ASSET PURCHASE AGREEMENT

among

TANDBERG DATA CORP.,

TANDBERG DATA ASA

and

EXABYTE CORPORATION

Dated as of August 29, 2006

 

 

TABLE OF CONTENTS

Page

 

Article I       DEFINITIONS2

 

1.1

Certain Definitions

2

 

1.2

Terms Defined Elsewhere in this Agreement

10

 

1.3

Other Definitional and Interpretive Matters

12

Article II           PURCHASE AND SALE OF ASSETS; ASSUMPTION OF
LIABILITIES           13

 

2.1

Purchase and Sale of Assets

13

 

2.2

Excluded Assets

14

 

2.3

Assumption of Liabilities

15

 

2.4

Excluded Liabilities

16

 

2.5

Further Conveyances and Assumptions; Consent of Third Parties

17

 

2.6

Purchase Price Allocation

18

 

2.7

Receivables

18

 

2.8

Senior Management Retention Plan Escrow

18

Article III   CONSIDERATION18

 

3.1

Consideration

18

 

3.2

Payment of Purchase Price

19

Article IV   CLOSING AND TERMINATION19

 

4.1

Closing Date

19

 

4.2

Termination of Agreement

19

 

4.3

Extension of Termination Date

21

 

4.4

Procedure upon Termination

21

 

4.5

Effect of Termination

21

Article V     REPRESENTATIONS AND WARRANTIES OF SELLER22

 

5.1

Corporate Organization; Foreign Qualification

22

 

5.2

Corporate Authorization

22

 

5.3

Noncontravention; Approvals and Consents

23

 

5.4

Financial Statements

24

 

5.5

No Undisclosed Liabilities

24

 

5.6

Title to Purchased Assets; Sufficiency

24

 

TABLE OF CONTENTS

(continued)

Page

 

 

5.7

Absence of Certain Changes

24

 

5.8

Taxes

26

 

5.9

Real Property

29

 

5.10

Accounts Payable and Inventory

29

 

5.11

Intellectual Property

30

 

5.12

Material Contracts.

32

 

5.13

Employee Benefits.

34

 

5.14

Labor Matters

36

 

5.15

Litigation

37

 

5.16

Compliance with Laws; Permits

38

 

5.17

Environmental Matters

38

 

5.18

Insurance

39

 

5.19

Accounts Receivable

39

 

5.20

Personnel

40

 

5.21

Affiliate Transactions

40

 

5.22

Major Suppliers and Customers

40

 

5.23

Minute Books

40

 

5.24

Brokers and Finders; Opinion of Financial Advisor

40

 

5.25

Subsidiaries

41

 

5.26

SEC Documents

41

 

5.27

Takeover Law

42

Article VI         REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT42

 

6.1

Corporate Organization; Foreign Qualification

42

 

6.2

Corporate Authorization

42

 

6.3

Certain Legal Proceedings

43

 

6.4

Noncontravention; Approvals and Consents

43

 

6.5

Sufficient Funds

43

 

6.6

Brokers and Finders

44

Article VII COVENANTS44

 

TABLE OF CONTENTS

(continued)

Page

 

 

7.1

Seller Interim Operations

44

 

7.2

Taxes

46

 

7.3

SEC Reports

46

 

7.4

Acquisition Proposals; Board Recommendation

46

 

7.5

Efforts and Assistance

48

 

7.6

Preservation of Records

49

 

7.7

Public Announcements

49

 

7.8

Access to Information; Notification of Certain Matters

49

 

7.9

Further Assurances

51

 

7.10

Disposition of Litigation

51

 

7.11

Confidentiality Agreement

51

 

7.12

Stockholder Meeting; Proxy Statement

51

 

7.13

Use of Names

52

 

7.14

Non-Competition

52

 

7.15

Letter of Credit

53

Article VIIIEMPLOYEES AND EMPLOYEE BENEFITS53

 

8.1

Employment

53

 

8.2

Standard Procedure

53

 

8.3

Employee Benefits

54

Article IX   CONDITIONS TO CLOSING54

 

9.1

Conditions to the Obligations of Each Party

54

 

9.2

Conditions to the Obligations of Purchaser

55

 

9.3

Conditions to the Obligations of Seller

56

Article X     TAXES56

 

10.1

Transfer Taxes

56

 

10.2

Cooperation on Tax Matters

57

Article XI   MISCELLANEOUS57

 

11.1

Fees and Expenses

57

 

11.2

Jurisdiction

57

 

 

TABLE OF CONTENTS

(continued)

Page

 

 

11.3

Amendments; No Waivers

57

 

11.4

Governing Law

58

 

11.5

Notices

58

 

11.6

Severability

59

 

11.7

Successors and Assigns

59

 

11.8

Non-Recourse

59

 

11.9

Guarantee of Purchaser Obligations

59

 

11.10

Survival

59

 

11.11

Third Party Beneficiaries

60

 

11.12

Enforcement of Agreement

60

 

11.13

Entire Agreement

60

 

11.14

Authorship

60

 

11.15

Counterparts; Effectiveness

60

 

Exhibits

 

A – Bill of Sale

B – Assumption Agreement

C – Power of Attorney

 

Schedule

Name

 

Schedule 1.1

Excluded Contracts

 

