Exhibit 10.1

 

 

 

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

HUNTER TECHNOLOGY CORPORATION

(A CALIFORNIA CORPORATION)

SPARTON CORPORATION

(AN OHIO CORPORATION)

SPARTON HUNTER CORPORATION

(A CALIFORNIA CORPORATION)

AND

JOSEPH F. O’NEIL

(AN INDIVIDUAL)

APRIL 14, 2015

 

 

 

THIS DOCUMENT IS INTENDED SOLELY TO FACILITATE DISCUSSIONS AMONG THE PARTIES
IDENTIFIED HEREIN. IT IS NOT INTENDED TO CREATE, AND IT WILL NOT BE DEEMED TO
CREATE, A LEGALLY BINDING OR ENFORCEABLE OFFER OR AGREEMENT OF ANY TYPE OR
NATURE PRIOR TO THE ACTUAL EXECUTION OF THIS DOCUMENT BY ALL SUCH PARTIES AND
THE DELIVERY OF AN EXECUTED COPY OF THIS DOCUMENT BY ALL SUCH PARTIES TO ALL
OTHER PARTIES.

THIS DOCUMENT SHALL BE KEPT CONFIDENTIAL PURSUANT TO THE TERMS OF THE
CONFIDENTIALITY AGREEMENT ENTERED INTO BY THE RECIPIENT HEREOF WITH RESPECT TO
THE SUBJECT MATTER HEREOF.

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TABLE OF CONTENTS

 

             Page  

ARTICLE I DEFINITIONS

     1      1.01  

Definitions

     1      1.02  

Other Definitional Provisions

     13   

ARTICLE II THE MERGER

     14      2.01  

The Merger

     14      2.02  

Conversion of Capital Stock

     15      2.03  

Exchange of Certificates; Lost Certificates; Escrow Agent

     16      2.04  

Options

     16      2.05  

Certificate of Incorporation

     18      2.06  

Bylaws

     18      2.07  

Directors and Officers

     18   

ARTICLE III THE CLOSING; MERGER CONSIDERATION ADJUSTMENT

     18      3.01  

The Closing

     18      3.02  

The Closing Transactions

     18      3.03  

Allocable Amount Adjustment

     19      3.04  

Earnout Payment

     23   

ARTICLE IV CLOSING DELIVERIES

     24      4.01  

Company and Stockholder Closing Deliveries

     24      4.02  

Purchaser Closing Deliveries

     25   

ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     26      5.01  

Organization and Corporate Power

     26      5.02  

Subsidiaries

     26      5.03  

Authorization; No Breach

     27      5.04  

Capital Stock

     27      5.05  

Financial Statements

     28      5.06  

No Material Adverse Change; Absence of Certain Developments

     29      5.07  

Title to Properties

     30      5.08  

Tax Matters

     31      5.09  

Contracts and Commitments

     32      5.10  

Intellectual Property

     34      5.11  

Litigation

     34      5.12  

Governmental Consents

     34      5.13  

Employee Benefit Plans

     34      5.14  

Insurance

     36      5.15  

Environmental Matters

     36      5.16  

Affiliated Transactions

     37      5.17  

Brokerage

     37      5.18  

Permits; Compliance with Laws

     37      5.19  

Employees

     38      5.20  

Customers and Suppliers

     39      5.21  

Product Warranties and Liabilities

     39   

 

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TABLE OF CONTENTS

 

             Page     5.22  

Bank Accounts, Powers of Attorney

     40      5.23  

Anti-Corruption

     40      5.24  

Export Control Compliance

     40      5.25  

Government Contracts

     41      5.26  

Inventories

     43   

ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB

     43      6.01  

Organization and Corporate Power

     43      6.02  

Authorization

     44      6.03  

No Violation

     44      6.04  

Governmental Bodies; Consents

     44      6.05  

Litigation

     44      6.06  

Brokerage

     45      6.07  

Investment Representation

     45      6.08  

Financing

     45      6.09  

Access and Investigation

     45   

ARTICLE VII COVENANTS OF THE COMPANY AND STOCKHOLDERS

     45      7.01  

Release

     45      7.02  

Intercompany Indebtedness

     46   

ARTICLE VIII COVENANTS OF THE PURCHASER

     46      8.01  

Access to Books and Records

     46      8.02  

Director and Officer Liability and Indemnification

     47      8.03  

Payments to Optionholders and Other Individuals

     48   

ARTICLE IX TERMINATION

     48      9.01  

Termination

     48      9.02  

Effect of Termination

     48      9.03  

Termination Expenses

     48   

ARTICLE X ADDITIONAL AGREEMENTS AND COVENANTS

     49      10.01  

Acknowledgment by the Purchaser

     49      10.02  

Further Assurances

     49      10.03  

Employees and Employee Benefits

     49   

ARTICLE XI INDEMNIFICATION

     51      11.01  

Indemnification of the Purchaser Indemnified Parties

     51      11.02  

Exclusive Remedy

     53      11.03  

Indemnification of the Seller Indemnified Parties

     53      11.04  

Termination of Indemnification

     54      11.05  

Procedures Relating to Indemnification

     54      11.06  

Net Losses

     56      11.07  

Survival

     56      11.08  

Manner of Payment

     56   

ARTICLE XII TAX MATTERS

     57      12.01  

Preparation and Filing of Tax Returns; Payment of Taxes

     57   

 

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TABLE OF CONTENTS

 

             Page    

12.02

 

Refunds and Tax Benefits

     57     

12.03

 

Allocation of Certain Taxes

     58     

12.04

 

Transfer Taxes

     58     

12.05

 

Cooperation on Tax Matters

     58     

12.06

 

Post-Closing Transactions Not in the Ordinary Course

     60     

12.07

 

No Intermediary Transaction Tax Shelter

     61     

12.08

 

Valuation Firm

     61   

ARTICLE XIII MISCELLANEOUS

     61     

13.01

 

Press Releases and Communications

     61     

13.02

 

Expenses

     61     

13.03

 

Notices

     62     

13.04

 

Assignment

     63     

13.05

 

Severability

     63     

13.06

 

Construction

     64     

13.07

 

Amendment and Waiver

     64     

13.08

 

Complete Agreement

     64     

13.09

 

Prevailing Party

     64     

13.10

 

Third-Party Beneficiaries

     65     

13.11

 

Counterparts

     65     

13.12

 

Governing Law; Jurisdiction

     65     

13.13

 

Representative

     66     

13.14

 

Sources of Recovery

     68     

13.15

 

Deliveries to the Purchaser

     69     

13.16

 

Conflict Between Transaction Documents

     69     

13.17

 

Specific Performance

     69     

13.18

 

Relationship of the Parties

     69   

 

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SCHEDULES

Accounting Practices Schedule

Affiliated Transactions Schedule

Authorization Schedule

Brokerage Schedule

Capitalization Schedule

Compliance with Laws Schedule

Contracts Schedule

Customers and Suppliers Schedule

Developments Schedule

Employee Benefits Schedule

Employees Schedule

Environmental Matters Schedule

Existing Customers Schedule

Financial Statements Schedule

Governmental Consents Schedule

Government Contracts Schedule

Indebtedness Schedule

Insurance Schedule

Intellectual Property Schedule

Leased Real Property Schedule

Litigation Schedule

Permits Schedule

Permitted Liens Schedule

Required Consents Schedule

Revenue Schedule

Specific Indemnity Schedule

Stockholders Schedule

Subsidiary Schedule

Taxes Schedule

Working Capital Schedule

 

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EXHIBITS

 

Exhibit A - Form of Certificate of Merger Exhibit B - Form of Employment
Agreement Exhibit C - Form of Escrow Agreement Exhibit D - Form of Letter of
Transmittal Exhibit E - Form of Non-Competition Agreement Exhibit F - Form of
Option Cancellation Agreement Exhibit G - R&W Insurance Policy Exhibit H - Rules
of Engagement for Valuation Firm Exhibit I - Form of Company Secretary’s
Certificate Exhibit J - Form of Purchaser and Merger Sub Secretary’s Certificate

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of
April 14, 2015, is made by and among Hunter Technology Corporation, a California
corporation (the “Company”), Sparton Corporation, an Ohio corporation
(the “Purchaser”), Sparton Hunter Corporation, a California corporation and
wholly-owned subsidiary of the Purchaser (the “Merger Sub”), and Joseph F.
O’Neil, an individual (the “Representative”), as representative for the
Stockholders and Optionholders. Capitalized terms used and not otherwise defined
herein have the meanings set forth in Article I.

WHEREAS, the Purchaser desires to acquire one hundred percent (100%) of the
Company Stock in a reverse subsidiary merger transaction on the terms and
subject to the conditions set forth herein;

WHEREAS, the respective boards of directors of the Purchaser, the Merger Sub and
the Company have authorized, adopted and approved this Agreement and determined
that this Agreement and the Merger are desirable and in the best interests of
their respective corporations and stockholders; and

WHEREAS, the respective boards of directors of the Merger Sub and the Company
have recommended the Merger to their respective stockholders.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.01 Definitions. For purposes hereof, the following terms when used herein
shall have the respective meanings set forth below:

“ACA” is defined in Section 5.13(i).

“Active Government Contracts” is defined in Section 5.25(a).

“Affiliate” of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
“control” means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise.

“Agreement” is defined above in the Preamble.

“Allocable Amount” means (i) the Enterprise Value, minus (ii) the amount of
Indebtedness outstanding as of 12:01 a.m. prevailing Eastern Time on the Closing
Date, minus (iii) the amount of Capital Lease Obligations outstanding as of
immediately prior to 12:01 a.m. prevailing Eastern Time on the Closing Date,
plus (iv) the amount of Cash as of 12:01 a.m.

 

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prevailing Eastern Time on the Closing Date, minus (v) the amount (if any) by
which Closing Working Capital is less than Target Working Capital, plus (vi) the
amount (if any) by which Closing Working Capital is greater than Target Working
Capital, plus (vii) the aggregate exercise price of all In The Money Options,
minus (viii) the Representative Holdback Amount, minus (ix) all Transaction
Expenses, minus (x) the Indemnification Escrow Amount, minus (xi) one-half of
the R&W Insurance Costs (not to exceed $250,000), minus (xii) the Purchase Price
Adjustment Escrow Amount, minus (xiii) the Specific Indemnity Escrow Amount, and
minus (xiv) the employer’s portion of any taxes to be paid by the Surviving
Corporation in connection with payments to the Optionholders. For the avoidance
of doubt, no items included in the definitions of Cash, Indebtedness, Capital
Lease Obligations, Transaction Expenses, or Working Capital shall be double
counted for purposes of calculating the Allocable Amount hereunder.

“Annual Financial Statements” is defined in Section 5.05.

“Anti-Corruption Legislation” means the United States Foreign Corrupt Practices
Act and any other anti-bribery laws, statutes, rules or regulations of any
country applicable to the business of the Company or any of its Subsidiaries.

“Business Day” means any day other than a Saturday, Sunday, or a day on which
all banking institutions of New York, New York are authorized or obligated by
Law or executive order to close.

“California Law” means the California Corporations Code.

“Capital Lease Obligation” means, without duplication of any item that would
otherwise be included in the term Indebtedness, any obligation (including
accrued interest) of the Company or its Subsidiaries under a lease agreement
that would be capitalized pursuant to GAAP. Notwithstanding the foregoing,
Capital Lease Obligations shall not include any breakage costs, prepayment
penalties or fees or other similar amounts payable in connection with any
capitalized leases; provided, that Capital Lease Obligations shall include
breakage costs, prepayment penalties or fees or other similar amounts in
connection with a capitalized lease but only to the extent that the capital
lease requires prepayment penalties or fees or other similar amounts in
connection with the consummation of the transactions contemplated by this
Agreement.

“Cash” means, as of a given time, all cash, cash equivalents and marketable
securities held by the Company or any of its Subsidiaries, including all
outstanding security or similar deposits, at such time; it being understood and
agreed that Cash shall not include any cash accounts payable or cash accounts
receivable related to any inter-company accounts, and shall not take into
account (i.e., not be reduced by) the amount of any checks written (but not yet
cashed) by the Company or any of its Subsidiaries.

“Certificate of Merger” means the certificate of merger in the form of
Exhibit A.

“Certificates” is defined in Section 2.03.

“Closing” is defined in Section 3.01.

 

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“Closing Balance Sheet” is defined in Section 3.03(b).

“Closing Date” is defined in Section 3.01.

“Closing Statement” is defined in Section 3.03(b).

“Closing Working Capital” means Working Capital as of 12:01 a.m. prevailing
Eastern Time on the Closing Date.

“Code” means the Internal Revenue Code of 1986, as amended.

“commercially reasonable efforts” means the efforts that a commercially
reasonable Person desirous of achieving a result would use in similar
circumstances to achieve that result as expeditiously as reasonably practicable;
provided, however, that, except as otherwise set forth herein, a Person required
to use commercially reasonable efforts under this Agreement will not be thereby
required to take any action that would result in a material adverse change in
the benefits to such Person under this Agreement or the transactions
contemplated hereby, to make any change to its business, to incur any material
fees or expenses (other than normal and usual filing fees, processing fees and
incidental expenses), to commence any litigation or to incur any other material
obligation or liability.

“Company” is defined above in the Preamble.

“Company Documents” is defined in Section 5.03(a).

“Company Fundamental Representations” means the representations and warranties
set forth in Section 5.01, Section 5.02, Section 5.03(a), Section 5.03(b)
(excluding any representations and warranties relating to clause (ii) thereof),
Section 5.04, the first sentence of Section 5.07(a), and Section 5.17.

“Company Intellectual Property” is defined in Section 5.10.

“Company Stock” means shares of the Company’s voting common stock, no par value.

“Competitive Transaction” is defined in Section 6.04.

“Confidentiality Agreement” means that certain confidentiality agreement, dated
October 13, 2014 by and between the Company and Parent.

“Corruption” means the providing or receiving of bribes, gifts or hospitality
that is unlawful, and any other unlawful actions that induce or seek to induce
any Person to perform a corrupt act.

“Covered Employees” is defined in Section 5.19(a).

“Customs Laws” is defined in Section 5.24(b).

“D&O Tail Policies” is defined in Section 8.02(a).

 

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“Deductible” has the meaning set forth in Section 11.01(b).

“Disclosure Schedules” is defined in Article V.

“Earnout Disagreement Notice” is defined in Section 3.04(e).

“Earnout Payment” is defined in Section 3.04(a).

“Earnout Payment Calculation” is defined in Section 3.04(d).

“Earnout Period” is defined in Section 3.04(a).

“Effective Time” is defined in Section 2.01(b).

“Electronic Delivery” is defined in Section 13.11.

“Employment Agreement” means an employment agreement in the form of Exhibit B,
or in the case of Joseph F. O’Neil, a consulting agreement.

“Enterprise Value” means Fifty-five Million dollars ($55,000,000).

“Environmental Laws” means all Laws as enacted and in effect on or prior to the
Closing Date concerning any of the following: (i) pollution; (ii) protection of
the environment; (iii) protection of human health and safety (as it relates to
management of or exposure to Hazardous Materials); (iv) relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any Hazardous Materials.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Escrow Agent” means Citibank, N.A., or its successor, in its capacity as such
pursuant to the Escrow Agreement.

“Escrow Agreement” means an escrow agreement in the form of Exhibit C.

“Estimated Allocable Amount” is defined in Section 3.03(a).

“Exercisable Shares” is defined in Section 2.04(b).

“Financial Statements” is defined in Section 5.05.

“Form 8023” has the meaning set forth in Section 12.05(d).

“Fraud” means fraud as defined under Delaware Law.

“GAAP” means United States generally accepted accounting principles as
consistently applied by the Company without any change in accounting methods,
policies, practices, procedures, classifications, conventions, categorizations,
definitions, principles,

 

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judgments, assumptions, techniques or estimation methods with respect to
financial statements, their classification, judgments, or presentation or
otherwise (including with respect to the nature of accounts, level of reserves
or level of accruals) from those used in the preparation of the Annual Financial
Statements, and as further set forth on the Accounting Practices Schedule.

“Government Contract” means any contract active in performance within the last
five (5) years, including any individual task order, delivery order, purchase
order or blanket purchase agreement, between the Company or any Subsidiary, on
the one hand, and the U.S. Government or any other Governmental Body, on the
other hand, as well as any subcontract or other arrangement by which the Company
or any Subsidiary has agreed to provide goods or services to a prime contractor
or to a higher-tier subcontractor.

“Governmental Body” means any (i) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature,
or any political subdivision thereof, (ii) federal, state, provincial, local,
municipal, foreign, or other government, or (iii) governmental or
quasi-governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, organization,
contractor, regulatory body, or other entity and any court, arbitrator, or other
tribunal).

“Hazardous Material” means any substance, compound, material, mixture or waste
that is listed, defined, designated, regulated or classified as hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Law, including petroleum and asbestos.

“In The Money Optionholder” means a holder of In The Money Options.

“In The Money Options” means all outstanding Options as to which the Per Share
Portion of the Estimated Allocable Amount (excluding, for this purpose, the
adjustment for the Representative Holdback Amount) exceeds the applicable
exercise price per share of such Option.

“Indebtedness” means, without duplication, as of any particular time, (i) the
amount of all indebtedness for borrowed money of the Company and its
Subsidiaries (including any unpaid principal, premium, accrued and unpaid
interest, related expenses, prepayment penalties, commitment and other fees,
reimbursements, indemnities and all other amounts payable in connection
therewith), (ii) liabilities of the Company and its Subsidiaries evidenced by
bonds, debentures, notes, or other similar instruments or debt securities,
(iii) liabilities of the Company and its Subsidiaries to pay the deferred
purchase price of property or services other than trade payables incurred in the
ordinary course of business, (iv) all liabilities of the Company and its
Subsidiaries arising out of interest rate and currency swap arrangements and any
other arrangements designed to provide protection against fluctuations in
interest or currency rates, (v) any deferred purchase price liabilities related
to past acquisitions of the Company or any of its Subsidiaries, and (vi) any
“success fees” or bonuses, or severance payments payable to employees of the
Company or any of its Subsidiaries arising solely from or otherwise triggered by
the closing of the transactions contemplated hereby (excluding any bonuses
payable to any employee based on the performance of such employee or the
performance of the Company or any of its Subsidiaries); provided, that
“Indebtedness” shall not include any such liabilities or

 

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obligations between the Company and any of its Subsidiaries or between any
Subsidiary of the Company and another Subsidiary of the Company.

“Indemnification Escrow Account” is defined in Section 3.02(e).

“Indemnification Escrow Amount” means an amount equal to Five Hundred Fifty
Thousand dollars $(550,000).

“Indemnification Escrow Funds” means the amount of cash held from time to time
by the Escrow Agent in the Indemnification Escrow Account pursuant to the Escrow
Agreement.

“Indemnified Party” is defined in Section 11.05(a).

“Indemnifying Party” is defined in Section 11.05(a).

“Indemnity Allocation Percentage” means, as to any Stockholder or Optionholder
that has received any portion of the Merger Consideration, a fraction, (i) the
numerator of which is the number of shares of Company Stock, plus the number of
shares of Company Stock issuable upon exercise of In The Money Options held by
such Stockholder or Optionholder immediately prior to the Effective Time, and
(ii) the denominator of which is the total number of shares of Company Stock,
plus the total number of shares of Company Stock issuable upon exercise of In
The Money Options held by all Stockholders and Optionholders immediately prior
to the Effective Time

“Insurance Policies” is defined in Section 5.14.

“Intellectual Property” means all of the following in any jurisdiction
throughout the world: (i) patents, patent applications and patent disclosures
including without limitation (a) all inventions and improvements described and
claimed therein, and patentable inventions; and (b) all rights corresponding
thereto in the United States and all reissues, divisions, continuations,
continuations-in-part, substitutes, renewals, and extensions thereof, all
improvements thereon, and all other rights of any kind whatsoever of the Company
accruing thereunder or pertaining thereto; (ii) trademarks, service marks, trade
dress, corporate names, logos and slogans (and all translations, adaptations,
derivations and combinations of the foregoing), or other indicia of origin and
Internet domain names, including without limitation all rights corresponding
thereto in the United States and all other rights of any kind whatsoever of the
Company accruing thereunder or pertaining thereto, together in each case with
the goodwill of the business connected with the use of, and symbolized by, each
such trademark, service mark, trade name, trade dress or other indicia of trade
origin; (iii) copyrights and copyrightable works including without limitation
all rights corresponding thereto and all modifications, adaptations,
translations, enhancements and derivative works, renewals thereof, and all other
rights of any kind whatsoever of the Grantor accruing thereunder or pertaining
thereto; (iv) registrations and applications for any of the foregoing; (v) the
right to sue or otherwise recover for any and all past, present and future
infringements and misappropriations thereof, (vi) all income, royalties, damages
and other payments now and hereafter due and/or payable with respect thereto
(including, without limitation, payments under any Licenses entered into in
connection with the foregoing, and damages and payments for past or future
infringements thereof); (vii) trade

 

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secrets, proprietary information, know-how and inventions; and (viii) computer
software (including source code, executable code, data, databases, and
documentation).

“Intercompany Indebtedness” shall mean any liabilities or obligations that would
be considered “Indebtedness” but for the fact that such liabilities or
obligations are between the Company and any of its Subsidiaries or between any
Subsidiary of the Company and another Subsidiary of the Company.

“Inventories” means all inventory, including raw materials, work-in-progress,
finished products, tooling, supplies, packaging and spare parts used or held for
use by the Company and existing as of the Closing Date, whether on hand or in
transit, including any right, title and interest in and to any consigned
inventories owned by customers of the Company.

“K&E LLP” is defined in Section 13.13(f).

“Key Employees” means Mark Evans, Ian Grover, Chris Alessio, Scott Zelgewicz and
Joseph F. O’Neil.

“Key Stockholders” means Ian Grover, Chris Alessio and Joseph F. O’Neil.

“knowledge” means, with respect to the Company, the actual knowledge of Chris
Alessio, Mark Evans, Ian Grover, Che Lewis, Tammy Nguyen, Joseph F. O’Neil and
Scott Zelgewicz, after due inquiry and reasonable investigation of appropriate
management-level employees with responsibility for such matters.

“Latest Balance Sheet” is defined in Section 5.05.

“Law” means any statute, law, ordinance, rule, regulation, judgment, injunction,
order, decree, administrative requirement, or other restriction of or imposed by
any Governmental Body, and the common law.

“Lease” is defined in Section 5.07(b).

“Leased Real Property” is defined in Section 5.07(b).

“Letter of Transmittal” means a letter of transmittal in the form of Exhibit D.

“Liens” means liens, security interests, charges or encumbrances.

“Losses” is defined in Section 11.01.

“Material Adverse Change” means any materially adverse change to the financial
condition, business or results of operations of the Company and its
Subsidiaries, taken as a whole, but shall exclude any prospects and shall also
exclude any effect resulting or arising from: (i) any change in any Law;
(ii) any change in interest rates or general economic conditions (including
changes in the price of gas, oil or other natural resources); (iii) any change
that is generally applicable to the industries in which the Company or any of
its Subsidiaries operates; or (iv) any national or international political event
or occurrence, including acts of war or

 

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terrorism; provided, that, in the case of the foregoing clauses (i), (ii),
(iii) and (iv), if such effect disproportionately affects the Company and its
Subsidiaries as compared to other Persons or businesses that operate in the
industry in which the Company and its Subsidiaries operate, then the
disproportionate aspect of such effect may be taken into account in determining
whether a Material Adverse Change has occurred or will occur.

“Merger” is defined in Section 2.01(a).

“Merger Consideration” means, together, the Stockholders’ Merger Consideration
and the Optionholders’ Merger Consideration.

“Merger Sub” is defined above in the Preamble.

“Merger Sub Documents” is defined in Section 6.01.

“Non-Competition Agreement” means a non-competition agreement in the form of
Exhibit E.

“Non-Recourse Party” means, with respect to a party, any of such party’s former,
current and future equityholders, controlling Persons, directors, officers,
employees, agents, representatives, Affiliates, members, managers, general or
limited partners, or assignees (or any former, current or future equity holder,
controlling Person, director, officer, employee, agent, representative,
Affiliate, member, manager, general or limited partner, or assignee of any of
the foregoing).

“Objection Notice” is defined in Section 3.03(e).

