subject to such right. Section 4.14(c) of the Disclosure
Schedules also sets forth the total number of any such ISO's and any such
nonqualified options and other such rights.

          (d) Unless otherwise disclosed in Section 4.14(a) of the Disclosure
Schedules, Section 4.14(d) of the Disclosure Schedules sets forth a true and
complete list of (i) all employment agreements with officers of Microfield or
any of its Subsidiaries; (ii) all agreements with consultants who are
individuals obligating Microfield or any of its Subsidiaries to make annual cash
payments in an amount exceeding $10,000; (iii) all agreements that individually
or in the aggregate are or could be material with respect to the services of
independent contractors or leased employees who are individuals or individuals
doing business in a corporate form whether or not they participate in any of the
Employee Plans; (iv) all officers of Microfield or any of its Subsidiaries who
have executed a non-competition agreement with Microfield or any of its
Subsidiaries; (v) all severance agreements, programs and policies of Microfield
or any of its Subsidiaries with or relating to its employees, in each case with
outstanding commitments exceeding $25,000, excluding programs and policies
required to be maintained by Law; and (vi) all plans, programs, agreements and
other arrangements of Microfield that contain change in control provisions.

24 - AGREEMENT AND PLAN TO MERGER

          (e) (i) Except as set forth in Section 4.14(e) of the Disclosure
Schedules, no Employee Plan is an employee stock ownership plan (within the
meaning of Section 4975(e)(7) of the Code) or otherwise invests in Microfield
Stock; and (ii) the completion of the transactions contemplated by this
Agreement will not result in an increase in the amount of compensation or
benefits or accelerate the vesting or timing of payment of any benefits or
compensation payable in respect of any employee except as disclosed in Section
4.14(e) of the Disclosure Schedules or except where such increase or
acceleration would not reasonably be expected to result in a Material Adverse
Effect.

          (f) Except as set forth in Section 4.14(f) of the Disclosure
Schedules, Microfield maintains no Employee Plan covering non-U.S. employees.

     4.15 INTELLECTUAL PROPERTY.

          (a) Section 4.15(a) of the Disclosure Schedules sets forth a list of
(i) all patents and patent applications owned by Microfield worldwide; (ii) all
trademark and service mark registrations and all trademark and service mark
applications, material common law trademarks, material trade dress and material
slogans, and all trade names owned by Microfield worldwide; (iii) all copyright
registrations and copyright applications owned by Microfield worldwide; and (iv)
all licenses in which Microfield is (A) a licensor with respect to any of the
patents, trademarks, service marks, trade names or copyrights listed in Section
4.15 of the Disclosure Schedules or (B) a licensee of any other Person's
patents, trade names, trademarks, service marks or copyrights except for any
licenses of software programs that are commercially available "OFF THE SHELF."

          (b) Microfield owns, or is licensed or otherwise possesses legal
enforceable rights to use, all Intellectual Property Rights, except for any such
failures to own, be licensed or possess that would not reasonably be expected to
have a Material Adverse Effect.

          (c) Microfield has made all necessary filings and recordations for the
patents, patent applications, trademark and service mark registrations,
trademark and service mark applications, copyright registrations and copyright
applications set forth in Section 4.15(a) of the Disclosure Schedules, except
where the failure to make such filings or recordations would not reasonably be
expected to have a Material Adverse Effect. There are not currently pending, and
to the Knowledge of Microfield there are no valid grounds for, any bona fide
claims (i) that the business of Microfield infringes on any copyright, patent,
trademark, service mark or trade secret; (ii) against the use by Microfield of
any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the business of
Microfield as currently conducted or as proposed to be conducted; (iii)
challenging the exclusive ownership, validity or effectiveness of any of
Intellectual Property Rights; or (iv) challenging the license or legally
enforceable right to use of any third-party patents, trademarks, service marks
and copyrights by Microfield, except, in the case of each of clauses (i), (ii),
(iii) and (iv) above, for matters that, if determined adversely to Microfield,
would not reasonably be expected to have a Material Adverse Effect.

25 - AGREEMENT AND PLAN TO MERGER

          (d) Except as set forth in Section 4.15 of the Disclosure Schedules,
to the Knowledge of Microfield, there is no material unauthorized use,
infringement or misappropriation of any of Intellectual Property Rights by any
third party, including any employee or former employee of Microfield.

          (e) Except as set forth in Section 4.15 of the Disclosure Schedules,
there are no valid royalty agreements, license agreements (except for any
license implied by the sale or products) or similar arrangements with respect to
the Intellectual Property.

     4.16 EMPLOYEE AND LABOR MATTERS.

          (a) Section 4.16(a) of the Disclosure Schedules sets forth a list of
all employees of Microfield.

          (b) Except as set forth in Section 4.16 of the Disclosure Schedules,
(i) there are no controversies pending or, to the Knowledge of Microfield,
threatened, between Microfield and any of its employees, which controversies
would reasonably be expected to have a Material Adverse Effect; (ii) Microfield
is not a party to any collective bargaining agreement or other labor union
contract applicable to Persons employed by Microfield, nor, as of the date of
this Agreement, does Microfield know of any activities or proceedings of any
labor union to organize any such employees; and (iii) Microfield has no
Knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of Microfield that would reasonably
be expected to have a Material Adverse Effect.

     4.17 TITLE TO PROPERTY. Except as set forth in Section 4.17 of the
Disclosure Schedules, Microfield owns the properties and assets that it purports
to own free and clear of all Liens, except for Liens that arise in the ordinary
course of business and do not materially impair Microfield's ownership or use of
such properties or assets, Liens for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which reserves have been
established in accordance with GAAP and Liens securing obligations under
Microfield's credit agreements, loan agreements and equipment leases. Except as
set forth in Schedule 4.17 of the Disclosure Schedules, with respect to the
property and assets it leases, Microfield, and to the best of Microfield's
Knowledge, each of the other parties thereto, is in material compliance with
such leases, and Microfield holds a valid leasehold interest free of any Liens,
except those referred to above. The rights, properties and assets presently
owned, leased or licensed by Microfield include all rights, properties and
assets necessary to permit Microfield to conduct its business in all material
respects in the same manner as its businesses have been conducted prior to the
date hereof.

     4.18 OWNED AND LEASED PREMISES. Each of the buildings, structures and
premises owned or leased by Microfield is in reasonably good repair and
operating condition.

     4.19 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.19 of the
Disclosure Schedules:

26 - AGREEMENT AND PLAN TO MERGER

          (a) Microfield is in material compliance with the Environmental Laws,
which compliance includes the possession by Microfield of all material Permits
and governmental authorizations required under applicable Environmental Laws,
and compliance in all material respects with the terms and conditions thereof,
except in each case where such non-compliance would not reasonably be expected
to have a Material Adverse Effect. Microfield has not received any written
communication from a Governmental Authority that alleges that is not in such
material compliance except where such non-compliance would not reasonably be
expected to have a Material Adverse Effect.

          (b) There are no Environmental Claims, including claims based on
"ARRANGER LIABILITY," pending or, to the Knowledge of Microfield, threatened
against Microfield or to the Knowledge of Microfield, pending or threatened
against any Person or entity whose liability for any Environmental Claim
Microfield has to the Knowledge of Microfield retained or assumed either
contractually or by operation of law, except for such Environmental Claims that
would not reasonably be expected to have a Material Adverse Effect.

          (c) To the Knowledge of Microfield, there are no past or present
actions, inactions, activities, circumstances, conditions, events or incidents,
including the release, emission, discharge, presence or disposal of any Material
of Environmental Concern, that would form the basis of any Environmental Claim
against Microfield or against any Person whose liability for any Environmental
Claim Microfield has retained or assumed either contractually or by operation of
law, except for such Environmental Claims that would not reasonably be expected
to have a Material Adverse Effect.

          (d) Microfield is in compliance in all material respects with
Environmental Laws as they relate to (i) any on-site or off-site locations where
to Microfield's Knowledge, Microfield has stored, disposed or arranged for the
disposal of Materials of Environmental Concern for itself (but not on behalf of
others) or (ii) any underground storage tanks located on property owned or
leased by Microfield of which Microfield has Knowledge.

     4.20 INSURANCE. Section 4.20 of the Disclosure Schedules contains a
complete and accurate list of all fire, liability, worker's compensation and
other forms of insurance insuring Microfield, and its respective officers and
directors, assets and operations. The insurance polices maintained by Microfield
are with reputable insurance carriers and have no premium delinquencies.

     4.21 FULL DISCLOSURE. No statement contained in any certificate or
schedule, including, without limitation, the Disclosure Schedules, furnished or
to be furnished by Microfield to Velagio in, or pursuant to the provisions of,
this Agreement contains or shall contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.

     4.22 NO PRIOR ACTIVITIES. Except for obligations or liabilities incurred in
connection with its incorporation or organization or the negotiation and
completion of this Agreement and the transactions contemplated hereby (including
any financing in connection therewith), Merger

27 - AGREEMENT AND PLAN TO MERGER

Sub has not incurred any obligations or liabilities and has not engaged in any
business or activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person.

     ARTICLE 5 ADDITIONAL COVENANTS OF VELAGIO

     Velagio covenants and agrees as follows:

     5.1 CONDUCT OF BUSINESS OF VELAGIO.

          (a) Unless Microfield shall otherwise consent in writing (which
consent, in the case of paragraphs (iv), (v), (ix), (xi), (xii), or (xiii)
below, shall not be unreasonably withheld) and except as expressly contemplated
by this Agreement or in the Disclosure Schedules, during the period from the
date of this Agreement to the Effective Time, (i) Velagio shall conduct its
business in the ordinary course and consistent with past practice, and Velagio
shall use its reasonable best efforts to preserve substantially intact its
business organization, to keep available the services of its present officers
and employees and to preserve the present commercial relationships of Velagio
with Persons with whom Velagio does significant business and (ii) without
limiting the generality of the foregoing, Velagio will not:

               (i) Amend or propose to amend its Articles of Incorporation or
Bylaws (or similar organizational documents);

               (ii) Authorize for issuance, issue, grant, sell, pledge, dispose
of or propose to issue, grant, sell, pledge or dispose of any equity interests
in Velagio, or any options, warrants, commitments, subscriptions or rights of
any kind to acquire or sell any equity interests in or other securities of
Velagio, including, but not limited to, any securities convertible into or
exchangeable for equity interests in Velagio;

               (iii) Split, combine or reclassify any of its Stock or declare,
pay or set aside any dividend or other distribution (whether in cash, equity
interests or property or any combination thereof) in respect of its Stock, or
directly or indirectly redeem, purchase or otherwise acquire or offer to acquire
any of its equity interests or other securities;

               (iv) Create or incur any indebtedness for borrowed money in
excess of $5,000 or issue any debt securities or make any loans or advances,
outside the ordinary course of business;

               (v) Sell, pledge, dispose of or encumber any assets of Velagio,
outside the ordinary course of business;

               (vi) Authorize any capital expenditures or purchases of fixed
assets in excess of $5,000, outside the ordinary course of business;

               (vii) Assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any Person, or make any
loans or advances;

28 - AGREEMENT AND PLAN TO MERGER

               (viii) Voluntarily incur any material liability or obligation
(absolute, contingent or otherwise) in excess of $5,000, outside the ordinary
course of business.

