10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended March 31, 2008
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____________ to _______________

Commission file number: 0-13801

Quality Systems, Inc.

(Exact name of Registrant as specified in its charter)

	California		95-2888568
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

18111 Von Karman Avenue, Suite 600, Irvine, California 92612

(Address of principal executive offices, including zip code)

(949) 255-2600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $.01 per share	Nasdaq Global Select Market
(Title of each class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  o  No x

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of

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registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o      Accelerated Filer x        Non-Accelerated Filer o

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

          The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2007: $640,154,000 (based on the closing sales price of the Registrant’s common stock as reported in the NASDAQ National Market System on that date, $36.63 per share).* (1)

          The Registrant has no non-voting common equity.

          Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value	27,454,221
(Class)	(Outstanding at June 1, 2008)

          * For purposes of this Report, in addition to those shareholders which fall within the definition of “affiliates” under Rule 405 of the Securities Act of 1933, as amended, holders of ten percent or more of the Registrant’s common stock are deemed to be affiliates for purposes of this Report.

          (1)      On January 31, 2006, the registrant declared a 2-for-1 stock split with respect to its outstanding shares of common stock for shareholders of record on March 3, 2006. On February 2, 2005, the registrant declared a 2-for-1 stock split with respect to its outstanding shares of common stock for shareholders of record on March 4, 2005. All share prices and share amounts set forth herein have been retroactively adjusted to reflect such stock splits.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K:

Proxy Statement for the 2008 Annual Meeting of Stockholders — Part III Items 10, 11, 12, 13 and 14.

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CAUTIONARY STATEMENT

Statements made in this report, the Annual Report to Shareholders in which this report is made a part, other reports and proxy statements filed with the Securities and Exchange Commission (“Commission”), communications to shareholders, press releases and oral statements made by our representatives that are not historical in nature, or that state our or management’s intentions, hopes, beliefs, expectations or predictions of the future, may constitute “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can often be identified by the use of forward-looking terminology, such as “could,” “should,” “will,” “will be,” “will lead,” “will assist,” “intended,” “continue,” “believe,” “may,” “expect,” “hope,” “anticipate,” “goal,” “forecast,” “plan,” or “estimate” or variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance.

Forward-looking statements involve risks, uncertainties and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risk factors discussed in Item 1A of this report as well as factors discussed elsewhere in this and other reports and documents we file with the Commission. Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time unless required by law. Interested persons are urged to review the risks described under Item 1A. “Risk Factors” and in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in our other public disclosures and filings with the Commission.

PART I

ITEM 1. BUSINESS

Company Overview

Quality Systems Inc., comprised of the QSI Division (QSI Division) and a wholly-owned subsidiary, NextGen Healthcare Information Systems, Inc. (NextGen Division) (collectively, “our company,” “we,” “our,” or “us”) develops and markets healthcare information systems that automate certain aspects of medical and dental practices, networks of practices such as physician hospital organizations (PHO’s) and management service organizations (MSO’s), ambulatory care centers, community health centers, and medical and dental schools.

Quality Systems, Inc., a California corporation formed in 1974, was founded with an early focus on providing information systems to dental group practices. In the mid-1980’s, we capitalized on the increasing focus on medical cost containment and further expanded our information processing systems to serve the medical market. In the mid- 1990’s we made two acquisitions that accelerated our penetration of the medical market. These two acquisitions formed the basis for the NextGen Division. Today, we serve the medical and dental markets through our two divisions.

The two divisions operate largely as stand-alone operations, with each division maintaining its own distinct product lines, product platforms, development, implementation and support teams, sales staffing, and branding. The two divisions share the resources of our “corporate office” which includes a variety of accounting and other administrative functions. Additionally, there are a small number of clients who are simultaneously utilizing software from each of our two divisions.

The QSI Division, co-located with our Corporate Headquarters in Irvine, California, currently focuses on developing, marketing and supporting software suites sold to dental and certain niche medical practices. In addition, the division supports a number of medical clients that utilize the division’s UNIX¹ based medical practice management software product.

The NextGen Division, with headquarters in Horsham, Pennsylvania, and a second significant location in Atlanta, Georgia, focuses principally on developing and marketing products and services for medical practices.

Both divisions develop and market practice management software that is designed to automate and streamline a number of the administrative functions required for operating a medical or dental practice. Examples of practice management software functions include scheduling and billing capabilities. It is important to note that in both the medical and dental environments, practice

¹ UNIX is a registered trademark of the AT&T Corporation.

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management software systems have already been implemented by the vast majority of practices. Therefore, we actively compete for the replacement market. In addition, both divisions develop and market software that automates the patient record. Adoption rates for this software, commonly referred to as clinical software, are relatively low. Therefore, we are typically competing to replace paper-based patient record alternatives as opposed to replacing previously purchased systems.

Electronic Data Interchange (EDI)/connectivity products are intended to automate a number of manual, often paper-based or telephony intensive communications between patients and/or providers and/or payors. Two of the more common EDI services are forwarding insurance claims electronically from providers to payors and assisting practices with issuing statements to patients. Most client practices utilize at least some of these services from us or one of our competitors. Other EDI/connectivity services are used more sporadically by client practices. We typically compete to displace incumbent vendors for claims and statements accounts, and attempt to increase usage of other elements in our EDI/connectivity product line. In general, EDI services are only sold to those accounts utilizing software from one of our divisions.

The NextGen Division also offers Revenue Cycle Management (RCM) services under the Practice Solutions name. Services provided through the Practice Solutions/RCM unit consist primarily of billing and collections services for medical practices. The Practice Solutions unit utilizes NextGen EPM software to a significant extent.

The QSI Division’s practice management software suite utilizes a UNIX operating system. Its Clinical Product Suite (CPS) utilizes a Windows NT² operating system and can be fully integrated with the practice management software from each division. CPS incorporates a wide range of clinical tools including, but not limited to, periodontal charting and digital imaging of X-ray and inter-oral camera images as part of the electronic patient record. The division develops, markets, and manages our EDI/connectivity applications. The QSInet Application Service Provider (ASP/Internet) offering is also developed and marketed by the Division.

Our NextGen Division develops and sells proprietary electronic medical records software and practice management systems under the NextGen®³ product name. Major product categories of the NextGen suite include Electronic Medical Records (NextGen^emr), Enterprise Practice Management (NextGen^epm), Enterprise Appointment Scheduling (NextGen^eas), Enterprise Master Patient Index (NextGen^epi), NextGen Image Control System (NextGen^ics), Managed Care Server (NextGen^mcs), Electronic Data Interchange, System Interfaces, Internet Operability (NextGen^web), a Patient-centric and Provider-centric Web Portal solution (NextMD⁴.com), NextGen Express, a version of NextGen^emr designed for small practices and NextGen Community Health Solution (NextGen^chs). NextGen products utilize Microsoft Windows technology and can operate in a client-server environment as well as via private intranet, the Internet, or in an ASP environment.

We continue to pursue product enhancement initiatives within each division. The majority of such expenditures are currently targeted to the NextGen Division product line and client base.

Inclusive of divisional EDI revenue, the NextGen Division accounted for approximately 91.4% of our revenue for fiscal year 2008 compared to 89.4% in fiscal year 2007. Inclusive of divisional EDI revenue, the QSI Division accounted for 8.6% and 10.6% of revenue in fiscal year 2008 and 2007, respectively. The NextGen Division’s revenue grew at 21.3% and 35.5% in fiscal year 2008 and 2007, respectively, while the QSI Division’s revenue decreased by 3.3% and increased by 6.7% in fiscal year 2008 and 2007, respectively.

In addition to the aforementioned software solutions which we offer through our two divisions, each division offers comprehensive hardware and software installation services, maintenance and support services, and system training services.

On May 20, 2008, the Company acquired Lackland Acquisition II, LLC dba Healthcare Strategic Initiatives (HSI). The acquisition resulted in HSI becoming a wholly owned subsidiary of QSI. We plan to operate HSI as a stand alone Company within the NextGen Division.

² Microsoft Windows, Windows NT, Windows 95, Windows 98, Windows XP, and Windows 2000 are registered trademarks of the Microsoft Corporation.

³ NextGen is a registered trademark of NextGen Healthcare Information Systems, Inc.

⁴ NextMD is a registered trademark of NextGen Healthcare Information Systems, Inc.

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HSI is a full-service healthcare revenue management company servicing the revenue cycle management needs of physician groups and a variety of other healthcare clients. HSI has historically and primarily focused on assisting its clients in increasing the accuracy and speed of client billing and collections activities.

Industry Background

To compete in the continually changing healthcare environment, providers are increasingly using technology to help maximize the efficiency of their business practices, to assist in enhancing patient care, and to maintain the privacy of patient information.

As the reimbursement environment continues to evolve, more healthcare providers enter into contracts, often with multiple entities, which define the terms under which care is administered and paid for. The diversity of payor organizations, as well as additional government regulation and changes in reimbursement models, have greatly increased the complexity of pricing, billing, reimbursement, and records management for medical and dental practices. To operate effectively, healthcare provider organizations must efficiently manage patient care and other information and workflow processes which increasingly extend across multiple locations and business entities.

In response, healthcare provider organizations have placed increasing demands on their information systems. Initially, these information systems automated financial and administrative functions. As it became necessary to manage patient flow processes, the need arose to integrate “back-office” data with such clinical information as patient test results and office visits. We believe information systems must facilitate management of patient information incorporating administrative, financial and clinical information from multiple entities. In addition, large healthcare organizations increasingly require information systems that can deliver high performance in environments with multiple concurrent computer users.

Many existing healthcare information systems were designed for limited administrative tasks such as billing and scheduling and can neither accommodate multiple computing environments nor operate effectively across multiple locations and entities. We believe that practices that leverage technology to more efficiently handle patient clinical data as well as administrative, financial and other practice management data, will be best able to enhance patient flow, pursue cost efficiencies, and improve quality of care. As healthcare organizations transition to new computer platforms and newer technologies, we believe such organizations will be migrating toward the implementation of enterprise-wide, patient-centric computing systems embedded with automated clinical patient records.

Our Strategy

Our strategy is, at present, to focus on providing software and services to medical and dental practices. Among the key elements of this strategy are:

• Continued development and enhancement of select software solutions in target markets;

• Continued investments in our infrastructure including but not limited to product development, sales, marketing, implementation, and support;

• Continued efforts to make infrastructure investments within an overall context of maintaining reasonable expense discipline;

• Addition of new customers through maintaining and expanding sales, marketing and product development activities; and

• Expanding our relationship with existing customers through delivery of new products and services.

While these are the key elements of our current strategy, there can be no guarantees that our strategy will not change, or that we will succeed in achieving these goals individually or collectively.

Products

In response to the growing need for more comprehensive, cost-effective healthcare information solutions for physician and dental practices, our systems provide our clients with the ability to redesign patient care and other workflow processes while improving productivity through facilitation of managed access to patient information. Utilizing our proprietary software in combination with third party hardware and software solutions, our products enable the integration of a variety of administrative and clinical information operations. Leveraging more than 30 years of experience in the healthcare information services industry, we believe that we continue to add value by providing our clients with sophisticated, full-featured software systems along with

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comprehensive systems implementation, maintenance and support services. Any single transaction may or may not include software, hardware or services.

Practice Management Systems. Our products consist primarily of proprietary healthcare software applications together with third party hardware and other non-industry specific software. The systems range in capacity from one to thousands of users, allowing us to address the needs of both small and large organizations. The systems are modular in design and may be expanded to accommodate changing client requirements.

The QSI Division’s character-based practice management system is available in both dental and medical versions and primarily uses the IBM RS6000^[5] central processing unit and IBM’S AIX^[6] version of the UNIX operating system as a platform for our application software enabling a wide range of flexible and functional systems. The hardware components, as well as the requisite operating system licenses, are purchased from manufacturers or distributors of those components.

We configure and test the hardware components and incorporate our software and other third party packages into completed systems. We continually evaluate third party hardware components with a view toward utilizing hardware that is functional, reliable and cost-effective.

NextGen EPM is the NextGen division’s practice management offering. NextGen EPM has been developed using a graphical user interface (GUI) client-server platform for compatibility with Windows 2000, Windows NT and Windows XP operating systems and relational databases that are ANSI SQL-compliant. NextGen EPM is scalable and includes a master patient index, enterprise-wide appointment scheduling with referral tracking, clinical support, and centralized or decentralized patient financial management based on either a managed care or fee-for-service model. The system’s multi-tiered architecture allows work to be performed on the database server, the application server and the client workstation.

We also offer practice management solutions for both dental and medical practices through the Internet. These products are marketed under the QSINet and NextGen WEB trade names, respectively.

Clinical Systems. Our dental charting software system, the Clinical Product Suite (CPS), is a comprehensive solution designed specifically for the dental group practice environment. CPS integrates the dental practice management product with a computer-based clinical information system that incorporates a wide range of clinical tools, including:

• Electronic charting of dental procedures, treatment plans and existing conditions;

• Periodontal charting via light-pen, voice-activation, or keyboard entry for full periodontal examinations and PSR scoring;

• Digital imaging of X-ray and intra-oral camera images;

• Computer-based patient education modules, viewable chair-side to enhance case presentation;

• Full access to patient information, treatment plans, and insurance plans via a fully integrated interface with our dental practice management product; and

• Document and image scanning for digital storage and linkage to the electronic patient record.

The result is a comprehensive clinical information management system that helps practices save time, reduce costs, improve case presentation, and enhance the delivery of dental services and quality of care. Clinical information is managed and maintained electronically thus forming an electronic patient record that allows for the implementation of the “chartless” office.

CPS incorporates Windows-based client-server technology consisting of one or more file servers together with any combination of one or more desktop, laptop, or pen-based PC workstations. The file server(s) used in connection with CPS utilize(s) a Windows NT or Windows 2000 or Windows XP operating system and the hardware is typically a Pentium^[7]-based single or multi-processor platform. Based on the server configuration chosen, CPS is scalable from one to hundreds of workstations. A typical configuration may also include redundant disk storage, magnetic tape units, intra- and extra-oral cameras, digital X-ray components, digital scanners, conventional and flat screen displays, and printers. The hardware components, including the requisite operating system licenses, are purchased from third party manufacturers or distributors either directly by the customer or by us for resale to the customer.

⁵ RS6000 is a registered trademark of International Business Machines Corporation.

⁶ AIX is a registered trademark of International Business Machines Corporation.

⁷ Pentium is a registered trademark of Intel Corporation.

⁸ Microsoft and SQL Server is a registered trademark of Microsoft Corporation.

⁹ Oracle is a registered trademark of Oracle Corporation.

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NextGen provides clinical software applications that are complementary to, and are integrated with, our medical practice management offerings and interface with many of the other leading practice management software systems on the market. The applications incorporated into our practice management solutions and others such as scheduling, eligibility, billing and claims processing are augmented by clinical information captured by NextGen EMR, including services rendered and diagnoses used for billing purposes. We believe that we currently provide a comprehensive information management solution for the medical marketplace.

NextGen EMR was developed with client-server architecture and a GUI and utilizes Microsoft Windows 2000, Windows NT or Windows XP on each workstation and either Windows 2000, Windows NT, Windows XP or UNIX on the database server. NextGen EMR maintains data using industry standard relational database engines such as Microsoft SQL Server^[8] or Oracle^[9]. The system is scalable from one to thousands of workstations.

NextGen EMR stores and maintains clinical data including:

• Data captured using user-customizable input “templates”;

• Scanned or electronically acquired images, including X-rays and photographs;

• Data electronically acquired through interfaces with clinical instruments or external systems;

• Other records, documents or notes, including electronically captured handwriting and annotations; and

• Digital voice recordings.

NextGen EMR also offers a workflow module, prescription management, automatic document and letter generation, patient education, referral tracking, interfaces to billing and lab systems, physician alerts and reminders, and powerful reporting and data analysis tools. NextGen Express is a version of NextGen EMR designed for small practices.

The NextGen Division also markets NextGen^® Community Health Solution (NextGen CHS). NextGen CHS facilitates cross-enterprise data sharing, enabling individual medical practices in a given community to selectively share critical data such as demographics, referrals, medications lists, allergies, diagnoses, lab results, histories and more. This is accomplished through a secure, community-wide data repository that links health care providers, whether they have the NextGen^® Electronic Medical Record (NextGen^® EMR) system, another compatible EMR system, or no EMR, together with hospitals, payors, labs and other entities. The product is designed to facilitate a Regional Health Information Organization, or “RHIO.” The result is that for every health care encounter in the community, a patient-centric and complete record is accessible for the provider. The availability, currency and completeness of information plus the elimination of duplicate data entry can lead to significantly improved patient safety, enhanced decision making capabilities, time efficiencies and cost savings.

NextGen also markets revenue cycle management services through our Practice Solutions unit. This service provides billing services to solo and group practices.

Connectivity Services. We make available EDI capabilities and connectivity services to our customers. The EDI/connectivity capabilities encompass direct interfaces between our products and external third party systems, as well as transaction-based services. Services include:

• Electronic claims submission through our relationships with a number of payors and national claims clearinghouses;

• Electronic patient statement processing, appointment reminder cards and calls, recall cards, patient letters, and other correspondence;

• Electronic insurance eligibility verification; and

• Electronic posting of remittances from insurance carriers into the accounts receivable application.

Revenue Cycle Management Services Our Nextgen Practice Solutions unit offers revenue cycle management services to physicians. On May 20, 2008, we acquired HSI, a full-service healthcare revenue management company servicing the revenue cycle management needs of physician groups and a variety of other healthcare clients. HSI has historically and primarily focused on assisting its clients in increasing the accuracy and speed of client billing and collections activities.

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Internet Applications. Our NextGen Division maintains an Internet-based patient health portal, NextMD^®. NextMD is a vertical portal for the healthcare industry, linking patients with their physicians, while providing a centralized source of health-oriented information for both consumers and medical professionals. Patients whose physicians are linked to the portal are able to request appointments, send appointment changes or cancellations, receive test results on-line, request prescription refills, view and/or pay their statements, and communicate with their physicians, all in a secure, on-line environment. Our NextGen suite of information systems are or can be linked to NextMD, integrating a number of these features with physicians’ existing systems.

Sales and Marketing

We sell and market our products nationwide primarily through a direct sales force. The efforts of the direct sales force are augmented by a small number of reseller relationships established by us. Software license sales to resellers represented less than 10% of total revenue for the years ended March 31, 2008, 2007 and 2006.

Our direct sales force typically makes presentations to potential clients by demonstrating the system and our capabilities on the prospective client’s premises. Sales efforts aimed at smaller practices can be performed on the prospective clients’ premises, or remotely via telephone or Internet-based presentations. Our sales and marketing employees identify prospective clients through a variety of means, including referrals from existing clients, industry consultants, contacts at professional society meetings, trade shows and seminars, trade journal advertising, direct mail advertising, and telemarketing.

Our sales cycle can vary significantly and typically ranges from six to twenty four months from initial contact to contract execution. Software licenses are normally delivered to a customer almost immediately upon receipt of an order. Implementation and training services are normally rendered based on a mutually agreed upon timetable. As part of the fees paid by our clients, we normally receive up-front licensing fees. Clients have the option to purchase maintenance services which, if purchased, are invoiced on a monthly, quarterly or annual basis.

Several clients have purchased our practice management software and, in turn, are providing either time-share or billing services to single and group practice practitioners. Under the timeshare or billing service agreements, the client provides the use of our software for a fee to one or more practitioners. Although we typically do not receive a fee directly from the distributor’s customers, implementation of such arrangements has, from time to time, resulted in the purchase of additional software capacity by the distributor, as well as new software purchases made by the distributor’s customers should such customers decide to perform the practice management functions in-house.

We continue to concentrate our direct sales and marketing efforts on medical and dental practices, networks of such practices including MSO’s and PHO’s, professional schools, community health centers and other ambulatory care settings.

MSO’s, PHO’s and similar networks to which we have sold systems provide use of our software to those group and single physician practices associated with the organization or hospital on either a service basis or by directing us to contract with those practices for the sale of stand-alone systems.

We have also entered into marketing assistance agreements with certain of our clients pursuant to which the clients allow us to demonstrate to potential clients the use of systems on the existing clients’ premises.

From time to time we assist prospective clients in identifying third party sources for financing the purchase of our systems. The financing is typically obtained by the client directly from institutional lenders and typically takes the form of a loan from the institution secured by the system to be purchased or a leasing arrangement. We do not guarantee the financing nor retain any continuing interest in the transaction.

We have numerous clients and do not believe that the loss of any single client would adversely affect us. No client accounted for ten percent or more of net revenue during the fiscal years ended March 31, 2008, 2007, or 2006. However, one client did represent approximately 12.5% of gross accounts receivable as of March 31, 2007.

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Customer Service and Support

We believe our success is attributable in part to our customer service and support departments. We offer support to our clients seven days a week, 24 hours a day.

Our client support staff is comprised of specialists who are knowledgeable in the areas of software and hardware as well as in the day-to-day operations of a practice. System support activities range from correcting minor procedural problems in the client’s system to performing complex database reconstructions or software updates.

We utilize automated online support systems which assist clients in resolving minor problems and facilitate automated electronic retrieval of problems and symptoms following a client’s call to the automated support system. Additionally, our online support systems maintain call records, available at both the client’s facility and our offices.

We offer our clients support services for most system components, including hardware and software, for a fixed monthly, quarterly or annual fee. Customers also receive access to future unspecified versions of the software, on a when-and-if available basis, as part of support services. We also subcontract, in certain instances, with third party vendors to perform specific hardware maintenance tasks.

Implementation and Training

We offer full service implementation and training services. When a client signs a contract for the purchase of a system that includes implementation and training services, a client manager/implementation specialist trained in medical and/or dental group practice procedures is assigned to assist the client in the installation of the system and the training of appropriate practice staff. Implementation services include loading the software, training customer personnel, data conversion, running test data, and assisting in the development and documentation of procedures. Implementation and training services are provided by our employees as well as certified third parties and certain resellers.

Training may include a combination of computer assisted instruction (CAI) for certain of our products, remote training techniques and training classes conducted at the client’s or our office(s). CAI consists of workbooks, computer interaction and self-paced instruction. CAI is also offered to clients, for an additional charge, after the initial training program is completed for the purpose of training new and additional employees. Remote training allows a trainer at our offices to train one or more people at a client site via telephone and computer connection, thus allowing an interactive and client-specific mode of training without the expense and time required for travel. In addition, our on-line “help” and other documentation features facilitate client training as well as ongoing support.

In addition, NextGen E-learning is an on-line learning subscription service which allows end users to train on the software on the internet. E-learning allows end users to self manage their own learning with their personal learning path. The service allows users to track the status of courses taken.

At present, our training facilities are located in (i) Horsham, Pennsylvania, (ii) Atlanta, Georgia, (iii) Dallas, Texas and (iv) Irvine, California.

Competition

The markets for healthcare information systems are intensely competitive. The industry is highly fragmented and includes numerous competitors, none of which we believe dominates these markets. The electronic patient records and connectivity markets, in particular, are subject to rapid changes in technology, and we expect that competition in these market segments will increase as new competitors enter the market. We believe our principal competitive advantages are the features and capabilities of our products and services, our high level of customer support, and our extensive experience in the industry.

Product Enhancement and Development

The healthcare information management and computer software and hardware industries are characterized by rapid technological change requiring us to engage in continuing investments to update, enhance, and improve our systems. During fiscal years 2008, 2007, and 2006, we expended approximately $17.4 million, $15.2 million, and $11.4 million, respectively, on research and development activities, including capitalized software amounts of $6.0 million, $5.0 million, and $3.3 million, respectively. In addition, a portion of our product enhancements have resulted from software development work performed under contracts with our clients.

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Employees

As of June 1, 2008, we employed 704 persons, of which 692 were full-time employees. We believe that our future success depends in part upon recruiting and retaining qualified sales, marketing and technical personnel as well as other employees.

ITEM 1A. RISK FACTORS

The more prominent risks and uncertainties inherent in our business are described below. However, additional risks and uncertainties may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations will likely suffer. Any of these or other factors could harm our business and future results of operations and may cause you to lose all or part of your investment.

We face significant, evolving competition which, if we fail to properly address, could adversely affect our business, results of operations, financial condition and price of our stock. The markets for healthcare information systems are intensely competitive, and we face significant competition from a number of different sources. Several of our competitors have significantly greater name recognition as well as substantially greater financial, technical, product development and marketing resources than we do. There has been significant merger and acquisition activity among a number of our competitors in recent years. Transaction induced pressures, or other related factors may result in price erosion or other negative market dynamics that could adversely affect our business, results of operations, financial condition and price of our stock.

We compete in all of our markets with other major healthcare related companies, information management companies, systems integrators, and other software developers. Competitive pressures and other factors, such as new product introductions by ourselves or our competitors, may result in price or market share erosion that could adversely affect our business, results of operations and financial condition. Also, there can be no assurance that our applications will achieve broad market acceptance or will successfully compete with other available software products.

Our inability to make initial sales of our systems to newly formed groups and/or healthcare providers that are replacing or substantially modifying their healthcare information systems could adversely affect our business, results of operations and financial condition. If new systems sales do not materialize, our near term and longer term revenue will be adversely affected.

The unpredictability of our quarterly operating results may cause the price of our common stock to fluctuate or decline. Our revenue may fluctuate in the future from quarter to quarter and period to period, as a result of a number of factors including, without limitation:

• the size and timing of orders from clients;

• the specific mix of software, hardware, and services in client orders;

• the length of sales cycles and installation processes;

• the ability of our clients to obtain financing for the purchase of our products;

• changes in pricing policies or price reductions by us or our competitors;

• the timing of new product announcements and product introductions by us or our competitors;

• changes in revenue recognition or other accounting guidelines employed by us and/or established by the Financial Accounting Standards Board or other rule-making bodies;

• the availability and cost of system components;

• the financial stability of clients;

• market acceptance of new products, applications and product enhancements;

• our ability to develop, introduce and market new products, applications and product enhancements;

• our success in expanding our sales and marketing programs;

• deferrals of client orders in anticipation of new products, applications, product enhancements, or public/private sector initiatives;

• accounting policies concerning the timing of the recognition of revenue;

• execution of or changes to our strategy;

• personnel changes; and

• general market/economic factors.

Our software products are generally shipped as orders are received and accordingly, we have historically operated with a minimal backlog of license fees. As a result, revenue in any quarter is dependent on orders booked and shipped in that quarter and is not predictable with any degree of certainty. Furthermore, our systems can be relatively large and expensive and

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individual systems sales can represent a significant portion of our revenue and profits for a quarter such that the loss or deferral of even one such sale can adversely affect our quarterly revenue and profitability.

Clients often defer systems purchases until our quarter end, so quarterly results generally cannot be predicted and frequently are not known until after the quarter has concluded.

Our sales are dependent upon clients’ initial decisions to replace or substantially modify their existing information systems, and subsequently a decision as to which products and services to purchase. These are major decisions for healthcare providers, and accordingly, the sales cycle for our systems can vary significantly and typically ranges from six to twenty four months from initial contact to contract execution/shipment.

Because a significant percentage of our expenses are relatively fixed, a variation in the timing of systems sales, implementations, and installations can cause significant variations in operating results from quarter to quarter. As a result, we believe that interim period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Further, our historical operating results are not necessarily indicative of future performance for any particular period.

We currently recognize revenue pursuant to Statement of Position (SOP) 97-2, as modified by SOP 98-9 and Staff Accounting Bulletin (SAB) 104. SAB 104 summarizes the staff’s views in applying generally accepted accounting principles to revenue recognition in financial statements.

There can be no assurance that application and subsequent interpretations of these pronouncements will not further modify our revenue recognition policies, or that such modifications would not adversely affect our operating results reported in any particular quarter or year.

Due to all of the foregoing factors, it is possible that our operating results may be below the expectations of public market analysts and investors. In such event, the price of our common stock would likely be adversely affected.

The failure of auction rate securities to sell at their reset dates could impact the liquidity of the investment and could negatively impact the carrying value of the investment. The Company’s investments includes auction rate securities. Auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days but with longer contractual maturities that range, for our holdings, from nine to 28 years. At the end of each reset period, investors can typically sell at auction or continue to hold the securities at par. These securities are subject to fluctuations in interest rate depending on the supply and demand at each auction. Through March 31, 2008, auctions held for the Company’s auction rate securities with a total aggregate value of approximately $23.0 million failed. As of March 31, 2008, the Company was holding a total of approximately $22.6 million, net of unrealized loss, in auction rate securities. While these debt securities are all highly-rated investments, generally with AAA/Aaa ratings, continued failure to sell at their reset dates could impact the liquidity of the investment which in turn could negatively impact the liquidity of the Company. In addition, continued failure to sell at their reset dates could also negatively impact the carrying value of the investment which resulted in temporary impairment losses in the current period and could lead to permanent impairment charges in future periods should a decline in the value of those securities be other than temporary, which could have a material adverse effect on our financial position and results of operations.

Our common stock price has been volatile, which could result in substantial losses for investors purchasing shares of our common stock and in litigation against us. Volatility may be caused by a number of factors including but not limited to:

• actual or anticipated quarterly variations in operating results;

• rumors about our performance, software solutions, or merger and acquisition activity;

• changes in expectations of future financial performance or changes in estimates of securities analysts;

• governmental regulatory action;

• health care reform measures;

• client relationship developments;

• purchases or sales of company stock;

• activities by one or more of our major shareholders concerning our policies and operations;

• changes occurring in the markets in general; and

• other factors, many of which are beyond our control.

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Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular, has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of actual operating performance.

Moreover, in the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources.

Two of our directors are significant shareholders, which makes it possible for them to have significant influence over the outcome of all matters submitted to our shareholders for approval and which influence may be alleged to conflict with our interests and the interests of our other shareholders. Two of our directors and principal shareholders beneficially owned an aggregate of approximately 36% of the outstanding shares of our common stock at March 31, 2008. Our Bylaws permit our shareholders to cumulate their votes, the effect of which is to provide shareholders with sufficiently large concentrations of our shares the opportunity to assure themselves one or more seats on our Board. The amounts required to assure a Board position can vary based upon the number of shares outstanding, the number of shares voting, the number of directors to be elected, the number of “broker non-votes”, and the number of shares held by the shareholder exercising cumulative voting rights. In the event that cumulative voting is invoked, it is likely that the two of our directors holding an aggregate of approximately 36% of the outstanding shares of our common stock at March 31, 2008 will each have sufficient votes to assure themselves of one or more seats on our Board. With or without cumulative voting, these shareholders will have significant influence over the outcome of all matters submitted to our shareholders for approval, including the election of our directors and other corporate actions. In addition, such influence by one or both of these affiliates could have the effect of discouraging others from attempting to purchase us, take us over, and/or reducing the market price offered for our common stock in such an event.

If our principal products and our new product development fail to meet the needs of our clients, we may fail to realize future growth. We currently derive substantially all of our net revenue from sales of our healthcare information systems and related services. We believe that a primary factor in the market acceptance of our systems has been our ability to meet the needs of users of healthcare information systems. Our future financial performance will depend in large part on our ability to continue to meet the increasingly sophisticated needs of our clients through the timely development and successful introduction and implementation of new and enhanced versions of our systems and other complementary products. We have historically expended a significant percentage of our net revenue on product development and believe that significant continuing product development efforts will be required to sustain our growth. Continued investment in our sales staff and our client implementation and support staffs will also be required to support future growth.

There can be no assurance that we will be successful in our product development efforts, that the market will continue to accept our existing products, or that new products or product enhancements will be developed and implemented in a timely manner, meet the requirements of healthcare providers, or achieve market acceptance. If new products or product enhancements do not achieve market acceptance, our business, results of operations and financial condition could be adversely affected. At certain times in the past, we have also experienced delays in purchases of our products by clients anticipating our launch of new products. There can be no assurance that material order deferrals in anticipation of new product introductions from ourselves or other entities will not occur.

If the emerging technologies and platforms of Microsoft and others upon which we build our products do not gain or continue to maintain broad market acceptance, or if we fail to develop and introduce in a timely manner new products and services compatible with such emerging technologies, we may not be able to compete effectively and our ability to generate revenue will suffer. Our software products are built and depend upon several underlying and evolving relational database management system platforms such as those developed by Microsoft. To date, the standards and technologies upon which we have chosen to develop our products have proven to have gained industry acceptance. However, the market for our software products is subject to ongoing rapid technological developments, quickly evolving industry standards and rapid changes in customer requirements, and there may be existing or future technologies and platforms that achieve industry standard status, which are not compatible with our products.

We face the possibility of subscription pricing, which may force us to adjust our sales, marketing and pricing strategies. We currently derive substantially all of our systems revenue

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from traditional software license, implementation and training fees, as well as the resale of computer hardware. Today, the majority of our customers pay an initial license fee for the use of our products, in addition to a periodic maintenance fee. If the marketplace increasingly demands subscription pricing, we may be forced to adjust our sales, marketing and pricing strategies accordingly, by offering a higher percentage of our products and services through these means. Shifting to a significantly greater degree of subscription pricing could adversely affect our financial condition, cash flows and quarterly and annual revenue and results of operations, as our revenue would initially decrease substantially. There can be no assurance that the marketplace will not increasingly embrace subscription pricing.

Many of our competitors have greater resources than we do. In order to compete successfully, we must keep pace with our competitors in anticipating and responding to the rapid changes involving the industry in which we operate, or our business, results of operations and financial condition may be adversely affected. The software market generally is characterized by rapid technological change, changing customer needs, frequent new product introductions, and evolving industry standards. The introduction of products incorporating new technologies and the emergence of new industry standards could render our existing products obsolete and unmarketable. There can be no assurance that we will be successful in developing and marketing new products that respond to technological changes or evolving industry standards. New product development depends upon significant research and development expenditures which depend ultimately upon sales growth. Any material shortfall in revenue or research funding could impair our ability to respond to technological advances or opportunities in the marketplace and to remain competitive. If we are unable, for technological or other reasons, to develop and introduce new products in a timely manner in response to changing market conditions or customer requirements, our business, results of operations and financial condition may be adversely affected.

In response to increasing market demand, we are currently developing new generations of certain of our software products. There can be no assurance that we will successfully develop these new software products or that these products will operate successfully, or that any such development, even if successful, will be completed concurrently with or prior to introduction of competing products. Any such failure or delay could adversely affect our competitive position or could make our current products obsolete.

We face risk and/or the possibility of claims from activities related to strategic partners, which could be expensive and time-consuming, divert personnel and other resources from our business and result in adverse publicity that could harm our business. We rely on third parties to provide services that affect our business. For example, we use national clearinghouses in the processing of some insurance claims and we outsource some of our hardware maintenance services and the printing and delivery of patient statements for our customers. These third parties could raise their prices and/or be acquired by competitors of our which could potentially create short and long-term disruptions to our business negatively impacting our revenue, profit and/or stock price. We also have relationships with certain third parties where these third parties serve as sales channels through which we generate a portion of our revenue. Due to these third-party relationships, we could be subject to claims as a result of the activities, products, or services of these third-party service providers even though we were not directly involved in the circumstances leading to those claims. Even if these claims do not result in liability to us, defending and investigating these claims could be expensive and time-consuming, divert personnel and other resources from our business and result in adverse publicity that could harm our business.

We face the possibility of claims based upon our website, which may cause us expense and management distraction. We could be subject to third party claims based on the nature and content of information supplied on our website by us or third parties, including content providers or users. We could also be subject to liability for content that may be accessible through our website or third party websites linked from our website or through content and information that may be posted by users in chat rooms, bulletin boards or on websites created by professionals using our applications. Even if these claims do not result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s attention away from our operations.

We may engage in future acquisitions, which may be expensive and time consuming and from which we may not realize anticipated benefits. We may acquire additional businesses, technologies and products if we determine that these additional businesses, technologies and products are likely to serve our strategic goals. On May 20, 2008, we acquired Lackland Acquisition II, LLC dba Healthcare Strategic Initiatives (HSI), a full-service healthcare revenue management company servicing healthcare clients. The specific risks we may encounter in these types of transactions include but are not limited to the following:

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• potentially dilutive issuances of our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets, which could adversely affect our results of operations and financial conditions;

• use of cash as acquisition currency may adversely affect interest or investment income, thereby potentially adversely affecting our earnings and /or earnings per share;

• difficulty in effectively integrating any acquired technologies or software products into our current products and technologies;

• difficulty in predicting and responding to issues related to product transition such as development, distribution and customer support;

• the possible adverse effect of such acquisitions on existing relationships with third party partners and suppliers of technologies and services;

• the possibility that staff or customers of the acquired company might not accept new ownership and may transition to different technologies or attempt to renegotiate contract terms or relationships, including maintenance or support agreements;

• the possibility that the due diligence process in any such acquisition may not completely identify material issues associated with product quality, product architecture, product development, intellectual property issues, key personnel issues or legal and financial contingencies, including any deficiencies in internal controls and procedures and the costs associated with remedying such deficiencies;

• difficulty in integrating acquired operations due to geographical distance, and language and cultural differences; and

• the possibility that acquired assets become impaired, requiring us to take a charge to earnings which could be significant.

A failure to successfully integrate acquired businesses or technology for any of these reasons could have an adverse effect on our results of operations.

We face the risks and uncertainties that are associated with litigation against us, which may adversely impact our marketing, distract management and have a negative impact upon our business, results of operations and financial condition. We face the risks associated with litigation concerning the operation of our business. The uncertainty associated with substantial unresolved litigation may have an adverse effect on our business. In particular, such litigation could impair our relationships with existing customers and our ability to obtain new customers. Defending such litigation may result in a diversion of management’s time and attention away from business operations, which could have an adverse effect on our business, results of operations and financial condition. Such litigation may also have the effect of discouraging potential acquirers from bidding for us or reducing the consideration such acquirers would otherwise be willing to pay in connection with an acquisition.

There can be no assurance that such litigation will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates.

Because we believe that proprietary rights are material to our success, misappropriation of these rights could adversely affect our financial condition. We are heavily dependent on the maintenance and protection of our intellectual property and we rely largely on license agreements, confidentiality procedures, and employee nondisclosure agreements to protect our intellectual property. Our software is not patented and existing copyright laws offer only limited practical protection.

There can be no assurance that the legal protections and precautions we take will be adequate to prevent misappropriation of our technology or that competitors will not independently develop technologies equivalent or superior to ours. Further, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States and are often not enforced as vigorously as those in the United States.

We do not believe that our operations or products infringe on the intellectual property rights of others. However, there can be no assurance that others will not assert infringement or trade secret claims against us with respect to our current or future products or that any such assertion will not require us to enter into a license agreement or royalty arrangement or other financial arrangement with the party asserting the claim. Responding to and defending any such claims may distract the attention of our management and adversely affect our business, results of operations and financial condition. In addition, claims may be brought against third parties from which we purchase software, and such claims could adversely affect our ability to access third party software for our systems.

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If we are deemed to infringe on the proprietary rights of third parties, we could incur unanticipated expense and be prevented from providing our products and services. We are and may continue to be subject to intellectual property infringement claims as the number of our competitors grows and our applications’ functionality is viewed as similar or overlapping with competitive products. We do not believe that we have infringed or are infringing on any proprietary rights of third parties. However, claims are occasionally asserted against us, and we cannot assure you that infringement claims will not be asserted against us in the future. Also, we cannot assure you that any such claims will be unsuccessful. We could incur substantial costs and diversion of management resources defending any infringement claims – even if we are ultimately successful in the defense of such matters. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide products or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products or services will be available on commercially reasonable terms, or at all.

We are dependent on our license rights and other services from third parties, which may cause us to discontinue, delay or reduce product shipments. We depend upon licenses for some of the technology used in our products as well as other services from third-party vendors. Most of these arrangements can be continued/renewed only by mutual consent and may be terminated for any number of reasons. We may not be able to continue using the products or services made available to us under these arrangements on commercially reasonable terms or at all. As a result, we may have to discontinue, delay or reduce product shipments or services provided until we can obtain equivalent technology or services. Most of our third-party licenses are non-exclusive. Our competitors may obtain the right to use any of the business elements covered by these arrangements and use these elements to compete directly with us. In addition, if our vendors choose to discontinue providing their technology or services in the future or are unsuccessful in their continued research and development efforts, we may not be able to modify or adapt our own products.

We face the possibility of damages resulting from internal and external security breaches, and viruses. In the course of our business operations, we compile and transmit confidential information, including patient health information, in our processing centers and other facilities. A breach of security in any of these facilities could damage our reputation and result in damages being assessed against us. In addition, the other systems with which we may interface, such as the Internet and related systems may be vulnerable to security breaches, viruses, programming errors, or similar disruptive problems. The effect of these security breaches and related issues could disrupt our ability to perform certain key business functions and could potentially reduce demand for our services. Accordingly, we have expended significant resources toward establishing and enhancing the security of our related infrastructures, although no assurance can be given that they will be entirely free from potential breach. Maintaining and enhancing our infrastructure security may require us to expend significant capital in the future.

The success of our strategy to offer our EDI services and Internet solutions depends on the confidence of our customers in our ability to securely transmit confidential information. Our EDI services and Internet solutions rely on encryption, authentication and other security technology licensed from third parties to achieve secure transmission of confidential information. We may not be able to stop unauthorized attempts to gain access to or disrupt the transmission of communications by our customers. Anyone who is able to circumvent our security measures could misappropriate confidential user information or interrupt our, or our customers’ operations. In addition, our EDI and Internet solutions may be vulnerable to viruses, physical or electronic break-ins, and similar disruptions.

Any failure to provide secure infrastructure and/or electronic communication services could result in a lack of trust by our customers causing them to seek out other vendors, and/or, damage our reputation in the market making it difficult to obtain new customers.

We are subject to the development and maintenance of the Internet infrastructure, which is not within our control, and which may diminish Internet usage and availability as well as access to our website. We deliver Internet-based services and, accordingly, we are dependent on the maintenance of the Internet by third parties. The Internet infrastructure may be unable to support the demands placed on it and our performance may decrease if the Internet continues to experience it’s historic trend of expanding usage. As a result of damage to portions of its infrastructure, the Internet has experienced a variety of performance problems which may continue into the foreseeable future. Such Internet related problems may diminish Internet usage and availability of the Internet to us for transmittal of our Internet-based services. In addition, difficulties, outages, and delays by Internet service providers, online service providers and

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other website operators may obstruct or diminish access to our website by our customers resulting in a loss of potential or existing users of our services.

Our failure to manage growth could harm our business, results of operations and financial condition. We have in the past experienced periods of growth which have placed, and may continue to place, a significant strain on our non-cash resources. We also anticipate expanding our overall software development, marketing, sales, client management and training capacity. In the event we are unable to identify, hire, train and retain qualified individuals in such capacities within a reasonable timeframe, such failure could have an adverse effect on us. In addition, our ability to manage future increases, if any, in the scope of our operations or personnel will depend on significant expansion of our research and development, marketing and sales, management, and administrative and financial capabilities. The failure of our management to effectively manage expansion in our business could have an adverse effect on our business, results of operations and financial condition.

Our operations are dependent upon our key personnel. If such personnel were to leave unexpectedly, we may not be able to execute our business plan. Our future performance depends in significant part upon the continued service of our key technical and senior management personnel, many of whom have been with us for a significant period of time. These personnel have acquired specialized knowledge and skills with respect to our business. We maintain key man life insurance on only one of our employees. Because we have a relatively small number of employees when compared to other leading companies in our industry, our dependence on maintaining our relationships with key employees is particularly significant. We are also dependent on our ability to attract high quality personnel, particularly in the areas of sales and applications development.

The industry in which we operate is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. There can be no assurance that our current employees will continue to work for us. Loss of services of key employees could have an adverse effect on our business, results of operations and financial condition. Furthermore, we may need to grant additional equity incentives to key employees and provide other forms of incentive compensation to attract and retain such key personnel. Failure to provide such types of incentive compensation could jeopardize our recruitment and retention capabilities.

Our products may be subject to product liability legal claims, which could have an adverse effect on our business, results of operations and financial condition. Certain of our products provide applications that relate to patient clinical information. Any failure by our products to provide accurate and timely information could result in claims against us. In addition, a court or government agency may take the position that our delivery of health information directly, including through licensed practitioners, or delivery of information by a third party site that a consumer accesses through our Web sites, exposes us to assertions of malpractice, other personal injury liability, or other liability for wrongful delivery/handling of healthcare services or erroneous health information. We maintain insurance to protect against claims associated with the use of our products as well as liability limitation language in our end-user license agreements, but there can be no assurance that our insurance coverage or contractual language would adequately cover any claim asserted against us. A successful claim brought against us in excess of or outside of our insurance coverage could have an adverse effect on our business, results of operations and financial condition. Even unsuccessful claims could result in our expenditure of funds for litigation and management time and resources.

• Certain healthcare professionals who use our Internet-based products will directly enter health information about their patients including information that constitutes a record under applicable law that we may store on our computer systems. Numerous federal and state laws and regulations, the common law, and contractual obligations, govern collection, dissemination, use and confidentiality of patient-identifiable health information, including:

• state and federal privacy and confidentiality laws;

• our contracts with customers and partners;

• state laws regulating healthcare professionals;

• Medicaid laws;

• the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and related rules proposed by the Health Care Financing Administration; and

• Health Care Financing Administration standards for Internet transmission of health data.

The Health Insurance Portability and Accountability Act of 1996 establishes elements including, but not limited to, federal privacy and security standards for the use and protection of Protected Health Information. Any failure by us or by our personnel or partners to comply with applicable requirements may result in a material liability to us.

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Although we have systems and policies in place for safeguarding Protected Health Information from unauthorized disclosure, these systems and policies may not preclude claims against us for alleged violations of applicable requirements. Also, third party sites and/or links that consumers may access through our web sites may not maintain adequate systems to safeguard this information, or may circumvent systems and policies we have put in place. In addition, future laws or changes in current laws may necessitate costly adaptations to our policies, procedures, or systems.

There can be no assurance that we will not be subject to product liability claims, that such claims will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates. Such product liability claims could adversely affect our business, results of operations and financial condition.

We are subject to the effect of payor and provider conduct which we cannot control and accordingly, there is no assurance that revenues for our services will continue at historic levels. We offer certain electronic claims submission products and services as part of our product line. While we have implemented certain product features designed to maximize the accuracy and completeness of claims submissions, these features may not be sufficient to prevent inaccurate claims data from being submitted to payors. Should inaccurate claims data be submitted to payors, we may be subject to liability claims.

Electronic data transmission services are offered by certain payors to healthcare providers that establish a direct link between the provider and payor. This process reduces revenue to third party EDI service providers such as us. As a result of this, or other market factors, we are unable to ensure that we will continue to generate revenue at or in excess of prior levels for such services.

A significant increase in the utilization of direct links between healthcare providers and payors could adversely affect our transaction volume and financial results. In addition, we cannot provide assurance that we will be able to maintain our existing links to payors or develop new connections on terms that are economically satisfactory to us, if at all.

There is significant uncertainty in the healthcare industry in which we operate, and we are subject to the possibility of changing government regulation, which may adversely impact our business, financial condition and results of operations. The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement processes and operation of healthcare facilities. During the past several years, the healthcare industry has been subject to an increase in governmental regulation of, among other things, reimbursement rates and certain capital expenditures.

In the past, various legislators have announced that they intend to examine proposals to reform certain aspects of the U.S. healthcare system including proposals which may change governmental involvement in healthcare and reimbursement rates, and otherwise alter the operating environment for us and our clients. Healthcare providers may react to these proposals, and the uncertainty surrounding such proposals, by curtailing or deferring investments, including those for our systems and related services. Cost-containment measures instituted by healthcare providers as a result of regulatory reform or otherwise could result in a reduction in the allocation of capital funds. Such a reduction could have an adverse effect on our ability to sell our systems and related services. On the other hand, changes in the regulatory environment have increased and may continue to increase the needs of healthcare organizations for cost-effective data management and thereby enhance the overall market for healthcare management information systems. We cannot predict what effect, if any, such proposals or healthcare reforms might have on our business, financial condition and results of operations.

As existing regulations mature and become better defined, we anticipate that these regulations will continue to directly affect certain of our products and services, but we cannot fully predict the effect at this time. We have taken steps to modify our products, services and internal practices as necessary to facilitate our compliance with the regulations, but there can be no assurance that we will be able to do so in a timely or complete manner. Achieving compliance with these regulations could be costly and distract management’s attention and divert other company resources, and any noncompliance by us could result in civil and criminal penalties.

In addition, developments of additional federal and state regulations and policies have the potential to positively or negatively affect our business.

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In addition, our software may potentially be subject to regulation by the U.S. Food and Drug Administration (FDA) as a medical device. Such regulation could require the registration of the applicable manufacturing facility and software and hardware products, application of detailed record-keeping and manufacturing standards, and FDA approval or clearance prior to marketing. An approval or clearance requirement could create delays in marketing, and the FDA could require supplemental filings or object to certain of these applications, the result of which could adversely affect our business, financial condition and results of operations.

We may be subject to false or fraudulent Claim Laws. There are numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with submission and payment of physician claims for reimbursement. In some cases, these laws also forbid abuse of existing systems for such submission and payment. Any failure of our revenue cycle management services to comply with these laws and regulations could result in substantial liability, including but not limited to criminal liability, could adversely affect demand for Our services and could force us to expend significant capital, research and development and other resources to address the failure. Errors by us or our systems with respect to entry, formatting, preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations. Determination by a court or regulatory agency that Our services violate these laws could subject us to civil or criminal penalties, could invalidate all or portions of some of our client contracts, could require us to change or terminate some portions of Our business, could require us to refund portions of our services fees, could cause us to be disqualified from serving clients doing business with government payers and could have an adverse effect on our business.

In most cases where we are permitted to do so, HSI calculates charges for our services based on a percentage of the collections that our clients receive as a result of our services. To the extent that violations or liability for violations of these laws and regulations require intent, it may be alleged that this percentage calculation provides the Company or it’s employees with incentive to commit or overlook fraud or abuse in connection with submission and payment of reimbursement claims. The U.S. Centers for Medicare and Medicaid Services has stated that it is concerned that percentage-based billing services may encourage billing companies to commit or to overlook fraudulent or abusive practices.

A portion of our business involves billing of Medicare claims on behalf of its clients. In an effort to combat fraudulent Medicare claims, the federal government offers rewards for reporting of Medicare fraud which could encourage others to subject us to a charge of fraudulent claims, including charges that are ultimately proven to be without merit.

If our products fail to comply with evolving government and industry standards and regulations, we may have difficulty selling our products. We may be subject to additional federal and state statutes and regulations in connection with offering services and products via the Internet. On an increasingly frequent basis, federal and state legislators are proposing laws and regulations that apply to Internet commerce and communications. Areas being affected by these regulations include user privacy, pricing, content, taxation, copyright protection, distribution, and quality of products and services. To the extent that our products and services are subject to these laws and regulations, the sale of our products and services could be harmed.

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We are subject to changes in and interpretations of financial accounting matters that govern the measurement of our performance, one or more of which could adversely affect our business, financial condition, cash flows, revenue and results of operations. Based on our reading and interpretations of relevant guidance, principles or concepts issued by, among other authorities, the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, and the Commission, Management believes our current sales and licensing contract terms and business arrangements have been properly reported. However, there continue to be issued interpretations and guidance for applying the relevant standards to a wide range of sales and licensing contract terms and business arrangements that are prevalent in the software industry. Future interpretations or changes by the regulators of existing accounting standards or changes in our business practices could result in changes in our revenue recognition and/or other accounting policies and practices that could adversely affect our business, financial condition, cash flows, revenue and results of operations.

If material weaknesses in our internal controls are identified by ourselves or our independent auditors, our per share price may be adversely affected. Any material weaknesses identified in our internal controls as part of the ongoing evaluation being undertaken by us and our independent public accountants pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on the price at which our stock trades.

No evaluation process can provide complete assurance that our internal controls will detect and correct all failures within our company to disclose material information otherwise required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments. In addition, if we continue to expand, through either organic growth or through acquisitions (or both), the challenges involved in implementing appropriate controls will increase and may require that we evolve some or all of our internal control processes.

It is also possible that the overall scope of Section 404 of the Sarbanes-Oxley Act of 2002 may be revised in the future, thereby causing our auditors and ourselves to review, revise or reevaluate our internal control processes which may result in the expenditure of additional human and financial resources.

Continuing worldwide political and economic uncertainties may adversely affect our revenue and profitability. The last several years have been periodically marked by concerns including but not limited to inflation, decreased consumer confidence, the lingering effects of international conflicts, energy costs and terrorist and military activities. These conditions can make it extremely difficult for our customers, our vendors and ourselves to accurately forecast and plan future business activities, and they could cause constrained spending on our products and services, and/or delay and lengthen sales cycles.

Our future policy concerning stock splits is uncertain. While we effected a 2:1 split of our stock in March 2005 and a second 2:1 stock split in March 2006, there can be no assurance that another stock split will occur in the future. Unfulfilled expectations to the contrary could adversely affect the price of our stock.

Our future policy concerning the payment of dividends is uncertain, which could adversely affect the price of our stock. We have announced our intention to pay a quarterly dividend commencing with the conclusion of our first fiscal quarter of 2008 (June 30, 2007) and pursuant to this policy the Board has declared a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, each quarter thereafter. We anticipate that future quarterly dividends, if and when declared by the Board pursuant to this policy, would likely be distributable on or about the fifth day of each of the months of October, January, April and July. There can be no guarantees that we will have the financial wherewithal to fund this dividend in perpetuity or to pay it at historic rates. Further, the Board may decide not to pay the dividend at some future time for financial or non-financial reasons. Unfulfilled expectations regarding future dividends could adversely affect the price of our stock.

ITEM 1B.	UNRESOLVED STAFF COMMENTS
None.
ITEM 2.	PROPERTIES

Our principal administrative, accounting and QSI Division operations are located in Irvine, California, under a lease that commenced in May 2005, and expired in May 2008. We leased approximately 12,000 square feet of space at this location. In October 2007, we executed a

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lease for approximately 24,000 square feet where our principal administrative, accounting and QSI Division operations will reside after May 2008. This lease expires in May 2013.

In September 2005, we executed a lease for approximately 3,300 square feet of space in a building adjacent to our corporate office in Irvine to house additional corporate staff and NextGen training operations. This lease originally expires in January 2011, however, this lease will terminate early in December 2008 and the NextGen training center along with the additional corporate staff will move to the new corporate headquarters described above.

We lease approximately 78,000 square feet of space for the principal office of our NextGen Division in Horsham, Pennsylvania. This lease expires in March 2011. In January 2007, we executed a new lease for approximately 35,000 square feet of space for the NextGen Division in Atlanta, Georgia. This lease expires in October 2011. In May 2006, we executed a lease for approximately 3,000 square feet of space in Dallas, Texas for NextGen staff and a new NextGen training facility. In addition, we lease approximately 6,000 square feet of space in Santa Ana, California, to house our assembly and warehouse operations of the QSI Division. We also have an aggregate of approximately 3,000 square feet of space in Minnesota, Utah, Wisconsin, and Washington to house additional sales, training, development and service operations. These leases, excluding options, have expiration dates ranging from month-to-month to October 2011. Should we continue to grow, we may be required to lease additional space. We believe that suitable additional or substitute space is available, if needed, at market rates.

As a result of our acquisition of HSI on May 20, 2008, we lease approximately 46,400 square feet for our HSI operations in St. Louis, Missouri under leases that expire in November 2010.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, we are involved in various claims and legal proceedings. While the ultimate resolution of these currently pending matters has yet to be determined, we do not presently believe that their outcome will adversely affect our financial position, results of operations or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter of fiscal year 2008.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price and Holders

Our common stock is traded on the Nasdaq Global Select Market under the symbol “QSII.” The following table sets forth for the quarters indicated the high and low sales prices for each period indicated as reported on the Nasdaq Global Select Market and reflects all stock splits effected.

Quarter Ended	High		Low
June 30, 2006	$	38.27	$	28.30
September 30, 2006	$	42.00	$	30.43
December 31, 2006	$	43.68	$	34.75
March 31, 2007	$	45.44	$	36.85
June 30, 2007	$	42.44	$	36.96
September 30, 2007	$	45.35	$	32.37
December 31, 2007	$	38.99	$	26.08
March 31, 2008	$	36.30	$	26.90

At June 1, 2008, there were approximately 90 holders of record of our common stock.

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Dividends and Splits

On January 30, 2008, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of March 14, 2008 and was distributed to shareholders on or about April 7, 2008.

On October 25, 2007, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of December 14, 2007 and was distributed to shareholders on or about January 7, 2008.

On July 31, 2007, our Board of Directors approved a regular quarterly dividend of $0.25 per share payable on its outstanding shares of common stock. The cash dividend record date was September 14, 2007 and was distributed to shareholders on or about October 5, 2007.

On May 31, 2007, the Board declared a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of June 15, 2007 and was distributed to shareholders on July 5, 2007.

In February 2007, we paid a $1.00 per share dividend on shares of our common stock. The record date for the dividend was February 13, 2007.

In January 2007, our Board of Directors adopted a policy whereby we intend to pay a regular quarterly dividend of $0.25 per share on our outstanding common stock commencing with conclusion of our first fiscal quarter of 2008 (June 30, 2007) and continuing each fiscal quarter thereafter, subject to further Board review and approval and establishment of record and distribution dates by our Board of Directors prior to the declaration of each such quarterly dividend. We anticipate that future quarterly dividends, if and when declared by the Board pursuant to this policy, would likely be distributable on or about the fifth day of each of the months of October, January, April and July.

In March 2006, we paid a $0.875 per share dividend on shares of our common stock. The record date for the dividend was February 24, 2006. The dividend per share amount has been adjusted to reflect the stock split noted above.

In January 2006, we announced that our Board of Directors had declared a 2-for-1 stock split with respect to our outstanding shares of common stock for shareholders of record on March 3, 2006. The stock began trading post split on March 27, 2006.

In March 2005, we paid a one-time dividend on shares of our common stock equal to $0.75 per share. The record date for the dividend was February 24, 2005. The dividend per share amount has been adjusted to reflect the stock split noted above.

In February 2005, we announced that our Board of Directors declared a 2-for-1 stock split with respect to our outstanding shares of common stock. The stock split record date was March 4, 2005 and the stock began trading post split on March 28, 2005.

Payment of future dividends, if any, will be at the discretion of our Board after taking into account various factors, including without limitation, our financial condition, operating results, current and anticipated cash needs and plans for expansion.

Performance Graph

The following graph compares the cumulative total returns of our common stock, the Total Return Index for The Nasdaq Stock Market, and the Nasdaq Computer & Data Processing Services Stock Index over the five-year period ended March 31, 2008 assuming $100 was invested on March 31, 2003 with all dividends, if any, reinvested. This performance graph shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended or the Exchange Act.

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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Quality Systems, Inc., The NASDAQ Composite Index
And The NASDAQ Computer & Data Processing Index

* $100 invested on 3/31/03 in stock or index-including reinvestment of dividends.

Fiscal year ending March 31.

The last trade price of our common stock on each of March 31, 2004, 2005, 2006, 2007 and 2008 was published by Nasdaq and, accordingly for the periods ended March 31, 2004, 2005, 2006, 2007 and 2008 the reported last trade price was utilized to compute the total cumulative return for our common stock for the respective periods then ended. Shareholder returns over the indicated periods should not be considered indicative of future stock prices or shareholder returns.

Recent Sales of Unregistered Securities

We did not make any unregistered sales of our common stock during the fourth quarter of 2008.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data with respect to our Consolidated Statements of Income data for each of the five years in the period ended March 31, 2008 and the Consolidated Balance Sheet data as of the end of each such fiscal year are derived from our audited financial statements. The following information should be read in conjunction with our Consolidated Financial Statements and the related notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. All share prices in the table below have been retroactively adjusted to reflect the fiscal year 2006 and 2005 stock splits.

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Consolidated Financial Data

(In Thousands, Except Per Share Data)

	Year ended March 31,
	2008		2007		2006		2005		2004
Statements of Income Data:
Revenue	$	186,500	$	157,165	$	119,287	$	88,961	$	70,934
Cost of revenue		62,501		50,784		39,828		32,669		28,673
Gross profit		123,999		106,381		79,459		56,292		42,261
Selling, general and administrative expenses		53,260		45,337		35,554		24,776		19,482
Research and development costs		11,350		10,166		8,087		6,903		6,139
Income from operations		59,389		50,878		35,818		24,613		16,640
Interest income		2,661		3,306		2,108		876		386
Other income		953		—		—		—		—
Income before provision for income taxes		63,003		54,184		37,926		25,489		17,026
Provision for income taxes		22,925		20,952		14,604		9,380		6,626
Net income	$	40,078	$	33,232	$	23,322	$	16,109	$	10,400
Basic net income per share	$	1.47	$	1.24	$	0.88	$	0.63	$	0.42
Diluted net income per share	$	1.44	$	1.21	$	0.85	$	0.61	$	0.40
Basic weighted average shares outstanding		27,298		26,882		26,413		25,744		24,872
Diluted weighted average shares outstanding		27,770		27,550		27,356		26,406		25,932
Balance Sheet Data (at end of period):
Cash and cash equivalents	$	59,046	$	60,028	$	57,255	$	51,157	$	51,395
Working capital	$	79,932	$	76,616	$	61,724	$	55,111	$	53,415
Total assets	$	187,908	$	150,681	$	122,247	$	99,442	$	86,678
Total liabilities	$	74,203	$	59,435	$	49,838	$	36,711	$	25,673
Total shareholders’ equity	$	113,705	$	91,246	$	72,409	$	62,731	$	61,005

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the matters discussed in this Annual Report on Form 10-K, including discussions of our product development plans, business strategies and market factors influencing our results, may include forward-looking statements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and unforeseen, including, but not limited to, our ability to continue to develop new products and increase systems sales in markets characterized by rapid technological evolution, consolidation, and competition from larger, better capitalized competitors. Many other economic, competitive, governmental and technological factors could affect our ability to achieve our goals, and interested persons are urged to review the risks described in “Item 1A. Risk Factors” as set forth above, as well as in our other public disclosures and filings with the Commission.

The following discussion should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and related notes thereto included elsewhere in this Report. Historical results of operations, percentage margin fluctuations and any trends that may be inferred from the discussion below are not necessarily indicative of the operating results for any future period.

Critical Accounting Policies and Estimates

The discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate estimates, including but not limited to those related to revenue recognition, uncollectible accounts receivable, and income taxes for reasonableness. We base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe revenue recognition, valuation of marketable securities, the allowance for doubtful accounts, capitalized software costs, share-based compensation and income taxes are among the most critical accounting policies that affect our consolidated financial statements. We believe that significant accounting policies, as described in Note 2 of our Consolidated Financial Statements, “Summary of Significant Accounting Policies”, should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Revenue Recognition. We currently recognize revenue pursuant to SOP 97-2, as amended by SOP 98-9. We generate revenue from the sale of licensing rights to use our software products sold directly to end-users and value-added resellers (VARs). We also generate revenue from sales of hardware and third party software, and implementation, training, software customization, EDI, post-contract support (“maintenance”) and other services performed for customers who license our products.

A typical system contract contains multiple elements of the above items. SOP 97-2, as amended, requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of those elements. The fair value of an element must be based on vendor specific objective evidence (VSOE). We limit our assessment of VSOE for each element to either the price charged when the same element is sold separately (using a rolling average of stand alone transactions) or the price established by management having the relevant authority to do so, for an element not yet sold separately. VSOE calculations are updated and reviewed at the end of each quarter or annually depending on the nature of the product or service.

When evidence of fair value exists for the delivered and undelivered elements of a transaction, then discounts for individual elements are aggregated and the total discount is allocated to the individual elements in proportion to the elements’ fair value relative to the total contract fair value.

When evidence of fair value exists for the undelivered elements only, the residual method, provided for under SOP 98-9, is used. Under the residual method, we defer revenue related to the undelivered elements in a system sale based on VSOE of fair value of each of the undelivered elements, and allocate the remainder of the contract price net of all discounts to revenue

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recognized from the delivered elements. Undelivered elements of a system sale may include implementation and training services, hardware and third party software, maintenance, future purchase discounts, or other services. If VSOE of fair value of any undelivered element does not exist, all revenue is deferred until VSOE of fair value of the undelivered element is established or the element has been delivered.

We bill for the entire contract amount upon contract execution except for maintenance which is billed separately. Amounts billed in excess of the amounts contractually due are recorded in accounts receivable as advance billings. Amounts are contractually due when services are performed or in accordance with contractually specified payment dates. Provided the fees are fixed and determinable and collection is considered probable, revenue from licensing rights and sales of hardware and third party software is generally recognized upon shipment and transfer of title. In certain transactions whose collections risk is high, the cash basis method is used to recognize revenue. If the fee is not fixed or determinable, then the revenue recognized in each period (subject to application of other revenue recognition criteria) will be the lesser of the aggregate of amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using the residual method. Fees which are considered fixed or determinable at the inception of our arrangements must include the following characteristics:

§	The fee must be negotiated at the outset of an arrangement, and generally be based on the specific volume of products to be delivered without being subject to change based on variable pricing mechanisms such as the number of units copied or distributed or the expected number of users.
§	Payment terms must not be considered extended. If a significant portion of the fee is due more than 12 months after delivery or after the expiration of the license, the fee is presumed not fixed and determinable.

Revenue from implementation and training services is recognized as the corresponding services are performed. Maintenance revenue is recognized ratably over the contractual maintenance period.

Contract accounting is applied where services include significant software modification, development or customization. In such instances, the arrangement fee is accounted for in accordance with Statement of Position No. 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (SOP 81-1).

Pursuant to SOP 81-1, we use the percentage of completion method provided all of the following conditions exist:

• The contract includes provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement;

• The customer can be expected to satisfy its obligations under the contract;

• We can be expected to perform our contractual obligations; and

• Reliable estimates of progress towards completion can be made.

We measure completion using labor input hours. Costs of providing services, including services accounted for in accordance with SOP 81-1, are expensed as incurred.

If a situation occurs in which a contract is so short term that the consolidated financial statements would not vary materially from using the percentage-of-completion method or in which we are unable to make reliable estimates of progress of completion of the contract, the completed contract method is utilized.

Product returns are estimated in accordance with Statement of Financial Accounting Standards No. 48, “Revenue Recognition When Right of Return Exists” (SFAS 48). The Company also ensures that the other criteria in SFAS 48 have been met prior to recognition of revenue:

§	The price is fixed or determinable;
§	The customer is obligated to pay and there are no contingencies surrounding the obligation or the payment;
§	The customer’s obligation would not change in the event of theft or damage to the product;
§	The customer has economic substance;
§	The amount of returns can be reasonably estimated; and
§	We do not have significant obligations for future performance in order to bring about resale of the product by the customer.

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We have historically offered short-term rights of return of less than 30 days in certain sales arrangements. If we are able to estimate returns for these types of arrangements, revenue is recognized and these arrangements are recorded in the consolidated financial statements. If we are unable to estimate returns for these types of arrangements, revenue is not recognized in our consolidated financial statements until the rights of return expire.

Revenue related to sales arrangements which include the right to use software stored on the Company’s hardware are accounted for under the Emerging Issues Task Force Issue No. 00-3 “Application of AICPA Statement of Position 97-2 to arrangements that include the right to use software stored on another entity’s hardware”. EITF No. 00-3 requires that for software licenses and related implementation services to continue to fall under SOP No. 97-2, the customer must have the contractual right to take possession of the software without incurring a significant penalty and it must be feasible for the customer to either host the software themselves or through another third party. If an arrangement is not deemed to be accounted for under SOP 97-2, the entire arrangement is accounted for as a service contract in accordance with EITF Issue No. 00-21 “Revenue arrangements with multiple deliverables”. In that instance, the entire arrangement would be recognized as the hosting services are being performed.

From time to time, we offer future purchase discounts on our products and services as part of our sales arrangements. Pursuant to AICPA TPA 5100.51, discounts which are incremental to the range of discounts reflected in the pricing of the other elements of the arrangement, which are incremental to the range of discounts typically given in comparable transactions, and which are significant, are treated as an additional element of the contract to be deferred. Amounts deferred related to future purchase options are not recognized until either the customer exercises the discount offer or the offer expires.

Revenue is divided into two categories, “system sales” and “maintenance, EDI and other services”. Revenue in the system sales category includes software license fees, third party hardware and software, and implementation and training services related to purchase of the Company’s software systems. The majority of the revenue in the system sales category is related to the sale of software. Revenue in the maintenance, EDI and other services category includes, maintenance, EDI, follow on training and implementation services, annual third party license fees and other revenue.