“Option Cancellation Agreement” means an option cancellation agreement in the
form of Exhibit F.

“Option Plans” means the Hunter Technology Corporation 2011 Stock Option Plan
established effective January 28, 2011, and the Hunter Technology Corporation
2013 Stock Option Plan established effective October 21, 2013, and any
individual grants thereunder.

“Optionholders” is defined in Section 2.04(c).

“Optionholders’ Closing Consideration” is defined in Section 2.04(b).

“Optionholders’ Merger Consideration” is defined in Section 2.04(b).

“Options” means all options, warrants and rights to acquire shares of Company
Stock which are exercisable (or will become exercisable as a result of the
transactions contemplated hereby (whether pursuant to the terms of such options,
warrants and rights, or at the election of the Company’s board of directors)),
as of immediately prior to the Effective Time.

“Parent” means Sparton Corporation, an Ohio corporation, or one of its
affiliates.

“Pension Plans” is defined in Section 5.13(a)

 

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“Per Claim Threshold” is defined in Section 11.01(a).

“Permit” means any approvals, authorizations, consents, licenses, permits,
registrations or certificates of a Governmental Body.

“Permitted Liens” means (i) Liens securing liabilities which are reflected or
reserved against in the Latest Balance Sheet to the extent so reflected or
reserved; (ii) Liens for Taxes not yet delinquent or which are being contested
in good faith if reserves with respect thereto are maintained on the Company’s
books in accordance with GAAP; (iii) mechanic’s, materialmen’s, and similar
Liens arising or incurred in the ordinary course of business for amounts not yet
due and payable or which are being contested in good faith if reserves with
respect thereto are maintained on the Company’s books in accordance with GAAP;
(iv) purchase money Liens and Liens securing rental payments under capital lease
arrangements; (v) Liens set forth on the Permitted Liens Schedule; (vi) zoning,
building codes and other land use Laws regulating the use or occupancy of the
Leased Real Property or the activities conducted thereon which are imposed by
any Governmental Body which are not violated by the current use or occupancy of
the Leased Real Property or the operation of the business or any violation of
which would not constitute a Material Adverse Change; and (vii) easements,
rights, covenants, conditions and restrictions of record.

“Per Share Portion” means a fraction, the numerator of which is one (1), and the
denominator of which is the sum of (i) the total number of shares of Company
Stock issued and outstanding immediately prior to the Effective Time (other than
Company Stock held by the Company as treasury stock or held by the Merger Sub),
plus (ii) the number of shares of Company Stock issuable upon exercise of all In
The Money Options.

“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a Governmental Body.

“Plans” is defined in Section 5.13(a).

“Pre-Closing Flow-Through Tax Returns” mean the income Tax Returns, including
any Schedule K-1, of or relating to the Company or any of its Subsidiaries for
any taxable period ending on or prior to the Closing to the extent the taxable
items of income, gain, loss, deduction or credits shown thereon are required by
applicable Law to be reported on the income Tax Returns of the Stockholders.

“Pre-Closing Tax Period” means any Tax period ending on or before the Closing
Date and, with respect to a Straddle Period, the portion of such Tax period
ending on the Closing Date.

“Purchase Price Adjustment Escrow Account” is defined in Section 3.02(f).

“Purchase Price Adjustment Escrow Amount” means an amount equal to seven-hundred
fifty thousand dollars ($750,000).

 

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“Purchase Price Adjustment Escrow Funds” means the amount of cash held from time
to time by the Escrow Agent in the Working Capita Escrow Account pursuant to the
Escrow Agreement.

“Purchase Price Adjustments” is defined in Section 3.03(h).

“Purchaser” is defined above in the Preamble.

“Purchaser Adjustment Amount” is defined in Section 3.03(h)(i).

“Purchaser Documents” is defined in Section 6.01.

“Purchaser Indemnified Parties” is defined in Section 11.01.

“R&W Insurance” means the insurance coverage provided pursuant to the R&W
Insurance Policy.

“R&W Insurance Costs” means the premiums, underwriting fees, taxes, and all
other costs and expenses associated with obtaining the R&W Insurance.

“R&W Insurance Policy” means that certain Representations and Warranties
Insurance Policy attached hereto as Exhibit G.

“Representative” is defined above in the Preamble.

“Representative Holdback Amount” means an amount equal to Six Hundred Thousand
dollars ($600,000).

“Retained Employees” is defined in Section 10.03(a).

“Revenue” means all amounts earned by either (i) the Business or (ii) with
Existing Company Customers in connection with existing products, in either case
when products have been shipped or when services are rendered during the Earnout
Period, less freight and transportation costs (including insurance), normal and
recurring bona fide trade discounts granted in the ordinary course of business
consistent with past practice, returns, and any applicable sales or similar
taxes, in each case, as determined on a consolidated basis in accordance with
the Revenue Schedule without any change in accounting principles, policies,
practices, procedures or methodologies with respect to financial statements,
their classification or presentation, or any change in practices, methods,
conventions or assumptions utilized in making accounting estimates from those
used in the preparation of the Revenue Schedule, which shall be consistent with
past practices of the Company. Notwithstanding the foregoing, each of (a) all
EMC Flash revenue, as more fully described on the Revenue Schedule,
(b) intercompany revenue, and (c) revenue associated with Purchaser’s existing
business shall be excluded from the calculation of Revenue for purposes of any
Earnout Payment. For purposes of this definition, the “Business” shall be
defined to include the Milpitas, California and the Lawrenceville, Georgia
facilities of the Company and “Existing Company Customers” shall be defined to
include those customers of the Company with backlog at the time of the Closing
that are set forth on the Existing Customers Schedule.

 

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“Revenue Statement” is defined in Section 3.04(d).

“Schedule” is defined in Article V.

“SEC” is defined in Section 13.01.

“Section 338(h)(10) Election” is defined in Section 12.05(b).

“Seller Adjustment Amount” is defined in Section 3.03(h)(ii).

“Seller Indemnified Parties” is defined in Section 11.02.

“Specific Indemnity Escrow Account” is defined in Section 3.02(g).

“Specific Indemnity Escrow Amount” means an amount equal to One Million Five
Hundred Thousand dollars ($1,500,000).

“Specific Indemnity Escrow Funds” means the amount of cash held from time to
time by the Escrow Agent in the Specific Indemnity Escrow Account pursuant to
the Escrow Agreement.

“Stockholder” means each holder of certificates representing Company Stock.

“Stockholder Approval” means the unanimous approval of the holders of the
outstanding shares of the Company’s capital stock entitled to vote thereon at
the record date for such vote.

“Stockholders’ Closing Consideration” is defined in Section 2.02(a).

“Stockholders’ Merger Consideration” is defined in Section 2.02(a).

“Straddle Period” is defined in Section 12.03.

“Subsidiary” means, with respect to any Person, any corporation of which a
majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one (1) or more of the other Subsidiaries of such
Person or a combination thereof, or any partnership, association or other
business entity of which a majority of the partnership or other similar
ownership interest is at the time owned or controlled, directly or indirectly,
by such Person or one (1) or more Subsidiaries of such Person or a combination
thereof. For purposes of this definition, a Person is deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person is allocated a majority of the gains or losses of such partnership,
association or other business entity or is or controls the managing director or
general partner of such partnership, association or other business entity.

“Surviving Corporation” is defined in Section 2.01(a).

 

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“Target Working Capital” means fourteen million eight hundred twenty-two
thousand three hundred forty-four dollars ($14,822,344), as calculated on the
Working Capital Schedule.

“Tax” means any United States, federal, state, local or non-U.S. income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, alternative minimum, estimated or other
similar tax, including any interest, penalty or addition thereto.

“Tax Adjustment” is defined in Section 12.05(c).

“Tax Benefit” means any refund or credit of Taxes paid or reduction in the
amount of Taxes that otherwise would have been paid, in each case computed at
the highest marginal tax rates applicable to the recipient of such benefit.

“Tax Proceeding” means any proceeding, judicial or administrative, involving
Taxes or any audit, examination, deficiency asserted or assessment made by the
Internal Revenue Service or any other taxing authority.

“Tax Returns” means any return, claims for refund, report, information return or
other document (including schedules or any related or supporting information)
filed or required to be filed with any Governmental Body in connection with the
determination, assessment or collection of any Tax or the administration of any
Laws relating to any Tax.

“Third-Party Claim” is defined in Section 11.05(a).

“Transaction Expenses” means, without duplication, to the extent not paid prior
to the Closing, the amount of (i) all fees, costs and expenses (including fees,
costs and expenses of legal counsel, investment bankers, brokers or other
representatives and consultants; appraisal fees, costs and expenses; and travel,
lodging, entertainment and associated expenses) incurred by the Company prior to
Closing in connection with this Agreement, and (ii) all fees payable by the
Company or any Subsidiary to any Stockholder, Optionholder or any Affiliate of
any such party in connection with this Agreement or the transactions
contemplated hereby, or otherwise.

“Transaction Tax Deductions” means any tax deduction attributable to the payment
of the Optionholders’ Merger Consideration, Transaction Expenses (including
amounts that would have been Transaction Expenses but were in fact paid prior to
the Closing), any deduction for unamortized financing costs of the Company or
any of its Subsidiaries and premium deductions arising from the repayment of
indebtedness and any other costs or expenses related to the transaction;
provided, that the parties shall make any available elections under Revenue
Procedure 2011-29, 2011-18 IRB to treat 70% of any success-based fees that were
paid as an amount that did not facilitate the Merger, and therefore treat 70% of
such costs as deductible in the Pre-Closing Tax Period for U.S. federal income
tax purposes.

“Treasury Regulations” means the United States Treasury Regulations promulgated
under the Code, and any reference to any particular Treasury Regulation section
shall be interpreted to include any final or temporary revision of or successor
to that section regardless of how numbered or classified.

 

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“U.S. Trade Control Laws” is defined in Section 5.24.

“Valuation Firm” is defined in Section 3.03(e).

“Warranties” means all product return policies, service, repair, replacement and
other obligations of the Company or any of its Subsidiaries expressly made or
deemed made in connection with the sale of goods or the performance of services
by the Company or any of its Subsidiaries.

“WARN” means the federal and California Worker Adjustment and Retraining
Notification Acts, as amended.

“Welfare Plans” is defined in Section 5.13(a).

“Working Capital” means an amount equal to (i) the sum of the current assets of
the Company and the Subsidiaries, minus (ii) the sum of the current liabilities
of the Company and the Subsidiaries, in either case, excluding all intercompany
accounts, as more fully described on the Working Capital Schedule and, in each
case, determined on a consolidated basis in accordance with the Working Capital
Schedule without any change in accounting principles, policies, practices,
procedures or methodologies with respect to financial statements, their
classification or presentation, or any change in practices, methods, conventions
or assumptions utilized in making accounting estimates from those used in the
preparation of the Working Capital Schedule, including with respect to the
included accounts, level of reserves or level of accruals.

1.02 Other Definitional Provisions.

(a) Accounting Terms. Accounting terms which are not otherwise defined in this
Agreement have the meanings given to them under GAAP. To the extent that the
definition of an accounting term defined in this Agreement is inconsistent with
the meaning of such term under GAAP, the definition set forth in this Agreement
will control.

(b) “Hereof,” etc. The terms “hereof,” “herein” and “hereunder” and terms of
similar import are references to this Agreement as a whole and not to any
particular provision of this Agreement.

(c) Successor Laws. Any reference to any particular Code section or any other
Law will be interpreted to include any revision of or successor to that section
regardless of how it is numbered or classified.

(d) “Including,” etc. The term “including” has the inclusive meaning frequently
identified with the phrase “but not limited to” or “without limitation”.

(e) Singular and Plural Forms. Unless the context otherwise clearly indicates,
each defined term used in this Agreement shall have a comparable meaning when
used in its plural or in its singular form.

(f) “Or”. The word “or” is used in the inclusive sense of “or”.

 

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(g) Internal References. References herein to a specific section, subsection,
clause, recital, schedule or exhibit shall refer, respectively, to sections,
subsections, clauses, recitals, schedules or exhibits of this Agreement, unless
otherwise specified.

(h) Gender. References herein to any gender shall include each other gender.

(i) Heirs, Executors, etc. References herein to any Person shall include such
Person’s heirs, executors, personal representatives, administrators, successors
and assigns; provided, however, that nothing contained in this Section 1.02(i)
is intended to authorize any assignment or transfer not otherwise permitted by
this Agreement.

(j) Capacity. References herein to a Person in a particular capacity or
capacities shall exclude such Person in any other capacity.

(k) Time Period. With respect to the determination of any period of time, the
word “from” or “since” means “from and including” or “since and including,” as
applicable, and the words “to” and “until” each means “to and including”.

(l) Contract. References herein to any contract mean such contract as amended,
supplemented or modified (including any waiver thereto).

(m) Calendar Days. References to any period of days shall be deemed to be the
relevant number of calendar days, unless otherwise specified.

(n) Business Day. If the last day for the giving of any notice or the
performance of any act required or permitted under this Agreement is a day that
is not a Business Day, then the time for the giving of such notice or the
performance of such action shall be extended to the next succeeding Business
Day.

(o) “Dollar,” etc. The terms “dollars” or “$” mean dollars in the lawful
currency of the United States of America and all payments made pursuant to this
agreement shall be in United States dollars.

ARTICLE II

THE MERGER

2.01 The Merger.

(a) At the Effective Time, the Merger Sub shall merge with and into the Company
in accordance with California Law (the “Merger”), whereupon the separate
existence of the Merger Sub shall cease, and the Company shall be the surviving
corporation (the “Surviving Corporation”).

(b) The Merger shall become effective at such time as the Certificate of Merger
is duly filed with the Secretary of State of the State of California or at such
later time as is specified in the Certificate of Merger (the “Effective Time”).

 

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(c) From and after the Effective Time, the Surviving Corporation shall succeed
to all the assets, rights, privileges, powers and franchises and be subject to
all of the liabilities, restrictions, disabilities and duties of each of the
Company and the Merger Sub, all as provided under California Law.

2.02 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of the holders thereof:

(a) Each share of Company Stock issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive in cash (i) the Per
Share Portion of the Estimated Allocable Amount, payable to the holder thereof
in accordance with the procedures set forth in Section 2.03, (ii) the Per Share
Portion of any amounts paid to the Representative or to the Escrow Agent at the
Representative’s direction (on behalf of the Stockholders and Optionholders)
pursuant to Section 3.03, but subject to Section 13.13, (iii) the Per Share
Portion of any amounts paid to the Representative or to the Escrow Agent at the
Representative’s direction (on behalf of the Stockholders and Optionholders)
pursuant to Section 11.06, but subject to Section 13.13, (iv) the Per Share
Portion of any amounts paid to the Representative or to the Escrow Agent at the
Representative’s direction (on behalf of the Stockholders and Optionholders)
pursuant to Section 11.08, but subject to Section 13.13, (v) the Per Share
Portion of any amounts paid to the Representative or to the Escrow Agent at the
Representative’s direction (on behalf of the Stockholders and Optionholders)
pursuant to Section 12.02, but subject to Section 13.13, (vi) the Per Share
Portion of the Indemnification Escrow Funds distributed to the Representative or
to the Escrow Agent at the Representative’s direction (on behalf of the
Stockholders and Optionholders) pursuant to the terms of the Escrow Agreement,
Section 11.08 or otherwise, but subject to Section 13.13, (vii) the Per Share
Portion of the Purchase Price Adjustment Escrow Funds distributed to the
Representative or to the Escrow Agent at the Representative’s direction (on
behalf of the Stockholders and Optionholders) pursuant to the Escrow Agreement,
Section 3.03 or otherwise, but subject to Section 13.13, (viii) the Per Share
Portion of the Specific Indemnity Escrow Funds distributed to the Representative
or to the Escrow Agent at the Representative’s direction (on behalf of the
Stockholders and Optionholders) pursuant to the terms of the Escrow Agreement,
Section 11.08 or otherwise, but subject to Section 13.13, (ix) the Per Share
Portion of any portion of the Representative Holdback Amount released by, or
caused to be released by, the Representative (on behalf of the Stockholders and
Optionholders) pursuant to Section 13.13(a) or otherwise, and (x) the Per Share
Portion of any Earnout Payment paid to the Representative (on behalf of the
Stockholders and Optionholders) pursuant to Section 3.04. The aggregate
consideration to which holders of Company Stock become entitled pursuant to this
Section 2.02(a) is collectively referred to herein as the “Stockholders’ Merger
Consideration” and the portion of the Stockholders’ Merger Consideration payable
solely with respect to clause (i) of this Section 2.02(a) is referred to herein
as the “Stockholders’ Closing Consideration”.

(b) Each share of Company Stock held immediately prior to the Effective Time by
the Company as treasury stock or by the Merger Sub shall be canceled, and no
payment shall be made with respect thereto.

(c) Each share of the Merger Sub’s common stock issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
(1) validly

 

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issued, fully paid and non-assessable share of Common Stock, no par value, of
the Surviving Corporation.

2.03 Exchange of Certificates; Lost Certificates; Escrow Agent. The Escrow Agent
shall act as paying agent in effecting the exchange of cash for certificates
which, immediately prior to the Closing, represented shares of Company Stock
(“Certificates”) and which are converted into the right to payment pursuant to
Section 2.02. At or prior to the Effective Time, each Stockholder shall
surrender to the Escrow Agent Certificates, duly endorsed in blank or
accompanied by duly executed stock powers, together with a duly executed Letter
of Transmittal, representing the number of shares of Company Stock held by such
holder. On the Closing Date, the Escrow Agent shall pay each Stockholder the
amount of cash to which he, she or it is entitled under Section 2.02.
Surrendered Certificates shall forthwith be canceled. Notwithstanding the
foregoing, if any Certificate shall have been lost, stolen or destroyed, then,
upon the making of an affidavit of such fact by the Person claiming such
certificate to be lost, stolen or destroyed and the providing of an indemnity by
such Person, in form and substance reasonably satisfactory to the Escrow Agent
and the Representative, against any claim that may be made against it with
respect to such certificate, the Escrow Agent shall issue, in exchange for such
lost, stolen or destroyed Certificate, the Stockholders’ Merger Consideration to
be paid in respect of the share(s) of Company Stock represented by such
Certificate, in the amounts, at the times, and in the manner contemplated by
this Article II. Notwithstanding anything to the contrary, the Escrow Agent
shall not be liable to any Stockholder for Stockholders’ Merger Consideration
delivered to a Governmental Body if such delivery is required pursuant to any
applicable abandoned property, escheat or similar Law.

2.04 Options.

(a) The Company shall cause all outstanding Options to be canceled as of the
Effective Time.

(b) At the Effective Time, each In The Money Optionholder that has delivered to
the Purchaser an Option Cancellation Agreement shall become entitled to receive
in respect of such In The Money Option: (i) an amount in cash equal to the
product of (A) the excess of the Per Share Portion of the Estimated Allocable
Amount over the applicable exercise price per share of such Option, multiplied
by (B) the number of shares of Company Stock such holder could have purchased if
such holder had exercised such Option in full (and paid the applicable exercise
price in respect thereof) immediately prior to such time (the “Exercisable
Shares”), which amount shall be payable to the holder thereof at the Closing;
(ii) an amount in cash equal to the product of (A) the Per Share Portion of any
amounts paid to the Representative or to the Escrow Agent at the
Representative’s direction (on behalf of the Stockholders and Optionholders)
pursuant to Section 3.03, but subject to Section 13.13, multiplied by (B) the
number of Exercisable Shares of such Optionholder; (iii) an amount in cash equal
to the product of (A) the Per Share Portion of any amounts paid or distributed
to the Representative or to the Escrow Agent at the Representative’s direction
(on behalf of the Stockholders and Optionholders) pursuant to Section 11.06, but
subject to Section 13.13, multiplied by (B) the number of Exercisable Shares of
such Optionholder; (iv) an amount in cash equal to the product of (A) the Per
Share Portion of any amounts paid to the Representative or to the Escrow Agent
at the Representative’s direction (on behalf of the Stockholders and
Optionholders) pursuant to

 

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Section 11.08, but subject to Section 13.13, multiplied by (B) the number of
Exercisable Shares of such Optionholder; (v) an amount in cash equal to the
product of (A) the Per Share Portion of any amounts paid to the Representative
or to the Escrow Agent at the Representative’s direction (on behalf of the
Stockholders and Optionholders) pursuant to Section 12.02, but subject to
Section 13.13, multiplied by (B) the number of Exercisable Shares of such
Optionholder; (vi) an amount in cash equal to the product of (A) the Per Share
Portion of the Indemnification Escrow Funds distributed to the Representative or
to the Escrow Agent at the Representative’s direction (on behalf of the
Stockholders and Optionholders) pursuant to the Escrow Agreement or otherwise,
but subject to Section 13.13, multiplied by (B) the number of Exercisable Shares
of such Optionholder; (vii) an amount in cash equal to the product of (A) the
Per Share Portion of the Purchase Price Adjustment Escrow Funds distributed to
the Representative or to the Escrow Agent at the Representative’s direction (on
behalf of the Stockholders and Optionholders) pursuant to Section 3.03, the
Escrow Agreement or otherwise, but subject to Section 13.13, multiplied by
(B) the number of Exercisable Shares of such Optionholder; and (viii) an amount
in cash equal to the product of (A) the Per Share Portion of the Specific
Indemnity Escrow Funds distributed to the Representative or to the Escrow Agent
at the Representative’s direction (on behalf of the Stockholders and
Optionholders) pursuant to the Escrow Agreement or otherwise, but subject to
Section 13.13, multiplied by (B) the number of Exercisable Shares of such
Optionholder; (ix) an amount in cash equal to the product of (A) the Per Share
Portion of any portion of the Representative Holdback Amount released by, or
caused to be released by, the Representative (on behalf of the Stockholders and
Optionholders) pursuant to Section 13.13(a) or otherwise, multiplied by (B) the
number of Exercisable Shares of such Optionholder, and (x) an amount in cash
equal to the product of (A) the Per Share Portion of any Earnout Payment paid to
the Representative (on behalf of the Stockholders and Optionholders) pursuant to
Section 3.04, multiplied by (B) the number of Exercisable Shares of such
Optionholder. The aggregate consideration to which Optionholders become entitled
pursuant to this Section 2.04(b) is collectively referred to herein as the
“Optionholders’ Merger Consideration” and the portion of the Optionholders’
Merger Consideration payable solely with respect to clause (i) of this
Section 2.04(b) is referred to herein as the “Optionholders’ Closing
Consideration”.

(c) At the Effective Time, each holder of an Option that is not an In The Money
Option (together with the In The Money Optionholders, the “Optionholders”) shall
be entitled to receive no consideration in respect thereof.

(d) The Surviving Corporation shall act as paying agent in effecting the payment
of the Optionholders’ Closing Consideration through the Surviving Corporation’s
payroll system on the next regularly scheduled payroll date after the Closing
Date. The Surviving Corporation (or any other Person that has any withholding
obligation with respect to any payment made pursuant to this Section 2.04) shall
be entitled to and shall deduct and withhold from any payments to be made
pursuant to this Section 2.04 any Taxes required to be deducted and withheld
with respect to the making of such payments under the Code or any other
applicable provision of Law and the Surviving Corporation shall pay any withheld
amounts over to the appropriate Tax authority. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to such Optionholder on behalf of whom such
deduction and withholding was made. Furthermore, in order to ensure compliance
with all applicable Tax withholding requirements, the Representative or the
Escrow Agent shall pay or direct payment of any funds which are to be paid to or
for the

 

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benefit of the Optionholders (including any portion of the Optionholders’ Merger
Consideration) to the Surviving Corporation and have such amounts paid through
the Surviving Corporation’s payroll system on the next regularly scheduled
payroll date after the date of receipt of such amounts. Upon payment of any such
amounts to the Surviving Corporation, the Representative or the Escrow Agent, as
applicable, shall be relieved of its obligation to pay such amounts to the
Optionholders.

2.05 Certificate of Incorporation. As of the Effective Time, the certificate of
incorporation of the Surviving Corporation shall be amended and restated
pursuant to the terms set forth in the Certificate of Merger, and as so amended
and restated, shall be the certificate of incorporation of the Surviving
Corporation until amended in accordance with applicable Law.