               (ix) Increase in any manner the compensation of any of its
officers or employees or enter into, establish, amend or terminate any
employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any shareholder, officer,
director, employee, consultant or affiliate other than, in any such case
referred to above, as may be required by Law or as required pursuant to the
terms of agreements in effect on the date of this Agreement;

               (x) Alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
Velagio;

               (xi) Except as may be required as a result of a change in Law,
change any of the accounting principles or practices used by it;

               (xii) Make any tax election or settle or compromise any income
tax liability;

               (xiii) Pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or other),
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or reserved
against in, or contemplated by, the Financial Statements (or the notes thereto)
of Velagio or incurred in the ordinary course of business consistent with past
practice;

               (xiv) Take, or agree in writing or otherwise to take, any of the
foregoing actions or any action that would make any of the representations or
warranties of Velagio contained in this Agreement untrue or incorrect in any
material respect at or prior to the Effective Time; or

               (xv) Acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business organization or
division thereof.

          (b) Velagio shall comply with all Laws applicable to it or any of its
properties, assets or business and to maintain in full force and effect all
Permits necessary for such business, except in any such case for any failure so
to comply or maintain that would not reasonably be expected to result in a
Material Adverse Effect.

     5.2 NOTIFICATION OF CERTAIN MATTERS. Velagio shall give prompt notice to
Microfield if any of the following occur after the date of this Agreement: (a)
receipt of any notice or other communication in writing from any party alleging
that the Consent of such party is or may be required in connection with the
transactions contemplated by this Agreement; (b) receipt of any

29 - AGREEMENT AND PLAN TO MERGER

notice or other communication from any Governmental Authority in connection with
the transactions contemplated by this Agreement; (c) the occurrence of an event
that would be reasonably likely (i) to have a Material Adverse Effect or (ii) to
cause any condition set forth in Section 8.1 or 8.2 to be unsatisfied; or (d)
the commencement or threat of any Litigation involving or affecting Velagio or
CTS, or any of their respective properties or assets, or, to Velagio's
Knowledge, any employee, agent, director, officer or shareholder, in his or her
capacity as such, of Velagio which, if pending on the date hereof, would have
been required to have been disclosed pursuant to this Agreement or which relates
to the completion of the Merger.

     5.3 ACCESS AND INFORMATION. Between the date of this Agreement and the
Effective Time, and without intending by this Section 5.3 to limit any of the
other obligations of the parties under this Agreement, Velagio will give, and
shall direct its accountants and legal counsel to give, Microfield and its
authorized representatives (including, without limitation, its financial
advisors, accountants and legal counsel), at reasonable times and without undue
disruption to or interference with the normal conduct of the business and
affairs of Velagio, access as reasonably required in connection with the
transactions provided for in this Agreement to all offices and other facilities
and to all contracts, agreements, commitments, books and records of or
pertaining to Velagio and will furnish Microfield with such financial and
operating data and other information with respect to the business and properties
of Velagio as Microfield may from time to time reasonably request in connection
with such transactions.

     5.4 SHAREHOLDER APPROVAL. As soon as practicable, Velagio will take all
steps necessary to duly call, give notice of, convene and hold the Special
Meeting for the purpose of voting upon the Merger, this Agreement and the
transactions contemplated hereby, or provide unanimous written consent of the
Shareholders approving this Agreement and the transactions contemplated hereby.

     5.5 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein
provided, Velagio agrees to use reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to complete and make effective as promptly as practicable the
transactions contemplated by this Agreement, including, but not limited to,
obtaining all Consents from Governmental Authorities and other parties required
for the completion of the Merger and the transactions contemplated thereby,
including without limitation all Consents required under any Material Contract.
Upon the terms and subject to the conditions hereof, Velagio agrees to use
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary to satisfy the other conditions of the
Closing set forth herein.

     5.6 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, Velagio
shall not, and shall use reasonable best efforts to cause its affiliates not to,
issue or cause the publication of any press release or any other announcement
with respect to the Merger or the transactions contemplated hereby without the
consent of Microfield, except where such release or announcement is required by
applicable Law, in which case Velagio, prior to making such announcement, will
consult with Microfield regarding the same.

30 - AGREEMENT AND PLAN TO MERGER

     5.7 COMPLIANCE. In completing the transactions contemplated hereby, Velagio
shall comply with all applicable Laws.

     5.8 VELAGIO SHAREHOLDER APPROVAL. Velagio and the Velagio Shareholders
covenant and agree to vote in favor of or consent to this Merger Agreement and
the transaction contemplated herein.

     ARTICLE 6  ADDITIONAL COVENANTS OF MICROFIELD AND MERGER SUB

     Microfield and Merger Sub covenant and agree as follows:

     6.1 CONDUCT OF BUSINESS OF MICROFIELD.

          (a) Unless Microfield shall otherwise consent in writing (which
consent, in the case of paragraphs (ii), (iii), (iv), (v), (ix), (x), (xii), or
(xiii) below, shall not be unreasonably withheld) and except as expressly
contemplated by this Agreement or in the Disclosure Schedules, during the period
from the date of this Agreement to the Effective Time, (i) Microfield shall
conduct its business in the ordinary course and consistent with past practice,
and Microfield shall use its reasonable best efforts to preserve substantially
intact its business organization, to keep available the services of its present
officers and employees and to preserve the present commercial relationships of
Microfield with Persons with whom Microfield does significant business and (ii)
without limiting the generality of the foregoing, Microfield will not:

               (i) Amend or propose to amend its Articles of Incorporation or
Bylaws (or similar organizational documents);

               (ii) Authorize for issuance, issue, grant, sell, pledge, dispose
of or propose to issue, grant, sell, pledge or dispose of any equity interests
in Microfield, or any options, warrants, commitments, subscriptions or rights of
any kind to acquire or sell any equity interests in or other securities of
Microfield, including, but not limited to, any securities convertible into or
exchangeable for equity interests in Microfield;

               (iii) Split, combine or reclassify any of its Stock or declare,
pay or set aside any dividend or other distribution (whether in cash, equity
interests or property or any combination thereof) in respect of its Stock, or
directly or indirectly redeem, purchase or otherwise acquire or offer to acquire
any of its equity interests or other securities;

               (iv) Create or incur any indebtedness for borrowed money in
excess of $5,000 or issue any debt securities or make any loans or advances,
outside the ordinary course of business;

               (v) Sell, pledge, dispose of or encumber any assets of
Microfield, outside the ordinary course of business;

               (vi) Authorize any capital expenditures or purchases of fixed
assets in excess of $5,000, outside the ordinary course of business;

31 - AGREEMENT AND PLAN OF MERGER

               (vii) Assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any Person, or make any
loans or advances;

               (viii) Voluntarily incur any material liability or obligation
(absolute, contingent or otherwise) in excess of $5,000, outside the ordinary
course of business;

               (ix) Increase in any manner the compensation of any of its
officers or employees or enter into, establish, amend or terminate any
employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any shareholder, officer,
director, employee, consultant or affiliate other than, in any such case
referred to above, as may be required by Law or as required pursuant to the
terms of agreements in effect on the date of this Agreement;

               (x) Alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
Microfield;

               (xi) Except as may be required as a result of a change in Law,
change any of the accounting principles or practices used by it;

               (xii) Make any tax election or settle or compromise any income
tax liability;

               (xiii) Pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or other),
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or reserved
against in, or contemplated by, the Financial Statements (or the notes thereto)
of Microfield or incurred in the ordinary course of business consistent with
past practice;

               (xiv) Take, or agree in writing or otherwise to take, any of the
foregoing actions or any action that would make any of the representations or
warranties of Microfield contained in this Agreement untrue or incorrect in any
material respect at or prior to the Effective Time; or

               (xv) Acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business organization or
division thereof, other than the transaction contemplated in the CTS Merger
Agreement.

          (b) Microfield shall comply with all Laws applicable to it or any of
its properties, assets or business and to maintain in full force and effect all
Permits necessary for such business, except in any such case for any failure so
to comply or maintain that would not reasonably be expected to result in a
Material Adverse Effect.

32 - AGREEMENT AND PLAN OF MERGER

     6.2 NOTIFICATION OF CERTAIN MATTERS. Microfield shall give prompt notice to
Velagio if any of the following occur after the date of this Agreement: (a)
receipt of any notice or other communication in writing from any party alleging
that the Consent of such party is or may be required in connection with the
transactions contemplated by this Agreement; (b) receipt of any notice or other
communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; (c) the occurrence of an event that
would be reasonably likely (i) to have a Material Adverse Effect or (ii) to
cause any condition set forth in Section 8.1 or 8.3 to be unsatisfied; or (d)
the commencement or threat of any Litigation involving or affecting Microfield,
or any of its respective properties or assets, or, to Microfield's Knowledge,
any employee, agent, director, or officer, in his or her capacity as such, of
Microfield which, if pending on the date hereof, would have been required to
have been disclosed pursuant to this Agreement or which relates to the
completion of the Merger.

     6.3 ACCESS AND INFORMATION. Between the date of this Agreement and the
Effective Time, and without intending by this Section 6.3 to limit any of the
other obligations of the parties under this Agreement, Microfield will give, and
shall direct its accountants and legal counsel to give, Velagio and its
authorized representatives (including, without limitation, its financial
advisors, accountants and legal counsel), at reasonable times and without undue
disruption to or interference with the normal conduct of the business and
affairs of Microfield, access as reasonably required in connection with the
transactions provided for in this Agreement to all offices and other facilities
and to all contracts, agreements, commitments, books and records of or
pertaining to Microfield and will furnish Velagio with such financial and
operating data and other information with respect to the business and properties
of Microfield as Velagio may from time to time reasonably request in connection
with such transactions.

     6.4 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein
provided, Microfield and Merger Sub agree to use reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to complete and make effective as promptly
as practicable the transactions contemplated by this Agreement, including, but
not limited to, obtaining all Consents from Governmental Authorities and other
third parties required for the completion of the Merger and the transactions
contemplated by this Agreement, including without limitation all Consents
required under any of Microfield's Material Contracts. Upon the terms and
subject to the conditions hereof, Microfield and Merger Sub agree to use
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary to satisfy the other conditions of the
Closing set forth herein.

     6.5 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect,
Microfield and Merger Sub shall not, and shall use reasonable best efforts to
cause their affiliates not to, issue or cause the publication of any press
release or any other announcement with respect to the Merger or the transactions
contemplated by this Agreement without the consent of the Surviving Corporation
(such consent not to be unreasonably withheld or delayed), except where such
release or announcement is required by applicable Law, in which case Microfield,
prior to making such announcement, will consult with Velagio regarding the same.

33 - AGREEMENT AND PLAN OF MERGER

     6.6 COMPLIANCE. In completing the transactions contemplated by this
Agreement, Microfield and Merger Sub shall comply in, and cause their
Subsidiaries to comply or to be in compliance, in all material respects, with
all applicable Laws.

     ARTICLE 7  SURVIVAL; INDEMNIFICATION

     7.1 SURVIVAL. All representations, warranties, covenants and agreements
made in this Agreement or in any exhibit, including but not limited to the
representations and warranties contained in the CTS Merger Agreement, schedule,
certificate or agreement delivered in accordance with this Agreement
(collectively, the "RELATED DOCUMENTS"), shall survive any investigation by or
on behalf of any party, the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and any termination or
expiration of this Agreement.

     7.2 INDEMNIFICATION BY THE VELAGIO SHAREHOLDERS. Notwithstanding any
investigation by Microfield, from and after the Closing, the Velagio
Shareholders shall indemnify, hold harmless and, to the extent provided in
Section 7.5(a), defend Microfield, its subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns (collectively,
"MICROFIELD'S INDEMNIFIED PERSONS") from and against, and reimburse each of
Microfield's Indemnified Persons with respect to, any and all losses, damages,
liabilities, costs, and expenses, including interest from the Closing Date to
the time of payment, penalties and reasonable attorney fees (collectively,
"DAMAGES") incurred by any of Microfield's Indemnified Persons by reason of or
arising out of or in connection with (a) any breach or inaccuracy of any
representation or warranty of Velagio or the Velagio Shareholders made in this
Agreement or any Related Document or (b) any failure by Velagio or the Velagio
Shareholders to perform any covenant required to be performed by it pursuant to
this Agreement or any Related Document. This indemnification extends to any
Damages suffered by any of Microfield's Indemnified Persons, whether or not a
claim is made against any of Microfield's Indemnified Persons by any third
party.