Schedule 5.1

Corporate Organization; Foreign Qualification

Schedule 5.3

Noncontravention; Approvals and Consents

 

Schedule 5.5

No Undisclosed Liabilities

 

Schedule 5.7

Absence of Certain Changes

 

Schedule 5.8

Taxes

 

Schedule 5.9

Real Property

 

Schedule 5.10

Accounts Payable and Inventory

 

Schedule 5.11

Intellectual Property

 

Schedule 5.12

Material Contracts

 

Schedule 5.13

Employee Benefits

 

Schedule 5.14

Labor Matters

 

Schedule 5.15

Litigation

 

Schedule 5.16

Compliance with Laws; Permits

 

Schedule 5.17

Environmental Matters

 

Schedule 5.18

Insurance

 

Schedule 5.19

Accounts Receivable

 

Schedule 5.20

Personnel

 

Schedule 5.21

Affiliate Transactions

 

Schedule 5.22

Major Suppliers and Customers

 

Schedule 5.24

Brokers and Finders

 

Schedule 5.25

Subsidiaries

 

Schedule 5.26

SEC Documents

 

Schedule 7.1

Seller Interim Operations

 

Schedule 8.3

Employee Benefits

 

 

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (the “Agreement”) dated as of August 29, 2006,
among Tandberg Data Corp., a Delaware corporation (“Purchaser”), Exabyte
Corporation, a Delaware corporation (“Seller”), and, solely for purposes of
Article VI and Section 11.9, Tandberg Data ASA, a company organized under the
laws of Norway (“Parent”).

PRELIMINARY STATEMENTS:

 

A.

Seller and the Subsidiaries presently conduct the Business;

B.           Seller desires to sell, transfer and assign to Purchaser or its
designated Affiliate or Affiliates the Purchased Assets, and Purchaser desires
to (or to cause its designated Affiliate or Affiliates to) acquire the Purchased
Assets and assume from Seller the Assumed Liabilities, all as more specifically
provided herein;

C.           As a condition to, and immediately prior to, the execution and
delivery of this Agreement, Seller and Hitachi, Ltd. (“Hitachi”) have entered
into a Second Amendment to Memorandum of Understanding dated August 29, 2006
pursuant to which, among other things, (i) the repayment obligations of Seller
with respect to that certain note payable previously issued to Hitachi will be
restructured, (ii) Hitachi shall waive any existing default by Seller under such
note, (iii) Hitachi consents to the assignment and assumption by Purchaser,
effective as of the Closing, of Seller’s obligations under such note, and (iv)
Hitachi consents to the assignment and assumption by Purchaser, effective as of
the Closing, of Seller’s obligations under certain material agreements which
Seller and Hitachi are currently party to (the “Hitachi Agreement”);

D.           As a condition to, and immediately prior to, the execution and
delivery of this Agreement, Seller and Imation Corp. (“Imation”) have entered
into a Note Restructuring Agreement dated August 29, 2006 pursuant to which,
among other things, (i) the repayment obligations of Seller with respect to the
two notes payable previously issued to Imation will be restructured, (ii)
Imation shall waive any existing default by Seller under such notes,
(iii) Purchaser shall assume, effective as the Closing, Seller’s obligations
under such notes, (iv) the indebtedness under such notes and liens securing such
notes and Seller’s obligations under the MDA shall be subordinated to the
indebtedness and liens under Parent’s senior secured bond issues, and (v)
Imation consents to the assignment and assumption by Purchaser, effective as of
the Closing, of Seller’s obligations under the MDA (the “Imation Agreement”);

E.           As a condition to, and immediately prior to, the execution and
delivery of this Agreement, Seller and Solectron Corp. (“Solectron”) have
entered into the Amendment No.1 to Debt Restructuring Agreement dated August 21,
2006, as amended August 29, 2006, pursuant to which, among other things, (i) the
repayment obligations of Seller with respect to that certain note payable
previously issued to Solectron will be restructured and (ii) Solectron shall
waive any existing default by Seller under such note (the “Solectron
Agreement”);

F.           As a condition to, and immediately prior to, the execution and
delivery of this Agreement, Seller and certain holders (the “Noteholders”) of
the 10% Convertible Subordinated Notes due September 30, 2010 (the “Convertible
Notes”) of Seller, have entered into Restructuring Agreements dated August 9,
2006, as amended August 29, 2006, pursuant to which, among other things, (i) the
repayment obligations of Seller with respect to the Convertible Notes held by
the Noteholders will be restructured, (ii) the Noteholders shall waive any
existing default by Seller under such Convertible Notes, (iii) all liens
securing the Convertible Notes and any related obligations shall be released
effective as of the Closing, and (iv) the Noteholders shall consent to the
transactions contemplated under this Agreement (the “Restructuring Agreements”
and, together with the Hitachi Agreement, the Imation Agreement and the
Solectron Agreement, the “Seller Restructuring Agreements”);

G.           As a condition to, and concurrently with, the execution and
delivery of this Agreement, Purchaser, Imation, Carroll A. Wallace, Tom W. Ward,
Juan A. Rodriguez, Meritage Private Equity Fund, L.P., Meritage Private Equity
Parallel Fund, L.P., Meritage Entrepreneurs Fund, L.P., Crestview Capital
Master, LLC, Enable Growth Partners, L.P., Gruber and McBaine International, Jon
D. and Linda W. Gruber Trust, Lagunitas Partners L.P., Islandia, L.P. and
Midsummer Investment, Ltd., have entered into a Voting Agreement dated August
29, 2006 pursuant to which, among other things, such Persons will agree to vote
all Common Shares held by such Persons in favor of the authorization and
approval of this Agreement and the consummation of the transactions contemplated
thereby (the “Voting Agreement”); and

H.           The board of directors of Seller has approved this Agreement and
determined that the consummation of the transactions contemplated hereby upon
the terms and subject to the conditions set forth in this Agreement are
advisable and in the best interests of Seller.