2.06 Bylaws. The bylaws of the Merger Sub in effect at the Effective Time shall
be the bylaws of the Surviving Corporation (except that the title thereof shall
read “Bylaws of Hunter Technology Corporation”) and, as so amended and restated,
shall be the bylaws of the Surviving Corporation until amended in accordance
with applicable Law.

2.07 Directors and Officers. The directors and officers of the Company shall be
deemed to have resigned as of immediately prior to the Effective Time, and from
and after the Effective Time, until successors are duly elected or appointed in
accordance with applicable Law (or their earlier resignation or removal), the
directors and officers of the Merger Sub at the Effective Time shall be the
directors and officers, as applicable, of the Surviving Corporation.

ARTICLE III

THE CLOSING; MERGER CONSIDERATION ADJUSTMENT

3.01 The Closing. The closing of the transactions contemplated by this Agreement
(the “Closing”) shall take place at 9:00 a.m. prevailing Eastern Time on the
date of receipt of the Stockholder Approval. The date and time of the Closing
are referred to herein as the “Closing Date”.

3.02 The Closing Transactions. Subject to the terms and conditions set forth in
this Agreement, the parties hereto shall consummate the following transactions
on the Closing Date:

(a) the Company and the Merger Sub shall cause a duly executed copy of the
Certificate of Merger to be filed with the Secretary of State of the State of
California and make all other filings or recordings required by California Law
in connection with the Merger;

(b) the Purchaser shall deliver or cause to be delivered to the Escrow Agent an
aggregate amount equal to the Stockholders’ Closing Consideration (for
distribution by the Escrow Agent to each Stockholder of such Stockholder’s Per
Share Portion of the Estimated Allocable Amount as determined in accordance with
Section 2.02), by wire transfer of immediately available funds to the account(s)
designated by the Escrow Agent;

(c) the Purchaser shall, as instructed by the Representative, deliver or cause
to be delivered to the Company an aggregate amount equal to the Optionholders’
Closing Consideration (for distribution by the Company to each Optionholder of
such holder’s portion of

 

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the Estimated Allocable Amount as determined in accordance with Section 2.04),
by wire transfer of immediately available funds to the account(s) designated by
the Representative;

(d) the Purchaser shall repay, or cause to be repaid, on behalf of the Company,
all Indebtedness identified on the Indebtedness Schedule by wire transfer of
immediately available funds to the account(s) designated by the holders of such
Indebtedness;

(e) the Purchaser shall deliver the Indemnification Escrow Amount to the Escrow
Agent for deposit into an escrow account (the “Indemnification Escrow Account”)
established pursuant to the terms of the Escrow Agreement;

(f) the Purchaser shall deliver the Purchase Price Adjustment Escrow Amount to
the Escrow Agent for deposit into an escrow account (the “Purchase Price
Adjustment Escrow Account”) established pursuant to the terms of the Escrow
Agreement;

(g) the Purchaser shall deliver the Specific Indemnity Escrow Amount to the
Escrow Agent for deposit into an escrow account (the “Specific Indemnity Escrow
Account”) established pursuant to the terms of the Escrow Agreement;

(h) the Purchaser shall deliver the Representative Holdback Amount by wire
transfer of immediately available funds to the account(s) designated by the
Representative;

(i) the Purchaser shall pay, on behalf of the Company, the Transaction Expenses,
as directed by the Company; and

(j) the Purchaser, the Merger Sub, the Company and the Representative (on behalf
of the Stockholders and Optionholders) shall make such other deliveries as are
required by Article IV.

Upon Purchaser’s delivery to the Escrow Agent of an aggregate amount equal to
the Stockholders’ Closing Consideration, Purchaser’s obligation to deliver such
amount shall be satisfied in full, and Purchaser shall have no further liability
to the Stockholders for such amounts.

3.03 Allocable Amount Adjustment.

(a) At least three (3) Business Days prior to the Closing Date, the Company
shall prepare and deliver to the Purchaser a good faith estimate of the
Allocable Amount (the “Estimated Allocable Amount”), including each of the
components thereof, based on the Company’s books and records and other
information then available.

(b) As promptly as practicable after the Closing, but in no event later than
seventy-five (75) days after the Closing Date, the Purchaser shall prepare and
deliver to the Representative a statement (the “Closing Statement”) setting
forth the Purchaser’s calculation of the Allocable Amount, including each of the
components thereof, and a consolidated balance sheet of the Company and its
Subsidiaries as of 12:01 a.m. prevailing Eastern Time on the Closing Date
(the “Closing Balance Sheet”).

 

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(c) The Closing Balance Sheet shall (i) be prepared, and Closing Working Capital
shall be determined, in accordance with (A) the accounting methods, policies,
practices, procedures, conventions, categorizations, definitions, principles,
judgments, assumptions, techniques or estimation methods with respect to
financial statements, their classification or presentation or otherwise
(including with respect to the nature of accounts, level of reserves or level of
accruals) that are specified in the calculation of the Target Working Capital as
set forth on the Working Capital Schedule, (B) to the extent not inconsistent
with the foregoing clause (A), the accounting methods, policies, practices,
procedures, conventions, categorizations, definitions, principles, judgments,
assumptions, techniques or estimation methods with respect to financial
statements, their classification or presentation or otherwise (including with
respect to the nature of accounts, level of reserves or level of accruals)
adopted in connection with the latest balance sheet included in the Annual
Financial Statements, and (C) to the extent not inconsistent with the foregoing
clauses (A) or (B), GAAP and, (ii) not include any changes in assets or
liabilities as a result of purchase accounting adjustments or other changes
arising from or resulting as a consequence of the transactions contemplated
hereby.

(d) The post-Closing purchase price adjustment as set forth in this Section 3.03
is not intended to permit the introduction of different accounting methods,
policies, practices, procedures, conventions, categorizations, definitions,
principles, judgments, assumptions, techniques or estimation methods with
respect to financial statements, their classification or presentation or
otherwise (including with respect to the nature of accounts, level of reserves
or level of accruals) for the Working Capital Schedule and used in determining
the amount of the Target Working Capital; it being the intent of the parties
hereto that the Closing Working Capital be calculated consistently with the
Target Working Capital in order to allow a meaningful comparison of the Closing
Working Capital to the Target Working Capital. Notwithstanding anything else in
this Agreement to the contrary, (i) to the extent that the Closing Balance Sheet
corrects an error or an inconsistency, or noncompliance with the accounting
methods, policies, practices, procedures, conventions, categorizations,
definitions, principles, judgments, assumptions, techniques or estimation
methods with respect to financial statements, their classification or
presentation or otherwise (including with respect to the nature of accounts,
level of reserves or level of accruals) that are specified in the calculation of
the Target Working Capital as set forth on the Working Capital Schedule, then
either the Closing Working Capital or Target Working Capital shall be reduced or
increased as a result of such error, inconsistency or noncompliance, as
appropriate, to reflect such error, inconsistency or noncompliance and (ii) if
the same item would be reflected differently on the Closing Balance Sheet than
in the calculations of the Target Working Capital set forth on the Working
Capital Schedule, the parties hereto will equitably adjust the calculation of
either the Closing Working Capital or Target Working Capital so as to result in
consistent treatment.

(e) The Purchaser and its Subsidiaries (including the Surviving Corporation)
shall (i) permit the Representative and its representatives, subject to
reasonable confidentiality obligations, to have reasonable access to the books,
records and other documents (including work papers, schedules, financial
statements, memoranda, etc.) pertaining to or used in connection with the
preparation of the Closing Statement or the Closing Balance Sheet and the
Purchaser’s calculation of the Allocable Amount and provide the Representative
with copies thereof (as reasonably requested by the Representative) and
(ii) provide the Representative and its representatives reasonable access to the
Purchaser’s and its Subsidiaries’ (including the

 

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Surviving Corporation’s) employees and advisors (including making their chief
financial officer(s) and accountants available to respond to reasonable written
or oral inquiries of the Representative or its representatives). If the
Representative disagrees with any part of the Purchaser’s calculation of the
Allocable Amount as set forth on the Closing Statement or the Closing Balance
Sheet, the Representative shall, within sixty (60) days after the
Representative’s receipt of the Closing Statement and the Closing Balance Sheet,
notify the Purchaser in writing of such disagreement by setting forth the
Representative’s calculation of the Allocable Amount, including each of the
components thereof, and describing in reasonable detail the basis for such
disagreement (an “Objection Notice”). If an Objection Notice is delivered to the
Purchaser, then the Purchaser and the Representative shall negotiate in good
faith to resolve their disagreements with respect to the computation of the
Allocable Amount. In the event that the Purchaser and the Representative are
unable to resolve all such disagreements within thirty (30) days after the
Purchaser’s receipt of such Objection Notice, the Purchaser and the
Representative shall submit such remaining disagreements to Grant Thornton LLP,
or a nationally-recognized valuation or consulting firm as is acceptable to the
Purchaser and the Representative (the “Valuation Firm”).

(f) The Valuation Firm shall make a final and binding determination with respect
to the computation of the Allocable Amount, including each of the components
thereof, to the extent such amounts are in dispute, in accordance with the
guidelines and procedures set forth in this Agreement and on Exhibit H. The
Purchaser and the Representative shall cooperate with the Valuation Firm during
the term of its engagement and shall use commercially reasonable efforts to
cause the Valuation Firm to resolve all remaining disagreements with respect to
the computation of the Allocable Amount, including each of the components
thereof, as soon as practicable. The Valuation Firm shall consider only those
items and amounts in the Purchaser’s and the Representative’s respective
calculations of the Allocable Amount, including each of the components thereof,
that are identified as being items and amounts to which the Purchaser and the
Representative have been unable to agree. In resolving any disputed item, the
Valuation Firm may not assign a value to any item greater than the greatest
value for such item claimed by either party or less than the smallest value for
such item claimed by either party. The Valuation Firm’s determination of the
Allocable Amount, including each of the components thereof, shall be based
solely on written materials submitted by the Purchaser and the Representative
(i.e., not on independent review) and on the definitions included herein. The
determination of the Valuation Firm shall be conclusive and binding upon the
parties hereto and shall not be subject to appeal or further review.

(g) The costs and expenses of the Valuation Firm in determining the Allocable
Amount, including each of the components thereof, shall be borne by the
Purchaser, on the one hand, and the Representative (on behalf of the
Stockholders and Optionholders), on the other hand, based upon the percentage
which the portion of the contested amount not awarded to each party bears to the
amount actually contested by such party. For example, if the Purchaser claims
the Allocable Amount is one thousand dollars ($1,000) less than the amount
determined by the Representative, and the Representative contests only five
hundred dollars ($500) of the amount claimed by the Purchaser, and if the
Valuation Firm ultimately resolves the dispute by awarding the Purchaser three
hundred dollars ($300) of the five hundred dollars ($500) contested, then the
costs and expenses of the Valuation Firm will be allocated sixty percent
(60%) (i.e., 300 ÷ 500) to the Representative (on behalf of the Stockholders and
Optionholders) and forty percent (40%) (i.e., 200 ÷ 500) to the Purchaser. Prior
to the Valuation

 

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Firm’s determination of Allocable Amount, (i) the Purchaser, on the one hand,
and the Representative (on behalf of the Stockholders and Optionholders), on the
other hand, shall each pay fifty percent (50%) of any retainer paid to the
Valuation Firm and (ii) during the engagement of the Valuation Firm, the
Valuation Firm will bill fifty percent (50%) of the total charges to each of the
Purchaser, on the one hand, and the Representative (on behalf of the
Stockholders and Optionholders), on the other hand. In connection with the
Valuation Firm’s determination of Allocable Amount, the Valuation Firm shall
also determine, pursuant to the terms of the first and second sentences of this
Section 3.03(g), and taking into account all fees and expenses already paid by
each of Purchaser, on the one hand, and the Representative (on behalf of the
Stockholders and Optionholders), on the other hand, as of the date of such
determination, the allocation of its fees and expenses between the Purchaser and
the Representative (on behalf of the Stockholders and Optionholders), which such
determination shall be conclusive and binding upon the parties hereto.

(h) Within five (5) Business Days after the Allocable Amount, including each of
the components thereof, is finally determined pursuant to this Section 3.03:

(i) if the Allocable Amount as finally determined pursuant to this Section 3.03
are less than the Estimated Allocable Amount, then the Purchaser and the
Representative shall cause the Escrow Agent to: (A) pay to the Purchaser from
the Purchase Price Adjustment Escrow Funds an amount (which in no case shall
exceed the amount of the Purchase Price Adjustment Escrow Funds) (the “Purchaser
Adjustment Amount”) equal to such deficiency, and (B) pay to the Representative
or to the Escrow Agent at the Representative’s direction (on behalf of the
Stockholders and Optionholders) the amount (if any) by which the amount of the
Purchase Price Adjustment Escrow Funds is greater than the Purchaser Adjustment
Amount; and

(ii) if the Allocable Amount as finally determined pursuant to this Section 3.03
is greater than the Estimated Allocable Amount (the amount of such deficiency,
the “Seller Adjustment Amount”), then (A) the Purchaser shall, or shall cause
the Surviving Corporation or one or more of its Subsidiaries to, pay to the
Representative or the Escrow Agent at the Representative’s direction (on behalf
of the Stockholders and Optionholders) the Seller Adjustment Amount, and (B) the
Purchaser and the Representative shall cause the Escrow Agent to pay to the
Representative or the Escrow Agent at the Representative’s direction (on behalf
of the Stockholders and Optionholders) all of the Purchase Price Adjustment
Escrow Funds.

Any payments to be made pursuant to this Section 3.03(h) (the “Purchase Price
Adjustments”) shall include interest on the Purchaser Adjustment Amount or the
Seller Adjustment Amount, as applicable, at a rate per annum equal to the prime
rate of interest reported from time to time in The Wall Street Journal,
calculated on the basis of the actual number of days elapsed over three hundred
sixty (360), from the Closing Date to the date of payment. All Purchase Price
Adjustments, other than payments of stated interest, shall (x) be treated by all
parties for tax purposes as adjustments to the Enterprise Value and (y) be made
by wire transfer of immediately available funds to the account(s) designated by
the Purchaser or the

 

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Representative, as applicable. The payments described in Section 3.03(h)(i)
shall be the sole and exclusive remedy of the Purchaser for any and all claims
arising under this Agreement with respect to this Section 3.03.

3.04 Earnout Payment.

(a) In addition to the Merger Consideration paid at the Effective Time, the
Purchaser shall also pay an earnout payment if earned (“Earnout Payment”) to the
Representative, on behalf of the Stockholders and Optionholders, which shall be
based upon the Company’s achieving certain levels of Revenue during the twelve
(12) month period following the Closing Date (the “Earnout Period”).

(b) If the Company’s Revenue during the Earnout Period is equal to or less than
$82,000,000, then the Earnout Payment shall be zero. If the Company’s Revenue
during the Earnout Period is greater than $82,000,000, then the Earnout Payment
shall be calculated as follows:

(Revenue - $82,000,000)/$38,000,000 x $13,000,000 = Earnout Payment

(c) Under no circumstances shall the Earnout Payment exceed $13,000,000.
Therefore, notwithstanding any other provisions of this Section 3.04, in the
event the Company’s Revenue is greater than $120,000,000 during the Earnout
Period, the Earnout Payment shall be $13,000,000.

(d) As promptly as practicable following the conclusion of the Earnout Period
(but in no event later than June 14, 2016), the Purchaser shall cause to be
prepared and delivered to the Representative (i) a statement setting forth the
Company’s Revenue for the Earnout Period (“Revenue Statement”); and (ii) a
statement setting forth the calculation of the Earnout Payment (“Earnout Payment
Calculation”), specifying in reasonable detail such calculations. Purchaser
shall provide to the Representative copies of any supporting documentation which
forms the basis of the Revenue Statement and the Earnout Payment Calculation,
and shall allow the Representative reasonable access to the books and records of
the Company upon prior notice and subject to a reasonable confidentiality
obligations solely for purposes of confirming the Revenue Statement and Earnout
Payment Calculation.

(e) If the Representative disagrees with the Purchaser’s calculation of the
Revenue Statement or the Earnout Payment Calculation, the Representative shall
have sixty (60) days after his receipt of the Revenue Statement and the Earnout
Payment Calculation to deliver to the Purchaser a statement (an “Earnout
Disagreement Notice”) setting forth in reasonable detail the Representative’s
objections to the Revenue Statement and Earnout Payment Calculation, the basis
for each such objection, and those portions of the Earnout Payment Calculation
not in dispute (if any). If the Representative does not deliver an Earnout
Disagreement Notice to the Purchaser within such sixty (60) day period, or if
the Representative notifies Purchaser in writing that the Revenue Statement and
the Earnout Payment Calculation are acceptable, then the Revenue Statement,
Earnout Payment Calculation and Earnout Payment shall be deemed to have been
accepted by the Representative, on behalf of the Stockholders and

 

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Optionholders, and shall become final, conclusive and binding upon the parties
to this Agreement, and when received as set forth in Section 3.04(i), the
Representative shall distribute the Earnout Payment to the Stockholders and
Optionholders based on their respective Per Share Portions. If an Earnout
Disagreement Notice is delivered to the Purchaser, then the Purchaser and the
Representative shall negotiate in good faith to resolve their disagreements with
respect to the computation of the Earnout Payment. If the Purchaser and the
Representative are not able to resolve the matters described in the Earnout
Disagreement Notice within thirty (30) days after the Purchaser’s receipt of the
Earnout Disagreement Notice, then the Purchaser and the Representative shall
submit the disputed items to the Valuation Firm for its determination in
accordance with the procedures set forth in Section 3.03 hereof and the costs
and expenses of the Valuation Firm shall be split in a manner consistent with
Section 3.03(g).

(f) The Earnout Payment, if any, shall be treated by all parties for tax
purposes as a contingent payment reported on the installment method under
Section 453(c) of the Code, unless the Representative elects otherwise under
Section 453(d)(1) of the Code.

(g) Subject to the terms of this Agreement, subsequent to the Closing, Purchaser
shall have sole discretion with regard to all matters relating to the operation
of the business of the Company and its Subsidiaries; provided, that Purchaser
shall not, directly or indirectly, take any actions in bad faith or primarily
for the purpose of avoiding or reducing any of the Earnout Payments hereunder.
Notwithstanding the foregoing, Purchaser has no obligation to operate the
business of the Company and its Subsidiaries in order to achieve any Earnout
Payment or to maximize the amount of any Earnout Payment.

(h) The Stockholders and Optionholders understand and agree that (i) the
contingent rights to receive any Earnout Payment shall not be represented by any
form of certificate or other instrument, are not transferable and do not
constitute an equity or ownership interest in Purchaser or the Company, and
(ii) no Stockholder or Optionholder shall have any rights as a securityholder of
Purchaser or the Company as a result of such Stockholder’s or Optionholder’s
contingent right to receive any Earnout Payment hereunder.

(i) Any payments to be made pursuant to this Section 3.04 shall be made within
five (5) Business Days after the Earnout Payment, including each of the
components thereof, is finally determined pursuant to this Section 3.04 and
shall include interest on the Earnout Payment at a rate per annum equal to the
prime rate of interest reported from time to time in The Wall Street Journal,
calculated on the basis of the actual number of days elapsed over three hundred
sixty (360), from June 14, 2016 to the date of payment. All Earnout Payments
shall be made by wire transfer of immediately available funds to the account(s)
designated by the Representative.

ARTICLE IV

CLOSING DELIVERIES

4.01 Company and Stockholder Closing Deliveries. At the Closing, the Company or
the Stockholders, as applicable, shall deliver the following to Purchaser:

 

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(a) all consents which are set forth on the Required Consents Schedule;

(b) a certificate signed by the Secretary or the Assistant Secretary of the
Company and of each Subsidiary in the form of Exhibit I, dated as of the Closing
Date, certifying as to (A) the certificate of incorporation and bylaws (or
equivalent governing documents) of the Company or the applicable Subsidiary,
(B) the resolutions adopted by the board of directors of the Company or the
applicable Subsidiary regarding this Agreement and the transactions contemplated
hereby, (C) the names and signatures of the officers of the Company authorized
to sign this Agreement, and (D) the good standing of the Company and each
Subsidiary in its respective state of incorporation or organization, and each
other state in which it is qualified to conduct business;

(c) a certificate signed by an officer of the Company setting forth in
sufficient detail acceptable to the Purchaser the aggregate amount of the:
(A) Indebtedness; and (B) Transaction Expenses, in each case as of the Closing
Date;

(d) at the option of the Company, either (i) each Stockholder shall deliver to
the Purchaser a certificate in the form of Treasury Regulation
§1.1445-2(b)(2)(iv)(A), or (ii) the Company shall deliver an affidavit stating
that the Company is not and has not been a United States real property holding
corporation, and in the form and substance required under Treasury Regulation
§1.897-2(h), in either case so that the Purchaser is exempt from withholding any
portion of the Merger Consideration thereunder;

(e) the Escrow Agreement, executed by the Escrow Agent and the Representative;

(f) appropriate payoff letters from the holders of Indebtedness identified on
the Indebtedness Schedule and evidence reasonably satisfactory to Purchaser that
the holders of such Indebtedness shall deliver all related Lien releases to the
Purchaser as soon as practicable after the Closing;

(g) the Non-Competition Agreements, executed by the Key Stockholders;

(h) the Employment Agreements, executed by the Key Employees;

(i) evidence of termination of the Option Plans; and

(j) estoppel certificates and collateral access agreements relating to the
Leases, as requested by Purchaser, each in a form reasonably acceptable to
Purchaser.

4.02 Purchaser Closing Deliveries. At the Closing, the Purchaser shall deliver
the following to the Representative:

(a) a certificate in the form of Exhibit J signed by the Secretary or the
Assistant Secretary of the Purchaser certifying as to (i) the certificate of
incorporation and bylaws (or equivalent governing documents) of the Purchaser
and Merger Sub, (ii) the resolutions adopted by the Purchaser, as the sole
stockholder of Merger Sub, and the board of directors of the Purchaser and the
Merger Sub, regarding this Agreement and the transactions

 

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contemplated hereby and (iii) the names and signatures of the officers of the
Purchaser and the Merger Sub authorized to sign this Agreement;

(b) the Escrow Agreement, executed by the Escrow Agent and the Purchaser;

(c) the Non-Competition Agreements, executed by the Purchaser;

(d) the Employment Agreements, executed by the Purchaser; and

(e) evidence reasonably satisfactory to the Representative that the Merger Sub
shall have paid all franchise Taxes due and payable by it immediately prior to
the Effective Time.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Purchaser that the statements in this
Article V are true and correct, except as set forth in the schedules
accompanying this Article V (each, a “Schedule” and, collectively, the
“Disclosure Schedules”). The Disclosure Schedules have been arranged for
purposes of convenience in separate sections corresponding to the sections of
this Article V; however, information disclosed on one section of the Disclosure
Schedules shall be deemed to be disclosed on another section of the Disclosure
Schedules or be deemed to be an exception to another representation and warranty
in this Article V, in each case, if the relevance of such information to such
other section of the Disclosure Schedules is reasonably apparent on its face.
Capitalized terms used in the Disclosure Schedules and not otherwise defined
therein have the meanings given to them in this Agreement.

5.01 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under California Law, and the
Company has all requisite corporate power and authority to own and operate its
properties and to carry on its businesses as now conducted. The Company is
qualified to do business and is in good standing (or its equivalent) in every
jurisdiction in which its ownership of property or the conduct of business as
now conducted requires it to qualify, except where the failure to be so
qualified would not constitute a Material Adverse Change.

5.02 Subsidiaries. Except as set forth on the Subsidiary Schedule, the Company
does not own or hold the right to acquire any stock, partnership interest or
joint venture interest or other equity interest in any other corporation,
organization or entity. Except as set forth on the Subsidiary Schedule, the
Company owns, directly or indirectly, of record and beneficially, all capital
stock and other equity interests in each of its Subsidiaries, free and clear of
all Liens (other than Permitted Liens, Liens arising under applicable securities
Laws and Liens that will be terminated at or prior to the Closing), and all such
capital stock and other equity interests are validly issued, fully paid and
non-assessable (to the extent such concept is applicable to such equity
interests). Each of the Company’s Subsidiaries is duly formed or organized,
validly existing and in good standing (or its equivalent) under the applicable
Laws of its jurisdiction of formation or organization, and each of the Company’s
Subsidiaries has all requisite power and authority to own and operate its
properties and to carry on its businesses as now conducted.