     7.3 INDEMNIFICATION BY MICROFIELD. Notwithstanding any investigation by
Velagio or the Velagio Shareholders, from and after the Closing, Microfield
shall indemnify, hold harmless and, to the extent provided in Section 7.5(a),
defend the Velagio Shareholders (collectively, "VELAGIO'S INDEMNIFIED PERSONS")
from and against, and reimburse each of Velagio's Indemnified Persons with
respect to, any and all Damages incurred by any of Velagio's Indemnified Persons
by reason of or arising out of or in connection with: (a) any breach or
inaccuracy of any representation or warranty of Microfield or Merger Sub made in
this Agreement or any Related Document; (b) any failure by Microfield or Merger
Sub to perform any covenant required to be performed by it pursuant to this
Agreement or any Related Document; or (c) any liability or obligation of Velagio
to any third party expressly assumed by Microfield in accordance with the terms
of this Agreement. This indemnification extends to any Damages suffered by any
of Velagio's Indemnified Persons, whether or not a claim is made against any of
Velagio's Indemnified Persons by any third party.

34 - AGREEMENT AND PLAN OF MERGER

     7.4 LIMITS ON INDEMNIFICATION. Notwithstanding the foregoing, the liability
of the Velagio Shareholders and Microfield under Sections 7.2 and 7.3 above
shall be subject to the following limitations:

          (a) VELAGIO SHAREHOLDERS LIABILITY. The liability of the Velagio
Shareholders pursuant to Section 7.2 is limited as follows:

               (i) No claim for indemnity will be effective if not made within
one (1) year after the Closing Date, other than claims based upon the assertion
that the Velagio Shareholders had actual knowledge that a representation or
warranty made by the Velagio Shareholders was materially false when made or was
made with the intent to deceive, which claims may be made at any time up to the
applicable statute of limitations;

               (ii) The maximum aggregate amount of the liability of the Velagio
Shareholders is 250,000 shares of Microfield Common Stock. The 250,000 shares of
Microfield Common Stock will be held in escrow as provided in Section 2.7 and
the Indemnification Escrow Agreement; and

               (iii) The Velagio Shareholders shall not have any indemnification
obligation with respect to the first $500,000 of Damages incurred by
Microfield's Indemnified Persons, as a group and in the aggregate, with similar
Damages incurred by Microfield's Indemnified Persons pursuant to the CTS Merger
Agreement, unless Damages of Microfield's Indemnified Persons, as a group and in
the aggregate, with Damages arising pursuant to the CTS Merger Agreement equal
or exceed such amount, in which case the Velagio Shareholders' obligations under
Section 7.2 shall include only the amount of such Damages in excess of $500,000.

          (b) MICROFIELD'S LIABILITY. Microfield's obligations pursuant to
Section 7.3 are limited as follows:

               (i) No claim for indemnity will be effective if not made within
one (1) year after the Closing Date, other than claims based upon the assertion
that Microfield had actual knowledge that a representation or warranty made by
Microfield was materially false when made or was made with the intent to
deceive, which claims may be made at any time up to the applicable statute of
limitations;

               (ii) The maximum aggregate amount of Microfield's liability
pursuant to this Agreement and the CTS Merger Agreement is 250,000 shares of
Microfield Common Stock. In the event that the aggregate claims of by CTS
Indemnified Persons and Velagio's Indemnified Persons exceed the threshold
amount set forth in Section 7.4(b)(iii), below and exceed the 250,000 shares of
Microfield Common Stock the 250,000 shares shall be divided pro rata based on
the CTS Indemnified Persons and Velagio's Indemnified Persons' aggregate claims;
and

               (iii) Microfield shall not have any indemnification obligation
with respect to the first $500,000 of Damages incurred by Velagio's Indemnified
Persons and CTS

35 - AGREEMENT AND PLAN OF MERGER

Indemnified Persons (as defined in the CTS Merger Agreement) as a group and in
the aggregate, unless Damages incurred by Velagio's Indemnified Persons and CTS
Indemnified Persons, as a group and in the aggregate, equal or exceed such
amount, in which case Microfield's obligations under Section 7.3 shall include
only the amount of Damages in excess of $500,000.

     7.5  INDEMNIFICATION PROCEDURE.

          (a) THIRD PARTY CLAIMS.

               (i) Each indemnified party will, with reasonable promptness after
obtaining knowledge thereof, provide the indemnifying party with written notice
of all third party actions, suits, proceedings, claims, demands or assessments
that may be subject to the indemnification provisions of this Article 7
(collectively, "THIRD PARTY CLAIMS"), including, in reasonable detail, the basis
for the claim, the nature of Damages and a good faith estimate of the amount of
Damages.

               (ii) The indemnifying party or, in the case where the Velagio
Shareholders are the indemnifying party, the Representative, shall have 15 days
after receipt of the claim notice to notify the indemnified party in writing
whether the indemnifying party agrees that the claim is subject to this Article
7 and, if so, whether the indemnifying party elects to undertake, conduct and
control, through counsel of its choosing (subject to the consent of the
indemnified party, such consent not to be withheld unreasonably), and at its
sole risk and expense, the good faith settlement or defense of the Third Party
Claim.

               (iii) If within 15 days after receipt of the claim notice the
indemnifying party or, in the case where the Velagio Shareholders are the
indemnifying party, the Representative, notifies the indemnified party that the
indemnifying party elects to undertake the good faith settlement or defense of
the Third Party Claim, the indemnified party shall reasonably cooperate with the
indemnifying party in connection therewith including, without limitation, by
making available to the indemnifying party all relevant information material to
the defense of the Third Party Claim. The indemnified party shall be entitled to
participate in the settlement or defense of the Third Party Claim through
counsel chosen by the indemnified party, at its expense, and to approve any
proposed settlement that would impose any obligation or duty on the indemnified
party, which approval may, in the sole discretion of the indemnified party, be
withheld. So long as the indemnifying party is contesting the Third Party Claim
in good faith and with reasonable diligence, the indemnified party shall not pay
or settle the Third Party Claim. Notwithstanding the foregoing, the indemnified
party shall have the right to pay or settle any Third Party Claim at any time,
provided that in such event it waives any right to indemnification therefor by
the indemnifying party.

               (iv) If the indemnifying party or, in the case where the Velagio
Shareholders are the indemnifying party, the Representative, does not provide
notice that it elects to undertake the good faith settlement or defense of the
Third Party Claim, or if the indemnifying party or, in the case where the
Velagio Shareholders are the indemnifying party, the Representative, fails to
contest the Third Party Claim or undertake or approve settlement, in good faith
and with reasonable diligence, the indemnified party shall thereafter have the
right to contest, settle or compromise the Third Party Claim at its exclusive
discretion, at the risk and

36 - AGREEMENT AND PLAN OF MERGER

expense of the indemnifying party and the indemnifying party will thereby waive
any claim, defense or argument that the indemnified party's defense or
settlement of such Third Party Claim is in any respect inadequate or
unreasonable.

               (v) A party's failure to give timely notice will not constitute a
defense (in part or in whole) to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.

          (b)  NON-THIRD PARTY CLAIMS.

               (i) Each indemnified party will, with reasonable promptness,
deliver to the indemnifying party written notice of all claims for
indemnification under this Article 7, in the form set forth in the
Indemnification Escrow Agreement.

               (ii) The indemnifying party or, in the case where the Velagio
Shareholders are the indemnifying party, the Representative, shall have thirty
(30) days after receipt of the claim notice to notify the indemnified party in
writing whether the indemnifying party accepts liability for all or any part of
the Damages described in the claim notice. If the indemnifying party or, in the
case where the Velagio Shareholders are the indemnifying party, the
Representative, does not so notify the indemnified party the indemnifying party
shall be deemed to accept liability for all the Damages described in the claim
notice.

               (iii) A party's failure to give timely notice will not constitute
a defense (in part or in whole) to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.

      7.6 PAYMENT WITH MICROFIELD COMMON STOCK. Any Damages payable hereunder
shall be by delivery of the equivalent value of Microfield Common Stock using
the Microfield Stock Value calculated as of the last trading day prior to the
delivery of the certificates. In the case of payment by the Velagio
Shareholders, such payment will be accomplished by delivery by the Escrow Agent
of certificates representing shares of Microfield Common Stock together with
duly executed stock powers to Mellon Investor Services, LLC, the transfer agent
for Microfield Common Stock, or its successor, with instructions to transfer and
deliver to Microfield a stock certificate evidencing the requisite number of
shares to be transferred to Microfield or instructing that the shares be
cancelled, as the case may be, with certificates representing the balance to be
returned to Escrow Agent. In the case of payment by Microfield, such payment
will be accomplished by the issuance and delivery of certificates representing
the requisite number of shares of Microfield Common Stock to each Velagio
Shareholder.

      ARTICLE 8 CONDITIONS PRECEDENT

      8.1 MERGER CONDITIONS. The respective obligations of each party to effect
the Merger shall be subject to the fulfillment or waiver at or prior to the
Effective Time of the following conditions:

37 - AGREEMENT AND PLAN OF MERGER

          (a) CTS MERGER. All of the conditions precedent to the CTS Merger of
all parties shall have been satisfied or waived in writing by the appropriate
party or parties, such that the CTS Merger shall close and become effective
simultaneously with the Effective Time.

          (b) VELAGIO SHAREHOLDERS APPROVAL. The Merger, this Agreement and the
transactions contemplated by this Agreement shall have been approved at or prior
to the Effective Time by the required vote or unanimous written consent of the
Velagio Shareholders in accordance with the OBCA and the Articles and Bylaws of
Velagio.

          (c) NO INJUNCTION OR ACTION. No order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction shall have been enacted,
entered, promulgated or enforced by any court or other Governmental Authority
that prohibits or prevents the completion of the Merger which has not been
vacated, dismissed or withdrawn prior to the Effective Time. Velagio and
Microfield shall use all reasonable best efforts to have any of the foregoing
vacated, dismissed or withdrawn by the Effective Time.

          (d) EXHIBITS AND SCHEDULES. The parties to this Agreement, in their
sole discretion, shall have approved and attached the Exhibits and Schedules
called for in this Agreement at the Closing.

          (e) CONVERSION BY TSI. TSI has converted all of the shares of
Velagio's Series A Preferred Stock held by TSI into shares of Velagio Stock on
or before the Closing of the Merger.

     8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MICROFIELD AND MERGER SUB.
The obligations of Microfield and Merger Sub to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent:

          (a) COMPLIANCE WITH AGREEMENT. Velagio shall have performed and
complied: (i) in all respects with all of its obligations under Section 5.1; and
(ii) in all respects with all of its other obligations under this Agreement that
are to be performed or complied with by it prior to or on the Closing Date,
except where the failure to perform or comply, individually or in the aggregate,
would not or would not be reasonably likely to result in a Material Adverse
Effect.

          (b) REPRESENTATIONS AND WARRANTIES OF VELAGIO. The representations and
warranties made by Velagio in this Agreement shall be true and correct in all
respects when made and as of the Closing Date with the same force and effect as
though made on the Closing Date, except where the effect of any breaches of the
representations and warranties of Velagio made in this Agreement, individually
or in the aggregate, would not be reasonably likely to result in a Material
Adverse Effect.