STATEMENT OF AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereby agree as follows:

ARTICLE I

 

DEFINITIONS

 

1.1

Certain Definitions.

For purposes of this Agreement, the following terms shall have the meanings
specified in this Section 1.1:

“Acquisition Proposal” means any offer or proposal (whether or not in writing)
(other than an offer or proposal by or on behalf of Purchaser or its Affiliates)
for, or any indication of interest in: (i) a transaction pursuant to which a
Third Party acquires or would acquire Beneficial Ownership of more than 50% of
the outstanding voting power of Seller, whether from Seller or pursuant to a
tender offer, exchange offer or otherwise; (ii) a merger, consolidation,
business combination, reorganization, share exchange, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction that
would result in a Third Party acquiring more than 15% of the fair market value
of the assets of Seller; (iii) any transaction that would result in a Third
Party acquiring more than 15% of the fair market value of the assets of Seller,
immediately prior to such transaction; or (iv) any combination of the foregoing.

“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such Person, and the term “control” (including
the terms “controlled by” and “under common control with”) means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise.

“Ancillary Agreements” means the Seller Restructuring Agreements and the Voting
Agreement.

“Beneficial Ownership” shall have the meaning provided therefor under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
under such section.

“Business” means the business of Seller and the Subsidiaries as currently
conducted or as currently contemplated to be conducted.

“Business Day” means any day of the year on which national banking institutions
in New York are open to the public for conducting business and are not required
or authorized to close.

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.

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

“Common Shares” means the shares of Seller’s common stock, par value $0.001 per
share.

“Contract” means any contract, agreement, indenture, note, bond, mortgage, loan,
instrument, lease, license, commitment or other arrangement, understanding or
undertaking, commitment or obligation, whether written or oral.

“Credit Agreement” means that certain Credit and Security Agreement, dated as of
March 9, 2005, by and between the Seller and Wells Fargo Bank, National
Association, as successor to Wells Fargo Business Credit, Inc., as amended
through the date of this Agreement (“Wells Fargo”).

“DGCL” means the Delaware General Corporation Law, as amended.

“Documents” means all files, documents, instruments, papers, books, reports,
records, tapes, microfilms, photographs, letters, budgets, forecasts, ledgers,
journals, title policies, lists of past, present and/or prospective customers,
supplier lists, regulatory filings, operating data and plans, technical
documentation (design specifications, functional requirements, operating
instructions, logic manuals, flow charts, etc), user documentation (installation
guides, user manuals, training materials, release notes, working papers, etc.),
marketing documentation (sales brochures, flyers, pamphlets, web pages, etc.),
and other similar materials related to the Business and the Purchased Assets, in
each case whether or not in electronic form.

“Employee” means all individuals (including common law employees, independent
contractors and individual consultants), as of the date hereof, who are employed
or engaged by Seller or the Subsidiaries in connection with the Business,
together with individuals who are hired in respect of the Business after the
date hereof.

“Employee Benefit Plan” means (i) any “employee benefit plan,” as defined in
section 3(3) of ERISA, (ii) any other plan, program, policy or arrangement
(written or oral) whether or not subject to ERISA (including any funding
mechanism therefor now in effect or required) providing for retirement, bonuses
or other incentive compensation, profit-sharing, stock option, stock purchase,
restricted stock, stock unit, other stock related rights, deferred compensation,
vacation, health or medical benefits, life insurance, disability benefits,
cafeteria (section 125), workers’ compensation, supplemental unemployment
benefits, severance benefits, salary continuation, leave of absence or other
fringe benefits, or (iii) any employment, consulting, termination, retention,
severance, or change of control or similar agreement or arrangement.

“Environmental Costs and Liabilities” means, with respect to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts and consultants
and costs of investigation and feasibility studies), fines, penalties, sanctions
and interest incurred as a result of any claim or demand by any other Person or
in response to any violation of Environmental Law, whether known or unknown,
accrued or contingent, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, to the extent based upon,
related to, or arising under or pursuant to any Environmental Law, Environmental
Permit, order or agreement with any Governmental Entity or other Person, which
relates to any environmental, health or safety condition, violation of
Environmental Law or a Release or threatened Release of Hazardous Materials.

“Environmental Law” means any Law in any way relating to the protection of human
health and safety, the environment or natural resources, including the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
§ 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App.
§ 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et
seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act
(42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601
et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
§ 136 et seq.), and the Occupational Safety and Health Act (29 U.S.C. § 651 et
seq.), as each has been or may be amended and the regulations promulgated
pursuant thereto.

“Environmental Permit” means any Permit required by Environmental Laws for the
operation of the Business.