 

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Each of the Company’s Subsidiaries is qualified to do business and is in good
standing (or its equivalent) in every jurisdiction in which its ownership of
property or the conduct of business as now conducted requires it to qualify,
except where the failure to be so qualified would not constitute a Material
Adverse Change.

5.03 Authorization; No Breach.

(a) The Company has full corporate power and authority to execute and deliver
this Agreement and each other agreement, document, instrument or certificate
contemplated by this Agreement to be executed by the Company in connection with
the transactions contemplated by this Agreement (the “Company Documents”), to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and each of the Company Documents by the Company
and the consummation of the transactions contemplated hereby and thereby have,
other than the Stockholder Approval, been duly and validly authorized and
approved by all requisite corporate action, and no other corporate proceedings
on its part are necessary to authorize the execution, delivery or performance of
this Agreement. This Agreement has been, and each of the Company Documents will
be at or prior to the Closing, duly and validly authorized, executed and
delivered by the Company, and assuming that this Agreement and each of the
Company Documents is a valid and binding obligation of the other parties hereto
and thereto, this Agreement constitutes, and each of the Company Documents when
so executed and delivered will constitute, a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and similar Laws relating to or affecting creditors’ rights or to general
principles of equity.

(b) Except for the Stockholder Approval, the filing of the Certificate of Merger
with the Secretary of State of the State of California, as set forth on the
Governmental Consents Schedule and as set forth on the Authorization Schedule,
the execution, delivery and performance of this Agreement and each of the
Company Documents by the Company and the consummation of the transactions
contemplated hereby and thereby, or compliance by the Company or its
Subsidiaries with any of the provisions hereof or thereof, do not and will not
conflict with, result in any material breach of, require any notice under,
constitute a material default under (with or without notice or lapse of time or
both), result in a material violation of, result in the creation of any Lien
upon any material properties or assets of the Company or any of its Subsidiaries
under, give rise to any right of termination, cancellation or acceleration of
any material obligation or to loss of a material benefit under, or give rise to
any obligation of the Company or any of its Subsidiaries to make any material
payment under, any provision of (i) the Company’s or any of its Subsidiaries’
articles of incorporation, by-laws or other organizational documents, (ii) any
contract required to be set forth on the Contracts Schedule, (iii) any
outstanding judgment, order or decree applicable to the Company or any of its
Subsidiaries or any of the material properties or assets of the Company or any
of its Subsidiaries, or (iv) any applicable Law to which the Company or any of
its Subsidiaries is subject.

5.04 Capital Stock.

 

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(a) As of the date hereof, the authorized capital stock of the Company consists
of 500,000,000 shares of Company Stock, of which 11,334,059 shares are issued
and outstanding and are held of record as indicated on the Stockholders
Schedule, and 5,343,371 shares of Company Stock are issuable upon exercise of
outstanding Options and are held of record as indicated on the Stockholders
Schedule. All of the outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and non-assessable. Except as set forth in the
first sentence of this Section 5.04 and except as set forth on the
Capitalization Schedule, there are no outstanding options, warrants, scrip,
rights to subscribe to, purchase rights, stock appreciation, phantom stock,
profit participation, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock or
securities containing any equity features of the Company, or contracts,
commitments, understandings or arrangements, by which the Company is or may
become bound to issue additional shares of its capital stock or other equity
interests or options, warrants, scrip, rights to subscribe to, purchase rights,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock or other equity interests.

(b) Except as set forth on the Capitalization Schedule, there are no securities
or rights of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is bound obligating the Company or any of its Subsidiaries to redeem or
otherwise acquire any shares of capital stock or other equity interests of the
Company or any of its Subsidiaries. Except as set forth on the Capitalization
Schedule, neither the Company nor any of its Subsidiaries have outstanding
bonds, debentures, notes or other similar obligations, the holders of which have
the right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company or any of its
Subsidiaries on any matter. Except as set forth on the Capitalization Schedule,
there are no voting trusts or other agreements or understandings to which the
Company or any of its Subsidiaries is a party with respect to the voting of the
capital stock or other equity interests of the Company or any of its
Subsidiaries.

5.05 Financial Statements. Attached to the Financial Statements Schedule are:
(a) the Company’s unaudited consolidated balance sheet as of March 31, 2015
(the “Latest Balance Sheet”) and the related statement of income for the three
(3) month period then ended, and (b) the Company’s reviewed consolidated balance
sheet and statements of operations, stockholders’ equity and cash flows for the
fiscal years ended December 31, 2012 and December 31, 2013, and the Company’s
unreviewed consolidated balance sheet and statements of operations,
stockholders’ equity and cash flows for the fiscal year ended December 31, 2014
(the “Annual Financial Statements” and, collectively with the Latest Balance
Sheet, the “Financial Statements”). The Financial Statements have been based
upon the information contained in the Company’s and its Subsidiaries’ books and
records (which are true and complete in all material respects, have been
maintained consistently with past practices, and have been made available for
inspection by Purchaser or its representatives), have been prepared in
conformity with GAAP, and present fairly in all material respects the financial
condition and results of operations of the Company and its Subsidiaries as of
the times and for the periods referred to therein, subject in the case of the
unreviewed financial statements to (i) the absence of footnote disclosures and
other presentation items, (ii) changes resulting from normal year-end
adjustments, and (iii) such other exceptions to GAAP as are set forth on the
Financial Statements Schedule.

 

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5.06 No Material Adverse Change; Absence of Certain Developments.

(a) Except as set forth on the Developments Schedule, since September 30, 2014,
there has not been any Material Adverse Change.

(b) Except as set forth on the Developments Schedule and except as expressly
contemplated by this Agreement, since September 30, 2014 through the date of
this Agreement, neither the Company nor any of its Subsidiaries has engaged in
any material transaction that was not in the ordinary course of business.
Without limiting the generality of the foregoing, and except as set forth on the
Developments Schedule and except as expressly contemplated by this Agreement,
since September 30, 2014 through the date of this Agreement, neither the Company
nor any of its Subsidiaries has taken any of the followings actions:

(i) (A) amended or proposed to amend the respective certificates of
incorporation or bylaws or other organizational documents of the Company or any
of its Subsidiaries in any manner or (B) split, combined or reclassified the
capital stock or other equity interests of the Company or any of its
Subsidiaries;

(ii) issued, sold, pledged, transferred or disposed of, or agreed to issue, sell
pledge, transfer or dispose of, any shares of capital stock or other equity
interests of the Company or any of its Subsidiaries or issued any shares of
capital stock or equity interests of any class or issue or become a party to any
subscriptions, warrants, rights, options, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock or other equity interests of the Company or any of its
Subsidiaries (other than this Agreement and the agreements contemplated hereby),
or granted any stock appreciation or similar rights;

(iii) redeemed, purchased or otherwise acquired any outstanding shares of
capital stock or other equity interests of the Company or any of its
Subsidiaries or declared or paid any non-cash dividend or made any other
non-cash distribution to any Person other than the Company or one or more of its
Subsidiaries on or prior to the Closing Date;

(iv) (A) granted to any employee of the Company or any of its Subsidiaries any
increase in compensation or benefits, except (1) for regularly scheduled pay
increases and bonuses made in the ordinary course of business or (2) as may be
required by applicable Law or the terms of any Plan; (B) modify or establish any
Plan (or any arrangement that would constitute a Plan, if adopted), except
(1) to the extent required by Law or (2) as would not be material, and would be
in the ordinary course of business; (C) terminate the employment of any employee
in the position of vice president or above, other than for cause; or
(D) implement any employee layoffs that could implicate the WARN Act;

(v) sold, leased, transferred or otherwise disposed of, any material owned
property or assets of the Company or any of its Subsidiaries, except for (A) the
sale, lease, transfer or disposition of inventory or obsolete machinery or

 

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equipment in the ordinary course of business and, (B) as to the Leased Real
Property, the exercise of the Company’s or any of its Subsidiaries’ rights and
remedies under any Lease, in the ordinary course of business, including any
expiration, termination, renewal, expansions, reductions or similar rights as to
such Leased Real Property;

(vi) except for amendments in the ordinary course of business, amended or
terminated (except for a termination resulting from the expiration of a contract
in accordance with its terms) any contract listed on the Contracts Schedule;

(vii) acquired any business or Person, by merger or consolidation, purchase of
assets or equity interests, or by any other manner, in a single transaction or a
series of related transactions;

(viii) except in accordance with the capital budget of the Company and its
Subsidiaries, committed or authorized any commitment to make any capital
expenditures in excess of fifty thousand dollars ($50,000) in the aggregate, or
failed to make material capital expenditures in accordance with such budget;

(ix) made any change in any method of accounting or auditing practice, including
any working capital procedures or practices, other than changes required as a
result of changes in GAAP or applicable Law;

(x) made any loans, advances or capital contributions to, or investments in, any
other Person other than loans, advances or capital contributions by the Company
or any of its Subsidiaries (A) to any Subsidiary, (B) to any employee in
connection with travel, entertainment and related business expenses or other
customary out-of-pocket expenses in the ordinary course of business or (C) in
the ordinary course of business to any material customer, distributor, licensor,
supplier or other Person with which the Company or any of its Subsidiaries has
significant business relations;

(xi) (A) made or changed any material Tax election, (B) changed any annual Tax
accounting period, (C) adopted or changed any material method of Tax accounting,
(D) entered into any “closing agreement” with any taxing authority, (E) settled
any claim or assessment in respect of a material amount of Tax, or (F) consented
to any extension or waiver of the limitations period applicable to any material
Tax claim or assessment, in each case to the extent such election, change,
agreement, settlement, consent or other action would increase materially the
Taxes of the Company or any of its Subsidiaries after the Closing; and

(xii) authorized, or committed or agreed to take any action described in this
Section 5.06(b).

5.07 Title to Properties.

 

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(a) The Company and its Subsidiaries own good and marketable title to, or hold a
valid leasehold interest in, all of the material personal property used by them
in the conduct of their business, free and clear of all Liens, except for
Permitted Liens and Liens that will be terminated at or prior to the Closing.
Each such item of personal property is in all material respects in good
operating condition and repair, subject to normal wear and tear, ongoing repairs
or refurbishments in the ordinary course and obsolescence in the ordinary
course.

(b) The Leased Real Property Schedule contains a list of all real property
leased by the Company and its Subsidiaries (the “Leased Real Property”). The
Company has delivered to Purchaser a true and complete copy of the underlying
lease and all amendments, modifications, supplements, non-disturbance
agreements, and consents thereto with respect to each parcel of Leased Real
Property (each, a “Lease”). Except as set forth on the Leased Real Property
Schedule, with respect to each of the Leases: (i) either the Company or one
(1) of its Subsidiaries has a valid and enforceable leasehold interest in each
parcel or tract of real property leased by it and each Lease is legal, valid,
binding, enforceable and in full force and effect; (ii) neither the Company nor
any of its Subsidiaries has received written notice of any existing or potential
defaults thereunder by the Company or its Subsidiaries (as applicable) nor, to
the Company’s knowledge, are there any existing defaults by the lessor thereof;
(iii) no event has occurred which (with notice, lapse of time or both) would
constitute a material breach or default thereunder by the Company or its
Subsidiaries (as applicable) or, to the Company’s knowledge, any other party
thereto; (iv) the transactions contemplated by this Agreement do not require the
consent of any other party to such Lease, will not result in a breach of or
default under such Lease, and will not otherwise cause such Lease to cease to be
legal, valid, binding, enforceable and in full force and effect on identical
terms following the Closing; (v) neither the Company nor any of its Subsidiaries
have subleased, licensed or otherwise granted any person or entity the right to
use or occupy such Leased Real Property or any portion thereof; and (vi) neither
the Company nor any of its Subsidiaries have collaterally assigned or granted
any or lien, encumbrance or right in such Lease or any interest therein;
(vii) the Company’s or its Subsidiaries’ possession and quiet enjoyment of the
Leased Real Property under such Lease has not been disturbed and, to the
Company’s knowledge, there are no disputes with respect to such Lease; and
(viii) neither the Company or any of the Subsidiaries have exercised any renewal
or extension or other option under any Lease.

(c) Neither the Company nor any of its Subsidiaries has ever owned any real
property.

5.08 Tax Matters.

(a) The Company and its Subsidiaries have filed on a timely basis and have
provided Purchaser copies of all material income Tax Returns for the past five
(5) years that are required to be filed by them, and have timely paid or
properly accrued all Taxes required to be paid by the Company and its
Subsidiaries, except to the extent of the reserve established by the Company and
its Subsidiaries for uncertain Tax positions set forth on their books in
accordance with GAAP and to be set forth on the Closing Balance Sheet, including
any material Taxes which the Company or any of its Subsidiaries was obligated to
withhold. The reserves for Taxes reflected in Latest Balance Sheet are adequate
for the payment of all Taxes of the Company and

 

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its Subsidiaries due or to become due in respect of all periods through the date
of the Latest Balance Sheet.

(b) Neither the Company nor any of its Subsidiaries has received from any Tax
authority any written notice of proposed deficiency or adjustment of any
material amount of Taxes that has not either been satisfied by payment or
withdrawn.

(c) Neither the Company nor any of its Subsidiaries has consented to extend the
time in which any material amount of Tax may be assessed or collected by any Tax
authority, which extension is still outstanding.

(d) Neither the Company nor any of its Subsidiaries is currently the subject of
a Tax audit or examination with respect to a material amount of Taxes.

(e) Neither the Company nor any of its Subsidiaries is a party to or bound by
any material Tax allocation or sharing agreement (other than any agreement
entered into in the ordinary course of business and not primarily concerning
Taxes).

(f) Neither the Company nor any of its Subsidiaries is or has been a party to
any “listed transaction,” as defined in Section 6707A(c)(2) of the Code and
Treasury Regulation §1.6011-4(b)(2).

(g) The Company has been a validly electing S corporation within the meaning of
Sections 1361 and 1362 of the Code since March 1, 2005 and the Company will be
an S corporation up to and including the day before the Closing Date, unless an
election under Section 338(h)(10) of the Code is made with respect to the
Merger, in which case the Company will be an S corporation up to and including
the Closing Date.

(h) The Taxes Schedule identifies each Subsidiary that is a “qualified
subchapter S subsidiary” within the meaning of Section 1361(b)(3)(B) of the
Code.

This Section 5.08 contains the sole and exclusive representations and warranties
of the Company with respect to Taxes and any claim for breach of representation
with respect to Taxes shall be based on the representations made in this
Section 5.08 and shall not be based on the representations set forth in any
other provision of this Agreement.

5.09 Contracts and Commitments.

(a) Except as set forth on the Contracts Schedule, neither the Company nor any
of its Subsidiaries is a party to any: (i) collective bargaining agreement;
(ii) bonus, pension, profit sharing, retirement or other form of deferred
compensation plan, other than as set forth in Section 5.13 or the Disclosure
Schedules relating thereto; (iii) stock purchase, stock option or similar plan;
(iv) contract for the employment of any officer, individual employee or other
person on a full-time or consulting basis providing for base compensation in
excess of seventy-five thousand dollars ($75,000) per annum or agreements with
sales representatives or distributors; (v) agreement or indenture relating to
the borrowing of money or to mortgaging, pledging or otherwise placing a Lien
(other than a Permitted Lien) on any portion of the assets of the Company or any
of its Subsidiaries; (vi) guaranty of any obligation for borrowed money or

 

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other material guaranty; (vii) lease or agreement under which it is lessee of,
or holds or operates any personal property owned by any other party, for which
the annual rental exceeds fifty thousand dollars ($50,000); (viii) lease or
agreement under which it is lessor of or permits any third-party to hold or
operate any property, real or personal, for which the annual rental exceeds
fifty thousand dollars ($50,000); (ix) other than purchase orders entered into
in the ordinary course of business, contract or group of related contracts with
any supplier required to be listed on the Customers and Suppliers Schedule;
(x) other than purchase orders entered into in the ordinary course of business,
contract or group of related contracts with any customer required to be listed
on the Customers and Suppliers Schedule; (xi) contract which prohibits the
Company or any of its Subsidiaries from freely engaging in business anywhere in
the world; (xii) contracts relating to the licensing of Intellectual Property by
the Company or any of its Subsidiaries to a third-party or by a third-party to
the Company or any of its Subsidiaries, in each case involving consideration in
excess of fifty thousand dollars ($50,000) per annum; (xiii) all other
agreements affecting the Company’s or any of its Subsidiaries’ ability to use or
disclose any material Intellectual Property, in each case, other than
(A) licenses for commercially available, off-the-shelf software used by the
Company or any of its Subsidiaries or (B) agreements entered into by the Company
or any of its Subsidiaries with customers in the ordinary course of business;
(xiv) contracts relating to the acquisition or disposition (whether by merger,
sale of stock, sale of assets or otherwise) of any Person or material line of
business entered into during the past five (5) years or the future acquisition
or disposition (whether by merger, sale of stock, sale of assets or otherwise)
of any Person or material line of business; (xv) powers of attorney;
(xvi) agreement under which the consequences of a default or termination would
cause a Material Adverse Change; (xvii) agreements under which Company or any of
its Subsidiaries have advanced or loaned any Person amounts in the aggregate
exceeding fifty thousand dollars ($50,000); (xviii) agreement where the Company
or any of its Subsidiaries supplies the U.S. government or is a subcontractor to
a company supplying the U.S. government; or (xix) except for purchase orders
issued in the ordinary course of business, any other agreement (or group of
related agreements) the performance of which involves consideration in excess of
fifty thousand dollars ($50,000).

(b) Each of the contracts listed or required to be listed on the Contracts
Schedule is in full force and effect, and is the legal, valid and binding
obligation of the Company or the Subsidiary of the Company which is party
thereto in accordance with its terms, and, to the knowledge of the Company, of
the other parties thereto enforceable against each of them in accordance with
its terms. Except as set forth on the Contracts Schedule, neither the Company
nor any Subsidiary of the Company (as applicable) is in material default under
any contract listed on the Contracts Schedule, and, to the knowledge of the
Company, the other party to each of the contracts listed on the Contracts
Schedule is not in material default thereunder. Except as set forth on the
Contracts Schedule, no event has occurred that with the lapse of time or the
giving of notice or both would constitute a material breach or default on the
part of the Company, or any Subsidiary of the Company or, to the knowledge of
the Company, any other party under any contract listed on the Contracts
Schedule. Except as set forth on the Contracts Schedule, no party to any
contract listed on the Contracts Schedule has exercised any termination rights
with respect thereto, and no party has given written notice of any material
dispute with respect to any contract listed on the Contracts Schedule. The
Company has made available to the Purchaser true and correct copies of each
contract listed on the Contracts Schedule, together with all amendments,
modifications or supplements thereto.

 

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5.10 Intellectual Property. All registered trademarks and applications to
register trademarks and Internet domain names, patents and patent applications
and copyrights registered after December 31, 1978, all other Intellectual
Property owned or used by the Company or any of its Subsidiaries, and all
licenses (in and out), sublicenses and other agreements to which the Company or
any of its Subsidiaries is a party and pursuant to which the Company or any
other Person is authorized to use any intellectual property or exercise any
rights with respect thereto (but excluding commercially available, off-the-shelf
licenses), are set forth on the Intellectual Property Schedule (collectively,
the “Company Intellectual Property”). Except as set forth on the Intellectual
Property Schedule: (a) the Company and each of its Subsidiaries owns all of the
Company Intellectual Property indicated as being owned by such entity, free and
clear of all Liens (other than Permitted Liens); (b) each item of Company
Intellectual Property indicated as being licensed or sublicensed is rightfully
used by the Company or authorized by the Company for use by another Person
pursuant to a valid and enforceable written license; (c) neither the Company nor
any of its Subsidiaries has received any written claims within the past twelve
(12) months that the Company or any of its Subsidiaries has infringed or
misappropriated the Intellectual Property of any other Person; (d) neither the
Company nor any of its Subsidiaries is currently infringing or misappropriating
the Intellectual Property of any other Person; and (d) to the Company’s
knowledge, there is no infringement, misappropriation or such other conflict by
any other Person involving the Company Intellectual Property. The Company and
its Subsidiaries have entered into binding, written agreements with every
current and former employee and independent contractor of the Company and its
Subsidiaries whereby such employees and independent contractors (i) assign to
the Company or the applicable Subsidiary any ownership interest and right they
may have in any Company Intellectual Property; and (ii) acknowledge the
Company’s or its Subsidiaries’ ownership of all Company Intellectual Property,
and Company has provided Purchaser with copies of all such agreements.

5.11 Litigation. Except as set forth on the Litigation Schedule, there have been
no claims, actions, suits, investigations, or proceedings pending or, to the
Company’s knowledge, expressly threatened against the Company or any of its
Subsidiaries, at law or in equity, or before or by any Governmental Body during
the last five (5) years. Except as set forth on the Litigation Schedule, neither
the Company nor any of its Subsidiaries is subject to any outstanding judgment,
order or decree of any Governmental Body.

5.12 Governmental Consents. Except for the filing of the Certificate of Merger
with the Secretary of State of the State of California, and except as set forth
on the Governmental Consents Schedule, no material permit or authorization of
any Governmental Body is required in connection with any of the execution,
delivery or performance of this Agreement or the other Company Documents by the
Company or the consummation by the Company of any other transaction contemplated
hereby.

5.13 Employee Benefit Plans.

(a) Except as listed on the Employee Benefits Schedule, neither the Company nor
any of its Subsidiaries maintains or contributes to any (i) nonqualified
deferred compensation or retirement plans, (ii) qualified “defined contribution
plans” (as such term is defined under Section 3(34) of ERISA), (iii) qualified
“defined benefit plans” (as such term is defined under Section 3(35) of ERISA)
(the plans set forth in the foregoing clauses (ii) and (iii) are collectively

 

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referred to herein as the “Pension Plans”), or (iv) “welfare benefit plans” (as
such term is defined under Section 3(1) of ERISA) (the “Welfare Plans”). The
Pension Plans and the Welfare Plans are collectively referred to herein as the
“Plans.” Each Pension Plan which is intended to meet the requirements of a
“qualified plan” under Section 401(a) of the Code, has either received a
favorable determination letter from the Internal Revenue Service that such
Pension Plan is so qualified or has requested such a favorable determination
letter within the remedial amendment period of Section 401(b) of the Code and
the Company is not aware of any facts or circumstances that would reasonably be
expected to jeopardize the qualification of such Pension Plan. The Plans comply
in form and in operation in all material respects with their terms and the
requirements of the Code and ERISA.

(b) With respect to the Plans, except as would not result in material liability
to the Company or its Subsidiaries, (i) all required contributions have been
made or properly accrued, (ii) there are no actions, suits or claims pending or,
to the Company’s knowledge, threatened, other than routine claims for benefits,
(iii) to the Company’s knowledge, there have been no “prohibited transactions”
(as that term is defined in Section 406 of ERISA or Section 4975 of the Code),
and (iv) all material reports, returns and similar documents required to be
filed with any Governmental Body or distributed to any Plan participant have
been timely filed or distributed.

(c) Neither the Company nor any of its Subsidiaries has, nor, to the Company’s
knowledge, has any of their respective directors, officers or employees or any
other “fiduciary,” as such term is defined in Section 3 of ERISA, committed any
breach of fiduciary responsibility imposed by ERISA or any other applicable Law
with respect to the Plans which would subject the Company, its Subsidiaries or
any of their respective directors, officers or employees to any material
liability under ERISA or any applicable Law.

(d) Neither the Company nor any of its Subsidiaries has incurred any liability
for any Tax or civil penalty imposed by Section 4975 of the Code or Section 502
of ERISA which has not been satisfied in full.

(e) No Pension Plan (within the meaning of Section 3(2) of ERISA) maintained by
the Company or any of its Subsidiaries which is subject to Section 302 of ERISA
or Section 412 of the Code has incurred any “accumulated funding deficiency” (as
defined in Section 302 of ERISA or Section 412 of the Code), whether or not
waived.

(f) Neither the Company nor any of its Subsidiaries contributes to or has any
liability with respect to any “multiemployer plan” (as defined in Section 3(37)
of ERISA).