          (c) NO MATERIAL ADVERSE EFFECT. During the period from the date of
this Agreement to the Closing Date there shall not have occurred, and be
continuing on the Closing Date, any Material Adverse Effect.

38 - AGREEMENT AND PLAN OF MERGER

          (d) CLOSING CERTIFICATES. Velagio shall have delivered to Microfield
(a) a certificate signed on behalf of Velagio by the Chief Executive Officer of
Velagio, dated on the Closing Date, to the effect that, to the best of such
person's Knowledge, the conditions set forth in Sections 8.2(a), (b) and (c)
have been satisfied; and (b) a secretary's certificate as to such Velagio
corporate matters in connection with the Merger as Microfield may reasonably
request.

     8.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF VELAGIO. The obligations of
Velagio to be performed on the Closing Date shall be subject to the satisfaction
prior to or at the Closing of the following express conditions precedent:

          (a) COMPLIANCE WITH AGREEMENT. Microfield and Merger Sub shall have
performed and complied in all respects with all of their obligations under this
Agreement which are to be performed or complied with by them prior to or on the
Closing Date, except where the failure to perform or comply, individually or in
the aggregate, would not or would not be reasonably likely to result in a
Microfield Material Adverse Effect.

          (b) REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER SUB. The
representations and warranties made by Microfield and Merger Sub in this
Agreement shall be true and correct in all respects when made and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on the Closing Date, except where the effect of any
breaches of the representations and warranties of Microfield and Merger Sub made
in this Agreement, individually or in the aggregate, would not or would not be
reasonably likely to result in a Material Adverse Effect.

          (c) CLOSING CERTIFICATE. Microfield shall have delivered to Velagio
(i) a certificate signed on behalf of Microfield by the Chief Executive Officer
of Microfield, dated the Closing Date, to the effect that, to the best of such
officers' knowledge, the conditions set forth in Sections 8.3(a) and (b) of this
Agreement have been satisfied; and (ii) secretary's certificates of Microfield
and Merger Sub as to such corporate matters in connection with the Merger as
Velagio may reasonably request.

          (d) APPOINTMENT OF CHIEF EXECUTIVE OFFICER AND PRESIDENT. The board of
directors of Microfield shall have appointed Underwood Chief Executive Officer
and President of Microfield, effective immediately after the Effective Time.

          (e) APPOINTMENT OF CHIEF OPERATING OFFICER. The board of directors of
Microfield shall have appointed Steven M. Wright Chief Operating Officer of
Microfield immediately after the Effective Time.

          (f) BOARD OF DIRECTORS. Underwood and Robert J. Jesenik shall have
been duly elected to Microfield's board of directors, effective immediately
after the Effective Time.

          (g) UNDERWOOD EMPLOYMENT AGREEMENT. Underwood shall have executed and
delivered an employment agreement with Microfield in the form attached as
Exhibit C.

39 - AGREEMENT AND PLAN OF MERGER

          (h) WRIGHT EMPLOYMENT AGREEMENT. Steven M. Wright shall have executed
and delivered an employment agreement with Microfield in the form attached as
Exhibit D.

     ARTICLE 9 TERMINATION AND ABANDONMENT

     9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Velagio Shareholders
described herein:

          (a) By mutual written consent of Microfield and Velagio;

          (b) By either Microfield or Velagio if (i) any Governmental Authority
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the completion of
the transactions contemplated by this Agreement and such order, decree or ruling
or other action shall have become final and nonappealable, or (ii) the Velagio
Shareholders do not approve the Merger;

          (c) By Microfield if:

               (i) Velagio shall have breached or failed to perform in any
material respect any of its covenants or other agreements contained in this
Agreement, which breach or failure to perform is incapable of being cured or has
not been cured within 5 days after the giving of written notice thereof to
Velagio;

               (ii) Any representation or warranty of Velagio shall not have
been true and correct when made (without for this purpose giving effect to
qualifications of materiality contained in such representation and warranty), if
such failure to be true and correct, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect;

               (iii) Any representation or warranty of Velagio shall cease to be
true and correct at any later date (without for this purpose giving effect to
qualifications of materiality contained in such representation and warranty) as
if made on such date (other than representations and warranties made as of a
specified date) other than as a result of a breach or failure to perform by
Microfield of any of its covenants or agreements under this Agreement if such
failure to be true and correct, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect; provided, however,
that such representation or warranty is incapable of being cured or has not been
cured within 5 days after the giving of written notice thereof to Velagio;

               (iv) Since the date of the issuance of the Velagio Financial
Statements, Velagio shall have suffered a Material Adverse Change, or any
representation or warranty contained in the CTS Merger Agreement shall cease to
be true and correct at any later date, as if made on such date.

          (d) By Velagio if:

40 - AGREEMENT AND PLAN OF MERGER

               (i) Microfield or Merger Sub shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform is incapable of being cured or has not been cured within 5
days after the giving of written notice thereof to Microfield;

               (ii) Any representation or warranty of Microfield or Merger Sub
shall not have been true and correct when made (without for this purpose giving
effect to qualifications of materiality contained in such representation and
warranty), if such failure to be true and correct, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect;

               (iii) Any representation or warranty of Microfield or Merger Sub
shall cease to be true and correct at any later date (without for this purpose
giving effect to qualifications of materiality contained in such representation
and warranty) as if made on such date (other than representations and warranties
made as of a specified date) other than as a result of a breach or failure to
perform by Velagio of any of its covenants or agreements under this Agreement if
such failure to be true and correct, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect; provided, however,
that such representation or warranty is incapable of being cured or has not been
cured within 5 days after the giving of written notice thereof to Microfield or
Merger Sub;

               (iv) Since June 29, 2003, Microfield shall have suffered a
Material Adverse Change.

          (e) By either Microfield or Velagio if the Merger is not completed on
or before October 1, 2003, provided that the right to terminate this Agreement
pursuant to this Section 9.1(e) shall not be available to any party where
failure to perform any of its obligations under this Agreement results in the
failure of the Merger to be completed by such time.

     The party desiring to terminate this Agreement pursuant to the preceding
paragraphs shall give written notice of such termination to the other party in
accordance with Section 10.5 hereof.

     9.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article 9,
this Agreement (other than Sections 9.2, 10.1, 10.3, 10.5, 10.6, 10.7, 10.8,
10.10, 10.11, 10.12, 10.14 and 10.15) shall become void and of no effect with no
liability on the part of any party hereto (or of any of its directors, officers,
members, employees, agents, legal or financial advisors or other
representatives); provided, however, that no such termination shall relieve any
party hereto from any liability for any willful breach of this Agreement prior
to termination. If this Agreement is terminated as provided herein, each party
shall use all reasonable best efforts to redeliver all documents, work papers
and other material (including any copies thereof) of any other party relating to
the transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same.

41 - AGREEMENT AND PLAN OF MERGER

     ARTICLE 10  MISCELLANEOUS

     10.1 CONFIDENTIALITY.

          (a) Unless (i) otherwise expressly provided in this Agreement, (ii)
required by applicable Law, (iii) necessary to secure any required Consents as
to which the other party has been advised or (iv) consented to in writing by
Microfield and Velagio, all information (whether oral or written) and documents
furnished in connection herewith together with analyses, compilations, studies
or other documents prepared by such party which contain or otherwise reflect
such information shall be kept strictly confidential by Microfield, Velagio,
Merger Sub and their respective officers, directors, employees, agents, and the
Velagio Shareholders. Prior to any disclosure permitted pursuant to the
preceding sentence, the party intending to make such disclosure shall consult
with the other party regarding the nature and extent of the disclosure. Nothing
contained herein shall preclude disclosures to the extent necessary to comply
with obligations imposed by applicable Law.

          (b) In the event the transactions contemplated by this Agreement are
not completed, each party shall return to the other any documents furnished by
the other and all copies thereof that any of them may have made and will hold in
confidence any information obtained from the other party except to the extent
(i) such party is required to disclose such information by Law or such
disclosure is necessary or desirable in connection with the pursuit or defense
of a claim, (ii) such information was known by such party prior to such
disclosure (and provided that, except with respect to information referred to in
the following clause (iii), such party shall have advised the other party of
such knowledge upon or promptly after its receipt of such information) or was
thereafter developed or obtained by such party independent of such disclosure,
or (iii) such information is or becomes generally available to the public other
than by breach of this Section 10.1 (or, to such party's Knowledge, breach of a
confidentiality agreement with the other party). Prior to any disclosure of
information pursuant to the exception in clause (i) of the preceding sentence,
the party intending to disclose the same shall so notify the party which
provided the same in order that such party may seek a protective order or other
appropriate remedy should it choose to do so.

     10.2 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented only by a written agreement among Velagio, Microfield and Merger
Sub.

     10.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Velagio on the one
hand, or Microfield and Merger Sub on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by Microfield
on the one hand, or Velagio on the other hand, only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
Section 10.3.

42 - AGREEMENT AND PLAN OF MERGER

     10.4 SURVIVAL. The respective representations, warranties, covenants and
agreements of Velagio and Microfield contained herein or in any certificates or
other documents delivered prior to or at the Closing shall survive the execution
and delivery of this Agreement, notwithstanding any investigation made or
information obtained by the other party, but shall terminate at the Effective
Time, except for those contained in Article 7 and Sections 2.8, 2.9, 2.10, 10.4
and 10.8, which shall survive beyond the Effective Time.

     10.5 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person, or
on the next business day when sent by overnight courier or on the second
succeeding business day when sent by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):

          (a) IF TO VELAGIO, TO:

                      Velagio, Inc.
                      Suite 400
                      1631 NW Thurman Street
                      Portland, OR 97209
                      Attn: Kurt A. Underwood
                      Tel: (503) 467-7777

          WITH A COPY TO:

                      White & Lee, LLP
                      Suite 2440
                      805 SW Broadway,
                      Portland, OR 97205
                      Attn: Jon R. Summers
                      Tel: (503) 419-3000

          (b) IF TO MICROFIELD OR MERGER SUB, TO:

                       Microfield Group, Inc.
                       Suite 310
                       1631 NW Thurman
                       Portland, OR 97209
                       Attn: Steven M. Wright
                       Tel: (503) 419-3581

43 - AGREEMENT AND PLAN OF MERGER

           WITH A COPY TO:

                       Dunn Carney Allen Higgins & Tongue LLP
                       Suite 1500
                       851 SW 6th Avenue
                       Portland, OR 97204
                       Attn: Jonathan A. Bennett
                       Tel: (503) 224-6440

     10.6 BINDING EFFECT; ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto prior to the Effective Time without the prior written
consent of Velagio, in the case of a proposed assignment by Microfield or Merger
Sub, or by Microfield, in the case of a proposed assignment by Velagio.

     10.7 FEES AND EXPENSES. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses.

     10.8 GOVERNING LAW. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with the laws of, the state of Oregon. Each party consents to jurisdiction and
venue in Multnomah County, Oregon.

     10.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     10.10 INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.

     10.11 ENTIRE AGREEMENT. This Agreement and the documents or instruments
referred to herein including, but not limited to, the attached Exhibits and
Disclosure Schedules, which Exhibits and Disclosure Schedules are incorporated
herein by reference, embody the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants, or undertakings
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the parties with
respect to such subject matter.

     10.12 SEVERABILITY. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable in a jurisdiction, such provision shall be
modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof shall

44 - AGREEMENT AND PLAN OF MERGER

not in any way be affected or impaired thereby nor shall the validity, legality
or enforceability of such provision be affected thereby in any other
jurisdiction.

     10.13 SPECIFIC PERFORMANCE. The parties hereto 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. Accordingly, the parties further agree that each party shall be
entitled to an injunction or restraining order to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other right or remedy to which such party may be entitled under
this Agreement, at law or in equity.