Valuation of marketable securities. Marketable securities are classified as available-for-sale and accordingly are recorded at fair value, based on quoted market rates or on valuation analysis when appropriate, with unrealized gains and losses reflected as a separate component of shareholders’ equity titled accumulated other comprehensive income (loss), net of tax, until realized or until a determination is made that an other-than-temporary decline in market value has occurred. Factors considered in assessing whether an other-than-temporary impairment has occurred include: the nature of the investment; whether the decline in fair value is attributable to specific adverse conditions affecting the investment; the financial condition of the investee; the severity and the duration of the impairment; and whether the Company has the ability to hold the investment to maturity. When it is determined that an other-than-temporary impairment has occurred, the investment is written down to its market value at the end of the period in which it is determined that an other-than-temporary decline has occurred. The cost of marketable securities sold is based upon the specific identification method. In addition, the Company classifies marketable securities as current or non-current based upon whether such assets are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. Realized gains or losses and other-than-temporary declines in the fair value of marketable securities are determined on a specific identification basis and reported in interest and other income, net, as incurred.

Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We perform credit evaluations of our customers and maintain reserves for estimated credit losses. Reserves for potential credit losses are determined by establishing both specific and general reserves. Specific reserves are based on management’s estimate of the probability of collection for certain troubled accounts. General reserves are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances net of deferred revenue and specifically reserved accounts. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances would be required.

Software Development Costs. Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established with the completion of a working model of the enhancement or product, any additional development

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costs are capitalized in accordance with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (SFAS 86). Such capitalized costs are amortized on a straight line basis over the estimated economic life of the related product, which is generally three years. We perform an annual review of the recoverability of such capitalized software costs. At the time a determination is made that capitalized amounts are not recoverable based on the estimated cash flows to be generated from the applicable software, any remaining capitalized amounts are written off.

Share-Based Compensation. On April 1, 2006, we adopted Statement of Financial Accounting Standard No. 123R, “Share-Based Payment” (SFAS 123R) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123R supersedes our previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). SFAS 123R requires us to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. During fiscal year 2007 and 2008, we used the simplified method for estimating expected term equal to the midpoint between the vesting period and the contractual term. Prior to using the simplified method, we estimated the expected term of an option. We estimate volatility by using the weighted average historical volatility of our common stock, which we believe approximates expected volatility. The risk free rate is the implied yield available on the U.S Treasury zero-coupon issues with remaining terms equal to the expected term. The expected dividend yield is the average dividend rate during a period equal to the expected term of the option. Those inputs are then entered into the Black Scholes model to determine the estimated fair value. The value of the portion of the award that is expected to vest is recognized as expense over the requisite service period in our consolidated statement of income.

Research and Development Tax Credits. Management’s treatment of research and development tax credits represented a significant estimate which affected the effective income tax rate for the Company for the year ended March 31, 2008 and 2007. Research and development credits taken by the Company involve certain assumptions and judgments regarding qualified expenses under Internal Revenue Code Section 41. These credits are subject to examination by the federal and state taxing authorities.

During each of the years ended March 31, 2008 and 2007, we recognized approximately $0.8 million in credits related to research and development. The Company expects to capture this benefit on its tax returns.

Qualified Production Activities Deduction. Management’s treatment of this deduction represented an estimate that affected the effective income tax rate for the Company for the years ended March 31, 2008 and 2007. The deduction taken by the Company involved certain assumptions and judgments regarding the allocation of indirect expenses as prescribed under Internal Revenue Code Section 199.

During the years ended March 31, 2008 and 2007, we recognized approximately $3.1 million and $1.5 million, respectively, in deductions related to the qualified production activities deduction (QPAD) under Internal Revenue Code (IRS). The QPAD calculation was determined using interim guidance provided by proposed IRS Regulations and Notices. The Company expects to capture this benefit on its tax returns.

Overview of Our Results

• Total Company revenue increased 18.7% and income from operations grew 16.7% on a consolidated basis for the year ended March 31, 2008. This performance was driven by growth in our NextGen Division, offset by decreases in revenue and operating income in our QSI Division and higher corporate expenses.

• The year over year growth in revenue and operating income for the company during the year ended March 31, 2008 trailed the growth rates achieved during the year ended March 31, 2007 due in part to a shift in revenue mix for the year, with hardware and EDI revenue accounting for a comparatively higher percentage of revenue and system sales accounting for a comparatively lower percentage of revenue than the year prior.

• We do not believe the mix changes represent a change in the overall purchasing environment. We have benefited and hope to continue to benefit from the increased demands on healthcare providers for greater efficiency and lower costs, as well as increased adoption rates of technology in the healthcare arena.

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NextGen Division

• NextGen Division revenue grew 21.3% and income from operations increased 18.2% for the year ended March 31, 2008.

• The Divisions’ year over year growth in revenue and operating income for the Company during the year ended March 31, 2008 trailed the growth rates achieved during the year ended March 31, 2007 due in part to a shift in the revenue mix for the year, with hardware and EDI revenue accounting for a comparatively higher percentage of revenue and new systems sales accounting for a comparatively lower percentage of revenue than in the year prior.

• Divisional headcount additions drove selling, general and administrative expenses to increase at a slightly faster pace than revenue as we added staffing resources to departments including sales, marketing, support, software development, and administration and intend to do so in fiscal year 2009, as business conditions and the hiring environment allow.

• Our goals include continuing to further enhance our existing products, developing new products for targeted markets, continuing to add new customers, selling additional software and services to existing customers and expanding penetration of connectivity services to new and existing customers.

QSI Division

• QSI Division revenue decreased 3.3% in the year ended March 31, 2008 and Divisional operating income decreased 16.6% (excluding unallocated corporate expenses) from the year ended March 31, 2007. Divisional revenue and operating income performance for the Division, while below fiscal year 2007 levels, were within the Division’s historical performance range.

• A drop in annual revenue, slight changes in the Division’s sales mix in favor of lower margin hardware and EDI products, and additional compensation expenses related to the passing of the Division’s lead executive were the chief contributors to the operating income decline.

• Our goals for the QSI Division include maximizing revenue and profit performance given the constraints present in the QSI Division’s target market.

The following table sets forth for the periods indicated the percentage of net revenue represented by each item in our consolidated statements of income.

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(Unaudited)	Year Ended March 31,
	2008		2007		2006
Revenues:
Software, hardware and supplies	40.9	%	43.8	%	46.0	%
Implementation and training services	7.2		7.8		9.5
System sales	48.1		51.6		55.5
Maintenance	30.3		26.7		26.1
Electronic data interchange services	12.0		10.8		11.1
Other services	9.6		10.9		7.3
Maintenance, EDI and other services	51.9		48.4		44.5
Total revenue	100.0		100.0		100.0
Cost of revenue:
Software, hardware and supplies	5.8		5.4		6.8
Implementation and training services	5.5		5.5		6.8
Total cost of system sales	11.3		10.9		13.6
Maintenance	6.7		7.5		9.2
Electronic data interchange services	8.5		7.7		7.2
Other services	7.0		6.2		3.4
Total cost of maintenance, EDI and other services	22.2		21.4		19.8
Total cost of revenue	33.5		32.3		33.4
Gross profit	66.5		67.7		66.6
Selling, general and administrative	28.6		28.8		29.8
Research and development	6.1		6.5		6.8
Income from operations	31.8		32.4		30.0
Interest income	1.4		2.1		1.8
Other income	0.5		0.0		0.0
Income before provision for income taxes	33.7		34.5		31.8
Provision for income taxes	12.3		13.3		12.2
Net income	21.4	%	21.1	%*	19.6	%

* does not foot due to rounding

Comparison of Fiscal Years Ended March 31, 2008 and March 31, 2007

For the year ended March 31, 2008, our net income was $40.1 million or $1.47 per share on a basic and $1.44 per share on a fully diluted basis. In comparison, we earned $33.2 million or $1.24 per share on a basic and $1.21 per share on a fully diluted basis in the year ended March 31, 2007. The increase in net income for the year ended March 31, 2008 was achieved primarily through the following:

• a 18.7% increase in consolidated revenue;

• a 21.3% increase in NextGen Division revenue which accounted for 91.4% of consolidated revenue; and

• approximately $1.0 million gain on life insurance proceeds the Company recorded, which was offset by additional compensation expense of approximately $0.2 million. The additional compensation expense was recorded in Selling, General and Administrative Expenses and the insurance proceeds were recorded as Other Income in the Consolidated Statement of Income.

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The above increases to net income were offset by a decline in gross profit margin resulting from a greater proportion of revenue being derived from hardware and EDI revenue which have relatively lower gross margin percentages. The gross profit margin declined to 66.5% in the year ended March 31, 2008 versus 67.7% in the prior year period.

Revenue. Revenue for the year ended March 31, 2008 increased 18.7% to $186.5 million from $157.2 million for the year ended March 31, 2007. Revenue for the year ended March 31, 2007 increased 31.8% to $157.2 million from $119.3 million for the year ended March 31, 2006. NextGen Division revenue increased 21.3% from $140.6 million to approximately $170.5 million in the period ended March 31, 2008, while QSI Division revenue decreased by 3.3% during that same period, from $16.6 million to $16.0 million.

We divide revenue into two categories, “system sales” and “maintenance, EDI and other services”. Revenue in the system sales category includes software license fees, third party hardware and software, and implementation and training services related to purchase of the Company’s software systems. The majority of the revenue in the system sales category is related to the sale of software. Revenue in the maintenance, EDI and other services category includes, maintenance, EDI, follow-on training and implementation services, annual third party license fees and other revenue. Maintenance revenue includes amounts initially deferred in conjunction with new customer arrangements and subsequently amortized and billings to existing customers.

System Sales. Company-wide sales of systems for the year ended March 31, 2008 increased 10.8% to $89.8 million from $81.0 million in the prior year.

Our increase in revenue from sales of systems was principally the result of a 12.2% increase in category revenue at our NextGen Division whose sales in this category grew from $77.7 million during the year ended March 31, 2007 to $87.1 million during the year ended March 31, 2008. This increase was driven primarily by higher sales of NextGen^emr and NextGen^epm software to both new and existing clients, as well as an increase in the delivery of related implementation services offset by a decline in the sale of related hardware, third party software and supplies.

Systems sales revenue in the QSI Division decreased to approximately $2.6 million in the year ended March 31, 2008 from $3.4 million in the year ended March 31, 2007.

The following table breaks down our reported system sales into software, hardware, third party software, supplies, and implementation and training services components by division:

	Software		Hardware, Third Party Software and Supplies		Implementation and Training Services		Total System Sales
Year ended March 31, 2008
QSI Division	$	360	$	1,134	$	1,154	$	2,648
NextGen Division		69,276		5,593		12,252		87,121
Consolidated	$	69,636	$	6,727	$	13,406	$	89,769
Year ended March 31, 2007
QSI Division	$	355	$	2,356	$	655	$	3,366
NextGen Division		62,957		3,203		11,522		77,682
Consolidated	$	63,312	$	5,559	$	12,177	$	81,048

NextGen Division software revenue increased 10.0% between the year ended March 31, 2007 and the year ended March 31, 2008. The Division’s software revenue accounted for 79.5% of Divisional system sales revenue during the year ended March 31, 2008, a decrease from 81.0% in the prior year period.

Sales of additional licenses to existing customers grew to $31.3 million during the year ended March 31, 2008 compared to $23.3 million during the prior year as an increasing number of customers who expanded their use of our software in their practices and purchased additional licenses.

During the year ended March 31, 2008, 6.4% of the NextGen Division’s system sales revenue was represented by hardware and third party software compared to 4.1% in the prior year. The number of customers who purchase hardware and third party software and the dollar amount of hardware and third party software revenue fluctuates each quarter and year depending on the needs of

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customers. The inclusion of hardware and third party software in the Division’s sales arrangements is typically at the request of the customer and is not a priority focus for us.

Implementation and training revenue at the NextGen Division increased 6.3% in the year ended March 31, 2008 compared to the year ended March 31, 2007. The growth in implementation and training revenue is the result of increases in the amount of implementation and training services rendered to our new customers. Implementation and training revenue at the NextGen Division decreased its share of Divisional system sales revenue to 14.0% in the year ended March 31, 2008 from 14.8% in the year ended March 31, 2007. The amount of implementation and training services revenue in any given quarter is dependent on several factors, including timing of customer implementations, the availability of qualified staff, and the mix of services being rendered. The number of implementation and training staff increased during the year ended March 31, 2008 versus 2007 in order to accommodate the increased amount of implementation services sold in conjunction with increased software sales. In order to achieve growth in this area, additional staffing increases and additional training facilities are anticipated, though actual future increases in revenue and staff will depend upon the availability of qualified staff, business mix and conditions, and our ability to retain current staff members.

The NextGen Division’s growth has come in part from investments in sales and marketing activities including hiring additional sales representatives, trade show attendance, and advertising expenditures. We have also benefited from winning numerous industry awards for the NextGen Division’s flagship NextGen^emr and NextGen^epm software products and the apparent increasing acceptance of electronic medical records technology in the healthcare industry.

For the QSI Division, total system sales decreased by approximately $0.7 million in the year ended March 31, 2008 compared to the year ended March 31, 2007. We do not presently foresee any material changes in the business environment for the QSI Division with respect to the constrained environment that has been in place for the past several years.

Maintenance, EDI and Other. Company-wide revenue from maintenance, EDI, and other services grew 27.1% to $96.7 million for the year ended March 31, 2008 from $76.1 million for the year ended March 31, 2007. The increase in this category resulted principally from an increase in maintenance, EDI and other revenue generated from the NextGen Division’s client base. Total NextGen Division maintenance revenue for the year ended March 31, 2008 grew 41.3% to $49.3 million from $34.9 million in the prior year, while EDI revenue grew 42.9% to $17.9 million for the year ended March 31, 2008 compared to $12.5 million in the prior year. Other revenue for the NextGen Division, which consists primarily of third party license renewals, time and materials billings, travel reimbursements, and other services grew 4.4% to $16.2 million for the year ended March 31, 2008 compared to $15.5 million a year ago. QSI Division maintenance revenue increased 1.5% to $7.2 million for the year ended March 31, 2007 compared to $7.1 million in the prior year while divisional EDI revenue increased by approximately 1.0% to $4.6 million for the year ended March 31, 2008 compared to $4.5 million in the prior year. Other revenue for the QSI Division was essentially flat for the year ended March 31, 2008 compared to a year ago.

The following table details maintenance, EDI and other revenue by category for the years ended March 31, 2008 and 2007:

	Maintenance		EDI		Other		Total
Year ended March 31, 2008
QSI Division	$	7,186	$	4,564	$	1,639	$	13,389
NextGen Division		49,269		17,886		16,187		83,342
Consolidated	$	56,455	$	22,450	$	17,826	$	96,731
Year ended March 31, 2007
QSI Division	$	7,081	$	4,529	$	1,615	$	13,225
NextGen Division		34,867		12,520		15,505		62,892
Consolidated	$	41,948	$	17,049	$	17,120	$	76,117

The following table provides the number of billing sites which were receiving maintenance services as of the last business day of the year ended March 31, 2008 and 2007 respectively, as well as the number of billing sites receiving EDI services during the last month of each respective period at each division of our company. The table presents summary information only and includes billing entities added and removed for any reason. Note also that a single client may include one or multiple billing sites.

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	NextGen						QSI						Consolidated
	Maintenance			EDI			Maintenance			EDI			Maintenance			EDI
March 31, 2007		982			769			257			173			1,239			942
Billing sites added		194			289			9			29			203			318
Billing sites removed		(47	)		(65	)		(15	)		(37	)		(62	)		(102	)
March 31, 2008		1,129			993			251			165			1,380			1,158

Cost of revenue. Cost of revenue for the year ended March 31, 2008 increased 23.1% to $62.5 million from $50.8 million for the year ended March 31, 2007, while the cost of revenue as a percentage of net revenue increased to 33.5% from 32.3%. Our consolidated gross profit is affected by the level of hardware content included in system sales, the percentage of EDI revenue in our overall sales mix, and certain headcount expenses directly related to the cost of delivering our products and services. Consolidated gross profit for fiscal year 2008 was impacted by the decline in gross profit percentage at the NextGen Division, offset by a slight increase in gross profit percentage at the QSI Division.

The following table details revenue and cost of revenue on a consolidated and divisional basis for the years ended March 31, 2008 and 2007:

	Year Ended March 31,
	2008		%			2007		%
QSI Division
Revenue	$	16,037		100.0	%	$	16,589		100.0	%
Cost of revenue		7,545		47.0	%		7,847		47.3	%
Gross profit	$	8,492		53.0	%	$	8,742		52.7	%
NextGen Division
Revenue	$	170,463		100.0	%	$	140,576		100.0	%
Cost of revenue		54,956		32.2	%		42,937		30.5	%
Gross profit	$	115,507		67.8	%	$	97,639		69.5	%
Consolidated
Revenue	$	186,500		100.0	%	$	157,165		100.0	%
Cost of revenue		62,501		33.5	%		50,784		32.3	%
Gross profit	$	123,999		66.5	%	$	106,381		67.7	%

Gross profit margins at the NextGen Division for the year ended March 31, 2008 decreased to 67.8% from 69.5% primarily due to an increase in the proportionate level of hardware and third party software content included in revenue. The QSI Division’s gross profit margin increased to 53.0% from 52.7% between the years ended March 31, 2008 and 2007 primarily due to a decrease in the level of hardware and third party software content included in revenue.

The following table details the individual components of cost of revenue and gross profit as a percentage of total revenue for our company and our two divisions:

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	Hardware, Third Party Software			Payroll and related Benefits			Other			Total Cost of Revenue			Gross Profit
Year ended March 31, 2008
QSI Division		8.0	%		19.1	%		20.0	%		47.0	%		53.0	%
NextGen Division		3.8	%		11.2	%		17.3	%		32.2	%		67.8	%
Consolidated		4.2	%		11.8	%		17.5	%		33.5	%		66.5	%
Year ended March 31, 2007
QSI Division		10.0	%		17.3	%		20.0	%		47.3	%		52.7	%
NextGen Division		3.1	%		11.9	%		15.5	%		30.5	%		69.5	%
Consolidated		3.8	%		12.4	%		16.1	%		32.3	%		67.7	%

During the year ended March 31, 2008, hardware and third party software constituted a larger portion of consolidated cost of revenue compared to the prior year period. The number of customers who purchase hardware and third party software and the dollar amount of hardware and third party software purchased fluctuates each quarter depending on the needs of the customers and is not a priority focus for us.

Our payroll and benefits expense associated with delivering our products and services decreased to 11.8% of consolidated revenue for the year ended March 31, 2008 compared to 12.4% during the prior year ended March 31, 2007. The absolute level of consolidated payroll and benefit expenses grew from $19.6 million in the year ended March 31, 2007 to $22.1 million in the year ended March 31, 2008, an increase of 13% or $2.5 million, primarily due to additions to related headcount, payroll and benefits expense associated with delivering products and services in the NextGen Division. Payroll and benefits expense associated with delivering products and services in the QSI Division increased on a percentage of revenue basis. The application of SFAS 123R in fiscal year 2008 and 2007 added approximately $0.5 million in compensation to consolidated cost of revenue in both fiscal years.

We anticipate continued additions to headcount in the NextGen Division in areas related to delivering products and services in future periods, but due to the uncertainties in the timing of our sales arrangements, our sales mix, the acquisition and training of qualified personnel, and other issues, we cannot accurately predict if related headcount expense as a percentage of revenue will increase or decrease in the future.

We do not currently intend to make any significant changes to related headcount at the QSI Division.

“Other”, which consists of outside service costs, amortization of software development costs, hosting service costs and other service costs, increased to 17.5% of revenue during the year ended March 31, 2008 from 16.1% during the year ended March 31, 2007.

Should the NextGen Division continue to represent a major and or increasing share of our revenue, our consolidated gross margin percentages should move in concert with those of the NextGen Division.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended March 31, 2008 increased 17.5% to $53.3 million as compared to $45.3 million for the year ended March 31, 2007. The increase in the amount of such expenses resulted primarily from increases of $3.6 million in salaries, commissions, and related benefits in the NextGen Division, $1.7 million in selling related expenses in the NextGen Division, $1.0 million in travel related costs in the NextGen Division, $0.8 million in other general expenses in the NextGen Division and $0.9 million in increased corporate related expenses. The increase in corporate expenses was primarily composed of salaries and related benefits. Selling, general and administrative expenses as a percentage of revenue decreased from 28.9% in the year ended March 31, 2007 to 28.6% in the year ended March 31, 2008 due in to the fact that revenue grew faster than selling, general and administrative expense for the Company.

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The application of SFAS 123R in fiscal year 2008 and 2007 added approximately $2.5 million in compensation expense to consolidated selling, general and administrative expenses and is included in the aforementioned amounts.

We anticipate increased expenditures for trade shows, advertising and the employment of additional sales and administrative staff at the NextGen Division. We also anticipate future increases in corporate expenditures being made in areas including but not limited to staffing and professional services. While we expect selling, general and administrative expenses to increase on an absolute basis, we cannot accurately predict the impact these additional expenditures will have on selling, general, and administrative expenses as a percentage of revenue.

Research and Development Costs. Research and development costs for the years ended March 31, 2008 and 2007 were $11.4 million and $10.2 million, respectively. The increase in research and development costs was primarily due to increased investment in the NextGen product line. Additionally, the application of SFAS 123R in fiscal year 2008 and 2007 added approximately $0.8 million in both periods, in compensation expense to research and development costs net of amounts capitalized as software development in those fiscal years. Additions to capitalized software costs offset research and development costs. For the year ended March 31, 2008, $6.0 million was added to capitalized software costs while $5.0 million was capitalized during the year ended March 31, 2007. Research and development costs as a percentage of net revenue decreased to 6.1% in the year ended March 31, 2008 from 6.5% in the year ended March 31, 2007 primarily due to revenue growing at a faster rate than the increase in research and development costs. Research and development costs are expected to continue at or above current levels.

Interest Income. Interest income for the year ended March 31, 2008 decreased to $2.7 million compared to $3.3 million in the year ended March 31, 2007. Interest income in the year ended March 31, 2008 decreased primarily due to (i) a greater proportion of funds invested in tax favored auction rate securities which offer lower interest rates but higher after-tax yields compared to money market or short term U.S. Treasuries, and (ii) comparatively lower short term interest rates in the year ended March 31, 2008 versus 2007.

Our investment policy is determined by our Board of Directors. We currently maintain our cash in very liquid short term assets including money market funds and 30-60 day treasury bills as well as auction rate securities (ARS).

Other Income. Other income for the year ended March 31, 2008 was approximately $1.0 million. There was no Other income recorded for the year ended March 31, 2007. The Company recorded a gain on life insurance proceeds as a result of the passing of Gregory Flynn, Executive Vice President and General Manager of the Company’s QSI Division. Mr. Flynn participated in the Company’s deferred compensation plan which is funded through the purchase of life insurance policies with the Company named as beneficiary.

Provision for Income Taxes. The provision for income taxes for the year ended March 31, 2008 was approximately $22.9 million as compared to approximately $21.0 million for the prior year. The effective tax rates for fiscal 2008 and 2007 were 36.4% and 38.7%, respectively. The provision for income taxes for the years ended March 31, 2008 and 2007 differs from the combined statutory rates primarily due to the impact of varying state income tax rates, research and development tax credits, the qualified production activities deduction, and exclusions for company-owned life insurance proceeds and tax-exempt interest income. The effective rate for the year ended March 31, 2008 also includes an increase in benefit from the qualified production activities deduction, which was mostly offset by non-deductible option expense related to incentive stock options.

During the year ended March 31, 2008 and 2007, we claimed research and development tax credits of approximately $0.8 million in both years. The Company also claimed the qualified production activities deduction under Section 199 of the Internal Revenue Code, of approximately $3.1 million and $1.5 million during the years ended March 31, 2008 and 2007, respectively. Research

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and development credits and the qualified production activities income deduction taken by us involve certain assumptions and judgments regarding qualification of expenses under the relevant tax code provision.

Comparison of Fiscal Years Ended March 31, 2007 and March 31, 2006

For the year ended March 31, 2007, our net income was $33.2 million or $1.24 per share on a basic and $1.21 per share on a fully diluted basis. In comparison, we earned $23.3 million or $0.88 per share on a basic and $0.85 on a fully diluted basis in the year ended March 31, 2006. The increase in net income for the year ended March 31, 2007 was achieved primarily through the following:

• a 31.8% increase in consolidated revenue;

• a 35.5% increase in NextGen Division revenue which accounted for 89.4% of consolidated revenue; and

• an increase in our consolidated gross profit margin from 66.6% to 67.7%.

Revenue. Revenue for the year ended March 31, 2007 increased 31.8% to $157.2 million from $119.3 million for the year ended March 31, 2006. NextGen Division revenue increased 35.5% from $103.7 million to approximately $140.6 million in the period, while QSI Division revenue increased by 6.7% during the period from $15.5 million to $16.6 million.

Revenue is divided into two categories, “system sales” and “maintenance, EDI and other services”. Revenue in the system sales category includes software license fees, third party hardware and software, and implementation and training services related to purchase of the Company’s software systems. The majority of the revenue in the system sales category is related to the sale of software. Revenue in the maintenance, EDI and other services category includes, maintenance, EDI, follow on training and implementation services, annual third party license fees and other revenue.

System Sales. Company-wide sales of systems for the year ended March 31, 2007 increased 22.4% to $81.0 million from $66.2 million in the prior year.

Our increase in revenue from sales of systems was principally the result of a 21.7% increase in category revenue at our NextGen Division whose sales in this category grew from $63.8 million during the year ended March 31, 2006 to $77.7 million during the year ended March 31, 2007. This increase was driven primarily by higher sales of NextGen^emr and NextGen^epm software to both new and existing clients, as well as an increase in the delivery of related implementation services offset by a decline in the sale of related hardware, third party software and supplies.

Systems sales revenue in the QSI Division increased to approximately $3.4 million in the year ended March 31, 2007 from $2.4 million in the year ended March 31, 2006.

The following table breaks down our reported system sales into software, hardware, third party software, supplies, and implementation and training services components by division:

	Software		Hardware, Third Party Software and Supplies		Implementation and Training Services		Total System Sales
Year ended March 31, 2007
QSI Division	$	355	$	2,356	$	655	$	3,366
NextGen Division		62,957		3,203		11,522		77,682
Consolidated	$	63,312	$	5,559	$	12,177	$	81,048
Year ended March 31, 2006
QSI Division	$	984	$	1,013	$	411	$	2,408
NextGen Division		48,847		4,094		10,882		63,823
Consolidated	$	49,831	$	5,107	$	11,293	$	66,231

NextGen Division software revenue increased 28.9% between the year ended March 31, 2006 and the year ended March 31, 2007. The Division’s software revenue accounted for 81.0% of divisional system sales revenue during the year ended March 31, 2007, an increase from 76.5% in the prior year period.

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Sales of additional licenses to existing customers grew to $23.3 million during the year ended March 31, 2007 compared to $9.7 million during the prior year as a result of both an increasing number of customers who are expanding their use of our software in their practices and are purchasing additional licenses. Software revenue from VARs totaled approximately $13.6 million during the year ended March 31, 2007 compared to $7.0 million in the prior year. The increase in VAR revenue was affected in part by revenue from sales to Siemens Medical Solutions.

The increase in software’s share of systems sales was not the result of any change in emphasis on our part relative to software sales. Software license revenue growth continues to be an area of primary emphasis for the NextGen Division and management was pleased with the NextGen Division’s performance in this area.

During the year ended March 31, 2007, 4.1% of the NextGen Division’s system sales revenue was represented by hardware and third party software compared to 6.4% in the prior year. We have noted that the last several quarters’ and years’ results have generally included a relatively lower amount of hardware and third party software compared to prior years. However, this decrease is not the result of any change in emphasis on our part. The number of customers who purchase hardware and third party software and the dollar amount of hardware and third party software revenue fluctuates each year depending on the needs of customers. The inclusion of hardware and third party software in the NextGen Division’s sales arrangements is typically at the request of the customer and is not a priority focus for us.

Implementation and training revenue at the NextGen Division increased 5.9% in the year ended March 31, 2007 compared to the year ended March 31, 2006. The growth in implementation and training revenue is the result of increases in the amount of implementation and training services rendered to our new customers. Implementation and training revenue at the NextGen Division decreased its share of Divisional system sales revenue to 14.8% in the twelve months ended March 31, 2007 from 17.0% in the twelve months ended March 31, 2006. The amount of implementation and training services revenue and the corresponding rate of growth compared to a prior period in any given year is dependent on several factors including timing of customer implementations, the availability of qualified staff, and the mix of services being rendered. In order to achieve continued increased revenue in this area, additional staffing increases are anticipated, though actual future increases in revenue and staff will depend upon the availability of qualified staff, business mix and conditions, and our ability to retain current staff members. The NextGen Division’s growth has come in part from investments in sales and marketing activities, including hiring additional sales representatives, trade show attendance, and advertising expenditures. We have also benefited from winning numerous industry awards for the NextGen Division’s flagship NextGen^emr and NextGen^epm software products in fiscal years 2007 and 2006, as well as in prior years, and the apparent increasing acceptance of electronic medical records technology in the healthcare industry.

For the QSI Division, total system sales increased by approximately $1.0 million in the year ended March 31, 2007 compared to the year ended March 31, 2006 due primarily to increases in hardware, third party software and implementation revenue. We do not presently foresee any material changes in the business environment for the QSI Division with respect to the constrained environment that has been in place for the past several years.

Maintenance, EDI and Other. Company-wide revenue from maintenance, EDI, and other services grew 43.5% to $76.1 million for the year ended March 31, 2007 from $53.1 million for the year ended March 31, 2006. The increase in this category resulted principally from an increase in maintenance, EDI and Other revenue generated from the NextGen Division’s client base. Total NextGen Division maintenance revenue for the year ended March 31, 2007 grew 44.2% to $34.9 million from $24.2 million in the prior year, while EDI revenue grew 45.9% to $12.5 million for the year ended March 31, 2007 compared to $8.6 million in the prior year. Other revenue for the NextGen Division, which consists primarily of third party license renewals, time and materials billings, travel reimbursements, and other revenue grew 116.8% to $15.5 million for the year ended March 31, 2007 compared to $7.2 million a year ago. The increase was due primarily to purchases of additional training and other services by existing NextGen customers. QSI Division maintenance revenue increased 2.0% to $7.1 million for the year ended March 31, 2007 compared to $6.9 million in the prior year while divisional EDI revenue declined by approximately 3.1% to $4.5 million for the year ended March 31, 2007 compared to $4.7 million in the prior year. Other revenue for the QSI Division grew 6.0% to $1.6 million for the year ended March 31, 2007 compared to $1.5 million a year ago.

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The following table details maintenance, EDI and other revenue by category for the years ended March 31, 2007 and 2006:

	Maintenance		EDI		Other		Total
Year ended March 31, 2007
QSI Division	$	7,081	$	4,529	$	1,615	$	13,225
NextGen Division		34,867		12,520		15,505		62,892
Consolidated	$	41,948	$	17,049	$	17,120	$	76,117
Year ended March 31, 2006
QSI Division	$	6,939	$	4,673	$	1,524	$	13,136
NextGen Division		24,185		8,583		7,152		39,920
Consolidated	$	31,124	$	13,256	$	8,676	$	53,056

The following table provides the number of billing sites which were receiving maintenance services as of the last business day of the year ended March 31, 2007 and 2006 respectively, as well as the number of billing sites receiving EDI services during the last month of each respective period at each division of our company. The table presents summary information only and includes billing entities added and removed for any reason. Note also that a single client may include one or multiple billing sites.

	NextGen						QSI						Consolidated
	Maintenance			EDI			Maintenance			EDI			Maintenance			EDI
March 31, 2006		831			567			275			189			1,106			756
Billing sites added		178			232			4			11			182			243
Billing sites removed		(27	)		(30	)		(22	)		(27	)		(49	)		(57	)
March 31, 2007		982			769			257			173			1,239			942

Cost of revenue. Cost of revenue for the year ended March 31, 2007 increased 27.5% to $50.8 million from $39.8 million for the year ended March 31, 2006, while the cost of revenue as a percentage of net revenue declined to 32.3% from 33.4%. Our consolidated gross profit is affected by the level of hardware content included in system sales, the percentage of EDI revenue in our overall sales mix, and certain headcount expenses directly related to the cost of delivering our products and services. Consolidated gross profit is also affected by the higher margin revenues of the NextGen Division, which increased its share of total Company revenue to 89.4% from 87.0% in the prior year.

The following table details revenue and cost of revenue on a consolidated and divisional basis for the years ended March 31, 2007 and 2006:

	Year ended March 31,
	2007		%			2006		%
QSI Division
Revenue	$	16,589		100.0	%	$	15,544		100.0	%
Cost of revenue		7,847		47.3			7,765		50.0
Gross profit	$	8,742		52.7	%	$	7,779		50.0	%
NextGen Division
Revenue	$	140,576		100.0	%	$	103,743		100.0	%
Cost of revenue		42,937		30.5			32,063		30.9
Gross profit	$	97,639		69.5	%	$	71,680		69.1	%
Consolidated
Revenue	$	157,165		100.0	%	$	119,287		100.0	%
Cost of revenue		50,784		32.3			39,828		33.4
Gross profit	$	106,381		67.7	%	$	79,459		66.6	%

Gross profit margins at the NextGen Division for the year ended March 31, 2007 increased to 69.5% from 69.1% primarily due to a decrease in the proportionate level of hardware and third party software content included in revenue. The QSI Division’s gross profit margin increased to 52.7% from 50.0% between the years ended March 31, 2007 and 2006 primarily due to a decrease in the

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relative level of applicable headcount expense associated with delivering our products and services.

The following table details the individual components of cost of revenue and gross profit as a percentage of total revenue for our company and our two divisions:

	Hardware, Third Party Software			Payroll and related Benefits			Outside Services, Amortization of Software Development Costs and Other			Total Cost of Revenue			Gross Profit
Year ended March 31, 2007
QSI Division		10.0	%		17.3	%		20.0	%		47.3	%		52.7	%
NextGen Division		3.1			11.9			15.5			30.5			69.5
Consolidated		3.8	%		12.4	%		16.1	%		32.3	%		67.7	%
Year ended March 31, 2006
QSI Division		9.8	%		19.1	%		21.1	%		50.0	%		50.0	%
NextGen Division		4.6			11.8			14.5			30.9			69.1
Consolidated		5.3	%		12.7	%		15.4	%		33.4	%		66.6	%

During the year ended March 31, 2007, hardware and third party software constituted a smaller portion of consolidated revenue compared to the same prior year period, driven principally both by the composition of NextGen Division revenue and NextGen Division revenue increasing its share of total Company revenue. This year over year reduction continued a previously identified trend and did not result from any change in emphasis on our part. The number of customers who purchase hardware and third party software and the dollar amount of hardware and third party software purchased fluctuates each quarter depending on the needs of the customers and is not a priority focus for us.

Our payroll and benefits expense associated with delivering our products and services decreased to 12.4% of consolidated revenue for the year ended March 31, 2007 compared to 12.7% during the prior year ended March 31, 2006. The absolute level of consolidated payroll and benefit expenses grew from $15.2 million in the twelve months ended March 31, 2006 to $19.6 million in the twelve months ended March 31, 2007, an increase of 29% or $4.4 million, primarily due to additions to related headcount, payroll and benefits expense associated with delivering products and services in the NextGen Division. Payroll and benefits expense associated with delivering products and services in the QSI Division declined on a percentage of revenue basis. The adoption of SFAS 123R in fiscal year 2007 added approximately $0.5 million in compensation to consolidated cost of revenue.

We anticipate continued additions to headcount in the NextGen Division in areas related to delivering products and services in future periods, but due to the uncertainties in the timing of our sales arrangements, our sales mix, the acquisition and training of qualified personnel, and other issues, we cannot accurately predict if related headcount expense as a percentage of revenue will increase or decrease in the future.

We do not currently intend to make any significant changes to related headcount at the QSI Division.

“Other”, which consists of outside service costs, amortization of software development costs and other costs, increased to 16.1% of revenue during the year ended March 31, 2007 from 15.4% during the year ended March 31, 2006.

Should the NextGen Division continue to represent an increasing share of our revenue and should the NextGen Division continue to carry higher gross margins than the QSI Division, our consolidated gross margin percentages should increase to match more closely those of the NextGen Division.

As a result of the foregoing events and activities, our gross profit increased for the year period ending March 31, 2007 versus the prior year.

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Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended March 31, 2007 increased 27.5% to $45.3 million as compared to $35.6 million for the year ended March 31, 2006. The increase resulted primarily from increases of $5.1 million in compensation expense and benefit expense in the NextGen Division, $0.9 million in commission expense in the NextGen Division, $1.9 million in other general and administrative expenses primarily in the NextGen Division and $1.8 million in increased corporate expenses. Approximately $1.4 million of the increase in year over year corporate expenses was salaries and related benefits.

The adoption of SFAS 123R in fiscal year 2007 added approximately $2.5 million in compensation expense to consolidated selling, general and administrative expenses and is included in the aforementioned amounts.

Selling, general and administrative expenses as a percentage of revenue decreased to 28.9% in the fiscal year ended March 31, 2007 from 29.8% in the fiscal period ended March 31, 2006 due to revenue growing at a faster rate than selling, general and administrative expenses.

We anticipate increased expenditures for trade shows, advertising and staff additions at the NextGen Division. We also anticipate increased expenditures at the corporate level related to headcount additions, compensation and professional service fees. While we expect selling, general and administrative expenses to increase on an absolute basis, we cannot accurately predict the effect these additional expenditures will have on selling, general, and administrative expenses as a percentage of revenue.

Research and Development Costs. Research and development costs for the years ended March 31, 2007 and 2006 were $10.2 million and $8.1 million, respectively. The increase in research and development costs was primarily due to increased investment in the NextGen product line. Additionally, the adoption of SFAS 123R in fiscal year 2007 added approximately $0.8 million in compensation expense to research and development costs net of amounts capitalized as software development. Additions to capitalized software costs offset research and development costs. For the year ended March 31, 2007, $5.0 million was added to capitalized software costs while $3.3 million was capitalized during the year ended March 31, 2006. Research and development costs as a percentage of net revenue decreased to 6.5% from 6.8% primarily due to revenue growing at a faster rate than the increase in research and development costs. Research and development costs are expected to continue at or above current levels.

Interest Income. Interest income for the year ended March 31, 2007 increased 56.8% to approximately $3.3 million compared with $2.1 million in the year ended March 31, 2006. The increase was primarily due to the effect of an increase in short term interest rates versus the prior year period as well as comparatively higher amounts available for investment during the fiscal year ended March 31, 2007. During the fourth quarter of fiscal year 2007, we paid a dividend of $27.1 million, which reduced the amount of funds available for investment during this period. During the fourth quarter of fiscal year 2006, we paid a dividend of approximately $23.4 million, which reduced the amount of funds available for investment during such period.

Provision for Income Taxes. The provision for income taxes for the year ended March 31, 2007 was approximately $21.0 million as compared to approximately $14.6 million for the prior year. The effective tax rates for fiscal 2007 and 2006 were 38.7% and 38.5%, respectively. The provision for income taxes for the years ended March 31, 2007 and 2006 differs from the combined statutory rates primarily due to the impact of varying state income tax rates, research and development tax credits, and the qualified production activities deduction. The effective rate for the year ended March 31, 2007 also includes an increase in benefit from the qualified production activities deduction, which was mostly offset by non-deductible option expense related to incentive stock options.

During the year ended March 31, 2007 and 2006, we claimed research and development tax credits of approximately $0.8 million in both years. The Company also claimed the qualified production activities deduction under Section 199 of the Internal Revenue Code, of approximately $1.5 million and $0.8 million during the years ended March 31, 2007 and 2006, respectively. Research and development credits and the qualified production activities income deduction taken by us involve certain assumptions and judgments regarding qualification of expenses under the relevant tax code provision.

39

Liquidity and Capital Resources

The following table presents selected financial statistics and information for each of the years ended March 31, 2008, 2007 and 2006:

	Year Ended March 31,
	2008			2007		2006
Cash and cash equivalents	$	59,046		$	60,028	$	57,225
Net (decrease) increase in cash and cash equivalents	$	(982	)	$	2,803	$	6,068
Net income	$	40,078		$	33,232	$	23,322
Net cash provided by operations during the year	$	43,599		$	29,570	$	30,678
Number of days of sales outstanding		136			129		115

Cash Flow from Operating Activities

Cash provided by operations has historically been our primary source of cash and has primarily been driven by our net income and secondarily by non-cash expenses including depreciation, amortization of capitalized software, provisions for bad debts and inventory obsolescence, and stock option expenses.

The following table summarizes our statement of cash flows for the years ended March 31, 2008, 2007 and 2006:

	Year Ended March 31,
	2008			2007			2006
Net income	$	40,078		$	33,232		$	23,322
Non-cash expenses		11,299			8,977			4,140
Gain on life insurance proceeds, net		(755	)		—			—
Tax benefit from exercise of stock options, net		65			167			4,831
Change in deferred revenue		5,447			3,532			10,439
Change in accounts receivable		(13,811	)		(20,760	)		(12,484	)
Change in other assets and liabilities		1,276			4,422			430
Net cash provided by operating activities	$	43,599		$	29,570		$	30,678

Net Income. As referenced in the above table, net income makes up the majority of our cash generated from operations for the years ended March 31, 2008, 2007 and 2006. Our NextGen Division’s contribution to net income has increased each year due to that division’s operating income increasing more quickly than our company as a whole.

Non-Cash Expenses. Non-cash expenses include depreciation, amortization of capitalized software, provisions for bad debts and inventory obsolescence, and stock option expenses. Total non-cash expenses increased by approximately $11.3 million, $9.0 million and $4.1 million for the years ended March 31, 2008, 2007 and 2006, respectively. The change for the year ended March 31, 2008 is primarily related to a $3.8 million increase in stock option expenses related to our application of SFAS 123R, a $2.4 million increase in depreciation, $4.1 million in amortization of capitalized software costs, and a $1.2 million increase in the provision for bad debts.

Tax Benefits From Stock Options. Although the value of stock options exercised by employees grew in the year ended March 31, 2008 and 2007, our application of SFAS 123R required excess tax benefits of $1.3 million and $2.5 million, respectively, to be reclassed to financing activities, resulting in a net decrease in the years ended March 31, 2008 and 2007.

Deferred Revenue. Cash from operations benefited significantly from increases in deferred revenue primarily due to an increase in the volume of implementation and maintenance services invoiced by the NextGen Division which had not yet been rendered or recognized as revenue. This benefit is offset by the increase in unpaid deferred revenue. Deferred revenue grew by approximately $5.4

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million for the year ended March 31, 2008 versus growth of $3.5 million for the year ended March 31, 2007, resulting in increases to cash provided by operating activities for the respective periods.

Accounts Receivable. Accounts receivable grew by approximately $13.8 million, $20.8 million and $12.5 million for the years ended March 31, 2008, 2007 and 2006, respectively. The increase in accounts receivable in the periods is due to the following factors:

• NextGen Division revenue grew 21.3%, 35.5% and 41.0% for the years ended March 31, 2008, 2007 and 2006, respectively;

• We experienced an increase in the volume of undelivered services billed in advance by the NextGen Division which were unpaid as of the end of each period and included in accounts receivable. This resulted in an increase in both deferred revenue and accounts receivable of approximately $4.9 million, $6.4 million and $4.4 million for the years ended March 31, 2008, 2007 and 2006, respectively; and

• The NextGen Division constituted a larger percentage of our receivables at March 31, 2008 compared to March 31, 2007. Turnover of accounts receivable in the NextGen Division is slower than the QSI Division due to the fact that the majority of the QSI Division’s revenue is coming from maintenance and EDI services which typically have shorter payment terms than systems sales related revenue which historically have accounted for a major portion of NextGen Division sales.

The turnover of accounts receivable measured in terms of days sales outstanding (DSO) fluctuated during the year and increased from 129 days to 136 days during the year ended March 31, 2008 primarily due to the above mentioned factors.

If amounts included in both accounts receivable and deferred revenue were netted, our turnover of accounts receivable expressed as DSO would be 85 days as of March 31, 2008 and 81 days as of March 31, 2007. Provided turnover of accounts receivable, deferred revenue, and profitability remain consistent with the year ended March 31, 2008, we anticipate being able to continue to generate cash from operations during fiscal 2009 primarily from our net income.

Cash flows from investing activities

Net cash used in investing activities for the year ended March 31, 2008, 2007 and 2006 was $30.2 million, $8.3 million and $5.7 million, respectively. The increase in cash used in investing activities is a result of the Company’s net purchases of current investments in ARS of approximately $22.6 million, net of unrealized loss of $0.3 million as of March 31, 2008. These ARS are classified as current and non current investments on the accompanying Consolidated Balance Sheets. In addition to purchases and sales of marketable securities, net cash used in investing activities for the year ended March 31, 2008 consisted of additions to equipment and improvements and capitalized software. Net cash used in investing activities for the years ended March 31, 2007 and 2006 consisted of additions to equipment and improvements and capitalized software.

Cash flows from financing activities

Net cash used in financing activities for the year ended March 31, 2008 was $14.4 million and consisted of a dividend paid to shareholders of $20.5 million offset by $4.8 million of proceeds from the exercise of stock options. We recorded a reduction in income tax liability of $1.3 million related to excess tax deductions received from employee stock option exercises. The benefit was recorded as additional paid in capital.

Cash and cash equivalents and marketable securities

At March 31, 2008, we had cash and cash equivalents of $59.0 million and marketable securities of $22.6 million. We intend to expend some of these funds for the development of products complementary to our existing product line as well as new versions of certain of our products. These developments are intended to take advantage of more powerful technologies and to increase the integration of our products. We have no additional significant current capital commitments.

In January 2007, our Board of Directors adopted a policy whereby we intend to pay a regular quarterly dividend of $0.25 per share on our outstanding common stock commencing with conclusion of our first fiscal quarter of 2008 (June 30, 2007) and continuing each fiscal quarter thereafter, subject to further review and approval as well as establishment of record and distribution dates by our Board of Directors prior to the declaration of each such quarterly dividend. We anticipate that future quarterly dividends, if and when declared by the Board

41

pursuant to this policy, would likely be distributable on or about the fifth day of each of the months of October, January, April and July.

On May 31, 2007, our Board of Directors approved a quarterly dividend of twenty-five cents ($0.25) per share payable on its outstanding shares of common stock. The cash dividend record date was June 15, 2007 and was distributed to shareholders on or about July 5, 2007.

On July 31, 2007, our Board of Directors approved a quarterly dividend of twenty-five cents ($0.25) per share payable on its outstanding shares of common stock. The cash dividend record date was September 14, 2007 and was distributed to shareholders on or about October 5, 2007.

On October 25, 2007, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of December 14, 2007 with an expected distribution date on or about January 7, 2008.

On January 30, 2008, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of March 14, 2008 with an expected distribution date on or about April 7, 2008.

On May 20, 2008, the Company acquired HSI. The acquisition resulted in HSI becoming a wholly owned subsidiary of QSI. The purchase price consists of approximately $15.4 million plus up to approximately $1.6 million in incentives tied to future performance. The $15.4 million consists of approximately equal parts of cash and restricted QSI common stock, subject to restrictions on resale lapsing over a two year period.

On May 29, 2008, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of June 13, 2008 with an expected distribution date on or about July 2, 2008.

Management believes that its cash and cash equivalents on hand at March 31, 2008, together with its marketable securities and cash flows from operations, if any, will be sufficient to meet its working capital and capital expenditure requirements as well as any dividends paid in the ordinary course of business for the balance of fiscal 2009.

Contractual Obligations. The following table summarizes our significant contractual obligations at March 31, 2008, and the effect that such obligations are expected to have on our liquidity and cash in future periods:

Contractual Obligations – Non-cancelable lease obligations	(in thousands)
Year Ending March 31,
2009	$	3,156
2010	$	3,131
2011	$	3,164
2012	$	1,716
2013 and beyond	$	942
	$	12,109

New Accounting Pronouncements

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles (SFAS 162)”.SFAS No. 162 defines the order in which accounting principles that are generally accepted should be followed. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We do not expect the adoption of SFAS No. 162 to have a material impact on our consolidated financial statements.

In April 2008, the FASB finalized Staff Position (FSP) No. 142-3, “Determination of the Useful Life of Intangible Assets”. The position amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB SFAS No. 142, Goodwill and Other Intangible Assets. The position applies to intangible assets that are acquired individually or with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact of the pending adoption of FSP 142-3 on the consolidated financial statements.

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In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (SFAS 141R). SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. In addition, SFAS 141(R) requires expensing of acquisition-related and restructure-related costs, remeasurement of earn out provisions at fair value, measurement of equity securities issued for purchase at the date of close of the transaction and non-expensing of in-process research and development related intangibles. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. This pronouncement will be applied by the Company when it becomes effective and when or if the Company effectuates a business combination, otherwise there is no impact on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of SFAS No. 115”, (SFAS 159) which applies to all entities with available-for-sale and trading securities. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, “Fair Value Measurements”. The Company plans to adopt SFAS 159 effective April 1, 2008 and is in the process of determining the effect, if any, the adoption of SFAS 159 will have on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of this standard will have on its consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

We maintain investments in tax exempt municipal Auction Rate Securities (ARS) which are classified as current and non-current marketable securities on the Company’s Consolidated Balance Sheets.  A small portion of the Company’s portfolio is invested in closed-end funds which invest in tax exempt municipal auction rate securities.  At March 31, 2008, we had approximately $22.6 million of ARS on our Consolidated Balance Sheets.  The ARS are rated by one or more national rating agencies and have contractual terms of up to 30 years, but generally have interest rate reset dates that occur every 7, 28 or 35 days.  

 Despite the underlying long-term maturity of ARS, such securities were priced and subsequently traded as short-term investments because of the interest rate reset feature. If there are insufficient buyers, the auction is said to “fail” and the holders are unable to liquidate the investments through auction. A failed auction does not result in a default of the debt instrument. The securities will continue to accrue interest and be auctioned until the auction succeeds, the issuer calls the securities, or the securities mature. In February 2008, the Company began to experience failed auctions on its ARS and auction rate preferred securities. To determine their estimated fair values at March 31, 2008, factors including credit quality, the likelihood of redemption, and yields or spreads of fixed rate municipal bonds or other trading instruments issued by the same or comparable issuers were considered.  Based on these factors, a temporary impairment of $326 was recorded to accumulated other comprehensive loss in the accompanying consolidated financial statements as of March 31, 2008.  If the Company sells any of the ARS, prior to maturity, at an amount below original purchase value, or if it becomes probable that the Company will not receive 100% of the principal and interest from the issuer as to any of the ARS, the Company will be required to recognize an other-than-temporary impairment charge against net income.  Based on our ability to access our cash and other short-term investments, our expected operating cash flows, and our other sources of cash, we do not anticipate the current lack of liquidity on these investments to have a material impact on our financial condition or results of operation.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Financial Statements identified in the Index to Financial Statements appearing under “Item 15. Exhibits and Financial Statement Schedules” of this report are incorporated herein by reference to Item 15.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of March 31, 2008, that the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) are effective to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding whether or not disclosure is required.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2008, there were no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of March 31, 2008.

Our internal control over financial reporting is supported by written policies and procedures, that:

(1)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(2)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and
(3)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of inherent limitations in all control systems, no matter how well designed, no evaluation of controls can provide absolute assurance that all control issues within the Company have been or will be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our independent registered public accounting firm has audited the effectiveness of our internal control over financial reporting as of March 31, 2008 as stated in their report that is included herein.

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ITEM 9B. OTHER INFORMATION

We have experienced legal claims by parties asserting that we have infringed their intellectual property rights. We believe that these claims are without merit and intend to defend against them vigorously; however, we could incur substantial costs and diversion of management resources defending any infringement claim – even if we are ultimately successful in the defense of such matter. Litigation is inherently uncertain and always difficult to predict. We refer you to the discussion of infringement and litigation risks in our Risk Factors section of this Report.

Part III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 is incorporated herein by reference from our definitive proxy statement for our 2008 annual shareholders’ meeting to be filed with the Commission.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference from our definitive proxy statement for our 2008 annual shareholders’ meeting to be filed with the Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is incorporated herein by reference from our definitive proxy statement for our 2008 annual shareholders’ meeting to be filed with the Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is incorporated herein by reference from our definitive proxy statement for our 2008 annual shareholders’ meeting to be filed with the Commission.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is incorporated herein by reference from our definitive proxy statement for our 2008 annual shareholders’ meeting to be filed with the Commission.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	(1)	Index to Financial Statements:
				Page
		n	Report of Independent Registered Public Accounting Firm	52
		n	Report of Independent Registered Public Accounting Firm	53
		n	Consolidated Balance Sheets March 31, 2008 and March 31, 2007	54
		n	Consolidated Statements of Income — Years Ended March 31, 2008, March 31, 2007 and March 31, 2006	55
		n	Consolidated Statements of Shareholders’ Equity — Years Ended March 31, 2008, March 31, 2007 and March 31, 2006	56
		n	Consolidated Statements of Cash Flows — Years Ended March 31, 2008, March 31, 2007 and March 31, 2006	57
		n	Notes to Consolidated Financial Statements	58
	(2)	The following financial statement schedule for the years ended March 31, 2008, March 31, 2007 and 2008, read in conjunction with the financial statements of Quality Systems, Inc., is filed as part of this Annual Report on Form 10-K.
		n	Schedule II — Valuation and Qualifying Accounts	78
		Schedules other than that listed above have been omitted since they are either not required, not applicable, or because the information required is included in the financial statements or the notes thereto.
	(3)	The exhibits listed in the Index to Exhibits hereof are attached hereto or incorporated herein by reference and filed as a part of this Report.

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INDEX TO EXHIBITS

Exhibit Number		Description
3.1		Restated Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California on September 8, 1989, are hereby incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-00161) filed January 11, 1996.
3.2		Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective March 4, 2005, is hereby incorporated by reference to Exhibit 3.1.1 of the registrant’s Annual Report on Form 10-K for the year ended March 31, 2005.
3.3		Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective October 6, 2005 is hereby incorporated by reference to Exhibit 3.01 of the registrant’s Current Report on Form 8-K filed October 11, 2005.
3.4		Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective March 3, 2006 is hereby incorporated by reference to Exhibit 3.1 of the registrant’s Current Report on Form 8-K filed March 6, 2006.
3.5		Amended and Restated Bylaws of Quality Systems, Inc., as amended and restated effective May 25, 2005, are hereby incorporated by reference to Exhibit 3.6 of the registrant’s Annual Report on Form 10K for the year ended March 31, 2005.
3.6		Certificate of Amendment of Bylaws of the Company effective September 20, 2006 is hereby incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed September 25, 2006.
3.7		Amended Exhibit A to Amended and Restated Bylaws, adopted by the registrant’s Board of Directors on May 31, 2007, is hereby incorporated by reference to Exhibit 3.1 of the registrant’s Current Report on Form 8-K filed June 5, 2007.
3.8		Amended and Restated Bylaws of Quality Systems, Inc., effective May 29, 2008 is hereby incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed June 2, 2008.
10.1	*	Amended and Restated 1998 Stock Option Plan is hereby incorporated by reference to Exhibit 10.10.1 of the registrant’s Annual Report on Form 10-K for the year ended March 31, 2005.
10.2	*	Form of Incentive Stock Option Agreement for Amended and Restated 1998 Stock Option Plan is hereby incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.
10.3	*	Form of Non-Qualified Stock Option Agreement for Amended and Restated 1998 Stock Option Plan is hereby incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10Q for the quarter ended September 20, 2004.
10.4	*	2005 Stock Option and Incentive Plan is incorporated by reference to Exhibit 10.01 to the registrant’s Current Report on Form 8-K filed October 5, 2005.
10.5	*	Form of Nonqualified Stock Option Agreement for 2005 Stock Incentive Plan is incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed June 5, 2007.
10.6	*	Form of Incentive Stock Option Agreement for 2005 Stock Incentive Plan is incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed June 5, 2007.

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Exhibit Number		Description
10.7	*	1993 Deferred Compensation Plan is hereby incorporated by reference to Exhibit 10.5 to the registrant’s Annual Report on Form 10-KSB for the year ended March 31, 1994.
10.8	*	1998 Employee Stock Contribution Plan is hereby incorporated by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-8 (Registration No. 333-63131).
10.9	*	Employment Agreement dated July 20, 2000 between Quality Systems, Inc. and Lou Silverman is hereby incorporated by reference to Exhibit 10.18 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
10.10	*	Form of Indemnification Agreement for directors and executive officers authorized January 27, 2005 is hereby incorporated by reference to Exhibit 10.6.1 of the registrant’s Annual Report on Form 10-K for the year ended March 31, 2005.
10.11		Lease Agreement between Company and Tower Place, L.P. dated November 15, 2000, commencing February 5, 2001 is hereby incorporated by reference to Exhibit 10.14 to the registrant’s Annual Report on Form 10-K for the year ended March 31, 2001.
10.12		Fourth Amendment to lease agreement between the Company and Tower Place, L.P. dated September 22, 2005 is incorporated by reference to Exhibit 10.24 to the registrant’s Annual Report on Form 10-K for the year ended March 31, 2006.
10.13		Fifth Amendment to lease agreement between the Company and Tower Place, L.P. dated January 31, 2007 is incorporated by reference to Exhibit 10.13 to the registrant's Annual Report on Form 10-K for the year ended March 31, 2007.
10.14		Lease Agreement between Company and Orangewood Business Center Inc. dated April 3, 2000, amended February 22, 2001, is hereby incorporated by reference to Exhibit 10.15 to the registrant’s Annual Report on Form 10-K for the year ended March 31, 2001.
10.15		Lease Agreement between the Company and HUB Properties LLC dated May 8, 2002 is hereby incorporated by reference to Exhibit 10.18 to the registrant’s Annual Report on Form 10-K for the year ended March 31, 2003.
10.16		Second Amendment to Office Lease agreement between the Company and HUB Properties LLC dated February 14, 2006 is incorporated by reference to Exhibit 10.25 to the registrant’s Annual Report on Form 10-K for the year ended March 31, 2006.
10.17		Amended and Restated Second Amendment to Office Lease agreement between the Company and HUB Properties LLC dated May 31, 2006 is incorporated by reference to Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the year ended March 31, 2007.
10.18		Lease Agreement between the Company and LakeShore Towers Limited Partnership Phase IV, a California limited partnership, dated September 15, 2004 is hereby incorporated by reference to Exhibit 10.19 of the registrant’s Annual Report on Form 10-K for the year ended March 31, 2005.
10.19		Lease agreement between the Company and Von Karman Michelson Corporation dated September 6, 2005 is incorporated by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended March 31, 2006.
10.20		Office lease between the Company and SLTS Grand Avenue, L.P. dated May 3, 2006 is incorporated by reference to Exhibit 10.20 to the registrant's Annual Report on Form 10-K for the year ended March 31, 2007.
10.21	*	Board Service Agreement between the Company and Lou Silverman is incorporated by reference to Exhibit 10.2.1 to the registrant’s Current Report of Form 8-K, dated May 31, 2005.

48

Exhibit Number		Description
10.22	*	Board Service Agreement between the Company and Patrick Cline is incorporated by reference to Exhibit 10.2.1 to the registrant’s Current Report of Form 8-K dated May 31, 2005.
10.23	*	Director Compensation Program approved May 25, 2006 is incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed May 30, 2006.
10.24		Settlement Agreement dated as of August 8, 2006 between the registrant and Ahmed Hussein is incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed August 9, 2006.
10.25	*	Description of Compensation Program for Named Executive Officers for Fiscal Year Ended March 31, 2008 is incorporated by reference to Exhibit 10.25 to the registrant's Annual Report on Form 10-K for the year ended March 31, 2007.
10.26	*	Description of Compensation Program for Named Executive Officers for Fiscal Year Ending March 31, 2007 is incorporated by reference to Exhibit 10.26 to the registrant's Annual Report on Form 10-K for the year ended March 31, 2007.
10.27		Agreement and Plan of Merger dated May 16, 2008 by and among Quality Systems, Inc., Bud Merger Sub, LLC and Lackland Acquisition II, LLC.**
10.28		Office lease between the Company and Lakeshore Towers Limited Partnership Phase II, a California limited partnership, dated October 18, 2007.**
10.29		Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated November 28, 2001.**
10.30		First Amendment to Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated August 17, 2005.**
10.31		Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and InfoNow Solutions of St. Louis, LLC, dated November 28, 2001.**
10.32		Second Amendment to Service Center Lease Agreement between TM Properties, L.L.C., successor to The Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated August 17, 2005.**
10.33		Assignment of Lease between InfoNow Solutions of St. Louis, Lackland Acquisition II, LLC, and TM Properties, LLC, dated August 17, 2005.**
21		List of subsidiaries.**
23		Consent of Independent Registered Public Accounting Firm – Grant Thornton LLP **
31.1		Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **
31.2		Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

*	This exhibit is a management contract or a compensatory plan or arrangement.
**	Filed herewith.

49

SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

By: /s/ LOUIS E. SILVERMAN

Louis E. Silverman,

President and Chief Executive Officer

Date: June 10, 2008

          KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby constitutes and appoints Louis E. Silverman and Paul A. Holt, each of them acting individually, as his attorney-in-fact, each with the full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming our signatures as they may be signed by our said attorney-in-fact and any and all amendments to this Annual Report on Form 10-K.

          Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed by the following persons on our behalf in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Sheldon Razin		May 29, 2008
Sheldon Razin	Chairman of the Board and Director
/s/ Louis E. Silverman	President and Chief Executive Officer	May 29, 2008
	(Principal Executive Officer) and
Louis E. Silverman	Director
/s/ Paul A. Holt	Chief Financial Officer (Principal	May 29, 2008
	Financial Officer) and Secretary
Paul A. Holt
/s/ Patrick B. Cline	President, NextGen Healthcare Information	May 29, 2008
Patrick B. Cline	Systems Division, and Director
Ibrahim Fawzy	Director
/s/ Edwin Hoffman		May 29, 2008
Edwin Hoffman	Director
Ahmed Hussein	Director
/s/ Vincent J. Love		May 29, 2008
Vincent J. Love	Director

50

Signature	Title	Date
/s/ Russell Pflueger		May 29, 2008
Russell Pflueger	Director
/s/ Steven T. Plochocki		May 29, 2008
Steven T. Plochocki	Director

51

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Quality Systems, Inc.

We have audited the accompanying consolidated balance sheets of Quality Systems, Inc. as of March 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years ended March 31, 2008. Our audits of the basic financial statements included the financial statement Schedule II listed in the index appearing under Item 15 (a)(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Quality Systems, Inc. as of March 31, 2008 and 2007 and the results of its operations and its cash flows for each of the three years ended March 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement Schedule II, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the Consolidated Financial Statements, the Company changed its method of accounting for share-based compensation as a result of adopting Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”, effective April 1, 2006.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Quality Systems, Inc.’s internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 5, 2008, expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Irvine, California
June 5, 2008

52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Quality Systems, Inc.

We have audited Quality Systems, Inc.’s internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Quality Systems, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Quality Systems, Inc. Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Quality Systems, Inc.’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Quality Systems, Inc. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Quality Systems, Inc. as of March 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years ended March 31, 2008, and our report dated June 5, 2008 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Irvine, California
June 5, 2008

53

QUALITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	March 31, 2008			March 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	59,046		$	60,028
Marketable securities		2,500			—
Accounts receivable, net		76,585			63,945
Inventories, net		1,024			1,175
Net current deferred tax assets		6,397			3,443
Other current assets		4,596			4,507
Total current assets		150,148			133,098
Marketable securities		20,124			—
Equipment and improvements, net		4,773			5,029
Capitalized software costs, net		8,852			6,982
Net deferred tax assets		—			1,180
Goodwill		1,840			1,840
Other assets		2,171			2,552
Total assets	$	187,908		$	150,681
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,685		$	5,246
Deferred revenue		44,389			38,774
Accrued compensation and related benefits		8,346			6,521
Income taxes payable		1,541			315
Dividends payable		6,861			—
Other current liabilities		4,394			5,626
Total current liabilities		70,216			56,482
Deferred revenue, net of current		506			674
Net deferred tax liabilities		1,575			—
Deferred compensation		1,906			2,279
Total liabilities		74,203			59,435
Commitments and contingencies
Shareholders’ equity:
Common stock
$0.01 par value; authorized 50,000 shares; issued and outstanding 27,448 and 27,123 shares at March 31, 2008 and March 31, 2007, respectively		274			271
Additional paid-in capital		75,556			65,666
Retained earnings		38,071			25,309
Accumulated other comprehensive loss		(196	)		—
Total shareholders’ equity		113,705			91,246
Total liabilities and shareholders’ equity	$	187,908		$	150,681

The accompanying notes to these consolidated financial statements are an integral part
of these consolidated statements.

54

QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Fiscal Year Ended
	March 31, 2008		March 31, 2007		March 31, 2006
Revenues:
Software, hardware and supplies	$	76,363	$	68,871	$	54,938
Implementation and training services		13,406		12,177		11,293
System sales		89,769		81,048		66,231
Maintenance		56,455		41,948		31,124
Electronic data interchange services		22,450		17,049		13,256
Other services		17,826		17,120		8,676
Maintenance, EDI and other services		96,731		76,117		53,056
Total revenue		186,500		157,165		119,287
Cost of revenue:
Software, hardware and supplies		10,887		8,453		8,148
Implementation and training services		10,341		8,535		8,088
Total cost of system sales		21,228		16,988		16,236
Maintenance		12,446		11,834		9,330
Electronic data interchange services		15,776		12,181		8,569
Other services		13,051		9,781		5,693
Total cost of maintenance and other services		41,273		33,796		23,592
Total cost of revenue		62,501		50,784		39,828
Gross profit		123,999		106,381		79,459
Operating expenses:
Selling, general and administrative		53,260		45,337		35,554
Research and development costs		11,350		10,166		8,087
Total operating expenses		64,610		55,503		43,641
Income from operations		59,389		50,878		35,818
Interest income		2,661		3,306		2,108
Other income		953		—		—
Income before provision for income taxes		63,003		54,184		37,926
Provision for income taxes		22,925		20,952		14,604
Net income	$	40,078	$	33,232	$	23,322
Net income per share:
Basic	$	1.47	$	1.24	$	0.88
Diluted	$	1.44	$	1.21	$	0.85
Weighted average shares outstanding:
Basic		27,298		26,882		26,413
Diluted		27,770		27,550		27,356
Dividends declared per common share	$	1.00	$	1.00	$	0.875

The accompanying notes to these consolidated financial statements are an integral part
of these consolidated statements.

55

QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN THOUSANDS)

														Accumulated Other Comprehensive Loss
	Common Stock																Total Shareholders’ Equity
								Retained Earnings			Deferred Compensation
	Shares		Amount		APIC
Balance, March 31, 2005		26,222	$	262	$	44,368		$	19,213		$	(1,112	)	$	—		$	62,731
Exercise of stock options		489		5		4,476			—			—			—			4,481
Tax benefit resulting from exercise of stock options		—		—		4,831			—			—			—			4,831
Stock based compensation		—		—		—			—			428			—			428
Dividends declared		—		—		—			(23,384	)		—			—			(23,384	)
Net income		—		—		—			23,322			—			—			23,322
Balance, March 31, 2006		26,711		267		53,675			19,151			(684	)		—			72,409
Reclass of deferred compensation upon adoption of SFAS 123R		—		—		(684	)		—			684			—			—
Exercise of stock options		412		4		6,058			—			—			—			6,062
Tax benefit resulting from exercise of stock options		—		—		2,694			—			—			—			2,694
Stock based compensation		—		—		3,923			—			—			—			3,923
Dividends declared		—		—		—			(27,074	)		—			—			(27,074	)
Net income		—		—		—			33,232			—			—			33,232
Balance, March 31, 2007		27,123		271		65,666			25,309			—			—			91,246
Exercise of stock options		325		3		4,757			—			—			—			4,760
Tax benefit resulting from exercise of stock options		—		—		1,376			—			—			—			1,376
Stock based compensation		—		—		3,757			—			—			—			3,757
Dividends declared		—		—		—			(27,316	)		—			—			(27,316	)
Net income		—		—		—			40,078			—			—			40,078
Unrealized loss on marketable securities, net of tax		—		—		—			—			—			(196	)		(196	)
Balance, March 31, 2008		27,448	$	274	$	75,556		$	38,071		$	—		$	(196	)	$	113,705

The accompanying notes to these consolidated financial statements are an integral part
of these consolidated statements.