(g) Except as set forth on the Employee Benefits Schedule, none of the Welfare
Plans obligates the Company or its Subsidiaries to provide a current or former
employee (or any dependent thereof) any life insurance or medical or health
benefits after his or her termination of employment with the Company or any of
its Subsidiaries, other than as required under Part 6 of Subtitle B of Title I
of ERISA, Section 4980B of the Code or any similar state Law.

 

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(h) The consummation of the transactions contemplated under this Agreement will
not (i) entitle any current or former employee, officer, or director of the
Company or any of its Subsidiaries to severance pay, unemployment compensation
or any similar payment; (ii) accelerate the time of payment or vesting under any
Plan; (iii) directly or indirectly cause the Company to transfer or set aside
any assets to fund or provide compensation or benefits out of the ordinary
course; (iv) limit or restrict the right of the Company to merge, amend or
terminate any Plan; (v) increase the amount payable under or result in any
material obligation pursuant to any Plan; or (vi) result in “excess parachute
payments” within the meaning of Section 280G(b) of the Code, but determined by
excluding any payments made or to be made pursuant to agreements negotiated by
the Purchaser or agreements entered into after the date hereof.

(i) To the knowledge of the Company, and except as would not reasonably be
expected to result in a material liability to the Company or any of its
Subsidiaries, each Welfare Plan subject to the Patient Protection and Affordable
Care Act (“ACA”) is (i) in operational and documentary compliance with ACA, and
(ii) not subject to penalty under Section 4980H of the Code.

5.14 Insurance. The Insurance Schedule sets forth each insurance policy
maintained by the Company and its Subsidiaries on their properties, assets,
products, business or personnel (the “Insurance Policies”), including the name
of the insurer, name of policyholder, and name of each covered insured. Neither
the Company nor any of its Subsidiaries has failed to give any notice or present
any material claim under any Insurance Policy in due and timely fashion. With
respect to each Insurance Policy: (i) the policy is legal, valid, binding,
enforceable, and in full force and effect; (ii) neither the Company nor, to the
knowledge of Company, any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; and (iii) no party to the policy has repudiated
any provision thereof. There are no outstanding claims by the Company or its
Subsidiaries under the Insurance Policies. No insurance company has asserted in
writing that any claim by the Company is not covered by the applicable policy
relating to such claim.

5.15 Environmental Matters. Except as set forth on the Environmental Matters
Schedule:

(a) The Company and its Subsidiaries, and to the Company’s knowledge, all of
their predecessors, are and during the past five (5) years have been in
compliance with all Environmental Laws applicable to its operations at and
occupancy of the real property listed on the Leased Real Property Schedule and
all other locations operated by the Company or any of its Subsidiaries, except
where the failure to comply would not cause a Material Adverse Change.

(b) Neither the Company nor any of its Subsidiaries has during the past five
(5) years received written notice from any Governmental Body regarding any
actual or alleged violation of or liability or investigatory, corrective or
remedial obligation under Environmental Laws applicable to its operations at the
Leased Real Property listed on the Leased Real Property Schedule except for any
such notices that would not cause a Material Adverse Change.

 

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(c) Neither the Company nor any of its Subsidiaries is subject to any current,
or, to the Company’s knowledge, threatened, claim, order, directive or complaint
asserting a material remedial obligation or liability under Environmental Laws
with respect to conditions at any of the Leased Real Property listed on the
Leased Real Property Schedule, except for any of the forgoing that would not
cause a Material Adverse Change.

(d) The Company and its Subsidiaries have obtained and are in compliance with
all permits, licenses and authorizations required under Environmental Laws for
its current operations at the Leased Real Property listed on the Leased Real
Property Schedule, except where the failure to do so would not cause a Material
Adverse Change.

(e) No Hazardous Materials have been released in soil, water, surface water,
groundwater, air, geologic formations, equipment, structures or buildings at,
in, on, under or migrating from any of the Leased Real Property or any real
property formerly owned, leased or operated by the Company, in concentrations or
amounts that would require remedial or response actions by the Company under any
Environmental Laws, except as would not cause a Material Adverse Change.

(f) No one has asserted in writing and, to the knowledge of the Company, no one
has threatened to assert a claim for personal injury or property damage against
the Company or its Subsidiaries, or against any of assets of the Company or its
Subsidiaries, allegedly related in any degree to a violation of Environmental
Law or exposure to any Hazardous Material, except for any such claim that would
not cause a Material Adverse Change.

5.16 Affiliated Transactions. Except as set forth on the Affiliated Transactions
Schedule, no officer, director, employee, or Affiliate of the Company or its
Subsidiaries: (a) owns any material interest in any competitor, lessor, lessee
or customer or supplier of the Company or its Subsidiaries, or (b) is a party to
any agreement, contract, commitment or transaction with the Company or its
Subsidiaries or has any interest in any material property used by the Company or
its Subsidiaries, other than for the payment of wages, salaries and bonuses to
officers, directors, or employees of the Company or its Subsidiaries for
services performed in the ordinary course of business.

5.17 Brokerage. Except as set forth on the Brokerage Schedule, there are no
claims for brokerage commissions, finders’ fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Company.

5.18 Permits; Compliance with Laws.

(a) Except as set forth on the Permits Schedule, each of the Company and its
Subsidiaries holds and is in compliance, in all material respects, with all
material Permits which are required for the operation of the business of the
Company and its Subsidiaries as presently conducted. Neither the Company nor its
Subsidiaries have received written notice of any proceedings pending or, to the
knowledge of the Company, threatened, relating to the suspension, revocation or
modification of any material Permit which is required for the operation of the
business of the Company and its Subsidiaries as presently conducted.

 

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(b) Except as set forth on the Compliance with Laws Schedule, (i) the Company
and its Subsidiaries are in compliance, in all material respects, with all Laws
applicable to their respective businesses, operations and assets, and
(ii) neither the Company nor any of its Subsidiaries has received any written
notice of any action or proceeding against it alleging any material failure to
comply with any applicable Law. Neither the Company nor any of its Subsidiaries
has been debarred from bidding on any project for any Governmental Body. No
claims or actions have been taken by any person or entity which could reasonably
be expected to cause a Material Adverse Change. There have been no product
recalls affecting the products of the Company or its Subsidiaries during the
five (5) year period prior to the Closing Date.

5.19 Employees.

(a) The Employees Schedule lists all persons who are employees, independent
contractors or consultants of the Company or its Subsidiaries, and sets forth
for each such individual the following: (i) name; (ii) title or position
(including whether full or part time; (iii) hire date; (iv) current annual base
compensation rate; and (v) commission, bonus, or other incentive based
compensation. As of the Closing Date, except as set forth on the Employees
Schedule, all compensation, including wages, commissions and bonuses, payable to
employees, independent contractors or consultants of the Company or its
Subsidiaries for services performed on or prior to the Closing Date have been
paid in full (or accrued in full in accordance with GAAP) and there are no
outstanding agreements, understandings or commitments of the Company or its
Subsidiaries with respect to any compensation, commissions or bonuses.

(b) Since the date of the Latest Balance Sheet, there has not been any material
change in the compensation of the Covered Employees (except for compensation
increases and decreases in the ordinary course of business). Since the date of
the Latest Balance Sheet, neither the Company nor any of its Subsidiaries has
taken any action which would constitute a “plant closing” or “mass layoff”
within the meaning of WARN or issued any notification of a plant closing or mass
layoff required by WARN.

(c) Except as set forth on the Contracts Schedule, neither the Company nor any
of its Subsidiaries is party to or bound by any collective bargaining agreement
or similar agreement with any labor organization. Except as set forth on the
Employees Schedule: (i) to the Company’s knowledge, there are and within the
past three (3) years have been no union organizing activities involving
employees of the Company or any of its Subsidiaries; (ii) there are no pending
or, to the Company’s knowledge, overtly threatened strikes, work stoppages,
walkouts, lockouts, or similar material labor disputes and no such disputes have
occurred within the past three (3) years; and (iii) within the past six
(6) months, neither the Company nor any of the Subsidiaries has committed a
material unfair labor practice, and there are no pending or, to the Company’s
knowledge, overtly threatened, unfair labor practice charges or complaints
against the Company or any of its Subsidiaries.

(d) The Company and its Subsidiaries are in compliance with all applicable laws
pertaining to employment and employment practices, including all laws relating
to labor relations, equal employment opportunities, fair employment practices,
employment discrimination, harassment, retaliation, reasonable accommodation,
disability rights or benefits,

 

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immigration, wages, hours, overtime compensation, commissions and commission
agreements, child labor, hiring, promotion and termination of employees, working
conditions, meal and break periods, privacy, health and safety, workers’
compensation, leaves of absence and unemployment insurance. All individuals
characterized and treated by the Company and its Subsidiaries as independent
contractors or consultants are properly treated as independent contractors under
all applicable laws. All employees classified as exempt under the Fair Labor
Standards Act and state and local wage and hour laws are properly classified.
There are no actions or proceedings against the Company or any of its
Subsidiaries pending, or to the knowledge of the Company, threatened to be
brought or filed, by or with any governmental authority or arbitrator in
connection with the employment of any current or former applicant, employee,
consultant or independent contractor of the Company or any of its Subsidiaries,
including, without limitation, any claim relating to unfair labor practices,
employment discrimination, harassment, retaliation, equal pay, wage and hours or
any other employment related matter arising under applicable laws.

5.20 Customers and Suppliers. The Customers and Suppliers Schedule sets forth
(a) a list of the top ten (10) customers of the Company and its Subsidiaries on
a consolidated basis by volume of sales to such customers for the two (2) most
recent fiscal years, and sets forth opposite the name of such customer the
dollar amount of net sales of the Company attributable to such customer during
such period, and (b) a list of the top ten (10) suppliers of the Company and its
Subsidiaries on a consolidated basis by dollar value of net purchases from such
suppliers, for the two (2) most recent fiscal years, and sets forth opposite the
name of such supplier the dollar amount of purchases attributable to such
supplier during such period. Neither the Company nor any of its Subsidiaries has
received any written, or to the Company’s knowledge, oral, indication from any
of the customers listed on the Customers and Suppliers Schedule to the effect
that any such customer will stop, materially decrease the rate of, or materially
change the payment or price terms with respect to, buying products from the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received any written, or to the Company’s knowledge, oral,
indication from any of the suppliers listed on the Customers and Suppliers
Schedule to the effect that any such supplier will stop, materially decrease the
rate of, or materially change the payment or price terms with respect to,
supplying products or services to the Company or any of its Subsidiaries.

5.21 Product Warranties and Liabilities. The Company has provided Purchaser with
copies of all Warranties given or made by the Company or its Subsidiaries other
than Warranties arising under the Company’s or its Subsidiaries’ standard terms
and conditions. Neither the Company nor any of its Subsidiaries (a) has received
any written, or to the Company’s knowledge, oral, claim from a customer or
supplier of the Company or its Subsidiaries alleging that the Company’s or its
Subsidiaries’ products are defective or (b) has knowledge of any intention on
the part of any customer to return any allegedly defective products, except for
returns by customers in the ordinary course of business involving less than
$5,000. No reserves have been set aside in the Financial Statements for Warranty
claims and product returns. Notwithstanding any other representations and
warranties in this Agreement, the representations and warranties in this
Section 5.21 are the only representations and warranties in connection with the
transactions contemplated by this Agreement regarding or relating to Warranties
and product liability claims.

 

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5.22 Bank Accounts, Powers of Attorney. The Company has provided Purchaser with
a true and complete list of (i) the name of each bank in which the Company or
any of its Subsidiaries has an account or safe deposit box and a brief
description thereof and (ii) the names of all persons, if any, having powers of
attorney from the Company or any of its Subsidiaries and a summary statement of
the terms of the power of attorney.

5.23 Anti-Corruption.

(a) The Company and its Subsidiaries have complied in all material respects with
Anti-Corruption Legislation.

(b) (i) The Company and its Subsidiaries have in place policies and procedures
that are intended to prevent Corruption; (ii) such policies and procedures are
designed to cover compliance and corruption risk under Anti-Corruption
Legislation; and (iii) such policies and procedures are monitored and enforced
by management to prevent Corruption.

(c) No violations or potential violations regarding Corruption or relating to
potential breaches of Anti-Corruption Legislation have been reported by any
employees of the Company or, to the Company’s knowledge, any other Person, in
the past six (6) years.

(d) The Company has not been notified nor are they otherwise aware of any
governmental investigations relating to Corruption or breaches of
Anti-Corruption Legislation that have been instituted against the Company, its
Subsidiaries, or any employee of the Company or its Subsidiaries in the past six
(6) years.

(e) Neither the Company nor any of its Subsidiaries have made any donation to
any political party or any incumbent government in violation of Anti-Corruption
Legislation in the past six (6) years.

5.24 Export Control Compliance.

(a) The Company and its Subsidiaries are in all material respects in compliance
with all applicable statutory and regulatory requirements relating to import,
export and international trade laws, including under the Arms Export Control Act
(22 U.S.C. § 2778), the International Traffic in Arms Regulations (22 C.F.R.
Part 120 et seq.), the Export Administration Regulations (15 C.F.R. Part 730 et
seq.) and associated executive orders, and the economic sanctions laws,
regulations and associated executive orders administered by the Office of
Foreign Assets Control, the United States Department of the Treasury, the United
States Department of Commerce and the United States Department of State
(collectively, the “U.S. Trade Control Laws”). The Company has obtained all
necessary U.S. government approvals and licenses required to fulfill any pending
commitments of the Company. The Company has not been cited or fined for past or
present failure to comply with the U.S. Trade Control Laws within the last three
(3) years, and to Company’s knowledge, no investigation or proceeding with
respect to any alleged non-compliance with U.S. Trade Control Laws by the
Company or the Business is pending or threatened. The Company has in place
adequate controls to ensure compliance with any applicable laws pertaining to
the export and import of goods, services and technology.

 

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(b) The Company and the Subsidiaries are in compliance in all material respects
with all applicable U.S. and non U.S. international trade and customs Laws and
regulations (“Customs Laws”), including any export or import declaration filing,
payment of customs duties, compliance with import quotas, import registration or
any other similar requirements related to the exportation or importation of
supplies or services by the Company or any Subsidiary. To the knowledge of the
Company, there is no prosecutorial charge, proceeding or investigation by any
Governmental Body with respect to a violation of any applicable Customs Laws
that is now pending or threatened with respect to the Company or any Subsidiary.
Neither the Company nor any Subsidiary have made any voluntary disclosure with
respect to a possible violation of Customs Laws to any Governmental Body.

5.25 Government Contracts.

(a) The Government Contracts Schedule sets forth a true and complete list of
(i) all of the Government Contracts of the Company or any Subsidiary (other than
delivery orders and purchase orders) with a value in excess of $50,000 under
which (A) the Company or any Subsidiary is performing or (B) since April 1,
2010, has performed and under which final payment has not been received (the
Government Contracts required to be set forth pursuant to subclause (i) above,
collectively, the “Active Government Contracts”); (ii) all of the Government
Contracts of the Company or any Subsidiary (other than delivery orders and
purchase orders for less than $25,000) with a value in excess of $50,000 which
were in effect subsequent to April 1, 2010, but which are no longer in effect;
and (iii) all of the outstanding quotations, bids and proposals of the Company
or any Subsidiary (other than those related to delivery orders and purchase
orders) for Government Contracts with an expected value in excess of $50,000.
Neither the Company nor any of its Subsidiaries are party to any teaming
agreements.

(b) The Company and its Subsidiaries have provided to the Purchaser true and
complete copies of all of the contracts listed on the Government Contracts
Schedule. Except as otherwise specified on the Government Contracts Schedule,
neither the Company nor any Subsidiary are, and, to the knowledge of the
Company, no other party is, in default or material breach under any Active
Government Contract. To the knowledge of the Company, no event has occurred
that, with or without notice or lapse of time or both, would result in a default
or material breach under any Active Government Contract. Except as otherwise
specified on the Government Contracts Schedule, (i) each Active Government
Contract is in full force and effect, and is the valid, binding and enforceable
obligation of the Company or a Subsidiary (as applicable) and, to the knowledge
of the Company, of the other parties thereto, subject in each case to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar Laws now or
hereafter in effect relating to or affecting creditors’ rights generally or by
general equitable principles regardless of whether such enforceability is
considered in a proceeding in equity or at law, and (ii) each of the outstanding
quotations, bids and proposals of the Company or any Subsidiary for any such
contract was made in the ordinary course of business

(c) To the knowledge of the Company, except as described on the Government
Contracts Schedule, all of the Government Contracts of the Company and the
Subsidiaries were legally awarded, and such Government Contracts (or, where
applicable, the prime Government Contracts under which such Government Contracts
were awarded) are not

 

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currently the subject of bid or award protest proceedings or a stop work order
and, to the knowledge of the Company, are not reasonably likely to become
subject to a stop work order.

(d) To the knowledge of the Company, the Company and the Subsidiaries have
complied with the pricing and discount disclosure requirements in all of their
Government Contracts, including all “Most Favored Customer” and price-reduction
clauses.

(e) The Company and the Subsidiaries have complied with all statutory and
regulatory requirements, including those related to providing goods manufactured
by other firms under small business set-aside contracts, the Federal Acquisition
Regulation (“FAR”) and the relevant agency supplements, the Cost Accounting
Standards, the Buy American Act and the Trade Agreements Act to the extent
applicable to each of the Government Contracts of the Company or any Subsidiary
and each of the quotations, bids and proposals of the Company or any Subsidiary
for Government Contracts.

(f) The Company and the Subsidiaries have complied in all material respects with
all terms and conditions, including all clauses, provisions, specifications and
quality assurance, testing and inspection requirements of the Government
Contracts of the Company or any Subsidiary, including those provisions related
to reporting and payment of the Industrial Funding Fee, at 48 C.F.R 552.238-74,
whether incorporated expressly, by reference or by operation of law.

(g) The Company and the Subsidiaries have complied in all material respects with
all applicable representations, certifications and disclosure requirements under
each of the Government Contracts of the Company or any Subsidiary and each of
the quotations, bids and proposals of the Company or any Subsidiary for
Government Contracts.

(h) To the knowledge of the Company, in connection with their Active Government
Contracts, there are no past performance evaluations or ratings of any nature by
the U.S. Government that would reasonably be expected to result in any adverse
or negative past performance evaluation or rating by the U.S. Government, in
each case, that would reasonably be expected to materially and adversely affect
the evaluation of any of the quotations, bids or proposals of the Company or any
Subsidiary for a future Government Contract.

(i) With respect to the Active Government Contracts, neither the U.S. Government
nor any prime contractor or higher-tier subcontractor under such Government
Contract has notified the Company or any Subsidiary of any actual or alleged
material violation or breach of any statute, regulation, representation,
certification or disclosure obligation and, to the knowledge of the Company, no
events, facts or circumstances are reasonably expected to give rise to such a
notification.

(j) There are no material outstanding claims or disputes pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary
relating to the Government Contracts of the Company or any Subsidiary and
involving either the U.S. Government, any prime contractor or any higher-tier
subcontractor.

(k) Neither the Company nor any Subsidiary has received any (i) show cause
notice, (ii) cure notice or (iii) other material written notice of deficiency,
default or termination

 

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relating to the Active Government Contracts and, to the knowledge of the
Company, no facts or circumstances are reasonably expected to result in such a
notice.

(l) Neither the Company nor the Subsidiaries, including any of the officers or
“Principals” (as such term is defined at FAR 2.101) of the Company or any
Subsidiary, have been or are now suspended, debarred, or proposed for suspension
or debarment from contracting with a Governmental Body. To the knowledge of the
Company, there is no valid basis for the suspension or debarment of the Company,
any Subsidiary or any of their Principals from contracting with a Governmental
Body, as set forth in FAR 9.406-2 and FAR 9.407-2.

(m) Except for routine contract administration activities, to the knowledge of
the Company, neither the Company nor any Subsidiary has undergone or is
undergoing any audit, review, inspection, investigation, survey or examination
of records relating to the Government Contracts of the Company or such
Subsidiary.

(n) Except as set forth on the Government Contracts Schedule none of the Active
Government Contracts were awarded on the basis of the Company’s or any
Subsidiary’s qualifications under small business set-asides, HUB Zone small
business set-asides, veteran-owned small business set-asides, service disabled
veteran owned small business set-asides, small disadvantaged business set-asides
or any other similar federal, state or local government set-asides, nor did the
Company or any Subsidiary certify or represent themselves to a Governmental Body
or higher tier contractor as qualifying for such set-asides.

5.26 Inventories. All of the Inventories of the Company reflected in the Latest
Balance Sheet or which are purchased or acquired after the date of the Latest
Balance Sheet consist of a quality and quantity usable and, with respect to
finished goods, saleable, in the ordinary course of business and none of the
Inventories is slow-moving, obsolete, damaged or defective, except for obsolete
items that have been written off or written down to net realizable value in the
Latest Balance Sheet and items for which an appropriate reserve has been
reflected on the Latest Balance Sheet. All Inventories have been purchased or
acquired by the Company in the ordinary course of business, and are valued
according to GAAP, consistently applied, at the lower of cost or market on a
first-in, first-out basis.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB

The Purchaser and the Merger Sub represent and warrant to the Stockholders, the
Optionholders, the Company and the Representative that:

6.01 Organization and Corporate Power. The Purchaser is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Ohio, with full power and authority to execute and deliver this Agreement and
each other agreement, document, instrument or certificate contemplated by this
Agreement to be executed by the Purchaser in connection with the transactions
contemplated by this Agreement (the “Purchaser Documents”) and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Merger Sub is a corporation duly organized,
validly

 

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existing and in active status under the Laws of the State of California, with
full corporate power and authority to enter into this Agreement and each other
agreement, document, instrument or certificate contemplated by this Agreement to
be executed by the Merger Sub in connection with the transactions contemplated
by this Agreement (the “Merger Sub Documents”) and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The Merger Sub is a wholly-owned direct Subsidiary of the
Purchaser.

6.02 Authorization. The execution, delivery and performance of this Agreement
and each of the Purchaser Documents or the Merger Sub Documents (as applicable)
by the Purchaser and the Merger Sub and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized and
approved by all requisite corporate action, and no other corporate proceedings
on their part are necessary to authorize the execution, delivery or performance
of this Agreement. This Agreement has been, and each of the Purchaser Documents
or the Merger Sub Documents (as applicable) will be at or prior to the Closing,
duly and validly authorized, executed and delivered by the Purchaser and the
Merger Sub (as applicable), and assuming that each of this Agreement, the
Purchaser Documents and the Merger Sub Documents is a valid and binding
obligation of the other parties hereto and thereto, this Agreement constitutes,
and each of the Purchaser Documents or the Merger Sub Documents (as applicable)
when so executed and delivered will constitute, a legal, valid and binding
obligation of the Purchaser and the Merger Sub, enforceable against the
Purchaser and the Merger Sub in accordance with its respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar Laws relating to
or affecting creditors’ rights or to general principles of equity.

6.03 No Violation. Neither the Purchaser nor the Merger Sub is subject to or
obligated under its certificate of incorporation or its bylaws (or equivalent
governing documents), any applicable Law, or rule or regulation of any
Governmental Body, or any material agreement or instrument, or any license,
franchise or permit, or subject to any order, writ, injunction or decree, which
would be breached or violated in any material respect by the Purchaser’s or the
Merger Sub’s execution, delivery or performance of this Agreement and the
Purchaser Documents or the Merger Documents (as applicable).

6.04 Governmental Bodies; Consents. Except for the filing of the Certificate of
Merger with the Secretary of State of the State of California, neither the
Purchaser nor the Merger Sub is required to submit any notice, report or other
filing with any Governmental Body in connection with the execution, delivery or
performance by it of this Agreement or the consummation of the transactions
contemplated hereby. No consent, approval or authorization of any Governmental
Body or any other party or Person is required to be obtained by the Purchaser or
the Merger Sub in connection with its execution, delivery and performance of
this Agreement or the consummation of the transactions contemplated hereby.

6.05 Litigation. There are no actions, suits or proceedings pending or, to the
Purchaser’s or Merger Sub’s knowledge, overtly threatened against or affecting
the Purchaser or the Merger Sub at law or in equity, or before or by any
Governmental Body, which would adversely affect the Purchaser’s or the Merger
Sub’s performance under this Agreement or the consummation of the transactions
contemplated hereby.

 

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6.06 Brokerage. There are no claims for brokerage commissions, finders’ fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Purchaser or the Merger Sub.