“Equity Interest” means with respect to any Person:

(i) any and all shares, interests, participations, rights in, or other
equivalents (however designated and whether voting or non-voting) of, such
Person’s capital stock or other equity interests (including, without limitation,
partnership or membership interests in a partnership or limited liability
company or any other interest or participation that confers on a Person the
right to receive a share of the profits and losses, or distributions of assets,
of the issuing Person);

(ii) securities of such Person convertible into or exchangeable for any such
shares, interests, participations, rights in, or other equivalents described in
clause (i) above; and

(iii) options, warrants or other rights to acquire from such Person, or
obligations of such Person to issue, any shares, interests, participations,
rights in, or other equivalents described in clause (i) above or securities
described in clause (ii) above, or requiring payments based on the value of any
such shares, interests, participations, rights in, or other equivalents
described in clause (i) above.

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

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“Excluded Contracts” means the Contracts set forth on Schedule 1.1.

“Excluded Rights and Software” means (a) any rights included in the Purchased
Intellectual Property and/or Purchased Technology for which a license to use is
merely implied by the sale of a product; and (b) any Software included in the
Purchased Intellectual Property and/or Purchased Technology: (i) licensed to
Seller or any of its Subsidiaries under “shrink wrap,” “click-through” or
similar end-user licenses and/or (ii) consisting of “off-the-shelf” Software
licensed through commercial distributors or in consumer retail venues for less
than a total aggregate cost of $25,000. For purposes of clarification, with
respect to subclause (ii) of the preceding sentence, (a) if the cost of
off-the-shelf Software “A” plus all related licenses for Software “A” is
$13,000, and the cost of off-the-self Software “B” plus all related licenses for
Software “B” is $13,000, Software “A” and “B” both shall be deemed included in
Excluded Rights and Software and (b) if the cost of ten (10) seats or users of
off-the-shelf Software “C” plus all related licenses for Software “C” is $2,600
per seat or user, Software “C” shall not be deemed included in Excluded Rights
and Software.

“Former Employee” means all individuals (including common law employees,
independent contractors and individual consultants) who were employed or engaged
by Seller or the Subsidiaries in connection with the Business but who are no
longer so employed or engaged on the date hereof.

“Furniture and Equipment” means all furniture, fixtures, furnishings, equipment,
vehicles, leasehold improvements, and other tangible personal property owned or
used by Seller and the Subsidiaries in the conduct of the Business, including
all artwork, desks, chairs, tables, Hardware, copiers, telephone lines and
numbers, telecopy machines and other telecommunication equipment, cubicles and
miscellaneous office furnishings and supplies.

“GAAP” means generally accepted accounting principles in the United States as of
the date hereof.

“Governmental Entity” means any government or governmental or regulatory body
thereof, or political subdivision thereof, whether foreign, federal, state, or
local, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).

“Hardware” means any and all computer and computer-related hardware, including,
but not limited to, computers, file servers, facsimile servers, scanners, color
printers, laser printers and networks.

“Hazardous Material” means any substance, material or waste that is regulated,
classified, or otherwise characterized under or pursuant to any Environmental
Law as “hazardous,” “toxic,” “pollutant,” “contaminant,” “radioactive,” or words
of similar meaning or effect, including petroleum and its by-products, asbestos,
polychlorinated biphenyls, radon, mold or other fungi and urea formaldehyde
insulation.

“Intellectual Property” means all intellectual property rights and related
priority rights, arising from or in respect of the following, whether protected,
created or arising under the Laws of the United States or any other jurisdiction
or under any international convention, including: (i) all patents and patent
applications, including all continuations, divisionals, continuations-in-part
and provisionals and patents issuing thereon, and all reissues, reexaminations,
substitutions, renewals and extensions thereof (collectively, “Patents”); (ii)
all trademarks, service marks, trade names, trade dress, logos, corporate names
and other source or business identifiers, together with the goodwill associated
with any of the foregoing, and all applications, registrations, renewals and
extensions thereof (collectively, “Marks”); (iii) all Internet domain names;
(iv) all copyrights, works of authorship and moral rights, and all
registrations, applications, renewals, extensions and reversions thereof
(collectively, “Copyrights”); and (v) all confidential and proprietary
information, trade secrets and non-public discoveries, concepts, ideas, research
and development, technology, know-how, formulae, inventions, compositions,
processes, techniques, technical data and information, procedures, designs,
drawings, specifications, databases, customer lists, supplier lists, pricing and
cost information, and business and marketing plans and proposals, in each case
excluding any rights in respect of any of the foregoing that comprise or are
protected by Patents (collectively, “Trade Secrets”).

“Intellectual Property Licenses” means: (i) any grant by Seller or any of its
Subsidiaries to another Person of any license, sublicense, right, permission,
consent or non-assertion affecting or under any Purchased Intellectual Property
and/or Purchased Technology; and (ii) any grant by a Third Party to Seller or
any of its Subsidiaries of any license, sublicense, right, permission, consent
or non-assertion affecting or under any Intellectual Property and/or Technology.

 

“IRS” means the United States Internal Revenue Service and, to the extent
relevant, the United States Department of Treasury.

“Knowledge of Seller” means the actual knowledge of each of Carroll A. Wallace
and Tom W. Ward after due inquiry of each of their respective direct reports.

