Crexendo, Inc. Commitments Disclosure

17. Commitments and Contingencies

Annual Employee Bonus Plan Accrual

We utilize incentive bonuses to reward performance achievements, which provides potential annual cash bonus awards to Company employees, including Named Executive Officers (“NEOs”). Under the Bonus Plan, the Compensation Committee of the Board of Directors of the Company (the “Board”) has established a bonus pool of $990, for our NEOs and executive management team for the year ending December 31, 2025. The Board established a bonus pool of $350 for our non-executive employees, for the year ended December 31, 2025. Participants are eligible to receive cash bonus awards based upon achieving annual performance targets established by the Board for the year ended December 31, 2025, relating to annual revenue and adjusted EBITDA performance targets. Awards will be paid on a tiered scale based upon actual performance as a percentage of the performance targets with a floor and cap. Payments for individual performance targets met or exceeded are payable, whether or not all performance targets are met, consistent with the weighted amounts for each performance target within the bonus pools. Bonus awards for NEOs and executive management will be weighted 50% on annual revenue and 50% on Adjusted EBITDA. No bonus will be awarded for any performance target for which actual performance is less than 90% of target. At 90% or greater actual performance relative to the target, 50% of the weighted bonus amount for the performance target is payable. From 90% to 100% actual performance relative to the target, the remaining 50% of the weighted bonus amount is awarded pro rata with the percentage of actual performance exceeding 90% of target (i.e., each 1% excess over 90% of performance target equals 5% of the weighted bonus amount payable). If actual performance reaches 105% for the revenue performance target and 110% of the adjusted EBITDA performance target or greater for any individual performance target, then an additional 10% of the amount apportioned to that performance target will be payable as an additional bonus. Based on our financial performance for the year ended December 31, 2025, 100% of the revenue target was achieved and 110% of the Adjusted EBITDA was achieved. The Company accrued $1,386 for the employee bonus plan, which is included in accrued expenses in the accompanying consolidated balance sheet at December 31, 2025.

Purchase Obligations

In February 2024, the Company entered into a $5.4 million non-cancellable five-year hosting service contract with Oracle, a third-party network service provider. The contract includes minimum quarterly commitments and the requirements to maintain the service level for the entire contract period. Under this agreement, $1.1 million will be due during fiscal 2026, $1.4 million will be due during fiscal 2027, $1.8 million will be due during fiscal 2028, and $456 will be due during fiscal 2029. During the year ended December 31, 2025, the Company has expensed $400 of the purchase obligation and $141 is included in accrued expenses at December 31, 2025.

Legal Proceedings

In the ordinary course of business, the Company may be involved in a variety of claims, lawsuits, investigations, and other proceedings, including patent infringement claims, employment litigation, regulatory compliance matters, and contractual disputes, that can arise in the normal course of the Company's operations. The Company recognizes a provision when management believes information available prior to the issuance of the financial statements indicates it is probable a loss has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. The Company adjusts the amount of the provision to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. As of December 31, 2025, the Company does not have a recorded liability for estimated losses. Legal costs are expensed as incurred.