56

QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

	Fiscal Year Ended
	March 31, 2008			March 31, 2007			March 31, 2006
Cash flows from operating activities:
Net income	$	40,078		$	33,232		$	23,322
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,369			1,950			1,368
Amortization of capitalized software costs		4,149			3,231			2,460
Gain on life insurance proceeds, net		(755	)		—			—
Provision for bad debts		1,171			1,480			1,181
Provision for inventory obsolescense		52			35			179
Non-cash stock-based compensation		3,757			3,923			428
Deferred income taxes		(199	)		(1,642	)		(1,476	)
Tax benefit from exercise of stock options		1,376			2,694			4,831
Excess tax benefit from share-based compensation		(1,311	)		(2,527	)		—
Changes in assets and liabilities:
Accounts receivable		(13,811	)		(20,760	)		(12,484	)
Inventories		99			(649	)		220
Income tax receivable		—			1,195			(1,180	)
Other current assets		(89	)		(1,595	)		(1,235	)
Other assets		381			(594	)		(354	)
Accounts payable		(561	)		2,312			650
Deferred revenue		5,447			3,532			10,439
Accrued compensation and related benefits		1,825			1,031			2,054
Income taxes payable		1,226			315			—
Other current liabilities		(1,232	)		1,814			(209	)
Deferred compensation		(373	)		593			484
Net cash provided by operating activities		43,599			29,570			30,678
Cash flows from investing activities:
Additions to capitalized software costs		(6,019	)		(5,042	)		(3,297	)
Additions to equipment and improvements		(2,113	)		(3,240	)		(2,410	)
Purchases of marketable securities		91,825			—			—
Sales of marketable securities		(114,645	)		—			—
Proceeds from life insurance policy, net		755			—			—
Net cash used in investing activities		(30,197	)		(8,282	)		(5,707	)
Cash flows from financing activities:
Dividends paid		(20,455	)		(27,074	)		(23,384	)
Excess tax benefit from share-based compensation		1,311			2,527			—
Proceeds from the exercise of stock options		4,760			6,062			4,481
Net cash used in financing activities		(14,384	)		(18,485	)		(18,903	)
Net (decrease) increase in cash and cash equivalents		(982	)		2,803			6,068
Cash and cash equivalents at beginning of year		60,028			57,225			51,157
Cash and cash equivalents at end of year	$	59,046		$	60,028		$	57,225
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes, net of refunds	$	20,546		$	18,360		$	11,022
Non-cash investing and financing activities:
Unrealized loss on marketable securities	$	(326	)	$	—		$	—
Dividends declared and accrued	$	6,861		$	—		$	—

The accompanying notes to these consolidated financial statements are an integral part
of these consolidated statements.

57

QUALITY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 and 2007
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. Description of Business

Quality Systems, Inc., comprised of the QSI Division (QSI Division) and a wholly-owned subsidiary, NextGen Healthcare Information Systems, Inc. (NextGen Division) (collectively, the Company), develops and markets proprietary healthcare information systems for a wide range of entities including medical and dental group practices, community health centers, physician hospital organizations, management service organizations, and dental schools. The Company’s software systems include general patient information, appointment scheduling, billing, insurance claims submission and processing, managed care plan implementation and referral management, treatment planning, drug formularies, electronic patient records, dental charting and letter generation. In addition to providing fully integrated solutions, the Company offers its clients comprehensive hardware and software maintenance and support services, system training services and Electronic Data Interchange (EDI) services which provide a variety of connectivity services to and between patients, providers and payors. The Company’s principal administrative, accounting and QSI Division operations are located in Irvine, California. The principal office of the NextGen Division is located in Horsham, Pennsylvania.

On January 31, 2006, the Board of Directors declared a 2-for-1 stock split with respect to the Company’s outstanding shares of common stock. The stock split record date was March 3, 2006 and the stock began trading post split on March 27, 2006. On February 2, 2005, the Board of Directors declared a 2-for-1 stock split with respect to the Company’s outstanding shares of common stock. The stock split record date was March 4, 2005 and the stock began trading post split on March 28, 2005.

References to share and per share data contained in the consolidated financial statements and notes to the consolidated financial statements have been retroactively adjusted to reflect the stock splits.

2. Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated.

Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

References to dollar amounts in the consolidated financial statement sections are in thousands, except per share data, unless otherwise specified.

Revenue Recognition. The Company recognizes revenue pursuant to Statement of Position No. 97-2, “Software Revenue Recognition” (SOP 97-2), as amended by Statement of Position No. 98-9 “Modification of SOP 97-2, Software Revenue Recognition” (SOP 98-9). The Company generates revenue from the sale of licensing rights to its software products directly to end-users and value-added resellers (VARs). The Company also generates revenue from sales of hardware and third party software, implementation, training, EDI, post-contract support (maintenance) and other services performed for customers who license its products.

A typical system contract contains multiple elements of the above items. SOP 98-9 requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of those elements. The fair value of an element must be based on vendor specific objective evidence (VSOE). The Company limits its assessment of VSOE for each element to either the price charged when the same element is sold separately (using a rolling average of stand alone transactions) or the price established by management having the relevant authority to do so, for an element not yet sold separately. VSOE calculations are updated and reviewed quarterly or annually depending on the nature of the product or service.

When evidence of fair value exists for the delivered and undelivered elements of a transaction, then discounts for individual elements are aggregated and the total discount is allocated to the individual elements in proportion to the elements’ fair value relative to the total contract fair value.

When evidence of fair value exists for the undelivered elements only, the residual method, provided for under SOP 98-9, is used. Under the residual method, the Company defers revenue related to the undelivered elements in a system sale based on VSOE of fair value of each of the

58

undelivered elements, and allocates the remainder of the contract price net of all discounts to revenue recognized from the delivered elements. If VSOE of fair value of any undelivered element does not exist, all revenue is deferred until VSOE of fair value of the undelivered element is established or the element has been delivered.

The Company bills for the entire contract amount upon contract execution except for maintenance which is billed separately. Amounts billed in excess of the amounts contractually due are recorded in accounts receivable as advance billings. Amounts are contractually due when services are performed or in accordance with contractually specified payment dates. Provided the fees are fixed and determinable and collection is considered probable, revenue from licensing rights and sales of hardware and third party software is generally recognized upon shipment and transfer of title. In certain transactions where collections risk is high, the cash basis method is used to recognize revenue. If the fee is not fixed or determinable, then the revenue recognized in each period (subject to application of other revenue recognition criteria) will be the lesser of the aggregate of amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using the residual method. Fees which are considered fixed or determinable at the inception of the Company’s arrangements must include the following characteristics:

§	The fee must be negotiated at the outset of an arrangement, and generally be based on the specific volume of products to be delivered without being subject to change based on variable pricing mechanisms such as the number of units copied or distributed or the expected number of users.
§	Payment terms must not be considered extended. If a significant portion of the fee is due more than 12 months after delivery or after the expiration of the license, the fee is presumed not fixed and determinable.

Revenue from implementation and training services is recognized as the corresponding services are performed. Maintenance revenue is recognized ratably over the contractual maintenance period.

Contract accounting is applied where services include significant software modification, development or customization. In such instances, the arrangement fee is accounted for in accordance with Statement of Position No. 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (SOP 81-1). Pursuant to SOP 81-1, the Company uses the percentage of completion method provided all of the following conditions exist:

§	the contract includes provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement;
§	the customer can be expected to satisfy its obligations under the contract;
§	the Company can be expected to perform its contractual obligations; and
§	reliable estimates of progress towards completion can be made.

The Company measures completion using labor input hours. Costs of providing services, including services accounted for in accordance with SOP 81-1, are expensed as incurred.

If a situation occurs in which a contract is so short term that the financial statements would not vary materially from using the percentage-of-completion method or in which the Company is unable to make reliable estimates of progress of completion of the contract, the completed contract method is utilized.

Individual product returns are estimated in accordance with Statement of Financial Accounting Standards No. 48, “Revenue Recognition When Right of Return Exists” (SFAS 48). The Company also ensures that the other criteria in SFAS 48 have been met prior to recognition of revenue:

§	the price is fixed or determinable;
§	the customer is obligated to pay and there are no contingencies surrounding the obligation or the payment;
§	the customer’s obligation would not change in the event of theft or damage to the product;
§	the customer has economic substance;
§	the amount of returns can be reasonably estimated; and
§	the Company does not have significant obligations for future performance in order to bring about resale of the product by the customer.

The Company has historically offered short-term rights of return in certain sales arrangements. If the Company is able to estimate returns for these types of arrangements, revenue is recognized and these arrangements are recorded in the consolidated financial statements. If the Company is

59

unable to estimate returns for these types of arrangements, revenue is not recognized in the consolidated financial statements until the rights of return expire.

Revenue related to sales arrangements which include the right to use software stored on the Company’s hardware is accounted for under the Emerging Issues Task Force Issue (EITF) No. 00-3 “Application of AICPA Statement of Position 97-2 to arrangements that include the right to use software stored on another entity’s hardware”. EITF No. 00-3 requires that for software licenses and related implementation services to continue to fall under SOP No. 97-2, the customer must have the contractual right to take possession of the software without incurring a significant penalty and it must be feasible for the customer to either host the software themselves or through another third party. If an arrangement is not deemed to be accounted for under SOP 97-2, the entire arrangement is accounted for as a service contract in accordance with EITF Issue No. 00-21 “Revenue arrangements with multiple deliverables”. In that instance, the entire arrangement would be recognized as the hosting services are being performed.

From time to time, the Company offers future purchase discounts on its products and services as part of its sales arrangements. Pursuant to AICPA TPA 5100.50, such discounts which are incremental to the range of discounts reflected in the pricing of the other elements of the arrangement, which are incremental to the range of discounts typically given in comparable transactions, and which are significant, are treated as an additional element of the contract to be deferred. Amounts deferred related to future purchase options are not recognized until either the customer exercises the discount offer or the offer expires.

Revenue is divided into two categories, “system sales” and “maintenance, EDI and other services”. Revenue in the system sales category includes software license fees, third party hardware and software, and implementation and training services related to purchase of the Company’s software systems. The majority of the revenue in the system sales category is related to the sale of software. Revenue in the maintenance, EDI and other services category includes maintenance, EDI, follow on training and implementation services, annual third party license fees and other revenue.

Cash and Cash Equivalents. Cash and cash equivalents generally consist of cash, money market funds and short-term U.S. Treasury securities with original maturities of less than 90 days. The money market fund in which the Company holds a portion of its cash invests in only investment grade money market instruments from a variety of industries, and therefore bears relatively low market risk. The average maturity of the investments owned by the money market fund is approximately two months.

Marketable securities. Marketable securities are classified as available-for-sale and accordingly are recorded at fair value, based on quoted market rates or valuation analysis when appropriate, with unrealized gains and losses reflected as a separate component of shareholders’ equity titled accumulated other comprehensive income (loss), net of tax, until realized or until a determination is made that an other-than-temporary decline in market value has occurred. Factors considered in assessing whether an other-than-temporary impairment has occurred include: the nature of the investment; whether the decline in fair value is attributable to specific adverse conditions affecting the investment; the financial condition of the investee; the severity and the duration of the impairment; and whether the Company has the ability to hold the investment to maturity. If it is determined that an other-than-temporary impairment has occurred, the investment is written down to its market value at the end of the period in which it is determined that an other-than-temporary decline has occurred. In addition, the Company classifies marketable securities as current or non-current based upon whether such assets are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.

The Company’s investments at March 31, 2008 are in tax exempt municipal Auction Rate Securities (ARS) which are classified as either current or non-current marketable securities on the Company’s Consolidated Balance Sheets, depending on the liquidity and timing of expected realization of such securities. A small portion of the Company’s portfolio is invested in closed-end funds which invest in tax exempt municipal auction rate securities. These instruments are known as auction rate preferred securities (ARPS). The ARS are rated by one or more national rating agencies and have contractual terms of up to 30 years, but generally have interest rate reset dates that occur every 7, 28 or 35 days. Despite the underlying long-term maturity of ARS, such securities were priced and subsequently traded as short-term investments because of the interest rate reset feature. If there are insufficient buyers, the auction is said to “fail” and the holders are unable to liquidate the investments through auction. A failed auction does not result in a default of the debt instrument. The securities will continue to accrue interest and be auctioned until the auction succeeds, the issuer calls the securities or the securities mature.

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In February 2008, the Company began to experience failed auctions on its ARS and auction rate preferred securities. To determine their estimated fair values at March 31, 2008, factors including credit quality, assumptions about the likelihood of redemption, observable market data such as yields or spreads of fixed rate municipal bonds or other trading instruments issued by the same or comparable issuers were considered. Based on this analysis, a temporary impairment loss of $196, net of income tax benefit, was recorded to accumulated other comprehensive loss in the accompanying financial statements as of March 31, 2008. If the Company sells any of the ARS, prior to maturity, at an amount below original purchase value, or if it becomes probable that the Company will not receive 100% of the principal and interest from the issuer of any ARS, the Company will be required to recognize an other-than-temporary impairment charge against net income.

Allowance for Doubtful Accounts. The Company provides credit terms typically ranging from thirty days to less than twelve months for most system and maintenance contract sales and generally does not require collateral. The Company performs credit evaluations of its customers and maintains reserves for estimated credit losses. Reserves for potential credit losses are determined by establishing both specific and general reserves. Specific reserves are based on management’s estimate of the probability of collection for certain troubled accounts. General reserves are established based on the Company’s historical experience of bad debt expense and the aging of the Company’s accounts receivable balances net of deferred revenues and specifically reserved accounts. Accounts are written off as uncollectible only after the Company has expended extensive collection efforts.

Included in accounts receivable are amounts related to maintenance and services which were billed, but which had not yet been rendered as of the end of the period. Undelivered maintenance and services are included on the accompanying Consolidated Balance Sheets in deferred revenue (see also Note 6).

Inventories. Inventories consist of hardware for specific customer orders and spare parts, and are valued at lower of cost (first-in, first-out) or market. Management provides a reserve to reduce inventory to its net realizable value.

Equipment and Improvements. Equipment and improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of equipment and improvements are provided over the estimated useful lives of the assets, or the related lease terms if shorter, by the straight-line method. Useful lives range as follows:

§	Computers and electronic test equipment	3-5 years
§	Furniture and fixtures	5-7 years
§	Leasehold improvements                                              lesser of lease term or estimated useful life of asset

Software Development Costs. Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established, any additional development costs are capitalized in accordance with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (SFAS 86). Such capitalized costs are amortized on a straight-line basis over the estimated economic life of the related product of three years. The Company provides support services on the current and prior two versions of its software. Management performs an annual review of the estimated economic life and the recoverability of such capitalized software costs. If a determination is made that capitalized amounts are not recoverable based on the estimated cash flows to be generated from the applicable software, any remaining capitalized amounts are written off.

Goodwill and Intangible Assets. The Company follows Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). This statement applies to the amortization of goodwill and other intangible assets. The balance of goodwill is related to the NextGen Division. Under SFAS 142, management is required to perform an annual assessment of the implied fair value of goodwill and intangible assets with indefinite lives for impairment. The Company compared the fair value of the NextGen Division with the carrying amount of its assets and determined that none of the goodwill recorded was impaired as of June 30, 2007 (the date of the Company’s last annual impairment test). The fair value of the NextGen Division was determined using an estimate of future cash flows for the NextGen Division over ten years and risk adjusted discount rates of between 15 and 25 percent to compute a net present value of future cash flows.

Long-Lived Assets. The Company follows Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). Management periodically reviews the carrying value of long-lived assets to determine whether or not

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impairment to such value has occurred and has determined that there was no impairment at March 31, 2008.

Income Taxes. Income taxes are provided based on current taxable income and the future tax consequences of temporary differences between the basis of assets and liabilities for financial and tax reporting. The deferred income tax assets and liabilities represent the future state and federal tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred income taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future income taxes. At each reporting period, management assesses the realizable value of deferred tax assets based on, among other things, estimates of future taxable income, and adjusts the related valuation allowance as necessary. In June 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an Interpretation of SFAS No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold of more-likely-than-not and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. Management makes a number of assumptions and estimates in determining the appropriate amount of expense to record for income taxes. These assumptions and estimates consider the taxing jurisdiction in which the Company operates as well as current tax regulations. Accruals are established for estimates of tax effects for certain transactions and future projected profitability of the Company’s businesses based on management’s interpretation of existing facts and circumstances. The Company adopted FIN 48 effective April 1, 2007. The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements. See Note 8.

Advertising Costs. Advertising costs are charged to operations as incurred. The Company does not have any direct-response advertising. Advertising costs, which includes trade shows and conventions, were approximately $2,580, $2,159 and $1,915 for the years ended March 31, 2008, 2007 and 2006, respectively, and were included in selling, general and administrative expenses in the Consolidated Statements of Income.

Marketing Assistance Agreements. The Company has entered into marketing assistance agreements with certain existing users of the Company’s products which provide the opportunity for those users to earn commissions if and only if they host specific site visits upon our request for prospective customers which directly result in a purchase of our software by the visiting prospects. Amounts earned by existing users under this program are treated as a selling expense in the period when earned.

Other Comprehensive Income. Comprehensive income includes all changes in Shareholders’ Equity during a period except those resulting from investments by owners and distributions to owners. The components of accumulated other comprehensive income (loss), net of income tax, consist of unrealized losses on marketable securities of $(196) as of March 31, 2008. There were no other comprehensive income items for the year ended March 31, 2007 and 2006.

	Year Ended March 31,
	2008			2007		2006
Net income	$	40,078		$	33,232	$	23,322
Other comprehensive income:
Unrealized loss on marketable securities, net of tax		(196	)		—		—
Comprehensive income	$	39,882		$	33,232	$	23,322

Earnings per Share. Pursuant to Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (SFAS 128), the Company provides dual presentation of “basic” and “diluted” earnings per share (EPS).

Basic EPS excludes dilution from common stock equivalents and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from common stock equivalents.

The following table reconciles the weighted average shares outstanding for basic and diluted net income per share for the periods presented.

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	Year ended March 31,
	2008		2007		2006
Net income	$	40,078	$	33,232	$	23,322
Basic net income per common share:
Weighted average of common shares outstanding		27,298		26,882		26,413
Basic net income per common share	$	1.47	$	1.24	$	0.88
Net income	$	40,078	$	33,232	$	23,322
Diluted net income per common share:
Weighted average of common shares outstanding		27,298		26,882		26,413
Effect of potentially dilutive securities (options)		472		668		943
Weighted average of common shares outstanding - diluted		27,770		27,550		27,356
Diluted net income per common share	$	1.44	$	1.21	$	0.85

The computation of diluted net income per share does not include 279,752, 92,500 and 124,000 options for the years ended March 31, 2008, 2007 and 2006, respectively, because their inclusion would have an anti-dilutive effect on earnings per share.

Share-Based Compensation. On April 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS 123R) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123R supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25).

The Company adopted SFAS 123R using the modified prospective transition method, which requires the application of the accounting standard as of April 1, 2006, the first day of the Company’s fiscal year 2007. The Company’s Consolidated Statements of Income for the years ended March 31, 2008 and 2007 reflect the impact of SFAS 123R. In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Share-based compensation expense recognized under SFAS 123R for the years ended March 31, 2008 and 2007 was $3,757 and $3,923, respectively, which consisted of stock-based compensation expense related to employee and director stock options and included $430 expensed under APB 25 for “in the money” options issued prior to the adoption of SFAS 123R. Excess tax benefits from share-based compensation are presented as cash outflows from operating activities and cash inflows from financing activities. The Company has elected to adopt the alternative transition method provided in FASB Staff Position No. SFAS 123R-3 (FSP 123(R)-3) for calculating the tax effects of share-based compensation pursuant to SFAS 123R. The alternative transition method includes a simplified method to establish the beginning balance of the additional paid-in capital (APIC pool) related to the tax effects of employee and director stock-based compensation, and to determine the subsequent impact on the APIC pool and the consolidated statement of cash flows of the tax effects of employee and director share-based awards that are outstanding upon adoption of SFAS 123R.

SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized ratably as expense over the requisite service period in the Company’s Consolidated Statement of Income. Prior to the adoption of SFAS 123R, the Company applied the intrinsic-value-based method of accounting prescribed by APB 25 to account for its fixed-plan stock options. Under this method, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. As previously allowed under SFAS 123, the Company only adopted the disclosure requirements of SFAS 123, which established a fair-value-based method of accounting for share-based employee compensation plans. The following is a reconciliation of reported net earnings to adjusted net earnings had the Company recorded compensation expense based on the fair value at the grant date for its stock options under SFAS 123 for the year ended March 31, 2006.

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	Year Ended March 31, 2006
Reported net earnings	$	23,322
Add: Option compensation expense, net of tax		262
Less: Share-based compensation expense determined under fair value-based method for all awards		(3,280	)
Pro forma net earnings	$	20,304
Basic earnings per share:
Reported	$	0.88
Pro forma	$	0.77
Diluted earnings per share:
Reported	$	0.85
Pro forma	$	0.74

In arriving at the stock-based compensation expense reported in the table above, the Company utilized the Black-Scholes valuation model for estimating fair value with the following assumptions: expected life – 48 - 57 months from the date of the grant; stock volatility – 47.7 – 57.0%, risk free interest rate of 3.0 - 3.7% and no dividends during the expected term. For stock options issued subsequent to March 31, 2006, the Company used the simplified method for estimating expected term, which derives a term equal to the midpoint between the vesting period and the contractual term as allowed by SAB 107. Prior to using the simplified method, the Company estimated the expected life of an option. The Company estimates volatility by using the weighted average historical volatility of the Company’s common stock which the Company believes approximates expected volatility. The risk free rate is the implied yield available on the U.S Treasury zero-coupon issues with remaining terms equal to the expected life input to the Black Scholes model. Although the Company announced a one-time $0.75 per share dividend on January 31, 2005, no commitment to any future dividends was made at the time the dividend was announced and no commitment to any future dividends existed at the time when the February 11, 2005 options were granted. The Company had not paid a dividend to its shareholders prior to the one-time dividend announced on January 31, 2005. On January 31, 2006, the Company announced a one-time dividend of $0.875 per share. This dividend was announced subsequent to the options granted in fiscal year 2006 and was not considered in the fair value calculations of such options. Therefore, management believes that using a zero dividend rate in the valuation of the stock options granted during fiscal year 2006 was appropriate. The above pro forma disclosure was not presented for the years ended March 31, 2008 and 2007 because stock-based compensation has been accounted under SFAS 123R for these years.

The following table shows total stock-based employee compensation expense included in the Consolidated Statement of Income for years ended March 31, 2008 and 2007, respectively.

	Year Ended March 31, 2008			Year Ended March 31, 2007
Costs and expenses:
Cost of revenue	$	496		$	524
Research and development		800			870
Selling, general and administrative		2,461			2,529
Total share-based compensation	$	3,757		$	3,923
Amounts capitalized in software development costs		(39	)		(38	)
Amounts charged against earnings, before income tax benefit	$	3,718		$	3,885
Amount of related income tax benefit recognized in earnings	$	969		$	910

Sales Taxes. In accordance with the guidance of EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement” (EITF 06-3), the Company accounts for sales taxes imposed on its goods and services on a net basis in the consolidated statement of operations.

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Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including those related to uncollectible receivables, vendor specific objective evidence, valuation of marketable securities, and income taxes and related credits and deductions. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

New Accounting Pronouncements. In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162).SFAS No. 162 defines the order in which accounting principles that are generally accepted should be followed. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. We do not expect the adoption of SFAS No. 162 to have a material impact on our consolidated financial statements.

In April 2008, the FASB finalized Staff Position (FSP) No. 142-3, “Determination of the Useful Life of Intangible Assets”. The position amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB SFAS No. 142, “Goodwill and Other Intangible Assets”. The position applies to intangible assets that are acquired individually or with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact of the pending adoption of FSP 142-3 on the consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007), “Business Combinations” (SFAS 141R). SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. In addition, SFAS 141(R) requires expensing of acquisition-related and restructure-related costs, remeasurement of earn out provisions at fair value, measurement of equity securities issued for purchase at the date of close of the transaction and non-expensing of in-process research and development related intangibles. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. This pronouncement will be applied by the Company when it becomes effective and when or if the Company effectuates a business combination, otherwise there is no impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of SFAS No. 115”, (SFAS 159) which applies to all entities with available-for-sale and trading securities. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, “Fair Value Measurements”. The Company plans to adopt SFAS 159 effective April 1, 2008 and is in the process of determining the effect, if any, the adoption of SFAS 159 will have on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently

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evaluating the impact, if any, the adoption of this standard will have on its consolidated financial statements.

3. Cash and Cash Equivalents

At March 31, 2008 and 2007, the Company had cash and cash equivalents of $59,046 and $60,028, respectively, invested in both a major national brokerage firm’s institutional fund that specializes in U.S. government securities and commercial paper with high credit ratings, and short-term U.S. treasury securities.

Interest income related to cash and cash equivalents for each of the three years ended March 31 is as follows:

	Year Ended March 31, 2008		Year Ended March 31, 2007		Year Ended March 31, 2006
Interest income	$	1,444	$	3,306	$	2,108

4. Marketable Securities

At March 31, 2008, the cost and estimated fair values of the Company’s marketable securities in ARS were as follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value/ Carrying Value
Current marketable securities:
Auction rate securities	$	2,500	$	—	$	(50	)	$	2,450
Non-current marketable securities:
Auction rate securities		20,450		—		(276	)		20,174
Total marketable securities	$	22,950	$	—	$	(326	)	$	22,624

At March 31, 2007, the Company did not have investments in marketable securities.

Interest income related to marketable securities for each of the three years ended March 31 is as follows:

	Year Ended March 31, 2008		Year Ended March 31, 2007		Year Ended March 31, 2006
Interest income	$	1,217	$	—	$	—

5. Intangible Assets – Capitalized Software Costs

As of March 31, 2008 and 2007, the Company had the following amounts related to intangible assets with definite lives:

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	March 31, 2008			March 31, 2007
Gross carrying amount	$	27,645		$	21,626
Accumulated amortization		(18,793	)		(14,644	)
Net capitalized software development	$	8,852		$	6,982
Aggregate amortization expense during the year	$	4,149		$	3,231

Activity related to net capitalized software costs for the years ended March 31, 2008 and 2007 is as follows:

	March 31, 2008			March 31, 2007
Beginning of the year	$	6,982		$	5,171
Capitalization		6,019			5,042
Amortization		(4,149	)		(3,231	)
End of the year	$	8,852		$	6,982

The following table represents the remaining estimated amortization of intangible assets with determinable lives as of March 31, 2008:

For the year ending March 31,
2009	$	4,381
2010		3,212
2011		1,259
Total	$	8,852

6. Composition of Certain Financial Statement Captions

Accounts receivable include amounts related to maintenance and services which were billed but not yet rendered as of the end of the year. Undelivered maintenance and services are included on the accompanying Consolidated Balance Sheets as part of the deferred revenue balance.

	March 31, 2008			March 31, 2007
Accounts receivable, excluding undelivered software, maintenance and services	$	50,417		$	42,574
Undelivered software, maintenance and implementation services billed in advance, included in deferred revenue		28,696			23,809
Accounts receivable, gross		79,113			66,383
Allowance for doubtful accounts		(2,528	)		(2,438	)
Accounts receivable, net	$	76,585		$	63,945

Inventories are summarized as follows:

	March 31, 2008		March 31, 2007
Computer systems and components, net of reserve for obsolescence of $223 and $324, respectively	$	992	$	1,147
Miscellaneous parts and supplies		32		28
Inventories, net	$	1,024	$	1,175

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Equipment and improvements are summarized as follows:

	March 31, 2008			March 31, 2007
Computer and electronic test equipment	$	11,454		$	9,801
Furniture and fixtures		2,975			2,845
Leasehold improvements		1,259			929
		15,688			13,575
Accumulated depreciation and amortization		(10,915	)		(8,546	)
Equipment and improvements, net	$	4,773		$	5,029
Accrued compensation and related benefits are summarized as follows:
	March 31, 2008			March 31, 2007
Bonus and commission	$	5,443		$	4,158
Vacation		2,903			2,363
Accrued compensation and related benefits	$	8,346		$	6,521
Short and long-term deferred revenue are summarized as follows:
	March 31, 2008			March 31, 2007
Maintenance	$	10,175		$	10,241
Implementation services		25,929			24,246
Annual license services		6,532			2,219
Undelivered software and other		2,259			2,742
Deferred Revenue	$	44,895		$	39,448
Other current liabilities are summarized as follows:
	March 31, 2008			March 31, 2007
Sales tax payable	$	765		$	805
Customer deposits		621			703
Deferred rent		607			652
Professional fees		600			425
Commission payable		346			767
Accrued EDI expenses		—			613
Accrued royalties		216			463
Other accrued expenses		1,239			1,198
Other current liabilities	$	4,394		$	5,626

7. Other Income - Gain from Life Insurance Proceeds

On September 26, 2007, Mr. Gregory Flynn, Executive Vice President and General Manager of the Company’s QSI Division passed away. Mr. Flynn participated in the Company’s deferred compensation plan which is funded through the purchase of life insurance policies with the Company named as beneficiary. As a result of Mr. Flynn’s passing, the Company recorded additional compensation expense of $198 which was offset by net insurance proceeds of $953. The additional compensation expense was recorded in Selling, General and Administrative Expenses and the insurance proceeds were recorded as Other Income in the Consolidated Statement of Income.

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8. Income Taxes

During the years ended March 31, 2008, 2007 and 2006, the Company claimed federal research and development tax credits of $779, $787 and $821, respectively, and state research and development tax credits of approximately $113, $99 and $60, respectively. Due to the expiration of the Internal Revenue Service statute related to research and development credits on December 31, 2007, the Company’s research and development credits for the year ended March 31, 2008 represent credits for the nine-month period from April 1, 2007 through December 31, 2007. The Company also claimed the qualified production activities deduction under Section 199 of the Internal Revenue Code for $3,069, $1,457 and $840 during the years ended March 31, 2008, 2007 and 2006, respectively. The research and development credits and the qualified production activities income deduction taken by the Company involve certain assumptions and judgments regarding qualification of expenses under the relevant tax code provisions.

The provision (benefit) for income taxes consists of the following components:

	Year ended March 31,
	2008			2007			2006
Current:
Federal taxes	$	18,120		$	18,106		$	12,824
State taxes		4,348			4,488			3,256
Total		22,468			22,594			16,080
Deferred:
Federal taxes		333			(1,347	)		(1,168	)
State taxes		124			(295	)		(308	)
Total		457			(1,642	)		(1,476	)
Total	$	22,925		$	20,952		$	14,604
The provision for income taxes differs from the amount computed at the federal statutory rate as follows:
	Year ended March 31,
	2008			2007			2006
Current:
Federal income tax statutory rate		35.0	%		35.0	%		35.0	%
Increase (decrease) resulting from:
State income taxes, net of Federal benefit		4.8			5.0			5.0
Research and development tax credits		(1.3	)		(1.7	)		(2.3	)
Qualified Production Activities Income Deduction		(1.8	)		(0.9	)		(0.8	)
Other		(0.3	)		1.3			1.6
Effective income tax rate		36.4	%		38.7	%		38.5	%

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The net deferred tax assets in the accompanying Consolidated Balance Sheets consist of the following:

	March 31, 2008			March 31, 2007
Deferred tax assets:
Deferred revenue and allowance for doubtful accounts	$	4,534		$	4,528
Inventory valuation		137			206
Purchased in-process research and development		1,187			1,490
Intangibles assets		102			100
Accrued compensation and benefits		1,701			917
Deferred compensation		806			975
State income taxes		92			55
Compensatory stock option expense		1,139			707
Unrealized loss on marketable securities		130			—
Other		801			387
Total deferred tax assets		10,629			9,365
Deferred tax liabilities:
Accelerated depreciation		(545	)		(387	)
Capitalized software		(3,746	)		(2,955	)
Prepaid expense		(1,516	)		(1,400	)
Total deferred tax liabilities		(5,807	)		(4,742	)
Deferred tax assets, net	$	4,822		$	4,623

The deferred tax assets and liabilities have been shown net in the accompanying Consolidated Balance Sheets based on the long-term or short-term nature of the items which give rise to the deferred amount. No valuation allowance has been made against the deferred tax assets as management expects to receive the full benefit of the assets recorded.

On April 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (FIN 48) an interpretation of FASB Statement No. 109 (SFAS 109).” The adoption of the provisions of FIN 48 had no material effect on the consolidated financial statements. As a result, there was no cumulative effect related to adopting FIN 48. However, certain amounts have been reclassified in the Company’s Consolidated Balance Sheets in order to comply with the requirements of the statement. At adoption, the Company had $394 of unrecognized tax benefits, $89 of which would affect the Company’s effective tax rate if recognized in the future. A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is recorded in income taxes payable in the Company’s Consolidated Balance Sheet, is as follows:

Balance as of April 1, 2007	$	394
Additions for prior year tax positions		307
Reductions for prior year tax positions		(88	)
Balance at March 31, 2008	$	613

The total amount of unrecognized tax benefit that, if recognized, would decrease the income tax provision is $52.

The Company’s continuing practice is to recognize estimated interest and/or penalties related to income tax matters in general and administrative expenses. The Company had approximately $8 and $45 of accrued interest at March 31, 2008 and 2007, respectively. No penalties were accrued.

The Company’s income tax returns filed for tax years 2004 through 2006 and 2003 through 2006 are subject to examination by the federal and state taxing authorities, respectively. The Company is currently not under examination by the Internal Revenue Service (IRS). However, the Company is under routine examination by two states. The Company does not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statute of limitations within the next twelve months. The Company has filed three applications to change tax accounting methods. It is reasonably possible that the Company will receive consent to change these accounting methods within the next twelve months which would reduce the

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unrecognized tax benefit balance as of March 31, 2008 by $561 with no impact on the tax provision.

9. Employee Benefit Plans

The Company has a 401(k) plan available to substantially all of its employees. Participating employees may defer up to the Internal Revenue Service limit based on the Internal Revenue Code per year. The annual contribution is determined by a formula set by the Company’s Board of Directors and may include matching and/or discretionary contributions. The amount of the Company match is discretionary and subject to change. The retirement plans may be amended or discontinued at the discretion of the Board of Directors. Contributions of $317, $250 and $202 were made by the Company to the 401(k) plan for the fiscal years ended March 31, 2008, 2007 and 2006, respectively.

The Company has a deferred compensation plan (the Deferral Plan) for the benefit of those officers and employees who qualify for inclusion. Participating employees may defer between 5% and 50% of their compensation for a Deferral Plan year. In addition, the Company may, but is not required to, make contributions into the Deferral Plan on behalf of participating employees, and the amount of the Company match is discretionary and subject to change. Each employee’s deferrals together with earnings thereon are accrued as part of the long-term liabilities of the Company. Investment decisions are made by each participating employee from a family of mutual funds. Deferred compensation liability was $1,906 and $2,279 at March 31, 2008 and 2007, respectively. To offset this liability, the Company has purchased life insurance policies on some of the participants. The Company is the owner and beneficiary of the policies and the cash values are intended to produce cash needed to help make the benefit payments to employees when they retire or otherwise leave the Company. The Company intends to hold the life insurance policy until the death of the plan participant. The net cash surrender value of the life insurance policies for deferred compensation was $1,858 and $2,276 at March 31, 2008 and 2007, respectively. The values of the life insurance policies and the related Company obligation are included on the accompanying Consolidated Balance Sheets in long-term other assets and long-term deferred compensation, respectively. The Company made contributions of $29, $29 and $25 to the Deferral Plan for each of the fiscal years ended March 31, 2008, 2007 and 2006, respectively.

The Company has a voluntary employee stock contribution plan for the benefit of full-time employees. The plan is designed to allow certain employees to acquire shares of the Company’s common stock through automatic payroll deduction. Each eligible employee may authorize the withholding of up to 10% of his/her gross payroll each pay period to be used to purchase shares on the open market by a broker designated by the Company. In addition, the Company will match 5% of each employee’s contribution and will pay all brokerage commissions and fees in connection with each purchase. The amount of the Company match is discretionary and subject to change. The plan is not intended to be an employee benefit plan under the Employee Retirement Income Security Act of 1974, and is therefore not required to comply with that Act. Contributions of approximately $28, $10 and $14 were made by the Company for the fiscal years ended March 31, 2008, 2007 and 2006, respectively.

10. Employee Stock Option Plans

In September 1998, the Company’s shareholders approved a stock option plan (the “1998 Plan”) under which 4,000,000 shares of Common Stock were reserved for the issuance of options. The 1998 Plan provides that employees, directors and consultants of the Company, at the discretion of the Board of Directors or a duly designated compensation committee, be granted options to purchase shares of Common Stock. The exercise price of each option granted shall be determined by the Board of Directors at the date of grant, and options under the 1998 Plan expire no later than ten years from the grant date. Options granted will generally become exercisable in accordance with the terms of the agreement pursuant to which they were granted. Certain option grants to directors became exercisable three months from the date of grant. Upon an acquisition of the Company by merger or asset sale, each outstanding option may be subject to accelerated vesting under certain circumstances. The 1998 Plan terminated on December 31, 2007. As of March 31, 2008, there were 1,278,734 outstanding options related to this Plan.

In October 2005, the Company’s shareholders approved a stock option and incentive plan (the “2005 Plan”) under which 2,400,000 shares of Common Stock have been reserved for the issuance of awards, including stock options, incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares, performance units (including performance options) and other share-based awards. The 2005 Plan provides that employees, directors and consultants of the Company, at the discretion of the Board of Directors or a duly designated compensation committee, be granted awards to purchase shares of Common Stock. The exercise price of each award granted shall be determined by the Board of Directors at the date of grant in accordance with the terms of the 2005 Plan, and under the

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2005 Plan awards expire no later than ten years from the grant date. Options granted will generally become exercisable in accordance with the terms of the agreement pursuant to which they were granted. Upon an acquisition of the Company by merger or asset sale, each outstanding award may be subject to accelerated vesting under certain circumstances. The 2005 Plan terminates on May 25, 2015, unless sooner terminated by the Board. At March 31, 2008, 2,375,000 shares were available for future grant under the 2005 Plan. As of March 31, 2008, there were 25,000 outstanding options related to this Plan.

On February 8, 2008, the Board of Directors granted 25,000 options under the Company’s 2005 Plan to selected employees, at an exercise price equal to the market price of the Company’s common stock on the date of grant ($33.51 per share). The options vest in four equal annual installments beginning February 8, 2009 and expire on February 8, 2013.

On November 5, 2007, the Board of Directors granted 6,000 options under the Company’s 1998 Plan to an employee, at an exercise price equal to the market price of the Company’s common stock on the date of grant ($33.25 per share). The options vest in four equal annual installments beginning November 5, 2008 and expire on November 5, 2012.

On August 9, 2007, the Board of Directors granted a total of 35,000 options under the Company’s 1998 Plan to non-management directors pursuant to the Company’s previously announced compensation plan for non-management directors, at an exercise price equal to the market price of the Company’s common stock on the date of grant ($43.26 per share). The options vest in four equal annual installments beginning August 9, 2008 and expire on August 9, 2012.

On June 12, 2007, the Board of Directors granted a total of 159,500 options under a previously approved performance-based equity incentive program for selected employees based on fiscal year 2007 performance. These shares were issued under the Company’s 1998 Stock Option Plan at an exercise price equal to the market price of the Company’s common stock on the date of grant ($38.83 per share). The options vest in four equal annual installments beginning June 12, 2008 and expire on June 12, 2012.

On September 20, 2006, the Board of Directors granted a total of 35,000 options under the Company’s 1998 Plan to non-management directors pursuant to the Company’s previously announced compensation plan for non-management directors, at an exercise price equal to the market price of the Company’s common stock on the date of grant ($39.81 per share). The options vest in four equal annual installments beginning September 20, 2007 and expire on September 20, 2013.

On August 11, 2006, the Board of Directors granted a total of 40,000 options under the Company’s 1998 Plan to selected employees at an exercise price equal to the market price of the Company’s common stock on the date of the grant ($37.09 per share). The options vest in four equal annual installments beginning August 11, 2007 and expire on August 11, 2011.

On July 25, 2006, the Board of Directors approved a performance-based equity incentive program for employees to be awarded options to purchase the Company’s common stock based on meeting certain target increases in earnings per share performance and revenue growth during fiscal year 2007. The options shall be issued pursuant to one of the Company’s shareholder approved option plans, have an exercise price equal to the closing price of the Company’s shares on the date of grant, a term of five years, vest in four equal installments commencing one year following the date of grant. The maximum number of options originally available under the performance-based equity incentive program plan was 115,000. On January 29, 2007, a committee comprised of all the independent directors of the Board of Directors modified the Company’s previously approved performance based equity incentive program for employees. Modifications to the program included an increase in the maximum number of options available under the program from 115,000 to 290,000 and revisions to certain revenue targets. Compensation expense of $425 for these options was recorded in the year ended March 31, 2007. A total of 159,500 options was granted during the quarter ended June 30, 2007 based on the achievement of certain fiscal 2007 revenue and earnings per share performance targets included in the fiscal year 2007 equity incentive program.

On October 5, 2005, the Board of Directors granted a total of 124,000 stock options under the Company’s 1998 Plan to non-management directors pursuant to the Company’s previously announced compensation plan for non-management directors, at an exercise price equal to the market price of the Company’s common stock on the date of the grant ($34.065 per share). The options fully vested on January 5, 2006 and expire on October 5, 2012.

On August 8, 2005, the Board of Directors granted 19,000 options under the Company’s 1998 Plan to selected employees at an exercise price equal to the market price of the Company’s common stock on the date of the grant ($32.445 per share). The options vest in four equal annual installments beginning August 8, 2006 and expire on August 8, 2012.

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A summary of stock option transactions during the years ended March 31, 2008, 2007 and 2006 is as follows:

	Number of Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (in thousands)
Outstanding, March 31, 2005		2,169,444			$	13.89
Granted		143,000			$	33.85
Exercised		(486,772	)		$	9.20			$	11,169
Forfeited/Canceled		(27,300	)		$	12.37
Outstanding, March 31, 2006		1,798,372			$	16.78
Granted		75,000			$	38.36
Exercised		(411,414	)		$	14.74			$	10,393
Forfeited/Canceled		(8	)		$	3.25
Outstanding, March 31, 2007		1,461,950			$	18.46
Granted		225,500			$	38.78		4.31
Exercised		(325,266	)		$	14.64		2.48	$	4,955
Forfeited/Canceled		(58,450	)		$	21.12		3.33
Outstanding, March 31, 2008		1,303,734			$	22.81		3.40	$	12,220
Vested and expected to vest, March 31, 2008		1,293,863			$	22.79		3.40	$	12,143
Exercisable, March 31, 2006		471,297			$	20.88
Exercisable, March 31, 2007		520,650			$	20.32
Exercisable, March 31, 2008		654,298			$	19.90		3.26	$	7,127

The Company continues to utilize the Black-Scholes valuation model for estimating the fair value of share-based compensation after the adoption of SFAS 123R with the following assumptions:

	Year Ended March 31, 2008		Year Ended March 31, 2007
Expected life		3.75 - 4.01 years		3.75 - 4.75 years
Expected volatility		42.37% - 44.81%		47.7% - 48.5%
Expected dividends		2.67% - 3.38%		2.05% - 2.36%
Risk-free rate		2.46% - 5.09%		4.53% - 5.09%

During the year ended March 31, 2008, 25,000 options were granted under the 2005 Plan and 200,500 were granted under the 1998 Plan. During the year ended March 31, 2007, 75,000 options were granted under the 1998 Plan. The Company issues new shares to satisfy option exercises. Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of ranging from 1.2% to 1.5% for employee options and 0.0% for director options for the year ended March 31, 2008. Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of 1.2% for employee options and 0.0% for director options for the year ended March 31, 2007. The weighted average grant date fair value of stock options granted during the years ended March 31, 2008, 2007 and 2005 was $12.41, $14.33 and $15.23 per share, respectively. The expected dividend yield is the average dividend rate during a period equal to the expected life of the option.

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Non-vested stock award activity including awards for the year ended March 31, 2008 is summarized as follows:

	Non-vested Number of Shares			Weighted-Average Grant Date Fair Value per Share
Non-vested, April 1, 2007		941,300		$	7.89
Granted		225,500		$	12.41
Vested		(458,914	)	$	2.93
Forfeited/Canceled		(58,450	)	$	9.16
Non-vested, March 31, 2008		649,436		$	9.57

As of March 31, 2008, $4,755 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted average period of 3.54 years. This amount does not include the cost of new options that may be granted in future periods nor any changes in the Company’s forfeiture percentage. The total fair value of shares vested during the year ended March 31, 2008 was $1,345.

11. Commitments and Contingencies

Litigation. The Company has experienced legal claims by parties asserting that it has infringed their intellectual property rights. The Company believes that these claims are not material, are without merit, and the Company intends to defend against them vigorously. However, litigation is inherently uncertain, always difficult to predict, and the impact that these claims may have on the Company’s business, results of operations and financial condition cannot be accurately ascertained at this time. The Company could incur substantial costs and diversion of management resources defending any infringement claim - even if it is ultimately successful in the defense of such matters.

Rental Commitments. The Company leases facilities and offices under irrevocable operating lease agreements expiring at various dates through May 2013 with rent escalation clauses. Rent expense related to these leases is recognized on a straight-line basis over the lease terms. Rent expense for the years ended March 31, 2008, 2007 and 2006 was $2,737, $2,329 and $1,634, respectively. Rental commitments under these agreements are as follows:

Year Ending March 31,
2009	$	3,156
2010		3,131
2011		3,164
2012		1,716
2013 and beyond		942
	$	12,109

Commitments and Guarantees. Software license agreements in both the QSI and NextGen Divisions include a performance guarantee that the Company’s software products will substantially operate as described in the applicable program documentation for a period of 365 days after delivery. To date, the Company has not incurred any significant costs associated with these warranties and does not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated with these warranties. Certain arrangements also include performance guarantees related to response time, availability for operational use, and other performance-related guarantees. Certain arrangements also include penalties in the form of maintenance credits should the performance of the software fail to meet the performance guarantees. To date, the Company has not incurred any significant costs associated with these warranties and does not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated with these warranties.

The Company has historically offered short-term rights of return in certain sales arrangements. If the Company is able to estimate returns for these types of arrangements and all other criteria for revenue recognition have been met, revenue is recognized and these arrangements are recorded in the consolidated financial statements. If the Company is unable to estimate returns for these types of arrangements, revenue is not recognized in the consolidated financial statements until

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the rights of return expire, provided also, that all other criteria of revenue recognition have been met.

The Company’s standard sales agreements in the NextGen Division contain an indemnification provision pursuant to which it shall indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any United States patent, any copyright or other intellectual property infringement claim by any third party with respect to its software. The QSI Division arrangements occasionally utilize this type of language as well. As the Company has not incurred any significant costs to defend lawsuits or settle claims related to these indemnification agreements, the Company believes that its estimated exposure on these agreements is currently minimal. Accordingly, the Company has no liabilities recorded for these indemnification obligations.

From time to time, the Company offers future purchase discounts on its products and services as part of its sales arrangements. Discounts which are incremental to the range of discounts reflected in the pricing of the other elements of the arrangement, which are incremental to the range of discounts typically given in comparable transactions, and which are significant, are treated as an additional element of the contract to be deferred. Amounts deferred related to future purchase options are not recognized until either the customer exercises the discount offer or the offer expires.

The Company has entered into marketing assistance agreements with existing users of the Company’s products which provide the opportunity for those users to earn commissions if and only if they host specific site visits upon the Company’s request for prospective customers which directly result in a purchase of the Company’s software by the visiting prospects. Amounts earned by existing users under this program are treated as a selling expense in the period when earned.

12. Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, marketable securities, accounts receivable, accounts payable, deferred revenue and accrued liabilities. Management believes that the fair value of cash and cash equivalents, accounts receivable, accounts payable, deferred revenue, and accrued liabilities approximate their carrying values due to the short-term nature of these instruments.

Marketable securities are recorded at fair value, based on quoted market rates or on valuation analysis when appropriate, with unrealized gains and losses reflected as a separate component of shareholders’ equity titled accumulated other comprehensive income (loss), net of tax, until realized or until a determination is made that an other-than-temporary decline in market value has occurred (see also Notes 2 and 4).

13. Operating Segment Information

The Company has prepared operating segment information in accordance with SFAS 131 “Disclosures About Segments of an Enterprise and Related Information” to report components that are evaluated regularly by its chief operating decision maker, or decision making group in deciding how to allocate resources and in assessing performance. Reportable operating segments include the NextGen Division and the QSI Division.

The two divisions operate largely as stand-alone operations, with each division maintaining its own distinct product lines, product platforms, development, implementation and support teams, sales staffing, and branding. The two divisions share the resources of the Company’s “corporate office” which includes a variety of accounting and other administrative functions. Additionally, there are a small number of clients who are simultaneously utilizing software from each of the Company’s two divisions.

The QSI Division, co-located with the Company’s Corporate Headquarters in Irvine, California, currently focuses on developing, marketing and supporting software suites sold to dental and certain niche medical practices. In addition, the division supports a number of medical clients that utilize the division’s UNIX^a based medical practice management software product. The NextGen Division, with headquarters in Horsham, Pennsylvania, and a second significant location in Atlanta, Georgia, focuses principally on developing and marketing products and services for medical practices.

The accounting policies of the Company’s operating segments are the same as those described in Note 2 - Summary of Significant Accounting Policies, except that the disaggregated financial results of the segments reflect allocation of certain functional expense categories consistent with the basis and manner in which Company management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. Certain

^a UNIX is a registered trademark of the AT&T Corporation.

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corporate overhead costs, such as executive and accounting department personnel-related expenses, are not allocated to the individual segments by management. Management evaluates performance based on stand-alone segment operating income. Because the Company does not evaluate performance based on return on assets at the operating segment level, assets are not tracked internally by segment. Therefore, segment asset information is not presented.

Operating segment data for the three years ended March 31 was as follows:

	QSI Division		NextGen Division		Unallocated Corporate Expenses			Consolidated
2008
Revenue:	$	16,037	$	170,463	$	—		$	186,500
Operating income (loss):		3,662		66,558		(10,831	)		59,389
2007
Revenue:		16,589		140,576		—			157,165
Operating income (loss):		4,391		56,317		(9,830	)		50,878
2006
Revenue:		15,544		103,743		—			119,287
Operating income (loss):	$	3,610	$	40,245	$	(8,037	)	$	35,818

14. Customer Concentration

No customer represented more than 10% of gross accounts receivable as of March 31, 2008. One customer represented approximately 12.5% of total gross accounts receivable as of March 31, 2007.

15. Subsequent Events

On May 16, 2008, the Company entered into an agreement to acquire Lackland Acquisition II, LLC dba Healthcare Strategic Initiatives (HSI), a full-service healthcare revenue management company servicing healthcare clients. The acquisition was made under the terms of an Agreement and Plan of Merger resulting in HSI becoming a wholly owned subsidiary of QSI. The closing of the HSI acquisition occurred on May 20, 2008. The purchase price consists of approximately $15,400 plus up to approximately $1,650 in incentives tied to future performance. The $15,400 consists of approximately equal parts of cash and restricted QSI common stock, subject to restrictions on resale lapsing over a two year period.

On May 29, 2008, the Board declared a quarterly cash dividend of $0.25 per share on the Company’s outstanding shares of common stock, payable to shareholders of record as of June 13, 2008 with an anticipated distribution date of July 2, 2008. The Company anticipates that future quarterly dividends, if and when declared by the Board pursuant to this policy, would likely be distributable on or about the fifth day of each of the months of October, January, April and July, subject to review by the Board of Directors.

16. Selected Quarterly Operating Results (unaudited)

The following table presents quarterly unaudited consolidated financial information for the eight quarters in the period ended March 31, 2008. Such information is presented on the same basis as the annual information presented in the accompanying consolidated financial statements. In management’s opinion, this information reflects all adjustments that are necessary for a fair presentation of the results for these periods.

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COMPARISON BY QUARTER

	Quarter Ended (Unaudited)
	6/30/2006		9/30/2006		12/31/2006		3/31/2007		6/30/2007		9/30/2007		12/31/2007		3/31/2008
Revenue:
Software, hardware and supplies	$	15,029	$	16,737	$	16,088	$	21,017	$	16,739	$	18,514	$	20,591	$	20,519
Implementation and training		2,954		2,848		2,885		3,490		3,248		3,182		3,115		3,861
Total System sales		17,983		19,585		18,973		24,507		19,987		21,696		23,706		24,380
Maintenance		9,399		9,639		11,069		11,841		12,559		13,442		14,861		15,593
EDI		3,977		4,066		4,290		4,716		5,024		5,406		5,739		6,281
Other services		4,715		4,169		4,164		4,072		4,462		4,602		3,784		4,978
Total Maintenance, EDI and Other services		18,091		17,874		19,523		20,629		22,045		23,450		24,384		26,852
Total revenue		36,074		37,459		38,496		45,136		42,032		45,146		48,090		51,232
Cost of revenue:
Software, hardware and supplies		1,689		1,723		1,798		3,243		2,488		2,477		2,984		2,938
Implementation and training		1,963		2,154		2,169		2,249		2,409		2,423		2,638		2,871
Total cost of system sales		3,652		3,877		3,967		5,492		4,897		4,900		5,622		5,809
Maintenance		3,137		2,792		3,058		2,847		3,127		3,033		3,131		3,155
EDI		2,780		2,926		3,144		3,331		3,509		3,742		4,162		4,363
Other services		1,888		2,238		2,528		3,127		3,009		3,100		3,233		3,709
Total cost of Maintenance, EDI and Other services		7,805		7,956		8,730		9,305		9,645		9,875		10,526		11,227
Total cost of revenue		11,457		11,833		12,697		14,797		14,542		14,775		16,148		17,036
Gross profit		24,617		25,626		25,799		30,339		27,490		30,371		31,942		34,196
Selling, general and administrative		10,200		9,994		10,593		14,550		12,643		13,188		13,283		14,146
Research and development		2,318		2,591		2,601		2,656		2,800		2,688		2,874		2,988
Income from operations		12,099		13,041		12,605		13,133		12,047		14,495		15,785		17,062
Interest income		667		819		935		885		739		645		710		567
Other income		—		—		—		—		—		—		953		—
Income before provision for income taxes		12,766		13,860		13,540		14,018		12,786		15,140		17,448		17,629
Provision for income taxes		5,097		5,523		4,819		5,513		4,846		5,468		6,234		6,377
Net income	$	7,669	$	8,337	$	8,721	$	8,505	$	7,940	$	9,672	$	11,214	$	11,252
Net income per share – basic*	$	0.29	$	0.31	$	0.32	$	0.31	$	0.29	$	0.35	$	0.41	$	0.41
Net income per share – diluted*	$	0.28	$	0.30	$	0.32	$	0.31	$	0.29	$	0.35	$	0.40	$	0.41
Weighted average shares outstanding – basic		26,714		26,802		26,966		27,049		27,134		27,287		27,362		27,408
Weighted average shares outstanding – diluted		27,232		27,380		27,507		27,600		27,657		27,718		27,696		27,712

* Will not add to annual EPS due to rounding

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Schedule II

ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)

For the Year Ended	Balance at Beginning of Year		Additions Charged to Costs and Expenses		Deductions			Balance at End of Year
March 31, 2008	$	2,438	$	1,171	$	(1,081	)	$	2,528
March 31, 2007	$	2,556	$	1,480	$	(1,598	)	$	2,438
March 31, 2006	$	1,837	$	1,181	$	(462	)	$	2,556

ALLOWANCE FOR INVENTORY OBSOLESCENSE
(in thousands)

For the Year Ended	Balance at Beginning of Year		Additions Charged to Costs and Expenses		Deductions			Balance at End of Year
March 31, 2008	$	324	$	52	$	(153	)	$	223
March 31, 2007	$	304	$	35	$	(15	)	$	324
March 31, 2006	$	146	$	179	$	(21	)	$	304

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INDEX TO EXHIBITS ATTACHED TO THIS REPORT

EXHIBIT NUMBER		DESCRIPTION
	10.27	Agreement and Plan of Merger dated May 16, 2008 by and among Quality Systems, Inc., Bud Merger Sub, LLC and Lackland Acquisition II, LLC.
	10.28	Office lease between the Company and LAKESHORE TOWERS LIMITED PARTNERSHIP PHASE II, a California limited partnership, dated October 18, 2007.
	10.29	Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated November 28, 2001.
	10.30	First Amendment to Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated August 17, 2005.
	10.31	Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and InfoNow Solutions of St. Louis, LLC, dated November 28, 2001.
	10.32	Second Amendment to Service Center Lease Agreement between TM Properties, LLC, successor to the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated August 17, 2005.
	10.33	Assignment of Lease between InfoNow Solutions of St. Louis, Lackland Acquisition II, LLC, and TM Properties, LLC, dated August 17, 2005.
	21	List of Subsidiaries
	23	Consent of Independent Registered Public Accounting Firm – Grant Thornton LLP
	31.1	Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

79

EX-10.27

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

QUALITY SYSTEMS, INC.

BUD MERGER SUB, LLC

AND

LACKLAND ACQUISITION II, LLC

dba Healthcare Strategic Initiatives

May 16, 2008

TABLE OF CONTENTS

			Page
ARTICLE I THE MERGER			1
	1.1	The Merger	1
	1.2	The Closing	1
	1.3	Actions at the Closing	1
	1.4	Additional Action	2
	1.5	Conversion of Membership Interests; Purchase Consideration	2
	1.6	Closing Amount Adjustment	3
	1.7	Earnout Payment	5
	1.8	Escrow	10
	1.9	Articles of Organization and Operating Agreement of Surviving Company	10
	1.10	No Further Rights	10
	1.11	Member Releases	10
	1.12	Company Closing Expenses	11
	1.13	Appointment of Member Representatives	11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY			12
	2.1	Organization, Qualification and Corporate Power	12
	2.2	Capitalization	13
	2.3	Authorization of Transaction	13
	2.4	Noncontravention	14
	2.5	Subsidiaries	14
	2.6	Financial Statements	14
	2.7	Absence of Certain Changes	14
	2.8	Undisclosed Liabilities	16
	2.9	Taxes	16
	2.10	Assets	18
	2.11	Owned Real Property	19
	2.12	Real Property Leases	19
	2.13	Intellectual Property	20
	2.14	Contracts	21
	2.15	Accounts Receivable	23
	2.16	Powers of Attorney	23
	2.17	Insurance	23
	2.18	Litigation	23
	2.19	Warranties	23
	2.20	Employees	24
	2.21	Employee Benefits	24
	2.22	Environmental Matters	27
	2.23	Legal Compliance	28
	2.24	Customers and Suppliers	29
	2.25	Permits	29
	2.26	Certain Business Relationships With Affiliates	29
	2.27	Brokers’ Fees	29

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			Page
	2.28	Books and Records	29
	2.29	Compliance with Healthcare Laws and Regulations	30
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARENT			31
	3.1	Organization and Corporate Power	31
	3.2	Authorization of Transaction	31
	3.3	Noncontravention	31
	3.4	Financing	32
	3.5	SEC Filings	32
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB REGARDING MERGER SUB			32
	4.1	Organization and Corporate Power	32
	4.2	Authorization of Transaction	32
	4.3	Litigation	32
	4.4	Noncontravention	33
ARTICLE V PRE-CLOSING AND POST-CLOSING COVENANTS			33
	5.1	Closing Efforts	33
	5.2	Governmental and Third-Party Notices and Consents	33
	5.3	Operation of Business	33
	5.4	Access to Information	35
	5.5	Notice of Breaches	35
	5.6	Exclusivity	36
	5.7	Expenses	36
	5.8	Proprietary Information	36
	5.9	Confidentiality	37
	5.10	Insurance Matters	37
	5.11	Guarantees	37
ARTICLE VI CONDITIONS TO CONSUMMATION OF MERGER			37
	6.1	Conditions to Obligations of the Parent and Merger Sub	37
	6.2	Conditions to Obligations of the Company	39
ARTICLE VII INDEMNIFICATION			40
	7.1	Indemnification by the Indemnifying Members	40
	7.2	Indemnification by the Parent	41
	7.3	Third Party Actions	42
	7.4	Non-Third Party Actions	43
	7.5	Survival of Representations and Warranties	44
	7.6	Treatment of Indemnity Payments	45
	7.7	Limitations	45
ARTICLE VIII TAX MATTERS			46
	8.1	Tax Indemnification	46
	8.2	Preparation and Filing of Tax Returns; Payment of Taxes	47

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			Page
	8.3	Audits, Assessments, Etc	47
	8.4	Termination of Tax Sharing Agreements	48
	8.5	Indemnification Claims	48
	8.6	Dispute Resolution	48
	8.7	Limitations	49
ARTICLE IX TERMINATION			49
	9.1	Termination of Agreement	49
	9.2	Effect of Termination	49
ARTICLE X DEFINITIONS			50
ARTICLE XI MISCELLANEOUS			64
	11.1	Press Releases and Announcements	64
	11.2	No Third Party Beneficiaries	64
	11.3	Entire Agreement	64
	11.4	Succession and Assignment	64
	11.5	Counterparts and Facsimile Signature	64
	11.6	Headings	64
	11.7	Notices	64
	11.8	Governing Law	65
	11.9	Amendments and Waivers	66
	11.10	Severability	66
	11.11	Construction	66
	11.12	Attorneys Fees	66
	11.13	Arbitration	66
	[Signature page follows]		67

Disclosure Schedule
Exhibit A - Member Transmittal Letter
Exhibit B – Membership Interest Conversion Calculation
Exhibit C – Calculations of Assumed Distributions to Members
Exhibit D – Accounting Policies
Exhibit E – Escrow Agreement
Exhibit F – Form of Legal Opinion of the Company’s Counsel
Exhibit G – InfoNow License Agreement (form of)
Exhibit H – Form of Legal Opinion of the Parent’s Counsel
Exhibit I – Earnout Calculation Examples
Exhibit J – Earnout Payment Definitions

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AGREEMENT AND PLAN OF MERGER

          This Agreement and Plan of Merger (this “Agreement”) is entered into as of May 16, 2008 by and among (i) QUALITY SYSTEMS, INC., a California corporation (the “Parent”), (ii) BUD MERGER SUB, LLC, a Missouri limited liability company and a wholly-owned subsidiary of the Parent (the “Merger Sub”), (iii) LACKLAND ACQUISITION II, LLC, dba Healthcare Strategic Initiatives, a Missouri limited liability company (the “Company”), and (iv) the Members of the Company who have executed this Agreement (each an “Indemnifying Member” and collectively, the “Indemnifying Members”).

          This Agreement contemplates a merger of the Merger Sub with and into the Company with the Company as the surviving entity. In such merger, the Members will receive cash and Parent Stock in exchange for their Membership Interests in the Company.

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

ARTICLE I
THE MERGER

          1.1 The Merger. Upon and subject to the terms and conditions of this Agreement, the Merger Sub shall merge with and into the Company. From and after the Effective Time, the separate company existence of the Merger Sub shall cease and the Company shall continue as the Surviving Company. The Merger shall have the effect set forth in Section 347.133 of the Missouri Revised Statutes (the “MRS”).

          1.2 The Closing. The Closing shall take place at the offices of Rutan & Tucker, LLP, Costa Mesa, California, or at such other place as the Company and Parent may mutually agree in writing, commencing at 10:00 a.m. local time on the third Business Day following the date on which the last of the conditions set forth in Article VI have been satisfied or waived (other than conditions that may only be satisfied on the Closing Date, but subject to the satisfaction of such conditions) or on such other date as the Parent and the Company may mutually agree in writing (the “Closing Date”).

          1.3 Actions at the Closing.

                    (a) At the Closing:

                              (i) the Company shall deliver to the Parent the various certificates, instruments and documents referred to in Section 6.1 of this Agreement;

                              (ii) the Parent and/or Merger Sub shall deliver to the Company the various certificates, instruments and documents referred to in Section 6.2 of this Agreement; and

                              (iii) the Surviving Company shall file the Notice of Merger with the Missouri Secretary of State.

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                    (b) At or prior to the Closing, each Member, shall deliver to the Parent an appropriate letter of transmittal and instruction of any documentation or certification, if any, of such Member’s Membership Interests (each, a “Member Transmittal Letter”) substantially in the form attached hereto as Exhibit A;

                    (c) Commencing at the Effective Time, immediately upon receipt of a properly completed Member Transmittal Letter from a Member the Parent shall pay to such Member: (A) by wire transfer of immediately available funds to an account designated by such Member in the Member Transmittal Letter the cash portion of the Closing Amount; and (B) by delivery (or electronic transfer) from the Parent’s transfer agent, to each Member the Parent Stock portion of the Closing Amount; into which such Member’s Membership Interests are converted or exchanged pursuant to Section 1.5(a);

                    (d) At the Effective Time, the Parent shall deposit the cash and Parent Stock in to the Escrow Fund account with the Escrow Agent in accordance with Section 1.8.

          1.4 Additional Action. The Surviving Company may, at any time after the Effective Time, take any action, including executing and delivering any document, in the name and on behalf of the Company or the Merger Sub, in order to consummate the series of transactions contemplated by this Agreement.

          1.5 Conversion of Membership Interests; Purchase Consideration. At the Effective Time, by virtue of the Merger without any further action on the part of any Party or holder of any of the Membership Interests:

                    (a) Each Membership Interest shall be converted, in accordance with the formula set forth in Exhibit B attached hereto, into the right to receive a pro-rata portion, relative to all outstanding Membership Interests, of the Aggregate Transaction Consideration which shall be payable, without interest, at any time in which a portion of the Aggregate Transaction Consideration is distributed in accordance with the provisions of this Agreement or the Escrow Agreement (each a “Payment Date”).

                    (b) Whenever cash payments are due by the Parent under this Agreement, Parent shall pay each Member by wire transfer of immediately available funds to the account designated by such Member in his or her Member Transmittal Letter, the amount determined in accordance with the preceding provision of Section 1.5(a).

                    (c) One hundred percent (100%) of the membership interest of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and thereafter evidence one hundred percent (100%) of the Membership Interests of the Surviving Company.

                    (d) For illustrative purposes only, a spreadsheet showing the calculations for the assumed distributions to each Member is set forth on Exhibit C attached hereto.

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          1.6 Closing Amount Adjustment.

                    (a) Estimated Net Debt.

                              (i) The Closing Amount will be adjusted downward by the amount, if any, by which the Estimated Net Debt as of the Closing is greater than Three Million Six Hundred Fifty-five Thousand Two Hundred Six Dollars ($3,655,206).

                              (ii) Two Business Days before the anticipated Closing Date, the Company will deliver to Parent a certificate setting forth, as of the date thereof, an estimate of the amount of Cash and Debt expected as of the Closing Date (on a pro forma basis giving effect to the transactions contemplated by the Agreement)(the difference between such Debt less Cash, the “Estimated Net Debt”). The amount of Debt will be itemized by creditor, with supporting detail, and the amount of Cash will specify cash on hand and each cash equivalent, with supporting detail. If the amount of Estimated Net Debt as of the Closing Date is more than Three Million Six Hundred Fifty-five Thousand Two Hundred Six Dollars ($3,655,206) (the “Target Net Debt”), the cash portion of the Closing Amount will be reduced by the amount of such excess (the amount of such decrease, if any, shall be referred to as the “Estimated Net Debt Adjustment”). Under no circumstances shall the amount of Debt be in excess of $3,750,000 (the “Maximum Allowable Closing Debt”) unless such restriction is waived in writing by Parent.

                    (b) Estimated Working Capital Adjustment

                              (i) The Closing Amount will be adjusted downward by the amount by which Estimated Closing Date Working Capital is less than a negative ($586,103) exclusive of $385,000 subordinated member debt owing to Maxine Hirsch (the “Target Working Capital”).

                              (ii) Two Business Days before the anticipated Closing Date, the Company will deliver to Parent a certificate setting forth, as of the date thereof, an estimate of the Closing Date Working Capital (the “Estimated Working Capital”), with supporting detail. If the Estimated Working Capital set forth in such certificate is less than the Target Working Capital, the cash portion of the Closing Amount will be decreased by such shortfall (the amount of such decrease shall be referred to as the “Estimated Working Capital Adjustment”).