“Knowledge of Purchaser” means the actual knowledge of each of Gudmundur
Einarsson and Live Aker.

“Law” means any foreign, federal, state or local law (including common law),
statute, code, ordinance, rule, regulation, Order or other requirement.

“Legal Proceeding” means any judicial, administrative or arbitral actions,
suits, mediations, investigations, inquiries, proceedings or claims (including
counterclaims) by or before a Governmental Entity.

“Liability” means any debt, loss, damage, adverse claim, fines, penalties,
liability or obligation (whether direct or indirect, known or unknown, asserted
or unasserted, absolute or contingent, accrued or unaccrued, matured or
unmatured, determined or determinable, disputed or undisputed, liquidated or
unliquidated, or due or to become due, and whether in contract, tort, strict
liability or otherwise), and including all costs and expenses relating thereto
(including all fees, disbursements and expenses of legal counsel, experts,
engineers and consultants and costs of investigation).

“Lien” means any lien, encumbrance, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, proxy, voting trust or agreement, transfer restriction under any
stockholder or similar agreement, encumbrance or any other restriction or
limitation whatsoever.

“Material Adverse Effect” means any change, circumstance, effect, event,
occurrence, state of facts or development that has a material adverse effect on
(a) the business, assets, liabilities, condition (financial or otherwise) or
results of operations of the Seller or (b) the ability of the Seller to perform
its obligations under this Agreement, the Seller Documents, or the transactions
contemplated hereby or thereby in a timely manner, other than as a result of:
(i) changes adversely affecting the United States economy (so long as Seller is
not disproportionately affected thereby); (ii) changes adversely affecting the
industry in which Seller operates (so long as Seller is not disproportionately
affected thereby); (iii) the announcement or pendency of the transactions
contemplated by this Agreement; (iv) the failure to meet analyst projections, in
and of itself; (v) changes in Laws; (vi) changes in accounting principles; (vii)
acts of war or terrorism; (viii) claims asserted by Seller’s creditors and any
resulting litigation; or (ix) the continued incurrence of operating losses by
the Company.

“MDA” means that certain Media Distribution Agreement, dated as of November 7,
2003, as amended, by and between Seller and Imation.

“Order” means any order, injunction, judgment, doctrine, decree, ruling, writ,
assessment or arbitration award of a Governmental Entity.

 

“Ordinary Course of Business” means the ordinary and usual course of normal
day-to-day operations of the Business, as conducted by Seller and the
Subsidiaries, through the date hereof consistent with past practice.

“Permits” means any approvals, authorizations, consents, licenses, permits or
certificates of a Governmental Entity.

“Permitted Exceptions” means (i) all defects, exceptions, restrictions,
easements, rights of way and encumbrances disclosed in policies of title
insurance that have been delivered to Purchaser; (ii) statutory liens for
current Taxes, assessments or other governmental charges not yet delinquent or
the amount or validity of which is being contested in good faith by appropriate
proceedings, provided an appropriate reserve has been established therefor in
the financial statements in accordance with GAAP; (iii) materialmens’,
mechanics’, carriers’, workers’ and repairers’ Liens arising or incurred in the
Ordinary Course of Business that are not material to the business, operations
and financial condition of the Real Property so encumbered and that are not
resulting from a breach, default or violation by Seller or any of the
Subsidiaries of any Contract or Law; (iv) zoning, entitlement and other land use
and environmental regulations by any Governmental Entity, provided that such
regulations have not been violated; (v) statutory Liens of landlords; and (vi)
liens securing the obligations under the MDA and the Imation Agreement.

“Person” means any individual, corporation, limited liability company,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Entity or other entity.

“Purchaser Material Adverse Effect” means any change, circumstance, effect,
event, occurrence, state of facts or development that has a material adverse
effect on the ability of Purchaser or Parent to perform their obligations under
this Agreement, the Purchaser Documents, or the transactions contemplated hereby
or thereby in a timely manner.

“Purchased Contracts” means all Contracts of Seller, other than the Excluded
Contracts.

“Purchased Intellectual Property” means all Intellectual Property owned or held
for use by Seller related to or used in connection with the Business of Seller.

“Purchased Technology” means all Technology owned or held for use by Seller
related to or used in connection with the Business of Seller.

“Release” means any release, spill, emission, leaking, pumping, pouring,
injection, deposit, dumping, emptying, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment, or into or out of any
property.

“Remedial Action” means all actions including any capital expenditures
undertaken to (i) clean up, remove, treat or address any Hazardous Material;
(ii) prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not endanger public health or welfare or
the indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations or post-remedial monitoring and care; or (iv) to correct a
condition of noncompliance with Environmental Laws.

“Representatives” means the officers, directors, employees, attorneys,
accountants, advisors, representatives and agents of a Person.

“Securities Act” means the Securities Act of 1933, as amended.

“SEC” means the United States Securities and Exchange Commission.

“Senior Management Retention Plan” means that certain Exabyte Corporation Senior
Management Retention Plan, dated as of August 28, 2006, or in such other form
acceptable to Purchaser.

“Software” means any and all: (i) computer programs, including any and all
software implementations of algorithms, models and methodologies, whether in
source code or object code; (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise;
(iii) descriptions, flow-charts and other work product used to design, plan,
organize and develop any of the foregoing, screens, user interfaces, report
formats, firmware, development tools, templates, menus, buttons and icons; and
(iv) all documentation, including user manuals and other training documentation,
related to any of the foregoing.