     10.14 THIRD PARTIES. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any Person that is not a party hereto or thereto or
a successor or permitted assign of such a party.

     10.15 DISCLOSURE SCHEDULES. Each Microfield and Velagio acknowledges that
the Disclosure Schedules (a) relate to certain matters concerning the
disclosures required and transactions contemplated by this Agreement, (b) are
qualified in their entirety by reference to specific provisions of this
Agreement, and (c) are not intended to constitute and shall not be construed as
indicating that any such matter is required to be disclosed, nor should such
disclosure be construed as an admission that such information is material with
respect to Velagio or Microfield, as the case may be, except to the extent
required by this Agreement.

                         [SIGNATURES ON FOLLOWING PAGE]

45 - AGREEMENT AND PLAN OF MERGER

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.

                                             MICROFIELD GROUP, INC.
                                             an Oregon corporation


                                             By:
                                                --------------------------------
                                                Steven M. Wright, President


VELAGIO, INC.                                VSI ACQUISITION CO.
an Oregon corporation                        an Oregon corporation


By:                                          By:
   --------------------------------             --------------------------------
   Kurt A. Underwood,                           Steven M. Wright, President
   Chief Executive Officer

     The undersigned Velagio Shareholders agree to be bound by the applicable
terms and conditions of this Agreement.

TSI TELECOMMUNICATION
SERVICES, INC.
a Delaware corporation


By:
   ------------------------------------
Name:
     ----------------------------------
Its:
    -----------------------------------



- ---------------------------------------
KURT A. UNDERWOOD, individually

46 - AGREEMENT AND PLAN OF MERGER

                                    EXHIBIT A

                        INDEMNIFICATION ESCROW AGREEMENT











                                 [See attached]

1 - EXHIBIT A

                                    EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT










                                 [See attached]

1 - EXHIBIT B

                                    EXHIBIT C

                         UNDERWOOD EMPLOYMENT AGREEMENT







                                 [See attached]

1 - EXHIBIT C

                                    EXHIBIT D

                           WRIGHT EMPLOYMENT AGREEMENT






                                 [See attached]

1 - EXHIBIT D

EX-99.1

                                                                    Exhibit 99.1


                        INDEMNIFICATION ESCROW AGREEMENT


      THIS INDEMNIFICATION ESCROW AGREEMENT (this "AGREEMENT") is made and
entered into as of September 15, 2003 (the "EFFECTIVE DATE"), by and among
MICROFIELD GROUP, INC., an Oregon corporation ("MICROFIELD"); KURT A. UNDERWOOD
and TSI TELECOMMUNICATION SERVICES, INC., a Delaware corporation (collectively,
the "VELAGIO SHAREHOLDERS"), KURT A. UNDERWOOD, as representative for the
Velagio Shareholders (the "VELAGIO REPRESENTATIVE"); CHRISTENSON GROUP LLC, an
Oregon limited liability company (the "CTS SHAREHOLDER"); ROBERT J. JESENIK, as
representative for the CTS Shareholder (the "CTS REPRESENTATIVE"); and ANTHONY
J. MOTSCHENBACHER (the "ESCROW AGENT").

      All capitalized terms used in this Agreement and not otherwise defined
herein will have the meanings given them in the Agreement and Plan of Merger
dated the same date as this Agreement (the "VSI MERGER AGREEMENT"), by and among
Microfield, VSI Acquisition Co., an Oregon corporation ("VSI ACQUISITION"),
Velagio, Inc., an Oregon corporation ("VELAGIO"), and the Velagio Shareholders,
pursuant to which VSI Acquisition will merge with and into Velagio (the "VSI
MERGER"), and in the Agreement and Plan of Merger dated the same date as this
Agreement (the "CTS MERGER AGREEMENT"), by and among Microfield, CTS Acquisition
Co., an Oregon corporation ("CTS ACQUISITION"), Christenson Technology Services,
Inc., an Oregon corporation ("CTS"), and the CTS Shareholder, pursuant to which
CTS Acquisition will merge with and into CTS (the "CTS MERGER").

      The VSI Merger and CTS Merger will be referred together as the "MERGERS",
the VSI Merger Agreement and CTS Merger Agreement will be referred together as
the "MERGER AGREEMENTS" or individually as a "MERGER AGREEMENT", the Velagio
Shareholders and CTS Shareholder will be referred together as the
"SHAREHOLDERS", and the Velagio Representative and CTS Representative will be
referred together as the "REPRESENTATIVES" or individually as a
"REPRESENTATIVE".

                                    RECITALS

      A.    Section 12.7 of each of the Merger Agreements provides that the
Escrow Shares (as defined below) are to be deducted and withheld from the shares
of Common Stock of Microfield (the "MICROFIELD COMMON STOCK") to be issued in
the Mergers to the Shareholders and placed in an escrow account (the "ESCROW
ACCOUNT") to secure certain indemnification obligations of Velagio, CTS and the
Shareholders under Article 7 of the Merger Agreements on the terms and
conditions set forth in this Agreement. Attached EXHIBIT A sets forth the name
and address of each Shareholder, the number of Escrow Shares required to be
deposited in the Escrow Account by each Shareholder pursuant to the Merger
Agreements, and each Shareholder's pro rata percentage of the Escrow Shares.

      B.    The Representatives and each Shareholder are entering into this
Agreement as a material inducement and consideration for Microfield to enter
into the Merger Agreements and to


1 - INDEMNIFICATION ESCROW AGREEMENT

consummate the transactions contemplated therein. As a condition precedent to
consummate such transactions, the parties desire to set forth in this Agreement
the terms and conditions pursuant to which the Escrow Shares shall be deposited,
held in, and disbursed from the Escrow Account.

                                    AGREEMENT

      NOW, THEREFORE, the parties hereto hereby agree as follows:

      1.    ESCROW AND INDEMNIFICATION.

            1.1   ESCROW OF SHARES. Promptly after the Closing Date, Microfield
will, or will cause its transfer agent to, deposit with the Escrow Agent in the
manner contemplated by Section 2, the Escrow Shares registered in the names of
each of the Shareholders, together with Stock Powers in blank and in the form
required by Microfield's transfer agent, and a written notice making reference
to this Agreement, setting forth the Closing Date, and identifying the shares so
deposited as the Escrow Shares. The Escrow Agent shall hold the Escrow Shares
and stock powers in escrow as a source of collateral for the indemnification
obligations of the Shareholders under Article 7 of the Merger Agreements until
the Escrow Agent is required to release such Escrow Shares in accordance with
the terms of this Agreement. As used in this Agreement, the term "ESCROW SHARES"
shall include all "INITIAL ESCROW SHARES" and "ADDITIONAL ESCROW SHARES" as
those terms are defined in Section 2 of this Agreement. The Escrow Agent agrees
to accept delivery of the Escrow Shares and stock powers and to hold such Escrow
Shares and stock powers in escrow subject to the terms and conditions of this
Agreement.

            1.2   INDEMNIFICATION. The Indemnified Persons are indemnified by
the Shareholders pursuant to the terms of Section 7 of the Merger Agreements
(which terms are incorporated herein by reference) from and against any Claims
(as defined below), subject to the limitations set forth in Section 7.4 of the
Merger Agreements and in this Agreement. The Escrow Shares shall be a resource
of security for these indemnity obligations, subject to the terms and conditions
of Article 7 of the Merger Agreements and this Agreement. The Velagio
Representative on behalf of the Velagio Shareholders, and the CTS Representative
on behalf of the CTS Shareholder, shall each act as the Shareholders'
representative and attorney in fact for purposes of acting on their behalf and
taking all actions necessary to perform this Agreement, and resolve and settle
Claims under the Merger Agreements and this Agreement on behalf of the
respective Shareholders.

            1.3   NOTICE OF CLAIM. As used herein, the term "CLAIM" means a
claim for indemnification under Article 7 of the Merger Agreements made by an
Indemnified Person. Microfield shall give written notice of a Claim (a "NOTICE
OF CLAIM") to the respective Representative and the Escrow Agent as promptly as
reasonably practicable after either: (i) the Indemnified Person's discovery,
after the Closing Date, of any fact or circumstance that gives rise to
indemnification rights under Section 7.2 of either Merger Agreement; or (ii) the
Indemnified Person's discovery, after the Closing Date, of written notice to
Microfield or to any other Indemnified Person of any claim, demand, suit,
action, arbitration, investigation, inquiry or


2 - INDEMNIFICATION ESCROW AGREEMENT

proceeding brought by a third party against such Indemnified Person that is
based upon or includes facts or assertions that would, if true, give rise to
indemnification rights under Section 7.2 of either Merger Agreement (a "THIRD
PARTY CLAIM"). Each Indemnified Person agrees with the Shareholders and the
Representatives that it will make Claims only as permitted by Article 7 of the
Merger Agreements. No delay on the part of any Indemnified Person, and
Microfield, in giving the appropriate Representative notice of a Claim shall
relieve the Representative or any Shareholder from any of its obligations under
Section 7.2 of the Merger Agreements or this Agreement unless (and then only to
the extent that) the Representative and the Shareholders are materially
prejudiced thereby or the applicable survival period in Section 7.1 of the
Merger Agreements has expired.

            1.4   ESCROW PERIOD. As used herein, the term "ESCROW PERIOD" means
that one (1) year time period set forth in Section 7.4(a)(i) of the Merger
Agreements, but shall terminate prior to such period if all of the Escrow Shares
have been released pursuant to Section 2.4.

      2.    DEPOSIT OF ESCROW SHARES; RELEASE FROM ESCROW.

            2.1   DELIVERY OF ESCROW SHARES. On the Closing Date or as soon
thereafter as is reasonably practicable: (i) Microfield shall deliver to the
Escrow Agent, or cause its transfer agent to deliver to the Escrow Agent, for
deposit to the Escrow Account, the written notice contemplated in Section 1.1
accompanied by one or more duly authorized stock certificates in the name of
each of the Shareholders as shown on attached EXHIBIT A (the "INITIAL ESCROW
SHARES"). The Representatives agree to execute and deliver to the Escrow Agent
such additional stock powers relating to the Escrow Shares as may be necessary,
in the Escrow Agent's reasonable opinion, to carry out its responsibilities
under this Agreement. In the event Microfield issues any Additional Escrow
Shares (as defined below), Microfield shall deliver, or cause its transfer agent
to deliver, such Additional Escrow Shares to the Escrow Agent, in the same
manner as the Initial Escrow Shares. Unless and until stock certificates
representing Additional Escrow Shares are received by the Escrow Agent, the
Escrow Agent may assume that none have been issued.