                    (c) Closing Amount Adjustment. Within five (5) Business Days after the final determination of the Final Balance Sheet pursuant to Section 1.6(d) of this Agreement, the Closing Amount will be adjusted again (the amount of any such adjustment shall be referred to as the “Closing Amount Adjustment”) and the Members will make such payments to the Surviving Company as are necessary, if any, as follows: (i) an amount equal to that amount by which the Estimated Net Debt is less than the Net Debt reflected on such Final Balance Sheet (only in the event that Net Debt is greater than the Target Net Debt); and (ii) an amount equal to that amount by which the Estimated Working Capital is greater than the Closing Date Working Capital reflected on such Final Balance Sheet (only in the event that Closing Date Working Capital is less than Target Working Capital). In the event a Closing Amount Adjustment is due to the Parent hereunder, the amount shall be disbursed (i) first, from the cash portion of the Escrow Fund, (ii) second, from the Parent Stock portion of the Escrow Fund (valued using the Escrow Stock Valuation), (iii) third, to the extent the Escrow Fund is insufficient to pay in full

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such Closing Amount Adjustment, from any other amounts of the Aggregate Transaction Consideration payable to the Members hereunder, whether by right of setoff or otherwise upon notice of such election to the Member Representatives, or (iii) fourth, if amounts of the Aggregate Transaction Consideration payable hereunder are not sufficient, upon demand from the Indemnifying Members. No Closing Amount Adjustment shall be paid or due to any of the Members.

                    (d) Adjustment Procedures. The adjustments described in Section 1.6(c) will be determined as follows:

                              (i) Within fifty (50) days after the Closing Date, the Parent shall prepare, in accordance with GAAP, and deliver to the Member Representatives a balance sheet of the Company as of the Closing Date (the “Final Balance Sheet”). The parties acknowledge and agree that, for purposes of determining the Closing Amount Adjustment pursuant to this Section 1.6(d)(i), the Final Balance Sheet shall be prepared on a basis consistent with and utilizing the same principles, practices and policies of the Company, as those used in preparing the Most Recent Balance Sheet, subject to the Accounting Policies. The Parties acknowledge and agree that the items listed on Section 1.6(d)(i) of the Disclosure Schedules shall be included on the Final Balance Sheet.

                              (ii) Upon receipt of the Final Balance Sheet, the Member Representatives and any professionals chosen by them shall have the right to review the Surviving Company’s books and records relating to, and the work papers of the Parent and its advisors utilized in preparing the Final Balance Sheet. The Final Balance Sheet shall be binding for purposes of the Closing Amount Adjustment unless the Member Representatives present to the Parent within 20 Business Days after receipt of the Final Balance Sheet from the Parent written notice of disagreement specifying in reasonable detail the nature and extent of the disagreement.

                              (iii) If the Member Representatives deliver a timely notice of disagreement, the Parent and the Member Representatives shall attempt in good faith during the thirty (30) days immediately following the Parent’s receipt of timely notice of disagreement to resolve any disagreement with respect to the Final Balance Sheet. If, at the conclusion of such 30-day period, the Parent and the Member Representatives have not resolved their disagreements regarding the Final Balance Sheet, the Parent and the Member Representatives shall refer the items of disagreement for final determination to the Orange County, California office of a regional accounting firm which is mutually acceptable to the Parent and the Member Representatives (the “Adjustment Accountants”). However, if the Parent and Member Representatives are unable to agree on such a firm which is willing to so serve, the Parent shall deliver to the Member Representatives a list of three independent California regional accounting firms with offices in Orange County, California, that are not currently nor have they been during the past five (5) years, auditors, tax advisors or other consultants to the Parent (or Parent’s then current subsidiaries, officers, or directors), the Company or the Member Representatives, and the Member Representatives shall select one of such three firms to be the Adjustment Accountants within five (5) Business Days. The parties will be reasonably available for such firm, and shall instruct such firm to render a final determination within the 20 days immediately following the referral to the Adjustment Accountants. The Final Balance Sheet shall be deemed to be

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conclusive and binding on the Parent and the Members upon (A) the failure of the Member Representatives to deliver to the Parent a notice of disagreement within 20 Business Days of their receipt of the Final Balance Sheet prepared by the Buyer, (B) resolution of any disagreement by mutual agreement of the Parent and the Member Representatives after a timely notice of disagreement has been delivered to the Parent, or (C) notification by the Adjustment Accountants of their final determination of the items of disagreement submitted to them.

                    (e) The fees and disbursements of the Adjustment Accountants under this Section 1.6(e) shall be paid by the Parent, on the one hand, and the Members, on the other hand, based on their Pro Rata Award. In the event the Members are obligated to pay the fees and disbursements of the Adjustment Accountants hereunder, such amounts shall be disbursed (i) first, from the cash portion of the Escrow Fund, (ii) second, to the extent the cash portion of the Escrow Fund is insufficient to pay in full such Closing Amount Adjustment, then from the Parent Stock portion of the Escrow Fund (valued using the Escrow Stock Valuation), (iii) third, from any other amounts of the Aggregate Transaction Consideration payable to the Members hereunder, whether by right of setoff or otherwise, or (iv) fourth, if amounts payable hereunder are not sufficient, upon demand by Parent, from the Indemnifying Members.

          1.7 Earnout Payment.

                    (a) Within fifty (50) days after the second anniversary of the Closing Date (which two year period from the Closing Date shall be referred to as the “Earnout Period”), the Parent will determine in good faith a contingent payment for such Earnout Period in an amount not to exceed $1,000,000 (the “Earnout Payment”) (subject to the additional $650,000 earnout override described below (the “Earnout Override”) and deliver a written certificate containing a calculation of such amount specifying in reasonable detail the elements of each component thereof (the “Earnout Certificate”)) as set forth herein such that the Member Representatives can confirm such calculation was made pursuant to the terms of this Agreement, GAAP and subject to the Accounting Policies. The Earnout Payment and Earnout Override shall be divided into two equal parts with each part separately earned independent of the other part except as set forth in the criteria set forth below:

(i) the revenue earnout which shall account for 50% of the possible Earnout Payment and, if applicable, the Earnout Override, and

(ii) the income earnout which shall account for the other 50% of the possible Earnout Payment and, if applicable, the Earnout Override. The determination of the Earnout Payment and Earnout Override shall be made in accordance with the following terms and conditions set forth in this Section 1.7:

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Earnout Payment Definitions:

                              The definitions of (i) Fiscal Year 2009 Earnout Targets, (ii) Fiscal Year 2010 Earnout Targets, and (iii) Aggregate Fiscal Year 2009/2010 Earnout Target, are each set forth on Exhibit J attached hereto.

The Earnout calculation:

          1. If, for Fiscal Year 2009, either:

                    (i) the Company’s gross revenues are less than 80% of the Fiscal Year 2009 Revenue Target; or

                    (ii) the Company’s pre-tax income is less than 80% of the Fiscal Year 2009 Income Target;

                    (iii) then, no Earnout Payment or Earnout Override shall be made at the end of the Earnout Period.

          2. If, for Fiscal Year 2010, either:

                    (i) the Company’s gross revenues are less than 80% of the Fiscal Year 2010 Revenue Target; or

                    (ii) the Company’s pre-tax income is less than 80% of the Fiscal Year 2010 Income Target;

                    (iii) then, no Earnout Payment or Earnout Override shall be made at the end of the Earnout Period.

          3. If:

                    (i) for Fiscal Year 2009, (A) the Company achieves at least 80% of the Fiscal Year 2009 Revenue Target, and (B) the Company achieves at least 80% of the Fiscal Year 2009 Income Target; and

                    (ii) for Fiscal Year 2010, (A) the Company achieves at least 80% of the Fiscal Year 2010 Revenue Target, and (B) the Company achieves at least 80% of the Fiscal Year 2010 Income Target,

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                    (iii) then, the Earnout Payment shall be made at the end of the Earnout Period according to the following (the amounts set forth are examples of data points along the continuum; it being the intention of the parties that the amounts are to be calculated on a continuous, linear basis – (for example, in the first table immediately below, a percentage of Fiscal Year 2009/2010 Aggregate Gross Revenue of 82.5 in the first column would result in percentage of Revenue Earnout Earned of 56.25):

          Revenue Earnout Calculation

Percentage of Fiscal Year 2009/2010 Aggregate Gross Revenue	Percentage of Revenue Earnout Earned
80	50
85	62.5
90	75
95	87.5
100	100

          Income Earnout Calculation

Percentage of Fiscal Year 2009/2010 Aggregate Pre-Tax Income	Percentage of Income Earnout Earned
80	50
85	62.5
90	75
95	87.5
100	100

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The Earnout Override:

          Subject to the conditions of parts 1., 2. and 3. set forth under the “The Earnout calculation” paragraph of this Section 1.7 (see above), the following Earnout Override Payments may be made:

          4. If the Company achieves 115% or greater of its Fiscal Year 2009/2010 Aggregate Revenue Target, $325,000 shall be paid pursuant to the Earnout Override; and

          5. If the Company achieves 115% or greater of its Fiscal Year 2009/2010 Aggregate Pre-Tax Income Target, $325,000 shall be paid pursuant to the Earnout Override.

          6. Provided, however, that in no case shall the total Earnout Payments (inclusive of the Earnout Override set forth in parts 4 and 5 immediately above) under this Agreement exceed, in the aggregate, $1,650,000.

          7. Examples of possible outcomes for the Earnout and Earnout Override are set forth on Exhibit I attached hereto.

                    (b) Dispute Resolution.

                              (i) The amount of the Earnout Payment and Earnout Override set forth in the Earnout Certificate shall be binding on the Members unless the Member Representatives present to the Parent within thirty (30) days after receipt of the Earnout Certificate written notice of disagreement specifying in reasonable detail the nature and extent of the disagreement. Upon receipt of the Earnout Certificate, the Member Representatives and any professionals chosen by them shall have the right to review the Surviving Company’s books and records relating to any information contained in or related to the Earnout Certificate. If the Member Representatives deliver a timely notice of disagreement, Parent and the Member Representatives shall attempt in good faith during the sixty (60) days immediately following the Parent’s receipt of the Member Representatives’ timely notice of disagreement to resolve any disagreement with respect to such Earnout Payment or Earnout Override.

                              (ii) If, at the end of the 60-day period referenced in subsection (i) above, Parent and the Member Representatives have not resolved all disagreements with respect to whether the calculation of the Earnout Payment or the Earnout Override is in accordance with the terms of Section 1.7 of this Agreement, GAAP, and the Accounting Policies, Parent and the Member Representatives will refer the items of disagreement to the Orange County, California office of a regional Orange County, California accounting firm mutually acceptable to the Parent and the Member Representatives (the “Earnout Accountants”) for final determination. However, if the Parent and the Member Representatives are unable to agree on an accounting firm willing to so serve, the Parent shall deliver to the Member Representatives a list of three independent

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Orange County, California regional accounting firms that are not (and have not been for the past five (5) years) auditors, tax advisors or other consultants to the Parent (or its then current subsidiaries, officers or directors) or any of its Affiliates or the Company or the Member Representatives or their respective Affiliates, and the Member Representatives shall select one of such three firms to be the Earnout Accountants within five (5) Business Days. The parties will be reasonably available for such firm, and shall instruct such firm to render a final determination and work diligently to facilitate the Earnout Payment and Earnout Override within the 30-day period immediately following the referral to the Earnout Accountants. The Earnout Accountants, Parent and the Member Representatives will enter into such engagement letters as required by the Earnout Accountants to perform under this Section 1.7(c)(ii). The determination of the Earnout Accountants will be final and binding on the Parties. The fees and disbursements of the Earnout Accountants under this Section 1.7(c)(ii) will be paid by the Parent, on the one hand, and the Member, on the other hand, based on their Pro Rata Award. If any amount is payable by the Members, such amount will be (i) first deducted from the Earnout Payments and Earnout Overrides, if any, (ii) second, from the cash portion of the Escrow Fund, (iii) third, to the extent the cash portion of the Escrow Fund is insufficient to pay in full such fees, then from the Parent Stock portion of the Escrow Fund (valued using the Escrow Stock Valuation), and (iv) fourth, if amounts payable in this Section 6(b)(ii) are still not sufficient, from the Indemnifying Members.

                    (c) Conduct of Business.

                              (i) Parent is entitled to manage and operate the Surviving Company and its businesses in its sole and absolute discretion; provided, however, that (i) Parent will not make any special allocations of expenses or deferrals of revenue with respect to the Surviving Company outside the historical, usual and customary business and accounting practices of Parent with a view toward negatively impacting the Earnout Payment and Earnout Override and (ii) Parent will not cause the Surviving Company to share the burden of “Corporate” allocations of overhead as historically accounted for by Parent.

                              (ii) The Parties acknowledge and agree that, unless otherwise agreed to in writing by each of Parent and the Member Representatives, in its and their sole discretion, during the Earnout Period, Parent will not cause to be operated through the Surviving Company any business other than the Business as of the Closing Date.

                              (iii) Parent will maintain or cause to be maintained separate or otherwise identifiable (e.g., in the case of a shared general ledger) books and records for the Surviving Company at all times during the Earnout Period in a manner reasonably necessary for the financial statements of the Surviving Company to be prepared in accordance with GAAP (and in a manner consistent with the Accounting Policies) and the Earnout Payment and Earnout Override to be readily calculable therefrom. In calculating the Earnout Payment and Earnout Override, Parent shall use the same Accounting Policies, procedures, policies, methods, elections and allocations as were used in preparing the Final Balance Sheet.

                    (d) The Earnout Payment and the Earnout Override, if any, shall be paid to the Members within fourteen (14) calendar days after such amounts have been determined for the Earnout Period, in the manner set forth under Section 1.5(b).

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                    (e) The Parties agree to discuss in good faith any issues concerning the Earnout and Earnout Override as administered pursuant to this Section 1.7.

          1.8 Escrow.

                    (a) Escrow Fund. On the Closing Date, the Parent or the Merger Sub shall deposit with the Escrow Agent the Escrow Fund. The Escrow Fund shall represent contingent Aggregate Transaction Consideration payable to the Members hereunder to the extent the Escrow Fund has not been reduced by operation of this Agreement or in accordance with the Escrow Agreement. The Escrow Fund shall be held by the Escrow Agent under the Escrow Agreement pursuant to the terms thereof. The Escrow Fund shall be held until the second anniversary of the Closing Date (except as specifically provided in Section 1.8(a)(ii), below) as a trust fund and shall not be subject to any lien, attachment trustee process or any other judicial process of any creditor of any party, and shall be held and disbursed solely for the purposes and in accordance with the terms of the Escrow Agreement and as otherwise set forth herein; provided, however, notwithstanding anything to the contrary contained in this Agreement or the Escrow Agreement (i) one-third of all shares of Parent Stock then in the Escrow Fund shall be released therefrom on the first anniversary of the Closing Date and (ii) One Million Four Hundred Thousand Dollars ($1,400,000) of Escrowed Parent Stock, valued using the Escrow Stock Valuation, shall be released on the earlier of (A) the fifth anniversary of the Closing Date; or (B) upon joint agreement of Parent and the Member Representatives confirming the termination or other final resolution of the “Coding Activities” matter with respect to the Company (as referenced in the Disclosure Schedule) has occurred.

                    (b) The adoption of this Agreement and the approval of the Merger by the Members shall constitute approval of the Escrow Agreement and of all of the arrangements relating thereto, including the placement of the Escrow Fund in escrow and the appointment of the Member Representatives to act on behalf of the Members.

          1.9 Articles of Organization and Operating Agreement of Surviving Company.

                    (a) The Articles of Organization of the Surviving Company immediately following the Effective Time shall be the same as the Articles of Organization of the Company immediately prior to the Effective Time.

                    (b) The Operating Agreement of the Company immediately following the Effective Time shall be the same as the Operating Agreement of the Company immediately prior to the Effective Time.

          1.10 No Further Rights. From and after the Effective Time, membership interests of the Merger Sub shall be deemed to be outstanding, and holders of certificates, if any, or evidence of Merger Sub ownership shall cease to have any rights with respect thereto except as provided herein or by law.

          1.11 Member Releases.

                    (a) Effective as of the Closing, each of the Indemnifying Members agrees not to sue and fully releases and discharges the Company and its Members, managers, officers,

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assigns and successors, past and present (collectively, “Releasees”), with respect to and from any and all claims, issuances of the Company’s units, notes or other securities, any demands, rights, liens, contracts, covenants, proceedings, causes of action, obligations, debts, and losses of whatever kind or nature in law, equity or otherwise, whether now known or unknown, and whether or not concealed or hidden, all of which each Indemnifying Member now owns or holds or has at any time owned or held against Releasees connected with or relating to any matter occurring on or prior to the Closing Date; provided, however, that nothing in this Section 1.11 will be deemed to constitute a release by any Indemnifying Member of any right or claim of such Indemnifying Member arising out of this Agreement or any agreement entered into in connection with this Agreement or any employee benefit plan of the Company which benefit is separately disclosed on the Disclosure Schedule and identifying the Indemnifying Member entitled to such benefit.

                    (b) It is the intention of each Indemnifying Member that such release be effective as a bar to each and every claim, demand and cause of action hereinabove specified.

          1.12 Company Closing Expenses. At the Closing, subject to Section 5.7, Company shall cause the payment of the Company Closing Expenses directly to those Persons designated in writing on Section 1.12 of the Disclosure Schedule as being entitled thereto. The Company and the Member Representatives hereby represents and warrants that there will be no other Company Closing Expenses owed except to those parties set forth in Section 1.12 of the Disclosure Schedule as the same may be updated from time to time with Parent’s prior written consent (which shall not be unreasonably withheld). The Company Closing Expenses shall be taken in to account in the computation of the Final Balance Sheet under Section 1.6(d).

          1.13 Appointment of Member Representatives.

                    (a) The Member Representatives are hereby authorized to act as the Members’ representatives and agents for all purposes under this Agreement, including all agreements and documents annexed as Exhibits hereto.

                    (b) Should either or both Member Representatives resign or be unable to serve, the Member or Members having received a majority of the Aggregate Transaction Consideration distributed as of the latest Payment Date shall appoint a single substitute agent to take on the responsibilities of the Member Representatives, whose appointment shall be effective on the date of the prior Members Representative’s resignation or incapacity.

                    (c) By way of illustration only, and without limitation, the Member Representatives shall have the authority to (i) execute on behalf of each Member, as fully as if the Members were acting on their own behalf, any and all documents and agreements referred to herein, including the Escrow Agreement as the Members’ representative, (ii) give and receive notice or instructions permitted or required under this Agreement or the Escrow Agreement, (iii) authorize the release of the amounts held in the Escrow Fund to pay any Claimed Amount, or (iv) to undertake any actions with respect to the resolution of a Dispute or any disagreement with respect to the amount of any Earnout Payment or Earnout Override, including partaking in any dispute resolution process.

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                    (d) Any notice, direction or communication received by Parent, Merger Sub or the Surviving Company from the Member Representatives, or delivered to the Member Representatives by Parent, Merger Sub or the Surviving Company, shall be binding upon the Members, and each of them. The Member Representatives shall act in all matters on behalf of the Members and Parent and Merger Sub and, after the Effective Time, the Surviving Company shall be entitled to rely on the actions of the Member Representatives hereunder acting in concert or alone as the actions of the Members. Parent, Merger Sub and the Surviving Company may deliver notices and communications to the Members hereunder through the Member Representatives at the address set forth in this Agreement for notices, and such delivery shall be deemed to have been made to any or all of the Members. None of Parent, Merger Sub nor the Surviving Company shall pay any costs or expenses incurred by the Member Representatives in carrying out their obligations hereunder. Each of Parent, Merger Sub and the Surviving Company consents to the appointment of the Member Representatives to act as described hereunder.

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          The Company represents and warrants to the Parent that, except as set forth in the Disclosure Schedule, the statements contained in this Article II are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties will be true and correct as of such date). The Company shall have the right to supplement and update the Disclosure Schedule to reflect events that have occurred between the date of this Agreement and the Closing and could not have been disclosed at the date of this Agreement; provided, however, that no such supplemental or updated information shall be deemed to avoid or cure any misrepresentation or breach of warranty or constitute an amendment of any breach of representation or warranty made by the Company as of the date of this Agreement; and provided, further, however, that such right shall not be deemed in any way to waive, modify or amend the condition to Closing set forth in Section 6.1(i) hereof unless the Parent expressly waives the condition in writing. The Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Article II. The disclosures in any section or subsection of the Disclosure Schedule shall be deemed to be listed or disclosed on other sections of the Disclosure Schedule to the extent such disclosure is either (i) appropriately cross referenced in the other applicable sections or (ii) clear and unambiguous that such disclosure is applicable to the other sections and subsections of the Disclosure Schedule.

          2.1 Organization, Qualification and Corporate Power. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Missouri. The Company is duly qualified to conduct business and is in good standing under the laws of each jurisdiction listed in Section 2.1 of the Disclosure Schedule, which jurisdictions constitute the only jurisdictions in which the nature of the Company’s businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so authorized, qualified or licensed would not result in a Material Adverse Effect. The Company has all requisite company power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has furnished to

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the Parent true, complete and correct copies of its Articles of Organization and Operating Agreement. The Company is not in default under or in violation of any provision of its Articles of Organization or Operating Agreement.

          2.2 Capitalization.

                    (a) Section 2.2(a) of the Disclosure Schedule sets forth the authorized and outstanding Membership Interests of the Company which consists of such ownership interests in the Company as set forth in the Operating Agreement.

                    (b) Section 2.2(b) of the Disclosure Schedule sets forth a complete and accurate list, as of the date of the Agreement, of the Members, showing the percentage of Membership Interests, and the class or series, if any, of such Membership Interests, held by each Member. No outstanding Membership Interests constitute restricted Membership Interests or are otherwise subject to a repurchase or redemption right, indicating the name of the applicable Member, the vesting schedule (including any acceleration provisions with respect thereto), and the repurchase price payable by the Company. All of the issued and outstanding Membership Interests of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All of the issued and outstanding Membership Interests and securities of the Company have been offered, issued and sold by the Company in compliance with all applicable federal and state securities laws. None of the issued and outstanding Membership Interests are certificated.

                    (c) The Company does not have any Membership Interest Purchase Plans.

                    (d) No subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any Membership Interest of the Company is authorized or outstanding. The Company has no obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right, or to issue or distribute to holders of any Membership Interest, any evidences of indebtedness or assets of the Company. The Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any Membership Interest or any subinterest therein or to pay any dividend or to make any other distribution in respect thereof. There are no outstanding or authorized Membership Interest appreciation, phantom Membership Interest or similar rights with respect to the Company.

                    (e) Except as set forth in Section 2.2(e) of the Disclosure Schedule, there is no outstanding agreement, written or oral, between the Company and any holder of its securities, or, to the best of the Company’s Knowledge, among any holders of its securities, relating to the sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights), registration under the Securities Act, or voting, of the Membership Interests of the Company.

          2.3 Authorization of Transaction. The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary

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company action on the part of the Company, except for the Requisite Member Approval. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent such enforceability is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other law affecting or relating to creditors’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

          2.4 Noncontravention. Subject to the filing of the Notice of Merger as required by the MRS and the receipt of the Requisite Member Approval, neither the execution and delivery by the Company of this Agreement, nor the consummation by the Company of the transactions contemplated hereby, will (a) conflict with or violate any provision of the Articles of Organization or Operating Agreement of the Company, (b) require on the part of the Company any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity, (c) except as set forth in Section 2.4(c) of the Disclosure Schedule, conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument of a value in excess of $50,000 per year or duration in excess of 12 months, to which the Company is a party or by which the Company is bound or to which any of its assets is subject, (d) result in the imposition of any Security Interest upon any assets of the Company, or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its properties or assets.

          2.5 Subsidiaries. Except as disclosed in Section 2.5 of the Disclosure Schedule, neither the Company, nor its Members that are to become employees of the Surviving Company as part of the transactions contemplated hereby, have any direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business association or entity, other than (i) as a passive investor who does no more than hold such investor’s investment in the entity and does not directly or indirectly render services or advice to such entity, and (ii) outside the area and market in which the Business is conducted.

          2.6 Financial Statements. The Company has provided to the Parent the Financial Statements, copies of which are attached to Section 2.6 of the Disclosure Schedule. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of the respective dates thereof and for the periods referred to therein and are consistent with the books and records of the Company; provided, however, that the Financial Statements are subject to normal recurring year-end adjustments (which will not be material) and do not include notes.

          2.7 Absence of Certain Changes. Since the Most Recent Balance Sheet Date, the Company has operated its business only in the Ordinary Course of Business, and, except as set forth on Section 2.7 of the Disclosure Schedule:

                    (a) the Company has not incurred any Debt other than changes in the principal balance of the Company’s line of credit;

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                    (b) the Company has not made any acquisition (by merger, consolidation, or acquisition of stock or assets or otherwise) of any other Person;

                    (c) the Company has not created any Security Interest on any of its assets, tangible or intangible;

                    (d) except for sales to customers of the Company’s products and services in the Ordinary Course of Business, the Company has not sold, assigned or transferred any of its tangible assets;

                    (e) the Company has not entered into or amended (i) any customer agreement with a Person that is a Significant Person or (ii) any agreement, other than a customer agreement, that is or would be a Material Contract;

                    (f) the Company has not (i) entered into or amended any employment or severance or similar agreement with any employee or any collective bargaining agreement, (ii) adopted or amended, or increased the payments to or benefits under, any profit sharing, bonus, thrift, option, deferred compensation, savings, insurance, restricted equity, pension, retirement, or other employee benefit plan for or with any of its directors, officers or employees or (iii) granted any increase in compensation payable or to become payable or the benefits provided to its directors, officers or employees, other than in the Ordinary Course of Business;

                    (g) the Company has not (i) made or changed any Tax election or (ii) made any material change in any method of accounting or accounting practice used by it, other than any such changes required by GAAP;

                    (h) the Company has conducted and reflected in its books and records each transaction referenced in Section 2.26 of the Disclosure Schedule on an arm’s-length basis;

                    (i) there has been no change, event or development that has individually or in the aggregate, a Material Adverse Effect;

                    (j) there has not been any material casualty, loss, damage or destruction (whether or not covered by insurance) to any asset of the Company;

                    (k) the Company has not made any single expenditure or commitment to purchase personal property or for additions to property, plant and equipment in excess of $10,000;

                    (l) the Company has not issued, sold or otherwise disposed of any debenture, note, or Equity Interest or modified or amended any right of any holder thereof;

                    (m) the Company has not amended, terminated, waived, disposed of, or permitted to lapse, any material Permit;

                    (n) there has not been any amendment to the Articles of Organization or Operating Agreement of the Company; and

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                    (o) the Company has not materially altered the nature of its business or business plan.

          2.8 Undisclosed Liabilities. Except as provided in Section 2.8 of the Disclosure Schedule, the Company has no liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (a) liabilities shown or reserved for on the Most Recent Balance Sheet, (b) liabilities which have arisen since the Most Recent Balance Sheet Date in the Ordinary Course of Business, (c) liabilities incurred in connection with the negotiation of this Agreement and specifically set forth in Section 2.8 of the Disclosure Schedule and clearly identified as “liabilities not reflected on the Most Recent Balance Sheet”, (d) liabilities specifically and clearly set forth in other sections of the Disclosure Schedule and clearly identified as “liabilities not reflected on the Most Recent Balance Sheet”, and (e) contractual and other liabilities incurred in the Ordinary Course of Business which are not required by GAAP to be reflected on a balance sheet or that would not otherwise be required to be disclosed in the notes of the Company’s financial statements if such notes had been prepared.

          2.9 Taxes.

                    (a) The Company has properly filed on a timely basis all material Tax Returns that it is and was required to file, and all such Tax Returns were true, correct and complete in all respects and it has set forth in Section 2.9(a) of the Disclosure Schedule a list of all such Tax Returns that it is required to file. Except as set forth in Section 2.9(a) of the Disclosure Schedule, the Company has properly paid on a timely basis all Taxes, whether or not shown on any of its Tax Returns, that were due and payable. All Taxes that the Company is or was required by law to withhold or collect have been withheld or collected and, to the extent required, have been properly paid on a timely basis to the appropriate Governmental Entity. The Company has complied with all information reporting and back-up withholding requirements including maintenance of the required records with respect thereto, in connection with amounts paid to any employee, independent contractor, creditor or other third party.

                    (b) Except as set forth on Section 2.9(b) of the Disclosure Schedule, the unpaid Taxes of the Company for periods ended on or prior to the Most Recent Balance Sheet Date do not exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Most Recent Balance Sheet.

                    (c) The Company is not and has never been taxed as a corporation or association taxable as a corporation under the Code or the laws of any state. The Corporation is not and has never been a member of any group of corporations with which it has filed (or been required to file) consolidated, combined, or unitary Tax Returns. The Company has no actual or potential liability under Treasury Regulation Section 1.1502-6 (or any comparable or similar provision of federal, state, local, or foreign law), or as a transferee or successor, by contract, or otherwise for any Taxes of any Person (including without limitation any affiliated, combined, or unitary group of corporations or other entities that included the Company during a prior Taxable period). The Company is not a party to, bound by, or obligated under any Tax allocation, Tax sharing, Tax indemnity or similar agreement.

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                    (d) The Company has delivered to the Parent (i) complete and correct copies of all income Tax Returns of the Company relating to income Taxes for all Taxable periods for which the applicable statute of limitations has not yet expired beginning on or after January 1, 2004, and (ii) complete and correct copies of all private letter rulings, revenue agent reports, notices of proposed deficiencies, deficiency notices, protests, petitions, closing agreements, settlement agreements, and pending ruling requests submitted by, received by or agreed to by or on behalf of the Company relating to Taxes for all Taxable periods for which the applicable statute of limitations has not yet expired. The income Tax Returns of the Company for the period beginning after January 1, 2004 have not been audited by the Internal Revenue Service or other applicable Governmental Entity or are closed by the applicable statute of limitations for all periods through and including the Taxable period specified in Section 2.9(d) of the Disclosure Schedule. The Company has delivered or made available to the Parent complete and correct copies of all other Tax Returns of the Company relating to Taxes for all Taxable periods beginning on or after January 1, 2004. No examination or audit of any Tax Return of the Company by any Governmental Entity is currently in progress or, to the Knowledge of the Company, threatened or contemplated, and the Company does not know of any basis upon which a Tax deficiency or assessment could reasonably be expected to be asserted against the Company. The Company has not been informed in writing by any jurisdiction that the jurisdiction believes that the Company was required to file any Tax Return that was not filed.

                    (e) The Company has not (i) waived any statute of limitations which waiver is still in effect with respect to Taxes or agreed to extend the period for assessment or collection of any Taxes, (ii) requested any extension of time within which to file any Tax Return, which Tax Return has not yet been filed, or (iii) executed or filed any power of attorney relating to Taxes with any Governmental Entity.

                    (f) The Company is not a party to any Tax litigation. The Company is not nor has it ever been a party to any specific transaction which will result in the imposition of penalties upon the Company by any taxing authority.

                    (g) There are no Security Interests or other encumbrances with respect to Taxes upon any of the assets or properties of the Company, other than with respect to Taxes not yet due and payable.

                    (h) The Company has not made any payments, nor is it obligated to make any payments, nor is it a party to any agreement, contract, arrangement, or plan that could obligate it to make any payments, that are or could be, separately or in the aggregate, “excess parachute payments” within the meaning of Section 280G of the Code (without regard to Sections 280G(b)(4) and 280G(b)(5) thereof).

                    (i) No Member holds Membership Interests that are non-transferable and subject to a substantial risk of forfeiture within the meaning of Section 83 of the Code with respect to which a valid election under Section 83(b) of the Code has not been made, and no payment to any Member of any portion of the consideration payable pursuant to this Agreement will result in compensation or other income to such Member with respect to which the Parent or the Company would be required to deduct or withhold any Taxes.

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                    (j) None of the assets of the Company (i) is property that is required to be treated as being owned by any other person pursuant to the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, (ii) is “tax-exempt use property” within the meaning of Section 168(h) of the Code, (iii) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code, or (iv) is subject to a lease under Section 7701(h) of the Code or under any predecessor section.

                    (k) The Company is not subject to (i) any change in method of accounting for a Taxable period ending on or prior to the Closing Date (or as a result of the transactions contemplated by this Agreement) under Section 481 of the Code (or any corresponding or similar provision of federal, state, local or foreign Tax law); (ii) any “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Tax law) executed on or prior to the Closing Date; or (iii) any installment sale or open transaction disposition made on or prior to the Closing Date. The Company will include in its income tax returns for periods ending on or prior to the Closing Date any prepaid amounts received on or prior to the Closing Date. The Company currently utilizes, the cash method of accounting for income Tax purposes and such method of accounting has not changed in the past five (5) years.

                    (l) The Company has not participated in or cooperated with an international boycott within the meaning of Section 999 of the Code.

                    (m) Section 2.9(m) of the Disclosure Schedule sets forth each jurisdiction (other than United States federal) in which the Company files, or, is required to file or has been required to file a Tax Return or is or has been liable for Taxes on a “nexus” basis and each jurisdiction that has on or after January 1, 2004 sent notices or communications of any kind requesting information relating to the Company’s nexus with such jurisdiction.

          2.10 Assets.

                    (a) Except as set forth in Section 2.10(a) of the Disclosure Schedule, the Company is the true and lawful owner, and has good title to, all of the assets (tangible or intangible) purported to be owned by the Company, free and clear of all Security Interests. The Company owns or leases all tangible assets sufficient for the conduct of its businesses as presently conducted and as presently contemplated to be conducted by any business plans or projections delivered by the Company to the Parent. Each such tangible asset material to the operation of the Company’s business is free from material defects, has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear) and is suitable for the purposes for which it presently is used and contemplated to be used per such business plan.

                    (b) Section 2.10(b) of the Disclosure Schedule lists (i) all fixed assets (within the meaning of GAAP) of the Company having a book value greater than $5,000, indicating the cost, accumulated book depreciation (if any) and the net book value of each such fixed asset as of the Most Recent Balance Sheet Date, and (ii) all other assets of a tangible nature (other than inventories) of the Company whose book value exceeds $5,000.

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                    (c) Each item of equipment, motor vehicle and other asset that the Company has possession of pursuant to a lease agreement or other contractual arrangement is in such condition that, upon its return to its lessor or owner under the applicable lease or contract, the obligations of the Company to such lessor or owner to maintain such item will have been discharged in full and no additional amounts will be due and owing thereunder.

          2.11 Owned Real Property. The Company does not own, and has never owned, any real property.

          2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule lists all Leases and lists the term of such Lease, any extension and expansion options, and the rent payable thereunder. The Company has delivered to the Parent complete and accurate copies of the Leases. With respect to each Lease:

                    (a) such Lease is legal, valid, binding, enforceable and in full force and effect;

                    (b) except as disclosed on Section 2.12 of the Disclosure Schedule, such Lease will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing;

                    (c) the Company is not in material breach or violation of, or material default under, any such Lease, and to the Company’s Knowledge no event has occurred, is pending or, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Company or, to the Knowledge of the Company, any other party under such Lease and to the Knowledge of the Company, each parcel of Leased Real Property is in compliance in all material respects with all applicable Laws and Governmental Orders. The Lease for each parcel of Leased Real Property is in full force and effect, there are no material defaults under such leases by the Company, or, to the Knowledge of the Company, any other party to such leases;

                    (d) there are no disputes, oral agreements or forbearance programs in effect as to such Lease;

                    (e) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold;

                    (f) based on the Company’s experience during the past full fiscal year and up to the Closing Date, all facilities leased or subleased thereunder are supplied with utilities and other services adequate for the operation of said facilities;

                    (g) to the Company’s Knowledge, there is not any Security Interest, easement, covenant or other restriction applicable to the real property subject to such Lease which materially impairs the current uses or the occupancy by the Company of the property subject thereto; and

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                    (h) other than the rental payment amounts set forth in Section 2.12 of the Disclosure Schedule, no other amounts are owed by the Company with respect to any parcel of Leased Real Property.

          2.13 Intellectual Property.

                    (a) Section 2.13(a) of the Disclosure Schedule lists (i) each patent, patent application, copyright registration or application therefor, and trademark, service mark and domain name registration or application therefor owned or used by the Company.

                    (b) The Company owns or has the right to use all Company Intellectual Property reasonably necessary (i) to use, sell, market and distribute the Customer Deliverables and (ii) to operate the Business. Each item of Company Intellectual Property will be owned or available for use by the Surviving Company immediately following the Closing on substantially identical terms and conditions as it was owned or available for use by the Company immediately prior to the Closing. The Company has taken commercially reasonable measures to protect the proprietary nature of each item of Company Intellectual Property, and to maintain in confidence all trade secrets and confidential information, that it owns or uses. No other Person has any rights to any of the Company Intellectual Property owned by the Company and, to the Knowledge of the Company, no other Person is infringing, violating or misappropriating any of the Company Intellectual Property.

                    (c) None of the Company Intellectual Property, Customer Deliverables, or the sale, marketing, distribution, provision or use thereof, infringes or violates, or constitutes a misappropriation of, any Intellectual Property rights of any Person. No complaint, claim or notice, or threat thereof, has been received by the Company alleging any infringement, violation or misappropriation. The Company has provided to the Parent complete access to all written documentation in the Company’s possession relating to claims or disputes known to the Company concerning any Company Intellectual Property.

                    (d) The Company not has licensed, distributed or otherwise granted any rights to any third party with respect to, any Company Intellectual Property or any Intellectual Property owned by a party other than the Company. The Company has not agreed to indemnify any Person against any infringement, violation or misappropriation of any Intellectual Property rights with respect to any Customer Deliverables. The Company is not, nor will it or any party hereto be as a result of the execution and delivery of this Agreement or the performances of its obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the Company Intellectual Property.

                    (e) Section 2.13(e) of the Disclosure Schedule identifies each item of Intellectual Property used or possessed by the Company that is owned by a party other than the Company, and the license or agreement pursuant to which the Company uses it (excluding off-the-shelf software programs licensed by or to the Company pursuant to nonnegotiable standard form, mass market or “shrink wrap” licenses). The Company is a party to all necessary licenses or other agreements necessary to properly use the Intellectual Property which it currently uses in the Business (in both type and number of licenses and whether off-the-shelf, shrink wrap or

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otherwise) and all such licenses are fully paid (or accrued for) and cover all the software and other Intellectual Property used by the Company in the Business.

                    (f) All of the copyrightable materials (but excluding materials created, developed or otherwise provided by a third party) embedded in, or integrated in, incorporated in or bundled with the Customer Deliverables have been created by employees of the Company within the scope of their employment by the Company, or by independent contractors of the Company who have executed agreements expressly assigning all right, title and interest in such copyrightable materials to the Company. No portion of such copyrightable materials was jointly developed with any third party.

                    (g) The Customer Deliverables, the Internal Systems, and the Company Intellectual Property are free from significant defects or programming errors, and conform in all material respects to the written documentation and specifications therefore.

                    (h) The Internal Systems, Customer Deliverables, and the Company Intellectual Property currently used by the Company to provide products and services to their customers are fully adequate for the business of the Company as of the date of this Agreement.

          2.14 Contracts.

                    (a) Section 2.14 of the Disclosure Schedule lists the following agreements (written or oral) to which the Company is a party as of the date of this Agreement (each, a “Material Contract”):

                               (i) any agreement (or group of related agreements) for the lease of personal property from or to third parties providing for lease payments in excess of $10,000 per annum and the expiration date of the term of each such agreement;

                              (ii) any agreement (or group of related agreements) with software vendors, distributors or sales agents allowing for the resale, marketing or distribution of the Company’s services of products;

                              (iii) any agreement concerning confidentiality (A) with respect to such agreement’s existence or the existence of an existing customer or vendor agreement, or (B) containing covenants restraining or limiting the freedom of the Company to engage in any line of business or compete with any Person including, without limitation, by restraining or limiting the right to solicit customers or that would be expected, following the Closing, to restrain or limit the freedom of the Parent or the Surviving Company to engage in any line of business in which it currently engages or, in the course of such activity, compete with any Person;

                              (iv) any agreement containing a right of first refusal;

                              (v) any agreement (or group of related agreements) that is terminable upon or prohibits a change in ownership or control of the Company, or that requires consent in connection with a change in ownership or control of the Company;

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                              (vi) any agreement (or group of related agreements) that provides for the Company to be the exclusive or a preferred provider of any product or service to any Person or the exclusive or a preferred recipient of any product or service of any Person during any period of time or that otherwise involves the granting by any Person to the Company of exclusive or preferred rights of any kind;

                               (vii) any agreement (or group of related agreements) that provides for any Person to be the exclusive or a preferred provider of any product or service to the Company, or the exclusive or a preferred recipient of any product or service of the Company during any period of time or that otherwise involves the granting by the Company to any Person of exclusive or preferred rights of any kind;

                               (viii) any agreement (or group of related agreements) in which a party has agreed to purchase at least $10,000 per year of goods or services or that includes specific service level commitments;

                               (ix) any agreement (or group of related agreements) in which the Company has granted manufacturing rights, “most favored nation” or similar pricing provisions or marketing or distribution rights relating to any products or territory;

                               (x) any agreement (or group of related agreements) under which it has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) Debt or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible;

                               (xi) any agreement for the disposition of any significant portion of the assets or business of the Company (other than sales of products in the Ordinary Course of Business) or any agreement for the acquisition of the assets or business of any other entity (other than purchases of inventory or components in the Ordinary Course of Business);

                               (xii) any employment or consulting agreement;

                               (xiii) any agreement, still in effect, involving any current or former officer, director or Member of the Company or an Affiliate thereof;

                               (xiv) any agreement which contains any provisions requiring the Company to indemnify any other party; and

                               (xv) any other agreement (or group of related agreements) either (A) involving more than $50,000 per year, or (B) that is otherwise material to the Company.

                    (b) The Company has made available to the Parent a complete and accurate copy of each agreement listed in Section 2.13 or Section 2.14 of the Disclosure Schedule, or with respect to each such unwritten agreement, the Company has provided a detailed description of the terms of such unwritten agreement. With respect to each agreement so listed: (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the

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Closing; and (iii) neither the Company nor, to the Knowledge of the Company, any other party, is in material breach or violation of, or material default under, any material provision of such agreement, and no event has occurred, is pending or, to the Knowledge of the Company, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a material breach or material default of any material provision of such agreement by the Company or, to the Knowledge of the Company, of any other party under such agreement.

          2.15 Accounts Receivable. Each and all Accounts Receivable are valid receivables enforceable and fully collectible in the ordinary course of business as historically conducted, free and clear of any claim, right of setoff or other dispute, demand or future obligation of any nature whatsoever net of any applicable allowance for doubtful accounts reflected in the Most Recent Balance Sheet. Except as set forth in Section 2.15 of the Disclosure Schedule, the Company has not received any written notice from an account debtor stating that any Account Receivable is subject to any contest, claim or setoff by such account debtor.

          2.16 Powers of Attorney. Except as set forth in Section 2.16 of the Disclosure Schedule, there are no outstanding powers of attorney executed on behalf of the Company.

          2.17 Insurance. Section 2.17 of the Disclosure Schedule lists each insurance policy (including fire, theft/crime, casualty, comprehensive general liability, workers compensation, business interruption, environmental, errors and omissions, directors and officers fiduciary liability, employment practices liability, product liability and automobile insurance policies and bond and surety arrangements) to which the Company is a party, all of which are in full force and effect including the name of the insurer, policy numbers and whether such policy is a claims-made or occurrence policy. Except as set forth in Section 2.17 of the Disclosure Schedule, there is no claim pending or, if having been disclosed, no such claim or existing facts were questioned, denied or disputed by the underwriter of such policy. All premiums due and payable under all such policies have been paid. The Company has not been denied insurance coverage at any time during the past five years and no policies have been cancelled or have been refused to be renewed by the insurer in the past five years except as set forth in Section 2.17 of the Disclosure Schedule. The Company has no Knowledge of any threatened termination of, or premium increase with respect to, any such policy except as set forth in Section 2.17 of the Disclosure Schedule. Each such policy will continue to be enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing. The Company has not failed to timely give any notice required or failed to satisfy any subjectivities under such insurance policies or binders of insurance.

          2.18 Litigation. Except as set forth in Section 2.18 of the Disclosure Schedule, there is no Legal Proceeding which is pending or, to the Knowledge of the Company, has been threatened in writing against the Company. There are no judgments, orders or decrees outstanding against the Company.

          2.19 Warranties.

                    (a) No Customer Deliverable is subject to any guaranty, warranty, right of credit or other indemnity. Section 2.19 of the Disclosure Schedule sets forth the aggregate expenses incurred by the Company in fulfilling its obligations under its guaranty, warranty, right

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of credit and other indemnity provisions during the fiscal year and the interim period covered by the Financial Statements.

                    (b) The Company has no liability arising out of any injury to individuals or property as a result of the ownership, possession, or proper use of any product manufactured, sold, leased or delivered by the Company.

          2.20 Employees.

                    (a) Section 2.20 of the Disclosure Schedule contains a list of all employees of the Company, along with the position and the annual rate (or hourly rate, where applicable) of compensation of each such person.

                    (b) The Company is not a party to or bound by any collective bargaining agreement, and has not experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes during the past five years. The Company has not committed any unfair labor practice during the past five years. The Company has no Knowledge of any organizational effort made or threatened, either currently or within the past two years, by or on behalf of any labor union with respect to employees of the Company.

                    (c) All employee expenses and benefits have been accrued on the Most Recent Balance Sheet for all periods prior to and up through the date thereof.

                    (d) To the Knowledge of the Company, no officer, or Key Employee has any plans to terminate employment with the Company.

          2.21 Employee Benefits.

                    (a) Section 2.21(a) of the Disclosure Schedule contains a complete and accurate list of all Company Plans as of the date of this Agreement. Prior to the date of this Agreement, Company has made available to Parent complete and accurate copies of documents embodying each of the Company Plans and related plan documents including (without limitation) plan documents, trust documents, group annuity contracts, plan, plan amendments, insurance policies or contracts, participant agreements, employee booklets, administrative service agreements, summary plan descriptions, plan summaries or descriptions, minutes, resolutions, compliance and nondiscrimination tests for the last three plan years, standard COBRA forms and related notices, registration statements and prospectuses, and, to the extent still in its possession, any material employee communications relating thereto. With respect to the Company Plans which are subject to ERISA reporting requirements, the Company has provided copies of the Form 5500 reports and any applicable financial statements, including schedules and reports filed for the last four years. The Company has furnished Parent with the most recent Internal Revenue Service determination, advisory or opinion letter issued with respect to each such Company Plan which is intended to be a qualified plan as described in Code Section 401(a), and nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of tax-qualified status of any Company Plan subject to Code Section 401(a).

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                    (b) Each Company Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code), except violations that would not have, individually or in the aggregate, a Material Adverse Effect. The Company and the ERISA Affiliates have performed all material obligations required to be performed by them under, are not in any material respect in default under or in violation of, and have no Knowledge of any material default or violation by any other party to, any Company Plan. All contributions which are due and are required to be made by the Company or any ERISA Affiliate have been made within the time period prescribed by ERISA to each Company Plan which is subject to ERISA. All filings and reports required to be made by each Company Plan subject to ERISA were prepared in good faith and timely filed, and the Company has properly and timely filed and distributed or posted all notices and reports to employees or participants in the Company Plans that are required to be filed, distributed or posted by law, other than violations that would not have, individually or in the aggregate, a Material Adverse Effect. There has been no “prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code, with respect to any Company Plan that is not exempt under Section 408 of ERISA. Neither the Company nor any ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Company Plan. With respect to each Company Plan, no “reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred that would, individually or in the aggregate, reasonably be expected to likely result in a Material Adverse Effect. No Company Plan has assets that include securities issued by the Company or any ERISA Affiliate and no Company Plan constitutes a security which is required to be registered under applicable state or federal securities laws.

                    (c) No suit, investigation, audit, administrative proceeding, governmental or legal action, or other litigation (except claims for benefits payable in the normal operation of the Company Plans and proceedings with respect to qualified domestic relations orders and similar orders) is pending, or to the Knowledge of the Company is threatened, against or relating to any Company Plan asserting any rights or claims to benefits under any Company Plan, including audit or investigation by the IRS or United States Department of Labor.

                    (d) With respect to each Company Plan that is intended to be qualified under Section 401(a) of the Code, the Company Plan (i) has obtained a favorable determination letter from the Internal Revenue Service as to the Company Plan’s qualified status under the Code and as to the exemption from tax under the provisions of Code Section 501(a) of the trust created thereunder, (ii) has been established under a standardized master and prototype or volume submitter plan for which a favorable Internal Revenue Service advisory letter or opinion letter has been obtained by the plan sponsor and upon which the adopting employer may rely, or (iii) has time remaining to apply under applicable Treasure Regulations or Internal Revenue Service pronouncements for a determination letter or opinion. Nothing has occurred since the issuance of each such letter that could reasonably be expected to cause the loss of the tax-qualified status of any Company Plan subject to Section 401(a) of the Code. Each Company Plan that is required to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for compliance with, and satisfies the requirements of Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year ending prior to the Closing Date.

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                    (e) The Company has not nor has any ERISA Affiliate ever maintained, established, sponsored, participated in, contributed to, or is obligated to contribute to, or otherwise incurred any obligation or liability (including, without limitation, any contingent liability) under any “multiemployer plan” as defined in Section 3(37) of ERISA or to any “pension plan” (as defined in Section 3(2) of ERISA) subject to Section 412 of the Code or Title IV of ERISA. With respect to each Company Plan that is a “multiemployer plan” (within the meaning of Section 3(37) of ERISA), neither the Company nor any ERISA Affiliate has any actual or potential withdrawal liability (including, without limitation, any contingent liability) from any complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any such multiemployer plan.

                    (f) With respect to each Company Plan, the Company and each of its ERISA Affiliates have complied in all material respects with the following to the extent applicable to such Company Plan: (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the regulations thereunder or any state law governing health care coverage extension or continuation; (ii) the applicable requirements of the Family Medical Leave Act of 1993 and the regulations thereunder; (iii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”); and (iv) the applicable requirements of the Cancer Rights Act of 1998 and the Newborn and Mother’s Health Protection Act of 1996.

                    (g) All anticipated contributions and funding obligations are accrued on the Company’s financial statements to the extent required by GAAP. The Company has expensed and accrued as a liability the present value of future benefits under each applicable Company Plan for financial reporting purposes to the extent required by GAAP. The assets of each Company Plan that is funded are reported at their fair market value on the books and records of such Company Plan. The Company has no obligation to provide retiree health coverage or other retiree welfare benefits other than continuation coverage required under Section 4980B of the Code or other applicable law and insurance conversion privileges under state law.

                    (h) No act or omission has occurred and no condition exists with respect to any Company Plan that would subject the Company or any ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind imposed under ERISA or the Code or (ii) any contractual indemnification or contribution obligation protecting any fiduciary, insurer or service provider with respect to any Company Plan.

                    (i) No Company Plan is funded by, associated with or related to a “voluntary employee’s beneficiary association” within the meaning of Section 501(c)(9) of the Code.

                    (j) Each Company Plan may be amended, terminated or otherwise discontinued unilaterally by the Company at any time or after the specified amount of required notice without liability or expense to the, Company (or after the Closing Date, the Parent) or such Company Plan as a result thereof, except insofar as benefits thereunder shall have vested and cannot be modified, in respect of claims incurred prior to such amendment or termination, as may be required under applicable requirements of law, and for reasonable administrative expenses associated with such termination or amendment. No Company Plan, plan documentation or agreement, summary plan description or other written communication

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distributed generally to employees by its terms prohibits the Company from amending, terminating or otherwise discontinuing any such Company Plan.

                    (k) The Company does not have any (i) agreement with any Member, director, executive officer or other Key Employee of the Company (A) the benefits of which are contingent, or the terms of which are altered, upon the occurrence of a transaction involving the Company of the nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee or (C) providing severance benefits or other benefits after the termination of employment of such director, executive officer or Key Employee; (ii) agreement, plan or arrangement under which, absent the Member vote to be taken pursuant to Section 5.9, any person may receive payments from the Company that may be subject to the tax imposed by Section 4999 of the Code or included in the determination of such person’s “parachute payment” under Section 280G of the Code (without regard to Sections 280G(b)(4) and 280G(b)(5) thereof); and (iii) agreement or plan binding the Company, including any option plan, appreciation right plan, restricted equity plan, equity purchase plan, severance benefit plan or Company Plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. Any Company Plan which is a “nonqualified deferred compensation plan” as defined in Code Section 409A is either not subject to or exempt from Code Section 409A or is operated and maintained by the Company in good faith compliance in all material respects with Code Section 409A.

                    (l) Section 2.21(l) of the Disclosure Schedule sets forth the policy of the Company with respect to accrued vacation, accrued sick time and earned time off and the amount of such liabilities as of the date of this Agreement. The information set forth in Section 2.21(l) of the Disclosure Schedule shall be updated by the Company as of the Closing Date.

                    (m) The Company has correctly classified in all materials respects all individuals who perform services for the Company under the Company Plans, ERISA and the Code as common law employees, independent contractors, leased employees, and exempt or non-exempt employees.

                    (n) With respect to any Company Plan, the Company has not engaged in any reportable transaction under Treas. Reg. §1.6011-4(b), including any transaction that is the same as or substantially similar to any transaction that the Internal Revenue Service has determined to be a tax avoidance transaction and has identified by notice, regulation, or other form of published guidance as a listed transaction under Treas. Reg. §1.6011-4(b).

          2.22 Environmental Matters.

                    (a) The Company has complied in all material respects with all applicable Environmental Laws and Environmental Permits. There is no pending or to the Company’s Knowledge, threatened civil or criminal litigation, written notice of violation, formal administrative proceeding, or investigation, inquiry or information request by any Governmental Entity, relating to any Environmental Law and Environmental Permits involving the Company or any properties owned or leased by it.

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                    (b) The Company is not, and shall not be, subject to any environmental liability of any solid or hazardous waste transporter or treatment, storage or disposal facility that has been used by the Company.

                    (c) There has been no Release of any Hazardous Material on any of the Leased Real Property or on any property formerly owned, leased, used or occupied by the Company in violation of any applicable Environmental Law.

                    (d) There are no Environmental Claims pending or to the Company’s Knowledge threatened against the Company on any of the Leased Real Property.

          2.23 Legal Compliance.

                    (a) Except as set forth in Section 2.23 of the Disclosure Schedule, the Company is currently conducting, and has at all times conducted, its businesses in compliance in all material respects with each applicable law (including rules and regulations thereunder) of any federal, state, local or foreign government, or any Governmental Entity. The Company (including any Affiliates) has not received any written notice or communication from any Governmental Entity alleging noncompliance with any applicable law, rule or regulation, including, without limitation, but by way of example only, those laws, rules and regulations governing immigration.

                    (b) Subject to paragraph (c) below, the Company complies with in all material respects and has implemented all such measures required for it to comply, in all material respects, with its obligations as a Covered Entity for its “Health Plan” and as a Business Associate of its “Covered Entity” (as such capitalized terms are defined in HIPAA and the regulations promulgated thereunder), including without limitation, the privacy and security regulations (45 C.F.R. 160 and 164) and the transaction and code set regulations (45 C.F.R. 162) promulgated under HIPAA. With respect to any HIPAA regulatory requirements, including any contractual privacy and security commitments for “Protected Health Information” (as that term is defined in the HIPAA privacy and security regulations), for which the Company’s (including any Affiliates) compliance with HIPAA is required (collectively, the “HIPAA Commitments”),

                              (i) the Company is in material compliance with the HIPAA Commitments;

                              (ii) the transactions contemplated by this Agreement will not violate any of the HIPAA Commitments;

                              (iii) the Company has not received written inquiries from the U.S. Department of Health and Human Services or any other Governmental Entity regarding the Company’s compliance with the HIPAA Commitments; and

                              (iv) the HIPAA Commitments have not been rejected by any applicable certification organization which has reviewed such HIPAA Commitments or to which any such HIPAA Commitment has been submitted.

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                    (c) The Company has either entered into or made reasonable and good faith efforts to enter into valid, written Business Associate agreements with all customers that are Covered Entities and with all contractors, agents, vendors, suppliers, and service providers that are Business Associates of the Company.

                    (d) Except as set forth in Section 2.23 of the Disclosure Schedule, the Company has not incurred any Damages as a result of or in connection with any matters, legal, regulatory or otherwise, concerning illegal or improper medical coding activities performed by the Company including, but not limited to, the development and/or submission of CPT or other codes for the purposes of billing for medical services to Medicare, Medicaid and/or any third party payer (the “Coding Activities”).

          2.24 Customers and Suppliers. Section 2.24 of the Disclosure Schedule sets forth a list of (a) the top 25 customers of the Company by revenue under contract for the fiscal year ended December 31, 2007 and (b) the top 10 suppliers by expenses incurred for the fiscal year ended December 31, 2007 that are the sole supplier of any significant product or service to the Company (each such customer or supplier, a “Significant Person”).

          2.25 Permits. Section 2.25 of the Disclosure Schedule sets forth a list of all material Permits issued to or held by the Company. Such listed Permits are the only material Permits that are required for the Company to conduct its Business as presently conducted or as contemplated to be conducted by any business plans or projections delivered by the Company to the Parent. Each such Permit is in full force and effect; the Company is in compliance in all material respects with the terms of each such Permit; and, to the Knowledge of the Company, no suspension or cancellation of such Permit is threatened. The Company has no basis for believing that such Permit will not be renewable upon expiration. No notice to or consent from any Person is required under any Permit as a result of the transactions contemplated by this Agreement.

          2.26 Certain Business Relationships With Affiliates. Except as set forth in Section 2.26 of the Disclosure Schedule, no Affiliate of the Company (a) owns any property or right, tangible or intangible, which is used in the business of the Company, (b) to the Company’s Knowledge has any claim or cause of action against the Company, or (c) owes any money to, or is owed any money by, the Company. Section 2.26 of the Disclosure Schedule describes any transactions or relationships between the Company and any Affiliate thereof which occurred or have existed since the beginning of the time period covered by the Financial Statements.

          2.27 Brokers’ Fees. Neither the Company, nor any Member nor any other party with whom or for whom the Company or Members may have contracted has any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.

          2.28 Books and Records. The minute books and other similar records of the Company contain complete and accurate records of all actions taken at any meetings of the Company’s Members, Board of Directors or any committee thereof and of all written consents executed in lieu of the holding of any such meeting. The books and records of the Company accurately reflect in all material respects the assets, liabilities, business, financial condition and results of operations of the Company and have been maintained in accordance with good business and

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bookkeeping practices. Section 2.28 of the Disclosure Schedule contains a list of all (i) accounts and safe deposit boxes of the Company (including the name of each bank, trust company, savings institution, brokerage firm, mutual fund or other financial institution with which the Company has an account or safe deposit box) and the names of persons having signature authority with respect thereto or access thereto and (ii) fees and costs due and payable to third parties with respect to the termination or expiration at any time of any banking, financing or similar facility.

          2.29 Compliance with Healthcare Laws and Regulations.

                    (a) Without limiting the generality of Section 2.23 or any other representation or warranty made by the Company herein, the Company is conducting and has conducted its business and operations in compliance in all material respects with, and neither the Company nor any of its officers, directors or employees has engaged in any activities prohibited under, all applicable civil or criminal statutes, laws, ordinances, rules and regulations of any federal, state, local or foreign Governmental Entity with respect to regulatory matters relating to the provision, administration, and/or payment for healthcare products or services (collectively, “Healthcare Laws”), including, without limitation, (i) rules and regulations governing the operation and administration of Medicare, Medicaid, or other federal health care programs; (ii) 42 U.S.C. § 1320a-7(b), commonly referred to as the “Federal Anti-Kickback Statute,” (iii) 42 U.S.C. § 1395nn, commonly referred to as the “Stark Law,” (iv) 31 U.S.C. §§ 3729-33, commonly referred to as the “False Claims Act” and (v) rules and regulations of the U.S. Food and Drug Administration.

                    (b) The Company has not received any written notice or communication from any Governmental Entity alleging noncompliance with any Healthcare Laws and to the Company’s Knowledge it has not received any other notice or communication (written or otherwise) from any Governmental Entity alleging noncompliance with any Healthcare Laws. There is no civil, criminal or administrative action, suit, demand, claim, complaint, hearing, investigation, notice, demand letter, warning letter, proceeding or request for information pending against the Company and the Company has no liability (whether actual or contingent) for failure to comply with any Healthcare Laws. To the Company’s Knowledge, there is no act, omission, event or circumstance that would reasonably be expected to give rise to any such action, suit, demand, claim, complaint, hearing, investigation, notice, demand letter, warning letter, proceeding or request for information or any such liability. There has not been any violation of any Healthcare Laws by the Company in its submissions or reports to any Governmental Entity that could reasonably be expected to require investigation, corrective action or enforcement action. There is no civil or criminal proceeding pending, or, to the Knowledge of the Company, threatened, relating to the Company or any Company director, officer or employee that involves a matter within or related to Healthcare Laws.

                    (c) Any remuneration (including, without limitation, a “discount or reduction in price,” as referenced in 42 U.S.C. § 1320a-7b(b)(3)(A)) exchanged between the Company and its customers, contractors, or other entities with which it has a business relationship (together, “Trading Partners”) has at all times been commercially reasonable and represents the fair market value for rendered services or purchased items or does not otherwise violate any Healthcare Laws. No remuneration exchanged between the Company and its Trading Partners has taken

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into account, either directly or indirectly, the volume or value of any referrals or any other federal health care program business generated between the Company and such Trading Partners.

                    (d) Neither the Company nor any of its current directors, officers, employees or Trading Partners has been debarred or subject to mandatory or permissive exclusion from participation in Medicare, Medicaid, or any other federal or state healthcare program.

                    (e) There has not been any material violation of any Healthcare Laws by the Company in its maintenance of all records required under any Healthcare Laws that would give rise to any Company liability for such violation.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT

          The Parent represents and warrants to the Company and the Indemnifying Members that the statements contained in this Article III are true and correct as of the date of this Agreement and will be true and correct as of the Closing as though made as of the Closing.

          3.1 Organization and Corporate Power. The Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Parent has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.

          3.2 Authorization of Transaction. The Parent has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by the Parent of this Agreement and the consummation by the Parent of the series of transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Parent. This Agreement has been duly and validly executed and delivered by the Parent and constitutes a valid and binding obligation of the Parent, enforceable against it in accordance with its terms and conditions, except to the extent such enforceability is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other law affecting or relating to creditors’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

          3.3 Noncontravention. Neither the execution and delivery by the Parent of this Agreement, nor the consummation by the Parent of the transactions contemplated hereby, will (a) conflict with or violate any provision of the Articles of Incorporation or Bylaws of the Parent, (b) require on the part of the Parent or any Subsidiaries of Parent any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity not contemplated by this Agreement, (c) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any material contract or instrument to which the Parent or any Subsidiaries of Parent is a party or by which the Parent or any Subsidiaries of Parent is bound or to which any of their assets is subject the effect of which would be to have a Parent Material Adverse Effect, (d) result in the imposition of any Security Interest upon any assets of the Parent or any Subsidiaries of Parent, or

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(e) to the Parent’s knowledge, violate any written order, writ, injunction, decree, statute, rule or regulation applicable to the Parent or any of its Subsidiaries or any of their respective properties or assets.

          3.4 Financing. At the Closing Date, Parent will have sufficient cash to enable it to pay the cash portion of the Closing Amount. As of the Closing Date, the Parent will have on hand cash amounts equal to the maximum amount payable under the Earnout Payment and Earnout Override. The Parties acknowledge that the immediately preceding sentence speaks only as of the Closing Date and that no guarantee can be made concerning the financial status of the Parent (cash or otherwise) as of the date amounts are due pursuant to the Earnout Payment and the Earnout Override.

          3.5 SEC Filings. Parent has timely filed all Parent SEC Reports.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB
REGARDING MERGER SUB

          The Parent and Merger Sub, jointly and severally represent and warrant to the Company and the Members that the statements contained in this Article IV are true and correct as of the date of this Agreement and will be true and correct as of the Closing as though made as of the Closing.

          4.1 Organization and Corporate Power. The Merger Sub is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Missouri. The Merger Sub has all requisite company power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.

          4.2 Authorization of Transaction. The Merger Sub has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by the Merger Sub of this Agreement and the consummation by the Merger Sub of the series of transactions contemplated hereby have been duly and validly authorized by all necessary company action on the part of the Merger Sub. This Agreement has been duly and validly executed and delivered by the Merger Sub and constitutes a valid and binding obligation of the Merger Sub, enforceable against it in accordance with its terms and conditions, except to the extent such enforceability is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other law affecting or relating to creditors’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

          4.3 Litigation. There is no action, suit, investigation or proceeding pending against or, to the Merger Sub’s Knowledge, threatened against or affecting Merger Sub or any of its respective officers or managers in their capacity as officers or managers of Merger Sub before any court or arbitrator or any governmental body, agency or official, which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the series of transactions contemplated hereby..

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          4.4 Noncontravention. Neither the execution and delivery by the Merger Sub of this Agreement, nor the consummation by the Merger Sub of the transactions contemplated hereby, will (a) conflict with or violate any provision of the articles of organization or operating agreement of the Merger Sub, (b) require on the part of the Merger Sub any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity except those filings contemplated hereby, under the Securities Act, and state corporation/securities laws, if any, (c) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which the Merger Sub is a party or by which the Merger Sub is bound or to which any of its assets is subject, (d) result in the imposition of any Security Interest upon any assets of the Merger Sub, or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Merger Sub or any of its properties or assets.

ARTICLE V
PRE-CLOSING AND POST-CLOSING COVENANTS

          5.1 Closing Efforts. Each of the Parties shall use its Reasonable Best Efforts to take all actions and to do all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement, including using its Reasonable Best Efforts to ensure that (i) its representations and warranties remain true and correct in all material respects through the Closing Date and (ii) the conditions to the obligations of the other Parties to consummate the Merger and its related transactions are satisfied.

          5.2 Governmental and Third-Party Notices and Consents.

                    (a) Each Party shall use its Reasonable Best Efforts to obtain, at its expense, all waivers, permits, consents, approvals or other authorizations from Governmental Entities, and to effect all registrations, filings and notices with or to Governmental Entities, as may be required for such Party to consummate the transactions contemplated by this Agreement and to otherwise comply with all applicable laws and regulations in connection with the consummation of the transactions contemplated by this Agreement.

                    (b) The Company shall use its Reasonable Best Efforts to obtain, at its expense, all such waivers, consents or approvals from third parties, and to give all such notices to third parties, as are required to be listed in the Disclosure Schedule or resulting from the delivery requirements set forth in Section 6. Parent will promptly advise the Company of any written notice from a third Person alleging that the consent of such third Person is or may be required in connection with the transactions contemplated by this Agreement.

          5.3 Operation of Business. Except as contemplated by this Agreement, during the period from the date of this Agreement to the Closing, the Company shall conduct its operations in the Ordinary Course of Business and in compliance with all applicable laws and regulations and, to the extent consistent therewith, use its Reasonable Best Efforts to preserve intact its current business organization, keep its physical assets in good working condition, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it to the end that its goodwill and ongoing

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business shall not be impaired in any material respect. Without limiting the generality of the foregoing, prior to the Closing, the Company shall not, without the written consent of the Parent (which consent shall not be unreasonably withheld):

                    (a) issue or sell any Membership Interest or other securities of the Company or any options, warrants or rights to acquire any such Membership Interest or other securities, or amend any of the terms of (including the vesting of) any options, warrants or restricted Membership Interest agreements, or repurchase or redeem any interest in the Company of any kind whatsoever or other securities of the Company;

                    (b) [reserved];

                    (c) create, incur or assume any indebtedness (including obligations in respect of capital leases), other than changes in the principal balance of the Company line of credit; assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person; or make any loans, advances or capital contributions to, or investments in, any other Person;

                    (d) enter into, adopt or amend any Employee Benefit Plan or any employment or severance agreement or arrangement of the type described in Section 2.21(k) or increase in any manner the compensation or fringe benefits of, or materially modify the employment terms of, its managers, officers or employees, generally or individually, or pay any bonus or other benefit to its managers, officers or employees (except for existing payment obligations listed in Section 2.21(a) of the Disclosure Schedule) or hire any new officers or (except in the Ordinary Course of Business) any new employees;

                    (e) acquire, sell, lease, license or dispose of any assets or property other than purchases and sales of assets in the Ordinary Course of Business with a value not in excess of $25,000;

                    (f) mortgage or pledge any of its property or assets or subject any such property or assets to any Security Interest;

                    (g) discharge or satisfy any Security Interest or pay any obligation or liability other than in the Ordinary Course of Business;

                    (h) amend its Articles of Organization, Operating Agreement or other organizational documents;

                    (i) change its accounting methods, principles or practices, except insofar as may be required by a generally applicable change in GAAP, or make any new elections, or changes to any current elections, with respect to Taxes;

                    (j) enter into, amend, terminate, take or omit to take any action that would constitute a violation of or default under, or waive any rights under, any contract or agreement of a nature required to be listed in Section 2.12, Section 2.13 or Section 2.14 of the Disclosure Schedule (other than new customer agreements providing for the payment by the customer of not

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more than $50,000 per annum individually or $100,000 per annum for all such agreements in the aggregate);

                    (k) make or commit to make any capital expenditure in excess of $25,000 per item or $50,000 in the aggregate;

                    (l) institute or settle any Legal Proceeding;

                    (m) take any action of a nature required to be listed in Section 2.7 of the Disclosure Schedule;

                    (n) take any action or fail to take any action permitted by this Agreement with the knowledge that such action or failure to take action would result in (i) any of the representations and warranties of the Company set forth in this Agreement becoming untrue or (ii) any of the conditions to the Merger set forth in Article VI not being satisfied; or

                    (o) agree in writing or otherwise to take any of the foregoing actions.