“Subsidiary” means any Person of which (i) a majority of the outstanding share
capital, voting securities or other equity interests are owned, directly or
indirectly, by Seller or (ii) Seller is entitled, directly or indirectly, to
appoint a majority of the board of directors or managers or comparable
supervisory body of such Person.

“Superior Proposal” means any bona fide written Acquisition Proposal (with all
of the percentages included in the definition of Acquisition Proposal increased
to 100% for purposes of this definition) that a majority of the members of the
board of directors or independent committee of the board of directors, as
applicable, of Seller determines in good faith, after consultation with its
outside legal counsel and financial advisors: (i) provides consideration to the
stockholders of Seller with a value that exceeds the value of the consideration
provided for in this Agreement (after taking into account any revisions made or
proposed by Purchaser); (ii) would result in a transaction, if consummated, that
would be more favorable to the stockholders of Seller (taking into account all
facts and circumstances, including all legal, financial, regulatory and other
aspects of the proposal and the identity of the offeror) than the transactions
contemplated hereby; (iii) is reasonably capable of being consummated in a
timely manner (taking into account all regulatory and other relevant
considerations); and (iv) is made by a Person or group of Persons who have
provided Seller with reasonable evidence that such Person or group of Persons
has or will have sufficient funds to complete such Acquisition Proposal and, to
the extent financing is required, any required financing has been committed, as
of the date of such determination by the board of directors of Seller, at least
to the same extent as Purchaser’s financing as of the date hereof.

“Tax” or “Taxes” means (i) any and all federal, state, local or foreign taxes,
charges, fees, imposts, levies or other assessments, including all net income,
gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of
any kind whatsoever; (ii) all interest, penalties, fines, additions to tax or
additional amounts imposed by any Taxing Authority in connection with any item
described in clause (i); and (iii) any liability in respect of any items
described in clauses (i) and/or (ii) payable by reason of Contract, assumption,
transferee liability, operation of law, Treasury Regulation section 1.1502-6(a)
(or any predecessor or successor thereof or any analogous or similar provision
under law) or otherwise.

“Taxing Authority” means the IRS and any other Governmental Entity responsible
for the administration of any Tax.

“Tax Return” means any return, report or statement required to be filed with
respect to any Tax (including any elections, declarations, schedules or
attachments thereto, and any amendment thereof), including any information
return, claim for refund, amended return or declaration of estimated Tax, and
including, where permitted or required, combined, consolidated or unitary
returns for any group of entities that includes Seller, any of the Subsidiaries,
or any of their Affiliates.

“Technology” means all Software, information, designs, formulae, algorithms,
procedures, methods, techniques, ideas, know-how, research and development,
technical data, programs, subroutines, tools, materials, specifications,
processes, inventions (whether patentable or unpatentable and whether or not
reduced to practice), apparatus, creations, improvements and other similar
materials, and all recordings, graphs, drawings, reports, analyses, and other
writings, and other embodiments of any of the foregoing, in any form or media
whether or not specifically listed herein, and all related technology that are
used in, incorporated in, embodied in, displayed by or relate to, or are used in
connection with any of the foregoing.

“Third Party” means any Person (or group of Persons) other than Purchaser,
Seller or any of their Affiliates.

“Third Party Acquisition” means the consummation by a Third Party of any
transaction or series of transactions described in clauses (i) through (iv) of
the definition of “Acquisition Proposal”.

“Transaction Fees” means (i) the fees and expenses of third party accountants,
attorneys (including Holland & Hart LLP and Ballard Spahr Andrews & Ingersoll,
LLP) and financial advisors (including St. Charles Capital) incurred by Seller
with respect to the sale of the Seller, this Agreement, the due diligence
performed with respect thereto and the transactions contemplated by this
Agreement and (ii) the premium and related costs of a three-year tail policy for
the Seller’s officers and directors’ insurance policy to be purchased for the
benefit of Seller’s officers and directors.

1.2        Terms Defined Elsewhere in this Agreement. For purposes of this
Agreement, the following terms have meanings set forth in the sections
indicated:

 

 

Term

Section

 

 

Agreement

Introductory Paragraph

 

 

Asset Acquisition Statement

2.6

 

 

Assumed Liabilities

2.3

 

 

Balance Sheet Date

5.5

 

 

Closing

4.1

 

 

Closing Date

4.1

 

 

Trade Secrets

1.1 (in Intellectual Property definition)

 

Confidentiality Agreement

7.11

 

 

Convertible Notes

Preliminary Statements

 

 

Copyrights

1.1 (in Intellectual Property definition)

 

Daisytek Agreement

2.2(i)

 

 

Default

5.12(c)

 

 

ERISA Affiliate

5.13(c)

 

 

Excluded Assets

2.2

 

 

Excluded Employee

8.1(b)

 

 

Excluded Liabilities

2.4

 

 

Expense Reimbursement

4.5(b)

 

 

FIRPTA Affidavit

9.2(e)

 

 

Foreign Plan

5.13(k)

 

 

Hitachi

Preliminary Statements

 

 

Hitachi Agreement

Preliminary Statements

 

 