            2.2   DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Except for
dividends paid in shares of Microfield stock that are declared and paid with
respect to the Escrow Shares or shares of Microfield Common Stock issued with
respect to Escrow Shares and resulting from a stock split or other subdivision
("ADDITIONAL ESCROW SHARES"), any cash dividends, dividends payable in
securities or other distributions of any kind made or paid in respect of the
Escrow Shares shall be distributed by Microfield to each Shareholder at the time
of such dividend or other distribution. Each Shareholder shall have the right to
vote the Escrow Shares deposited in the Escrow Account for the account of such
Shareholder so long as such Escrow Shares are held in escrow and not the subject
of a Claim, and Microfield shall take all reasonable steps necessary to allow
the exercise of such rights. So long as the Escrow Shares remain in the Escrow
Agent's possession pursuant to this Agreement and have not been canceled as
provided herein or repurchased by Microfield AND ARE NOT THE SUBJECT OF A CLAIM,
the Shareholders shall retain and shall be able to exercise voting rights with
respect to such Escrow Shares and all other incidents of ownership of the Escrow
Shares that are not inconsistent with the terms and conditions of this


3 - INDEMNIFICATION ESCROW AGREEMENT

Agreement or the Merger Agreements. Microfield and the Shareholders will arrange
for the payment of ordinary dividends and the delivery of proxies and other
notices among themselves, and the Escrow Agent need not be involved. Neither the
Escrow Agent nor its nominee shall be under any duty to take any action to
preserve, protect, exercise or enforce any rights or remedies under or with
respect to the Escrow Shares (including without limitation with respect to the
exercise of any voting or consent rights, conversion or exchange rights, defense
of title, preservation or rights against prior matters or otherwise).
Notwithstanding the foregoing, if the Escrow Agent is so requested in a written
request of a Representative received by the Escrow Agent at least three (3)
Business Days prior to the date on which the Escrow Agent is requested therein
to take such action (or such later date as may be acceptable to the Escrow
Agent), the Escrow Agent shall execute or cause its nominee to execute, and
deliver to the Representative a proxy or other instrument in the form supplied
to it by the Representative for voting or otherwise exercising any right of
consent with respect to any of the Escrow Shares hold by it hereunder, to
authorize therein the Representative to exercise such voting or consent
authority in respect of the Escrow Shares (provided, that the Escrow Agent shall
not be obliged to execute any such proxy or other instrument if, in its
judgment, the terms thereof may subject the Escrow Agent to any liabilities or
obligations in its individual capacity). The Escrow Agent shall not be under any
duty or responsibility to forward to Microfield, Shareholders and the
Representatives (each, an "INTERESTED PARTY"), or to notify any Interested Party
with respect to, or to take any action with respect to, any notice, solicitation
or other document or information, written or otherwise, received from an issuer
or other person with respect to the Escrow Shares, including but not limited to,
proxy material, tenders, options, the pendency of calls and maturities and
expiration of rights.

            2.3   DISTRIBUTIONS TO SHAREHOLDERS. Promptly after the Escrow Agent
receives notice of the date on which the Escrow Period expired (the "FINAL
RELEASE DATE"), the Escrow Agent shall release, or cause the transfer agent of
the Escrow Shares to release, from escrow to each Shareholder at each
Shareholders' address as set forth in EXHIBIT A, in proportion to each such
Shareholders' pro rata portion as set forth in EXHIBIT A, that number of shares
that is equal to the positive difference between (i) the total number of Escrow
Shares then remaining subject to this Agreement, less (ii) the total number of
such Shareholder's Escrow Shares that are owed to Microfield and are to be
canceled and forfeited in accordance with Section 4 in satisfaction of Claims by
Microfield or that are otherwise being held in escrow subject to a pending Claim
by Microfield. As used in this Agreement, a "SHAREHOLDER'S ESCROW SHARES" refers
to and means: (i) if no Additional Escrow Shares are issued, the Initial Escrow
Shares allocable to such Shareholder as set forth in EXHIBIT A; and (ii) if
Additional Escrow Shares are issued, that number of Escrow Shares obtained by
multiplying the total number of all Escrow Shares in the Escrow Account at the
time in question by such Shareholder's pro rata portion as set forth in EXHIBIT
A. Except for Additional Escrow Shares, in no event shall any Shareholder be
required to contribute additional shares to the Escrow.

            2.4   RELEASE OF ESCROW SHARES. The Escrow Shares shall be held by
the Escrow Agent until such Escrow Shares are required to be released pursuant
to either: (i) Section 2.3; or (ii) when required under applicable provisions of
Section 4 (each such day, "RELEASE DATE"). The Escrow Agent shall deliver to
Microfield's transfer agent for further


4 - INDEMNIFICATION ESCROW AGREEMENT

delivery to the Shareholders or to Microfield, as applicable hereunder, the
requisite number of Escrow Shares to be released on each applicable date as is
called for by this Agreement. Such delivery of Escrow Shares shall be in the
form of stock certificate(s) registered in the name of such Shareholders or
Microfield, as applicable, in accordance with this Agreement. The Escrow Agent
shall coordinate with Microfield's transfer agent who shall cause such stock
certificates to be registered in the appropriate names as determined by the
Escrow Agent in accordance with this Agreement. Microfield shall give the Escrow
Agent prompt written notice of the name and address of the current and any new
transfer agent for Microfield's Common Stock. Microfield and the Representatives
shall undertake to deliver a prompt written notice to the Escrow Agent
identifying the number of Escrow Shares to be released to each of the
Shareholders and/or Microfield, as applicable, in accordance with this
Agreement. Escrow Shares released to the Shareholders shall be released to them
in proportion to their respective pro rata portions as set forth in EXHIBIT A.
The Escrow Agent may, from time to time, request from Microfield or from the
Representatives written confirmation of the accuracy and completeness of
information respecting the Shareholders set forth in EXHIBIT A. Cash, which
shall be furnished to the Escrow Agent by Microfield, shall be paid in lieu of
any distribution of a fraction of an Escrow Share held by any Shareholder
(computed for each Shareholder by aggregating all Escrow Shares held by such
Shareholder) in an amount equal to the applicable fraction of an Escrow Share
multiplied by the per share market value of Microfield Common Stock (as set
forth in Section 4.5) as set forth in a certificate of Microfield delivered to
and received by the Escrow Agent (such price per share to be adjusted to reflect
any stock dividend, stock split, reverse stock split, combination of shares,
reclassification, recapitalization or other similar event affecting Microfield
Common Stock (each a "CAPITAL CHANGE"), whether occurring at or after the
Closing Date if the written notice described below has been received by the
Escrow Agent). Within five (5) business days Microfield shall give the Escrow
Agent and the Representatives written notice of the occurrence of any Capital
Change and the impact thereof on such price per share of Microfield Common Stock
referred to above. Within two (2) business days prior to the scheduled date for
releasing shares to the Shareholders hereby, Microfield shall submit to the
Escrow Agent and the Representatives a certified schedule of the cash amounts
payable for fractional shares (if any) to each of the Shareholders as set forth
in EXHIBIT A and shall deposit with the Escrow Agent sufficient funds to pay
such cash amounts for fractional shares. The Escrow Agent may be required by the
Internal Revenue Code, as it may be amended from time to time, to withhold a
portion of any cash distribution to any Shareholder unless such Shareholder
delivers to the Escrow Agent an IRS Form W-9 (or Form W-8 for non-U.S. persons)
for tax reporting purposes, duly completed and executed by such Shareholder
prior to such distribution.

            2.5   NO ENCUMBRANCE. No Escrow Shares or any beneficial interest
therein may be pledged, encumbered, sold, assigned or transferred (including any
transfer by operation of law), by a Shareholder or be taken or reached by any
legal or equitable process in satisfaction of any debt or other liability of
such Shareholder, prior to the delivery to such Shareholder of such Escrow
Shares by the Escrow Agent in accordance with this Agreement. The Escrow Agent
shall have no responsibility for determining or enforcing compliance with this
Section 2.5, except that the Escrow Agent shall retain possession of the stock
certificates evidencing the Escrow Shares as required by this Agreement.


5 - INDEMNIFICATION ESCROW AGREEMENT

            2.6   POWER TO TRANSFER ESCROW SHARES. The Escrow Agent is hereby
granted the power to effect any transfer of Escrow Shares contemplated by this
Agreement. Microfield shall cooperate with the Escrow Agent in causing
Microfield's transfer agent to promptly issue stock certificates to effect such
transfers.

      3.    CONTENTS OF NOTICE OF CLAIM.

            3.1   WRITTEN CLAIM. Each Notice of Claim given by Microfield
pursuant to Section 1.3 shall be in writing and shall contain the following
information to the extent it is reasonably available to Microfield:

                  (a)   Microfield's statement of the amount of the damages that
Microfield believes have been actually incurred by Microfield and/or any other
Indemnified Person in connection with the Claim and/or Microfield's statement of
its good faith estimate of the reasonably foreseeable amount of the alleged
damages that will ultimately be incurred by Microfield and/or any other
Indemnified Person in connection with such Claim; and

                  (b)   A brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged Damages based on Microfield's
or any other affected Indemnified Person's good faith belief thereof, and, if
applicable, the identity and address of any third-party claimant (to the extent
reasonably available to Microfield) and copies of any formal demand or complaint
of any such third-party claimant.

            3.2   NO TRANSFER. The Escrow Agent shall not transfer any of the
Escrow Shares held in the Escrow Account to Microfield pursuant to a Notice of
Claim until such Notice of has been resolved in accordance with Section 4.

      4.    RESOLUTION OF CLAIMS AND TRANSFERS OF ESCROW SHARES. Any Notice of
Claim received by the Shareholders' Representative and the Escrow Agent pursuant
to Section 1.3 and Section 3 shall be resolved as follows:

            4.1   UNCONTESTED CLAIMS. If, within thirty (30) calendar days after
a Notice of Claim containing a statement of claimed damages has been received
by, or is deemed to have been delivered by Microfield to, the respective
Representative and the Escrow Agent pursuant to Section 7, the appropriate
Representative has not contested such Notice of Claim in a written notice
received by Escrow Agent as provided in Section 4.2 (an "UNCONTESTED CLAIM"),
then the Escrow Agent shall: (i) promptly release or cause the transfer agent of
the Escrow Shares to release from escrow and transfer to Microfield for
cancellation and forfeiture that number of Escrow Shares having a value (as
determined in accordance with Section 4.5) equal to the amount of damages
specified in such Notice of Claim, which transferred and forfeited Escrow Shares
shall be taken from and forfeited by the Shareholders as set forth in Section
4.5; and (ii) notify the Representatives in writing of such transfer and
forfeiture of Escrow Shares as promptly as reasonably practicable.


6 - INDEMNIFICATION ESCROW AGREEMENT

            4.2   CONTESTED CLAIMS. In the event that the respective
Representative delivers to Microfield and the Escrow Agent a written notice
contesting all, or a portion of, a Notice of Claim (a "CONTESTED CLAIM") and
such written notice has been received by, or is deemed, under the provisions of
Section 7, to have been delivered to, Microfield and the Escrow Agent within the
thirty (30) day period described in Section 4.1, then: (i) such Contested Claim
shall be resolved by either (1) a written settlement agreement executed by
Microfield and appropriate Representative, or (2) in the absence of such a
written settlement agreement, by nonbinding arbitration in accordance with the
provisions of Section 4.3. Any portion of the Notice of Claim that is not
contested by the Representative in accordance with the foregoing provisions of
this Section 4.2 shall be treated as an Uncontested Claim and resolved in
accordance with Section 4.1.

            4.3   NONBINDING ARBITRATION OF CONTESTED CLAIMS. Microfield and the
Representatives agree that they shall use best reasonable efforts to settle
amicably disagreements arising from or in connection with this Agreement. To
this effect, following notice of either to the other (with copy to the Escrow
Agent) of a disagreement, which shall include any failure to agree upon a matter
to be agreed upon (a "DISPUTE"), the parties shall consult and negotiate with
one another in good faith an understanding to reach a just and equitable
solution. If those attempts fail after a period of ten (10) business days from
the time the parties have been notified of the Dispute, then every such Dispute
shall be settled by nonbinding arbitration in Multnomah County, Oregon, in
accordance with the commercial arbitration rules of Arbitration Services of
Portland, Inc. ("ASP") then in effect. Upon completion of the arbitration, any
award rendered by the arbitrator may be entered by the parties in the circuit
court for Multnomah County, Oregon; provided, however, that such award may be
appealed as set forth below. The arbitrator shall have the authority to grant
any equitable and legal remedies that would be available in a judicial
proceeding instituted to resolve the Dispute.