          5.4 Access to Information. From the date of this Agreement until the Closing, the Company shall permit representatives of the Parent to have access (at reasonable times, and in a manner so as not to unreasonably interfere with the normal business operations of the Company) to all premises, properties, financial, tax and accounting records (including the work papers of the Company’s independent accountants), contracts, other records and documents, and personnel, of or pertaining to the Company (other than attorney/client privileged information or attorney work product). Parent shall not meet with the Company’s customers and suppliers (in person or otherwise) to discuss, and shall use its Reasonable Best Efforts not to discuss otherwise with such customers or suppliers, the Company’s relationship with such customers or suppliers without informing the Company reasonably in advance of such meeting and giving the Company the opportunity to be present at such meeting.

          5.5 Notice of Breaches.

                    (a) From the date of this Agreement until the Closing, the Company shall promptly deliver to the Parent supplemental information concerning events or circumstances occurring subsequent to the date hereof which would render any representation, warranty or statement in this Agreement or the Disclosure Schedule inaccurate or incomplete at any time after the date of this Agreement until the Closing. No such supplemental information shall be deemed to avoid or cure any misrepresentation or breach of warranty or constitute an amendment of any representation, warranty or statement in this Agreement or the Disclosure Schedule unless Parent expressly agrees in writing.

                    (b) From the date of this Agreement until the Closing, the Parent shall promptly deliver to the Company supplemental information concerning events or circumstances occurring subsequent to the date hereof which would render any representation, warranty or statement of Parent or Merger Sub in this Agreement inaccurate or incomplete at any time after the date of this Agreement until the Closing. No such supplemental information shall be deemed to avoid or cure any misrepresentation or breach of warranty or constitute an amendment of any

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representation or warranty in this Agreement unless the Member Representatives expressly agree in writing.

          5.6 Exclusivity.

                    (a) From the date of this Agreement until the Closing or otherwise upon termination of this Agreement, the Company shall not, and the Company shall require each of its managers, officers, employees, representatives, and agents not to, directly or indirectly, (i) initiate, solicit, encourage or otherwise facilitate any inquiry, proposal, offer or discussion with any party (other than the Parent) concerning any merger, acquisition, reorganization, consolidation, recapitalization, business combination, liquidation, dissolution, equity interest exchange, sale of Membership Interests, sale of material assets or similar business transaction involving the Company or any division of the Company, (ii) furnish any non-public information concerning the business, properties or assets of the Company or any division of the Company to any party (other than the Parent or its representatives) or (iii) engage in discussions or negotiations with any party (other than the Parent) concerning any such transaction.

                     (b) The Company shall immediately notify any party with which discussions or negotiations of the nature described in paragraph (a) above were pending that the Company is terminating such discussions or negotiations. If the Company or any Member receives any inquiry, proposal or offer of the nature described in paragraph (a) above, the Company shall, within one Business Day after such receipt, notify the Parent of such inquiry, proposal or offer, including the identity of the other party and the terms of such inquiry, proposal or offer.

          5.7 Expenses. Except as expressly set forth in this Agreement, each of the Parties shall bear its own costs and expenses (including legal, investment banking and accounting fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. For the avoidance of doubt, except as specifically set forth in this Agreement, neither the Parent nor Merger Sub shall pay any costs and expenses of the Company incurred in connection with this Agreement and the transactions contemplated hereby including, but not limited to, those fees, costs and other expenses of its brokers and its counsel, including without limitation, Lewis Rice & Fingersh, L.C. Similarly, except as specifically set forth in this Agreement, neither the Company nor any Member shall pay any costs and expenses of Parent or Merger Sub incurred in connection with this Agreement and the transactions contemplated hereby including, but not limited to, those fees, costs and other expenses of its brokers and its counsel, including without limitation, Rutan & Tucker, LLP.

          5.8 Proprietary Information. From and after the Closing, no Member shall disclose or make use of, and each Member shall cause all of his Affiliates not to disclose or make use of, any knowledge, information or documents of a confidential nature or not generally known to the public with respect to the Company, Merger Sub or the Parent and their respective businesses (including the financial information, technical information or data relating to the Company’s services and names of customers of the Company), except to the extent that such knowledge, information or documents shall have become public knowledge other than through improper disclosure by any Member or an Affiliate or such disclosure is required by process of Law.

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          5.9 Confidentiality. Each of the parties hereto agrees that the information obtained in any investigation pursuant to the negotiation and execution of this Agreement or the effectuation of the transaction contemplated hereby, shall be governed by the terms of the Confidentiality Agreement between the Company and Parent dated November 30, 2007, provided, however, that any Party may make such disclosures as may be required under applicable law including, without limitation, those applicable provisions of the Securities Act and Exchange Act.

          5.10 Insurance Matters.

                    (a) Prior to the Closing, Company shall maintain in effect at its expense an errors and omissions liability insurance policy with a term which terminates no less than three years after the Closing Date covering (i) the Members and (ii) all officers, managers and employees of Company, as of immediately prior to the Closing, with coverages in amount and scope at least as favorable as Company’s errors and omissions liability insurance policy in effect on the Closing Date (the “E&O Policy”). The E&O Policy will cover, by way of appropriate tail insurance coverage or otherwise, all claims arising out of, resulting from or pertaining to facts, events or matters existing or occurring at or prior to the Closing Date, whether asserted or claimed prior to, at or after the Closing Date.

                    (b) After the Effective Time, the Operating Agreement of the Company may not be amended, repealed or otherwise modified for a period of three years from the Effective Time in any manner that would affect materially and adversely the rights thereunder of individuals who at or at any time prior to the Effective Time were entitled to indemnification thereunder.

          5.11 Guarantees.

                    (a) The Parent shall use its Reasonable Best Efforts to obtain no later than the Closing Date, a release of any and all personal guarantees of Debt given by any Member or their Affiliates set forth on Section 5.11 of the Disclosure Schedule.

                    (b) The Indemnifying Members shall use their Reasonable Best Efforts to obtain no later than fourteen (14) days after the Closing Date a release of the Company’s guaranty of any Debt provided on behalf of InfoNow or any Company Affiliate.

ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER

          6.1 Conditions to Obligations of the Parent and Merger Sub. The obligation of the Parent and Merger Sub to consummate the Merger is subject to the satisfaction (or written waiver by the Parent) of the following additional conditions:

                    (a) [reserved];

                    (b) the Company shall have obtained at its own expense (and shall have provided copies thereof to the Parent) all of the waivers, permits, consents, approvals, novations or other authorizations, and effected all of the registrations, filings and notices which are required on the part of the Company to consummate the transactions contemplated by this

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Agreement, including, but not limited to, the consents set forth in Section 2.4(c) of the Disclosure Schedule, and to otherwise comply with all applicable laws and regulations in connection with the consummation of the series of transactions contemplated by this Agreement;

                    (c) the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of the Closing except to the extent they pertain to a different date as specifically indicated;

                    (d) the Company and each of the Indemnifying Members shall each have performed or complied with in all material respects its agreements and covenants required to be performed or complied with under this Agreement as of or prior to the Closing;

                    (e) no Legal Proceeding shall be pending or threatened wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of the series of transactions contemplated by this Agreement or any one of them, (ii) cause the series of transactions contemplated by this Agreement or any one of them to be rescinded following consummation or (iii) have, individually or in the aggregate, a Material Adverse Effect, and no such judgment, order, decree, stipulation or injunction shall be in effect;

                    (f) the Company shall have delivered to the Parent the Company Certificate;

                    (g) the Parent shall have received the resignations, effective as of the Closing, of each manager, managing member, director and officer of the Company specified by the Parent; provided, however, that such resignation shall have no effect on any employment agreement such individual may have as disclosed on the Disclosure Schedule and or any benefits under any Company employee benefit plan in effect with respect to such individual as of the Closing.

                    (h) Ben Tischler, Mike Noble, Mike Gerling, Monte Sandler, Deb Linder-Watts and Adam Steinberg shall each have entered into an employment agreement (including noncompete and non-solicitation provisions) with the Surviving Company that is acceptable to the Surviving Company and Ben Tischler, Mike Noble, Mike Gerling, Monte Sandler, Deb Linder-Watts and Adam Steinberg shall each have entered into confidentiality, inventions assignment and nondisclosure agreements as may be required by Parent providing to the Parent and Surviving Company the maximum trade secret and intellectual property protection under the law of the state of each such person’s residence and substantially in the form of the standard agreements currently employed by Parent for such purposes;

                    (i) all Membership Interest Purchase Plans, if any, shall have been terminated;

                    (j) since the date of this Agreement, there will not have occurred and there will have been no change, event or development that has had, individually or in the aggregate, a Material Adverse Effect;

                    (k) all outstanding options to acquire a Membership Interest, if any, shall have been terminated;

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                    (l) the Company shall have obtained the Requisite Member Approval of the Members;

                    (m) the Company, if instructed by Parent, in Parent’s sole discretion, shall have terminated all of Company’s banking facilities (provided, however, that the Parent shall have caused to be paid any indebtedness outstanding under such banking facilities. Parent will pay up to $5,000 of any pre-payment and/or termination fees required to terminate such banking facilities and the Members shall be responsible for any such fees in excess of $5,000;

                    (n) the Parent shall have received the legal opinion of the Company’s counsel substantially in the form of Exhibit F, attached hereto, dated as of the date of this Agreement;

                    (o) the amount of Debt at the Closing shall not exceed the Maximum Allowable Closing Debt as set forth in Section 1.6(a)(ii);

                    (p) the Parent or one of its Affiliates shall have entered into the License Agreement with InfoNow (concerning “PowerFlow”), in substantially the form attached hereto as Exhibit G; and

                    (q) Each of Mike Noble and Ben Tischler shall have repaid in full all amounts owing by each of them to the Company.

          6.2 Conditions to Obligations of the Company. The obligation of the Company to consummate the Merger is subject to the satisfaction (or waiver by the Company) of the following additional conditions:

                    (a) the Parent shall have obtained at its own expense (and shall have provided copies thereof to the Company) all of the waivers, permits, consents, approvals or other authorizations, and effected all of the registrations, filings and notices which are required on the part of the Parent and/or the Merger Sub to consummate the series of transactions contemplated by this Agreement and to otherwise comply with all applicable laws and regulations in connection with the consummation of the series of transactions contemplated by this Agreement;

                    (b) the representations and warranties of the Parent and Merger Sub set forth in this Agreement shall be true and correct in all material respects as of the Closing except to the extent they pertain to a different date as specifically indicated herein;

                    (c) each of the Parent and the Merger Sub shall have performed or complied with in all material respects its agreements and covenants required to be performed or complied with under this Agreement as of or prior to the Closing;

                    (d) no Legal Proceeding shall be pending or threatened wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of the transactions contemplated by this Agreement, (ii) cause the transactions contemplated by this Agreement to be rescinded following consummation, and no such judgment, order, decree, stipulation or injunction shall be in effect or (iii) have, individually, or in the aggregate, a Parent Material Adverse Effect;

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                    (e) the Parent shall have delivered to the Company the Parent Certificate;

                    (f) the Company shall have received such other certificates and instruments as it shall reasonably request in connection with the Closing;

                    (g) the Surviving Company shall have entered into employment and confidentiality agreements as set forth in Section 6.1(h);

                    (h) the Parent or one of its Affiliates shall have entered into the License Agreement with InfoNow (concerning “PowerFlow”), in substantially the form attached hereto as Exhibit G;

                    (i) the Company shall have obtained the Requisite Member Approval;

                    (j) since the date of this Agreement, there will not have occurred and there will have been no change, event or development that has had, individually or in the aggregate, a Parent Material Adverse Effect;

                    (k) the Members shall have received the releases of the personal guarantees of Debt as contemplated by Section 5.11;

                    (l) the Members shall have received the legal opinion of the Parent’s counsel substantially in the form of Exhibit H, attached hereto, dated as of the date of this Agreement; and

                    (m) the subordinated debt to Maxine Hirsch shall be paid in full.

ARTICLE VII
INDEMNIFICATION

          7.1 Indemnification by the Indemnifying Members. Except as otherwise set forth in this Article VII, the Company (prior to Closing) and the Indemnifying Members (after the Closing) shall severally and not jointly based upon such Indemnifying Member’s Pro Rata Share indemnify the Parent in respect of, and hold it harmless against any and all Damages incurred or suffered by the Surviving Company or the Parent or any Affiliate thereof resulting from, relating to or constituting the matters set forth in this Section 7.1. In addition to the foregoing, and not by way of limitation, the Parent’s right to indemnification hereunder shall not be affected by (i) any investigation conducted by Parent or any of its Affiliates or (ii) any disclosures in the Disclosure Schedules related to (A) Capitalization (Section 2.2), (B) Taxes (Section 2.9), (C) Intellectual Property (Section 2.13), (D) Litigation (Section 2.18), (E) Employee Benefits (Section 2.21), and (F) Legal Compliance (Section 2.23).

                    (a) any breach of any representation or warranty of the Company contained in this Agreement (other than any breach of Section 2.9 of this Agreement which shall be resolved pursuant to Article VIII of this Agreement) or any other agreement or instrument furnished by the Company or any Member to the Parent pursuant to this Agreement), as though such representations and warranties were restated and made at and as of the Closing Date;

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                    (b) any failure to perform any covenant or agreement of the Company or any Member contained in this Agreement or any agreement or instrument furnished by the Company or any Member to the Parent pursuant to this Agreement;

                    (c) any failure of any Member to have good, valid and marketable title to the issued and outstanding Membership Interests registered in such Member’s name, free and clear of all Security Interests (it being understood that the indemnification obligation in this Section 7.1(c) shall be several, and not joint, as to the Member with respect to whom the failure has occurred);

                    (d) any claim by a Member or former Member of the Company, or any other Person, seeking to assert, or based upon: (i) ownership or rights to ownership of any interest in the Company which differ from those set forth in the Disclosure Schedule; (ii) any rights of a Member (other than the right to receive the Aggregate Transaction Consideration pursuant to this Agreement), including any option, preemptive rights or rights to notice or to vote; (iii) any rights under the Articles of Organization or Operating Agreement of the Company; or (iv) any claim that his, her or its shares were wrongfully involved in the transactions contemplated by this Agreement or which concerns the entry into this Agreement by any of the Parties or the process related thereto;

                    (e) any claim of any entity (private, Governmental Entity or otherwise) or Damages as a result of the Coding Activities; or

                    (f) any Third Party Actions concerning matters related to the Company or any of the Members which matter giving rise to the Third Party Action occurred prior to the Closing Date, regardless of when such Third Party Action is filed or otherwise instituted, including, without limitation, any claims concerning the matter set forth in Section 7.1(f) of the Disclosure Schedule.

          7.2 Indemnification by the Parent. The Parent shall indemnify the Company (prior to the Effective Time) and the Members and their Affiliates (after the Effective Time) in respect of, and hold them harmless against, any and all Damages incurred or suffered by the Company (prior to the Effective Time) or the Members or any Affiliate thereof (after the Effective Time) resulting from, relating to or constituting:

                    (a) any breach of any representation or warranty of the Parent or the Merger Sub contained in this Agreement or any other agreement or instrument furnished by the Parent or the Merger Sub to the Company or the Member Representatives pursuant to this Agreement;

                    (b) any failure to perform any covenant or agreement of the Parent or the Merger Sub contained in this Agreement or any agreement or instrument furnished by the Parent or the Merger Sub to the Company or the Member Representatives pursuant to this Agreement; or

                    (c) any Third Party Actions concerning matters related to the Surviving Company which matter giving rise to the Third Party Action occurred on or after the Closing Date.

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          7.3 Third Party Actions.

                    (a) Notice of Third Party Actions. An Indemnified Party shall give written notification to the Indemnifying Party of the commencement of any Third Party Action. Such notification shall be given within twenty (20) days after receipt by the Indemnified Party of notice of such Third Party Action, and shall describe in reasonable detail (to the extent known by the Indemnified Party) the facts constituting the basis for such Third Party Action and the amount of the claimed Damages; provided, however, that no delay or failure on the part of the Indemnified Party in so notifying the Indemnifying Party shall relieve the Indemnifying Party of any liability or obligation hereunder except to the extent of any damage or liability caused by or arising out of such failure.

                    (b) Indemnification by the Indemnifying Members of Third Party Actions. The obligations and liabilities of the Indemnifying Members hereunder with respect to a Third Party Action for which the Parent is entitled to indemnification pursuant to this Article VII will be subject to the following terms and conditions.

                              (i) The Indemnifying Members will have the right, but not the obligation, to defend against and to direct the defense of any such Third Party Action and any related Legal Proceeding at their sole cost and expense and with counsel of their choosing (subject to the approval of the Parent, which will not be unreasonably withheld or delayed) and the Parent will reasonably cooperate in the defense thereof. The Parent may participate in such defense with counsel of its own choosing, provided that the Indemnifying Members will not, following written notice of its election to defend against and direct the defense of any such Third Party Action, be liable to the Parent under this Article VII for any fees of other counsel or any other expenses with respect to the defense of such Legal Proceeding incurred by the Parent in connection with the defense of such Legal Proceeding unless the Parent is also a party to such Third Party Action and the Parent determines in good faith that it has available to it one or more defenses or counterclaims that are inconsistent with those of the Indemnifying Members. If the Indemnifying Members assume the defense of a Third Party Action, no compromise, discharge or settlement of, or admission of liability in connection with, such claims may be effected by the Indemnifying Members without the written consent of the Parent (which consent will not be unreasonably withheld or delayed) unless (x) there is no finding or admission of any violation of law or any violation of the rights of any Person and no effect on any other claims that may be made against the Parent, (y) the sole relief provided is monetary damages that are paid in full by the Indemnifying Members, and (z) such settlement is not disclosed to the public or available for review by any third party. The Parent will have no liability with respect to any compromise or settlement of such claims effected without its written consent (which consent will not be unreasonably withheld or delayed).

                              (ii) Notwithstanding the provisions of Section 7.3(b)(i) of this Agreement, if the Indemnifying Members fail or refuse to undertake the defense of such Third Party Action within fourteen (14) days after delivery of written notification to the Indemnifying Members of the commencement of such Third Party Action or if the Indemnifying Members later withdraw from such defense, the Parent will have the right to undertake the defense of such claim with counsel of its own choosing, with the Indemnifying Members responsible for the

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costs and expenses of such defense and bound by any determination made in such Third Party Action or any compromise or settlement effected by the Parent.

                    (c) Indemnification by the Parent of Third Party Actions. The obligations and liabilities of Parent hereunder with respect to a Third Party Action for which the Company, the Members or their Affiliates are entitled to indemnification pursuant to this Article VII will be subject to the following terms and conditions:

                              (i) The Parent will have the right, but not the obligation, to defend against and to direct the defense of any such Third Party Action and any related Legal Proceeding at the Parent’s sole cost and expense and with counsel of Parent’s choosing (subject to the approval of the Member Representatives, which will not be unreasonably withheld or delayed) and the Member Representatives will reasonably cooperate in the defense thereof. The Member Representatives may participate in such defense with counsel of their own choosing, provided that the Parent will not, following written notice of its election to defend against and direct the defense of any such Third Party Action, be liable to the Company, the Members or their Affiliates under this Article VII for any fees of other counsel or any other expenses with respect to the defense of such Legal Proceeding incurred by the Company, the Members or their Affiliates in connection with the defense of such Legal Proceeding unless such parties are also a party to such Third Party Action and the Member Representatives determines in good faith that they have available to them one or more defenses or counterclaims that are inconsistent with those of the Parent. If the Parent assumes the defense of a Third Party Action, no compromise, discharge or settlement of, or admission of liability in connection with, such claims may be effected by the Parent without the written consent of the Member Representatives (which consent will not be unreasonably withheld or delayed) unless (x) there is no finding or admission of any violation of law or any violation of the rights of any Person and no effect on any other claims that may be made against the Company, the Members or their Affiliates, (y) the sole relief provided is monetary damages that are paid in full by the Parent, and (z) such settlement is not disclosed to the public or available for review by any third party except as required by law. The Company, the Members and their Affiliates will have no liability with respect to any compromise or settlement of such claims without their written consent (which consent will not be unreasonably withheld or delayed).

                              (ii) Notwithstanding the provisions of Section 7.3(c)(i) of this Agreement, if the Parent fails or refuses to undertake the defense of such Third Party Action within fourteen (14) days after delivery of written notification to the Parent of the commencement of such Third Party Action or if the Parent later withdraws from such defense, the Member Representatives will have the right to undertake the defense of such claim with counsel of their own choosing, with the Parent responsible for the costs and expenses of such defense and bound by any determination made in such Third Party Action or any compromise or settlement effected by the Member Representatives.

          7.4 Non-Third Party Actions.

                    (a) In order to seek indemnification under this Article VII, an Indemnified Party shall deliver a Claim Notice to the Indemnifying Party. If the Indemnified Party is the

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Parent and is seeking to enforce such claim pursuant to the Escrow Agreement, the Indemnifying Party shall deliver a copy of the Claim Notice to the Escrow Agent.

                    (b) Within 20 days after delivery of a Claim Notice, the Indemnifying Party shall deliver to the Indemnified Party a Response, in which the Indemnifying Party shall: (i) agree that the Indemnified Party is entitled to receive all of the Claimed Amount (in which case the Response shall be accompanied by a payment by the Indemnifying Party to the Indemnified Party of the Claimed Amount, by check or by wire transfer, provided that if the Indemnified Party is the Parent and is seeking to enforce such claim pursuant to the Escrow Agreement, the Indemnifying Party and the Indemnified Party shall deliver to the Escrow Agent, within three (3) days following the delivery of the Response, a written notice executed by both parties instructing the Escrow Agent to release the Claimed Amount to the Parent from the Escrow Account); (ii) agree that the Indemnified Party is entitled to receive the Agreed Amount (in which case the Response shall be accompanied by a payment by the Indemnifying Party to the Indemnified Party of the Agreed Amount, by check or by wire transfer, provided that if the Indemnified Party is the Parent and is seeking to enforce such claim pursuant to the Escrow Agreement, the Indemnifying Party and the Indemnified Party shall deliver to the Escrow Agent, within three (3) days following the delivery of the Response, a written notice executed by both parties instructing the Escrow Agent to release the Agreed Amount to the Parent from the Escrow Fund); or (iii) dispute that the Indemnified Party is entitled to receive any of the Claimed Amount provided that any notice of such dispute shall identify the matters set forth in the Claim Notice which are disputed and shall provide with reasonable specificity the amount of the Claim which is in dispute and the portion of the Escrow Fund specified in the Claim Notice that the Member Representatives believe should not be delivered to Parent.

                    (c) During the 30-day period following the delivery of a Response that reflects a Dispute, the Indemnifying Party and the Indemnified Party shall use good faith efforts to resolve the Dispute. If the Dispute is not resolved within such 30-day period, such Dispute shall be resolved and a final determination rendered pursuant to Section 11.13. If the Indemnified Party is the Parent and is seeking to enforce the claim that is the subject of the Dispute pursuant to the Escrow Agreement, the Indemnifying Party shall deliver to the Escrow Agent, promptly following resolution of the Dispute (whether by mutual agreement, or arbitration), a written notice executed by both parties instructing the Escrow Agent as to what (if any) portion of the Escrow Fund shall be released to the Parent and/or the Indemnifying Members (which notice shall be consistent with the terms of the resolution of the Dispute).

          7.5 Survival of Representations and Warranties. All representations and warranties that are covered by the indemnification agreements in Section 7.1(a) and Section 7.2(a) of this Agreement shall (a) survive the Closing and (b) shall expire on the date which is the second anniversary of the Closing Date except for those representations and warranties of Company concerning Capitalization (Section 2.2), Taxes (Section 2.9), Intellectual Property (Section 2.13), Employee Benefits (Section 2.21) and Environmental (Section 2.22), which shall be for their respective statute of limitations. If an Indemnified Party delivers to an Indemnifying Party, before expiration of a representation or warranty, either a Claim Notice based upon a breach of such representation or warranty, or an Expected Claim Notice based upon a breach of such representation or warranty, then the applicable representation or warranty shall survive until, but only to the extent of, and for purposes of the resolution of, the specific matter covered by such

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notice. If the Legal Proceeding or written claim with respect to which an Expected Claim Notice has been given is definitively withdrawn or resolved, the Indemnified Party shall promptly so notify the Indemnifying Party and if the Indemnified Party has delivered a copy of the Expected Claim Notice to the Escrow Agent with respect to such Expected Claim Notice, the Indemnifying Party and the Indemnified Party shall promptly deliver to the Escrow Agent a written notice executed by both parties instructing the Escrow Agent to release such retained funds of the Escrow Fund in accordance with the resolution of such matter pursuant to the terms of the Escrow Agreement. The rights to indemnification set forth in this Article VII shall not be affected by (i) any investigation or due diligence conducted by or on behalf of an Indemnified Party or any knowledge acquired (or capable of being acquired) by an Indemnified Party, whether before or after the date of this Agreement or the Closing Date, with respect to the inaccuracy or noncompliance with any representation, warranty, covenant or obligation which is the subject of indemnification hereunder or (ii) any waiver by an Indemnified Party of any Closing condition relating to the accuracy of representations and warranties or the performance of or compliance with agreements and covenants.

          7.6 Treatment of Indemnity Payments. Any payments made to an Indemnified Party pursuant to this Article VII shall be treated as an adjustment to the Aggregate Transaction Consideration for Tax purposes.

          7.7 Limitations.

                    (a) No claim for indemnity under this Agreement may be made unless (i) the amount of determined indemnifiable Damages incurred with respect to such claim exceeds fifteen thousand dollars ($15,000), and (ii) the aggregate of all claims for Damages exceeds one hundred thousand dollars ($100,000) (the “Deductible”), at which time claims may be made for the entire amount of the aggregate of all claims for Damages in excess of such Deductible. By way of example only, if there are a series of claims that aggregate $115,000, then Parent may make a claim for indemnity in the amount of $15,000. Claims and adjustments pursuant to Article I shall not be subject to the limitations of this Section 7.7.

                    (b) The Parent shall have the following rights in satisfying its adjustments, holdbacks and claims for Damages under Section 1.6 and Article VII and VIII:

                              (i) The Parent shall have the obligation to satisfy any indemnifiable Damages which it may determine under Section 1.6 and Articles VII and VIII hereof first from the Escrow Fund pursuant to the terms of the Escrow Agreement.

                              (ii) To the extent that the Escrow Fund is insufficient to pay in full any determined adjustments, holdbacks and indemnifiable Damages under Section 1.6 (Adjustments) and Articles VII and VIII hereof, the Parent shall have the right to set off any determined adjustments, holdbacks and indemnifiable Damages under Section 1.6 and Articles VII and VIII hereof against any amounts payable to the Members under this Agreement.

                              (iii) The Parent shall also have the right to collect from each Indemnifying Member his/its Pro Rata Share of any determined indemnifiable Damages under

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Section 1.6 and Articles VII and VIII hereof that are not otherwise satisfied under Sections 7.7(b)(i) and (ii) above.

                    (c) Notwithstanding anything to the contrary contained in this Agreement, the maximum amount of Damages that may be indemnified by the Company and the Indemnifying Members pursuant to Section 7.1 shall not exceed the amount of the Aggregate Transaction Consideration.

                    (d) In determining the amount of any indemnification obligations under this Article VII, the amount of any obligation for which indemnification may be claimed by any Indemnified Party shall be reduced by any insurance proceeds received by the Indemnified Party (or by any Affiliate of the Indemnified Party) with respect to the matter that is the subject of the indemnified claim or any tax benefit actually received as a reduction in tax due or receipt of a tax refund. Each Indemnified Party (on behalf of itself and its Affiliates) agrees to make good faith, commercially reasonably efforts to obtain all such insurance proceeds available to it; provided, however, that no claim for indemnification shall be conditioned upon the final resolution of such insurance claim – the proceeds of such claim to be paid back to the Indemnifying Party if collected after the payment by the Indemnifying Party to the Indemnified Party concerning such claim.

                    (e) Notwithstanding anything to the contrary contained in this Agreement, no claim for indemnity under this Agreement may be made to the extent such claim relates to amounts that are accrued for as current liabilities on the Final Balance Sheet as determined by the parties pursuant to Section 1.6.

                    (f) The remedies set forth in this Article VII shall be the exclusive remedy of the Parties with respect to the matters set forth in this Article VII.

ARTICLE VIII
TAX MATTERS

          8.1 Tax Indemnification. The Indemnifying Members shall indemnify and hold harmless the Parent and the Surviving Company, and any successors thereto or Affiliates thereof in respect of and against Damages resulting from, relating to, or constituting (x) a breach of any representation contained in Section 2.9 of this Agreement, (y) the failure to perform any covenant or agreement set forth in this Article VIII, and (z) without duplication, the following Taxes:

                    (a) Any Taxes for any Taxable period ending on or before the Closing Date due and payable by the Company and not reserved for on the Final Balance Sheet; and

                    (b) Any Taxes for any Taxable period ending on or before the Closing Date for which the Company has any liability as a transferee or successor, or pursuant to any contractual obligation or otherwise and not reserved for on the Final Balance Sheet; and

                    (c) Any transfer, sales, use, stamp, conveyance, value added, recording, registration, documentary, filing and other non-income Taxes and administrative fees (including, without limitation, notary fees) arising in connection with the consummation of the series of

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transactions contemplated by this Agreement whether levied on the Parent, the Surviving Company, the Company or any of the Members.

          8.2 Preparation and Filing of Tax Returns; Payment of Taxes.

                    (a) Pre-Closing. The Company shall prepare and timely file or shall cause to be prepared and timely filed all Tax Returns for the Company for periods ending prior to Closing Date that are required to be filed (taking into account extensions) prior to the Closing Date and shall pay all Taxes with respect thereto.

                    (b) Filing Date Straddle of Closing Date. The Member Representatives shall prepare and the Surviving Company shall file or cause to be filed all Tax Returns for the Company for periods ending prior to or on the Closing Date that are required to be filed (taking into account extensions) after the Closing Date and the Surviving Company shall pay all Taxes with respect thereto. To the extent that the Taxes attributable to the periods beginning before the Closing Date have not been accrued for on the Final Balance Sheet as determined by the parties pursuant to Section 1.6, the Indemnifying Members shall pay the Surviving Company the amount of such Taxes that were not accrued by means of a withdrawal from the Escrow Fund.

                    (c) Taxable Period Straddle of Closing Date. The Surviving Company shall prepare any Tax Return to be prepared and filed for taxable periods beginning before the Closing Date and ending after the Closing Date and Surviving Company shall file such returns and shall pay all Taxes with respect thereto. Such returns shall be prepared on a basis consistent with the last previous similar Tax Return to the extent permitted under applicable law. To the extent that the Taxes attributable to the periods beginning before the Closing Date have not been accrued for on the Final Balance Sheet as determined by the parties pursuant to Section 1.6, the Indemnifying Members shall pay the Surviving Company the amount of such Taxes that were not accrued by means of a withdrawal from the Escrow Fund.

                    (d) Post-Closing. The Surviving Company shall prepare and file all tax returns for periods beginning on and after the Closing Date.

          8.3 Audits, Assessments, Etc. Whenever any taxing authority sends a notice of an audit, initiates an examination of the Company, or otherwise asserts a claim, makes an assessment, or disputes the amount of Taxes for which the Members are or may be liable under this Agreement, the recipient of such notice shall promptly inform the other Parties. The failure of the recipient to notify the other Parties promptly shall not relieve the Members of any obligations under this Agreement except to the extent such failure materially prejudices the Members. The Parent shall have the exclusive right to control any resulting proceedings. The Member Representatives shall have the right to participate at the Members’ own expense, in such proceeding, or portion thereof, only to the extent such proceeding, or portion thereof, or determination, or portion thereof, affects the amount of Taxes for which the Members are liable under this Agreement, and the Parent may settle any such proceeding or determination, or portion thereof, to the extent such proceeding or determination affects the amount of Taxes for which the Members are liable under this Agreement only with the prior written consent of the Member Representatives, which consent shall not be unreasonably withheld.

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          8.4 Termination of Tax Sharing Agreements. All Tax sharing, Tax indemnity or Tax distribution agreements or similar arrangements, including any such provisions in the Company’s Operating Agreement, with respect to or involving the Company, if any, shall be terminated prior to the Closing Date and, after the Closing Date, the Parent, the Company, the Surviving Company and their Affiliates shall not be bound thereby or have any liability thereunder for amounts due in respect of periods ending on or before the Closing Date.

          8.5 Indemnification Claims.

                    (a) Scope of Article VIII. Any claim by any Party relating to a breach by another Party of its obligations under this Article VIII shall be pursued in accordance with the procedures for indemnification claims set forth in this Article VIII, and shall not, except for Section 7.7, otherwise be subject to the terms and conditions, set forth in Article VII. To the extent there is any inconsistency between the terms of Article VII and this Article VIII with respect to the allocation of responsibility between the Company, the Members and the Parent for Taxes relating to the business of the Company, the provisions of this Article VIII shall govern.

                    (b) Claim Procedure. For purposes of clarification, (i) claims for a breach of an obligation under this Article VIII may be made by a Party at any time prior to the thirtieth (30^th) day after the expiration of the statute of limitations applicable to the Tax matter to which the claim relates, (ii) in order to seek indemnification under this Article VIII, the Parent shall deliver a Claim Notice to the Member Representatives, and if the Parent is seeking to enforce such claim pursuant to the Escrow Agreement, the Parent shall deliver a copy of the Claim Notice to the Escrow Agent in the form prescribed by the Escrow Agreement, (iii) upon delivery of any Claim Notice hereunder, the applicable representation or warranty shall survive until, but only to the extent of, and for purposes of the resolution of, the specific matter covered by such notice, and (iv) within twenty (20) days after delivery of a Claim Notice, the Member Representatives shall deliver to the Parent a Response in which the Member Representatives shall: (1) agree that the Parent is entitled to receive all of the Claimed Amount (in which case the Member Representatives and the Parent shall deliver to the Escrow Agent, within three days following the delivery of the Response, a written notice executed by the Member Representatives and the Parent instructing the Escrow Agent to release the Claimed Amount (or, if lesser, the amount remaining in the Escrow Account) to the Parent); (2) agree that the Parent is entitled to receive the Agreed Amount (in which case the Member Representatives and the Parent shall deliver to the Escrow Agent, within three (3) days following the delivery of the Response, a written notice executed by the Member Representatives and the Parent instructing the Escrow Agent to release the Agreed Amount (or, if lesser, the amount remaining in the Escrow Account) to the Parent), or (3) dispute that the Parent is entitled to receive any of the Claimed Amount.

          8.6 Dispute Resolution. During the thirty (30) day period following the delivery of a Response that reflects a Dispute, the Parent and the Member Representatives shall attempt in good faith to resolve the Dispute. If, at the end of the thirty (30) day period, the Parent and the Member Representatives have not resolved such Dispute, the Parent and the Member Representatives shall refer the Dispute for determination to the Adjustment Accountants, and the parties will be reasonably available and work diligently to facilitate the Adjustment Accountants to render a determination within a twenty (20) day period immediately following the referral to them. A determination by the Adjustment Accountants with respect to any item of Dispute

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submitted to them will be binding on the Parent and the Members. The fees and expenses of the Adjustment Accountants shall be borne by the Members on the one hand and the Parent on the other hand based on the Pro Rata Award.

          8.7 Limitations. The Members shall have no right of contribution against the Company or the Surviving Company with respect to any breach by the Company of any of its representations, warranties, covenants or agreements. Any payments made to the Parent pursuant to this Article VIII shall be treated as an adjustment to the Aggregate Transaction Consideration for Tax purposes.

ARTICLE IX
TERMINATION

          9.1 Termination of Agreement. The Parties may terminate this Agreement prior to the Closing, as provided below:

                     (a) the Company and Parent may terminate this Agreement by mutual written consent;

                     (b) the Parent may terminate this Agreement by giving written notice to the Company in the event the Company is in breach of any representation, warranty or covenant contained in this Agreement, and such breach (i) individually or in combination with any other such breach, would cause the conditions set forth in clauses (b) or (c) of Section 6.1 not to be satisfied and (ii) is not cured within twenty (20) days following delivery by the Parent to the Company of written notice of such breach;

                     (c) the Company may terminate this Agreement by giving written notice to the Parent in the event the Parent or the Merger Sub is in breach of any representation, warranty or covenant contained in this Agreement, and such breach (i) individually or in combination with any other such breach, would cause the conditions set forth in clauses (b) and (c) of Section 6.2 not to be satisfied and (ii) is not cured within twenty (20) days following delivery by the Company to the Parent of written notice of such breach;

                     (d) the Parent may terminate this Agreement by giving written notice to the Company if the Closing shall not have occurred on or before May 31, 2008 by reason of the failure of any condition precedent under Section 6.1 and such failure is not attributable to any action or inaction taken by Parent or Merger Sub; or

                     (e) the Company may terminate this Agreement by giving written notice to the Parent if the Closing shall not have occurred on or before May 31, 2008 by reason of the failure of any condition precedent under Section 6.2 and such failure is not attributable to any action or inaction taken by the Company.

          9.2 Effect of Termination. If any Party terminates this Agreement pursuant to Section 9.1, all obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party; provided that each Party shall remain liable for any breach of this Agreement prior to its termination; and provided, further, that the provisions of Sections 5.8 (Proprietary Information) and 5.10 (Confidentiality), and this Section 9.2 shall remain in full

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force and effect and survive any termination of this Agreement pursuant to the terms of this Article IX.

ARTICLE X
DEFINITIONS

          For purposes of this Agreement, each of the following terms shall have the meaning set forth below.

          “Accounting Policies” shall mean the cost accounting policies set forth in Exhibit D to the Agreement.

          “Accounts Receivable” shall mean each and all accounts receivable of the Company reflected on the Most Recent Balance Sheet (other than those paid since such date).

          “Adjustment Accountants” shall have the meaning set forth in Section 1.6(d)(iii) of this Agreement.

          “Adverse Consequences” shall have the meaning set forth in the definition of Claim Notice.

          “Affiliate” shall mean any affiliate, as defined in Rule 12b-2 under the Securities Exchange Act of 1934.

          “Agreed Amount” shall mean part, but not all, of the Claimed Amount.

          “Aggregate Transaction Consideration” shall mean the sum of:

                    (a) the Closing Amount;

                    (b) any Closing Amount Adjustment payable to the Members in accordance with Section 1.6           hereof;

                    (c) the Earnout Payment and Earnout Override payable to the Members, if any; and

                    (d) any amount released to the Members from the Escrow Fund, both previously paid and then           currently payable as of the applicable Payment Date.

          “Agreement” shall have the meaning set forth in the first paragraph of this Agreement.

          “Articles of Organization” shall mean the articles of organization of the Company under the MRS.

          “Business” shall mean the provision of revenue cycle management services as provided by the Company to physician groups and ambulatory care centers as of the Effective Time, consisting of outsourced billing management services, claims denial management, software sales, technology support services, account management services and data management and decision support information technology. As of the date of this Agreement, the Company

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conducts the following functions and activities in order to provide such services to healthcare providers:

                    (i) comprehensive billing and fee collection;

                    (ii) printing and mailing of claim forms and electronic submission of claims and printing and           mailing of patient statements;

                    (iii) posting of payments, management of adjustments and explanation of benefits reviews;

                    (iv) designing and automating provider-specific sets of decision criteria to bill, correct and remedy,           collect and monitor revenue cycle trends using rules-based analytics;

                    (v) re-selling third-party practice management software;

                    (vi) training with regards to and support of, selected third-party software;

                    (vii) client implementation and customer support;

                    (viii) providing data analytics, application interfaces, and application hosting;

                    (ix) routine account manager client meetings and client performance reviews;

                    (x) accounting services;

                    (xi) credentialing services;

                    (xii) coding review and education; and

                    (xiii) accounts receivable follow-up.

          “Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in the City of Los Angeles, California are required or authorized by law to be closed.

          “Cash” shall mean all cash and cash equivalents of the Company as of the Closing (including liquid debt instruments held as assets of the Company with maturities of three months or less), calculated in accordance with GAAP and the Accounting Policies.

          “CERCLA” shall mean the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

          “Claim Notice” shall mean written notification which contains (i) a description of the Damages incurred by the Indemnified Party and the Claimed Amount of such Damages, to the extent then known, (ii) a statement that the Indemnified Party is entitled to indemnification under Article VII for such Damages and a reasonable explanation of the basis therefor, and (iii) a demand for payment in the amount of such Damages. Without limiting the foregoing, a Claim Notice shall also include written notification which contains (i) claims dependent upon the outcome of any actual proceeding, investigation, suit or action or any proceeding, investigation, suit or action threatened in writing (a “Pending Action”), and (ii) Parent’s good faith determination that there exists a Pending Action and setting forth a reasonable estimate of any and all Damages, net of any Tax benefit actually realized as a reduction in tax due or receipt of tax refund or any insurance proceeds received by any party entitled to indemnification as a result thereof (“Adverse Consequences”) reasonably anticipated to be incurred in connection with such Pending Action, including, without limitation, Adverse Consequences which may be incurred if such Pending Action is determined adversely (such amount the “Pending Action Amount”), then that portion of the Escrow Fund equal to the Pending Action Amount, less that portion of the Deductible, to the extent applicable, if any remains that has not been used to offset prior claims,

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shall be deemed to be “Disputed Funds” under the terms of the Escrow Agreement. Upon all or any portion of the Pending Action Amount becoming a Claimed Amount, Parent and the Member Representatives shall comply with the terms hereof regarding Claimed Amounts and such Claimed Amounts shall be deemed Claimed Amounts for which notice has been timely given.

          “Claimed Amount” shall mean the amount of any Damages incurred by the Indemnified Party.

          “Closing” shall mean the closing of the series of transactions contemplated by this Agreement.

          “Closing Amount” shall mean the following:

          (a) Cash: Eight Million Dollars ($8,000,000);

          (b) Parent Stock: Seven Million Three Hundred Fifty Thousand Dollars ($7,350,000) of Parent’s unregistered, restricted Common Stock (the “Parent Stock”) delivered to the Members on the Closing Date valued based upon the average closing price of the Parent Stock as reported by the Nasdaq Global Select Market over the 45 trading days ending on the trading day immediately prior to the Closing Date (the “Parent Stock Valuation”) and subject to the Stock Restriction; and

          (c) The Closing Amount shall be (i) reduced by the Estimated Net Debt Adjustment, if any, (ii) reduced by the Estimated Working Capital Adjustment, if any, and (iii) decreased by the cash and Parent Stock amounts (valued using the Parent Stock Valuation) to be deposited into the Escrow Fund.

          “Closing Amount Adjustment” shall have the meaning set forth in Section 1.6(c) of this Agreement.

          “Closing Date” shall have the meaning set forth in Section 1.2.

          “Closing Date Working Capital” shall mean, as of the Closing Date and giving effect to the consummation of the Merger, the difference of the Company’s total current assets (including accounts receivable and prepaid expenses but excluding Cash), minus the Company’s total current liabilities (excluding the current portion of any Debt but including the Company Closing Expenses to the extent not paid), determined in accordance with GAAP and the Accounting Policies.

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

          “Coding Activities” shall have the meaning set forth in Section 2.23.

          “Commitments” shall have the meaning set forth in the definition of Equity Interest.

          “Company” shall have the meaning set forth in the first paragraph of this Agreement.

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          “Company Certificate” shall mean a certificate to the effect that each of the conditions specified in of Section 6.1 of this Agreement is satisfied in all respects.

          “Company Closing Expenses” shall mean the expenses incurred by the Company in connection with the consummation of the series of transactions contemplated hereby, including, without limitation, transaction-related expenses of counsel and accountants (but not including regular audit fees), printing, filing, investment banking and financial advisory fees and commissions.

          “Company Intellectual Property” shall mean the Intellectual Property owned by the Company and used in connection with the Business.

          “Company Plan” shall mean any Employee Benefit Plan maintained, or contributed to, by the Company or any ERISA Affiliate for employees or Members of the Company or an ERISA Affiliate.

          “Customer Deliverables” shall mean the services that the Company (i) currently provides, or (ii) has provided within the previous five years.

          “Damages” shall mean any and all debts, obligations and other liabilities (whether absolute, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), diminution in value, monetary damages (but not incidental, consequential or punitive damages), fines, fees, penalties, interest obligations, deficiencies, losses and reasonable expenses (including amounts paid in settlement, interest, court costs, reasonable costs of investigators, investigation of allegations, defense of allegations, reasonable fees and expenses of attorneys, accountants, financial advisors and other experts, and other expenses of litigation or threatened litigation).

          “Debt” shall mean the sum of (a) all obligations of the Company for borrowed money, or with respect to deposits or advances of any kind to the Company, (b) all obligations of the Company evidenced by bonds, debentures, notes, preferred equity or similar instruments, (c) all obligations of the Company upon which interest charges are customarily paid, (d) all obligations of the Company under conditional sale or other title retention agreements relating to property purchased by the Company, (e) all obligations of the Company issued or assumed as the deferred purchase price of property or services (excluding obligations of the Company or creditors for raw materials, inventory, services and supplies incurred in the Ordinary Course of Business), (f) all capitalized lease obligations of the Company, (g) all obligations of others secured by any lien on property or assets owned or acquired by the Company, whether or not the obligations secured thereby have been assumed, (h) all obligations of the Company under interest rate or currency hedging transactions (valued at the termination value thereof), (i) all letters of credit issued for the account of the Company, and (j) all guarantees and arrangements having the economic effect of a guarantee by the Company of any indebtedness of any other person. For the purposes of clarification, Debt does not include accounts payable or other liabilities to the extent such amounts are taken into account in calculating Estimated Working Capital or Closing Date Working Capital as contemplated under Section 1.6 of this Agreement.

          “Deductible” shall have the meaning set forth in Section 7.7(a).

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          “Disclosure Schedule” shall mean the disclosure schedule provided by the Company to the Parent on the date hereof and accepted in writing by the Parent. A full set of all contents of the Disclosure Schedule was delivered to the Parent no less than three (3) Business Days prior to the execution of this Agreement.

          “Dispute” shall mean the dispute resulting if the Indemnifying Party in a Response disputes its liability for all or part of the Claimed Amount.

          “Earnout Accountants” shall have the meaning set forth in Section 1.7(b).

          “E&O Policy” has the meaning set forth in Section 5.11 of the Agreement.

          “Earnout Certificate” shall have the meaning set forth in Section 1.7(a) of this Agreement.

          “Earnout Override” shall have the meaning set forth in Section 1.7(c) of the Agreement.

          “Earnout Payment” shall have the meaning set forth in Section 1.7(a) of this Agreement.

          “Earnout Period” shall have the meaning set forth in Section 1.7(a) of this Agreement.

          “Effective Time” shall mean the time at which the Missouri Secretary of State files the Notice of Merger for record.

          “Employee Benefit Plan” shall mean any “employee pension benefit plan” (as defined in Section 3(3) of ERISA), any “employee welfare benefit plan” (as defined in Section 3(1) of ERISA), and any other written or oral plan, agreement or arrangement involving direct or indirect compensation, including insurance coverage, severance benefits, disability benefits, deferred compensation, bonuses, equity options, equity purchase, phantom equity, equity appreciation or other forms of incentive compensation or post-retirement compensation.

          “Environmental Law” shall mean any federal, state or local law, statute, rule, order, directive, judgment, Permit or regulation or the common law relating to the environment, occupational health and safety, or exposure of persons or property to Materials of Environmental Concern, including any statute, regulation, administrative decision or order pertaining to: (i) the presence of or the treatment, storage, disposal, generation, transportation, handling, distribution, manufacture, processing, use, import, export, labeling, recycling, registration, investigation or remediation of Materials of Environmental Concern or documentation related to the foregoing; (ii) air, water and noise pollution; (iii) groundwater and soil contamination; (iv) the release, threatened release, or accidental release into the environment, the workplace or other areas of Materials of Environmental Concern, including emissions, discharges, injections, spills, escapes or dumping of Materials of Environmental Concern; (v) transfer of interests in or control of real property which may be contaminated; (vi) community or worker right-to-know disclosures with respect to Materials of Environmental Concern; (vii) the protection of wild life, marine life and wetlands, and endangered and threatened species; (viii) storage tanks, vessels, containers, abandoned or discarded barrels and other closed receptacles; and (ix) health and safety of employees and other persons. As used above, the term “release” shall have the meaning set forth in CERCLA.

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          “Environmental Permits” shall mean all permits, approvals, identification numbers, licenses and other authorizations required under or issued pursuant to any applicable Environmental Law.

          “Equity Interest” means (i) with respect to a limited liability company, partnership, trust or similar Person, any and all units, membership interests or other partnership/limited liability company interests, and any Commitments with respect thereto, (ii) with respect to a corporation, any and all shares of capital stock and any option, warrant, convertible security, subscription right, conversion right, exchange right or other agreement that could require a Person to issue any of its capital stock or sell any capital stock (“Commitments”) with respect thereto, and (iii) any other equity ownership, participation or security in a Person.

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

          “ERISA Affiliate” shall mean any entity which is, or at any applicable time was, a member of (1) a controlled group of corporations (as defined in Section 414(b) of the Code), (2) a group of trades or businesses under common control (as defined in Section 414(c) of the Code), or (3) an affiliated service group (as defined under Section 414(m) of the Code or the regulations under Section 414(o) of the Code), any of which includes or included the Company.

          “Escrow Account” shall be the account holding the Escrow Fund established for the purposes described under Section 1.8(a).

          “Escrow Agreement” shall mean an escrow agreement in substantially the form attached hereto as Exhibit E.

          “Escrow Agent” shall mean the escrow agent under the Escrow Agreement, which shall initially be US Bank, Los Angeles, California.

          “Escrow Fund” shall mean the fund established pursuant to the Escrow Agreement and paid in to the Escrow Account at the Closing pursuant to Section 1.8 consisting of the sum of:

                    (i) Five Hundred Thousand Dollars ($500,000); plus

                    (ii) shares of Parent Stock, equal to Seven Million Dollars ($7,350,000) of Parent Stock (valued                     using the Parent Stock Valuation).

          “Escrow Stock Valuation” shall mean the value assigned to the shares of Parent Stock in the Escrow Fund equal to the average closing price of the Parent Stock as reported by the Nasdaq Global Select Market over the 45 trading days ending on the trading day immediately prior to the date of the release of the Parent Stock from the Escrow Fund.

          “Estimated Net Debt” shall have the meaning set forth in Section 1.6(a)(ii).

          “Estimated Net Debt Adjustment” shall have the meaning set forth in Section 1.6(a)(ii).

          “Estimated Working Capital” shall have the meaning set forth in Section 1.6(b)(ii).

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          “Estimated Working Capital Adjustment” shall have the meaning set forth in Section 1.6(b)(ii).

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

          “Expected Claim Notice” shall mean a notice that, as a result of a Legal Proceeding instituted by or written claim made by a third party, an Indemnified Party reasonably expects to incur Damages for which it is entitled to indemnification under Article VII.

          “Final Balance Sheet” shall have the meaning set forth in Section 1.6(d)

          “Financial Statements” shall mean:

                    (a) the unaudited balance sheet and statement of income and cash flows of the Company as of the end of and for the twelve months ended December 31, 2007; and

                    (b) the unaudited balance sheets and unaudited statements of income and cash flows of the Company as of and for the three (3) months ended as of March 31, 2008.

          “Fiscal Year 2009” shall the period from May 1, 2008 through March 31, 2009.

          “Fiscal Year 2010” shall the period from April 1, 2009 through March 31, 2010.

          “GAAP” shall mean generally accepted accounting principles in the United States of America applied on a consistent basis and as set forth in the Accounting Policies.

          “Governmental Entity” shall mean any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

          “Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity.

          “Hazardous Materials” shall mean (a) petroleum and petroleum products, radioactive materials, asbestos-containing materials, mold, urea formaldehyde foam insulation, transformers or other equipment that contain polychlorinated biphenyls and radon gas, (b) any other chemicals, materials or substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “contaminants,” or “pollutants,” or words of similar import, under any applicable Environmental Law, and (c) any other chemical, material or substance which is regulated by any Environmental Law.

          “Healthcare Laws” shall have the meaning set forth in Section 2.29 of this Agreement.

          “HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996, as it may be amended from time to time, and any rules or regulations promulgated pursuant thereto.

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          “HIPAA Commitments” shall have the meaning set forth in Section 2.23(b) of this Agreement.

          “Indemnified Party” shall mean a party entitled, or seeking to assert rights, to indemnification under Article VII.

          “Indemnifying Party” shall mean the party from whom indemnification is sought by the Indemnified Party.

          “Indemnifying Members” shall have the meaning set forth in the first paragraph of this Agreement.

          “InfoNow” shall mean InfoNow Solutions, LLC, a Missouri limited liability company.

          “Intellectual Property” shall mean all:

                    (a) patents, patent applications, patent disclosures and all related continuation, continuation-in-part, divisional, reissue, reexamination, utility model, certificate of invention and design patents, patent applications, registrations and applications for registrations;

                    (b) trademarks, service marks, trade dress, Internet domain names, logos, trade names and corporate names and registrations and applications for registration thereof;

                    (c) copyrightable works, copyrights and registrations and applications for registration thereof;

                    (d) copyright, confidential information and trade secrets embodied in computer software and documentation;

                    (e) inventions, trade secrets and confidential business information, whether patentable or nonpatentable and whether or not reduced to practice, know-how, manufacturing and product processes and techniques, research and development information, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information;

                    (f) other proprietary rights relating to any of the foregoing (including remedies against infringements thereof and rights of protection of interest therein under the laws of all jurisdictions); and

                    (g) copies and tangible embodiments thereof.

          “Internal Systems” shall mean the internal computer systems of the Company that are used in its and in connection with business or operations, including computer hardware systems, software applications and embedded systems.

          “Key Employees” shall mean Mike Noble, Ben Tischler, Monte Sandler and Mike Gerling.

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          “Knowledge” of the Company shall mean the knowledge of the Key Employees and officers of the Company. “Knowledge” of the Parent or the Merger Sub shall mean the knowledge of Patrick Cline and Timothy Eggena.

          “Law” means any federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law).

          “Lease” shall mean any lease or sublease pursuant to which the Company leases or subleases from another party any real property.

          “Leased Real Property” means the real property leased by the Company as tenant, together with, to the extent leased by the Company, all buildings and other structures, facilities or improvements currently located thereon, all fixtures, systems, equipment and items of personal property of the Company attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing.

          “Legal Proceeding” shall mean any action, suit, proceeding, claim, arbitration or investigation before any Governmental Entity or before any arbitrator or mediator.

          “Material Adverse Effect” shall mean any material adverse change, event, circumstance or development with respect to, or material adverse effect on, (i) the business, assets, liabilities, capitalization, condition (financial or other), or results of operations of the Company, or (ii) the ability of the Parent to operate the business of the Company in the manner in which it is conducted at the time of the Closing; provided, however, that none of the following will be deemed to constitute, and none of the following will be taken into account in determining whether there has been, a Material Adverse Effect as of the execution of this Agreement and from such execution until the Closing Date: (a) changes in GAAP, or (b) any adverse change, event, development, or effect arising from or relating to (1) general business or economic conditions, (2) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (3) changes in financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (4) the taking of any action contemplated by this Agreement or any of the other agreements contemplated by this Agreement, (5) the public announcement of the execution of this Agreement or the identification of Parent or the effect that such public announcement or the consummation of the transactions contemplated by this Agreement has on the business or continuing relationships of Company. For the avoidance of doubt, the parties agree that the terms “material,” “materially” or “materiality” as used in this Agreement with an initial lower case “m” shall have their respective customary and ordinary meanings, without regard to the meaning ascribed to Material Adverse Effect.

          “Material Contract” shall have the meaning set forth in Section 2.14 of this Agreement.

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          “Materials of Environmental Concern” shall mean any: pollutants, contaminants or hazardous substances (as such terms are defined under CERCLA), pesticides (as such term is defined under the Federal Insecticide, Fungicide and Rodenticide Act), solid wastes and hazardous wastes (as such terms are defined under the Resource Conservation and Recovery Act), chemicals, other hazardous, radioactive or toxic materials, oil, petroleum and petroleum products (and fractions thereof), or any other material (or article containing such material) listed or subject to regulation under any law, statute, rule, regulation, order, Permit, or directive due to its potential, directly or indirectly, to harm the environment or the health of humans or other living beings.

          “Members” shall mean the Members of record of the Company immediately prior to the Effective Time.

          “Member Representatives” means Mike Noble and Ben Tischler and “Member Representative” means each of Mike Noble and Ben Tischler.

          “Membership Interest Purchase Plan” shall mean any Membership Interest option plan or other equity-related plan of the Company.

          “Member Transmittal Letter” shall have the meaning set forth in Section 1.3(b)(i) this Agreement.

          “Membership Interests” shall mean the interests in the Company held by the Members under the terms of the Company’s Operating Agreement.

          “Merger” shall mean the merger of the Merger Sub with and into the Company in accordance with the terms of this Agreement.

          “Merger Sub” shall have the meaning set forth in the first paragraph of this Agreement.

          “MRS” shall have the meaning set forth in Section 1.1 of this Agreement.

          “Most Recent Balance Sheet” shall mean the unaudited balance sheet of the Company as of the Most Recent Balance Sheet Date.

          “Most Recent Balance Sheet Date” shall mean February 29, 2008.

          “Net Debt” shall mean Debt minus any Cash as of the Closing.

          “Notice of Merger” shall mean the notice of merger or other appropriate documents required to effect the Merger prepared and executed in accordance with the MRS in form and substance satisfactory to the Company and Parent

          “Operating Agreement” shall mean the operating agreement of the Company.

          “Ordinary Course of Business” shall mean the ordinary course of business consistent with recent past custom and practice (within the past 24 months) (including with respect to frequency and amount).

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          “Parent” shall have the meaning set forth in the first paragraph of this Agreement.

          “Parent Certificate” shall mean a certificate to the effect that each of the conditions specified in Section 6.2 of this Agreement is satisfied in all respects.

          “Parent Material Adverse Effect” means any material adverse change, event, circumstance or development with respect to, or material adverse effect on, the business, assets, liabilities, capitalization, financial condition, or results of operations of the Parent; provided, however, that none of the following will be deemed to constitute, and none of the following will be taken into account in determining whether there has been, a Parent Material Adverse Effect: (a) changes in GAAP, (b) any adverse change, event, development, or effect arising from or relating to (1) general business or economic conditions, including such conditions related to the business of Parent, (2) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (3) changes in financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (4) changes in any Law applicable to businesses generally, (5) the taking of any action contemplated by this Agreement or any of the other agreements contemplated by this Agreement, (6) the public announcement of the execution of this Agreement or the identification of the Company or the effect that such public announcement or the consummation of the transactions contemplated by this Agreement has on the business or continuing relationships of Parent.

          “Parent SEC Reports” means all forms, reports and documents required to be filed by Parent with the Securities and Exchange Commission under the Securities Act and the Securities Exchange Act since December 31, 2004.

          “Parent Stock” has the meaning set forth in the definition of Closing Amount.

          “Parent Stock Valuation” shall have the meaning set forth in the definition of Closing Amount.

          “Parties” or “Party” shall mean individually and collectively (as the case may be) the Parent, the Merger Sub, the Company and the Indemnifying Members.

          “Payment Date” shall have the meaning set forth in Section 1.5 of this Agreement.

          “Pending Action” shall have the meaning set forth in the definition of Claim Notice.

          “Pending Action Amount” shall have the meaning set forth in the definition of Claim Notice.

          “Permits” shall mean all permits, licenses, registrations, certificates, orders, approvals, franchises, variances and similar rights issued by or obtained from any Governmental Entity (including those issued or required under Environmental Laws and those relating to the occupancy or use of owned or leased real property).

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          “Person” shall mean any natural person, corporation, limited liability company, general or limited partnership, proprietorship, other business, non-profit or charitable organization, trust, union, association (whether or not incorporated in any jurisdiction), or any court, arbitration tribunal, administrative agency or commission or other governmental or regulatory authority or agency.

          “Pro Rata Award” means a fraction the numerator of which is the dollar amount of disputes resolved by the Adjustment Accountants or the Earnout Accountants, as the case may be, in favor of Parent or the Members, as the case may be, and the denominator is the dollar amount of all disputes resolved by the Adjustment Accountants or Earnout Accountants, as the case may be.

          “Pro Rata Share” of any particular Indemnifying Member shall mean the total Membership Interests owned by such Indemnifying Member divided by the total number of Membership Interests owned by all of the Indemnifying Members or if such Membership Interest is expressed in the Operating Agreement as a percentage, then such percentage of such particular Indemnifying Member.

          “Reasonable Best Efforts” shall mean best efforts, to the extent commercially reasonable.

          “Referred Revenue” shall mean, for the fiscal year so indicated, the gross revenue collected by the Company from agreements concerning the Business with entities referred to the Company by Parent or its Affiliates during such fiscal year.

          “Release” means disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing, appearing and the like into or upon any land, building, surface, subsurface or water or air or otherwise entering into the Environment.

          “Releasees” shall have the meaning set forth in Section 1.12(a) of this Agreement.

          “Requisite Member Approval” shall mean the adoption of this Agreement and the approval of the Merger by the Members as required by Section 347.079 of the MRS and the Company’s Operating Agreement.

          “Response” shall mean a written response containing the information provided for in Section 7.4(b).

          “Rule” shall mean any constitution or statute or law or any judgment, decree, injunction, order, ruling, ordinance or final regulation or rule of any Governmental Entity, including, without limitation, those relating to disclosure, usury, equal credit opportunity, equal employment, environment, employee safety and health, fair credit reporting and anti-competitive activities.

          “SEC” means the Securities and Exchange Commission.

          “Securities Act” shall mean the Securities Act of 1933, as amended.

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          “Security Interest” shall mean any mortgage, pledge, security interest, encumbrance, charge or other lien (whether arising by contract or by operation of law), other than (i) mechanic’s, materialmen’s, landlord’s and similar liens, (ii) liens arising under worker’s compensation, unemployment insurance, social security, retirement, and similar legislation, (iii) liens for taxes not yet due and payable, and (iv) liens on goods in transit incurred pursuant to documentary letters of credit, in each case arising in the Ordinary Course of Business of the Company and not material to the Company.

          “Significant Person” shall mean a Person listed in Section 2.24 of the Disclosure Schedule.

          “Software” shall mean any of the software (including the documentation thereto) owned by the Company and any software included with any of the Company’s products and/or services or the Internal Systems.

          “Stock Restriction” shall mean the following restriction on the transferability of the Parent Stock: subject to the requirements of applicable securities laws, (i) one-third of the number of shares of Parent Stock held by any Member shall become free from the imposition of restriction upon transfer imposed by this Agreement upon the first anniversary of the Closing Date; and (ii) the remaining two-thirds of the number of shares of Parent Stock held by any Member shall become free from the imposition of restriction upon transfer imposed by this Agreement upon the second anniversary of the Closing Date. Any transfer or attempted transfer of the Parent Stock other than in compliance with the foregoing shall be void and of no force or effect. Certificates representing the Parent Stock shall bear a legend as follows for so long as such shares remain in escrow but which shall be removed once such shares are released from the Escrow Fund; provided that the first such legend set forth immediately below is not required by Rule 144 under the Securities Act (the Parent’s transfer agent will be similarly notified with respect to such certificates and any electronic account entries):

THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF THE VARIOUS STATES, AND HAVE BEEN ISSUED AND SOLD PURSUANT TO AN EXEMPTION FROM THE ACT, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED BY THE HOLDER THEREOF AT ANY TIME EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE ACT COVERING THESE SHARES, OR (2) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT THESE SHARES MAY BE TRANSFERRED WITHOUT REGISTRATION.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS AS SET FORTH IN AN AGREEMENT AND PLAN OF MERGER DATED May 16, 2008, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION.

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          If requested by a Member in writing to the Secretary of Parent, such legend shall be removed from the appropriate certificates representing the Parent Stock on the appropriate anniversary date.

          “Subsidiary” or “Subsidiaries” means any entity with respect to which any Person (or a Subsidiary thereof) owns 50% or more of the outstanding Equity Interests or has the power, through the ownership of Equity Interests or otherwise, to elect a majority of the directors or similar management body or to direct the business and policies of such entity.

          “Surviving Company” shall mean the Company, as the surviving entity in the Merger.

          “Target Net Debt” shall have the meaning set forth in Section 1.6(a)(ii) of this Agreement.

          “Target Working Capital” shall have the meaning set forth in Section 1.6(b)(i) of this Agreement.

          “Taxes” (including with correlative meaning “Tax” and “Taxable”) shall mean (a) any and all taxes, and any and all other charges, fees, levies, duties, deficiencies, customs or other similar assessments or liabilities in the nature of a tax, including without limitation any income, gross receipts, ad valorem, net worth, premium, value-added, alternative or add-on minimum, excise, severance, stamp, occupation, windfall profits, real property, personal property, assets, sales, use, capital stock, capital gains, documentary, recapture, transfer, transfer gains, estimated, withholding, employment, unemployment insurance, unemployment compensation, social security, business license, business organization, environmental, workers compensation, payroll, profits, license, lease, service, service use, gains, franchise and other taxes imposed by any federal, state, local, or foreign Governmental Entity, (b) any interest, fines, penalties, assessments, or additions resulting from, attributable to, or incurred in connection with any items described in this paragraph or any contest or dispute thereof, and (c) any items described in this paragraph that are attributable to another person, but that the Company is liable to pay by law, by contract, or otherwise.

          “Tax Returns” shall mean any and all reports, returns, declarations, statements, forms, or other information required to be supplied to a Governmental Entity or to any individual or entity in connection with Taxes and any associated schedules, attachments, work papers or other information provided in connection with such items, including any amendments, thereof.

          “Third Party Action” shall mean any suit, investigation or proceeding (private or governmental) by a person or entity other than a Party for which indemnification may be sought by a Party under Article VII.

          “Trading Partners” shall have the meaning set forth in Section 2.29(c).

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ARTICLE XI
MISCELLANEOUS

          11.1 Press Releases and Announcements. The parties acknowledge that the Parent is a public reporting company under the Securities Act and the Exchange Act. Accordingly, the Parent will create the form of press release to be issued promptly after the Closing which it shall issue at its sole discretion. The Company agrees that it shall not issue any other press release or public announcement or make any statement to third parties relating to the subject matter of this Agreement (including disclosure of any terms of this Agreement) without the prior written approval of the Parent.

          11.2 No Third Party Beneficiaries. Except as otherwise set forth herein, this Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns and the Members who are not also Indemnifying Members.

          11.3 Entire Agreement. This Agreement (including the documents referred to herein), constitutes the entire agreement among the Parties with respect to the subject matter hereof, and supersedes any prior or contemporaneous understandings, agreements or representations by or among the Parties, written or oral, express or implied, which may have related to the subject matter hereof in any way.

          11.4 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein, the Members, and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Parties; provided, however, Parent may assign this Agreement to Affiliated parties as they exist now or in the future; provided, further, that in the event of any such assignment, the Parent remains ultimately liable for its obligations hereunder.

          11.5 Counterparts and Facsimile Signature. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which together shall be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement and signature pages thereof for all purposes.

          11.6 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

          11.7 Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly delivered four business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent for next business day delivery via a reputable nationwide overnight courier service, in each case to the intended recipient as set forth below:

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If to the Company and Indemnifying Members:	Copy to (which shall not constitute notice):
Ben Tischler 947 Kimswick Manor Lane Ballwin, Missouri 63011 Telecopy: (314) 810-1445 Telephone: (314) 265-1444	Lewis, Rice & Fingersh, L.C. 500 North Broadway, Suite 2000 St. Louis, Missouri 63102-2147 Attn: John J. Riffle Telephone: (314) 444-1349 Telecopy: (314) 612-1349
and
Mike Noble 115 Double Eagle Drive St. Charles, Missouri 63303 Telecopy: (314) 810-1334 Telephone: (314) 265-1333
If to the Merger Sub or the Parent:	Copy to (which shall not constitute notice):
Quality Systems, Inc. 18191 Von Karman Avenue, Suite 450 Irvine, California 92612 Attn: Chief Executive Officer Telecopy: (949)255-2610 Telephone: (949)255-2600	Rutan & Tucker, LLP 611 Anton Boulevard, 14th Floor Costa Mesa, California 92626 Attn: Thomas J. Crane Telecopy: (714)546-9035 Telephone: (714)641-5100

          Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy or ordinary mail) other than electronic mail, but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

          11.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, and as to all other matters (including the validity and applicability of the arbitration provisions of this Agreement, the enforcement of any arbitral award made hereunder and any other questions of arbitration law or procedure arising hereunder) shall be governed by and construed in accordance with the internal laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of laws of any jurisdictions other than those of the State of California.