Imation

Preliminary Statements

 

 

Imation Agreement

Preliminary Statements

 

 

Insurance Policies

5.18

 

 

Letter of Credit

7.15

 

 

Major Customers

5.22

 

 

Major Suppliers

5.22

 

 

Marks

1.1 (in Intellectual Property definition)

 

Material Contracts

5.12(a)

 

 

Nonassignable Assets

2.5(c)

 

 

Noteholders

Preliminary Statements

 

 

Parent

Introductory Paragraph

 

 

Patents

1.1 (in Intellectual Property definition)

 

Proxy Statement

7.12(b)

 

 

Purchase Price

3.1

 

 

Purchased Assets

2.1

 

 

Purchaser

Introductory Paragraph

 

 

Purchaser 401(k) Plan

8.3(d)

 

 

Purchaser Documents

6.2

 

 

Purchaser Plans

8.3(a)

 

 

Real Property

5.9

 

 

Restricted Business

7.14(a)

 

 

Restructuring Agreements

Preliminary Statements

 

 

Revised Statements

2.6

 

 

Sarbanes-Oxley Act

5.26(a)

 

 

SEC Documents

5.26(a)

 

 

Seller

Introductory Paragraph

 

 

Seller 401(k) Plan

8.3(d)

 

 

Seller Balance Sheet

5.5

 

 

Seller Bylaws

5.1

 

 

Seller Charter

5.1

 

 

Seller Documents

5.2

 

 

Seller Employee Plans

5.13(a)

 

 

Seller Marks

7.13

 

 

Seller Registered Intellectual Property

5.11(a)

 

 

Seller Recommendation

7.4(d)

 

 

Seller Restructuring Agreements

Preliminary Statements

 

 

Seller Software

5.11(g)

 

 

Solectron

Preliminary Statements

 

 

Solectron Agreement

Preliminary Statements

 

 

Stockholder Approval

5.2

 

 

Stockholder Meeting

7.12(a)

 

 

Termination Date

4.2(a)

 

 

Termination Fee

4.5(c)

 

 

Total Consideration

3.1

 

 

Transfer Taxes

10.1

 

 

Transferred Employees

8.1(a)

 

 

Voting Agreement

Preliminary Statements

 

 

Wells Fargo

1.1 (in Credit Agreement definition)

 

 

 

1.3

Other Definitional and Interpretive Matters.

(a)          Unless otherwise expressly provided, for purposes of this
Agreement, the following rules of interpretation shall apply:

Calculation of Time Period. When calculating the period of time before which,
within which or following which, any act is to be done or step taken pursuant to
this Agreement, the date that is the reference date in calculating such period
shall be excluded. If the last day of such period is a non-Business Day, the
period in question shall end on the next succeeding Business Day.

Dollars. Any reference in this Agreement to $ shall mean U.S. dollars.

Exhibits/Schedules. The Exhibits and Schedules to this Agreement are hereby
incorporated and made a part hereof and are an integral part of this Agreement.
All Exhibits and Schedules annexed hereto or referred to herein are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise
defined therein shall be defined as set forth in this Agreement.

Gender and Number. Any reference in this Agreement to gender shall include all
genders, and words imparting the singular number only shall include the plural
and vice versa.

Headings. The provision of a Table of Contents, the division of this Agreement
into Articles, Sections and other subdivisions and the insertion of headings are
for convenience of reference only and shall not affect or be utilized in
construing or interpreting this Agreement. All references in this Agreement to
any “Section” or “Article” are to the corresponding Section or Article of this
Agreement unless otherwise specified.

Herein. The words such as “herein,” “hereinafter,” “hereof,” and “hereunder”
refer to this Agreement as a whole and not merely to a subdivision in which such
words appear unless the context otherwise requires.

Including. The word “including” or any variation thereof means (unless the
context of its usage requires otherwise) “including, but not limited to,” and
shall not be construed to limit any general statement that it follows to the
specific or similar items or matters immediately following it.

(b)          The parties hereto have participated jointly in the negotiation and
drafting of this Agreement and, in the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as jointly drafted
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any provision of this
Agreement.

ARTICLE II

 

PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES

2.1          Purchase and Sale of Assets. On the terms and subject to the
conditions set forth in this Agreement, at the Closing Purchaser shall (or shall
cause its designated Affiliate or Affiliates to) purchase, acquire and accept
from Seller, and Seller shall sell, transfer, assign, convey and deliver to
Purchaser (or its designated Affiliate or Affiliates) all of Seller’s right,
title and interest in, to and under the Purchased Assets, free and clear of all
Liens except for Permitted Exceptions. “Purchased Assets” shall mean all of the
business, assets, properties, contractual rights, goodwill, going concern value,
rights and claims of Seller related to the Business, wherever situated and of
whatever kind and nature, real or personal, tangible or intangible, whether or
not reflected on the books and records of Seller (other than the Excluded
Assets), including each of the following assets:

(a)          all cash and accounts receivable of Seller (other than cash
received by Seller as the Purchase Price);

(b)          all inventory used or intended to be used primarily in connection
with the Business;

(c)          all tangible personal property intended to be used primarily in
connection with the Business, including Furniture and Equipment, other than such
tangible personal property which is an Excluded Asset;