                  (A)   SELECTION OF ARBITRATOR. ASP will have the authority to
select an arbitrator from a list of arbitrators who are lawyers familiar with
Oregon contract law; provided, however, that such lawyers cannot work for a firm
then performing services for either party, that each party will have the
opportunity to make such reasonable objection to any of the arbitrators listed
as such party may wish and that ASP will select the arbitrator from the list of
arbitrators as to whom neither party makes any such objection. In the event that
the foregoing procedure is not followed, each party will choose one person from
the list of arbitrators provided by ASP (provided that such person does not have
a conflict of interest), and the two persons so selected will select from the
list provided by ASP the person who will act as arbitrator.

                  (B)   PAYMENT OF COSTS. Microfield and the respective
Shareholders will bear the expense of deposits and advances required by the
arbitrator. Microfield shall pay fifty percent (50%) and the Shareholders
collectively shall pay fifty percent (50%) of such deposits and advances, with
each Shareholder paying in proportion to their respective escrow percentage, but
either party may advance such amounts, subject to recovery as an addition or
offset to any award. The arbitrator will award to the prevailing party, as
determined by the arbitrator, all costs, fees and expenses related to the
arbitration, including reasonable fees and expenses of attorneys, accountants
and other professionals incurred by the prevailing party.


7 - INDEMNIFICATION ESCROW AGREEMENT

                  (C)   AWARD AND APPEAL. Upon the conclusion of the arbitration
proceedings hereunder, the arbitrator will render findings of fact and
conclusions of law and a written opinion setting forth the basis and reasons for
any decision reached and will deliver such documents to each party to this
Agreement along with a signed copy of the award. The parties shall then have
thirty (30) days to enter the award as a judgment in the circuit court of
Multnomah County, Oregon, and then thirty (30) additional days after entry of
the award as a judgment to appeal it in the circuit court. The judge at trial or
appeal will award to the prevailing party, as determined by the judge, all
costs, fees and expenses related to any trial or appeal, including reasonable
fees and expenses of attorneys, accountants and other professionals incurred by
the prevailing party.

                  (D)   TERMS OF ARBITRATION. The arbitrator chosen in
accordance with these provisions will not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Agreement.

                  (E)   TREATMENT OF DAMAGES. Upon (i) issuance of a final
written opinion by the arbitrator or the judge in any trial or appeal, and (ii)
after all appeal periods have expired (a "FINAL AWARD"), Microfield will
immediately be entitled to recover solely from the Escrow Account the amount of
any incurred damages determined and awarded to Microfield under such Final
Award, all in accordance with Section 4.3(f), and such incurred damages will be
deemed to be owed to Microfield for purposes of this Agreement; provided,
however, that the limitation on damages set forth in Section 7.4 of the Merger
Agreements shall limit the total damages payable to Microfield under this
Agreement.

                  (F)   RELEASE OF ESCROW SHARES PURSUANT TO ARBITRATION AWARD.
Upon its receipt of a copy of the Final Award and after all appeal periods have
expired, the Escrow Agent shall (i) promptly release from escrow and transfer to
Microfield for cancellation that number of Escrow Shares having a value
(determined in accordance with Section 4.5) equal to the amount of damages (if
any) owed to Microfield (as determined under Section 4.3(e)), which transferred
and forfeited Escrow Shares shall be taken from and forfeited by each of the
Shareholders in proportion to such Shareholder's respective pro rata portion of
the Escrow Shares as set forth on EXHIBIT A, and (ii) notify the appropriate
Representative in writing of such transfer and forfeiture of Escrow Shares as
promptly as reasonably practicable.

            4.4   SETTLED CLAIMS. If a Claim (including a Contested Claim) is
settled by a written settlement agreement executed by a Representative and
Microfield (a "SETTLED CLAIM"), then the Representative and Microfield shall
promptly deliver a copy of such executed settlement agreement to the Escrow
Agent together with written instructions executed by both Microfield and the
Representative to the Escrow Agent ("SETTLEMENT INSTRUCTIONS") which shall, in
accordance with and subject to the terms of the written settlement agreement,
instruct the Escrow Agent: (i) to release a stated number of Escrow Shares to
Microfield pursuant to such settlement agreement; (ii) that no action need be
taken by the Escrow Agent with respect to such Claim; or (iii) that a stated
number of Escrow Shares shall be released to the Shareholders pursuant to such
settlement agreement. Upon its receipt of such settlement agreement and
Settlement Instructions instructing the Escrow Agent to release Escrow Shares to
Microfield, the Escrow Agent shall:


8 - INDEMNIFICATION ESCROW AGREEMENT

(i) promptly release or cause to be released from escrow and transfer to
Microfield for cancellation that number of Escrow Shares that Microfield and the
Representative have agreed shall be transferred and forfeited by the
Shareholders in such Settlement Instructions, which transferred and forfeited
Escrow Shares shall be forfeited by each of the Shareholders as set forth in
Section 4.5; and (ii) notify the Representative in writing of such transfer and
forfeiture of Escrow Shares as promptly as reasonably practicable.

            4.5   DETERMINATION OF NUMBER OF ESCROW SHARES FORFEITED.

                  (a)   Any amount of damages owed to Microfield or any other
Indemnified Person hereunder, determined pursuant to the foregoing provisions of
Section 4, but limited by Section 7.4 of the Merger Agreements, shall be payable
to Microfield as provided in this Agreement out of the Escrow Shares then held
by the Escrow Agent. For any Claim or Claims arising under either or both of the
Merger Agreements, Microfield shall be entitled to receive all of the Escrow
Shares; provided, however, that the Escrow Shares shall first be forfeited by
the CTS Shareholder in the event of a Claim under the CTS Merger Agreement, or
first by the Velagio Shareholders in the event of a Claim under the VSI Merger
Agreement (each of the Velagio Shareholders in proportion to their respective
pro rata percentage of the Escrow Shares as set forth on EXHIBIT A). For
example, if a Claim arises under the CTS Merger Agreement that represents
450,000 Escrow Shares, Microfield shall receive all of the CTS Shareholder's
Escrow Shares and then the balance from the Velagio Shareholders' Escrow Shares.
If for example, a subsequent Claim arises under the CTS Merger Agreement that
represents an additional 100,000 Escrow Shares, Microfield shall receive the
remaining 50,000 Escrow Shares from the Velagio Shareholders, at which time the
limitation of Section 7.4 of the Merger Agreements shall be reached.

                  (b)   For purposes of this Agreement, Escrow Shares shall be
deemed to have a per share value equal to the per share market value of
Microfield Common Stock (based on the Microfield Stock Value as set forth in the
Merger Agreements, which is defined as the average bid price as reported on the
OCTBB or NASDAQ or other exchange upon which Microfield Common Stock is trading
for the thirty (30) days immediately prior to and including the last trading day
prior to the applicable date for which the value is determined) which will be
set forth in a certificate of Microfield delivered to and received by the Escrow
Agent (such price per share and certificate to be adjusted to reflect any
Capital Change, whether occurring at or after the Closing Date, if the written
notice contemplated by Section 2.4 has been received by the Escrow Agent).
Microfield shall promptly give the Escrow Agent and the Representative written
notice of the occurrence of any Capital Change and the impact thereof on such
price per share of Microfield Common Stock referred to above.

            4.6   MULTIPLE CLAIMS PERMITTED. The assertion of any single Claim
for indemnification hereunder shall not bar Microfield from asserting any other
Claims hereunder.


9 - INDEMNIFICATION ESCROW AGREEMENT

      5.    LIMITATION OF ESCROW AGENT'S LIABILITY.

            5.1   LIMITATION OF LIABILITY. The Escrow Agent shall incur no
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other document
believed by it to be genuine and duly authorized, nor for any other action or
inaction, except its own willful misconduct, fraud or gross negligence. The
Escrow Agent shall have no duty to inquire into or investigate the validity,
accuracy or content of any document delivered to it. The Escrow Agent shall not
be responsible for the validity or sufficiency of this Agreement. In all
questions arising under this Agreement, the Escrow Agent may rely on the advice
or opinion of counsel, and for anything done, omitted or suffered in good faith
by the Escrow Agent based on such advice, the Escrow Agent shall not be liable
to anyone. The Escrow Agent shall not be required to take any action hereunder
involving any expense unless the payment of such expense is made or provided for
in a manner satisfactory to it. The Escrow Agent shall have no duties or
responsibilities other than those expressly set forth in this Agreement and the
implied duty of good faith and fair dealing.

            5.2   RESOLUTION OF CONFLICTING DEMANDS. In the event conflicting
demands are made or conflicting notices are served upon the Escrow Agent with
respect to the Escrow Account, the Escrow Agent shall have the absolute right,
at the Escrow Agent's election, to do either or both of the following: (i) file
a suit in interpleader with a court of competent jurisdiction, deposit the
Escrow Shares at issue with the clerk of such court and obtain an order from
such court requiring the parties to interplead and litigate in such court their
several claims and rights among themselves; or (ii) give written notice to the
Representative(s) and Microfield that it has received conflicting instructions
and is refraining from taking action with respect to the subject matter of the
conflicting instructions until it receives instructions consented to in writing
by both Microfield and the respective Representative. In the event an
interpleader suit as described in clause (i) above is brought, the Escrow Agent
shall thereby be fully released and discharged from all further obligations
imposed upon it under this Agreement with respect to the matters that are the
subject of such interpleader suit, and Microfield and the Shareholders shall pay
the Escrow Agent all costs, expenses and reasonable attorney fees expended or
incurred by the Escrow Agent pursuant to the exercise of Escrow Agent's rights
under this Section 5.2 (such costs, fees and expenses shall be treated as
extraordinary fees and expenses for the purposes of Section 9).

            5.3   INDEMNIFICATION. Each party to this Agreement other than the
Escrow Agent (each an "INDEMNIFYING PARTY" and together the "INDEMNIFYING
PARTIES"), hereby jointly and severally covenants and agrees to reimburse,
indemnify and hold harmless Escrow Agent, the Escrow Agent's officers,
directors, employees, counsel and agents (severally and collectively for
purposes of this Sections 5.3, 5.4 and 5.5 only, "ESCROW AGENT"), from and
against any loss, damage, liability or loss suffered, incurred by, or asserted
against Escrow Agent (including amounts paid in settlement of any action, suit,
proceeding, or claim brought or threatened to be brought and including
reasonable expenses of legal counsel) arising out of, in connection with or
based upon, any act or omission by Escrow Agent (not involving gross negligence,
willful misconduct or fraud on Escrow Agent's part) relating in any way to this
Agreement or the Escrow Agent's services hereunder. The aggregate liability of
the Shareholders and Microfield


10 - INDEMNIFICATION ESCROW AGREEMENT

to the Escrow Agent under this indemnity shall be limited to the Escrow Shares
then in escrow hereunder. Anything in this Agreement to the contrary
notwithstanding, in no event shall the Escrow Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action. Any
Indemnifying Party who reimburses or indemnifies the Escrow Agent pursuant to
this Section 5.3 shall have a right to seek contribution from any and all other
Indemnifying Parties according to their relative fault or, if such relative
fault is not determinable, in accordance with each Shareholder's pro rata
ownership of Escrow Shares; provided, that the aggregate liability of the
Shareholders for any such contribution shall be limited to the Escrow Shares
then in escrow hereunder.

            5.4   DEFENSE. Each Indemnifying Party may participate at its own
expense in the defense of any claim or action that may be asserted against
Escrow Agent, and if the Indemnifying Parties so elect, the Indemnifying Parties
may assume the defense of such claim or action; provided, however, that if there
exists a conflict of interest that would make it inappropriate, in the sole
discretion of the Escrow Agent, for the same counsel to represent both Escrow
Agent and the Indemnifying Parties, Escrow Agent's retention of separate counsel
shall be reimbursable as hereinabove provided. Escrow Agent's right to
indemnification hereunder shall survive Escrow Agent's resignation or removal as
Escrow Agent and shall survive the termination of this Agreement by lapse of
time or otherwise.