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          11.9 Amendments and Waivers. The Parties may mutually amend any provision of this Agreement at any time prior to the Closing. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the Parties. No waiver of any right or remedy hereunder shall be valid unless the same shall be in writing and signed by the Party giving such waiver. No waiver by any Party with respect to any default, misrepresentation or breach of warranty or covenant hereunder shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

          11.10 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.

          11.11 Construction.

                    (a) The language used throughout this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party.

                    (b) All terms and words used in this Agreement, regardless of whether singular or plural, or the gender in which they are used, shall be deemed to include any other number and any other gender as the context may require.

                    (c) Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

                    (d) Any reference herein to “including” shall be interpreted as “including without limitation”.

                    (e) Any reference to any Article, Section or paragraph shall be deemed to refer to an Article, Section or paragraph of this Agreement, unless the context clearly indicates otherwise.

          11.12 Attorneys Fees. Except as otherwise expressly set forth herein, in the event of any litigation or arbitration proceeding arising out of any disputes under this Agreement, the prevailing party shall be entitled to recover their reasonable costs and expenses including, without limitation, reasonable attorneys fees.

          11.13 Arbitration. Except for the (i) adjustment resolution process involving the Accountants in Section 1.6 and (ii) the dispute resolution provisions set forth in Section 1.7, any

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claim arising out of or related to this Agreement, or a breach hereof, is to be settled by arbitration in accordance with the procedures set forth in this Section. The parties agree that, in the event of a dispute between them relating to or arising out of this Agreement, the parties will submit such dispute to binding arbitration as provided herein. All arbitrations will be conducted in Orange County, California, or at another location mutually approved by the parties, pursuant to the Commercial Arbitration Rules of the American Arbitration Association except as provided herein. The arbitrator used will be selected from arbitrators employed by the American Arbitration Association and the decisions of the arbitrator are final and binding on the parties. All arbitrations will be undertaken pursuant to the Federal Arbitration Act, where applicable, and the decision of the arbitrator is enforceable in any court of competent jurisdiction. Both parties agree to waive their respective rights to further appeal or redress in any other court or tribunal except solely for the purpose of obtaining execution of the decision resulting from the arbitration proceeding. In the event of any arbitration or other legal proceeding brought by either party against the other party with regard to any matter arising out of or related to this Agreement, each party hereby expressly agrees that the final determination and award decision will also provide for an allocation and division between or among the parties to the arbitration, of: (i) reasonable legal fees and expenses as set forth in Section 11.12; and (ii) all other reasonable costs and expenses of the dispute, including court costs and arbitrator’s, reasonable accountants’ and expert witness fees, costs and expenses (including disbursements) incurred in connection with such proceedings, on a basis which is just and equitable under the circumstances. The arbitrator is directed by this Agreement to conduct the arbitration hearing no later than three months from the service of the statement of claim and demand for arbitration unless good cause is shown establishing that the hearing cannot fairly and practically be so convened. Depositions will be taken only as deemed appropriate by the arbitrator and only where good cause is shown. The parties to the arbitration will be entitled to conduct document discovery by requesting production of documents. Responses or objections will be served twenty days after receipt of a request. The arbitrator will resolve any discovery disputes by such pre-hearing conferences as may be needed. Both parties agree that the arbitrator and any counsel of record to the proceeding have the power of subpoena process as provided by law. Notices of demand for arbitration must be filed in writing in accordance with Section 11.7. A demand for arbitration is to be made within a reasonable time after the claim has arisen, but in no event later than the date when institution of legal or equitable proceedings based on such claim would be barred by the applicable statute of limitations. The award rendered by the arbitrators, including as to legal fees in accordance with Section 11.12, is final, and judgment may be entered upon it in accordance with law in any court of competent jurisdiction.

[Signature page follows]

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SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER

          IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

QUALITY SYSTEMS, INC.
By:
	Louis Silverman, Chief Executive Officer
and
By:
	Paul Holt, Secretary
BUD MERGER SUB, LLC
By:
	Louis Silverman, Chief Executive Officer
and
By:
	Paul Holt, Secretary

LACKLAND ACQUISITION II, LLC dba
Healthcare Strategic Initiatives

By:

Name:

Title:

and

By:

Name:

Title:

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INDEMNIFYING MEMBERS:
BEN TISCHLER
MIKE NOBLE
MONTE SANDLER
MIKE GERLING
	MEMBER REPRESENTATIVES
	BEN TISCHLER, solely as a Member
	Representative
	MIKE NOBLE, solely as a Member
	Representative

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EX-10.28

Exhibit  10.28

OFFICE LEASE

LAKESHORE TOWERS

LAKESHORE TOWERS LIMITED PARTNERSHIP PHASE II,

a California limited partnership,

as Landlord,

and

QUALITY SYSTEMS, INC.,

a California corporation,

as Tenant.

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

TABLE OF CONTENTS

		Page
ARTICLE 1	PREMISES, BUILDING, PROJECT, AND COMMON AREAS	4
1.1	Premises, Building, Project and Common Areas	4
1.2	Verification of Rentable Square Feet and Usable Square Feet of Premises, Building, and Project	4
1.3	Right of First Offer	5
ARTICLE 2	LEASE TERM; OPTION TERM	6
2.1	Lease Term	6
2.2	Lease Commencement Date Delay	6
2.3	Option Term	7
2.4	Early Termination	9
ARTICLE 3	BASE RENT	9
ARTICLE 4	ADDITIONAL RENT; SECURITY DEPOSIT	10
4.1	General Terms	10
4.2	Definitions of Key Terms Relating to Additional Rent	10
4.3	Allocation of Direct Expenses	16
4.4	Calculation and Payment of Additional Rent	16
4.5	Taxes and Other Charges for Which Tenant Is Directly Responsible	16
4.6	Landlord’s Books and Records	17
4.7	Security Deposit	18
ARTICLE 5	USE OF PREMISES	18
5.1	Permitted Use	18
5.2	Prohibited Uses	18
5.3	Tenant’s Security Responsibilities	19
ARTICLE 6	SERVICES AND UTILITIES	19
6.1	Standard Tenant Services	19
6.2	Overstandard Tenant Use	19
6.3	Interruption of Use	20
ARTICLE 7	REPAIRS	20
ARTICLE 8	ADDITIONS AND ALTERATIONS	21
8.1	Landlord’s Consent to Alterations	21
8.2	Manner of Construction	21
8.3	Payment for Improvements	22
8.4	Construction Insurance	22
8.5	Landlord’s Property	22
8.6	Communications and Computer Lines	22
ARTICLE 9	COVENANT AGAINST LIENS	23
ARTICLE 10	INSURANCE	23
10.1	Indemnification and Waiver	23
10.2	Tenant’s Compliance With Landlord’s Fire and Casualty Insurance	23
10.3	Tenant’s Insurance	24
10.4	Form of Policies	24
10.5	Subrogation	24
10.6	Additional Insurance Obligations	25
ARTICLE 11	DAMAGE AND DESTRUCTION	25
11.1	Repair of Damage to Premises by Landlord	25
11.2	Landlord’s Option to Repair	25
11.3	Tenant’s Option to Cause Early Expiration	26

-i-

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

TABLE OF CONTENTS
(continued)

		Page
11.4	Waiver of Statutory Provisions	26
ARTICLE 12	NONWAIVER	26
ARTICLE 13	CONDEMNATION	27
ARTICLE 14	ASSIGNMENT AND SUBLETTING	27
14.1	Transfers	27
14.2	Landlord’s Consent	28
14.3	Transfer Premium	28
14.4	Landlord’s Option as to Subject Space	29
14.5	Effect of Transfer	29
14.6	Occurrence of Default	30
14.7	Non-Transfers	30
ARTICLE 15	SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES	30
15.1	Surrender of Premises	30
15.2	Removal of Tenant Property by Tenant	30
ARTICLE 16	HOLDING OVER	31
ARTICLE 17	ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS	31
17.1	Estoppel Certificates	31
17.2	Financial Statements	31
ARTICLE 18	SUBORDINATION	31
ARTICLE 19	DEFAULTS; REMEDIES	32
19.1	Events of Default	32
19.2	Remedies Upon Default	32
19.3	Subleases of Tenant	33
19.4	Efforts to Relet	34
19.5	Landlord Default	34
ARTICLE 20	COVENANT OF QUIET ENJOYMENT	34
ARTICLE 21	34
[INTENTIONALLY DELETED]		34
ARTICLE 22	SIGNS	34
22.1	Full Floor	34
22.2	Prohibited Signage and Other Items	34
22.3	Building Directory	34
ARTICLE 23	COMPLIANCE WITH LAW	35
23.1	Applicable Laws	35
23.2	Hazardous Materials	35
23.3	Warranties; Notice of Release and Investigation	35
23.4	Indemnification	36
23.5	Remediation Obligations; Tenant’s Rights on Cleanup by Landlord	36
23.6	Definition of “Hazardous Material”	36
ARTICLE 24	LATE CHARGES	37
ARTICLE 25	LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT	37

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TABLE OF CONTENTS
(continued)

		Page
25.1	Landlord’s Cure	37
25.2	Tenant’s Reimbursement	37
ARTICLE 26	ENTRY BY LANDLORD	37
ARTICLE 27	TENANT PARKING	38
27.1	Parking In General	38
27.2	Landlord Reservations	38
27.3	Visitor Validations	38
27.4	Parking Pass System	38
ARTICLE 28	MISCELLANEOUS PROVISIONS	39
28.1	Terms; Captions	39
28.2	Binding Effect	39
28.3	No Air Rights	39
28.4	Modification of Lease	39
28.5	Transfer of Landlord’s Interest	39
28.6	Prohibition Against Recording	39
28.7	Landlord’s Title	39
28.8	Relationship of Parties	39
28.9	Application of Payments	39
28.10	Time of Essence	40
28.11	Partial Invalidity	40
28.12	No Warranty	40
28.13	Landlord Exculpation	40
28.14	Entire Agreement	40
28.15	Right to Lease	40
28.16	Force Majeure	40
28.17	Waiver of Redemption by Tenant	41
28.18	Notices	41
28.19	Joint and Several	41
28.20	Authority	41
28.21	Attorneys’ Fees	41
28.22	GOVERNING LAW; WAIVER OF TRIAL BY JURY	41
28.23	Submission of Lease	42
28.24	Brokers	42
28.25	Independent Covenants	42
28.26	Project or Building Name and Signage	42
28.27	Counterparts	42
28.28	Confidentiality	42
28.29	Development of the Project	42
28.30	Building Renovations	43
28.31	No Violation	43
28.32	No Discrimination	43
28.33	OFAC Compliance	43
28.34	Definition of Landlord	44

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LIST OF DEFINED TERMS

Accountant	17
Additional Rent	10
Additional Required Work	22
Affiliate	31
Alterations	21
Anticipated First Offer Date	5
Applicable Laws	35
Arbitration Fair Market Rental Value	8
Base Building	22
Base Rent	9
Base Taxes	15
Base Year	10
BOMA	16
Brokers	43
Building	4
Building Common Areas	4
Building Direct Expenses	10
Building Hours	19
Building Operating Expenses	10
Building Tax Expenses	10
CEW Report	36
Comparable Buildings	4
Contemplated Effective Date	29
Contemplated Transfer Space	29
Control	31
Current Premises	7
Direct Expenses	10
Effective Date	6
Electricity Usage Standard	20
Embargoed Person	44
Environmental Laws	36
Estimate Statement	16
Estimated Excess	16
Expense Year	10
Extended Repair Notice	26
Fair Market Rental Value	8
First Offer Notice	5
Force Majeure	41
Hazardous Material	37
Holidays	19
HVAC	19
Intention to Transfer Notice	29
Landlord	1
Landlord Parties	23
Landlord Repair Notice	25
Lease	1
Lease Commencement Date	6
Lease Expiration Date	6, 7
Lease Term	6
Lines	23
List	44
Mail	41
Management Fee Cap	13
None-Month Period	30
Notices	41
OFAC	44
Operating Expenses	10
Option Term	7
Original Improvements	24

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Original Tenant	7
Other Improvements	43
Outside Agreement Date	8
Outside Date	6
Parking Structure	39
Premises	4
Project	4
Proposition 13	14
Renovations	44
Rent	10
Security Deposit	18
Subject Space	28
Summary	1
Superior Leases	5
Superior Rights	5
Tax Expenses	14
Tenant	1, 7
Tenant Auditor	17
Tenant Work Letter	4
Tenant’s Share	15
Tenant’s Transfer Costs	29
Termination Notice	6
Transfer Notice	28
Transfer Premium	29
Transfer(s)	28
Transferee	28

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EXHIBITS
A	OUTLINE OF PREMISES
B	TENANT WORK LETTER
C	LEGAL DESCRIPTION
D	FORM OF NOTICE OF LEASE TERM DATES
E	DIRECT EXPENSES ALLOCATION
F	RULES AND REGULATIONS
G	FORM OF TENANT’S ESTOPPEL CERTIFICATE

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LAKESHORE TOWERS

OFFICE LEASE

          This Office Lease (the “Lease”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “Summary”), below, is made by and between LAKESHORE TOWERS LIMITED PARTNERSHIP PHASE II, a California limited partnership (“Landlord”), and QUALITY SYSTEMS, INC., a California corporation (“Tenant”).

SUMMARY OF BASIC LEASE INFORMATION

TERMS OF LEASE			DESCRIPTION
1.	Date:		October 18, 2007
2.	Premises (Article 1):
	2.1	Building:	Lakeshore Towers Building III 18111 Von Karman Avenue Irvine, California
	2.2	Premises:	Approximately 23,759 rentable (21,548 usable) square feet of space located on the sixth floor of the Building and commonly known as Suite 600, as further set forth in Exhibit A to the Lease.
3.	Lease Term (Article 2).
	3.1	Length of Term of Lease of Premises:	Sixty (60) months, plus the partial month, if any, between the Lease Commencement Date and the first day of the following calendar month.
	3.2	Lease Commencement Date:	The Lease Commencement Date shall be as set forth in Section 2.1.
	3.3	Lease Expiration Date:	The last day of the sixtieth (60) month of the Lease Term.
4.	Base Rent (Article 3):

Lease Year	Annual Base Rent		Monthly Installment of Base Rent		Annual Rental Rate per Rentable Square Foot
Lease Commencement Date through Month 48*		$ 776,919.30		$ 64,743.28		$ 32.70
Month 49 through Month 60		$ 812,557.80		$ 67,713.15		$ 34.20

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As used herein a “month” means a calendar month. If the Lease Commencement Date is other than the first day of a calendar month, the Base Rent for such partial calendar month shall be prorated pursuant to Article 3 of the Lease and such prorated Base Rent shall be due and payable on the tenth (10th) day following the Lease Commencement Date. For example, if the Lease Commencement Date is the 15th day of February 2008, prorated Base Rent for February 2008 would be due on February 25, 2008.

*Notwithstanding anything herein to the contrary, monthly installments of Base Rent for the period from the Lease Commencement Date through May 31, 2008 shall be $60,244.78.

5.	Base Year (Article 4):	Calendar year 2008
6.	Tenant’s Share (Article 4):	Approximately 10.265%
7.	Permitted Use (Article 5):	General office use consistent with a first-class office building.
8.	Security Deposit (Article 4):	$64,149.30
9.	Parking (Article 27):	81 unreserved parking spaces of which four (4) spaces may, subject to the terms of Article 27 of this Lease, be for the use of reserved parking spaces in the Building. To the extent available, Tenant shall have the right to use an additional thirteen (13) unreserved parking spaces in the Parking Structure at the rates provided below subject to Tenant’s advising Landlord not less than thirty (30) days in advance of the date Tenant desires to use such additional unreserved parking spaces. To the extent available, Tenant shall have the right to use additional reserved parking spaces in the Building at the reserved rate then being charged by Landlord to other tenants; provided such use may be terminated by Landlord on ten (10) days advance written notice to Tenant.

Parking Space Fees:	Unreserved Rate Per Space Per Month	Reserved Rate Per Space Per Month	Building Reserved Rate Per Space Per Month
Lease Commencement Date through May 31, 2008	$ 50.00	$ 125.00	$ 145.00
June 1, 2008 through Lease Expiration Date	$ 65.00	$ 125.00	$ 150.00

10.	Address of Tenant (Section 28.18):	Prior to Lease Commencement Date:
		Quality Systems, Inc. 18191 Von Karman Avenue, Suite 450 Irvine, California 92612

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		After Lease Commencement Date:
		Quality Systems, Inc. 18111 Von Karman Avenue, Suite 600 Irvine, California 92612
11.	Address of Landlord (Section 28.18):	See Section 28.18 of the Lease.
12.	Broker(s) (Section 28.24):	Kern Olson Real Estate Services 4101 Birch Street, Suite 150 Newport Beach, California 92660 Attention: James F. Kern
		and
		Cushman & Wakefield of California, Inc. 1920 Main Street, Suite 600 Irvine, California 92614 Attention: Rick Kaplan and Robert Lambert

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ARTICLE 1

                         PREMISES, BUILDING, PROJECT, AND COMMON AREAS

          1.1          Premises, Building, Project and Common Areas.

                         1.1.1          The Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the “Premises”). The outline of the Premises is set forth in Exhibit A attached hereto and the Premises has the number of rentable square feet as set forth in Section 2.2 of the Summary. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the Building (as defined below) only, and such exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the Common Areas (as defined below) or the elements thereof or of the accessways to the Premises or the Project (as defined below). Except as specifically set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B (the “Tenant Work Letter”), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease and the Tenant Work Letter.

                         1.1.2          The Building and The Project. The Premises are a part of the building set forth in Section 2.1 of the Summary (the “Building”). The Building is part of an office project known as “Lakeshore Towers”. The term “Project”, as used in this Lease, shall mean (i) the land on which the Project is located which land is described in Exhibit C hereto, (ii) the Building, (iii) the Common Areas, (iv) the other buildings located in the Project, and (v) at Landlord’s discretion, any additional real property, areas, land, buildings or other improvements added thereto outside of the Project.

                         1.1.3          Common Areas. Tenant shall have the non-exclusive right to use in common with Project tenants the Project Common Areas and the non-exclusive right to use in common with other Building tenants the Building Common Areas, subject to the rules and regulations referred to in Article 5 of this Lease. Those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project and such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “Common Areas”. The Common Areas shall consist of the Project Common Areas and the Building Common Areas. The term “Project Common Areas” shall mean (i) the portion of the Project designated as such by Landlord and (ii) all common areas designated in that certain Declaration of Covenants, Conditions and Restrictions and Reservation of Easements for the Lakeshore Towers, dated October 17, 1989, recorded October 23, 1989, as Instrument No. 89569018 of the Official Records of Orange County, California (the “CC&Rs”). The term “Building Common Areas” shall mean the portions of the Common Areas located within the Building designated as such by Landlord. The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord, provided that Landlord shall maintain and operate same in a manner consistent with that of other first-class, high-rise office buildings in the John Wayne Airport/South Coast Plaza, Costa Mesa, California area, which are comparable in size (containing at least 250,000 rentable square feet), quality of construction, and services and amenities to the Building (the “Comparable Buildings”) and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas.

          1.2          Verification of Rentable Square Feet and Usable Square Feet of Premises, Building, and Project. For purposes of this Lease, “rentable square feet” and “usable square

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feet” shall be calculated pursuant to BOMA (as defined below). In the event that the rentable area of the Premises, the Building and/or the Project shall hereafter change due to subsequent alterations and/or other modifications to the Premises, the Building and/or the Project, the rentable area of the Premises, the Building and/or the Project, as the case may be, shall be appropriately adjusted as of the date of such alteration and/or other modification, based upon the written verification by Landlord’s space planner of such revised rentable area. In the event of any such adjustment to the rentable area of the Premises, the Building and/or the Project, all amounts, percentages and figures appearing or referred to in this Lease based upon such rentable area (including, without limitation, the amount of the Rent (as defined below)) shall be modified in accordance with such determination.

          1.3          Right of First Offer. Landlord hereby grants to Original Tenant (as defined below), a right of first offer with respect to any space on the fourth (4th) floor of the Building (the “First Offer Space”). Notwithstanding the foregoing, (i) such first offer right of Tenant shall commence only following the expiration or earlier termination of (A) that certain Lease between Landlord and Ernst & Young U.S. LLP, (B) that certain lease between Landlord and Pepperdine University and (C) that certain lease between Landlord and City National Bank (items (A), (B) and (C), collectively, the “Superior Leases”), including any renewal or extension of such Superior Leases, provided such renewal or extension is pursuant to an express written provision in such Superior Lease, but regardless of whether any such renewal or extension is consummated strictly pursuant to the terms of such express written provisions, or pursuant to a lease amendment or a new lease, and (ii) such first offer right shall be subordinate and secondary to all rights of expansion, first refusal, rights of first offer or similar rights previously granted to the tenants of the Superior Leases (the rights described in items (i) and (ii) above to be known collectively as “Superior Rights”). Tenant’s Right of First Offer shall be on the terms and conditions set forth in this Section 1.3.

                         1.3.1          Procedure for Offer. Landlord shall notify Tenant (the “First Offer Notice”) from time to time when Landlord determines that marketing for any portion of the First Offer Space will commence because such portion of the First Offer Space shall become available for lease to third parties, provided that no holder of a Superior Right wishes to lease such space. Pursuant to such First Offer Notice, Landlord shall offer to lease to Tenant the then available First Offer Space. The First Offer Notice shall describe the space so offered to Tenant, shall set forth the date (“Anticipated First Offer Date”) upon which Landlord anticipates that the First Offer Space shall become available for lease to third parties (subject to any holdover of any then existing tenant).

                         1.3.2         Procedure for Acceptance. During the fifteen (15) day period following receipt of the First Offer Notice, Landlord and Tenant shall meet and negotiate in good faith in an attempt to reach an agreement with respect to rent, length of lease and other terms and conditions for the lease by Tenant from Landlord of the First Offer Space (if Tenant elects to lease the First Offer Space, such election shall be with respect to all of the First Offer Space offered by Landlord to Tenant at any particular time, and Tenant may not elect to lease only a portion thereof). If Landlord and Tenant are unable to agree upon the terms and conditions for Tenant’s lease of the First Offer Space during such fifteen (15) day period, Landlord may lease the First Offer Space to any other person or entity on such terms and conditions as are acceptable to Landlord and Tenant shall have no further rights with respect to such First Offer Space.

                         1.3.3          Construction In First Offer Space. Tenant shall lease the First Offer Space in its “as is” condition (except to the extent an improvement allowance is agreed upon by Landlord and Tenant during negotiations as contemplated at Section 1.3.2 above).

                         1.3.4          Amendment to Lease. If Tenant and Landlord reach agreement on Tenant’s lease of the First Offer Space as set forth herein, Landlord and Tenant shall within fifteen (15) days after such agreement execute a lease for such First Offer Space or an amendment to this Lease adding such First Offer Space to the Premises upon the terms and conditions agreed upon by Landlord and Tenant.

                         1.3.5          Termination of Right of First Offer. The rights contained in this Section 1.3 shall be personal to the Original Tenant and may only be exercised by the Original Tenant (and not any other assignee, sublessee or transferee of the Original Tenant’s interest in

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this Lease) if the Original Tenant occupies all of the Premises as of the date of the First Offer Notice.

ARTICLE 2

LEASE TERM; OPTION TERM

          2.1          Lease Term. The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “Lease Term”) shall be as set forth in Section 3.1 of the Summary and shall, subject to Force Majeure, commence on the date (the “Lease Commencement Date”) that Landlord delivers the Premises substantially complete (as defined in the Tenant Work Letter attached hereto as Exhibit B). The term of this Lease shall terminate on the date set forth in Section 3.3 of the Summary (the “Lease Expiration Date”) unless this Lease is sooner terminated as hereinafter provided. At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit D, attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) days of receipt thereof.

          2.2          Lease Commencement Date Delay.

                         2.2.1          Delay In Possession. If Landlord is unable to deliver possession of the Premises to Tenant with the Tenant Improvements substantially complete on or before April 1, 2008, Landlord shall not be subject to any liability for its failure to do so. If Landlord is unable to deliver possession of the Premises to Tenant with the Tenant Improvements substantially complete on or before the Outside Date, Tenant’s sole remedy shall be to terminate this Lease as provided in Section 2.2.2 below. For purposes of this Lease, the “Outside Date” shall be July 1, 2008 as extended by the number of days of “Tenant Delays” as described in Exhibit B hereto and by the number of days of delay due to Force Majeure (as defined below).

                         2.2.2          Tenant’s Notice of Termination. If Landlord fails to deliver the Premises to Tenant with the Tenant Improvements substantially complete by the Outside Date, Tenant’s sole remedy shall be the right to deliver a notice to Landlord (“Termination Notice”) electing to terminate this Lease effective on Landlord’s receipt of the Termination Notice (“Effective Date”). Except as provided below, the Termination Notice must be delivered to Landlord by Tenant, if at all, no later than fifteen (15) business days after the Outside Date. In the event that the Termination Notice is delivered, upon the Effective Date (subject to any suspension of such date pursuant to Section 2.2.3 below) Tenant’s right to occupy the Current Premises (as defined below) shall be extended until the date which is the later of the “Expiration Date” under the Current Premises Lease (as defined below) or three (3) calendar months following the Effective Date (subject to any suspension of such date pursuant to Section 2.2.3 below). Landlord shall cause the landlord of the Current Premises to waive any holdover rent which is in excess of the amount of base rent and/or additional rent that would then be due under the Current Premises Lease during such three month period.

                         2.2.3          Landlord’s Suspension of Effective Date. If Tenant delivers the Termination Notice to Landlord, Landlord shall have the right to suspend the Effective Date until thirty (30) days after the original Effective Date. In order to suspend the Effective Date, Landlord must deliver to Tenant, within five (5) business days after receipt of the Termination Notice, a certificate of the general contractor in charge of construction certifying that it is that contractor’s best good faith judgment that the delivery of the Premises with the Tenant Improvements substantially complete will occur within thirty (30) days after the original Effective Date. If Landlord provides this certificate and delivery of the Tenant Improvements substantially complete occurs within that thirty (30) day suspension period, the Termination Notice shall be of no force or effect. If, however, such delivery does not occur within that thirty (30) day suspension period, this Lease shall terminate as of the date of expiration of the thirty (30) day period.

                         2.2.4          Extension of Outside Date. If before the Outside Date Landlord determines that delivery of the Premises with the Tenant Improvements substantially complete will not occur by the Outside Date, Landlord shall have the right to deliver a written notice to Tenant stating Landlord’s reasonable, good faith estimate of the date by which such delivery will occur. Tenant will be required within ten (10) business days after receipt of such notice either to

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deliver the Termination Notice (which will mean that this Lease shall terminate and be of no further force and effect) or agree to extend the Outside Date to the date stated in Landlord’s notice. Tenant’s failure to respond in writing within such ten (10) business day period shall constitute Tenant’s agreement to extend the Outside Date to the date stated in Landlord’s notice. If the Outside Date is so extended, Landlord’s right to request Tenant to elect to either terminate or further extend the Outside Date shall remain and continue to remain, with each of the notice periods and response periods set forth above, until possession of the Premises with Tenant Improvements substantially complete have been delivered to Tenant or until this Lease is terminated.

                         2.2.5          Tenant’s Current Lease. Tenant currently leases Suite 450 at 18191 Von Karman Avenue, Irvine, California (“Current Premises”) pursuant to that certain Office Lease dated September 15, 2004 (“Current Premises Lease”). The building in which the Current Premises are located is part of the Project. Tenant shall deliver possession of the Current Premises to the landlord of the Current Premises within fifteen (15) days following the Lease Commencement Date and such delivery date shall be the “Lease Expiration Date” for purposes of the Current Premises Lease.

          Landlord shall cause the landlord under the Current Premises Lease to accept the following:

                         (i) if the “Lease Expiration Date” under the Current Premises Lease occurs prior to the Lease Commencement Date, the Current Premises landlord shall waive any holdover rent which is in excess of the amount of base rent and/or additional rent that would then be due under the Current Premises Lease. If the Current Premises have not been delivered to the Current Premises landlord within fifteen (15) days following the Lease Commencement Date, the foregoing waiver shall be of no force or effect.

                         (ii) the Current Premises landlord shall waive any base rent and/or additional rent that would be due under the Current Premises Lease during the fifteen-day period following the Lease Commencement Date. If the Current Premises have not been delivered to the Current Premises landlord within fifteen (15) days following the Lease Commencement Date, the foregoing waiver shall be of no force or effect.

          The foregoing shall not relieve Tenant of any obligation to pay for additional services or work by the Current Premises landlord at Tenant’s specific request (e.g., after hours HVAC costs, visitor parking validation and parking charges in excess of parking charges under the Current Premises Lease). Nothing herein modifies Tenant’s duties and obligations under the Current Premises Lease including, without limitation, the condition of the Current Premises upon delivery to the Current Premises landlord.

          2.3          Option Term.

                          2.3.1         Option Right. Landlord hereby grants Quality Systems, Inc. (the “Original Tenant”) one (1) option to extend the Lease Term for a period of five (5) years (the “Option Term”), which option shall be exercisable only by written notice delivered by Tenant to Landlord as provided below, provided that, as of the date of delivery of such notice, Tenant is not in default under this Lease, after the expiration of applicable cure periods, and Tenant has not previously been in default under this Lease, after the expiration of applicable cure periods, more than once. Upon the proper exercise of such option to extend, and provided that, as of the end of the initial Lease Term, Tenant is not in default under this Lease, after the expiration of applicable cure periods, and Tenant has not previously been in default under this Lease, after the expiration of applicable cure periods, more than once, the Lease Term, as it applies to the Premises, shall be extended for a period of five (5) years. The rights contained in this Section 2.3 shall be personal to Tenant and may only be exercised by Tenant (and not any other assignee, sublessee or transferee of Tenant’s interest in this Lease) if Original Tenant occupies the entire Premises. (References to “Tenant” in this Section 2.3 and elsewhere in this Lease with respect to the Option Term shall mean Original Tenant.)

                          2.3.2         Option Rent. The rent payable by Tenant during the Option Term (the “Option Rent”) shall be equal to the “Fair Market Rental Value” for the Premises. As used herein, “Fair Market Rental Value” shall be equal to the rent (including additional rent and

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considering any “base year” or “expense stop” applicable thereto), including all escalations, at which, as of the commencement of the Option Term taking into consideration only those transactions involving the services of a professional real estate broker, tenants are leasing non-sublease, non-encumbered, non-equity space comparable in size, location and quality to the Premises for a term of five (5) years which comparable space is located in the Project and in Comparable Buildings, in either case taking into consideration the following: (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account, and deducting the value of, the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same can be utilized by Tenant based upon the fact that the precise tenant improvements existing in the Premises are specifically suitable to Tenant; and (c) other reasonable monetary concessions being granted or charges being imposed upon such tenants in connection with such comparable space, including parking concessions or charges; provided, however, that in calculating the Fair Market Rental Value, no consideration shall be given to the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with Tenant’s extension of its lease of the Premises, or the fact that landlords are or are not paying real estate brokerage commissions in connection with such comparable space. When considering rental rates in the Comparable Buildings, adjustments shall be made to such rates to increase or decrease such rates, as applicable, based on substantial historical differences between the rental rates of the Building and any applicable Comparable Building. In calculating the Option Rent, no consideration shall be given to any period of rental abatement granted to tenants in comparable transactions in connection with the design, permitting and construction of tenant improvements in such comparable spaces.

                         2.3.3          Exercise of Option. The option contained in this Section 2.3 shall be exercised by Tenant, if at all, delivering written notice (“Option Exercise Notice”) to Landlord not more than fifteen (15) months nor less than twelve (12) months prior to the expiration of the initial Lease Term, stating that Tenant is exercising its option. Landlord, after receipt of Option Exercise Notice, shall deliver notice (the “Option Rent Notice”) to Tenant not less than six (6) months prior to the expiration of the initial Lease Term setting forth the Option Rent. Within thirty (30) days after Tenant’s receipt of the Option Rent Notice, Tenant may, at its option, object to the Option Rent contained in the Option Rent Notice. If Tenant timely and appropriately objects to the Option Rent contained in the Option Rent Notice, the parties shall follow the procedure and the Option Rent shall be determined as set forth in Section 2.3.4, below.

                         2.3.4          Determination of Option Rent. If Tenant fails to timely and appropriately object to Option Rent, then the Option Rent shall be as set forth in the Option Rent Notice. If Tenant timely and appropriately objects to the Option Rent, Landlord and Tenant shall attempt to agree upon the applicable Fair Market Rental Value using their best good-faith efforts. If Landlord and Tenant fail to reach agreement within ten (10) days following Tenant’s objection to the Option Rent (the “Outside Agreement Date”), then each party shall make a separate determination of the applicable Fair Market Rental Value (the “Arbitration Fair Market Rental Value(s)”), within fifteen (15) days following the Outside Agreement Date and such determinations shall be submitted to arbitration in accordance with Sections 2.3.4.1 through 2.3.4.7 below.

                                   2.3.4.1     Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker or appraiser who shall have been active over the five (5) year period ending on the date of such appointment in the leasing or appraisal, as the case may be, of commercial high rise properties in the South Coast Plaza/John Wayne Airport area. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Arbitration Fair Market Rental Value is the closest to the actual Fair Market Rental Value as determined by the arbitrators, taking into account the requirements of Section 2.3.2 of this Lease. Each such arbitrator shall be appointed within twenty (20) days after the applicable Outside Agreement Date.

                                   2.3.4.2     The two arbitrators so appointed shall within ten (10) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two arbitrators.

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                                   2.3.4.3     The three arbitrators shall within thirty (30) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Fair Market Rental Value, and shall notify Landlord and Tenant thereof.

                                   2.3.4.4     The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant.

                                   2.3.4.5     If either Landlord or Tenant fails to appoint an arbitrator within twenty (20) days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant.

                                   2.3.4.6     If the two arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed and the matter to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association Commercial Rules of Arbitration, but subject to the instruction set forth in this Section 2.3.4.

                                   2.3.4.7     The cost of the arbitrator appointed by Landlord shall be paid by Landlord. The cost of the arbitrator appointed by Tenant shall be paid by Tenant. The cost of the third arbitrator shall be shared equally by Landlord and Tenant.

          2.4          Early Termination. If a majority of the outstanding voting stock of Tenant is acquired by a person or entity which is not an Affiliate of Tenant (“Ownership Change”) at any time prior to the date which is the last day of the thirty-third (33rd) full calendar month of the Lease Term (the “Election Date”), Tenant may deliver, not later than the Election Date, written notice to Landlord electing to cause the Expiration Date to be the last day of the forty-second (42nd) full calendar month of the Lease Term (the “Early Expiration Date”). Such notice shall be effective only if reasonable evidence of such Ownership Change and the Termination Payment accompanies the Tenant’s notice electing the Early Expiration Date. As used herein, the “Termination Payment” means an amount equal to (i) the total unamortized out-of-pocket cost to Landlord as of the Early Expiration Date for the Tenant Improvements and payments to the brokers (as contemplated by Section 28.24 below) (such out-of-pocket costs to be amortized on a straight line basis assuming an eight percent (8%) interest rate over a sixty (60) month period commencing on the Lease Commencement Date or, if the Lease Commencement Date is not the first date of a calendar month, then the first day of the calendar month immediately following the Lease Commencement Date), plus (ii) Two Hundred Sixty-Six Thousand One Hundred and 80/100 Dollars ($266,100.80). Notwithstanding anything herein to the contrary, Tenant’s rights under Section 2.3 above shall automatically terminate without notice to Tenant upon Tenant’s delivery of the notice electing an early termination of this Lease.

ARTICLE 3

BASE RENT

          Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project or, at Landlord’s option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“Base Rent”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. If any Base Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Base Rent is for a period which is shorter than one month, the Base Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Base Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

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ARTICLE 4

ADDITIONAL RENT; SECURITY DEPOSIT

          4.1          General Terms. In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay Tenant’s Share (as defined below) of the annual Building Direct Expenses (as defined below) which are in excess of the amount of Building Direct Expenses for the Base Year (as defined below); provided, however, that in no event shall any decrease in Building Direct Expenses for any Expense Year (as defined below) below Building Direct Expenses for the Base Year entitle Tenant to any decrease in Base Rent or any credit against sums due under this Lease. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the “Additional Rent”, and the Base Rent and the Additional Rent are herein collectively referred to as “Rent”. All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

          4.2          Definitions of Key Terms Relating to Additional Rent. As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

                    4.2.1          Base Year. “Base Year” shall mean the period set forth in Section 5 of the Summary.

                    4.2.2          Building Direct Expenses. “Building Direct Expenses” shall mean Building Operating Expenses and Building Tax Expenses (as defined below).

                    4.2.3          Building Operating Expenses. “Building Operating Expenses” shall mean the portion of Operating Expenses (as defined below) allocated to the tenants of the Building pursuant to the terms of Section 4.3 below.

                    4.2.4          Building Tax Expenses. “Building Tax Expenses” shall mean that portion of Tax Expenses (as defined below) allocated to the tenants of the Building pursuant to the terms of Section 4.3 below.

                    4.2.5          Direct Expenses. “Direct Expenses” shall mean Operating Expenses and Tax Expenses.

                    4.2.6          Expense Year. “Expense Year” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires. Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant’s Share of Building Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

                    4.2.7          Operating Expenses.

                              4.2.7.1          Inclusions to Operating Expenses. “Operating Expenses” shall mean all expenses, costs and amounts of every kind and nature which Landlord pays during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof, subject to the terms and provisions of Section 4.2.7. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following:

                    (i)          the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith;

                    (ii)          the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect

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Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program;

                    (iii)          the cost of earthquake insurance and all other insurance carried by Landlord in connection with the Project as reasonably determined by Landlord;

                     (iv)          the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof;

                     (v)          the cost of non-capital (as determined pursuant to generally accepted accounting principles) parking area repair, restoration, and maintenance;

                     (vi)          fees and other costs, including reasonable management fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project;

                     (vii)          payments under any equipment rental agreements and the fair rental value of any management office space;

                     (viii)          subject to Section 4.2.7.2(vi) below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project;

                     (ix)          operation, repair and maintenance of all systems and equipment and components thereof of the Project;

                     (x)          the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in Common Areas, maintenance and replacement of curbs and walkways, and repair to roofs and reroofing;

                     (xi)          amortization (including interest on the unamortized cost) over the useful life, determined in accordance with generally accepted accounting principles, of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof;

                     (xii)          the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof (but only to the extent of the annual cost savings reasonably anticipated by Landlord), (B) that are required to comply with present or anticipated reasonable conservation programs, (C) which are replacements of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any governmental law or regulation enacted after the date of this Lease; provided, however, that any capital expenditure shall be amortized (including interest on the amortized cost) over its useful life reasonably determined in accordance with generally accepted accounting principles;

                     (xiii)          costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute Tax Expenses; and

                     (xiv)          payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building with other buildings in the Project.

                              4.2.7.2          Exclusions to Operating Expenses. Notwithstanding the provisions of Section 4.2.7.1 above, for purposes of this Lease, Operating Expenses shall not, however, include:

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                    (i)          costs, including marketing costs, legal fees, space planners’ fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any Common Areas or parking facilities);

                    (ii)          except as set forth in Sections 4.2.7. 1 (xi), (xii), and (xiii) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest, costs of capital repairs and alterations, and costs of capital improvements and equipment;

                    (iii)          costs for which Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

                    (iv)          any bad debt loss, rent loss, or reserves for bad debts or rent loss;

                    (v)          costs associated with the operation of the business of the partnership or entity which constitutes Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord’s general corporate overhead and general and administrative expenses;

                    (vi)          the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

                    (vii)          amounts paid as ground rental for the Project by Landlord;

                    (viii)          except for a Project management fee to the extent allowed pursuant to item (xiii), below, overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

                    (ix)          any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

                    (x)          rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or

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similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

                    (xi)          all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

                    (xii)          costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;

                    (xiii)          fees payable by Landlord for management of the Project in excess of five percent (5%) (the “Management Fee Cap”) of Landlord’s gross rental revenues, adjusted and grossed up to reflect a one hundred percent (100%) occupancy of the Building with all tenants paying rent, including base rent, pass-throughs, and parking fees (but excluding the cost of after hours services or utilities) from the Project for any calendar year or portion thereof;

                    (xiv)          any costs expressly excluded from Operating Expenses elsewhere in this Lease;

                    (xv)          rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

                    (xvi)          costs arising from the negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services;

                    (xvii)          costs (A) incurred to comply with laws relating to the removal of Hazardous Material (as defined below) except for immaterial amounts completed in connection with routine maintenance and repairs; which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it then had knowledge of the presence of such Hazardous Material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such Hazardous Material or other remedial or containment action with respect thereto; and (B) costs incurred to remove, remedy, contain, or treat Hazardous Material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such Hazardous Material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such Hazardous Material or other remedial or containment action with respect thereto except for immaterial amounts completed in connection with routine maintenance and repairs;

                    (xviii)          costs arising from Landlord’s charitable or political contributions;

                    (xix)          any gifts provided to any entity whatsoever, including, but not limited to, Tenant, other tenants, employees, vendors, contractors, prospective tenants and agents;

                    (xx)           the cost of any magazine, newspaper, trade or other subscriptions;

                    (xxi)          any amount paid to Landlord or to subsidiaries or affiliates of Landlord for services in the Project to the extent the same exceeds the cost of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

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                    (xxii)          costs arising from Landlord’s failure to comply with any applicable governmental laws or regulations in existence at the time of the Lease Commencement Date;

                    (xxiii)          costs relating to categories of expenses for the Project parking areas which were not included in Operating Expenses during the Base Year, except to the extent the Base Year is retroactively adjusted to include such categories; and

                    (xxiv)          any entertainment expenses and travel expenses of Landlord, its employees, agents, partners and affiliates.

          If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Project is not at least ninety-five percent (95%) occupied during all or a portion of the Base Year or any Expense Year, Landlord shall make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Project been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Operating Expenses for the Base Year shall not include market-wide labor-rate increases due to extraordinary circumstances, including, but not limited to, boycotts and strikes, and utility rate increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages, or amortized costs relating to capital improvements.

                    4.2.8          Taxes.

                              4.2.8.1          Tax Expenses. “Tax Expenses” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof including the parking areas. Tax Expenses shall include, without limitation:

                    (i)          any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof;

                     (ii)          any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“Proposition 13”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project’s contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies;

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                     (iii)          any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof;

                     (iv)          any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and

                     (v)          all of the real estate taxes and assessments imposed upon or with respect to the Building and Project. To the extent such taxes are not currently known, Landlord shall reasonably estimate the taxes and the Base Year Tax Expenses shall be adjusted accordingly upon receipt of the actual tax adjustment based upon such reassessment.

                              4.2.8.2          Other Costs. Any costs and expenses (including, without limitation, reasonable attorneys’ and consultants’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are incurred. Tax refunds shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable; provided, however, in no event shall the amount to be refunded Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses included by Landlord as Building Tax Expenses pursuant to the terms of this Lease. Notwithstanding anything to the contrary contained in this Section 4.2.8 (except as set forth in Section 4.2.8.1, above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

                              4.2.8.3          Base Taxes. The amount of Tax Expenses for the Base Year attributable to the valuation of the Project, inclusive of tenant improvements, shall be known as the “Base Taxes.” If in any comparison year subsequent to the Base Year the amount of Tax Expenses decreases below the amount of Base Taxes for the Premises, then for purposes of all subsequent comparison years, including the comparison year in which such decrease in Tax Expenses occurred, the Base Taxes and therefore the Base Year shall be decreased by an amount equal to the decrease in Tax Expenses; provided, however, if the amount of Tax Expenses for the Premises subsequently increases in any comparison year from that decreased amount, the Base Taxes for the Premises shall be increased by an amount equal to the increase in the Tax Expenses for the Premises but not in excess of the Base Taxes for the Base Year (calendar year 2008).

                              4.2.9          Tenant’s Share. “Tenant’s Share” shall mean the percentages set forth in Section 6 of the Summary. Tenant’s Share is calculated by multiplying the number of rentable square feet of the Premises as set forth in Section 2 of the Summary by 100, and dividing the applicable product by the rentable square feet in the Building. The rentable square feet in the Premises and Building is measured pursuant to the Building Owners and Managers Association Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1 - 1996 (“BOMA”), provided that the rentable square footage of the Building shall include all of, and the rentable square footage of the Premises therefore shall include a portion of, the square footage of the ground floor Common Areas located within the Building and the Common Area and occupied space of the portion of the Building or Project, dedicated to the service of the Building. In the event either the rentable square feet of the Premises and/or the total rentable square feet of the Building is remeasured, Tenant’s Share for the Premises shall be appropriately adjusted and, as to the Expense Year in which such change occurs, Tenant’s Share for the Premises for such Expense Year shall be determined on the basis of the number of days during such Expense Year that each such Tenant’s Share was in effect.

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          4.3     Allocation of Direct Expenses. The parties acknowledge that the Building is a part of a multi-building project and that the costs and expenses incurred in connection with the Project (i.e., the Direct Expenses) should be shared between the tenants of the Building and the tenants of the other buildings in the Project. Accordingly, as set forth in Section 4.2 above, Direct Expenses (which consist of Operating Expenses and Tax Expenses) are determined annually for the Project as a whole, and a portion of the Direct Expenses, which portion shall be determined by Landlord in accordance with the CC&Rs, shall be allocated to the tenants of the Building (as opposed to the tenants of any other buildings in the Project) and such portion shall be the Building Direct Expenses for purposes of this Lease (such allocation in accordance with the CC&Rs is further described in Exhibit E hereto). Such portion of Direct Expenses allocated to the tenants of the Building shall include all Direct Expenses attributable solely to the Building and an equitable portion of the Direct Expenses attributable to the Project as a whole.

          4.4     Calculation and Payment of Additional Rent. If for any Expense Year ending or commencing within the Lease Term, the applicable Tenant’s Share of Building Direct Expenses for such Expense Year exceeds the applicable Tenant’s Share of Building Direct Expenses applicable to the Base Year for the Premises, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, an amount equal to the excess (the “Excess”).

                    4.4.1     Statement of Actual Building Direct Expenses and Payment by Tenant. Landlord shall give to Tenant following the end of each Expense Year, a statement (the “Statement”) which shall state the Building Direct Expenses incurred or accrued for such preceding Expense Year and which shall indicate the amount of the Excess. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, with its next installment of Base Rent due, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as Estimated Excess (as defined below), and if Tenant paid more as Estimated Excess than the actual Excess, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Building Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall immediately pay to Landlord such amount, and if Tenant paid more as Estimated Excess than the actual Excess, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term.

                    4.4.2     Statement of Estimated Building Direct Expenses. Landlord shall give Tenant a yearly expense estimate statement (the “Estimate Statement”) which shall set forth Landlord’s reasonable estimate (the “Estimate”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “Estimated Excess”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Excess under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary. Thereafter, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.4.2). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant.

          4.5     Taxes and Other Charges for Which Tenant Is Directly Responsible.

                    4.5.1     Personal Property Taxes. Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant’s equipment, furniture, fixtures and

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any other personal property located in or about the Premises. If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

                    4.5.2     Taxes on Improvements in Premises. If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord’s “building standard” in other space in the Building are assessed, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1, above; provided that Landlord uniformly applies such excess assessed valuation for the same period uniformly to all tenants in the Building.

                    4.5.3     Other Taxes. Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility, or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

          4.6     Landlord’s Books and Records. Within six (6) months after receipt of a Statement by Tenant, if Tenant disputes the amount of Additional Rent set forth in the Statement, an independent certified public accountant (which accountant is a member of a nationally recognized accounting firm, has previous experience in reviewing financial operating records of landlords of office buildings, and is retained by Tenant on a non contingency fee basis) (the “Tenant Auditor”), designated and paid for by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records with respect to the Statement at Landlord’s offices, provided that Tenant is not then in default under this Lease and Tenant has paid all amounts required to be paid under the applicable Estimated Statement and Statement, as the case may be. In connection with such inspection, Tenant and Tenant’s agents must agree in advance to follow Landlord’s reasonable rules and procedures regarding inspections of Landlord’s records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection. Tenant’s failure to dispute the amount of Additional Rent set forth in any Statement within six (6) months following Tenant’s receipt of such Statement shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement. If after such inspection, Tenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant (the “Accountant”) selected by Landlord and subject to Tenant’s reasonable approval; provided that if such certification by the Accountant proves that Direct Expenses were overstated by more than five percent (5%), then the cost of the Accountant, and the cost of such determination certification, shall be paid by Landlord. Any reimbursement amounts determined to be owing by Landlord to Tenant or by Tenant to Landlord shall be (i) in the case of amounts owing from Tenant to Landlord, paid within thirty (30) days following such determination, and (ii) in the case of amounts owing from Landlord to Tenant, credited against the next payment of Rent due Landlord under the terms of this Lease, or if the Lease Term has expired, paid to Tenant within thirty (30) days following such determination. In no event shall this Section 4.6 be deemed to allow any review of any of Landlord’s records by any subtenant of Tenant. Tenant agrees that this Section 4.6 shall be the sole method to be used by Tenant to dispute the amount of any Direct Expenses payable or not payable by Tenant pursuant to the terms of this Lease, and Tenant hereby waives any other rights at law or in equity relating thereto.

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          4.7     Security Deposit.

                    4.7.1     Security Deposit. The amount of Sixty-Four Thousand One Hundred Forty-Nine and 30/100 Dollars ($64,149.30) shall serve as the security deposit hereunder (the “Security Deposit”). On the Lease Commencement Date, at Tenant’s request, Landlord shall cooperate with Tenant in the transfer of Tenant’s security deposit for the Current Premises subject to the rights of the landlord under the Current Premises Lease. Such sum shall be accepted by Landlord as a portion of the Security Deposit and Tenant shall on the Lease Commencement Date deliver to Landlord such additional funds as are necessary so that the Security Deposit held by Landlord under this Lease equals Sixty-Four Thousand One Hundred Forty-Nine and 30/100 Dollars ($64,149.30). Landlord shall hold the Security Deposit as security for the performance of Tenant’s obligations under this Lease. If Tenant defaults on any provision of this Lease, Landlord may, after such notice as may be required under this Lease and without prejudice to any other remedy it has, apply all or a part of the Security Deposit to:

                              4.7.1.1     Any Rent or other sum in default; or

                              4.7.1.2     Any expense, loss, or damage that Landlord may suffer because of Tenant’s default including, without limitation, Rent that would accrue after such default.

                    4.7.2     Landlord’s Transfer of Security Deposit on Transfer of Real Property. If Landlord disposes of its interests in the Premises, Landlord may deliver or credit the Security Deposit to Landlord’s successor-in-interest in the Premises and thereupon be relieved of further responsibility with respect to the Security Deposit.

                    4.7.3     Restoration of Security Deposit. If Landlord applies any portion of the Security Deposit pursuant to Section 4.7.1 above, Tenant shall, within thirty (30) days after demand by Landlord, deposit with Landlord an amount sufficient to restore the Security Deposit to its original amount.

                    4.7.4     Interest on Security Deposit. Tenant is not entitled to any interest on the Security Deposit.

                    4.7.5     Return of Security Deposit. If Tenant performs every provision of this Lease to be performed by Tenant, the unused portion of the Security Deposit shall be returned to Tenant or the last assignee of Tenant’s interest under this Lease within thirty (30) days following the expiration or termination of the Lease Term.

ARTICLE 5

USE OF PREMISES

          5.1     Permitted Use. Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord’s sole discretion.

          5.2     Prohibited Uses. Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit F, attached hereto, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project including, without limitation, any such laws, ordinances, regulations or requirements relating to Hazardous Material. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall comply with, and Tenant’s rights and obligations under the Lease and Tenant’s use of the Premises shall be subject and subordinate to, all recorded easements, covenants, conditions and restrictions now or hereafter affecting the Project; provided, however, Landlord warrants that such recorded easements, covenants, conditions and restrictions do not materially interfere with Tenant’s use or occupancy of the Premises or Common Areas.

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          5.3     Tenant’s Security Responsibilities. Tenant shall (1) lock the doors to the Premises and take other reasonable steps to secure the Premises and the personal property of all Tenant Parties and any of Tenant’s transferees, contractors or licensees in the Common Areas and parking facilities of the Building and Project, from unlawful intrusion, theft, fire and other hazards; (2) keep and maintain in good working order all security and safety devices installed in the Premises by or for the benefit of Tenant (such as locks, smoke detectors and burglar alarms); and (3) cooperate with Landlord and other tenants in the Building on Building safety matters. Tenant acknowledges that Landlord is not obligated to provide security personnel or measures for the protection of Tenant, its employees, invitees or personal property. Tenant further acknowledges that any security or safety measures employed by Landlord are for the protection of Landlord’s own interests; that Landlord is not a guarantor of the security or safety of the Tenant Parties or their property; and that such security and safety matters are the responsibility of Tenant and the local law enforcement authorities.

ARTICLE 6

SERVICES AND UTILITIES

          6.1     Standard Tenant Services. Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

                    6.1.1     Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning (“HVAC”) when necessary for normal comfort for normal office use in the Premises from 8:00 A.M. to 6:00 P.M. Monday through Friday, and on Saturdays from 9:00 A.M. to 1:00 P.M. (collectively, the “Building Hours”), except for the date of observation of New Year’s Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord’s discretion, other locally or nationally recognized holidays (collectively, the “Holidays”).

                    6.1.2     Landlord shall provide adequate electrical wiring and facilities for connection to Tenant’s lighting fixtures and incidental use equipment, provided that (i) the connected electrical load of the incidental use equipment does not exceed an average of six (6) watts per usable square foot of the Premises, and (ii) the connected electrical load of Tenant’s lighting fixtures does not exceed an average of two (2) watts per usable square foot of the Premises, which electrical usage shall be subject to applicable laws and regulations, including Title 24. Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises.

                    6.1.3     Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Building Common Areas.

                    6.1.4     Landlord shall provide janitorial services to the Premises and window washing services in a manner consistent with Comparable Buildings.

                    6.1.5     Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours and shall have one elevator available at all other times, including on the Holidays.

                    6.1.6     Landlord shall provide nonexclusive freight elevator service subject to scheduling by Landlord.

          Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

          6.2     Overstandard Tenant Use.

                    6.2.1     Non-Electrical Usage. Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of

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Section 6.1 of this Lease. If Tenant uses water, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the actual cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the cost of such increased use directly to Landlord, on demand, at the rates charged by the public utility company furnishing the same, including the cost of such additional metering devices. If Tenant desires to use HVAC during non-Building Hours, Tenant shall give Landlord such prior notice, if any, as Landlord shall from time to time establish as appropriate, of Tenant’s desired use in order to supply HVAC, and Landlord shall supply HVAC to the Premises. The cost of after-hours HVAC is currently Sixty-Five Dollars ($65.00 ) per hour, per floor. Such cost shall increase hereafter to the extent of an increase occurring after the date of this Lease in the direct and indirect cost to Landlord of providing such HVAC services. The cost of HVAC supplied by Landlord during non-Building Hours shall be paid by Tenant as Additional Rent.

                    6.2.2     Electrical Usage. If in any month Tenant uses electricity (not including any electricity consumed in connection with the operation of the Building’s main HVAC system) in excess of the Electricity Usage Standard (as defined below), Tenant shall pay to Landlord, upon billing, Landlord’s cost of such excess consumption and the reasonable cost of the installation, operation, and maintenance of equipment which is required to be installed to supply such excess capacity and/or consumption to Tenant. For purposes hereof, the “Electricity Usage Standard” shall be an average of five (5) watts per rentable square foot of the Premises of actual consumption, on a monthly Business Hours basis. Tenant’s use of electricity shall not exceed the capacity of the feeders to the Project or the risers or wiring installation (which capacity is eight (8) watts per rentable square foot) and Tenant shall promptly discontinue any such excess use promptly following receipt of notice of the same from Landlord. In those cases where Landlord proposes to install equipment to be paid for by Tenant or otherwise is proposing to require Tenant to pay for any cost related to such excess consumption, Tenant may require Landlord, as a condition of such charge by Landlord, to reasonably demonstrate that Landlord’s actions and such charges are consistent with the requirements of this Lease.

          6.3     Interruption of Use. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6.

ARTICLE 7

REPAIRS

          Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term. In addition, Tenant shall, at Tenant’s own expense, but under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlord’s option, or if Tenant fails to make such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the

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cost thereof (to be uniformly established for the Building and/or the Project) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord’s involvement with such repairs and replacements forthwith upon being billed for same. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

ARTICLE 8

ADDITIONS AND ALTERATIONS

          8.1     Landlord’s Consent to Alterations. Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “Alterations”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building. The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8.

          8.2     Manner of Construction.

                    8.2.1     Conditions to Alterations. Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, (i) the requirement that Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant from a list provided and approved by Landlord, and (ii) the requirement that upon Landlord’s request Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any early termination of the Lease Term. Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the City of Irvine, all in conformance with Landlord’s construction rules and regulations; provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord’s design parameters and code compliance issues. In performing the work of any such Alterations, Tenant shall have the work performed in such manner as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project. Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. In addition to Tenant’s obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Orange in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager a reproducible copy of the “as built” drawings of the Alterations, as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

                    8.2.2     Base Building Changes. In the event any Alterations which Tenant proposes to make to the Premises require or give rise to governmentally-required changes (“Additional Required Work”) to the Base Building, Landlord and Tenant shall work together to eliminate, if possible, or otherwise minimize the Additional Required Work. Absent elimination of such Additional Required Work or a mutually acceptable allocation of such changes as between Landlord and Tenant, the cost of such changes shall be borne by Tenant. As used herein, (i) “Base Building” means the structural portions of the Building, the Base Building

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Systems, the public restrooms, elevators, exit stairwells and the systems and equipment located in the internal core of the Building, and (ii) “Base Building Systems” means all systems and equipment (including plumbing, HVAC, electrical fire/life/safety elevator and security systems) that serve all or part of the Building.

          8.3     Payment for Improvements. If payment is made directly to contractors, Tenant shall (i) comply with Landlord’s requirements for final lien releases and waivers in connection with Tenant’s payment for work to contractors, and (ii) cause its contractors to sign Landlord’s standard contractor’s rules and regulations. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to five percent (5%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord’s reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord’s review of such work.

          8.4     Construction Insurance. In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, in connection with any Alteration, Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.

          8.5     Landlord’s Property. All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed or placed in or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord, except that Tenant may remove any Alterations, improvements, fixtures and/or equipment which Tenant can substantiate to Landlord have not been paid for with any Tenant improvement allowance funds provided to Tenant by Landlord, provided Tenant repairs any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a building standard tenant improved condition as determined by Landlord. Furthermore, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier termination of this Lease, require Tenant, at Tenant’s expense, to remove any such Alterations or improvements and to repair any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a building standard tenant improved condition as determined by Landlord. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations or improvements in the Premises and return the affected portion of the Premises to a building standard tenant improved condition as reasonably determined by Landlord, Landlord may do so and may charge the cost thereof to Tenant. Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

          8.6     Communications and Computer Lines. Tenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the “Lines”) in or serving the Premises, provided that (i) Tenant shall obtain Landlord’s prior written consent, use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord’s reasonable opinion, (iii) the Lines (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, and shall be surrounded by a protective conduit reasonably acceptable to Landlord, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines, Landlord may require that Tenant remove existing Lines located in or serving the Premises and repair any damage in connection with such removal, and (vi) Tenant shall pay all costs in connection therewith. Landlord reserves the right to require that Tenant remove any Lines located in or serving the

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Premises which are installed in violation of these provisions, or which are at any time in violation of any laws or represent a dangerous or potentially dangerous condition.

ARTICLE 9

COVENANT AGAINST LIENS

          Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys’ fees and costs) arising out of same or in connection therewith. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under Applicable Laws (as defined below)) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility. Tenant shall remove any such lien or encumbrance by bond or otherwise within ten (10) days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlord’s title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord’s option shall attach only against Tenant’s interest in the Premises and shall in all respects be subordinate to Landlord’s title to the Project, Building and Premises.

ARTICLE 10

INSURANCE

          10.1     Indemnification and Waiver. Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever (including, but not limited to, any personal injuries resulting from a slip and fall in, upon or about the Premises) and agrees that Landlord, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, “Landlord Parties”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant. Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) incurred in connection with or arising from any cause in, on or about the Premises (including, but not limited to, a slip and fall), any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any such person, in, on or about the Project or any breach of the terms of this Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the gross negligence or willful misconduct of Landlord. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant’s occupancy of the Premises, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as reasonable appraisers’, accountants’ and attorneys’ fees. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination.

          10.2     Tenant’s Compliance With Landlord’s Fire and Casualty Insurance. Tenant shall, at Tenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

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          10.3     Tenant’s Insurance. Tenant shall maintain the following coverages in the following amounts.

                      10.3.1     Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) arising out of Tenant’s operations, and contractual liabilities (covering the performance by Tenant of its indemnity agreements) including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than:

Bodily Injury and	$3,000,000 each occurrence
Property Damage Liability	$3,000,000 annual aggregate
Personal Injury Liability	$3,000,000 each occurrence
	$3,000,000 annual aggregate
	0% Insured’s participation

                      10.3.2     Physical Damage Insurance covering (i) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, (ii) the Tenant Improvements, and any other improvements which exist in the Premises as of the Lease Commencement Date (excluding the Base Building) (the “Original Improvements”), and (iii) all other improvements, alterations and additions to the Premises. Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion, and providing business interruption coverage for a period of one year.

                      10.3.3     Worker’s Compensation and Employer’s Liability or other similar insurance pursuant to all applicable state and local statutes and regulations.

          10.4     Form of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, and any other party the Landlord so specifies, as an additional insured, including Landlord’s managing agent, if any; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee of Landlord. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor.

          10.5     Subrogation. Landlord and Tenant intend that their respective property loss risks shall be borne by insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor.

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          10.6     Additional Insurance Obligations. Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord, but in no event in excess of the amounts and types of insurance then being required of tenants in Comparable Buildings occupying comparable space and engaged in a similar use as Tenant.

ARTICLE 11

DAMAGE AND DESTRUCTION

          11.1     Repair of Damage to Premises by Landlord.

                      11.1.1     Damage to Building. Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11, restore the Base Building and such Common Areas. Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to the Premises and any restrooms serving the Premises shall not be materially impaired.

                      11.1.2     Damage to Premises. Upon the occurrence of any damage to the Premises, upon notice (the “Landlord Repair Notice”) to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.3.2(ii) and (iii) of this Lease, and Landlord shall repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s commencement of repair of the damage. In the event that Landlord does not deliver the Landlord Repair Notice within sixty (60) days following the date the casualty becomes known to Landlord, Tenant shall, at its sole cost and expense, repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition. Whether or not Landlord delivers a Landlord Repair Notice, prior to the commencement of construction, Tenant shall submit to Landlord, for Landlord’s review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, and the Premises are not occupied by Tenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises. In the event that Landlord shall not deliver the Landlord Repair Notice, Tenant’s right to rent abatement pursuant to the preceding sentence shall terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Premises assuming Tenant used reasonable due diligence in connection therewith.

          11.2     Landlord’s Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the

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Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord’s insurance policies; (iv) Landlord decides to rebuild the Building or Common Areas so that they will be substantially different structurally or architecturally; or (v) the damage occurs during the last twelve (12) months of the Lease Term. In the event Landlord does not terminate this Lease as set forth above, and in Landlord’s reasonable judgment, (A) the repairs cannot be completed within such one hundred eighty (180) days, as set forth in (i) above, or (B) if the damage occurs during the last twelve (12) months of the Lease Term and the repairs cannot be completed within one hundred twenty (120) days after the date of discovery of the damage, Landlord shall provide Tenant with written notice (“Extended Repair Notice” ) of the time within which such repairs may be completed, in Landlord’s reasonable judgment.

          11.3     Tenant’s Option to Cause Early Expiration. If damage to the Project, Building or Premises causes the Premises to be unusable for their intended purposes and Landlord advises Tenant in the Extended Repair Notice that (i) repairs cannot be completed within one hundred eighty days (180) days after the date of discovery of the damage, or (ii) if the damage occurs during the last twelve (12) months of the Lease Term, repairs cannot be completed within one hundred twenty (120) days after the date of discovery of the damage, Tenant may elect to cause the Expiration Date to be accelerated. Such election shall be made in writing to Landlord within thirty (30) days after receipt of the Extended Repair Notice. Tenant’s election to accelerate the Expiration Date shall be made by written notice to Landlord within thirty(30) days after receipt of Landlord’s Notice and shall specify the new Expiration Date, which date shall not be later than forty-five (45) days after Tenant’s receipt of the Extended Repair Notice.

          11.4     Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.

ARTICLE 12

NONWAIVER

No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of Rent shall not waive or affect said notice, suit or judgment.

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ARTICLE 13

CONDEMNATION

If the whole or any material part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any material part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, in each case for a period in excess of one hundred eighty (180) days, Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure. Notwithstanding anything to the contrary contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred eighty (180) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

          14.1     Transfers. Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as “Transfer(s)” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “Transferee”). If Tenant desires Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “Transfer Notice”) shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “Subject Space”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the Transfer Premium (as defined below) in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information reasonably required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee’s business and proposed use of the Subject Space, and (v) an executed estoppel certificate from Tenant in the form attached hereto as Exhibit G. Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option,

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constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord’s reasonable review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys’, accountants’, architects’, engineers’ and consultants’ fees) incurred by Landlord, within thirty (30) days after written request by Landlord, in an amount not to exceed One Thousand Five Hundred Dollars ($1,500) in the aggregate, for a Transfer in the ordinary course of business (for purposes hereof, a Transfer shall be deemed not to be in the “ordinary course of business” if Landlord is required to review documentation related to such Transfer on more than two (2) separate occasions).

          14.2     Landlord’s Consent. Landlord shall not unreasonably withhold or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:

                      14.2.1     The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

                      14.2.2     The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;

                      14.2.3     The Transferee is either a governmental agency or instrumentality thereof;

                      14.2.4     The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested;

                      14.2.5     The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease; or

                      14.2.6     Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Project at the time of the request for consent, or (ii) is negotiating with Landlord or has negotiated with Landlord during the six (6) month period immediately preceding the date Landlord receives the Transfer Notice, to lease space in the Project.

          If Landlord consents to any Transfer pursuant to the terms of this Section 14.2, Tenant may within six (6) months after Landlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant’s original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14. Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a suit for declaratory judgment and an injunction for the relief sought, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee.

          14.3     Transfer Premium. If Landlord consents to a Transfer as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord one hundred percent (100%) of any Transfer Premium received by Tenant from such Transferee. “Transfer Premium” shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Base Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer (on a per rentable square foot basis if less than all of the Premises is transferred), after deducting the reasonable expenses incurred by

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Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent reasonably provided to the Transferee in connection with the Transfer, (iii) any brokerage commissions in connection with the Transfer, and (iv) twenty-five percent (25%) of the amount of any Base Rent and Additional Rent paid by Tenant to Landlord with respect to the Subject Space during the period commencing on the later of (a) the date Tenant contracts with a reputable broker to market the Subject Space, and (b) the date Tenant vacates the Subject Space, until the commencement of the term of the Transfer (collectively, “Tenant’s Transfer Costs”). “Transfer Premium” shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. The determination of the amount of Landlord’s applicable share of the Transfer Premium shall be made on a monthly basis as rent or other consideration is received by Tenant under the Transfer. For purposes of calculating the Transfer Premium on a monthly basis, Tenant’s Transfer Costs shall be deemed to be expended by Tenant in equal monthly amounts over the entire term of the Transfer.