6.07 Investment Representation. The Purchaser is acquiring the Company Stock for
its own account with the present intention of holding such securities for
investment purposes and not with a view to, or for sale in connection with, any
distribution of such securities in violation of any securities Laws.

6.08 Financing. The Purchaser and the Merger Sub each have and shall have at
Closing sufficient immediately available funds to pay the full Enterprise Value
and to make all other payments required by the terms hereof, to pay all related
fees and expenses incurred by Purchaser in connection with this Agreement and
the transactions contemplated hereby and to otherwise consummate the
transactions contemplated hereby.

6.09 Access and Investigation. Each of the Purchaser, the Merger Sub and their
respective representatives (a) have had access to and the opportunity to review
all of the documents in the Project Shark data room maintained by Ansarada on
behalf of the Company, and (b) has been afforded full access to the books and
records, facilities and officers, directors, employees and other representatives
of the Company and its Subsidiaries for purposes of conducting a due diligence
investigation with respect thereto. The Purchaser and the Merger Sub have each
conducted to its satisfaction an independent investigation and verification of
the financial condition, results of operations, assets, liabilities, properties
and projected operations of the Company, each of its Subsidiaries and any of
their respective joint ventures and businesses, and, in making its determination
to proceed with the transactions contemplated by this Agreement, the Purchaser,
the Merger Sub and each of their respective Non-Recourse Parties have relied
solely on the results of such independent investigation and verification and on
the representations and warranties of the Company expressly and specifically set
forth in Article V (together with any representations and warranties expressly
and specifically made by the Stockholders or Optionholders in their respective
Letters of Transmittal), as qualified by the Disclosure Schedules.

ARTICLE VII

COVENANTS OF THE COMPANY AND STOCKHOLDERS

7.01 Release. Except with respect to Stockholders’ and Optionholders’ rights
arising under this Agreement (including for the payment of consideration) and
any other agreements entered into in connection herewith and contemplated hereby
and any rights to indemnification or to advancement or reimbursement of expenses
to which the current and former directors and officers of the Company or of any
of its Subsidiaries may be entitled pursuant to this Agreement or the Company’s
or any of its Subsidiaries’ organizational documents, each Stockholder and
Optionholder hereby releases and discharges the Purchaser, Company, its
Subsidiaries, and each of their respective successors, heirs and assigns from
any and all obligations (including indemnification obligations) and claims,
known and unknown, that have accrued or may accrue and that relate to acts or
omissions prior to the Closing Date, whether such obligations, claims or Losses
arise in tort, contract or statute, including obligations, claims or Losses
(a) arising under

 

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any contract or any other legal requirements and (b) relating to actions or
omissions of the directors, officers, owners, partners, equity holders or
employees (former or present) of the Company or its Subsidiaries, including
those committed while serving in their capacity as managers, officers, members,
partners, equity holders or similar capacities of the Company and its
Subsidiaries, and including in each case any and all claims which Stockholder or
Optionholder does not know or suspect to exist in his favor as of the date of
this Agreement. Each Stockholder and Optionholder hereby waives any preemptive
rights, rights of first refusal, rights of first offer or other similar rights
that Stockholder may have, or ever had, with respect to any interest in the
Company and any of its Subsidiaries and waives any right Stockholder or
Optionholder may have under the organizational documents of the Company or
otherwise to acquire any interest in the Company being transferred pursuant to,
or as contemplated by, this Agreement or any transfer that occurred prior to the
date of this Agreement. THE RELEASES CONTAINED IN THIS SECTION APPLY TO ALL
CLAIMS AND EACH STOCKHOLDER AND OPTIONHOLDER AGREES TO WAIVE THE BENEFITS OF ANY
LEGAL REQUIREMENTS (INCLUDING PRINCIPLES OF COMMON LAW) OF ANY STATE OR
TERRITORY OR OTHER JURISDICTION OF THE UNITED STATES OR ANY JURISDICTION OUTSIDE
THE UNITED STATES, SPECIFICALLY INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL
CODE THAT PROVIDES THAT A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN THE CREDITOR’S FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF KNOWN BY THE CREDITOR MUST HAVE MATERIALLY
AFFECTED THE CREDITOR’S SETTLEMENT WITH THE DEBTOR. Each Stockholder and
Optionholder expressly understands and acknowledges that it is possible that
unknown losses or claims exist or that present losses may have been
underestimated in amount or severity, and explicitly took that into account in
determining the amount of consideration to be paid for the giving of this
release, and a portion of said consideration and the mutual covenants contained
herein, having been agreed between the parties with the knowledge of the
possibility of such unknown claims, were given in exchange for a full
satisfaction and discharge of all such claims.

7.02 Intercompany Indebtedness. Prior to the Closing, Company shall cause all
Intercompany Indebtedness to be paid in full.

ARTICLE VIII

COVENANTS OF THE PURCHASER

8.01 Access to Books and Records. From and after the Closing, the Purchaser
shall, and shall cause the Surviving Corporation and its Subsidiaries to,
provide the Stockholders, the Optionholders, the Representative and their
respective agents with reasonable access (for the purpose of examining and
copying), during normal business hours, and upon reasonable advance notice, to
the books and records of the Surviving Corporation and its Subsidiaries with
respect to periods or occurrences prior to the Closing Date and reasonable
access, during normal business hours, and upon reasonable advance notice, to
employees of each of the Purchaser, the Surviving Corporation, and each of their
respective Affiliates for purposes of complying with any applicable tax,
financial reporting or regulatory requirements or any other reasonable business
purpose. From and after the Closing, the Purchaser shall, and shall cause the
Surviving

 

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Corporation and its Subsidiaries to, provide the Representative and his
respective agents with such access to the books and records of the Surviving
Corporation and its Subsidiaries as is reasonably necessary for the
Representative to manage and handle the defense, settlement or other disposition
of the matters set forth on the Specific Indemnity Schedule as described in
Section 11.05(c) hereof. Unless otherwise consented to in writing by the
Representative, neither the Purchaser nor the Surviving Corporation shall, for a
period of seven (7) years following the Closing Date, destroy, alter or
otherwise dispose of any of the books and records of the Company for any period
prior to the Closing Date without first offering to surrender to the
Representative such books and records or any portion thereof which the
Purchaser, the Surviving Corporation or any of their respective Subsidiaries may
intend to destroy, alter or dispose of.

8.02 Director and Officer Liability and Indemnification.

(a) Prior to or simultaneously with the Closing, the Purchaser shall, or shall
cause the Surviving Corporation (at the Purchaser’s expense) to purchase from an
insurance carrier with the same or better credit rating as the Company’s current
insurance carrier with respect to directors’ and officers’ liability insurance a
prepaid insurance policy (i.e., “tail coverage”) which provides “side A, B and C
directors and officers” insurance coverage for each of the individuals who were
officers, directors or similar functionaries of the Company or any of its
Subsidiaries at or prior to the Effective Time with a directors and officers
policy limit on terms no less favorable terms (including in with respect to
coverage amounts and scope) as the policy or policies maintained by the Company
or any of its Subsidiaries immediately prior to the Closing for the benefit of
such individuals for an aggregate period of not less than six (6) years with
respect to claims arising from acts, events or omissions that occurred at or
prior to the Closing, including with respect to the transactions contemplated by
this Agreement (such policies, the “D&O Tail Policies”).

(b) For a period of six (6) years after the Closing, the Purchaser shall not,
and shall not permit the Surviving Corporation or any of its Subsidiaries to,
amend, repeal or otherwise modify any provision in the Surviving Corporation’s
or any of its Subsidiaries’ certificate or articles of incorporation or bylaws
(or equivalent governing documents) relating to the exculpation or
indemnification of any officers, directors or similar functionaries (unless to
provide for greater exculpation or indemnification or unless required by Law),
it being the intent of the parties hereto that the current and former officers,
directors and similar functionaries of the Company and its Subsidiaries shall
continue to be entitled to such exculpation and indemnification (including with
respect to advancement of expenses) to the full extent of the Law. The Purchaser
agrees and acknowledges that this Section 8.02 shall be binding on the
Purchaser’s successors and assigns.

(c) If the Surviving Corporation, its Subsidiaries or any of their respective
successors or assigns (i) shall consolidate with or merge into any other Person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) shall transfer all or substantially all of its
properties and assets to any Person, then, and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation and its Subsidiaries shall assume all of the obligations set forth
in this Section 8.02.

 

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(d) Notwithstanding anything in this Agreement to the contrary, if any claim,
action, suit, proceeding or investigation (whether arising before, at or after
the Closing Date) is made against any individual who was an officer, director or
similar functionary of the Company or its Subsidiaries at or prior to the
Effective Time or any other party covered by directors’ and officers’ liability
insurance, on or prior to the sixth (6th) anniversary of the Effective Time, the
provisions of this Section 8.02 shall continue in effect until the final
disposition of such claim, action, suit, proceeding or investigation.

(e) The obligations under this Section 8.02 shall not be terminated or modified
in such a manner as to affect adversely any indemnitee or exculpee to whom this
Section 8.02 applies without the consent of such affected indemnitee or
exculpee. The provisions of this Section 8.02 are intended for the benefit of,
and will be enforceable by (as express third-party beneficiaries), each current
and former officer, director or similar functionary of the Company and its
Subsidiaries and his or her heirs and representatives, successors and assigns
and are in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have had by contract or
otherwise.

8.03 Payments to Optionholders and Other Individuals. In order to ensure
compliance with applicable Tax withholding requirements, any payments made
hereunder to any Optionholder (including, for the avoidance of doubt,
disbursements of any portion of the Merger Consideration), shall be made through
the payroll processing system of the Surviving Corporation or any of its
Subsidiaries. To ensure compliance with Treasury Regulation §1.409A-3(i)(5)(iv),
the Optionholders shall not be entitled to receive any payment, and no payment
shall be made to the Optionholders, in connection with the transaction
contemplated hereby later than the date which is five (5) years after the
Closing Date (it being understood that the Stockholders may receive payments
after the date which is five (5) years after the Closing Date, including, for
the avoidance of doubt, amounts that, if paid prior to the date which is five
(5) years after the Closing Date, would have been paid to the Optionholders).

ARTICLE IX

TERMINATION

9.01 Termination. This Agreement may be terminated at any time prior to the
Effective Time by the Purchaser and the Merger Sub if the Stockholder Approval
has not occurred within twenty-four (24) hours from the time of the execution of
this Agreement.

9.02 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.01, this Agreement shall become void and of no further force and
effect (other than this Section 9.02, Article I, Section 13.02, Section 13.12,
Section 13.13 and Section 13.16, which shall survive the termination of this
Agreement) without any liability or obligation on the part of any party hereto,
(a) other than liabilities and obligations under the Confidentiality Agreement
and (b) except that no such termination shall relieve any party hereto of any
liability for damages resulting from any willful breach by such party of this
Agreement.

9.03 Termination Expenses. In the event that this Agreement is terminated
pursuant to Section 9.01, the Company shall cause to be paid to Purchaser, in
cash, by wire transfer of

 

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immediately available funds to an account designated by Purchaser, within one
(1) Business Day thereafter, up to an aggregate amount of $500,000 of all
reasonable and documented out of pocket expenses of Purchaser incurred on or
after February 23, 2015, including reasonable and documented fees and expenses
of financial advisors, outside legal counsel, accountants, experts, consultants
and other service providers, incurred by Purchaser and its Affiliates or on
their respective behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement and the
transactions contemplated hereby.

ARTICLE X

ADDITIONAL AGREEMENTS AND COVENANTS

10.01 Acknowledgment by the Purchaser.

The representations and warranties of the Company expressly and specifically set
forth in Article V (together with any representations and warranties expressly
and specifically made by the Stockholders and Optionholders in their respective
Letters of Transmittal and Option Cancellation Agreements), as qualified by the
Disclosure Schedules, constitute the sole and exclusive representations,
warranties, and statements (including by omission) of any kind or nature,
whether written or oral, expressed or implied, statutory or otherwise
(including, for the avoidance of doubt, relating to quality, quantity,
condition, merchantability, fitness for a particular purpose or conformity to
samples) of any of the Company, the Stockholders and Optionholders, the
Representative or any of their respective Non-Recourse Parties as to any matter
concerning the Company, any of its Subsidiaries or any of their respective joint
ventures or businesses or in connection with this Agreement or the transactions
contemplated by this Agreement, or with respect to the accuracy or completeness
of any information provided to (or otherwise acquired by) the Purchaser or the
Merger Sub or any of their respective Non-Recourse Parties in connection with
this Agreement or the transactions contemplated by this Agreement (including,
for the avoidance of doubt, any statements, information, documents, projections,
forecasts or other material made available to the Purchaser, the Merger Sub or
any of their respective Non-Recourse Parties in certain “data rooms” or
presentations including “management presentations”) and all other purported
representations and warranties or statements (including by omission) are hereby
disclaimed by the Company, the Stockholders and Optionholders, the
Representative and each of their respective Non-Recourse Parties and none of the
Purchaser or the Merger Sub or any of their respective Non-Recourse Parties
shall have any claim with respect to their purported use of, or reliance on, any
such representations, warranties or statements (including by omission). The
Purchaser and the Merger Sub are otherwise acquiring the Company, its
Subsidiaries, its joint ventures and their respective businesses on an “AS IS,
WHERE IS” basis.

10.02 Further Assurances. From time to time, as and when requested by any party
hereto and at such party’s expense, any other party shall execute and deliver,
or cause to be executed and delivered, all such documents and instruments and
shall take, or cause to be taken, all such further or other actions as such
requesting party may reasonably deem necessary or desirable to evidence and
effectuate the transactions contemplated by this Agreement.

10.03 Employees and Employee Benefits.

 

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(a) Salary and Wages. The Purchaser will cause the Company to continue the
employment effective immediately after the Closing Date of all employees of the
Company and its Subsidiaries, including each such employee on medical,
disability, family or other leave of absence as of the Closing Date. All such
employees of the Company and its Subsidiaries who are employed by the Company
and its Subsidiaries immediately following the Closing Date are referred to as
“Retained Employees”. The Purchaser will cause the Company to provide each such
Retained Employee who remains employed with at least the same base wages, annual
base salary and annual rate of cash bonus potential (determined as a percentage
of annual base salary) (but excluding any equity plan program or arrangement)
provided to each such employee on the Closing Date for a period of at least one
(1) year following the Closing Date; provided, however, that nothing in this
Section 10.03(a) shall obligate the Purchaser or the Company or any of its
Subsidiaries to continue the employment of any such Retained Employee for any
specific period.

(b) Employee Benefits. As of the Closing Date and for a period of at least one
(1) year thereafter, the Purchaser shall provide, or shall cause the Company to
provide, each Retained Employee with benefits (other than any equity based
compensation) that are substantially similar in the aggregate to the benefits
provided to such Retained Employee immediately prior to the Closing Date.

(c) Employee Service Credit. The Purchaser (i) shall give, or cause the Company
to give, each Retained Employee credit under any benefit plan or personnel
policies that cover the Retained Employee after the Closing Date, including any
vacation, sick leave and severance policies, for purposes of eligibility,
vesting and entitlement to vacation, sick leave and severance benefits for the
Retained Employee’s service with the Company and its Affiliates prior to the
Closing Date, to the same extent recognized by the Company or its Subsidiaries
or any predecessor thereof as of the Closing Date, (ii) shall allow such
Retained Employees to participate in each plan providing welfare benefits
(including medical, life insurance, long-term disability insurance and long-term
care insurance) without regard to preexisting-condition limitations, waiting
periods, evidence of insurability or other exclusions or limitations not imposed
on the Retained Employee by the corresponding Plans immediately prior to the
Closing Date, and (iii) if any Welfare Plan is terminated prior to the end of
the plan year that includes the Closing Date, the Purchaser shall credit the
Retained Employee with any expenses that were covered by such Welfare Plan(s)
for purposes of determining deductibles, co-pays and other applicable limits
under any similar replacement plans.

(d) Vacation Pay and Personal Holidays. The Purchaser shall cause the Company to
continue to credit to each Retained Employee all vacation and personal holiday
pay that the Retained Employee is entitled to use but has not used as of the
Closing Date (including any earned vacation or personal holiday pay to be used
in future years), and shall assume all liability for the payment of such
amounts.

(e) No Third-Party Beneficiaries. The provisions of this Section 10.03 are
solely for the benefit of the parties to this Agreement, and no current or
former employee, officer, director or consultant, or any other individual
associated therewith, shall be regarded for any purpose as a third-party
beneficiary of this Section 10.03. In no event shall the terms of this Agreement
be deemed to (i) establish, amend or modify any Plan or any other “employee
benefit plan” as defined in Section 3(3) of ERISA, or any other benefit plan,
program, agreement or

 

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arrangement maintained or sponsored by the Company, the Purchaser, the Surviving
Company or any of their respective Affiliates; (ii) alter or limit the ability
of the Purchaser, the Surviving Company or any of their respective Subsidiaries
to amend, modify or terminate any Plan or any other benefit or employment plan,
program, agreement or arrangement after the Closing Date; or (iii) confer upon
any current or former employee, officer, director or consultant, any right to
employment or continued employment or continued service with the Purchaser, the
Surviving Corporation or any of their respective Subsidiaries, or constitute or
create an employment agreement with any employee.

ARTICLE XI

INDEMNIFICATION

11.01 Indemnification of the Purchaser Indemnified Parties. From and after the
Closing, the Purchaser and each of its Affiliates, officers, directors,
employees or agents (collectively, the “Purchaser Indemnified Parties”) shall be
indemnified by the Stockholders and the Optionholders (subject to, and in
accordance with, the provisions of this Article XI and the Escrow Agreement)
against, and held harmless from, any and all loss, liability, damage or expense
(including reasonable legal fees) (“Losses”) suffered or incurred by any of the
Purchaser Indemnified Parties to the extent arising from (i) any breach of, or
any misrepresentation with respect to, any of the representations and warranties
expressly and specifically set forth in Article V; (ii) any Indebtedness or
Transaction Expenses not fully paid on the Closing Date, or not taken as a
reduction to the Allocable Amount at the Closing or as part of the Purchase
Price Adjustments; (iii) any of the matters set forth on the Specific Indemnity
Schedule and the Losses related thereto that are actually incurred prior to
October 14, 2016, it being agreed that this Section 11.01(iii) shall not cover
potential Losses from matters that are pending or otherwise have not been
resolved prior to October 14, 2016; or (iv) any breach of any covenant contained
in Article VI or Section 12.05(b). Notwithstanding the foregoing, except in the
case of Fraud, the Purchaser’s right to assert claims against the
Indemnification Escrow Funds pursuant to this Section 11.01 shall be subject to
the following limitations:

(a) the Purchaser Indemnified Parties shall not be entitled to recover under
this Section 11.01 for an individual claim or group of related claims with
respect to any Losses unless and until the amount of Losses that otherwise would
be payable pursuant to this Section 11.01 with respect to such claim or group of
related claims exceeds ten thousand dollars ($10,000) (the “Per Claim
Threshold”), and then the Purchaser Indemnified Parties shall be entitled to
recover only for the excess over the Per Claim Threshold, it being understood
that any such individual claims or group of related claims for amounts less than
the Per Claim Threshold shall be ignored in determining whether the Deductible
has been exceeded; provided, however, such Per Claim Threshold shall not apply
to any rights to indemnification relating to claims made pursuant to
Section 11.01(ii), Section 11.01(iii) or Section 11.01(iv);

(b) the Purchaser Indemnified Parties shall not be entitled to recover under
this Section 11.01 until the total amount which the Purchaser Indemnified
Parties would otherwise recover under this Section 11.01 (but for this
Section 11.01(b)) exceeds on a cumulative basis an amount equal to Five Hundred
Fifty Thousand dollars ($550,000) (the “Deductible”), and then only to the
extent of any such excess, it being understood that any

 

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individual claims or group of related claims for amounts less than the Per Claim
Threshold shall be ignored in determining whether the Deductible has been
exceeded; provided, however, such Deductible shall not apply to any rights to
indemnification relating to the Company Fundamental Representations or claims
made pursuant to Section 11.01(ii), Section 11.01(iii), or Section 11.01(iv)

(c) the Purchaser Indemnified Parties shall not be entitled to recover under
this Section 11.01 an aggregate amount in excess to the Indemnification Escrow
Amount (the “Cap”); provided, however, the Cap shall not apply to any rights to
indemnification relating to breaches of the Company Fundamental Representations
or claims made pursuant to Section 11.01(ii), Section 11.01(iii) or
Section 11.01(iv); provided, further, that the Purchaser Indemnified Parties
shall not be entitled to recover under this Section 11.01 an aggregate amount in
excess to the Specific Indemnity Escrow Amount for claims made pursuant to
Section 11.01(iii); provided, further, that the Purchaser Indemnified Parties
shall not be entitled to recover under this Section 11.01 an aggregate amount in
excess to the Merger Consideration with respect to breaches of the Company
Fundamental Representations;

(d) the Purchaser Indemnified Parties shall only be entitled to recover under
this Section 11.01 and this Agreement for any Losses for Taxes, including any
breach of any representations and warranties regarding Losses for Taxes with
respect to taxable periods, or portions thereof, that end on or before the
Closing Date and shall not be entitled to recover for Losses for Taxes (i) to
the extent such Losses are related to the manner in which the Purchaser finances
the transactions contemplated by this Agreement, (ii) for Losses relating to
transactions occurring on the Closing Date after the Closing, or (iii) for
Losses relating to any election under Section 336 or Section 338 of the Code,
except if such Losses are a result of a breach of the representations contained
in Section 5.08(g);

(e) the Purchaser Indemnified Parties shall not be entitled to recover or make a
claim under this Section 11.01 for any Loss (and no such Loss shall be
aggregated for purposes of Section 11.01(a) or Section 11.01(b)) to the extent
such Loss is included in the calculation of the final Allocable Amount or was
included in the Closing Statement;

(f) the Purchaser Indemnified Parties shall not be entitled to recover under
this Section 11.01 with respect to any Loss (and no such Loss shall be
aggregated for purposes of Section 11.01(a) or Section 11.01(b)) for which it
actually receives insurance proceeds;

(g) except to the extent actually paid to an unrelated third-party as a result
of a final, non-appealable determination in respect to a Third-Party Claim, the
Purchaser Indemnified Parties shall not be entitled to recover under this
Section 11.01 with respect to any Loss (and no such Loss shall be aggregated for
purposes of Section 11.01(a) or Section 11.01(b)) with respect to any Loss for
any amounts in respect of punitive, special or exemplary damages; and

(h) except to the extent actually paid to an unrelated third-party as a result
of a final, non-appealable determination in respect to a Third-Party Claim, the
Purchaser Indemnified Parties shall not be entitled to recover or make a claim
under this Section 11.01 with respect to any Loss (and no such Loss shall be
aggregated for purposes of Section 11.01(a) or Section 11.01(b)), regardless of
the legal theory under which such liability or obligation may be sought

 

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to be imposed, whether sounding in contract or tort, or whether at law or in
equity, or otherwise, with respect to any Loss for any amounts in respect of
loss of future revenue, income or profits, and, in particular, no “multiple of
profits”, “multiple of earnings” or “multiple of cash flow” or similar valuation
methodology shall be used in calculating the amount of any Losses.