            5.5   NOTICE TO INDEMNIFYING PARTIES. The Escrow Agent shall notify
each Indemnifying Party by letter, or by telephone or telecopy confirmed by
letter, of any receipt by Escrow Agent of a written assertion of a claim against
Escrow Agent, or any action commenced against Escrow Agent, for which
indemnification is required under Section 5.3, within ten (10) days after Escrow
Agent's receipt of written notice of such claim. The Indemnifying Parties will
be relieved of their indemnification obligations under this Section 5 if Escrow
Agent fails to timely give such notice and such failure adversely affects the
Indemnifying Parties' ability to defend such claim. However, Escrow Agent's
failure to so notify each Indemnifying Party shall not operate in any manner
whatsoever to relieve an Indemnifying Party from any liability that it may have
otherwise than on account of this Section 5.

            5.6   USE OF AGENTS. The Escrow Agent may execute any of its powers
or responsibilities hereunder and exercise any rights hereunder either directly
or by or through its agents or attorneys and shall be entitled to consult with
its legal counsel, including in-house legal counsel, as to any questions or
matters arising hereunder and the reasonable, good faith written opinion of such
legal counsel shall be full and complete authorization and protection to Escrow
Agent in respect of any act or omission by Escrow Agent undertaken in good faith
and in accordance with the opinion of such legal counsel. The Escrow Agent shall
have no liability for the conduct of any outside attorneys, accountants or other
similar professionals it retains. Nothing in this Agreement shall be deemed to
impose upon Escrow Agent any duty to qualify to do business or to act as a
fiduciary or otherwise in any jurisdiction other than the State of Oregon.


11 - INDEMNIFICATION ESCROW AGREEMENT

      6.    REPRESENTATIVES OF THE SHAREHOLDERS. The Representatives each
represent and warrant to the Escrow Agent that he has the irrevocable right,
power and authority (i) to enter into and perform this Agreement and to bind the
CTS Shareholder with respect to the CTS Representative, and the Velagio
Shareholders with respect to the Velagio Representative, to the terms of this
Agreement, (ii) to give and receive directions and notices hereunder; and (iii)
to make all determinations. Unless and until the Escrow Agent receives written
notice of the appointment of a successor Representative, the Escrow Agent may
assume without inquiry that the last Representative of which it has notice
remains in that capacity. The Representative shall not be entitled to receive
any compensation from Microfield in connection with this Agreement.

      7.    NOTICES. All notices, instructions and other communications required
or permitted to be given hereunder or necessary or convenient in connection
herewith must be in writing and shall be deemed delivered (i) when personally
served, or (ii) when delivered by an overnight courier service as shown by the
records of such delivery service, addressed as follows:


12 - INDEMNIFICATION ESCROW AGREEMENT

            (i)   IF TO THE ESCROW AGENT:

                  Anthony J. Motschenbacher
                  Motschenbacher & Blattner, LLP
                  Suite 200
                  117 SW Taylor Street
                  Portland, Oregon 97204
                  Telephone: (503) 417-0501

            (ii)  IF TO MICROFIELD:
                  Microfield Group, Inc.
                  Suite 310
                  1631 Thurman Street
                  Portland, Oregon 97209
                  Attention:  Steven M. Wright
                  Phone: (503) 419-3581

                  WITH A COPY TO:

                  Dunn, Carney, Allen, Higgins & Tongue LLP
                  Suite 1500
                  851 SW Sixth Avenue
                  Portland, Oregon 97204
                  Attention:  Jonathan A. Bennett
                  Phone: (503) 224-6440

            (iii) IF TO THE VELAGIO SHAREHOLDERS OR THE VELAGIO REPRESENTATIVE:

                  Kurt A. Underwood
                  Suite 400
                  1631 Thurman Street
                  Portland, Oregon 97209
                  Phone:  (503) 467-7777

                  WITH A COPY TO:

                  White & Lee LLP
                  Suite 2440
                  805 SW Broadway
                  Portland, Oregon  97205
                  Attention: Jon R. Summers
                  Phone:  (503) 419-3000


13 - INDEMNIFICATION ESCROW AGREEMENT

            (v)   IF TO THE CTS SHAREHOLDER OR THE CTS REPRESENTATIVE:

                  Christenson Group LLC
                  Suite 400
                  1631 Thurman Street
                  Portland, Oregon 97209
                  Attention:  Robert J. Jesenik and Andrew S. Craig
                  (503) 419-3500

or to such other address as the parties designate in a writing delivered to each
of the other parties hereto in accordance with this Section 7. Notwithstanding
the foregoing, notices and the like addressed to the Escrow Agent shall be
effective only upon receipt. The Escrow Agent may assume without inquiry (unless
the Escrow Agent has written notice to the contrary) that notices received by
it, which are also required to be delivered to another party have, in fact, been
delivered to such other party.

      8.    MISCELLANEOUS.

            8.1   CHOICE OF LAW. The internal laws of the State of Oregon
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.

            8.2   COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts (including
by facsimile), with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument.

            8.3   SEVERABILITY. Should any one or more of the provisions of this
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.

            8.4   PARTIES IN INTEREST. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and 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 such person.
Neither this Agreement nor any right or obligation hereunder shall be assignable
or delegable by the Shareholders except with the prior written consent of
Microfield. This Agreement shall be assignable or delegable by Microfield, with
or without the prior written consent of the other parties hereto, including to
any successor in interest of Microfield, whether by merger, reorganization, sale
of assets or otherwise so long as such successor assumes the obligations hereof.


14 - INDEMNIFICATION ESCROW AGREEMENT

            8.5   HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.

            8.6   NO STRICT CONSTRUCTION. The parties hereto 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 hereto, 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.

            8.7   ENTIRE AGREEMENT. As between Microfield, the Representatives
and the Shareholders, except as otherwise provided in the Merger Agreements,
this Agreement constitutes the entire understanding and agreement of the parties
with respect to the subject matter of this Agreement and supersedes all prior
agreements or understandings, written or oral, between the parties with respect
to the subject matter hereof. As between the Escrow Agent and the other parties
hereto, all such parties agree that the Escrow Agent's duties are defined only
in this Agreement, any contrary provisions of the Merger Agreements
notwithstanding.

            8.8   FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to 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
legal requirements or otherwise, to consummate and make effective the
transactions contemplated by this Agreement. If at any time after the date
hereof any further action is necessary or desirable to carry out the purposes of
this Agreement, all parties shall use their commercially reasonable efforts to
take or cause to be taken all such necessary or convenient action and execute,
and deliver and file, or cause to be executed, delivered and filed, all
necessary or convenient documentation.

            8.9   FORCE MAJEURE. Neither Microfield nor the Shareholders nor
Escrow Agent shall be responsible for any delays or failures in performance
resulting from acts beyond its control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, earthquakes or other
disasters.

            8.10  REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties hereto agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction shall likewise be admissible in evidence.


15 - INDEMNIFICATION ESCROW AGREEMENT

            8.11  AMENDMENT. This Agreement may be amended by the written
agreement of Microfield, the Escrow Agent and the Representatives, provided
that, if the Escrow Agent does not agree to an amendment agreed upon by
Microfield and the Representatives, the Escrow Agent shall resign and Microfield
shall appoint a successor Escrow Agent in accordance with Section 10. No
amendment of the Merger Agreements shall increase Escrow Agent's
responsibilities or liability hereunder without Escrow Agent's written
agreement.

      9.    COMPENSATION AND EXPENSES OF ESCROW AGENT. All fees and expenses of
the Escrow Agent incurred in the ordinary course of performing its
responsibilities hereunder in accordance with the fee schedule attached hereto
as EXHIBIT B shall be paid by Microfield upon receipt of a written invoice by
Escrow Agent. Any extraordinary fees and expenses, including without limitation
any fees or expenses incurred by the Escrow Agent in connection with a dispute
over the distribution of Escrow Shares or the validity of a Notice of Claim,
shall be paid fifty percent (50%) by Microfield and fifty percent (50%) by the
Shareholders (each Shareholder paying it or his escrow percentage) upon receipt
of a written invoice by Escrow Agent, and subject to the provisions of Section
4.3(b) shall be allocated to the non-prevailing party in any action,
arbitration, trial or appeal.

      10.   SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes unable
or unwilling to continue in its capacity herewith, the Escrow Agent may resign
and be discharged from its duties or obligations hereunder by giving notice of
its resignation to the other parties to this Agreement, specifying a date not
less than thirty (30) days following the date of receipt of such notice when
such resignation shall take effect. Microfield and the Representatives shall
designate a successor escrow agent prior to the expiration of such thirty (30)
day period by giving written notice of such successor to the Escrow Agent.
Microfield and the Representatives may only appoint a successor escrow agent
upon their mutual agreement. If no successor escrow agent is named by Microfield
and the Representatives, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor escrow agent. The Escrow Agent
shall promptly transfer the Escrow Shares to such designated successor.

      11.   LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are limited
to those set forth in this Agreement, and Escrow Agent, acting as such under
this Agreement, is not charged with knowledge of or any duties or
responsibilities under any other document or agreement, including without
limitation the Merger Agreements. Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys. Nothing in this Escrow Agreement shall be
deemed to impose upon the Escrow Agent any duty to qualify to do business or to
act as a fiduciary or otherwise in any jurisdiction other than the State of
Oregon. Escrow Agent shall not be responsible for and shall not be under a duty
to examine into or pass upon the validity, binding effect, execution or
sufficiency of this Escrow Agreement or of any agreement amendatory or
supplemental hereto. In no event shall the Escrow Agent have any duty or
obligation to determine or enforce compliance with the requirements of any
agreement or instrument other than this Agreement (including without limitation
the Merger Agreements).

                         [SIGNATURES ON FOLLOWING PAGE]


16 - INDEMNIFICATION ESCROW AGREEMENT

      IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.

ESCROW AGENT:                                  MICROFIELD:

                                               MICROFIELD GROUP, INC.
                                               an Oregon corporation


_____________________________________________  By: _____________________________
ANTHONY J. MOTSCHENBACHER, as the Escrow Agent     Steven M. Wright, President

SHAREHOLDERS:                                  REPRESENTATIVES:

CHRISTENSON GROUP, LLC
an Oregon limited liability company

By:   JMW CAPITAL PARTNERS, INC.
      Its Manager


      By: ___________________________________  _________________________________
          Robert J. Jesenik,                   ROBERT J. JESENIK, as the CTS
          Chief Executive Officer              Representative

TSI TELECOMMUNICATION
SERVICES INC.
a Delaware corporation


By:__________________________________________  _________________________________
Name:________________________________________  KURT A. UNDERWOOD, as the Velagio
Its:_________________________________________  Representative



_____________________________________________
KURT A. UNDERWOOD, individually


17 - INDEMNIFICATION ESCROW AGREEMENT

                                   EXHIBIT A

                                SHAREHOLDER LIST



                                                      INITIAL          PRO RATA
  SHAREHOLDER NAME               ADDRESS           ESCROW SHARES      PERCENTAGE
  ----------------               -------           -------------      ----------
                                                             
KURT A. UNDERWOOD         Suite 400
                          1631 Thurman Street            203,008          40.60%
                          Portland, Oregon 97209

TSI TELECOMMUNICATION
SERVICES INC.                                             46,992           9.40%

CHRISTENSON GROUP LLC     Suite 400
                          1631 Thurman Street
                          Portland, Oregon 97209         250,000          50.00%

TOTAL                                                    500,000         100.00%


                                   EXHIBIT B

                       FEES AND EXPENSES OF ESCROW AGENT