          14.4     Landlord’s Option as to Subject Space. Notwithstanding anything to the contrary contained in this Article 14, in the event Tenant contemplates a Transfer of all or a portion of the Premises (or in the event of any other Transfer or Transfers entered into by Tenant as a subterfuge in order to avoid the terms of this Section 14.4), Tenant shall give Landlord notice (the “Intention to Transfer Notice”) of such contemplated transfer (whether or not such contemplated transfer or any of the terms of such contemplated transfer have been determined). The Intention to Transfer Notice shall specify the portion of the rentable amount of square feet of the Premises which Tenant intends to transfer (the “Contemplated Transfer Space”), the contemplated date of commencement of the contemplated transfer (the “Contemplated Effective Date”) and the contemplated length of the term of such contemplated transfer, and shall specify that such Intention to Transfer Notice is delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer Space for the term set forth in the Intention to Transfer Notice. Thereafter, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space. Such recapture shall cancel and terminate this Lease with respect to such Contemplated Transfer Space as of the Contemplated Effective Date until the last day of the term of the contemplated transfer is set forth in the Intention to Transfer Notice. In the event of a recapture by Landlord, this Lease shall be cancelled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner, to recapture such Contemplated Transfer Space under this Section 14.4, then, subject to the other terms of this Article 14, for a period of nine (9) months (the “Nine Month Period”) commencing on the last day of such thirty (30) day period, Landlord shall not have any right to recapture the Contemplated Transfer Space with respect to any transfer made during the Nine Month Period, provided that any such transfer is substantially on the terms set forth in the Intention to Transfer Notice and, provided further, that any such transfer shall be subject to the remaining terms of this Article 14. If such a transfer is not so consummated within the Nine Month Period (or if the transfer is so consummated, then upon the expiration of the term of any transfer of such Contemplated Transfer Space consummated within such Nine Month Period), Tenant shall again be required to submit a new Intention to Transfer Notice to Landlord with respect to any contemplated transfer, as provided above in this Section 14.4.

          14.5     Effect of Transfer. If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord’s request a complete statement, certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any liability

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under this Lease, including, without limitation, in connection with the Subject Space. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than five percent (5%), Tenant shall pay Landlord’s costs of such audit.

          14.6     Occurrence of Default. Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as canceled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer. If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured. Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease against Tenant or any other person. If Tenant’s obligations hereunder have been guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

          14.7     Non-Transfers. Notwithstanding anything to the contrary contained in this Article 14, an assignment or subletting of all or a portion of the Premises to an entity which is controlled by, controls, or is under common control with, Tenant (an “Affiliate”), shall not be deemed a Transfer under this Article 14, provided that Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information requested by Landlord regarding such assignment or sublease or such Affiliate, and further provided that such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease. “Control”, as used in this Section 14.7, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether by the ownership of voting securities, by contract or otherwise.

ARTICLE 15

SURRENDER OF PREMISES; OWNERSHIP AND
REMOVAL OF TRADE FIXTURES

          15.1     Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

          15.2     Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish,

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and such items of furniture, equipment, business and trade fixtures, free-standing cabinet work, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.

ARTICLE 16

HOLDING OVER

          If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Rent shall be payable at a monthly rate equal to the product of (i) the Rent applicable during the last rental period of the Lease Term under this Lease, and (ii) a percentage equal to 150%. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.

ARTICLE 17

ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS

          17.1     Estoppel Certificates. Within ten (10) business days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit G, attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord’s mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

          17.2     Financial Statements. At any time during the Lease Term, Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant.

ARTICLE 18

SUBORDINATION

          This Lease shall be subject and subordinate to all present (including that certain Second Amended and Restated Ground Lease (Parcel 1), dated September 25, 1989, between Parker-Hannifin Corporation, as lessor, and Landlord, as lessee, as amended by that certain First Amendment to Second Amended and Restated Ground Lease (Parcel 1), dated October 17, 1989) and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and

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replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as Tenant timely pays the Rent and observes and performs the terms, covenants and conditions of this Lease to be observed and performed by Tenant. Landlord’s interest herein may be assigned as security at any time to any lienholder. Tenant shall, within ten (10) days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

ARTICLE 19

DEFAULTS; REMEDIES

          19.1     Events of Default. The occurrence of any of the following shall constitute a default of this Lease by Tenant:

                      19.1.1     Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due unless such failure is cured within five (5) days after notice; or

                      19.1.2     Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2, any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default; or

                      19.1.3     Abandonment or vacation of all or a substantial portion of the Premises by Tenant and Tenant is otherwise in default under this Lease; or

                      19.1.4     The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than five (5) days after notice from Landlord, provided however, such notice shall be in addition to, and not in lieu of, the periods, if any, for performance set forth in such Articles of this Lease; or

                      19.1.5     Tenant’s failure to occupy the Premises within ten (10) days after the Lease Commencement Date.

          The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

          19.2     Remedies Upon Default. Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

                      19.2.1     Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice

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to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

                    (i)     The worth at the time of award of the amount of any unpaid rent which has been earned at the time of such termination; plus

                    (ii)     The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

                    (iii)     The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

                    (iv)     Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, and any special concessions made to obtain a new tenant; and

                    (v)     At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “rent” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i) and (ii), above, the “worth at the time of award” shall be computed by allowing interest at the rate set forth in Article 24 of this Lease, but in no case greater than the maximum amount of such interest permitted by law. As used in Paragraph 19.2.1(iii) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

                      19.2.2     Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

                      19.2.3     Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

          19.3     Subleases of Tenant. Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements. In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

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          19.4     Efforts to Relet. No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

          19.5     Landlord Default. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall not be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease unless (i) in the event such default is with respect to the payment of money, Landlord fails to pay such unpaid amounts within five (5) business days of written notice from Tenant that the same was not paid when due, or (ii) in the event such default is other than the obligation to pay money, Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to perform; provided, however, if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursue the same to completion. Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity.

ARTICLE 20

COVENANT OF QUIET ENJOYMENT

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord.

ARTICLE 21

[INTENTIONALLY DELETED]

ARTICLE 22

SIGNS

          22.1     Full Floor. Subject to Landlord’s prior written approval, in its sole discretion, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant, so long as the Premises comprise an entire floor of the Building, at its sole cost and expense, may install identification signage anywhere in the Premises including in the elevator lobby of the Premises, provided that such signs must not be visible from the exterior of the Building. Upon expiration or earlier termination of this Lease, Tenant shall reimburse Landlord for the reasonable cost of removal of such signage.

          22.2     Prohibited Signage and Other Items. Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Tenant may not install any signs on the exterior or roof of the Project or the Common Areas. Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion

          22.3     Building Directory. A building directory will be located in the lobby of the Building. Tenant shall have the right, at Tenant’s sole cost and expense, to designate three (3)

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name strips to be displayed under Tenant’s entry in such directory for the Premises. Upon expiration or earlier termination of this Lease, Tenant shall reimburse Landlord for the reasonable cost of removal of such name strips.

ARTICLE 23

COMPLIANCE WITH LAW

          23.1     Applicable Laws. Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (“Applicable Laws”). At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenant’s use of the Premises, (ii) the Alterations or Tenant Improvements in the Premises, or (iii) the Base Building, but as to the Base Building, only to the extent such obligations are triggered by Tenant’s Alterations, the Tenant Improvements, or Tenant’s use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. Tenant shall be responsible, at its sole cost and expense, to make all alterations to the Premises as are required to comply with the governmental rules, regulations, requirements or standards described in this Article 23. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.

          23.2     Hazardous Materials. Tenant shall not cause or permit any Hazardous Material to be generated, brought into, used, stored, or disposed of in or about the Premises, Building or Project by Tenant or its agents, employees, contractors, subtenants, or invitees, except for such substances that are required in the ordinary course of Tenant’s business conducted on the Premises or are otherwise approved by Landlord. Tenant shall:

                      23.2.1     Use, store, and dispose of all such Hazardous Material in strict compliance with all applicable statutes, ordinances, and regulations in effect during the Lease Term that relate to public health and safety and protection of the environment (“Environmental Laws”), including those Environmental Laws identified in Section 23.6; and

                      23.2.2     Comply at all times during the Lease Term with all Environmental Laws.

          23.3     Warranties; Notice of Release and Investigation. Tenant acknowledges receipt of that certain letter dated October 8, 1998 from the California Regional Quality Control Board to Parker Hannifin Corporation, the prior owner of the real property which comprises the Project, confirming completion of site investigation and remedial action for underground storage tanks formerly located the Project (the “RWQCB Letter”). Landlord warrants and represents to Tenant that, to Landlord’s actual knowledge without independent investigation or inquiry, as of the date of this Lease:

                      23.3.1     Except as provided in the RWQCB Letter, there has been no release onto or under the Project of any Hazardous Material in violation of any Environmental Law;

                      23.3.2     The Building shall contain no PCBS, PCB-contaminated electrical equipment, or asbestos-containing materials; and

                      23.3.3     Except as provided in the RWQCB Letter, Landlord has received no notice that the Project is in violation of any Environmental Law.

If, during the Lease Term (including any extensions), either Landlord or Tenant becomes aware of (i) any actual or threatened release of any Hazardous Material on, under, or about the Premises, Building or Project, or (ii) any inquiry, investigation, proceeding, or claim by any government agency or other person regarding the presence of Hazardous Material on, under, or about the Premises, Building or Project, that party shall give the other party written notice of the

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release or investigation within five (5) days after learning of it and shall simultaneously furnish to the other party copies of any claims, notices of violation, reports, or other writings received by the party providing notice that concern the release or investigation.

          23.4     Indemnification. Landlord and Tenant shall, at that party’s sole expense and with counsel reasonably acceptable to the other party, indemnify, defend, and hold harmless the other party and the other party’s shareholders, directors, officers, employees, partners, affiliates, and agents with respect to all losses arising out of or resulting from the release of any Hazardous Material in or about the Premises, Building or Project, or the violation of any Environmental Law, by that party or that party’s employees, agents, contractors, or invitees. This indemnification includes all losses, liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders, or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. This indemnification shall survive the expiration or termination of this Lease.

          23.5     Remediation Obligations; Tenant’s Rights on Cleanup by Landlord. If the presence of any Hazardous Material brought onto the Premises, Building or Project by either Landlord or Tenant or by Landlord’s or Tenant’s employees, agents, contractors, or invitees results in contamination of the Premises, Building or Project, that party shall promptly take all necessary actions, at the party’s sole expense, to return the Premises, Building or Project to the condition that existed before the introduction of such Hazardous Material. Tenant shall first obtain Landlord’s approval of the proposed remedial action, which shall not be unreasonably withheld or delayed. This provision does not limit the indemnification obligations set forth in Section 23.4 above.

          If Landlord undertakes any cleanup, detoxification, or similar action, whether or not required by any government or quasi-government agency, as a result of the presence, release, or disposal in or about the Building or Project of any Hazardous Material, and that action requires that Tenant be denied access to the Premises or Tenant is otherwise unable to conduct its business on the Premises for a period of greater than twenty-four (24) hours, Base Rent shall be abated for the period that Tenant is unable to conduct its business at the Premises. Subject to Section 23.4, the costs of any Hazardous Material testing, cleanup or remediation undertaken by Landlord during the Lease Term shall be borne by Landlord, shall not be included in Operating Expenses and shall not be the obligation of Tenant.

          23.6     Definition of “Hazardous Material”. As used herein, the term “Hazardous Material” shall mean any hazardous or toxic substance, material, or waste that is or becomes regulated by the United States, the State of California, or any local government authority having jurisdiction over the Building or Project. Hazardous Material includes:

                      23.6.1     Any “hazardous substance,” as that term is defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code Sections 9601-9675);

                      23.6.2     “Hazardous waste,” as that term is defined in the Resource Conservation and Recovery Act of 1976 (RCRA) (42 United States Code Sections 6901-6992k);

                      23.6.3     Any pollutant, contaminant, or hazardous, dangerous, or toxic chemical, material, or substance, within the meaning of any other applicable federal, state, or local law, regulation, ordinance, or requirement (including consent decrees and administrative orders imposing liability or standards of conduct concerning any hazardous, dangerous, or toxic waste, substance, or material, now or hereafter in effect);

                      23.6.4     Petroleum products;

                      23.6.5     Radioactive material, including any source, special nuclear, or byproduct material as defined in 42 United States Code Sections 2011-2297g-4;

                      23.6.6     Asbestos in any form or condition; and

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                      23.6.7     Polychlorinated biphenyls (PCBS) and substances or compounds containing PCBS.

ARTICLE 24

LATE CHARGES

          If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) days after Tenant’s receipt of written notice from Landlord that said amount is due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount plus any reasonable attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at a rate per annum equal to ten percent (10%) or, if less, the highest rate permitted by applicable law.

ARTICLE 25

LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

          25.1     Landlord’s Cure. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under Section 19.1.2, above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant’s part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.

          25.2     Tenant’s Reimbursement. Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of Section 25.1; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so expended. Tenant’s obligations under this Section 25.2 shall survive the expiration or sooner termination of the Lease Term.

ARTICLE 26

ENTRY BY LANDLORD

          Landlord reserves the right at all reasonable times and upon reasonable notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment. Notwithstanding anything to the contrary contained in this Article 26, Landlord may enter the Premises at any time to (A) perform services required of Landlord, including janitorial service; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform. Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and may take such reasonable steps as required to accomplish the stated purposes. Tenant hereby waives any claims for damages (other than personal injury and property damage to the extent caused by Landlord’s

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negligence or willful misconduct in connection with an entry by Landlord into the Premises) or for any injuries or inconvenience to or interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant’s vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be performed by Landlord herein.

ARTICLE 27

TENANT PARKING

          27.1     Parking In General. Tenant shall have the right, but not the obligation, to rent from Landlord, commencing on the Lease Commencement Date, up to the amount of parking spaces set forth in Section 9 of the Summary, on a monthly basis throughout the Lease Term, which parking spaces shall pertain to the Project parking structure (“Parking Structure”) and, with respect to Building reserved parking spaces and in the Building subterranean reserved parking area. The location of the reserved parking spaces shall be mutually agreed upon by Landlord and Tenant. Tenant shall pay Landlord for automobile parking spaces at the time Base Rent is due on a monthly basis at the prevailing rate set forth in Section 9 of the Summary. In addition, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking spaces by Tenant or the use of the Parking Structure and/or the Building subterranean reserved parking area by Tenant. Tenant’s continued right to use the parking spaces is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the Parking Structure and in the Building subterranean reserved parking area including any sticker or other identification system established by Landlord, Tenant’s cooperation in seeing that Tenant’s employees and visitors also comply with such rules and regulations and Tenant not being in default under this Lease.

          27.2     Landlord Reservations. So long as Tenant’s use is not adversely and materially affected (and it is deemed not to be adversely and materially affected if reasonably comparable substitute parking is made available), Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Parking Structure and in the Building subterranean reserved parking area, at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Parking Structure and in the Building subterranean reserved parking area, for purposes of permitting or facilitating any such construction, alteration or improvements. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall operate the Parking Structure and any other parking facilities at the Project in a first class manner and shall have all the rights of control attributed hereby to the Landlord. The parking spaces used by Tenant pursuant to this Article 27 are provided to Tenant solely for use by Tenant’s own personnel and such spaces may not, except in the case of a Transfer approved by Landlord pursuant to Article 14 above, be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord’s prior approval.

          27.3     Visitor Validations. Tenant may validate visitor parking by such method or methods as Landlord may establish, at the validation rate from time to time generally applicable to visitor parking.

          27.4     Parking Pass System. Landlord shall install as part of the security system for the Building an access card recognition system for the Parking Structure and the Building subterranean reserved parking area. The number of parking facility access cards available to Tenant shall equal the number of parking spaces rented by Tenant. Effective on the first day of a calendar month, on at least thirty (30) days’ prior notice to Landlord, Tenant may decrease or increase the number of parking spaces which it rents in the Parking Structure or the Building

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subterranean reserved parking area subject to the maximum number of parking spaces as set forth in the Summary. Tenant shall pay the deposit established by Landlord for the Building and Parking Structure access cards which deposit shall initially be Fifteen Dollars ($15) per card.

ARTICLE 28

MISCELLANEOUS PROVISIONS

          28.1     Terms; Captions. The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

          28.2     Binding Effect. Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

          28.3     No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

          28.4     Modification of Lease. Should any current or prospective mortgagee or ground lessor for the Building or Project require modification of this Lease, which modification will not cause an increase in cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) days following a request therefor. At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute and acknowledge a short form of lease and deliver the same to Landlord within ten (10) days following the request therefor.

          28.5     Transfer of Landlord’s Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee.

          28.6     Prohibition Against Recording. Neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant.

          28.7     Landlord’s Title. Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

          28.8     Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

          28.9     Application of Payments. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

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          28.10     Time of Essence. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

          28.11     Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

          28.12     No Warranty. In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

          28.13     Landlord Exculpation. The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Building, provided that in no event shall such liability extend to any sales or insurance proceeds received by Landlord or the Landlord Parties in connection with the Project, Building or Premises. Neither Landlord nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 28.13 shall inure to the benefit of Landlord’s and the Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership) or trustee or beneficiary (if Landlord or any partner of Landlord is a trust) have any liability for the performance of Landlord’s obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

          28.14     Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

          28.15     Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

          28.16     Force Majeure. An actual delay or stoppage resulting from fire, earthquake, explosion, flood, hurricane, the elements, acts of God or the public enemy, war, invasion, insurrection, rebellion, riots, industry-wide labor strikes or lock-outs (which objectively preclude Landlord or Tenant from obtaining from any reasonable source, labor or substitute materials at a reasonable cost necessary for performing its respective obligations hereunder), or governmental acts, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, a “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for

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performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

          28.17     Waiver of Redemption by Tenant. Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

          28.18     Notices. All notices, demands, statements, designations, approvals or other communications (collectively, “Notices”) given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (“Mail”), (B) transmitted by facsimile, if such facsimile is promptly followed by a Notice sent by Mail, (C) delivered by a nationally recognized overnight courier with verification of delivery requested, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the facsimile is transmitted if transmitted before 5:00 p.m. Pacific Time on a business day, otherwise on the next business day, (iii) the date the overnight courier delivery is made, or (iv) the date personal delivery is made (if made on a business day, otherwise on the next business day). As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Lakeshore Towers Limited Partnership Phase II
Attention: Building Manager
18101 Von Karman Avenue, Suite 1220
Irvine, CA 92612

and

LTLP II Corp.
c/o GE Investments
Attention: Asset Manager
2029 Century Park East, Suite 2000
Los Angeles, CA 90067

          28.19     Joint and Several. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.

          28.20     Authority. If Tenant is a corporation, trust or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. In such event, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant’s state of incorporation and (ii) qualification to do business in California.

          28.21     Attorneys’ Fees. In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

          28.22     GOVERNING LAW; WAIVER OF TRIAL BY JURY. This Lease shall be construed and enforced in accordance with the laws of the State of California. IN ANY ACTION OR PROCEEDING ARISING THEREFROM, LANDLORD AND TENANT

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HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

          28.23     Submission of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

          28.24     Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 12 of the Summary (the “Brokers”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party.

          28.25     Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

          28.26     Project or Building Name and Signage. Landlord shall have the right at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord’s sole discretion, desire. Tenant shall not use the words “Lakeshore” or the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

          28.27     Counterparts. This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease.

          28.28     Confidentiality. Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants.

          28.29     Development of the Project.

                        28.29.1     Subdivision. Landlord reserves the right to further subdivide all or a portion of the Project. Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from such subdivision.

                        28.29.2     The Other Improvements. If portions of the Project or property adjacent to the Project (collectively, the “Other Improvements”) are owned by an entity other

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than Landlord, Landlord, at its option, may enter into an agreement with the owner or owners of any or all of the Other Improvements to provide (i) for reciprocal rights of access and/or use of the Project and the Other Improvements, (ii) for the common management, operation, maintenance, improvement and/or repair of all or any portion of the Project and the Other Improvements, provided that Tenant’s rights under this Lease are not materially impaired, (iii) for the allocation of a portion of the Direct Expenses to the Other Improvements and the operating expenses and taxes for the Other Improvements to the Project, and (iv) for the use or improvement of the Other Improvements and/or the Project in connection with the improvement, construction, and/or excavation of the Other Improvements and/or the Project. Nothing contained herein shall be deemed or construed to limit or otherwise affect Landlord’s right to convey all or any portion of the Project or any other of Landlord’s rights described in this Lease.

                        28.29.3     Construction of Project and Other Improvements. Tenant acknowledges that portions of the Project and/or the Other Improvements may be under construction following Tenant’s occupancy of the Premises, and that such construction may result in levels of noise, dust, obstruction of access, etc. which are in excess of that present in a fully constructed project. Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction.

          28.30     Building Renovations. It is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof and that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically set forth herein or in the Tenant Work Letter. However, Tenant hereby acknowledges that Landlord is currently renovating or may during the Lease Term renovate, improve, alter, or modify (collectively, the “Renovations”) the Project, the Building and/or the Premises. Except for (i) emergencies, or (ii) repairs, alterations, improvements or additions required by governmental or quasi governmental authorities or court order or decree, such Renovations shall be performed in a manner so as not to materially interfere with Tenant’s access to the Premises or Parking Structure. Subject to the forgoing, Tenant hereby agrees that such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no responsibility and shall not be liable to Tenant for any injury to or interference with Tenant’s business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Renovations, or for any inconvenience or annoyance occasioned by such Renovations.

          28.31     No Violation. Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, arising from Tenant’s breach of this warranty and representation.

          28.32     No Discrimination. Tenant covenants by and for itself, its successors and assigns, and all persons claiming under or through them, and this Lease is made and accepted upon and subject to the following conditions: That there shall be no discrimination against or segregation of any person or group of persons, on account of sex, marital status, age, race, color, religion, creed, national origin or ancestry, in the leasing, subleasing, renting, transferring, use, occupancy, tenure or enjoyment of the Premises herein leased, nor shall Tenant itself, or any person claiming under or through it, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenant’s lessees, sublessees, subtenants or vendees in the Premises.

          28.33     OFAC Compliance. Tenant represents and warrants that (a) Tenant and each person or entity owning an interest in Tenant is (i) not currently identified on the Specially Designated Nationals and blocked Persons Listed maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) and/or on any other similar list maintained by OFAC pursuant to any authorizing statute, executive order or regulation (collectively, the “List”), and (ii) not a person or entity with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States, (b) none of the

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funds or other assets of Tenant constitute property of, or are beneficially owned, directly or indirectly, by any Embargoed Person (as hereinafter defined), (c) no Embargoed Person has any interest of any nature whatsoever in Tenant (whether directly or indirectly), (d) none of the funds of Tenant have been derived from any unlawful activity with the result that the investment in Tenant is prohibited by law or that this Lease is in violation of law, and (e) Tenant has implemented procedures, and will consistently apply those procedures, to ensure the foregoing representations and warranties remain true and correct at all times. The term “Embargoed Person” means any person, entity or government subject to trade restrictions under U.S. law, including but not limited to, the International Emergency Economic Powers Act, 50 U.S.C.A. § 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder with the result that the investment in Tenant is prohibited by law or Tenant is in violation of law.

          Tenant covenants and agrees (a) to comply with all requirements of law relating to money laundering, anti-terrorism, trade embargos economic sanctions, now or hereafter in effect, (b) to immediately notify Landlord in writing if any of the representations, warranties or covenants set forth in this Section 28.33 are no longer true or have been breached or if Tenant has a reasonable basis to believe that they may no longer be true or have been breached, (c) not to use funds from any “Prohibited Person” (as such term is defined in the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism) to make any payment due to Landlord under this Lease and (d) at the request of Landlord, to provide such information as may be requested by Landlord to determine Tenant’s compliance with the terms hereof.

          Tenant hereby acknowledges and agrees that Tenant’s inclusion on the List at any time prior to the expiration or earlier termination of this Lease shall be a material default of this Lease. Notwithstanding anything to the contrary, Tenant shall not permit the Premises or any portion thereof to be used or occupied by any person or entity on the List or by any Embargoed Person (on a permanent, temporary or transient basis), and any such use or occupancy of the Premises by any such person or entity shall be a material default of this Lease.

          28.34     Definition of Landlord. The term “Landlord,” as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time such covenant or obligation is to be performed, of the Building or the lessees under any ground lease of the Building, if any.

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LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

“Landlord”:
LAKESHORE TOWERS LIMITED PARTNERSHIP PHASE II, a California limited partnership
By:	LTLP II CORP., a Delaware corporation, the sole General Partner of Lakeshore Towers Limited Partnership Phase II
	By:
	Its:
“Tenant”:
QUALITY SYSTEMS, INC. a California corporation
By:
Its:
By:
Its:

45

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

EXHIBIT A

LAKESHORE TOWERS

OUTLINE OF PREMISES

EXHIBIT A – Page 1

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

EXHIBIT B

LAKESHORE TOWERS

TENANT WORK LETTER

(Landlord Build)

          This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the tenant improvements in the Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles or Sections of “this Lease” shall mean the relevant portion of Articles 1 through 28 of the Office Lease to which this Tenant Work Letter is attached as Exhibit B and of which this Tenant Work Letter forms a part, and all references in this Tenant Work Letter to Sections of “this Tenant Work Letter” shall mean the relevant portion of Sections 1 through 6 of this Tenant Work Letter. All references in this Tenant Work Letter to the “Premises” shall be deemed to refer to the Premises.

SECTION 1

DELIVERY OF THE PREMISES

          Tenant acknowledges that Tenant has thoroughly examined the Premises. Except as otherwise set forth in this Tenant Work Letter, Tenant shall accept the Premises from Landlord in their presently existing, “as-is” condition as of the date of this Lease. The Base Building (as defined in this Lease) shall as of the date of delivery, be in good condition and working order, and, to the extent necessary to allow Tenant to legally occupy the Premises for general office use, shall comply with applicable building codes and other governmental laws, ordinances and regulations which were enacted prior to the date of delivery of the Premises to Tenant.

SECTION 2

TENANT IMPROVEMENTS

          2.1     Tenant Improvement Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the “Tenant Improvement Allowance”) in the amount of One Million Fifty-Five Thousand Eight Hundred Fifty-Two and no/Dollars ($1,055,852.00) (which is Forty-Nine Dollars ($49.00) multiplied by 21,548 which is the usable square feet of the Premises) for the costs relating to the initial design and construction of Tenant’s improvements which are permanently affixed to the Premises (the “Tenant Improvements”).

          2.2     Disbursement of the Tenant Improvement Allowance. Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord’s disbursement process) for costs related to the construction of the Tenant Improvements and for the following items and costs (collectively, the “Tenant Improvement Allowance Items”) and no portion of the Tenant Improvement Allowance, if any, remaining after the completion of the Tenant Improvements shall be available for use by Tenant:

                                        (i)     payment of the fees of the Architect/Space Planner (as defined below) and the Engineers (as defined below);

                                        (ii)     the cost of any changes in the Base Building when such changes are required by the Construction Documents;

                                        (iii)     the cost of any changes to the Construction Documents or Tenant Improvements required by Code;

                                        (iv)     the cost of construction of the Tenant Improvements, including, without limitation, testing and inspection costs, trash removal costs, parking fees, after-hours utilities usage, and contractors’ fees and general conditions; and

EXHIBIT B – Page 1

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

                                        (v)     a portion of the costs of the tenant demising walls and public corridor walls and materials, if any, as designated by Landlord.

          2.3     Building Standards. Landlord has established specifications for the Building standard components to be used in the construction of the Tenant Improvements in the Premises (the “Building Standards”). The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Building Standards, provided that Landlord may, at Landlord’s option, require the Tenant Improvements to comply with certain Building Standards. Landlord may make changes to the Building Standards from time to time.

SECTION 3

CONSTRUCTION DOCUMENTS

          3.1     Selection of Architect/Space Planner/Construction Documents. Landlord shall retain (i) an architect (the “Architect/Space Planner”) to prepare the Construction Documents and (ii) the engineering consultants designated by Landlord (the “Engineers”) to prepare all engineering working drawings and specifications relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work of the Tenant Improvements. The working drawings, specification and contract documents to be prepared by Architect/Space Planner and the Engineers hereunder shall be known collectively as the “Construction Documents.” All Construction Documents shall comply with the drawing format and specifications as determined by Landlord, and shall be subject to Landlord’s approval.

          3.2     Final Space Plan. As soon as reasonably possible, Tenant shall provide to the Architect/Space Planner all necessary information and requirements of Tenant Improvements so that the Architect/Space Planner can prepare the final space plan for Tenant Improvements in the Premises (collectively, the “Final Space Plan”), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein. When complete, Architect/Space Planner shall deliver the Final Space Plan to Landlord for Landlord’s approval.

          3.3     Final Construction Documents. As soon as reasonably possible after Landlord’s approval of the Final Space Plan, the Architect/Space Planner and the Engineers shall complete the architectural and engineering drawings and specifications for the Premises, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Final Construction Documents”) and shall submit the same to Landlord for Landlord’s approval.

          3.4     Permits. The Final Construction Documents shall be approved by Landlord (the “Approved Construction Documents”) prior to the commencement of the construction of the Tenant Improvements. Landlord shall submit the Approved Construction Documents to the appropriate municipal authorities for all applicable building permits necessary to allow Contractor (as defined below) to commence and fully complete the construction of the Tenant Improvements (the “Permits”). No changes, modifications or alterations in the Approved Construction Documents may be made without the prior written consent of Landlord, provided that Landlord may withhold its consent, in its sole discretion, to any change in the Approved Construction Documents if such change would directly or indirectly delay the Substantial Completion of the Premises (as defined below).

          3.5     Time Deadlines. Tenant shall use its best, good faith, efforts and all due diligence to cooperate with the Architect/Space Planner, the Engineers, and Landlord to complete all phases of the Construction Documents and the permitting process and to receive the permits, and with Contractor for approval of the Cost Proposal (as defined) as soon as possible after the execution of the Lease, and, in that regard, shall meet with Landlord on a scheduled basis to be determined by Landlord, to discuss Tenant’s progress in connection with the same. The applicable times for approval of items, plans and drawings are described in this Tenant Work Letter (the “Time Deadlines”). Tenant agrees to comply with the Time Deadlines.

EXHIBIT B – Page 2

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

          4.1     Contractor. A general contractor (“Contractor”) shall be retained by Landlord and shall construct Tenant Improvements; provided, that (i) before selecting the Contractor, Landlord shall seek bids pursuant to Section 4.2 below for the Tenant Improvements from JJS Associates and JLC Contractors (each a “Bidding Contractor”) and (ii) Landlord shall retain as the Contractor the Bidding Contractor providing the lowest bid for the Tenant Improvements.

          4.2     Cost Proposal. Landlord shall (i) solicit cost proposal bids for the cost of all Tenant Improvements Allowance Items to be incurred in connection with the design and construction of the Tenant Improvements from the two (2) Bidding Contractors and (ii) select as the Contractor the Bidding Contractor providing the lowest bid for the Tenant Improvements. Upon selecting the Contractor, Landlord shall provide Tenant with a cost proposal (the “Cost Proposal”) from the Contractor in accordance with the Approved Construction Documents, which Cost Proposal shall include, as nearly as possible, the cost of all Tenant Improvement Allowance Items to be incurred in connection with the design (including, without limitation, all fees of the Architect/Space Planner and the Engineers and all other “soft costs”) and construction of the Tenant Improvements. If the Cost Proposal is equal to or less than the Tenant Improvement Allowance, Tenant shall be deemed to have approved the Cost Proposal upon receipt. If the Cost Proposal is greater than the Tenant Improvement Allowance, then Landlord shall cooperate with Tenant’s efforts to value engineer the Approved Construction Documents to reduce the amount of the Cost Proposal so long as achievement of a Lease Commencement Date of April 1, 2008 will not, in Landlord’s reasonable judgment, be jeopardized; provided, however, (i) any modification of the Approved Construction Documents as a result of Tenant’s value engineering efforts shall be subject to Landlord’s reasonable approval and (ii) if the efforts of Tenant to value engineer the Cost Proposal do not result in Tenant’s written approval of a revised Cost Proposal (as value engineered) by the date which is fifteen (15) business days following delivery of the original Cost Proposal to Tenant, then Tenant shall be deemed to have approved the original Cost Proposal. Upon Tenant’s approval or deemed approval of the original or revised Cost Proposal and, in the case of a revised Cost Proposal, approval by Landlord, Landlord shall be released by Tenant to (i) retain the Contractor and (ii) purchase the items set forth in the approved or deemed approved Cost Proposal and commence the construction relating to such items. The date by which Tenant must approve and deliver the Cost Proposal to Landlord shall be known hereafter as the “Cost Proposal Delivery Date.”

          4.3     Construction of Tenant Improvements by Contractor under the Supervision of Landlord.

                    4.3.1          Over-Allowance Amount. On the Cost Proposal Delivery Date, Tenant shall deliver to Landlord cash in an amount (the “Over-Allowance Amount”) equal to the amount by which the difference between (i) the amount of the Cost Proposal and (ii) the amount of the Tenant Improvement Allowance. The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any then remaining portion of the Tenant Improvement Allowance, and such disbursement shall be pursuant to the same procedure as the Tenant Improvement Allowance. In the event that, after the Cost Proposal Delivery Date, any revisions, changes, or substitutions shall be made to the Construction Documents or the Tenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions or any other additional costs shall be paid by Tenant to Landlord immediately upon Landlord’s request as an addition to the Over-Allowance Amount.

                    4.3.2     Landlord’s Retention of Contractor. Landlord shall independently retain Contractor, on behalf of Tenant, to construct the Tenant Improvements in accordance with the Approved Construction Documents and the Cost Proposal and Landlord shall supervise the construction by Contractor.

                    4.3.3     Contractor’s Warranties and Guaranties. Landlord hereby assigns to Tenant all warranties and guaranties by Contractor relating to the Tenant Improvements and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements.

EXHIBIT B – Page 3

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

SECTION 5

COMPLETION OF THE TENANT IMPROVEMENTS;
LEASE COMMENCEMENT DATE

          5.1     Ready for Occupancy. The Premises shall be deemed ready for occupancy by Tenant upon the Substantial Completion of the Premises. For purposes of this Lease, the Premises shall be deemed “substantially complete” and “Substantial Completion” of the Premises shall occur upon the issuance of a temporary certificate of occupancy for the Premises (except as delayed as set forth in Section 5.2.4 of this Tenant Work Letter) and the completion of construction of the Tenant Improvements in the Premises pursuant to the Approved Construction Documents, with the exception of any punch list items and any tenant fixtures, work-stations, built-in furniture, or equipment to be installed by Tenant or under the supervision of Contractor. As soon as reasonably possible after the Lease Commencement Date, Landlord and Tenant shall conduct a walk-through of the Premises to identify punch list items with respect to the Tenant Improvements. Landlord shall correct all such punch list items as soon as reasonably possible after the walk-through.

          5.2     Delay of the Substantial Completion of the Premises. Except as provided in this Section 5.2, the Lease Commencement Date shall occur as set forth in Article 2 of the Lease and Section 5.1, above. If there shall be a delay or there are delays in the Substantial Completion of the Premises or in the occurrence of any of the other conditions precedent to the Lease Commencement Date, as set forth in Article 2 of the Lease, as a direct, indirect, partial, or total result of (collectively “Tenant Delays”):

                    5.2.1     Tenant’s failure to comply with the Time Deadlines;

                    5.2.2     Tenant’s failure to timely approve any matter requiring Tenant’s approval;

                    5.2.3     A breach by Tenant of the terms of this Tenant Work Letter or the Lease;

                    5.2.4     Changes in any of the Construction Documents after approval of the same by Landlord or because the same do not comply with Code or other applicable laws;

                    5.2.5     Tenant’s request for changes in the Approved Construction Documents;

                    5.2.6     Tenant’s requirement for materials, components, finishes or improvements which are not available in a commercially reasonable time given the anticipated date of Substantial Completion of the Premises, as set forth in the Lease, or which are different from, or not included in, the Building Standards;

                    5.2.7     Changes to the Base Building required by the Approved Construction Documents; or

                    5.2.8     Any other acts or omissions of Tenant, or its agents, or employees

then, notwithstanding anything to the contrary set forth in the Lease or this Tenant Work Letter and regardless of the actual date of the Substantial Completion of the Premises, the Substantial Completion of the Premises shall be deemed to be the date the Substantial Completion of the Premises would have occurred if no Tenant delay or delays, as set forth above, had occurred.

SECTION 6

MISCELLANEOUS

          6.1     Tenant’s Entry Into the Premises Prior to Substantial Completion. Provided that Tenant and its agents do not interfere with Contractor’s work in the Building and the Premises, Landlord shall allow Tenant access to the Premises prior to the Substantial Completion of the Premises for the purpose of Tenant installing overstandard equipment or fixtures (including Tenant’s data and telephone equipment) in the Premises. Prior to Tenant’s entry into the Premises as permitted by the terms of this Section 6.1, Tenant shall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail the timing and purpose of Tenant’s entry. Tenant shall hold Landlord harmless from and indemnify, protect and defend

EXHIBIT B – Page 4

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant’s actions pursuant to this Section 6.1.

          6.2     Tenant’s Representative. Tenant has designated Julie Farlow as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

          6.3     Landlord’s Representative. Landlord has designated Lori Schulte as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.

          6.4     Tenant’s Agents. All subcontractors, laborers, materialmen, and suppliers retained directly by Tenant shall all be union labor in compliance with the master labor agreements existing between trade unions and the Southern California Chapter of the Associated General Contractors of America.

          6.5     Time of the Essence in This Tenant Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord’s sole option, at the end of such period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.

          6.6     Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in Section 19.1 of this Lease, or a default by Tenant under this Tenant Work Letter, has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such work stoppage as set forth in Section 5 of this Tenant Work Letter), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease.

EXHIBIT B – Page 5

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

EXHIBIT C

LAKESHORE TOWERS

PROJECT LEGAL DESCRIPTION

Parcels 1 through 7 of Parcel Map 89-274 in the City of Irvine, County of Orange, State of California as recorded in Book 267, Pages 18-26 of Parcel Maps.

EXHIBIT C – Page 1

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

EXHIBIT D

LAKESHORE TOWERS

NOTICE OF LEASE COMMENCEMENT DATE

To:	Quality Systems, Inc.
	Attention: _______________
	18111 Von Karman Avenue, Suite 600
	Irvine, CA 92612
	Re:	Office Lease dated October 18, 2007 between Lakeshore Towers Limited Partnership Phase II, a California limited partnership (“Landlord”), and Quality Systems, Inc., a California corporation (“Tenant”) concerning Suite 600 on the sixth floor of the office building located at 18111Von Karman Avenue, Irvine, California.

Gentlemen:

          In accordance with the Office Lease (the “Lease”), we wish to advise you and/or confirm as follows:

1.	The Lease Term shall commence on or has commenced on ___________, 200__ (“Lease Commencement Date”) for a term of ___________ ending on _________, 200__ (“Lease Expiration Date”).
2.	Base Rent commenced to accrue on ____________, 200__, in the amount of $______________ per month.
3.	If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease.
4.	Rent checks shall be made payable to _____________ at _______________, ________________, California.
5.	The exact number of rentable/usable square feet within the Premises is      /          square feet.
6.	Tenant’s Share as adjusted based upon the exact number of rentable square feet within the Premises is _________ %.

“Landlord”:
LAKESHORE TOWERS LIMITED
PARTNERSHIP PHASE II, a California limited partnership
By:	LTLP II CORP., a Delaware corporation, the sole General Partner of Lakeshore Towers Limited Partnership Phase II
	By:
	Its:

EXHIBIT D – Page 1

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

Agreed to and accepted as
of _________________, 200_.

“Tenant”:

Quality Systems, Inc.,
a California corporation

By:

Its:

By:

Its:

EXHIBIT D – Page 2

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

EXHIBIT E

LAKESHORE TOWERS

DIRECT EXPENSES ALLOCATION

          Common Area Expenses as defined in Paragraph 2.12 of the CC&Rs shall be assessed to the various buildings in the Project pursuant to paragraph 10 of the CC&Rs. Paragraph 10.5 of the CC&Rs provides for allocation of assessments in an equitable manner based on relative gross square footage of the buildings. The ratios are as follows:

Building I – Office	401,789 sq. ft.	45.6%
Building I – Retail	6,000 sq. ft.	0.7%
Restaurant	12,100 sq. ft.	1.4%
Sporting Club	89,940 sq. ft.	10.2%
Building II	129,206 sq. ft.	14.7%
Building III	241,505 sq. ft.	27.4%
TOTAL	880,540 sq. ft.	100.0%

EXHIBIT E – Page 1

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

EXHIBIT F

LAKESHORE TOWERS

RULES AND REGULATIONS

Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

          1.     Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

          2.     All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.

          3.     Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the Irvine, California area. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. Landlord will furnish passes to persons for whom Tenant requests same in writing. Tenant shall be responsible for all persons for whom Tenant requests passes and shall be liable to Landlord for all acts of such persons. Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

          4.     No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.

          5.     No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours, in such specific elevator and by such personnel as shall be designated by Landlord.

          6.     The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

EXHIBIT F – Page 1

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

          7.     No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord. Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.

          8.     The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

          9.     Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord’s prior written consent. Tenant shall not purchase spring water, ice, towel, linen, maintenance or other like services from any person or persons not approved by Landlord.

          10.   Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

          11.   Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline or other inflammable or combustible fluid, chemical, substance or material.

          12.   Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord.

          13.   Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way. Tenant shall not throw anything out of doors, windows or skylights or down passageways.

          14.   Tenant shall not bring into or keep within the Project, the Building or the Premises any animals, birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.

          15.   No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

          16.   The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in the Summary. Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord. Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

          17.   Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

          18.   Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the

EXHIBIT F – Page 2

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.

          19.     Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building’s heating and air conditioning system, and shall refrain from attempting to adjust any controls.

          20.     Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in Irvine, California without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate.

          21.     Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

          22.     Any persons employed by Tenant to do janitorial work shall be subject to the prior written approval of Landlord, and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Landlord), and Tenant shall be responsible for all acts of such persons.

          23.     No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard drapes. All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord. Tenant shall abide by Landlord’s regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.

          24.     The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

          25.     Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

          26.     Tenant must comply with the State of California “No Smoking” law set forth in California Labor Code Section 6404.5, and any local “No Smoking” ordinance which may be in effect from time to time and which is not superseded by such State law.

          27.     Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof. Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences. Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.

          28.     All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise and annoyance.

EXHIBIT F – Page 3

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

          29.     Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

          30.     No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.

          31.     No tenant shall use or permit the use of any portion of the Premises for living quarters, sleeping apartments or lodging rooms.

          32.     Tenant shall have the exclusive right to use its reserved parking spaces, if any, from 8:00 A.M. to 6:00 P.M. Monday through Friday.

Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

EXHIBIT F – Page 4

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

EXHIBIT G

LAKESHORE TOWERS

FORM OF TENANT’S ESTOPPEL CERTIFICATE

          The undersigned as Tenant under that certain Office Lease (the “Lease”) made and entered into as of ___________, ______ by and between _______________ as Landlord, and the undersigned as Tenant, for Premises on the ______________ floor(s) of the office building located at ______________, _______________, California ____________, certifies as follows:

          1.          Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

          2.          The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on __________, and the Lease Term expires on ___________, and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

          3.          Base Rent became payable on ____________.

          4.          The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A.

          5.          Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

          6.          Tenant shall not modify the documents contained in Exhibit A without the prior written consent of Landlord’s mortgagee.

          7.          All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through ___________. The current monthly installment of Base Rent is $_____________________.

          8.          All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.

          9.          No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.

          10.        As of the date hereof, there are no existing defenses or offsets, or, to the undersigned’s knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

          11.        If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

          12.        There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

          13.        Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises.

          14.        To the undersigned’s knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full.

EXHIBIT G – Page 1

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

          The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

Executed at ______________ on the ____ day of ___________, ______.

“Tenant”:

___________________________________,

a __________________________________

By:

Its:

By:

Its:

EXHIBIT G – Page 2

LAKESHORE TOWERS BUILDING III
[Quality Systems, Inc.]

EX-10.29

EXHIBIT 10.29

MEADOWS CORPORATE CENTER

ST. LOUIS, MISSOURI

STANDARD SERVICE CENTER LEASE AGREEMENT

By and Between

THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY

As Landlord

And

LACKLAND ACQUISITION II, LLC

As Tenant

LEASE INDEX

		PAGE
ARTICLE I - LEASED PREMISES		1
1.1	Demise of Leased Premises	1
1.2	Condition of Leased Premises	1
ARTICLE II - TERM		1
2.1	Term	1
2.2	Delay in Occupancy	1
2.3	Early Occupancy	2
2.4	Option to Extend Term	2
2.5	Right of First Opportunity	3
ARTICLE III - RENT		3
3.1	Base Rent	3
3.2	Additional Rent	4
3.3	Late Charges	4
3.4	Proportionate Share	4
3.5	Real Property Taxes	4
3.6	Insurance	5
3.7	Verification of Operating Statement	5
3.8	Interest on Past Due Amounts	6
3.9	Expense Stop Amount	6
ARTICLE IV - COMMON AREAS		6
4.1	Common Areas	6
4.2	Use of Common Areas	6
4.3	Vehicle Parking	6
4.4	Common Expenses	6
ARTICLE V - USE		7
5.1	Use	7
5.2	ADA	7
ARTICLE VI - SECURITY DEPOSIT		8

i

ARTICLE VII - OPERATIONS: UTILITIES: SERVICES		8
7.1 Operation		8
7.2 Hours of Operation		8
7.3 Utilities		8
7.4 Interruption of Services		8
7.5 No Interference		9
ARTICLE VIII - REPAIRS AND MAINTENANCE		9
8.1 Landlord’s Obligations		9
8.2 Tenant’s Obligations		9
ARTICLE IX - ALTERATIONS: TENANT’S PROPERTY		9
9.1 Alterations by Tenant		9
9.2 Contractors’ Insurance Requirements		10
9.3 Tenant’s Property		10
ARTICLE X - HAZARDOUS MATERIALS		10
10.1	Use of Hazardous Materials	10
10.1	(a) Tenant’s Obligations and Liabilities	10
10.1	(b) Definition	11
10.1	(c) Inspection	11
10.1	(d) Default	11
ARTICLE XI - ASSIGNMENT AND SUBLETTING		11
ARTICLE XII - CASUALTY OR CONDEMNATION		12
12.1	Partial Damage of Leased Premises	12
12.2	Total or Substantial Destruction	13
12.3	Temporary Reduction of Rent	13
12.4	Condemnation	13
ARTICLE XIII - INDEMNIFICATION AND INSURANCE		13
13.1	Indemnification	13
13.2	Tenant’s Insurance	14
13.3	Survival of Indemnities	14
13.4	Waiver of Subrogation	14
ARTICLE XIV - RIGHT OF ENTRY		14

ii

ARTICLE XV - PROPERTY LEFT ON THE LEASED PREMISES		15
ARTICLE XVI - SIGNS AND ADVERTISEMENTS		15
ARTICLE XVII - NOTICES		15
ARTICLE XVIII - MECHANIC’S LIENS		16
ARTICLE XIX - SUBORDINATION: ATTORNMENT		16
19.1	Subordination	16
19.2 Attornment		16
19.3 Confirming Agreement		17
19.4 Mortgagee Protection		17
ARTICLE XX - COMPLIANCE WITH LAW AND RULES AND REGULATIONS		17
20.1	Compliance With Laws	17
20.2	Rules and Regulations	17
ARTICLE XXI - LANDLORD’S LIEN		17
ARTICLE XXII - ESTOPPEL CERTIFICATE		18
ARTICLE XXIII - HOLDING OVER		18
ARTICLE XXIV - TENANT’S STATUS		19
24.1	Power and Authority	19
24.2	Authorization	19
ARTICLE XXV - DEFAULTS AND REMEDIES		19
25.1	Default by Tenant	19
25.2	Landlord Remedies	20
25.3	Landlord’s Costs; Attorneys Fees	20
25.4	Remedies Cumulative	21
25.5	Non-Waiver	21
ARTICLE XXVI - MISCELLANEOUS		21
26.1	No Partnership	21
26.2	No Representations by Landlord	21
26.3	Waiver of Jury Trial	21

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	26.4 Severability Provisions	21
	26.5 Interior Construction	21
	26.6 Relocation of Leased Premises	22
	26.7 Benefits and Burdens	22
	26.8 Landlord’s Liability	22
	26.9 Brokerage	22
	26.10 Recording	22
	26.11 Governmental Shortage	22
	26.12 Surrender of Premises	22
	26.13 Interpretation	23
	26.14 Entire Agreement	23
	26.15 Force Majeure	23
	26.16 Choice of Law	23
	26.17 Submission of Lease	23
	26.18 Time of Essence	23
	26.19 Financial Statements	23
	26.20 Termination of Megapath Lease	24
	26.21 Termination of Hagemeyer Lease and Sublease	24
	26.22 Termination of Existing Lease	24
EXHIBITS:
	Exhibit A - Legal Description	26
	Exhibit B - Floor Plan	27
	Exhibit C - Certificate Regarding Commencement Date	28
	Exhibit D - Rules and Regulations	29
	Exhibit E - Estoppel Certificate	34
	Exhibit F - Tenant Construction	36
	Exhibit G - Agency Relationship Confirmation	37

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SERVICE CENTER LEASE

          THIS LEASE is made and entered into on this 28 day of November 2001 between THE LINCOLN NATIONAL LIFE INSURANCE COMPANY, an Indiana corporation, (“Landlord”) and LACKLAND ACQUISITION II, LLC, a _____________limited liability company, as (“Tenant”).

ARTICLE I - LEASED PREMISES

          1.1     Demise of Leased Premises. Landlord, in consideration of the rents and of the terms and conditions hereinafter contained, does hereby lease to Tenant, and Tenant, does hereby rent from Landlord the space containing approximately 30,705 rentable square feet (“Leased Premises”). The Leased Premises is located in four (4) suites: Suite 1836A containing approximately 8,139 rentable square feet, Suite 1836B containing approximately 4,430 rentable square feet, Suite 1828 containing approximately 9,500 rentable square feet and Suite 1842 containing approximately 8,636 rentable square feet in the building known as Meadows Corporate Center II (“Building”), which is situated at Lackland Hills Parkway, St. Louis, Missouri 63146. The Building is located on the land described on Exhibit “A” (“Property”) and the floor plans of the Leased Premises are attached as Exhibit “B” and incorporated by reference.

          1.2     Condition of Leased Premises. Tenant accepts the Leased Premises in its “as is” condition except as altered by the work to be performed by Tenant as described in Exhibit “F” attached hereto and made a part hereof, subject to all recorded matters, laws, ordinances, and governmental regulations and orders. Tenant acknowledges that neither Landlord, any employee of Landlord, Landlord’s property manager, or any agent of Landlord has made any representation as to the condition of the Leased Premises or the suitability of the Leased Premises for Tenant’s intended use. The taking of possession of the Leased Premises by Tenant shall be conclusive evidence that the Leased Premises were in good and satisfactory condition and suitable for the use intended by Tenant at the time such possession was taken. Upon request by Landlord, Tenant shall execute a commencement letter signifying such acceptance.

ARTICLE II - TERM

          2.1     Term. The term of this Lease (the “Term”) shall be for a period of seven (7) years (the “Term”), commencing August 1, 2001 (the “Commencement Date”) and ending on July 31, 2008 (the “Expiration Date”), unless sooner terminated pursuant to any provision hereof. Landlord and Tenant shall execute a Certificate Affirming The Lease Commencement Date in the form attached hereto as Exhibit “C”.

          2.2     Delay in Occupancy. If for any reason Landlord cannot deliver possession of the Leased Premises to Tenant on the Commencement Date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder, except the Commencement Date shall be delayed until possession of the Leased Premises delivered to Tenant and the Term shall be extended for a period equal to the delay in the delivery of the Leased

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Premises, plus the number of days necessary to end the Term on the last day of a month. In the event of any delay hereunder, Landlord and Tenant shall execute and deliver an amendment hereto setting forth the revised Commencement and Expiration Dates.

          2.3     Early Occupancy. If Tenant occupies the Leased Premises prior to the Commencement Date, such occupancy shall be upon all of the terms and conditions contained herein but shall not advance the Expiration Date.

          2.4     Option to Extend Term. Provided Tenant is not in default in any of the terms, conditions or covenants of this Lease either on the date Tenant gives Landlord the renewal notice required herein or at the end of the initial Term of this Lease, Landlord hereby grants to Tenant an option to renew this Lease for one (1) five (5) year term. Such option to renew must be exercised by giving written notice to Landlord at least one hundred eighty (180) days prior to the termination of the initial Term of this Lease, and once a notice to exercise is given it is irrevocable by Tenant. If Tenant elects to exercise such renewal option, then such renewal term shall be on the same terms and conditions as contained in this Lease, except that Base Rental shall be the then prevailing market rent for comparable office buildings in the St. Louis, Missouri market.

          The “then prevailing market rent for comparable office buildings in the St. Louis, Missouri rental market” means what a landlord under no compulsion to lease the Leased Premises and a new tenant under no compulsion to lease the Leased Premises would determine as rent for the Extension Term, taking into consideration, among other relevant matters, the use permitted under the Lease, the quality, size, design and location of the Leased Premises and the rental rates for similar space in the St. Louis metropolitan market area. The parties shall endeavor in good faith to agree on the Base Rent for the Extension Term within sixty (60) days prior to the applicable renewal date. If Landlord and Tenant are unable to agree on the Base Rent for the Extension Term by such date, then the Base Rent shall be determined as hereinafter provided. Within thirty (30) days prior to the renewal date, Landlord and Tenant each shall appoint a licensed real estate appraiser (who shall be a member of the American Institute of Real Estate Appraisers) with experience in the area in which the Leased Premises are located to determine the then prevailing market rent of the Leased Premises. If either Landlord or Tenant does not appoint a licensed appraiser, and such failure continues thereafter for another ten (10) days after a second written notice from the other, the single licensed appraiser appointed shall be the sole licensed appraiser and shall set the then prevailing market rent of the Leased Premises. If two (2) licensed appraisers are appointed pursuant to this paragraph, they shall meet promptly and attempt to set the then prevailing market rent of the Leased Premises. If they are unable to agree within the thirty (30) days after the second licensed appraiser has been appointed, then each party or its appraiser shall submit its appraisal for the then prevailing market rent to a third appraiser (selected in the manner set forth below) and the third appraiser shall select one of the two submitted appraisal amounts, without any modification, as the then prevailing market rent. The third appraiser, who must meet all of the minimum licensing and experience criteria set forth above, shall be selected by the first two appraisers. Landlord and Tenant each shall bear the cost of their own licensed appraiser, and shall split equally the cost of appointing the third licensed appraiser, if necessary. If the determination of the then prevailing market rent of the Leased Premises is not completed prior to the renewal date, Tenant shall continue to pay Base Rent at the rate in effect immediately prior to the renewal date, and the parties shall promptly account for any rent differential

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upon determination of the then prevailing market rent of the Lease Premises.

          All other terms of this Lease shall remain the same. As used throughout this Lease, any reference to the “lease term”, “term”, or “term of this Lease” shall also include any and all renewal terms.

          2.5 Right of First Opportunity. Subject to all other options held by existing tenants of the Building and provided that Tenant is not in default hereunder at the time of Tenant’s exercise of this option, Tenant shall have the right of first opportunity (the “Right of First Opportunity”) to lease any additional space located in Building II or Building III (the “Expansion Space”), if and when such space becomes available during the initial Term of this Lease, on the following terms and conditions:

          (i)     Landlord shall notify Tenant of available Expansion Space prior to offering such Expansion Space to any other party. Tenant shall have ten (10) days from the receipt of such notification to exercise the Right of First Opportunity by sending written notice to Landlord of its intent to lease the Expansion Space or any portion thereof (the “Leased Expansion Space”);

          (ii)     at the time Tenant exercises the Right of First Opportunity and at the time Landlord delivers the Leased Expansion Space to Tenant, Tenant shall not be in default of its obligations under this Lease beyond any applicable cure period, and this Lease at that time shall be in full force and effect;

          (iii)     Tenant shall execute and deliver to Landlord within thirty (30) days after receipt thereof from Landlord an amendment to the Lease prepared by Landlord which effective with the Commencement Date of the Lease by Tenant of the Leased Expansion Space (a) adds the Leased Expansion Space to the Leased Premises, (b) increases the rentable area of the Leased Premises by the rentable area of the Leased Expansion Space and increases Tenant’s Proportionate Share accordingly, and (c) makes such other modifications of affected portions of this Lease consistent with the foregoing.

          Tenant shall accept the Leased Expansion Space “as is” and “as built”, subject to latent defects to base building and base building systems, and all leasehold improvements made by Tenant to the Leased Expansion Space shall be installed in accordance with the provision of Article IX of the Lease and at Tenant’s sole cost and expense. Tenant shall not be obligated to commence paying Rent with respect to the Leased Expansion Space until the date that is the earlier of (i) thirty (30) days after the Leased Expansion Space has been delivered to Tenant vacant, free and clear of all leases and tenancies, ready for Tenant’s leasehold improvement work, and (ii) the date that construction of leasehold improvements to the Leased Expansion Space ha been substantially completed, subject to punchlist items.

ARTICLE III - RENT

          3.1     Base Rent. Tenant shall pay rent to Landlord starting with the Commencement Date of the Lease for the use and occupancy of the Leased Premises as follows:

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Period	Base Rent per SF			Monthly Base Rent			Annual Base Rent
8/1/01 - 7/31/02		$	11.50		$	29,425.63		$	353,107.50
8/1/02 - 7/31/03		$	11.75		$	30,065.31		$	360,783.75
8/1/03 - 7/31/04		$	12.00		$	30,705.00		$	368,460.00
81/1/04 - 7/31/05		$	12.25		$	31,344.69		$	376,136.25
8/1/05 - 7/31/06		$	12.50		$	31,984.38		$	383,812.50
8/1/06 - 7/31/07		$	13.00		$	33,263.75		$	399,165.00
8/1/07 - 7/31/08		$	13.25		$	33,903.44		$	406,841.25

          (“Base Rent”), payable in advance, on the first day of each month during the Term hereof. The Base Rent is computed based upon 30,705 square feet of service center space as shown on Exhibit “B”. Base Rent and all other sums, whether designated additional rent or otherwise, payable to Landlord under this Lease shall be payable in U.S. Dollars at the office of Jones Lang LaSalle, or at such other place or places as Landlord may in writing direct. Tenant shall pay all rent payable under this Lease without notice or demand, both of which are expressly waived by Tenant. Tenant shall pay base Rent due under this Lease, without demand, offset or deduction.

          3.2     Additional Rent. Tenant shall pay to Landlord additional rent as provided in this Article III. All charges due and payable by Tenant other than Base Rent are herein called “Additional Rent”. The term “Rent” shall mean Base Rent and Additional Rent.

          3.3     Late Charges. Tenant’s failure to pay Rent promptly may cause Landlord to incur unanticipated costs. The amount of such costs are difficult to ascertain, and therefore on any Rent payment not made within ten (10) days after it is due, Tenant shall pay Landlord a late charge equal to fifteen percent (15%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment.

          3.4     Proportionate Share. Tenant’s “Proportionate Share” as used in this Lease shall be obtained by multiplying the expense in question by a fraction, the numerator of which shall be the rentable square footage area of the Leased Premises, and the denominator of which shall be the rentable square footage area of the Building which for purposes of this Lease shall be stipulated to be 42,340 square feet. For purposes of this Lease, Tenant’s Proportionate Share is 72.52%.

          If a particular expense is incurred or charged to more than one building on the Property rather than solely to the Building, then, for the purposes of calculating Tenant’s Proportionate Share with respect to the Building, such multi-building expense shall be allocated to the Building by multiplying the expense in question by a fraction, the numerator of which shall be the rentable square footage of the Building and the denominator of which shall be the rentable square footage area of the buildings for which the expense was incurred or otherwise allocated to, with the resulting number being used to calculate Tenant’s Proportionate Share as to the Leased Premises. For purposes of this Lease, Tenant’s Proportionate Share is 17.80%.

          3.5     Real Property Taxes, Insurance and Management Fees. (a) Beginning August 1, 2001, Tenant shall pay as Additional Rent, Tenant’s Proportionate Share of the amount by which Real Property Taxes (as defined in Section 3.5(b)), Insurance (as defined in Section 3.6), and

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management fees paid by Landlord and relating solely to management of the Building, payable during each calendar year falling entirely or partly within the Lease Term exceed the Expense Stop Amount as defined in Section 3.9. Tenant shall make estimated monthly payments to Landlord on account of the amount by which Real Property Taxes, Insurance and management fees that are expected to be paid during each calendar year would exceed the Expense Stop Amount. Beginning August 1, 2001 and at the beginning of each calendar year thereafter, Landlord may submit a statement setting forth Landlord’s reasonable estimates of such excess and Tenant’s Proportionate Share thereof. Tenant shall pay to Landlord on the first day of each month following receipt of such statement, until Tenant’s receipt of the succeeding annual statement, an amount equal to one-twelfth (1/12^th) of such share.

          (b) “Real Property Taxes” shall mean: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy, charge, assessment, government charge or tax imposed by any taxing authority against the Building or land upon which the Building is located; (ii) any tax on the Landlord’s right to receive, or the receipt of, rent or income from the Building or against Landlord’s business of leasing the Building; (iii) any tax, or charge, or assessment, or any assessment for repayment of bonds for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Building for any governmental agency; (iv) any charge or fee replacing any tax previously included within the definition of real property tax; and (v) any costs incurred by Landlord in contesting such Real Property Taxes, whether successful or not. Real Property Taxes does not, however, include Landlord’s federal or state income, franchise, inheritance or estate taxes. Tenant shall pay when due all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant.

          3.6     Insurance.  Landlord shall maintain such insurance on the Building as Landlord reasonably deems appropriate (“Insurance”).

          3.7     Verification of Operating Statement Upon request by Tenant, and at Tenant’s cost and expense, Landlord shall furnish Tenant such information as may be necessary for Tenant to verify the Common Expenses (as defined in Section 4.4), Real Property Taxes, Insurance or management fees, and shall cooperate with Tenant in verifying the operating statement. No decreases in Common Expenses shall reduce Tenant’s rent below the annual Base Rent set forth in Section 3.1 of this Lease.

          If Tenant does not agree with Landlord’s operating statement, then Tenant shall have the right, if written notice of the nature and extent of such disagreement is given to Landlord not later than thirty (30) days following receipt of such statement by Tenant, and the parties are unable to resolve such disagreement by negotiation, to cause an audit to be made, not later than ninety (90) days following receipt of Landlord’s statement of Landlord’s records concerning Common Expenses, Real Property Taxes, Insurance or management fees by an independent certified public accountant designated by Landlord from a list of not less than three (3) such accountants selected by Tenant, at the expense of Tenant unless such audit discloses an error in excess of ten percent (10%) in the computation of all such costs, in which event such audit shall be at the expense of Landlord. In no event shall the independent certified public accountant making the audit be compensated on a contingent-fee basis. The results of such audit shall be binding upon Landlord and Tenant. If

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Landlord receives no such notice within thirty (30) days following receipt of Landlord’s operating statement, then such statement shall be conclusively deemed to have been approved and accepted by Tenant. Pending resolution of any dispute with respect to such operating statement and Real Property Taxes, Tenant shall pay the sums shown as due on such operating statement, and if it shall be finally determined that any portion of such sums was not properly due, Landlord shall refund the appropriate sum to Tenant.

          3.8     Interest on Past Due Amounts. Any amount owed by Tenant to Landlord which is not paid when due shall bear interest at the rate of fifteen percent (15%) per annum from the due date of such amount, in addition to any late charges due under this Lease. If the interest rate specified in this Lease is higher than the rate permitted by law, the interest rate is hereby decreased to the maximum legal interest rate permitted by law.

          3.9     Expense Stop Amount. For purposes of this Lease, “Expense Stop Amount” shall be defined as Tenant’s Proportionate Share of the actual expense incurred for Real Property Taxes, insurance and management fees in the calendar year 1999.

ARTICLE IV - COMMON AREAS

          4.1     Common Areas. In this Lease, “Common Areas” shall mean all areas on the Property, which are available for the common use of tenants of the Property and which is not part of the Leased Premises or the premises of other tenants. Landlord may from time to time change the size, location, nature and use of any of the Common Areas. Tenant acknowledges that such activities may result in occasional inconvenience and such activities and changes shall be expressly permitted if they do not materially affect Tenant’s use of the Property.

          4.2     Use of Common Areas. Tenant shall have the nonexclusive right (in common with all others to whom Landlord has granted or may grant such rights) to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may establish from time to time. Tenant shall abide by such rules and regulations and shall use its best effort to cause others who use the Common Areas with Tenant’s expressed or implied permission to abide by Landlord’s rules and regulations. Tenant shall not, at any time, interfere with the rights of Landlord, other tenants, or any other person entitled to use the Common Areas.

          4.3     Vehicle Parking. Tenant shall be entitled to use the vehicle parking spaces allocated to Tenant on the Property without paying any additional rent. Tenant’s parking shall not be reserved and shall be limited to 123 vehicles no larger than standard size automobiles or pickup utility vehicles. Temporary parking of large delivery vehicles on the Property may be permitted by the rules and regulations established by Landlord. Vehicles shall be parked only in striped parking spaces and not in driveways, loading areas or other locations not specifically designated for parking

          4.4     CommonExpenses. Landlord shall maintain the Common Areas in good order, condition and repair. In addition to the Base Rent, Tenant shall pay its pro rata share of monthly Common Expenses (as defined below) (the “Common Expense Fee”), and is subject to annual adjustment.

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          “Common Expenses” shall mean all costs incurred by Landlord in repairing, maintaining and operating the Building and the Common Areas (other than (i) expenses recoverable under Section 3.5(b) above and (ii) expenses incurred by Landlord in satisfying its obligations under Section 8.1 below). Common Expenses shall include, but are not limited to, the following: gardening and landscaping, electrical, water and sewer service, maintenance and repair associated with the Common Areas; maintenance, repair and replacement of signs; property damage, fire and other types of insurance on the Common Areas and worker’s compensation insurance; charges and assessments by the owners’ association, if any, for the Property; all personal property taxes and assessments levied on or attributable to personal property used in connection with the Common Areas, the Building or the Property; straight-line depreciation on personal property owned by Landlord and consumed or used in the operation or maintenance of the Common Areas; rental or lease payments paid by Landlord for rented or leased personal property used in the operation or maintenance of the Common Areas or the Building; fees for required licenses and permits; repairing, replacing, resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse removal, security and similar items.

ARTICLE V - USE

          5.1     Use. Tenant shall use the Leased Premises for general office purposes, and for no other purpose without the prior written consent of Landlord. Tenant will not use or occupy the Leased Premises for any unlawful purpose, and will comply with all present and future laws, ordinances, regulations, and orders of the United States of America, the state in which the Leased Premises are located, and all other governmental units or agencies having jurisdiction over the Property and the Leased Premises. Tenant agrees to operate its business in the Leased Premises during the entire Term and to conduct its business in a reputable manner. Tenant shall not cause, maintain or permit any outside storage on or about the Leased Premises, shall not commit or suffer any waste upon the Leased Premises, or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the Building. No use shall be made or permitted to be made of the Leased Premises, nor acts done, which will increase the existing rate of insurance upon the Building or cause the cancellation of any insurance policy covering the Building, or any part thereof. Tenant shall not sell, or permit to be kept, used, in or about the Leased Premises, any article, which may be prohibited by the standard form of fire insurance policy. Tenant shall, at its sole cost and expense, comply with any and all requirements, pertaining to the Leased Premises, of any insurance organization or company, necessary for the maintenance or reasonable fire and public liability insurance covering the Leased Premises, Building and appurtenances. Tenant shall restrict the number of employees, including temporary workers, permitted in the Leased Premises to no more than allowed by the prevailing building code at any given time. Tenant shall not place on any floor a load exceeding the floor load per square foot, which such floor was designed to carry. Landlord shall have the right to prescribe the weight, position and manner of installation of safes and other heavy equipment and fixtures.

          5.2     ADA. Tenant shall at its expense make any improvements or alterations to the Leased Premises and Landlord shall at its expense make any improvements or alterations to the Common Areas required to conform with the Americans With Disabilities Act of 1990 (“ADA”) and

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any other laws, ordinances, orders or regulations of any governmental body or authority presently required or hereinafter enacted (except to the extent such non-compliance is the result of modifications to the Leased Premises made by Tenant). Tenant represents and warrants that the use and occupancy of the Leased Premises as contemplated by this Lease comply or will comply fully with all such laws, ordinances, and other governmental requirements.

ARTICLE VI - SECURITY DEPOSIT

          As an additional inducement to enter into this Lease and as evidence of Tenant’s intention to comply with the terms and conditions of this Lease, Tenant has deposited with Landlord a deposit in the amount of $-0- (“Security Deposit”). Landlord shall hold the Security Deposit as security for the performance by Tenant of Tenant’s covenants and obligations under this Lease. Tenant shall not be entitled to receive interest on the monies held as a Security Deposit. The Security Deposit shall not be considered an advance payment of Base Rent, Additional Rent or other charges provided for in this Lease, nor shall the Security Deposit serve as a measure of the damages which would be suffered by Landlord in the case of a default by Tenant. Landlord may, from time to time, without prejudice to any other remedy, use the Security Deposit to the extent necessary to make good any arrearages or nonpayment of Base Rent, Additional Rent or other charges provided for in this Lease, or to satisfy any obligation of Tenant hereunder. Following any such application of the Security Deposit, Tenant shall deposit with Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. If Tenant is not in default at the expiration of this Lease and if the Security Deposit has not been used as outlined above, then the balance of the Security Deposit shall be returned to Tenant within 60 days after the termination date. If Landlord transfers Landlord’s interest in the Leased Premises, Landlord may assign the Security Deposit to the transferee and thereafter have no further liability for the return of the Security Deposit. The Security Deposit shall not be assigned or encumbered by Tenant and any attempted assignment or encumbrance by Tenant (except in connection with a permitted assignment of this Lease) shall be void.