11.02 Exclusive Remedy. Except in the case of Fraud or in the case of an action
for specific performance, injunctive relief or other equitable relief, from and
after the Closing, the Purchaser Indemnified Parties’ sole and exclusive remedy
against the Representative, the Stockholders, the Optionholders and each of
their respective Non-Recourse Parties, whether in any individual, corporate or
any other capacity, with respect to any and all claims relating (directly or
indirectly) to the subject matter of this Agreement or the transactions
contemplated hereby, regardless of the legal theory under which such liability
or obligation may be sought to be imposed, whether sounding in contract or tort,
or whether at law or in equity, or otherwise, shall be pursuant to the
provisions of this Article XI, the provisions of the Escrow Agreement, and the
terms and conditions of each Stockholders’ and Optionholders’ Letters of
Transmittal and Option Cancellation Agreements, respectively. In furtherance of
the foregoing, except in the case of Fraud or in the case of an action for
specific performance, injunctive relief or other equitable relief, and except as
provided in this Article XI, Section 12.05(b), or Section 12.05(e), the
provisions of the Escrow Agreement, and the terms and conditions of each
Stockholders’ and Optionholders’ Letters of Transmittal and Option Cancellation
Agreements, respectively, from and after the Closing, the Purchaser and the
Merger Sub each hereby waives and releases to the fullest extent permitted under
applicable Laws, each Stockholder, each Optionholder, the Representative and
each of their respective Non-Recourse Parties, whether in any individual,
corporate or any other capacity, from and against any and all other rights,
claims and causes of action it may have against each Stockholder, each
Optionholder, the Representative or any of their respective Non-Recourse
Parties; provided, that, such waiver and release shall not extend to any claims
by Purchaser or the Company that relate to any Stockholders’ or Optionholders’
future employment with the Company, including claims arising under any
Employment Agreement, Non-Competition Agreement, Confidentiality Agreement, or
Consulting Agreement. Except for the Purchaser pursuant to Section 3.02(e), no
Person (including the Stockholders, the Representative, the Optionholders and
their respective Non-Recourse Parties) shall have any obligation to fund the
Indemnification Escrow Account. The provisions in this Agreement relating to
indemnification, and the limits imposed on the Purchaser Indemnified Parties’
remedies with respect to this Agreement and the transactions contemplated hereby
(including Section 11.01 and this Section 11.02) were specifically bargained for
between sophisticated parties and were specifically taken into account in the
determination of the amounts to be paid to the Stockholders and Optionholders
hereunder. No Purchaser Indemnified Party may avoid the limitations on liability
set forth in this Article XI by seeking damages for breach of contract, tort or
pursuant to any other theory of liability. Nothing in this Section 11.02 shall
limit the rights of the Stockholders, the Optionholders or the Representative to
seek specific performance of the other parties’ obligations hereunder in
accordance with Section 13.17.

11.03 Indemnification of the Seller Indemnified Parties. From and after the
Closing, the Stockholders, the Optionholders, the Representative and each of
their respective Affiliates, officers, directors, employees or agents
(collectively, the “Seller Indemnified Parties”) shall be indemnified (subject
to, and in accordance with, the provisions of this Article XI) against, and held
harmless from, any and all Losses suffered or incurred by any such Seller
Indemnified Party

 

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to the extent arising from: (a) any breach of, or any misrepresentation with
respect to, any representation or warranty made by the Purchaser or the Merger
Sub in this Agreement, and (b) any nonfulfillment or breach of any covenant of
the Purchaser, the Merger Sub or the Surviving Corporation contained in this
Agreement or in any document delivered hereunder requiring performance after the
Closing Date.

11.04 Termination of Indemnification. The obligations to indemnify and hold
harmless a party in respect of a breach of representation or warranty or
covenant shall terminate when the applicable representation or warranty or
covenant terminates pursuant to Section 11.07; provided, however, that such
obligations to indemnify and hold harmless shall not terminate with respect to
any item as to which an Indemnified Party shall have, prior to the expiration of
the applicable period, previously made a claim by delivering a written notice
(stating in reasonable detail the nature of, and factual and legal basis for,
any such claim for indemnification, the amount thereof (if known and
quantifiable) and the provisions of this Agreement upon which such claim for
indemnification is made) to the Indemnifying Party. In order to determine the
validity or the amount of any applicable claim for indemnification hereunder,
the Purchaser shall, and shall cause the Surviving Corporation and its
Subsidiaries to, provide to the Representative and its representatives
reasonable access, upon the reasonable request of the Representative, to (a) all
books, records and other documents (including work papers, memoranda, financial
statements, Tax Returns, Tax schedules and work papers, Tax rulings, and other
determinations) relating to or containing information relevant to such claim,
and (b) the Purchaser’s and the Surviving Corporation’s and its Subsidiaries’
employees, accountants and other professional advisors (including making the
Surviving Corporation’s chief financial officer, accountants and attorneys
available to respond to reasonable written or oral inquiries of the
Representative and its representatives). Notwithstanding anything herein
(including Section 11.04) or in the Escrow Agreement to the contrary, the
obligation to indemnify pursuant to Section 11.01(iii) shall terminate on
October 14, 2016 regardless if any claims are still pending or the matters set
forth on the Specific Indemnity Schedule remain pending and have not been
settled or otherwise resolved; provided, however, if a settlement of any of the
matters set forth on the Specific Indemnity Schedule is approved by Purchaser
and the Representative pursuant to the terms hereof and has been agreed to in
writing by all parties thereto on or prior to October 14, 2016, but payments
owed under such agreements remain unpaid, then such payment amounts will be
retained in the Specific Indemnity Escrow Account for payment after such date.

11.05 Procedures Relating to Indemnification.

(a) In order for a Person (the “Indemnified Party”) to be entitled to any
indemnification provided for under this Agreement in respect of a claim or
demand made by any non-Affiliated Person against the Indemnified Party (a
“Third-Party Claim”), such Indemnified Party must notify the indemnifying party
(the “Indemnifying Party”) in writing, and in reasonable detail (including a
description of the claim, the amount thereof (if known and quantifiable) and the
basis thereof and the provisions of this Agreement upon which such claim for
indemnification is made), of the Third-Party Claim as promptly as reasonably
possible after receipt, but in no event later than five (5) Business Days after
receipt, by such Indemnified Party of notice of the Third-Party Claim; provided,
that failure to give such notification on a timely basis shall not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been actually prejudiced as a result of such failure. Thereafter,

 

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the Indemnified Party shall deliver to the Indemnifying Party, within five
(5) Business Days after the Indemnified Party’s receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to the Third-Party Claim.

(b) If a Third-Party Claim is made against an Indemnified Party, the
Indemnifying Party shall be entitled to, at such Indemnifying Party’s expense,
participate in the defense thereof and, if it so chooses, to assume the defense
thereof with counsel selected by the Indemnifying Party and reasonably
satisfactory to the Indemnified Party; provided, however, except as set forth in
Section 11.05(c), that the Indemnifying Party may not assume and conduct the
defense of such Third-Party Claim if a material part of such Third-Party Claim
seeks equitable relief (other than equitable claims that are ancillary to a
claim for monetary damages). Notwithstanding the foregoing, the Representative
shall continue to be entitled to assert any limitation on any claims made by any
Purchaser Indemnified Party contained in Sections 11.01 and 11.02. Should an
Indemnifying Party so elect to assume the defense of a Third-Party Claim, the
Indemnifying Party shall not be liable to the Indemnified Party for legal
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof; provided, however, except with respect to the matters set forth
on the Specific Indemnity Schedule, that the Indemnifying Party shall be liable
for such legal expenses if the Indemnifying Party determines in good faith that
the incurrence of the same is appropriate in light of defenses not available to
the Indemnifying Party, conflicts of interest or claims involving criminal
charges. If the Indemnifying Party assumes such defense, except with respect to
the matters set forth on the Specific Indemnity Schedule, the Indemnified Party
shall have the right to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party, it being understood, however, that the Indemnifying Party
shall control such defense. The Indemnifying Party shall be liable for the fees
and expenses of counsel employed by the Indemnified Party for any period during
which the Indemnifying Party has not assumed the defense thereof. If the
Indemnifying Party chooses to defend any Third-Party Claim (including for the
matters set forth on the Specific Indemnity Schedule), all the parties hereto
shall cooperate in the defense or prosecution of such Third-Party Claim. Such
cooperation shall include the retention and (upon the Indemnifying Party’s
request) the provision to the Indemnifying Party of records and information
which are reasonably relevant to such Third-Party Claim, and making employees
and other representatives and advisors available on a mutually convenient basis
to provide additional information and explanation of any material provided
hereunder. If the Indemnifying Party shall control the defense of any
Third-Party Claim then the Indemnifying Party shall be entitled to settle such
Third-Party Claim; provided, that, except with respect to the matters set forth
on the Specific Indemnity Schedule the Indemnifying Party shall obtain the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed) before entering into any settlement of a claim
or ceasing to defend such claim if, pursuant to or as a result of such
settlement or cessation, injunctive or other equitable relief will be imposed
against the Indemnified Party or if such settlement does not expressly and
unconditionally release the Indemnified Party from all liabilities and
obligations with respect to such claim, without prejudice or such Indemnified
Party shall have to pay a portion of the settlement. Whether or not the
Representative shall have assumed the defense of a Third-Party Claim, no
Purchaser Indemnified Party shall admit any liability with respect to, or
settle, compromise or discharge, any Third-Party Claim for which any sums are
recoverable from the Indemnification Escrow Funds pursuant to Section 11.01
without the prior written consent of the Representative.

 

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(c) Settlement of the matters set forth on the Specific Indemnity Schedule shall
be conducted as described in the Specific Indemnity Schedule.

11.06 Net Losses. The amount of any and all Losses under this Article XI shall
be determined net of (a) any Tax Benefits actually realized by any party seeking
indemnification hereunder arising from any such Losses, and (b) any amounts
actually recovered by the Indemnified Party under insurance policies,
indemnities or other reimbursement arrangements with respect to such Losses,
including for the avoidance of doubt under the R&W Insurance Policy. If the
Indemnified Party receives a Tax Benefit after an indemnification payment is
made to it that was not taken into account at the time the indemnification
payment was made, the Indemnified Party shall within ten (10) days of receipt of
such Tax Benefit pay over to the Representative or to the Escrow Agent at the
Representative’s direction (on behalf of the Stockholders and Optionholders) the
amount of such Tax Benefit at such time or times as, and to the extent that,
such Tax Benefit is realized by the Indemnified Party. The Indemnified Party
shall seek full recovery under all insurance policies covering any Loss to the
same extent as they would if such Loss were not subject to indemnification
hereunder. In the event that an insurance, indemnification or other recovery is
actually received by any Indemnified Party with respect to any Loss for which
any such Person has been indemnified hereunder, then a refund equal to the
aggregate amount of the recovery, less the costs of premiums associated with the
applicable insurance, shall be promptly made to the applicable Indemnifying
Person. Each party hereto waives, to the extent permitted under its applicable
insurance policies, any subrogation rights that its insurer may have with
respect to any indemnifiable Losses. Any indemnity payment under this Agreement
shall be treated as an adjustment to the Merger Consideration for Tax purposes.
In determining the amount of any Losses due to a breach of any representation or
warranty of the Company set forth in this Agreement (or the Schedules hereto)
other than with respect to the Company Fundamental Representations and Sections
5.05 and 5.06 (and the Schedules thereto), the terms “material,” “Material
Adverse Change” and words of similar import shall be disregarded and given no
effect.

11.07 Survival. The representations and warranties herein shall survive the
Closing solely for purposes of Section 11.01 and Section 11.03 and shall
terminate on the close of business on the date that is twelve (12) months after
the Closing Date and no claims may be brought with respect to such
representations and warranties thereafter; provided, however, that the Company
Fundamental Representations shall survive until the date that is twelve
(12) years after the Closing Date. All covenants contained in this Agreement
which are to be performed prior to the Closing shall terminate on the Closing
Date. The covenants contained in this Agreement which are to be performed at or
after the Closing by the Stockholders shall terminate once such covenants are
fully performed. No claim for indemnification hereunder for breach of any
representations, warranties, covenants, agreements and other provisions may be
made after the expiration of the applicable survival period set forth in this
Section 11.07.

11.08 Manner of Payment. Subject to, and in accordance with, the provisions of
this Article XI and the Escrow Agreement:

(a) Any indemnification of the Seller Indemnified Parties pursuant to this
Article XI shall be delivered by the Purchaser to the Representative or the
Escrow Agent at the Representative’s direction (on behalf of the Stockholders
and Optionholders) by wire transfer of

 

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immediately available funds to an account designated by the Representative
within five (5) days after the determination thereof.

(b) Except as provided in Section 11.08(c), any indemnification of the Purchaser
Indemnified Parties pursuant to this Article XI shall be delivered to the
Purchaser from the Indemnification Escrow Funds in accordance with the terms of
the Escrow Agreement by wire transfer of immediately available funds to an
account designated by the Purchaser within fifteen (15) days after the
determination thereof.

(c) Any indemnification of the Purchaser Indemnified Parties for claims made
pursuant to Section 11.01(iii), shall be delivered to the Purchaser from the
Specific Indemnity Escrow Funds in accordance with the terms of the Escrow
Agreement by wire transfer of immediately available funds to an account
designated by the Purchaser within fifteen (15) days after the determination
thereof.

ARTICLE XII

TAX MATTERS

12.01 Preparation and Filing of Tax Returns; Payment of Taxes.

(a) At the cost of the Stockholders and Optionholders, the Company shall prepare
and timely file all Pre-Closing Flow-Through Tax Returns of the Company or any
Subsidiary; provided that the Company shall hire Buchanan & Reed, Inc. to
prepare such Tax Returns. The Transaction Tax Deductions shall be included on
the Pre-Closing Flow-Through Tax Returns. The Purchaser shall prepare and file,
or caused to be prepared and filed, all Tax Returns other than Pre-Closing
Flow-Through Tax Returns filed or required to be filed after the Closing by the
Company or any of its Subsidiaries relating to Pre-Closing Tax Periods. Any such
Tax Return prepared and filed after the Closing Date for a Pre-Closing Tax
Period, including a Pre-Closing Flow-Through Tax Return, shall be prepared on a
basis consistent with the last previous similar Tax Return. The Purchaser shall
allow the Representative to review, comment upon and consent to any Tax Return
with respect to a Pre-Closing Tax Period, including a Pre-Closing Flow-Through
Tax Return, and shall provide a draft of any such Tax Return that shows a
material amount for which the Stockholders or the Optionholders could be liable
under this Agreement or that is a Pre-Closing Flow-Through Tax Return for the
Representative’s review as soon as is reasonably practicable, but in no event
less than thirty (30) days, prior to the due date for the filing of such Tax
Return.

(b) With respect to any Pre-Closing Tax Period, the Purchaser shall not (i) make
any elections, (ii) file (or cause or permit any other Person to file) any
amended Tax Return, (iii) extend any statute of limitations, or (iv) voluntarily
approach any taxing authority with respect to Taxes relating to any Pre-Closing
Tax Period. With respect to any Pre-Closing Tax Period, upon the
Representative’s request and at its expense, the Purchaser shall, or shall cause
any other Person, to initiate a claim for refund or amend any Tax Return.

12.02 Refunds and Tax Benefits. Any Tax refunds that are received by the
Purchaser or the Company and its Subsidiaries, and any amounts credited against
Taxes to which the

 

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Purchaser or the Company and its Subsidiaries become entitled, that relate to
Tax periods or portions thereof ending on or before the Closing Date shall be
for the account of the Stockholders and the Optionholders, and the Purchaser
shall pay over to the Representative for the benefit of the Stockholders and the
Optionholders any such refund or the amount of any such credit (net of any Taxes
of the Purchaser, the Company, or any of its Subsidiaries attributable to such
refund or credit and net of any applicable payroll withholding) within fifteen
(15) days after receipt or entitlement thereto.

12.03 Allocation of Certain Taxes. If the Company or the Surviving Corporation
is permitted, but not required, under applicable foreign, state or local income
Tax Laws to treat the Closing Date as the last day of a taxable period, such day
shall be treated as the last day of a taxable period. In the case of any taxable
period that includes (but does not end on) the Closing Date (a “Straddle
Period”), the amount of any Taxes based on or measured by income, receipts, or
payroll of the Company and its Subsidiaries for the Pre-Closing Tax Period shall
be determined based on an interim closing of the books as of the close of
business on the Closing Date (and for such purpose, the taxable period of any
partnership or other pass-through entity in which Target or any of its
Subsidiaries holds a beneficial interest shall be deemed to terminate at such
time) and the amount of other Taxes of the Company and its Subsidiaries for a
Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be
the amount of such Tax for the entire taxable period multiplied by a fraction
the numerator of which is the number of days in the taxable period ending on the
Closing Date and the denominator of which is the number of days in such Straddle
Period.

12.04 Transfer Taxes. At the Closing or, if due thereafter, promptly when due,
all gross receipts, transfer Taxes, gains Taxes, real property transfer Taxes,
sales Taxes, use Taxes, excise Taxes, stamp Taxes, conveyance Taxes and any
other similar Taxes applicable to, arising out of or imposed upon the
transactions contemplated hereunder shall be paid fifty percent (50%) by the
Purchaser and fifty percent (50%) by the Stockholders. The Purchaser shall
prepare any Tax Returns with respect to such Taxes, and the Representative shall
cooperate with the Purchaser in the preparation of such Tax Returns.

12.05 Cooperation on Tax Matters.

(a) The Purchaser, on the one hand, and the Representative (on behalf of the
Stockholders and Optionholders), on the other hand, and their respective
Affiliates shall cooperate in (i) the preparation of all Tax Returns for any Tax
periods and (ii) the conduct of any Tax Proceeding, for which one (1) party
could reasonably require the assistance of the other party in obtaining any
necessary information. Such cooperation shall include, but not be limited to,
furnishing prior years’ Tax Returns of the Company or its Subsidiaries or return
preparation packages illustrating previous reporting practices or containing
historical information relevant to the preparation of such Tax Returns, and
furnishing such other information within such party’s possession requested by
the other party as is relevant to the preparation of the Tax Returns of the
Company or its Subsidiaries or the conduct of the Tax Proceeding. Such
cooperation and information also shall include making employees and
representatives available for discussion of such Tax matters and promptly
forwarding copies of appropriate notices and forms or other communications
received from or sent to any Governmental Body which relate to the Surviving
Corporation, the Company or any Subsidiary, and providing copies of all relevant
Tax Returns of

 

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the Company or its Subsidiaries, together with accompanying schedules and
related workpapers, documents relating to rulings or other determinations by any
Governmental Body and records concerning the ownership and tax basis of
property, which the requested party may possess. The Purchaser and the
Representative further agree, upon request, to use their commercially reasonable
efforts to obtain any certificate or other document from any Tax authority or
any other Person to take any other action as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed on any party (including with
respect to the transactions contemplated by this Agreement).

(b) At its election, the Representative shall control any Tax Proceeding for
which the Purchaser, the Company, the Surviving Corporation or any of the
Subsidiaries may be indemnified pursuant to Section 11.01 or this Agreement or
that is with respect to a period with respect to which a Pre-Closing
Flow-Through Tax Return was or should have been filed. The Purchaser shall
control all other Tax Proceedings with respect to the Surviving Corporation, the
Company or any Subsidiary. Other than with respect to any Tax Proceeding
relating to a period with respect to which a Pre-Closing Flow-Through Tax Return
was or should have been filed, which, for the avoidance of doubt, shall be in
the Representative’s sole control, the Representative shall consult with the
Purchaser regarding any Tax Proceeding with respect to the Surviving
Corporation, the Company or any Subsidiary, provide the Purchaser with
information and documents related thereto, permit the Purchaser or its
representative to attend any such Tax Proceeding, and not settle any such issue
without the consent of the Purchaser (which consent shall not be unreasonably
withheld, conditioned or delayed). In the event that the Representative does not
elect to control a Tax Proceeding for which the Purchaser could assert a claim
pursuant to Section 11.01 or this Agreement, the Purchaser shall consult with
the Representative regarding any Tax Proceeding with respect to the Surviving
Corporation, the Company or any Subsidiary that includes any item the adjustment
of which would cause any Stockholder or Optionholder to become obligated to make
any payment pursuant to Section 11.01 or this Agreement, provide the
Representative with information and documents related thereto, permit the
Representative or its representative to attend any such Tax Proceeding, and not
settle any such issue without the consent of the Representative (which consent
shall not be unreasonably withheld, conditioned or delayed).

(c) If the Purchaser elects to file an election under Section 338(h)(10) of the
Code with respect to the Merger, the Stockholders covenant and agree to join
with the Purchaser as necessary to make an election pursuant to
Section 338(h)(10) of the Code (and any comparable election under state, local
or foreign law) (the “Section 338(h)(10) Election”), to execute any and all
documents, take all actions, and file such forms (including IRS Form 8023) as
necessary to effectuate the Section 338(h)(10) Election. The Purchaser shall
prepare and deliver to the Stockholders a draft of an allocation of the Merger
Consideration among the assets of the Company and its Subsidiaries in accordance
with Sections 1060 and 338 of the Code for the Stockholders’ review and consent.
The Purchaser and the Stockholders shall negotiate in good faith to resolve any
disputed items. If the Purchaser and the Stockholders are not able to resolve
any such disputed items, then the Purchaser and the Stockholders shall submit
the disputed items to the Valuation Firm for its determination in accordance
with the procedures set forth in Section 3.03 hereof and the costs and expenses
of the Valuation Firm shall be borne solely by the Stockholders, unless the
Valuation Firm concludes that Purchaser’s allocation was not in accordance with
Sections 1060 and 338 of the Code, in which case Purchaser shall bear

 

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the costs and expenses of the Valuation Firm. (i) The Purchaser shall prepare
and deliver to the Stockholders, if and when applicable, revised copies of the
agreed allocation to reflect any matters in the allocation that need updating
and (ii) for Tax purposes, the Purchaser, the Stockholders and their respective
Affiliates shall report such allocation in a manner consistent with this
Section 12.05(b) (including, without limitation, on IRS Form 8883 or IRS Form
8594) and shall take no position contrary thereto or inconsistent with such
allocation for any Tax purpose, including in any audit, examination or other
proceeding relating to Taxes.

(d) If the Purchaser elects to file an election under Section 338(h)(10) of the
Code, the Purchaser shall pay each individual Stockholder the amount of
additional consideration necessary to cause such Stockholder’s after-Tax net
proceeds from the Merger with the Section 338(h)(10) Election (including any
amounts paid under this Section 12.05(c)) to be equal to the after-Tax net
proceeds that such Stockholder would have received had the Section 338(h)(10)
Election not been made, taking into account all appropriate state, federal and
local Tax implications (all such payments together, the “Tax Adjustment”). To
facilitate such election, at the Closing, Representative shall deliver to a
designated escrow agent the Internal Revenue Service Form 8023 or successor form
and any similar forms under applicable Law (each a “Form 8023”) which Forms 8023
shall have been duly executed by each Stockholder. Any Forms 8023 held by the
escrow agent shall be released by such escrow agent to the Purchaser at the time
that the amount of the Tax Adjustment made under this Section 12.05(d) is paid
to the relevant Stockholders The Purchaser shall calculate the Tax Adjustment,
subject to the Representative’s review and consent. The calculation of the Tax
Adjustment shall be based on each of the Stockholders being a resident of the
State of California, and being subject to the highest applicable marginal
California tax rate and the highest applicable marginal federal tax rate.

(e) If any Tax authority determines or proposes to determine that the Company
did not have a valid election in effect under Section 1362(a) of the Code to be
treated as an S corporation as of the Closing Date (without regard to the
transfer of Shares under this Agreement), the Representative, on behalf of the
Stockholders, shall cooperate with the Purchaser, and use commercially
reasonable efforts, to obtain from the IRS a waiver of the termination and
reinstatement of such S corporation status through the Closing Date pursuant to
Section 1362(f) (or any similar relief available with respect to state and local
income taxation). In the event of such a challenge to the S status of the
Company, the Representative, on behalf of the Stockholders, shall promptly take
all steps pursuant to Section 1362(f)(3) of the Code, and shall make such
adjustments as may be required by the IRS pursuant to Section 1362(f)(4) as a
condition of obtaining such waiver and reinstatement of S corporation status
through the Closing Date (and any similar adjustments required under analogous
state and local tax provisions). The Stockholders shall bear the entire expense
of procuring the waiver and reinstatement of the S status of the Company
described above, including the legal, accounting and Tax costs of taking such
steps and of making such adjustments as may be required.

12.06 Post-Closing Transactions Not in the Ordinary Course. The Purchaser agrees
to report all transactions not in the ordinary course of business occurring on
the Closing Date after the Purchaser’s purchase of the Company Stock as
occurring on the day following the Closing Date to the extent permitted by Law.

 

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12.07 No Intermediary Transaction Tax Shelter. The Purchaser shall not take any
action or cause any action to be taken with respect to the Company or the
Surviving Corporation subsequent to the Closing that would cause the
transactions contemplated hereby to constitute part of a transaction that is the
same as, or substantially similar to, the “Intermediary Transaction Tax Shelter”
described in Internal Revenue Service Notice 2001-16, 2001 1 C.B. 730, and
Internal Revenue Service Notice 2008-20 I.R.B. 2008 6 (January 17, 2008), and
Internal Revenue Service Notice 2008-111 I.R.B. 1299 (December 1, 2008).