ARTICLE VII - OPERATIONS: UTILITIES: SERVICES

          7.1     Operation. Landlord shall operate the Building in accordance with standards customarily followed in the operation of comparable service center buildings in the St. Louis, Missouri area.

          7.2     Hours of Operation. Tenant shall have access to the Leased Premises 24 hours per day every day of the week.

          7.3     Utilities. Tenant agrees that it will pay all costs for gas, electric current and other utilities used or consumed upon or in connection with the Leased Premises during the term hereof and any renewals thereof, as and when charged for the same shall become due and payable.

          7.4     Interruption of Services. Landlord shall not be in default under this Lease and shall not be liable to Tenant for failure to provide services pursuant to this Article if failure to provide the services is caused by factors outside of Landlord’s control.

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          7.5     No Interference. Without Landlord’s prior review and written consent, Tenant shall not install or operate any electrical, internet, satellite, microwave, or other systems that will or may necessitate any changes, replacements or additions to, or changes in the use of, the water system, heating system, plumbing system, air-conditioning system or electrical system of the Leased Premises or the Building. Any changes, replacements or additions to those systems made necessary by Tenant’s installation or operation of any such utility systems shall be made at Tenant’s expense. Further, no such electrical, Internet, satellite, microwave, or other systems will interfere with any other tenant in the Building or with any other buildings on the Property.

ARTICLE VIII - REPAIRS AND MAINTENANCE

          8.1     Landlord’s Obligations. Landlord shall keep and maintain in good repair and working order and make all repairs to and perform necessary maintenance upon the structural components and elements, and electrical, plumbing and mechanical systems (including but not limited to sprinkler systems), of the Building and all parts and appurtenances, which are required in the normal maintenance and operation of the Building. The cost and expense of any maintenance or repair to the Building necessary due to the acts or omissions of Tenant or Tenant’s agents, employees, contractors, invitees, licenses or assignees, shall be reimbursed by Tenant to Landlord upon demand as Additional Rent. Landlord shall not be responsible for ADA compliance with respect to any improvements made to the Leased Premises by Tenant. Landlord shall not be liable for any damage or loss occasioned by Landlord’s failure to repair the Leased Premises unless it shall have failed to make such repair within a reasonable time following written notice from Tenant of the need for such repair.

          8.2     Tenant’s Obligations. Except as provided in Section 8.1, Tenant, at its sole cost and expense, shall keep and maintain in good repair and working order and make all repairs to and perform necessary maintenance within and upon the Leased Premises, including the Tenant’s improvements, and all parts and appurtenances thereof, which are required in the normal maintenance and operation of the Leased Premises.

          If Tenant fails to maintain and repair the Leased Premises, Landlord may, on ten (10) days prior notice (except that no notice shall be required in case of emergency) enter the Leased Premises and perform such repair and maintenance on behalf of Tenant. In such case, Tenant shall reimburse Landlord for all costs so incurred within thirty (30) days of receipt from Landlord of a written invoice therefor.

ARTICLE IX - ALTERATIONS: TENANT’S PROPERTY

          9.1     Alterations by Tenant. Tenant shall make no alterations, additions, replacements or improvements to the Leased Premises without the express written consent of Landlord, which consent, which consent is hereby deemed to be given in connection with the work to be performed by Tenant as contemplated in Exhibit “F” attached hereto. Landlord may require Tenant to provide demolition and/or lien and completion bonds in form and amount satisfactory to Tenant. All alterations, additions or improvements to the Leased Premises made by Tenant will be accomplished

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in a good and workmanlike manner, in conformity with all applicable laws and regulations, by a contractor approved by Landlord, and shall become the property of the Landlord at the expiration of the Term of this Lease. Landlord reserves the right to notify Tenant at the time Landlord approves any work that Landlord will require Tenant to remove any alteration, improvement or addition made to the Leased Premises by Tenant, and to repair and restore the Leased Premises to a condition substantially equivalent to the condition of the Leased Premises prior to any such alteration, addition or improvement. Tenant shall give Landlord at least ten (10) days’ prior written notice of the commencement of any work on the Leased Premises. Landlord may elect to record and post notices of non-responsibility on the Leased Premises.

          9.2     Contractors’ Insurance Requirements. In the event Landlord gives its approval to Tenant pursuant to Section 9.1, Tenant shall require any third party vendor or contractor performing work on the Leased Premises to carry and maintain at no expense to Landlord: (a) Commercial General Liability Insurance with a combined single limit of $1,000,000 bodily injury and property damage per occurrence; (b) Auto Liability insurance with a combined single limit of $1,000,000; and (c) Workers’ Compensation insurance in accordance with applicable state law and Employer’s Liability insurance with limits of not less than $100,000/$ 100,000/$500,000. Tenant shall obtain a Certificate of Insurance prior to commencement of work and Landlord and Tenant are to be additional insureds as respects the liability coverages.

          9.3     Tenant’s Property. Provided Tenant is not in default under the terms of this Lease, Tenant, at its expense and at any time and from time to time, may install in and remove from the Leased Premises its trade fixtures, equipment, removable walls and wall systems, furniture and furnishings, provided such installation or removal is accomplished without damage to the Leased Premises or the Building and the installation does not unreasonably interfere with the other tenants and their guests use of the Building. On or prior to the termination date, Tenant shall remove all of Tenant’s property from the Leased Premises and repair any damage to the Leased Premises caused by such removal. All property of Tenant remaining on the Leased Premises after the expiration of the Term of this Lease shall be deemed to have been abandoned and may be removed by Landlord.

ARTICLE X - HAZARDOUS MATERIALS

          10.1     Use of Hazardous Materials

          10.1(a)Tenant’s Obligations and Liabilities: Tenant shall not cause or permit any Hazardous Material to be brought upon, kept or used in or about the Leased Premises by Tenant, its agents, employees, contractors, or invitees. If Tenant’s use of Hazardous Material results in damage to the Leased Premises, the Property or Landlord, the Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs or liabilities (including, without limitation, diminution in value of the Leased Premises, damages for the loss of restriction on use of rentable or usable space or of any amenity of the Leased Premises, damages arising from any adverse impact on marketing of space, and sum paid in settlement of claims, attorneys’ fees, consultant fees and expert fees) which arise during or after the lease Term as a result of such contamination. This indemnification of Landlord by Tenant, includes, without limitation, costs incurred in connection with any investigations of site conditions or any clean-up, remedial,

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removal or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present in the soil or ground water on or under the Leased Premises resulting from Tenant’s activities. Without limiting the foregoing, if the presence of Hazardous Material on the Leased Premises caused by Tenant results in any contamination of the Leased Premises, Tenant shall promptly take all actions at its sole expense as are necessary to return the Leased Premises to the conditions existing prior to the introduction of any such Hazardous Material in the Leased Premises, provided that Landlord’s approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Leased Premises. The foregoing indemnity shall survive the expiration or earlier termination of this Lease.

          10.1(b) Definition: As used herein, the term “Hazardous Material” means any hazardous or toxic substance, material or waste, including, but not limited to those substances, materials and wastes listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 261) and amendments thereto, or such substances, materials and wastes that are or become regulated under any applicable local, state or federal law.

          10.1(c) Inspection: Landlord and its property manager or agents shall have the right, but not the duty, to inspect the Leased Premises at any time to determine whether Tenant is complying with the terms of this Lease. If Tenant is not in compliance with this Lease, Landlord shall have the right to immediately enter upon the Leased Premises to remedy any contamination caused by Tenant’s failure to comply, notwithstanding any other provisions of this Lease. Landlord shall use its best efforts to minimize interference with Tenant’s business but shall not be liable for interference caused thereby.

          10.1(d) Default: Any default under this Paragraph shall be a material default-enabling Landlord to exercise any of the remedies set forth in this Lease.

ARTICLE XI - ASSIGNMENT AND SUBLETTING

          Tenant shall not assign, transfer or encumber this Lease or any part hereof and shall not sublet, grant licenses or concessions, nor allow any other occupant to come in, with or under Tenant, nor shall Tenant permit this Lease or the leasehold estate hereby created to become vested in or owned by any other person, firm or corporation by operation of law or otherwise without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Any such assignment or subletting shall only be approved under such conditions as Landlord may, in it sole discretion, determine.

           If Tenant is a corporation, then any type of transfer or assignment, whether by merger, consolidation, liquidation, or otherwise, or any change in the ownership or power to vote a majority of Tenant’s outstanding voting stock shall constitute a prohibited assignment for the purposes of this section, except for any such transfer where the person or entity with the controlling interest in Tenant continues as the person or entity with controlling interest in the transferee. Acceptance of rent by Landlord from anyone other than Tenant shall not be construed as a waiver by Landlord of the

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actions prohibited by this Section, nor as a release of Tenant from any obligation or liability under this Lease. In the event Landlord consents to an assignment or sublet by Tenant, Tenant, and any guarantor of Tenant, shall not be relieved from its obligations under this Lease.

          In lieu of giving any consent to a sublet or an assignment of all the Leased Premises, Landlord may, at Landlord’s option, elect to terminate this Lease. In the case of a proposed subletting of a portion of the Leased Premises, Landlord may, at Landlord’s option, elect to terminate the Lease with respect to that portion of the Leased Premises being proposed for subletting. The effective date of any such termination shall be 30 days after the proposed effective date of any proposed assignment or subletting.

          Notwithstanding anything to the contrary contained in this Article XI, Tenant shall have the right, upon prior written notice to Landlord, but without Landlord’s consent, to assign this Lease, or to sublet all or any part of the Leased Premises to (a) any entity resulting from a merger or consolidation with Tenant (its corporate successors or assigns), (b) any corporation succeeding to all of the business and assets of Tenant (its corporate successors and assigns), or (c) an Affiliate of Tenant (as hereinafter defined) provided that the net worth of the surviving or successor entity is at least equal to the net worth of Tenant as of the date of execution of this Lease; provided that the Tenant, to the extent that it remains in existence, remains primarily liable and the surviving or successor entity or Affiliate, as applicable, shall also assume in writing all of the obligations and liabilities of Tenant hereunder. “Affiliate” shall mean any entity that controls, is controlled by or is under common control with Tenant. For purposes of the preceding sentence, control shall be deemed to be ownership of more than fifty percent (50%) of the stock or other voting interest of the controlled corporation or other business entity.

          In the event Tenant requests Landlord to consent to a proposed assignment, subletting, or encumbrance, Tenant shall pay to Landlord, whether or not such consent is ultimately given, Landlord’s reasonable administrative fee in connection with such request, which fee hall be determined by Landlord in its sole discretion, and which shall not be less than Three Hundred Dollars ($300.00) nor more than Five Hundred Dollars ($500.00) for each request for consent, plus Landlord’s reasonable attorney’s fees and costs incurred in connection with each such request. Tenant shall pay the administrative fee at the same time that it provides notice to the Landlord of Tenant’s proposed assignment, subletting or encumbrance.

ARTICLE XII - CASUALTY OR CONDEMNATION

          12.1     Partial Damage of Leased Premises. Tenant shall notify Landlord in writing within ten (10) days after Tenant becomes aware of any damage to the Leased Premises. If the damage can be completely repaired within ninety (90) days from the date of such damage, and the cost of such repairs do not exceed fifty percent (50%) of the value of the Leased Premises, Landlord shall repair the damage as soon as reasonably possible. Otherwise, Landlord may elect either to (a) repair the damage as soon as reasonably possible or (b) terminate this Lease as of the date the damage occurred. Landlord shall notify Tenant within thirty (30) days after receipt of notice of the occurrence of the damage, whether Landlord elects to repair the damage or terminate the Lease. If the damage to the Leased Premises occurs during the last six (6) months of the Lease Term, and if

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such damage or destruction is not the result of the act or omission of Tenant, Landlord or Tenant may elect to terminate this Lease.

          12.2     Total or Substantial Destruction. If the Leased Premises is totally or substantially destroyed by any cause whatsoever, or if the Leased Premises is in a building which is substantially destroyed (even though the Leased Premises is not totally or substantially destroyed), this Lease shall terminate as of the date the destruction occurred. However, if the Leased Premises can be rebuilt within one (1) year after the date of destruction, Landlord may elect to rebuild the Leased Premises at Landlord’s own expense, in which case, this Lease shall remain in full force and effect. Landlord shall notify Tenant of such election within thirty (30) days after the occurrence of the total or substantial destruction.

          12.3     Temporary Reduction of Rent. If the Leased Premises is totally or substantially destroyed, or if the Leased Premises is damaged through no fault of Tenant’s, and the Leased Premises is repaired pursuant to the provisions of this Article, Rent payable during the period of such damage, repair and/or restoration shall be reduced according to the degree, if any, to which Tenant’s use of the Leased Premises is impaired. Tenant shall not be entitled to any other compensation, reduction, or reimbursement from Landlord as a result of any damage, destruction, repair, or restoration of or to the Leased Premises.

          12.4     Condemnation. If all or any portion of the Leased Premises is taken through eminent domain or sold under threat of such taking (all of which are called “Condemnation”), this Lease shall terminate as to the part taken or sold on the date the condemning authority takes title or possession, whichever occurs first and the Rent shall be adjusted accordingly. All income, rent, awards or interest derived from any such taking or condemnation shall belong to and be the property of Landlord, and Tenant hereby assigns Tenant’s interest, if any, in such award to Landlord.

ARTICLE XIII - INDEMNIFICATION AND INSURANCE

          13.1     Indemnification. The Landlord shall not in any event be responsible for loss of property from or for damage to person or property occurring in or about the Leased Premises, however caused, including but not limited to any damage from steam, gas, electricity, water, plumbing, rain, snow, leakage, breakage or overflow, whether originating in the Leased Premises, premises of other tenants, or any part of the Building whatsoever.

          Tenant agrees to indemnify and hold harmless the Landlord from and against all claims of whatever nature arising from any accident, injury or damage to person or property during the Term of this Lease in or about the Leased Premises or arising from any accident, injury or damage to personal property occurring outside the Leased Premises but within the Building or any other property of which the Leased Premises is a part, where such accident, injury or damage results or is claimed to have resulted from an act, omission or negligence on the part of Tenant, or on the part of any of its licensees, agents, invitees, servants or employees. This indemnity agreement shall include indemnity against all costs, claims, expenses, penalties, liens and liabilities including attorney’s fees incurred in or in connection with any such claims or proceedings brought thereon and the defense thereof.

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                     Landlord agrees to indemnify and hold harmless the Tenant from and against all claims of whatever nature arising from any accident, injury or damage to person or property during the Term of this Lease in or about the Leased Premises or arising from any accident, injury or damage to personal property occurring outside the Leased Premises but within the Building or Project, where such accident, injury or damage results or is claimed to have resulted from an act, omission or negligence on the part of Landlord, or on the part of any of its licensees, agents, invitees, servants or employees. The foregoing indemnity shall not apply to claims arising out of the gross negligence or willful misconduct of Tenant, its employees, agents or contractors. This indemnity agreement shall include indemnity against all costs, claims, expenses, penalties, liens and liabilities including attorney’s fees incurred in or in connection with any such claims or proceedings brought thereon and the defense thereof.

          13.2     Tenant’s Insurance. Tenant will maintain Commercial General Liability insurance with respect to the Leased Premises naming Landlord as additional insured, with a combined single limit of $1,000,000 bodily injury and property damage per occurrence and $2,000,000 aggregate limit applicable to this location, and Auto Liability insurance with a combined single limit of $1,000,000. This insurance coverage shall extend to any liability of Tenant arising out of the indemnities provided for in this Lease. Landlord shall be named as an additional insured and the insurance shall be primary to any insurance maintained by Landlord. Tenant shall deliver to Landlord a Certificate of Insurance at least seven (7) days prior to the commencement of the Term of this Lease and a renewal certificate at least seven (7) days prior to the expiration of the Certificate it renews. Said Certificate must provide thirty (30) days prior notice to Landlord in the event of material change or cancellation. Tenant also agrees to maintain broad form Commercial Property insurance coverage under ISO form CP1030 or like coverage under a non-ISO form covering all Tenant’s personal property, improvements and betterments to their full replacement value and Worker’s Compensation insurance in accordance with applicable state law and Employer’s Liability insurance with limits of not less than $100,000/$100,000/$500,000. Tenant agrees that if its use and occupancy of the Leased Premises cause the property insurer to raise premiums as a result of such use or occupancy, then Tenant will directly reimburse the Landlord for the cost of such increased premium. Tenant agrees to comply with all reasonable recommendations from any insurer of the property that result as a direct result of the Tenant’s use of the Leased Premises.

          13.3     Survival of Indemnities. Each indemnity agreement and hold harmless agreement contained herein shall survive the expiration or termination of this Lease.

          13.4     Waiver of Subrogation. Notwithstanding anything contained in this Lease to the contrary, if either party suffers a loss of or damage to property in the Leased Premises or related to this Lese, which is covered by valid and collectible insurance policies (or would be covered by policies which are required hereunder or which would be required but for any specific provisions for self-insurance or for a deductible), that party waives any claim therefor which it may have against the other party or its employees, regardless of whether negligence or fault of the latter party or its employees may have caused the loss or damage. Each party will have its appropriate insurance policies properly endorsed, if necessary, to prevent any invalidation of insurance coverage required hereunder due to these mutual waivers.

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ARTICLE XIV - RIGHT OF ENTRY

          The Landlord reserves the right to use the Building and every part thereof, and Tenant shall permit access to the Leased Premises to Landlord, Landlord’s property manager or Landlord’s agents or attorneys at all reasonable times for inspection and cleaning and from time to time to repair as provided in Article VIII, maintain, alter, improve and remodel, and to add additional offices to the Building and each part thereof; provided that such access shall not unreasonably interfere with Tenant’s use and enjoyment of the Leased Premises. The Tenant shall not be entitled to any compensation, damages or abatement or reduction in Base Rent on account of any such repairs, maintenance, alterations, improvements or remodeling or adding of additional stories. The Landlord reserves the right at reasonable hours and upon advance notice to Tenant to enter, and be upon the Leased Premises for the purpose of examining same, except in a bona fide emergency when Landlord need only make a reasonable effort to inform Tenant before entering the Leased Premises. The Landlord shall have the right, at reasonable hours, and upon advance notice to Tenant, to enter upon the Leased Premises or exhibit the same to prospective tenants, lenders or insurers.

ARTICLE XV - PROPERTY LEFT ON THE LEASED PREMISES

          Upon the expiration of this Lease or if the Leased Premises should be vacated at any time, or abandoned by the Tenant, or this Lease should terminate for any cause, and at the time of such termination, vacation, or abandonment, the Tenant or Tenant’s agents, or any other person should leave any property of any kind or character on or in the Leased Premises, the property shall be deemed abandoned. Landlord, Landlord’s property manager or Landlord’s agents or attorneys, shall have the right and authority without notice to Tenant, Tenant’s agents, or anyone else, to remove and destroy, or to sell or authorize disposal of such property, or any part thereof, without being in any way liable to the Tenant for the abandoned property. The abandoned property shall belong to the Landlord as compensation for the removal and disposition of said property.

ARTICLE XVI - SIGNS AND ADVERTISEMENTS

          No exterior signs, advertisements, posters on windows, decorations or other fixtures shall be erected by Tenant without the prior written consent of Landlord.

ARTICLE XVII - NOTICES

          Any notice, demand, request, consent, approval or communication under this Lease shall be in writing and shall be deemed to have been duly given and received at the time and on the date when personally delivered, or one (1) day after being delivered to a nationally recognized commercial carrier service for next-day delivery or three (3) days after deposit in the United States mail, certified or registered mail with a return receipt requested, with all postage prepaid, addressed to Landlord or Tenant (as the case may be) as follows:

          If to Landlord:

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	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY c/o Delaware Lincoln Investment Advisers Attention: Real Estate Asset Management 200 East Berry Street Fort Wayne, Indiana 46802
If to Tenant:
	LACKLAND ACQUISITION II, LLC 1836 Lackland Hills Parkway St. Louis, Missouri 63146 Attn: Ben Tischler or Mike Noble

ARTICLE XVIII - MECHANIC’S LIENS

          Tenant and any vendor, contractor or subcontractor performing work on behalf of Tenant shall keep the Building, the Leased Premises, and the improvements at all times during the Term of this Lease, free of mechanic’s and materialmen’s liens and other liens of like nature. Tenant at all times shall fully protect and indemnify Landlord against all such liens or claims and against all attorneys fees and other costs and expenses growing out of or incurred by reason or on account of any such liens or claims. Should Tenant fail fully to discharge any such lien or claim, Landlord, in its sole discretion, may pay the same or any part thereof, and Landlord shall be the sole judge of the validity of said lien or claim. All amounts so paid by the Landlord, together with interest thereon at the rate of fifteen percent (15%) from the time of payment by Landlord until repayment by Tenant, shall be paid by Tenant upon demand, and if not so paid, shall continue to bear interest at the aforesaid rate, payable monthly as Additional Rent.

ARTICLE XIX - SUBORDINATION; ATTORNMENT

          19.1     Subordination. Landlord may, from time to time, grant first lien deeds of trust, security deeds, mortgages or other first lien security interests covering its estate in the Building (each a “Mortgage”). Tenant agrees that this Lease shall be subject and subordinate to each Mortgage, including any modifications, extensions or renewals thereof and advances thereunder from time to time in effect, provided that, as long as Tenant is not in default under the terms hereof, the Lease and Tenant’s right to occupy the Leases Premises shall not be disturbed. The foregoing provisions shall be self-operative, and no further instrument of subordination shall be required to make this Lease subject and subordinate to any Mortgage. Tenant shall, upon request, from time to time execute and deliver to Landlord or the holder of any Mortgage any instrument requested by Landlord or the holder of such Mortgage to evidence the subordination of this Lease to any such Mortgage.

          19.2     Attornment. Tenant agrees to recognize and attorn to any party succeeding to the interest of Landlord as a result of the enforcement of any Mortgage (including the transferee as the result of a foreclosure or deed in lieu of foreclosure), and to be bound to such party under all the terms, covenants, and conditions of this Lease, for the balance of the Term of this Lease, including

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any extended term, with the same force and effect as if such party were the original Landlord under this Lease.

          19.3     Confirming Agreement. Upon the request of Landlord, Tenant agrees to execute a subordination, non-disturbance and attornment agreement incorporating the provisions set forth above and otherwise in forms reasonably acceptable to Landlord.

          19.4     Mortgagee Protection. Tenant agrees to give any mortgagees and/or trust deed holders, by registered mail, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified, in writing (by way of Notice of Assignment of Rents and Leases, or otherwise), of the address of such mortgagees and/or trust deed holders. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the mortgagees and/or trust deed holders shall have an additional thirty (30) days within which to cure such default or, if such default cannot be cured within that time, then such additional time as may be necessary, if within such thirty (30) days any mortgagee and/or trust deed holder has commenced and is diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued.

ARTICLE XX - COMPLIANCE WITH LAW
AND RULES AND REGULATIONS

          20.1     Compliance With Laws. Except as otherwise provided herein, Tenant, at Tenant’s expense, shall comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to Tenant’s use of the Leased Premises and with the recorded covenants, conditions and restrictions, regardless of when they became effective, including, without limitation, all applicable federal, state and local laws, regulations or ordinance pertaining to air and water quality Hazardous Materials (as hereinafter defined), waste disposal, air emissions and other environmental matters, all zoning and other land use matters, and utility availability, and with any direction of any public officer or officers, pursuant to law, which shall impose any duty upon Landlord or Tenant with respect to the use or occupation of the Leased Premises.

          20.2     Rules and Regulations. The rules and regulations attached as Exhibit “C” (“Rules and Regulations”) are Landlord’s Rules and Regulations for the Building. Tenant shall faithfully observe and comply with such Rules and Regulations and such reasonable changes therein (whether by modification, elimination, addition or waiver) as Landlord may hereafter make and communicate in writing to Tenant, which shall be necessary or desirable for the reputation, safety, care or appearance of the Building or the preservation of good order therein or the operation or maintenance of the Building or the equipment thereof for the comfort of tenants or others in the Building. In the event of a conflict between the provisions of this Lease and the Rules and Regulations, the provisions of this Lease shall control.

ARTICLE XXI - LANDLORD’S LIEN

          Intentionally omitted.

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ARTICLE XXII - ESTOPPEL CERTIFICATE

          Tenant shall from time to time, upon not less than ten (10) days prior written notice by Landlord, execute, acknowledge and deliver to Landlord a statement in substantially the form attached hereto as Exhibit “D”:

          22(a) Certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease is in full force and effect as modified and stating the modifications).

          22(b) Stating the dates to which the Base Rent, Additional Rent, and other charges hereunder have been paid by Tenant.

          22(c) Stating, to the best knowledge of Tenant, that Landlord is not in default in the performance of any covenant, agreement or condition contained in this Lease, and if Landlord is in default, specifying any such default of which Tenant may have knowledge.

          22(d) Stating the address to which notices to Tenant should be sent pursuant to Article XV of this Lease.

          Any such statement delivered pursuant hereto may be relied upon by any owner of the Building and/or the Leased Premises, any prospective purchaser of the Building and/or Leased Premises, any mortgagees or prospective mortgagee of the Building and/or Leased Premises, any prospective assignee of any such mortgagee, or any purchaser of Landlord, actual or prospective, of the underlying land upon which the Building and Leased Premises are located.

ARTICLE XXIII - HOLDING OVER

          If Tenant retains possession of the Leased Premises or any part thereof after the termination of this Lease by lapse of time or otherwise without any modification of this Lease or other written agreement between the parties, Tenant shall be a month-to-month tenant at two hundred percent (200%) of the Base Rent in effect on the termination date. In addition, Tenant shall pay to Landlord all direct and consequential damages sustained by Tenant’s retention of possession, including but not limited to lost rentals, leasing fees, advertising costs, marketing costs, Tenant finish expense and relocation costs. There shall be no renewal of this Lease by operation of law.

          Notwithstanding the foregoing, in the event Tenant gives Landlord six (6) months prior written notice that it intends to retain possession of the Leased Premises or any part thereof after the termination of this Lease, Tenant shall pay to Landlord one hundred fifty percent (150%) of the Base Rent in effect on the termination date for the first three (3) months of holdover and two hundred percent (200%) of the Base Rental Rate in effect on the termination date for holdover beyond the initial three (3) months of holdover.

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ARTICLE XXIV - TENANT’S STATUS

          Tenant represents and warrants to Landlord that:

          24.1     Power and Authority. Tenant has the right, power and authority to execute and deliver this Lease and to perform the provisions hereof, and is, to the extent required, qualified to transact business and in good standing under the laws of the State of Missouri.

          24.2     Authorization. The execution of the Lease by Tenant, or by the persons or other entities executing them on behalf of Tenant, and the performance by Tenant of Tenant’s obligations under the Lease in accordance with the provisions hereof have been, to the extent required, duly authorized by all necessary action of Tenant.

ARTICLE XXV - DEFAULTS AND REMEDIES

          25.1     Default by Tenant. Tenant shall be in default under this Lease if:

          25.1 (a) - Tenant shall fail to pay within five (5) days of the date due hereunder any Base Rent, Additional Rent, or other payment to be made by Tenant under this Lease.

          25.1(b) - Tenant shall fail to perform or observe any of the other agreements, terms, covenants or conditions hereof and such non-performance or non-observance shall continue for a period of thirty (30) days after written notice thereof by Landlord to Tenant, or if such performance or observance cannot be reasonably accomplished within such thirty (30) day period and Tenant shall not in good faith have commenced such performance or observance within such thirty (30) day period or shall not diligently and continuously proceed therewith to completion.

          25.1(c) - Tenant fails to take possession of or cease to do business in or abandon any substantial portion of the Leased Premises.

          25.1(d) - Tenant becomes insolvent, or makes an assignment for the benefit of creditors; or any action is brought by Tenant seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property.

          25.1(e) - Tenant commences a voluntary proceeding under the Federal Bankruptcy Code, or any reorganization or arrangement proceeding is instituted by Tenant for the settlement, readjustment, composition or extension of any of its debts upon any terms; or any action or petition is otherwise brought by Tenant seeking similar relief or alleging that it is insolvent or unable to pay its debts as they mature; or if any action is brought against Tenant seeking its dissolution or liquidations of any of its assets, or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property, and any such action is consented to or acquiesced in by Tenant or is not dismissed within 3 months after the date upon which it was instituted.

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          25.2     Landlord Remedies. On the occurrence of any material default by Tenant, Landlord may, at any time thereafter, with or without notice or demand, and without limiting Landlord in the exercise of any right or remedy which Landlord may have:

          25.2(a) Terminate Tenant’s right to possession of the Leased Premises, in which case Tenant shall immediately surrender possession of the Leased Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant’s default, including (a) the worth at the time of the court award of the unpaid Base Rent, Additional Rent and other charges which had been earned at the time of the termination; (b) the worth at the time of the court award of the amount by which the unpaid Base Rent, Additional Rent and other charges which would have been earned after termination until the time of the award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) the worth at the time of the court award of the amount by which the unpaid Base Rent, Additional Rent and other charges which would have been paid for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and (d) such other amounts as are necessary to compensate Landlord for the detriment caused by Tenant’s failure to perform its obligations under the Lease, including, but not limited to, the cost of recovering possession of the Leased Premises, expenses of reletting, including necessary renovation or alteration of the Leased Premises, Landlord’s reasonable attorneys’ fees incurred in connection therewith, and any real estate commission paid or payable. As used above, the “worth at the time of the court award’ is computed by allowing interest on unpaid amounts at the rate of twelve (12%) per annum, or such lesser amount as may then be the maximum lawful rate;

          25.2(b) Maintain Tenant’s right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have abandoned the Leased Premises. In such event, Landlord shall be entitled to enforce all of Landlord’s rights and remedies under this Lease, including the right to recover the Base Rent and Additional Rent as it becomes due hereunder.

          25.2(c) Elect to terminate the Lease. No such termination of this Lease shall affect Landlord’s rights to collect Base Rent, Additional Rent or other amounts due for the period prior to termination. In the event of any termination, in addition to any other remedies set forth above, Landlord shall have the right to recover from Tenant upon such termination an amount equal to the excess of the Base Rent, Additional Rent and other amounts to be paid by Tenant during the remaining Term of this Lease over the then reasonable rental value of the Leased Premises for the remaining Term of this Lease, discounted to present value using a reasonable discount rate.

          25.2(d) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Leased Premises is located. Landlord’s exercise of any right or remedy shall not prevent it from exercising any other right or remedy. No action taken by or on behalf of Landlord under this section shall be construed to be an acceptance of a surrender of this Lease.

          25.3     Landlord’s Costs; Attorneys Fees. Tenant shall pay all costs and expenses incurred by Landlord as a result of any breach or default by Tenant under this Lease, including court costs and attorneys fees paid by Landlord.

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          25.4     Remedies Cumulative. The foregoing remedies are cumulative of, and in addition to, and not restrictive or in lieu of, the other remedies provided for herein or allowed by law or in equity, and may be exercised separately or concurrently, or in any combination, and pursuit of any one or more of such remedies shall not constitute an election of remedies which shall exclude any other remedy available to Landlord.

          25.5     Non-Waiver. Landlord’s forbearance in pursuing or exercising one or more of its remedies shall not be deemed or construed to constitute a waiver of any default or any remedy, and no waiver by Landlord of any right or remedy on one occasion shall be construed as a waiver of that right or remedy on any subsequent occasion or as a waiver of any right or remedy then or thereafter existing. No failure of Landlord to pursue or exercise any of its rights or remedies or to insist upon strict compliance by the Tenant with any term or provision of this Lease, and no custom or practice at variance with the terms of this Lease, shall constitute a waiver by Landlord of the right to demand strict compliance with the terms and provisions of this Lease.

ARTICLE XXVI - MISCELLANEOUS

          26.1     No Partnership. Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of Landlord and Tenant.

          26.2     No Representations by Landlord. Neither Landlord, Landlord’s property manager, or any agent or employee of Landlord has made any representations or promises with respect to the Leased Premises or Building except as set forth in this Lease, and no rights, privileges, easements or licenses are acquired by Tenant except as herein expressly set forth.

          26.3     Waiver of Jury Trial. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on or in respect to any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant hereunder, Tenant’s use of occupancy of the Leased Premises, and/or any claim of injury or damage.

          26.4     Severability of Provisions. If any clause or provision of this Lease shall be determined to be illegal, invalid or unenforceable under the present or future laws effective during the Term hereof, then and in that event it is the intention of the parties that the remainder of this Lease shall not be affected by the invalid clause and shall be enforceable to the fullest extent of the law, and it is also the intention of the parties to this Lease that in place of any such clause or provision that is illegal, invalid, or unenforceable there be added as a part of his Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.

          26.5     Interior Construction. Unless the Leased Premises are leased “as is”, the construction of the Tenant’s space, including any Tenant finish or improvements shall be completed pursuant to Exhibit “F” attached hereto.

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          26.6     Relocation of Leased Premises. Intentionally omitted.

          26.7     Benefits and Burdens. The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective representatives permitted successors and permitted assigns. Landlord shall have the right, at any time and from time to time, to freely and fully assign all or any part of its interest under this Lease for any purpose whatsoever.

          26.8     Landlord’s Liability. The Obligations of the Landlord under this Lease do not constitute personal obligations of Landlord or of the individual partners, joint ventures, directors, officers, shareholders or beneficial owners of the Landlord, and Tenant shall look solely to the Building and to no other assets of the Landlord for satisfaction of any liability in respect to this Lease. Tenant will not seek recourse against Landlord or such individual entities or such other assets for such satisfaction. As used in this Lease, the term “Landlord” means only the current owner or owners of the fee title to the Leased Premises or the leasehold estate under a ground lease of the Leased Premises at the time in question. Any Landlord who transfers its title or interest is relieved of all liability with respect to the obligations of Landlord under this Lease to be performed on or after the date of transfer. However, each Landlord shall deliver to its transferee, by actual transfer or appropriate credits, all funds previously paid by Tenant if such funds have not yet been applied under the terms of this Lease.

          26.9     Brokerage. This Lease has been negotiated through the agency of Colliers Turley Martin Tucker, whose fees or commissions shall be paid by Landlord. Each party warrants and represents to the other that no other broker was involved with the leasing of the Leased Premises or the negotiation of this Lease or is entitled to any commission in connection herewith, and each party agrees to indemnify and hold the other harmless against any other claims (including court costs and attorneys fees) for commissions by any other broker. Tenant and Landlord shall execute the Agency Relationship Confirmation attached hereto as Exhibit G.

          26.10     Recording. Tenant shall not record this Lease without Landlord’s prior written consent, and such recordation shall, at the option of Landlord, constitute a non-curable default of Tenant hereunder. Tenant shall upon request of Landlord, execute, acknowledge and deliver to Landlord a short-form memorandum of this Lease for recording purposes.

          26.11     Governmental Surcharge. Tenant agrees to pay as Additional Rent upon demand, its Proportionate Share of any parking charges, regulatory fees, utility surcharges, or any other costs levied, assessed or imposed by, or at the direction of, or resulting from statutes or regulations, or interpretations thereof, promulgated by any federal, state, municipal or local government authority in connection with the use or occupancy of the Leased Premises or the parking facilities serving the Leased Premises.

          26.12     Surrender of Premises. Upon termination of this Lease, by expiration of Term, or otherwise, Tenant shall redeliver to Landlord the Leased Premises broom clean and in good order and condition, ordinary wear and tear excepted. Tenant shall remain liable for holdover rent until the Leased Premises shall be returned in such order to Landlord.

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          26.13     Interpretation. The captions of the Sections and Articles of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the contents of this Lease, the singular shall include the plural and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. In any provision relating to the conduct, acts or omissions of Tenant, the term “Tenant” shall include Tenant’s agents, employees, contractors, invitees, successors or others using the Leased Premises with Tenant’s expressed or implied permission.

          26.14     Entire Agreement. It is understood that there are no oral agreements between the parties hereto affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understanding, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none hereof shall be used to interpret or construe this Lease. All amendments to this Lease shall be in writing and signed by all parties. All waivers must be in writing and signed by the waiving party. Landlord’s failure to enforce any provision of this Lease or its acceptance of Rent shall not be a waiver and shall not prevent Landlord from enforcing that provision or any other provision of this Lease in the future. No statement on a payment check from Tenant or in a letter accompanying a payment check shall be binding on Landlord. Landlord may, with or without notice to Tenant, negotiate such check without being bound to the conditions of such statement.

          26.15     Force Majeure. Whenever a period of time is herein prescribed for action to be taken by Landlord or Tenant, the party taking the action shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the reasonable control of such party; provided, however, in no event shall the foregoing apply to the financial obligations of either Landlord or Tenant to the other under this Lease, including Tenant’s obligation to pay Basic Rent, Additional Rent or any other amount payable to Landlord hereunder.

          26.16     Choice of Law. The laws of the State of Missouri shall govern the validity, performance and enforcement of this Lease.

          26.17     Submission of Lease. The submission of this Lease to Tenant for examination does not constitute an offer to lease or a reservation of space. No agreement between Landlord and Tenant relating to the leasing of the Leased Premises shall become effective or binding until executed by both parties and received by Tenant.

          26.18     Time of Essence. Time of the essence with respect to each of Tenant’s obligations hereunder.

          26.19     Financial Statements. Tenant acknowledges that it has provided Landlord with its financial statement(s) as a primary inducement to Landlord’s agreement to lease the Leased Premises to Tenant, and that Landlord has relied on the accuracy of said financial statement(s) in entering into this Lease. Tenant represents and warrants that the information contained in said financial

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statement(s) is true, complete and correct in all material aspects, and agrees that the foregoing representations shall be a precondition to this Lease.

          At the request of Landlord, Tenant shall, not later than ninety (90) days following the close of each fiscal year of Tenant during the Term of this Lease, furnish to Landlord a balance sheet of Tenant as of the end of such fiscal year and a statement of income and expense for the year then ended, together with an opinion of an independent certified public accountant satisfactory to Landlord or, at the election of Landlord, a certificate of the chief financial officer, owner or partner of Tenant to the effect that the financial statements have been prepared in conformity with generally accepted accounting principles consistently applied and which fairly present the financial condition and results of operations of Tenant as of and for the periods covered.

          26.20     Termination of Megapath Lease. The obligations of the parties under this Lease are subject to (i) the termination of that certain Lease between Landlord and Phoenix Data Systems, Inc., dated July 29,1999, as amended by First Amendment to Office Lease dated March 1, 2000 and (ii) the vacation of Suite 1842 by Phoenix Data Systems, Inc. prior to August 1, 2001.

          26.21     Termination of Hagemeyer Lease and Sublease. The obligations of the parties under this Lease are subject to(i) termination of that certain Lease between Landlord and Hagemeyer Consumer Products, Inc. dated April 20, 1994, as amended by First Amendment to Lease dated April 22, 1997 and (ii) termination of that certain Sublease Agreement between Hagemeyer Consumer Products, Inc. and Healthcare Strategic Initiatives, L.L.C. dated April 22, 1997.

          26.22     Termination of Existing Lease. Upon execution of this Lease by Landlord and Tenant, all obligations of Tenant under the leases between Landlord and Healthcare Strategic Initiatives of Kansas City, Inc., dated March 17, 2000 and Healthcare Strategic Initiatives, LLC, dated April 21, 1999 shall terminate. Tenant agrees that it shall be responsible for the pro rata share of any operating expenses as outlined in these leases up to and including the termination date of these leases.

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          IN WITNESS WHEREOF, these presents have been executed as of the day and year first above written.

Landlord
	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
	By:	Delaware Lincoln Investment Advisers, a series of Delaware Management Business Trust, Attorney-in-Fact
		By:
		Printed Name: Rita A Glass
		Title: Second Vice President
		Date: 11/28/01
Tenant
	LACKLAND ACQUISITION II, LLC
	By:
	Printed Name: Ben Tischler
	Title: Manager
	Date: 11.13.01

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EXHIBIT A

LEGAL DESCRIPTION

[TO BE ADDED BY LANDLORD]

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EXHIBIT B

FLOOR PLAN

[TO BE ADDED BY LANDLORD]

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EXHIBIT C

CERTIFICATE AFFIRMING THE LEASE COMMENCEMENT DATE

          This Certificate is being provided pursuant to Section 2.1 of that certain lease agreement dated ____________________, 2001 (the “Lease”), by and between THE LINCOLN NATIONAL LIFE INSURANCE COMPANY and Lackland Corporation II, LLC. The parties to the Lease desire to confirm the following:

1.	The Lease Commencement Date is ________________, 2001.
2.	The initial term of the Lease shall expire on ______________________, 2008.

          Attached to this Certificate is evidence of payment of premiums for all insurance required pursuant to Section 13.2 of the Lease,

          IN WITNESS WHEREOF, Landlord and Tenant have executed this Certificate under seal on _____________________, 2001.

LANDLORD:
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By:	Delaware Lincoln Investment Advisers, a series of Delaware Management Business Trust, Attorney-in-Fact
By:
TENANT:
LACKLAND ACQUISITION II, LLC
By:

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EXHIBIT D

RULES AND REGULATIONS

          The Rules and Regulations set forth in this Exhibit shall be and hereby are made a part of the Lease to which they are attached. Whenever the term “Tenant” is used in these Rules and Regulations, it shall be deemed to include Tenant, its employees or agents, and any other persons permitted by Tenant to occupy or enter the Leased Premises. Landlord may from time to time modify the following Rules and Regulations.

          1.          The sidewalks, entryways, passages, and other common facilities of the Building shall be controlled by Landlord and shall not be obstructed by Tenant or used for any purpose other than ingress or egress to and from the Leased Premises. Tenant shall not have the right to remove any obstruction or any such item without the prior written consent of Landlord. Landlord shall have the right to remove any obstruction or any such item without notice to Tenant and at the expense of Tenant.

          2.          Landlord may restrict access to and from the Leased Premises and the Building outside the ordinary business hours of the Building for reasons of building security. Landlord may require identification of persons entering and leaving the Building and, for this purpose, may issue building and/or parking passes to Tenants of the Building.

          3.          The Landlord and/or Landlord’s property manager may at all times keep a pass key to the Leased Premises, and shall at all times be allowed admittance to the Leased Premises; subject, however, to Tenant’s reasonable security requirements which may prohibit access except when accompanied by Tenant’s authorized security personnel.

          4.          Subject always to Tenant’s reasonable security requirements, no additional lock or locks shall be placed by Tenant on any door in the Building and no existing lock shall be changed unless written consent of Landlord shall first have been obtained. Landlord will furnish a reasonable number of keys to the Leased Premises and Tenant shall not have any duplicate key made. At the termination of this tenancy, Tenant shall promptly return to Landlord all keys.

          5.          The delivery or shipping of merchandise and supplies to and from the Building and Leased Premises shall be subject to such rules and regulations as in the judgment of Landlord are necessary for the property operation of the Leased Premises.

          6.          In case of invasion, mob, riot, public excitement, or other commotion, the Landlord reserves the right to prevent access to the Leased Premises and Building during the continuance of the same by closing of the doors or otherwise, for the safety of the Tenants and protection of property in the Leased Premises and Building.

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          7.          Landlord reserves the right to exclude or expel from the Leased Premises or Building any person who, in the judgment of Landlord is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building.

          8.          Landlord shall have the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building of which the Leased Premises are a part.

          9.          Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant’s address.

          10.        Landlord shall have the right to control and operate the public portion of the Building and any public facilities, as well as facilities furnished for the common use of the Tenants, in such manner as it deems best.

          11.        During the entire Term of this Lease, Tenant shall, at its expense, install and maintain under all caster chairs a chair pad or carpet caster to protect the carpeting.

          12.        Landlord reserves the right to restrict, control or prohibit canvassing, soliciting and peddling on the Leased Premises. Tenant shall not grant any concessions, licenses, or permission for the sale or taking of orders for food, beverages, services or merchandise in the Building, nor install or permit the installation, use of any machine or equipment for dispensing food, beverages, services or merchandise, or permit the preparation, serving, distribution or delivery of food, beverages, services or merchandise without the approval of Landlord and in compliance with arrangements prescribed by Landlord.

          13.        No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside or inside of the Building without the written consent of Landlord, and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name and notice without notice to and at the expense of Tenant. At all times and at its sole discretion, Landlord shall have the express right to control signage outside the Building.

          14.        Except with the prior written consent of the Landlord, no personnel or persons other than those approved by Landlord shall be permitted to enter the Building or Leased Premises for the purpose of cleaning, maintaining, servicing, replacing or repairing the same. Tenant shall not cause any unnecessary labor by reason of Tenant’s carelessness or indifference in the preservation of good order and cleanliness.

          15.        Tenant shall see that the doors of the Leased Premises are closed and securely locked before leaving the Leased Premises and must observe strict care and caution that all water faucets or water apparatus are entirely shut off before Tenant or Tenant’s employees leave the Building, and that all electricity shall likewise be carefully shut off, so as to prevent waste or damage, and for any default or carelessness Tenant shall make good all injuries sustained by other tenants or occupants of the Building or Leased Premises.

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          16.        The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant who shall, or whose employees, agents, or invitees shall, have caused it.

          17.        If a Tenant desires telegraphic or telephonic connections, burglar alarms, or similar services, the Landlord, at the sole cost of Tenant, will direct the electricians approved by Landlord as to where the wires are to be introduced and without such direction no boring or cutting for wires shall be permitted.

          18.        No animal or bird shall be allowed in any part of the Leased Premises (except to assist the handicapped) without the consent of the Landlord.

          19.        The Tenant and his employees shall not park cars on the street or internal drives of the Property of which the herein Leased Premises is a part or in any alley or court in the Property of which the herein Leased Premises is a part. Where there is a rear entrance, all loading and unloading of goods shall be made at the rear entrance. The Tenant and his employees shall park their cars in areas as designated by the Landlord from time to time. All trucks, vans and other delivery vehicles shall be required to park at the rear of the Building. The Tenant further agrees that upon written notice from the Landlord he will, within five (5) days, furnish the state automobile license numbers assigned to his car and the cars of all his employees.

          20.        Bicycles or other vehicles shall not be permitted anywhere inside the Building or on the sidewalks outside the Building, except in those areas designated by Landlord for bicycle parking.

          21.        Tenant shall not allow anything to be placed or stored on the outside of the Building, nor shall Tenant throw anything out of the windows or doors.

          22.        No windows, shades, blinds, screens or draperies will be attached or detached by Tenant and no awnings shall be placed over the windows without Landlord’s prior written consent. Tenant agrees to abide by Landlord’s rules with respect to maintaining uniform curtains, draperies and linings at all windows and hallways so that the Building will present a uniform exterior appearance. Tenant will use its best efforts to have all curtains, draperies and blinds closed at the end of each day in order to help conserve energy. Except in case of fire or other emergency, Tenant shall not open any outside window because the opening of windows interferes with the proper functioning of the Building heating and air conditioning systems.

          23.        Tenant shall not install or operate any steam or gas engine or boiler, or carry on any mechanical business in the Leased Premises without Landlord’s prior written consent, which consent may be withheld in Landlord’s absolute discretion. The use of oil, gas or flammable liquids other than those supplied by the Landlord for heating, air conditioning, lighting or any other purpose is expressly prohibited. Explosives and other articles that are deemed extra hazardous should not be brought into the Building.

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          24.        Any repairs, maintenance and alterations required or permitted to be done by Tenant under the Lease shall be done only during the ordinary business hours of the Building unless Landlord shall have first consented to such work being done outside of such times. If Tenant desires to have such work done by Landlord’s employees on Saturdays, Sundays, holidays or weekdays outside of ordinary business hours Tenant shall pay the extra cost of such labor.

          25.        Except as permitted by Landlord, Tenant shall not mark upon, paint signs upon, cut, drill into, drive nails or screws into, or in any way deface the walls, ceilings, partitions or floors of the Leased Premises or of the Building, and any defacement, damage or injury caused by Tenant shall be paid for by Tenant, due and payable upon demand by Landlord.

          26.        No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord and all moving of the same into or out of the Building shall be done at such time and in such manner, as Landlord shall designate. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the Building and also the times and manner of moving the same in and out of the Building. Safes or other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property from any cause and all damage done to the Building by moving or maintaining any such safe or other property shall be repaired at the expense of Tenant.

          27.        Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Leased Premise, or permit or suffer the Leased Premises to be occupied or used in a manner offensive or objectionable to the Landlord or other occupants of the Building by reason of noise, odors, and/or vibrations, or interfere in any way with other Tenants or those having business therein.

          28.        Cooking shall not be done or permitted by any Tenant on the Leased Premises, nor shall the Leased Premises be used for the storage of merchandise, for washing clothes, for lodging, or for any improper objectionable or immoral purposes.

          29.        Tenant shall not install any radio or television antenna, loudspeaker, or other device on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere.

          30.        Tenant will at all times cooperate with Landlord in preserving a first class image of the Building.

          31.        Landlord reserves the right to change these rules and to make such other and farther reasonable rules and regulations either as it affects one or all tenants as in its judgment from time to time may be needed for the safety, care and cleanliness of the Leased Premises and the Building, or for the preservation of good order therein or for any other cause, and when changes are made, such modified or new rules shall be deemed a part hereof, with the same effect as if written herein, when a copy shall have been delivered to the Tenant or left with some person in charge of the Leased Premises.

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INITIAL		INITIAL
Tenant		Landlord

33

EXHIBIT “E”

ESTOPPEL CERTIFICATE

                                     ____________________, 200_

To:

Re: Lease Agreement with The Lincoln National Life Insurance Company for premises located in Meadows Corporate Center in St. Louis, Missouri

Gentlemen:

The undersigned, as Tenant (“Tenant”) under that certain Lease Agreement with The Lincoln National Life Insurance Company as Landlord (“Landlord”), dated ____________________ (the “Lease”), hereby ratifies the Lease and states, represents, warrants, and certifies as follows:

1.	Tenant entered into occupancy of those premises in <project name> (the “Project”) containing approximately _________ square feet, known as Building ___________, Space ______, as more particularly identified in the Lease (the “Premises”), on _____________, and is in full and complete possession of the Premises.
2.	All improvements, alterations or additions to the Premises to be made by Landlord, if any, have been completed to the satisfaction of Tenant. All contributions to be made by Landlord for improvements to the Premises, if any, have been paid in full to Tenant.
3.	The term of the Lease commenced on ______________, and expires on _______________.
4.	The Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way (except by agreement(s) dated ____________________________), and the Lease and such agreements, if any, represent the entire agreement between the parties with respect to the Premises.
5.	Tenant has no right or option to (i) extend the term of the Lease, (ii) lease additional space in the Project, or (iii) purchase the Project or any part thereof (except for _______________________).
6.	Base Rent in the amount of $_______________ per year is currently due and payable under the Lease.
7.	Tenant has paid a security deposit under the Lease to Landlord in the amount of $___________.

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8.	Base Rent for _____________, ________ has been paid.
9.	No rent under the Lease has been paid more than thirty (30) days in advance.
10.	To the best of Tenant’s knowledge, here is no existing default on the part of either Landlord or Tenant in any of the terms or conditions of this Lease, and no event has occurred which, with the passage of time or delivery notice, or both, would constitute such a default.
11.	To the best of Tenant’s knowledge, all conditions and obligations under the Lease to be performed by Landlord have been performed and on this date Tenant has no existing defenses, counterclaims or offsets against the enforcement of the Lease by Landlord.
12.	To the best of Tenant’s knowledge, there are no actions, whether voluntary or, to its knowledge, otherwise, pending against Tenant (or any guarantor of Tenant’s obligations pursuant to the Lease) under the bankruptcy or insolvency laws of the United States or any state thereof.
13.	To the best of Tenant’s knowledge, there is no apparent or likely contamination of the Premises by hazardous materials or toxic substances and Tenant does not use, nor has Tenant disposed of any such materials or substances in violation of Environmental Laws.
	Tenant hereby acknowledges and agrees that Landlord and any purchaser, mortgagee or beneficiary under a deed of trust, and their respective successors and assigns may rely upon this certificate.

Very truly yours,

By:

Title:

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EXHIBIT “F”

TENANT CONSTRUCTION

Tenant Improvement Allowance. Landlord shall allocate for Tenant a sum representing $1.00 per usable square foot (totaling $30,705.00) (the “Tenant Improvement Allowance”) to be applied toward improvements and related costs to the Leased Premises (to be approved by Landlord, which approval shall not be unreasonably conditioned, delayed or withheld), including all demolition, construction and millwork costs, contractor fees, as well as associated architectural and engineering fees, dumpster service, soft costs (including, but not limited to, permit fees, escrow fees, specialty consulting fees). Tenant may hire its own architect and contractors, subject to Landlord’s reasonable approval. To the extent that funds allocated are not necessary for completion of the tenant improvements and expenses as described above, said funds shall remain the property of Landlord. To the extent tenant improvements exceed the Tenant Improvement Allowance, Tenant agrees to make such payments directly to the contractor(s).

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EXHIBIT G

Agency Relationship Confirmation

Property Address:            1836A, 1836B, 1828 and 1842 Lackland Hill Parkway, St. Louis, MO 63146

Part I. Landlord’s Agent/Subagent

To Prospective Tenant: Tenant understands that Colliers Turley Martin Tucker (listing broker firm name) and its salespersons are acting on behalf of Landlord. Tenant acknowledges that (a) disclosure of this relationship was communicated no later than the first showing of the property, or immediately upon the occurrence of a change to the relationships if required by rule or regulation, and (b) they have received a Missouri Broker Disclosure Form. Compensation to Landlord’s agent(s) will be paid by Landlord.

Tenant: Lackland Acquisition II, LLC
	Signed		Date	11.13.01

Landlord’s Agent(s):
	Firm Name: Colliers Turley Martin Tucker
	Signed		Date	11/14/01

Part II. Tenant’s Agent

To Landlord: Landlord understands that N/A                    
Check one

o	Tenant(s) (broker firm name - list above) and its salespersons are acting on behalf of Tenant
	or
x	Tenant is representing itself, i.e.: Tenant does not have a broker.

Landlord acknowledges that (a) disclosure of this relationship was communicated no later than the first showing of the property, or immediately upon the occurrence of a change to the relationships if required by rule or regulation, and (b) they have received a Missouri Broker Disclosure Form. Compensation to Tenant’s agent, if any, will be paid by N/A.

Landlord: The Lincoln National Life Insurance Company

	Signed		Date	11/28/01
Tenant’s Agent and/or Tenant: Lackland Acquisition II, LLC
	Signed		Date	11.13.01

EX-10.32

EXHIBIT 10.32

SECOND AMENDMENT TO SERVICE CENTER LEASE

          This Second Amendment to Service Center Lease (“Amendment”) is made and entered into this 17th day of August, 2005, by and between TM Properties, L.L.C., successor to The Lincoln National Life Insurance Company (“Landlord”) and Lackland Acquisition II, LLC as (“Tenant”).

          WHEREAS, Landlord and Tenant entered into that certain Service Center Lease dated November 28, 2001 (“Lease”), whereby Tenant leased those certain premises containing approximately 30,705 square feet in Suites 1828, 1836A, 1836B, and 1842 (“Leased Premises”) at the building known as Meadows Corporate Center II, located at Lackland Hill Parkway, St. Louis, Missouri, 63146 (“Building”); and,

          WHEREAS, Landlord and Tenant entered into the First Amendment to Service Center Lease dated August 17, 2005, whereby Tenant leased an additional 9,361 square feet being Suite 1884-7 at the building known as Meadows Corporate Center IV; and,

          WHEREAS, the Landlord and Tenant entered into an Assignment of Lease dated August 17, 2005, whereby Tenant assumed the rights and obligations of Suite 1884-4 at the building known as Meadows Corporate Center IV at Lackland Hill Parkway, St. Louis, Missouri 63146 containing approximately 6,295 square feet, from the lease dated November 28, 2001 by and between InfoNow Solutions of St. Louis, LLC and TM Properties, L.L.C., successor to The Lincoln National Life Insurance Company (“Landlord”); and,

          WHEREAS, the Landlord and Tenant desire to extend the term of the Lease for Suite 1884-4 at Meadows Corporate Center IV and Suites 1828, 1836A, 1836B, and 1842, at Meadows Corporate Center II and to modify and amend certain terms and conditions of the Lease as hereinafter provided.

          NOW, THEREFORE, in consideration of the Leased Premises and mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Tenant and Landlord agree as follows:

          1.          Recitals. The recitals set forth above are incorporated herein by this reference with the same force and effect as if fully set forth hereinafter.

          2.          Capitalized Terms. Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Lease.

          3.          Extended Term. The Lease regarding Suite 1884-4 at the building known as Meadows Corporate Center IV, has an Expiration Date of August 31, 2006. The Lease regarding Suites 1828, 1836A, 1836B, and 1842, at the building known as Meadows Corporate Center II, has an Expiration Date of August 31, 2008. The Expiration Date of the Lease is hereby extended to the date which coincides with the expiration date of Suite

1

1884-7 at the building known as Meadows Corporate Center IV, as outlined in the First Amendment to Service Center Lease dated August 17, 2005 between TM Properties, LLC and Lackland Acquisition II, LLC. Such Expiration Date is anticipated to be September 30, 2010 and will be confirmed by the execution of the Certificate Affirming the Expiration Date attached hereto as Exhibit A.

          4.          Base Rent for Suite 1884-4. Base Rent for the extended term shall be payable by Tenant to Landlord, in advance, on the first day of each month, as follows:

Period	Annual Base Rent per SF	Monthly Base Rent
September 1, 2006 through August 31, 2008	$13.00	$6,819.58
September 1, 2008 through The Expiration Date	$13.25	$6,950.73

                      Payments of Base Rent for any fractional calendar month shall be prorated.

          5.          Base Rent for Suites 1828, 1836A, 1836B, and 1842. Base Rent for the extended term shall be payable by Tenant to Landlord, in advance, on the first day of each month, as follows:

Period	Annual Base Rent per SF	Monthly Base Rent
September 1, 2008 through The Expiration Date	$13.25	$33,903.44

                      Payments of Base Rent for any fractional calendar month shall be prorated.

          6.          Tenant Improvements. Tenant accepts the space “as is” except Landlord shall provide a Thirty Nine Thousand Dollar ($39,000) Tenant Improvement Allowance. The Tenant Improvement Allowance may be utilized for space plans, construction documents, permits, management fees, engineering fees, hard construction, and other construction related improvements to the Leased Premises. In addition, Tenant may utilize the allowance for other expenses in the Leased Premises related to Tenant’s occupancy, including such uses as cable installation and office furniture. Tenant may choose to have the Landlord manage the construction process at a management fee rate of 5% of hard construction costs. Payment of the allowance will be made by Landlord upon completion of work or delivery of products, and upon submittal of invoices and lien waivers. Landlord shall obtain, or assist Tenant with obtaining, permits related to construction and occupancy of the Leased Premises.

          7.           HVAC. Article VIII of the Lease is amended as follows: Notwithstanding the obligations as outlined in Articles 8.1 and 8.2, Tenant and Landlord agree that it shall be the Tenant’s responsibility, at Tenant’s sole cost and expense, to provide for the repair and maintenance of all heating and air-conditioning (HVAC) equipment serving the Premises, including, but not limited to, semi-annual maintenance and inspections. However, should any major HVAC component fail during the term of the Lease, it shall be Landlord’s responsibility, at Landlord’s sole cost and expense, to

2

repair or replace the HVAC component. A major component is hereby defined as a heat exchanger, compressor or condenser. The decision to repair or replace a major component, or replace an entire piece of equipment, shall be at the sole discretion of Landlord. Landlord shall take all reasonable action to ensure the HVAC equipment serving the Premises is in operating condition as quickly as possible after notification by Tenant of a major component failure.

          8.           Validity of Amendment. The obligations of the parties under this Amendment are subject to (a) execution by Tenant and Landlord of the First Amendment to Service Center Lease, whereby Tenant will lease an additional 9,361 square feet by expanding into Suite 1884-7 at the building known as Meadows Corporate Center IV (b) execution by Tenant and Landlord of an Assignment document, from that certain lease between Landlord and InfoNow Solutions of St. Louis, LLC dated November 28, 2001, which assigns Suite 1884-4 to Tenant, and (c) execution by InfoNow Solutions of St. Louis, LLC and Landlord of an First Amendment to Service Center Lease between Landlord and InfoNow Solutions of St. Louis, LLC, dated November 28, 2001, which extends the term of Suite 1848 to be coterminous with Suite 1884-7. Should any one of the above-noted documents not be fully executed by Tenant and Landlord, this Amendment shall be null and void.

          9.            Broker. Tenant and Landlord hereby acknowledge that the following disclosure has previously been made: Tim Moeller of Colliers Turley Martin Tucker is the Landlord’s Broker (the listing Broker) and is serving solely as agent for the Landlord in connection with this transaction. Jeff Hawley of Colliers Turley Martin Tucker is the Tenant’s Broker and is serving solely as agent for the Tenant in connection with this transaction. Further confirmation of this disclosure is affirmed by the attached Agency Relationship Confirmation attached hereto as Exhibit B.

          10.          Broker Commission. Upon execution of this Amendment by Landlord and Tenant, Landlord shall pay to Tenant’s broker a leasing commission based on 2.50% of the gross Base Rent of the extended term.

          11.          Ratification. Except as expressly set forth herein, all of the terms, covenants and conditions, representations and warranties set forth in the Lease shall continue in full force and effect and are hereby ratified and affirmed.

           (Remainder of page intentionally left blank)

3

          IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written.

LANDLORD:

TM Properties, L.L.C.

By:

Printed Name: Thomas R. Martin

Title: Manager

Date: 8/31/05

TENANT:

Lackland Acquisition II, LLC

By:

Printed Name: Ben Tischler

Title: Manager

Date: 8/30/05

4

EXHIBIT A

Certificate Affirming The Expiration Date

          This Certificate is being provided pursuant to that certain Lease dated November 28, 2001, by and between TM Properties, LLC and Lackland Acquisition II, LLC, further amended by the First Amendment to Service Center Lease dated August 17, 2005, and the Assignment of Lease dated August 17, 2005. The parties to the Lease desire to confirm the following:

          1.          The Term of the Lease shall expire on ____________________________, 2010.

          IN WITNESS WHEREOF, Landlord and Tenant have executed this Certificate as dated below.

LANDLORD:

TM Properties, L.L.C.

By:

Printed Name:

Title:

Date:

TENANT:

Lackland Acquisition II, LLC

By:

Printed Name:

Title:

Date:

5

EXHIBIT B

Agency Relationship Confirmation

Property Address: 1828, 1836, 1842, and 1884-4 Lackland Hill Parkway, St. Louis, MO 63146

Part I. Landlord’s Agent/Subagent

To Prospective Tenant: Tenant understands that Colliers Turley Martin Tucker (listing broker firm name) and its salespersons are acting on behalf of Landlord. Tenant acknowledges that (a) disclosure of this relationship was communicated no later than the first showing of the property, or immediately upon the occurrence of a change to the relationships if required by rule or regulation, and (b) they have received a Missouri Broker Disclosure Form. Compensation to Landlord’s agent(s) will be paid by Landlord.

Tenant:	Lackland Acquisition II, LLC
	Signed		Date 8/30/05
Landlord’s Agent(s):
	Firm Name: Colliers Turley Martin Tucker
	Signed		Date	8/31/05
				8/31/05

Part II. Tenant’s Agent

To Landlord: Landlord understands that Colliers Turley Martin Tucker and its salespersons are acting on behalf of Tenant. Landlord acknowledges that (a) disclosure of this relationship was communicated no later than the first showing of the property, or immediately upon the occurrence of a change to the relationships if required by rule or regulation, and (b) they have received a Missouri Broker Disclosure Form.

Compensation to Tenant’s agent, if any, will be paid by Landlord.

Landlord: TM Properties, L.L.C.
Signed		Date	8/31/05
Tenant: Lackland Acquisition II, LLC
Signed		Date	8/30/05

6

EX-10.33

EXHIBIT 10.33

ASSIGNMENT OF LEASE

          This Assignment is entered into on this 17th day of August, 2005 by and between InfoNow Solutions of St. Louis, LLC (“Assignor”), Lackland Acquisition II, LLC (“Assignee”), and TM Properties, LLC (“Landlord”).

          WHEREAS, Assignor is the tenant under a certain Service Center Lease dated November 28, 2001, whereby Tenant leased those certain premises containing approximately 14,870 square feet (“Leased Premises”). The Leased Premises located in two (2) suites: Suite 1848 at Lackland Hill Parkway, St. Louis, Missouri 63146 containing approximately 8,575 square feet located in the building known as Meadows Corporate Center III (“Building III”) and Suite 1884-4 Lackland Hill Parkway, St. Louis, Missouri 63146 containing approximately 6,295 square feet located in the building known as Meadows Corporate Center IV (“Building IV”) (collectively, the “Building”), the term of which is currently ending on August 31, 2006 (said lease will hereinafter collectively be referred to as the “Lease”); and,

          WHEREAS, Assignor desires to assign all of its right, title, and interest in the Lease, as it pertains to Suite 1884-4 Lackland Hill Parkway, St. Louis. Missouri 63141 to Assignee;

          NOW, THEREFORE, for good and valuable consideration, the adequacy of which is hereby acknowledged, and in consideration of the Assignment made, and of the mutual covenants and agreements set for herein, the parties to this Assignment agree as follows.

1.	Effective September 1, 2005, Assignor assigns any and all of the right, title and interest in the Lease of the Leased Premises at 1884-4 Lackland Hill Parkway, St. Louis, Missouri 63146 (being 6,295 rsf) to Assignee, and Landlord expressly consents to the Assignment on the terms and conditions set forth herein and in the Lease.
2.	Effective September 1, 2005, Assignee shall be liable to Landlord for the payment of rent and for compliance with all other terms and obligations of the Tenant under the Lease for Suite 1884-4.
3.	All of the rights, terms and conditions in the Lease, with respect to Suite 1848 Lackland Hill Parkway, St. Louis, Missouri 63146 remain in full force and effect, by and between Landlord and Assignor.

          WHEREUPON, the parties hereto have executed this Assignment the day and year first written above.

ASSIGNOR			ASSIGNEE
InfoNow Solutions of St. Louis, LLC			Lackland Acquisition II, LLC
By:			By:
Title:		Manager	Title:		Manager
Date:		8/30/05	Date:		8/30/05
LANDLORD
TM Properties, LLC
By:
Title:		Manager
Date:		8/31/05

EX-21

EXHIBIT 21

QUALITY SYSTEMS, INC.
LIST OF SUBSIDIARIES

1.      NextGen Healthcare Information Systems, Inc.

2.      Lackland Acquisition II, LLC

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated June 5, 2008, with respect to the consolidated financial statements, schedule, and internal control over financial reporting included in the Annual Report of Quality Systems, Inc. on Form 10-K for the year ended March 31, 2008. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Quality Systems, Inc. on Forms S-8 (File No. 33-31949, effective November 6, 1989, File No. 33-63131, effective September 10, 1989, File No. 333-67115, effective November 12, 1998 and File No. 333-129752, effective November 16, 2005).

/s/ GRANT THORNTON LLP

Irvine, California
June 5, 2008

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REQUIRED BY
RULE 13A-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,	Louis E. Silverman, certify that:
1.	I have reviewed this Form 10-K of Quality Systems, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ LOUIS E. SILVERMAN
Date: June 10, 2008		Louis E. Silverman,
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REQUIRED BY
RULE 13A-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,	Paul A. Holt, certify that:
1.	I have reviewed this Form 10-K of Quality Systems, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ PAUL A. HOLT
Date: June 10, 2008		Paul A. Holt,
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the annual report on Form 10-K of Quality Systems, Inc. (the “Company”) for the year ended March 31, 2008 (the “Report”), the undersigned hereby certify in their capacities as Chief Executive Officer and Chief Financial Officer of the Company, respectively, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

          1.          the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

          2.          the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 10, 2008	By:	/s/ LOUIS E. SILVERMAN
		Louis E. Silverman
		Chief Executive Officer (principal executive officer)
Dated: June 10, 2008	By:	/s/ PAUL A. HOLT
		Paul A. Holt
		Chief Financial Officer (principal financial officer)