12.08 Valuation Firm. Any dispute as to any matter covered by this Article XII
shall be resolved by the Valuation Firm, and the past practices of the Company
shall be the Valuation Firm’s standard for resolution of any such dispute
wherever applicable. The fees and expenses of the Valuation Firm in respect of
resolution of any such dispute shall be borne equally by the Representative (on
behalf of the Stockholders and Optionholders), on the one hand, and the
Surviving Corporation, on the other hand.

ARTICLE XIII

MISCELLANEOUS

13.01 Press Releases and Communications. No press release or public announcement
related to this Agreement or the transactions contemplated herein, or, prior to
the Closing, any other announcement or communication (other than by the Company,
any of its Subsidiaries or any of their respective officers, employees and
agents in the ordinary course of business) to the employees, customers,
suppliers or other business relations of the Company or any of its Subsidiaries,
shall be issued or made without the joint approval of the Purchaser and the
Representative, unless required by Law (in the reasonable opinion of counsel) in
which case the Purchaser and the Representative shall have the right to review
and comment on such press release or announcement prior to publication;
provided, that the Representative shall be entitled to communicate with its and
its Affiliates’ investors relating to this Agreement and the transactions
contemplated herein. The Purchaser shall be permitted to file or provide this
Agreement to the SEC as may be required under applicable law.

13.02 Expenses. Whether or not the Closing takes place, except as otherwise
provided herein, all fees, costs and expenses (including fees, costs and
expenses of legal counsel, investment bankers, brokers or other representatives
and consultants and appraisal fees, costs and expenses, and travel, lodging,
entertainment and associated expenses) incurred in connection with the
negotiation of this Agreement and the other agreements contemplated hereby, the
performance of this Agreement and the other agreements contemplated hereby, and
the consummation of the transactions contemplated hereby and thereby (a) by the
Company, the Stockholders or the Optionholders shall be paid by the Stockholders
and Optionholders or, prior to the Closing, by the Company, or (b) by the
Purchaser or the Merger Sub shall be paid by the Purchaser; provided, that if
the Closing occurs, the Surviving Corporation shall pay such fees, costs and
expenses of the Purchaser and the Merger Sub (it being acknowledged that such
fees, costs and expenses shall not be considered Transaction Expenses hereunder
and will not be included as a payable in the calculation of Working Capital
hereunder). Without limiting the generality of the foregoing, the Purchaser
shall pay any and all expenses relating to surveys, title insurance and
environmental due diligence, including any “Phase I” environmental review;

 

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provided, that no “Phase II” environmental review will be conducted prior to the
Closing without the prior written consent of the Company and, to the extent such
consent is given, any and all expenses relating to such “Phase II” environmental
review shall be paid by the Purchaser.

13.03 Notices. Except as otherwise expressly provided herein, all notices,
demands and other communications to be given or delivered under or by reason of
the provisions of this Agreement shall be in writing and shall be deemed to have
been given (a) when personally delivered, (b) when transmitted via telecopy (or
other facsimile device) to the number set out below or transmitted by electronic
mail if the sender on the same day sends a confirming copy of such notice by a
recognized overnight delivery service (charges prepaid), (c) the day following
the day (except if not a Business Day, then the next Business Day) on which the
same has been delivered prepaid to a reputable national overnight air courier
service or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties hereto at the address set forth below, or at such other
address as such party may specify by written notice to the other party hereto:

Notices to the Purchaser, the Merger Sub or,

following the Closing, the Surviving Corporation:

Sparton Corporation

425 N. Martingale Road, Suite 2050

Schaumburg, Illinois 60173

Attention: Senior Vice President – Corporate Development

Email: mosborne@sparton.com

  with a copy to:

Bodman PLC

Suite 400

201 South Division Street

Ann Arbor, Michigan 48104

Attention: Carrie Leahy

Email: cleahy@bodmanlaw.com

Notices to the Representative:

 

Joseph F. O’Neil 6420 Montego Court San Jose, California 95120 Email:
joeojoeo2@gmail.com and joeo@hunter-technology.com

  with a copy to:

Kirkland & Ellis LLP

300 North LaSalle Street

 

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Chicago, Illinois 60654

Attention: Jeremy S. Liss, P.C. Facsimile: (312) 862-2200 Email:
jeremy.liss@kirkland.com

Notices to the Company:

Hunter Technology Corporation

1940 Milmont Drive

Milpitas, California 95035

Attention: Joseph F. O’Neil Facsimile: (408) 957-1301 Email:
            joeo@hunter-technology.com

with a copy to each of:

 

Joseph F. O’Neil 6420 Montego Court San Jose, California 95120 Email:
joeojoeo2@gmail.com and joeo@hunter-technology.com

and:

Kirkland & Ellis LLP

300 North LaSalle Street

Chicago, Illinois 60654

Attention: Jeremy S. Liss, P.C. Facsimile: (312) 862-2200 Email:
            jeremy.liss@kirkland.com

13.04 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned or delegated by
either the Purchaser or the Company without the prior written consent of the
other party; provided, that each of the Purchaser, the Merger Sub and the
Surviving Corporation may assign their respective rights under this Agreement to
their lenders as collateral security for their obligations under any of their
secured debt financing arrangements.

13.05 Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable Law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable Law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

 

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13.06 Construction. The language used in this Agreement shall be deemed to be
the language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any Person. The headings of
the sections and paragraphs of this Agreement have been inserted for convenience
of reference only and shall in no way restrict or otherwise modify any of the
terms or provisions hereof. In the event a subject matter is addressed in more
than one (1) representation and warranty in Article V, the Purchaser and the
Merger Sub shall be entitled to rely only on the most specific representation
and warranty addressing such matter. The specification of any dollar amount or
the inclusion of any item in the representations and warranties contained in
this Agreement, the Disclosure Schedules or exhibits is not intended to imply
that the amounts, or higher or lower amounts, or the items so included, or other
items, are or are not required to be disclosed (including whether such amounts
or items are required to be disclosed as material or threatened) or are within
or outside of the ordinary course of business, and no party shall use the fact
of the setting of the amounts or the fact of the inclusion of any item in this
Agreement, the Disclosure Schedules, or exhibits in any dispute or controversy
between the parties hereto as whether any obligation, item or matter not set
forth or included in this Agreement, the Disclosure Schedules or exhibits is or
is not required to be disclosed (including whether the amount or items are
required to be disclosed as material or threatened) or is within or outside the
ordinary course of business for purposes of this Agreement. In addition, matters
reflected in the Disclosure Schedules are not necessarily limited to matters
required by this Agreement to be reflected in the Disclosure Schedules. Such
additional matters are set forth for informational purposes only and do not
necessarily include other matters of a similar nature. The information contained
in this Agreement, in the Disclosure Schedules, and exhibits hereto is disclosed
solely for purposes of this Agreement, and no information contained herein or
therein shall be deemed to be an admission by any party hereto to any
third-party of any matter whatsoever (including any violation of Law or breach
of contract).

13.07 Amendment and Waiver. Except as provided herein, any provision of this
Agreement or the Disclosure Schedules or exhibits hereto may be amended or
waived only in a writing signed by the Purchaser, the Company and the
Representative. No waiver of any provision hereunder or any breach or default
thereof shall extend to or affect in any way any other provision or prior or
subsequent breach or default.

13.08 Complete Agreement. This Agreement and the other agreements, instruments,
and documents contemplated hereby or executed in connection herewith (including
the Confidentiality Agreement) contain the complete agreement between the
parties hereto and supersede any prior understandings, agreements or
representations by or between the parties hereto, written or oral, which may
have related to the subject matter hereof in any way, including that certain
letter of intent, dated February 23, 2015 by and between the Company and the
Purchaser.

13.09 Prevailing Party. In the event of any litigation arising from a claim for
Fraud or the matters set forth on the Specific Indemnity Schedule, the
prevailing party shall be entitled to recover from the non-prevailing party all
reasonable costs incurred including staff time, court costs, attorneys’ fees,
and all other related expenses incurred in such litigation. For avoidance of
doubt, the Stockholders and the Optionholders shall be third-party beneficiaries
of this Section

 

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13.09 and shall have the benefit of this Section 13.09 in connection with any
Fraud claim brought against them in connection with the transactions
contemplated hereby.

13.10 Third-Party Beneficiaries. The Stockholders and the Optionholders are
third-party beneficiaries of this Agreement and may suffer losses for any breach
of this Agreement by Purchaser (or, after the Closing, the Surviving Corporation
or the Merger Sub). The provisions of this Agreement, including Section 13.09,
are intended for the benefit of, and shall be enforceable by the Representative
for the benefit of, the Stockholders and Optionholders, and the Representative
shall have the right, but not the obligation, to enforce any obligations of the
Purchaser, Merger Sub, or the Surviving Corporation under this Agreement for the
benefit of the Stockholders and Optionholders. Section 8.02 shall be enforceable
by each of the current and former officers, directors or similar functionaries
of the Company and its Subsidiaries and his or her heirs and representatives.
Except as otherwise expressly provided herein, nothing expressed or referred to
in this Agreement will be construed to give any Person other than the parties to
this Agreement, the Stockholders, the Optionholders, and, for purposes of
Section 8.02, each of the current and former officers, directors or similar
functionaries of the Company and its Subsidiaries and his or her heirs and
representatives, any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement.

13.11 Counterparts. This Agreement and any signed agreement or instrument
entered into in connection with this Agreement, and any amendments hereto or
thereto, may be executed in one (1) or more counterparts, all of which shall
constitute one and the same instrument. Any such counterpart, to the extent
delivered by means of a facsimile machine or by .pdf, .tif, .gif, .jpeg or
similar attachment to electronic mail (any such delivery, an “Electronic
Delivery”) shall be treated in all manner and respects as an original executed
counterpart and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto, each other party hereto or thereto shall re execute the
original form of this Agreement and deliver such form to all other parties
hereto. No party hereto shall raise the use of Electronic Delivery to deliver a
signature or the fact that any signature or agreement or instrument was
transmitted or communicated through the use of Electronic Delivery as a defense
to the formation of a contract, and each such party forever waives any such
defense, except to the extent such defense relates to lack of authenticity.

13.12 Governing Law; Jurisdiction. All issues and questions concerning the
construction, validity, interpretation and enforceability of this Agreement and
the exhibits and schedules hereto, and all claims and disputes arising hereunder
or thereunder or in connection herewith or therewith, whether purporting to be
sound in contract or tort, or at law or in equity, shall be governed by, and
construed in accordance with, the Laws of the State of Delaware, without giving
effect to any choice of Law or conflict of Law rules or provisions (whether of
the State of Delaware or any other jurisdiction) that would cause the
application of the Laws of any jurisdiction other than the State of Delaware.
The parties hereto hereby agree and consent to be subject to the exclusive
jurisdiction of the Court of Chancery of the State of Delaware or, to the extent
such court declines jurisdiction, first to any federal court, or second, to any
state court, each located in Wilmington, Delaware, and hereby waive the right to
assert the lack of personal or subject matter jurisdiction or improper venue in
connection with any such suit, action or other proceeding. In furtherance of the
foregoing, each of the parties hereto (a) waives the defense of

 

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inconvenient forum, (b) agrees not to commence any suit, action or other
proceeding arising out of this Agreement or any transactions contemplated hereby
other than in any such court, and (c) agrees that a final judgment in any such
suit, action or other proceeding shall be conclusive and may be enforced in
other jurisdictions by suit or judgment or in any other manner provided by Law.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
LITIGATION, ACTION, PROCEEDING, CROSS-CLAIM, OR COUNTERCLAIM IN ANY COURT
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF, RELATING TO OR
IN CONNECTION WITH (i) THIS AGREEMENT OR THE VALIDITY, PERFORMANCE,
INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF OR (ii) THE ACTIONS OF SUCH
PARTY IN THE NEGOTIATION, AUTHORIZATION, EXECUTION, DELIVERY, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT HEREOF.

13.13 Representative.

(a) Effective upon and by virtue of the Stockholder Approval, and without any
further act of any of the Stockholders or Optionholders, the Representative is
hereby irrevocably appointed as the representative, agent, proxy, and attorney
in fact (coupled with an interest) for all the Stockholders and Optionholders
for all purposes under this Agreement including the full power and authority on
the Stockholders’ and Optionholders’ behalf: (i) to consummate the transactions
contemplated under this Agreement and the other agreements, instruments, and
documents contemplated hereby or executed in connection herewith, (ii) to
negotiate claims and disputes arising under, or relating to, this Agreement and
the other agreements, instruments, and documents contemplated hereby or executed
in connection herewith (including, for the avoidance of doubt, the adjustment of
Allocable Amount contemplated by Section 3.03 and claims for indemnification
under Article XI), (iii) to receive and disburse to, or caused to be received or
disbursed to, any Stockholder or Optionholder any funds received on behalf of
such Stockholder or Optionholder under this Agreement (including, for the
avoidance of doubt, any portion of the Merger Consideration) or otherwise,
(iv) to withhold any amounts received on behalf of any Stockholder or
Optionholder pursuant to this Agreement (including, for the avoidance of doubt,
any portion of the Merger Consideration) or to satisfy (on behalf of the
Stockholders and Optionholders) any and all obligations or liabilities of any
Stockholder, Optionholder or the Representative in the performance of any of
their commitments hereunder (including, for the avoidance of doubt, the
satisfaction of payment obligations (on behalf of the Stockholders and
Optionholders) in connection with the adjustment of Allocable Amount
contemplated by Section 3.03 or the indemnification of the Purchaser Indemnified
Parties under Article XI), (v) to execute and deliver any amendment or waiver to
this Agreement and the other agreements, instruments, and documents contemplated
hereby or executed in connection herewith (without the prior approval of any
Stockholder or Optionholder), (vi) to receive and disburse to, or cause to be
received or disbursed to, any individual pursuant to any incentive compensation
agreement providing for a transaction bonus, in effect as of the Closing and
(vii) to take all other actions to be taken by or on behalf of any Stockholder
or Optionholder in connection with this Agreement and the other agreements,
instruments, and documents contemplated hereby or executed in connection
herewith. Such agency and proxy are coupled with an interest, are therefore
irrevocable without the consent of the Representative and shall survive the
death, incapacity, bankruptcy, dissolution or liquidation of each Stockholder
and Optionholder. All decisions and actions by the Representative shall be

 

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binding upon each Stockholder and Optionholder, and no Stockholder or
Optionholder shall have the right to object, dissent, protest or otherwise
contest the same. The Representative shall have no duties or obligations
hereunder, including any fiduciary duties, except those set forth herein, and
such duties and obligations shall be determined solely by the express provisions
of this Agreement.

(b) Effective upon and by virtue of the Stockholder Approval, and without any
further act of any of the Stockholders or Optionholders, the Representative and
its Non-Recourse Parties shall be indemnified, held harmless and reimbursed by
each Stockholder and Optionholder severally (based on each Stockholder’s and
Optionholder’s Indemnity Allocation Percentage), and not jointly, against all
costs, expenses (including reasonable attorneys’ fees), judgments, fines and
amounts paid or incurred by the Representative and its Non-Recourse Parties in
connection with any claim, action, suit or proceeding to which the
Representative or such other Person is made a party by reason of the fact that
it is or was acting as the Representative pursuant to the terms of this
Agreement (including, for the avoidance of doubt, the satisfaction of payment
obligations (on behalf of the Stockholders and Optionholders) in connection with
the adjustment of Allocable Amount contemplated by Section 3.03 or the
indemnification of the Purchaser Indemnified Parties under Article XI). Any and
all amounts paid or incurred by the Representative and its Non-Recourse Parties
in connection with any claim, action, suit or proceeding to which the
Representative or such other Person is made a party by reason of the fact that
it is or was acting as the Representative pursuant to the terms of this
Agreement are on behalf of the Stockholders and Optionholders (and, not for the
avoidance, on behalf of the Representative in any other capacity, as a
Stockholder or otherwise).

(c) Neither the Representative nor any of its Non-Recourse Parties shall incur
any liability to any Stockholder or Optionholder by virtue of the failure or
refusal of the Representative or any of its Non-Recourse Parties for any reason
to consummate the transactions contemplated hereby or relating to the
performance of their duties hereunder, except for actions or omissions
constituting Fraud. The Representative and its Non-Recourse Parties shall have
no liability in respect of any action, claim or proceeding brought against any
such Person by any Stockholder or Optionholder, regardless of the legal theory
under which such liability or obligation may be sought to be imposed, whether
sounding in contract or tort, or whether at law or in equity, or otherwise, if
any such Person took or omitted taking any action in good faith.

(d) If the Representative pays or causes to be paid any amounts (on behalf of
the Stockholders and Optionholders) in connection with any obligation or
liability of a Stockholder or Optionholder in connection with the transactions
contemplated hereby (including, for the avoidance of doubt, the adjustment of
Allocable Amount contemplated by Section 3.03 or the indemnification of the
Purchaser Indemnified Parties under Article XI), any such payments and the
reasonable expenses of the Representative incurred in administering or defending
the underlying dispute or claim may be reimbursed, when and as incurred, from
the Representative Holdback Amount (and, if not so reimbursed from the
Representative Holdback Amount, the Representative shall be indemnified, held
harmless and reimbursed by each Stockholder and Optionholder severally (based on
each Stockholder’s and Optionholder’s Indemnity Allocation Percentage), and not
jointly, for such amount(s)). The Representative may, in its sole and absolute
discretion, distribute, or caused to be distributed, any or all of the funds
received or held by it on behalf of the Stockholders and Optionholders
(including, for the avoidance of doubt, any

 

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portion of the Merger Consideration) to one or more Stockholders or
Optionholders at any time after the date hereof, which such distribution(s) of
funds may be different (i.e., with respect to amount, timing, conditionality or
otherwise) for each Stockholder and Optionholder. Upon full reimbursement of all
expenses, costs, obligations or liabilities incurred by the Representative in
the performance of its duties hereunder, the Representative shall distribute, or
caused to be distributed, all remaining funds held by it on behalf of the
Stockholders and Optionholders to the Stockholders and Optionholders; provided,
that to ensure compliance with Treasury Regulation §1.409A-3(i)(5)(iv), the
Optionholders shall not be entitled to receive any payment, and no payment shall
be made to the Optionholders, in connection with the transaction contemplated
hereby later than the date which is five (5) years after the Closing Date (it
being understood that the Stockholders may receive payments after the date which
is five (5) years after the Closing Date, including, for the avoidance of doubt,
amounts that, if paid prior to the date which is five (5) years after the
Closing Date, would have been paid to the Optionholders).

(e) Notwithstanding anything to the contrary set forth herein, the
Representative and its Affiliates shall not be liable for any Loss to any
Stockholder or Optionholder for any action taken or not taken by the
Representative or for any act or omission taken or not taken in reliance upon
the actions taken or not taken or decisions, communications or writings made,
given or executed by the Purchaser or the Merger Sub or the Surviving
Corporation.

(f) Except as may have been expressly and specifically agreed to in writing by a
Stockholder or Optionholder, on the one hand, and Kirkland & Ellis LLP (“K&E
LLP”), on the other hand, and except for the Representative (i) K&E LLP has not
and is not representing, and shall not be deemed to have represented any
Stockholder or Optionholder in connection with the transactions contemplated
hereby, and (ii) K&E LLP has not and is not providing any advice or counsel
(including legal advice or counsel), and shall not be deemed to have provided
counsel or advice, to any Stockholder or Optionholder in connection with the
transactions contemplated hereby. Each Stockholder and Optionholder agrees that
K&E LLP may represent the Representative in any matter related to the
transaction completed hereby including matters which maybe adverse to such
Stockholders or Optionholders and, in furtherance thereof, each Stockholder and
Optionholder consents to, and waives, without limitation, restriction or
condition of any kind, any actual or potential conflict or other actual or
potential objection with respect to K&E LLP’s representation of the
Representative in any matter related to the transaction completed hereby.

13.14 Sources of Recovery.

(a) The Purchaser and the Merger Sub hereby agree and acknowledge that its right
to any payment to be made pursuant to Article XI and Article XII (together with
the Purchaser’s rights under the Escrow Agreement) shall be the Purchaser
Indemnified Parties’ sole and exclusive source of recovery for any amounts owing
to the Purchaser pursuant to Article XI or Article XII, respectively, except for
claims for Fraud.

(b) The Purchaser hereby agrees and acknowledges that its right to any payment
to be made pursuant to Section 3.03(h)(i) (together with the Purchaser’s rights
under the

 

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Escrow Agreement) shall be the Purchaser’s sole and exclusive source of recovery
for any amounts owing to the Purchaser pursuant to Section 3.03(h)(i), except
for claims for Fraud.

(c) The Purchaser hereby acknowledges and agrees that, except as expressly
provided in the foregoing Sections 13.14(a) and 13.14(b), and pursuant to the
express terms and conditions of the Letters of Transmittal and the Option
Cancellation Agreements, none of the Company, nor any of the Seller Indemnified
Parties, shall have any liability, responsibility or obligation arising under
this Agreement or any exhibit or Schedule hereto, or any ancillary agreement,
certificate or other document entered into, made, delivered, or made available
in connection herewith, or as a result of any of the transactions contemplated
hereby or thereby, such Sections 13.14(a) and 13.14(b) being the sole and
exclusive remedy for all claims, disputes and losses arising hereunder or
thereunder or in connection herewith or therewith, whether purporting to sound
in contract or tort, or otherwise.

(d) Notwithstanding any provision of this Agreement or otherwise, the parties to
this Agreement agree on their own behalf and on behalf of their respective
Subsidiaries and Affiliates that no Non-Recourse Party of a party to this
Agreement shall have any liability relating to this Agreement or any of the
transactions contemplated herein except to the extent agreed to in writing by
such Non-Recourse Party.

13.15 Deliveries to the Purchaser. The Purchaser agrees and acknowledges that
all documents or other items delivered in writing (including by electronic mail)
to the Purchaser or its representatives in connection with the transactions
contemplated by this Agreement or uploaded and made available in the online
“data room” established by Ansarada for Project Shark on or before the date that
is one (1) Business Day prior to the date hereof shall be deemed to have been
delivered, provided or made available to the Purchaser, the Merger Sub or their
representatives for all purposes hereunder.

13.16 Conflict Between Transaction Documents. The parties hereto agree and
acknowledge that to the extent any terms and provisions of this Agreement are in
any way inconsistent with or in conflict with any term, condition or provision
of any other agreement, document or instrument contemplated hereby, this
Agreement shall govern and control.

13.17 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached,
and that money damages or legal remedies would not be an adequate remedy for any
such damages. Therefore, it is accordingly agreed that each party shall be
entitled to enforce specifically the terms and provisions of this Agreement, or
to enforce compliance with, the covenants and obligations of any other party, in
any court of competent jurisdiction, and appropriate injunctive relief shall be
granted in connection therewith. Any party seeking an injunction, a decree or
order of specific performance shall not be required to provide any bond or other
security in connection therewith and any such remedy shall be in addition and
not in substitution for any other remedy to which such party is entitled at law
or in equity.

13.18 Relationship of the Parties. Nothing in this Agreement shall be deemed to
constitute the parties hereto as joint venturers, alter egos, partners or
participants in an

 

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unincorporated business or other separate entity, nor, except as expressly and
specifically set forth in Section 13.13, in any manner create any
principal-agent, fiduciary or other special relationship between the parties
hereto. No party shall have any duties (including fiduciary duties) towards any
other party hereto except as specifically set forth herein.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan of
Merger on the date first above written.

 

The Company: HUNTER TECHNOLOGY CORPORATION By:

/s/ Joseph F. O’Neil

Name: Joseph F. O’Neil Title: President

Signature Page to Agreement and Plan of Merger

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The Purchaser: SPARTON CORPORATION By:

/s/ Michael Osborne

Name: Michael Osborne Title: Sr. Vice President The Merger Sub: SPARTON HUNTER,
INC. By:

/s/ Steve Korwin

Name: Steve Korwin Title: President

 

Signature Page to Agreement and Plan of Merger

(continued)

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The Representative:

(solely in his capacity as the Representative)

/s/ Joseph F. O’Neil

Joseph F. O’Neil

 

Signature Page to Agreement and Plan of Merger

(continued)