(d)          all deposits (including customer deposits and security for rent,
electricity, telephone or otherwise) and prepaid charges and expenses, including
any prepaid rent, of Seller;

(e)          all rights of Seller under each Real Property, together with all
improvements, fixtures and other appurtenances thereto and rights in respect
thereof;

(f)           the Purchased Intellectual Property and the Purchased Technology,
including the Seller Marks;

(g)          all rights of Seller under the Purchased Contracts, including all
claims or causes of action with respect to the Purchased Contracts;

(h)          all Documents in the possession or control of Seller that are
related to the Business, including Documents relating to products, services,
marketing, advertising, promotional materials, Purchased Intellectual Property,
personnel files for Transferred Employees and all files, customer files and
documents (including credit information), supplier lists, records, literature
and correspondence, whether or not physically located on any of the premises
referred to in clause (e) above, but excluding personnel files for Excluded
Employees;

(i)           all Permits, including Environmental Permits, used by Seller in
the Business (which includes all Permits necessary to conduct the Business as
currently conducted) and all rights, and incidents of interest therein;

 

(j)

all supplies owned by Seller and used in connection with the Business;

(k)          all rights of Seller under non-disclosure or confidentiality,
non-compete, non-solicitation or assignment of invention agreements with Former
Employees, Employees and agents of Seller or with Third Parties to the extent
relating to the Business or the Purchased Assets (or any portion thereof);

(l)           all rights of Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and contractors
to the extent relating to products sold or services provided to Seller or to the
extent affecting any Purchased Assets;

(m)         all third-party property and casualty insurance proceeds, and all
rights to third-party property and casualty insurance proceeds, in each case to
the extent received or receivable in respect of the Business;

(n)          all goodwill and other intangible assets associated with the
Business, including the goodwill associated with the Purchased Intellectual
Property; and

(o)          all of the outstanding shares of capital stock or equity interests
of each Subsidiary.

2.2          Excluded Assets. Nothing herein contained shall be deemed to sell,
transfer, assign or convey the Excluded Assets to Purchaser, and Seller shall
retain all right, title and interest to, in and under the Excluded Assets.
“Excluded Assets” shall mean each of the following assets:

 

(a)

the Excluded Contracts;

(b)          all minute books, organizational documents, stock registers and
such other books and records of Seller as pertain to ownership, organization or
existence of Seller and duplicate copies of such records as are necessary to
enable Seller to file tax returns and reports;

 

(c)

all cash consisting of the Purchase Price;

(d)          rights relating to deposits and prepaid expenses and claims for
refunds and rights to offset in respect thereof relating to the Excluded
Liabilities;

(e)          all insurance policies of Seller and rights thereunder, other than
coverage for claims that correlate to Assumed Liabilities;

(f)           copies of all personnel records and other records Seller is
required by law to retain in its possession;

 

(g)

all rights of Seller under this Agreement and the Ancillary Agreements;

(h)          any Tax attributes, credits, reimbursements or similar items of
Seller, other than those related to Tax Liabilities assumed by Purchaser
hereunder; and

(i)           all rights of Seller under the Compromise and Settlement Agreement
between Seller and D.I.C. Creditors’ Trust and J. Gregg Pritchard, dated August
16, 2005 (“Daisytek Agreement”).

2.3          Assumption of Liabilities. On the terms and subject to the
conditions set forth in this Agreement, at the Closing Purchaser shall (or shall
cause its designated Affiliate or Affiliates to) assume, effective as of the
Closing, the following liabilities of Seller (collectively, the “Assumed
Liabilities”):

 

(a)

all Liabilities of Seller under the Purchased Contracts;

(b)          all accounts payable of Seller (including amounts payable to third
party accountants and attorneys (including Holland & Hart LLP and Ballard Spahr
Andrews & Ingersoll, LLP) that are not otherwise included in Transaction Fees)
other than any Excluded Liabilities;

(c)          all accrued expenses of Seller (including accrued Taxes), other
than any Excluded Liabilities;

(d)          all Liabilities of Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and contractors
to the extent relating to products sold or services provided on behalf of Seller
or to the extent affecting any Purchased Assets;

(e)          all Liabilities of Seller in respect of any products sold and/or
services performed by Seller;

 

(f)           all Liabilities of Seller in respect of any pending Legal
Proceeding identified on Schedule 5.15;

(g)          the notes payable issued to Imation and restructured pursuant to
the Imation Agreement;

(h)          the note payable issued to Hitachi and restructured pursuant to the
Hitachi Agreement; and

 

(i)

all amounts payable under the Senior Management Retention Plan.

2.4          Excluded Liabilities. Purchaser will not assume or be liable for
any Excluded Liabilities, all of which shall remain obligations of Seller.
“Excluded Liabilities” shall mean the following Liabilities:

(a)          all Environmental Costs and Liabilities, to the extent arising out
of or otherwise related to (i) the ownership or operation by Seller of (A) the
Real Property (or any condition thereon) on or prior to the Closing Date
(including (x) the Release or continuing Release (if existing as of the Closing)
of any Hazardous Material, regardless of by whom or (y) any noncompliance with
Environmental Laws), (B) the Business on or prior to the Closing Date, (C) the
Excluded Assets or any other real property formerly owned, operated, leased or
otherwise used by Seller or (ii) from the offsite transportation, storage
disposal, treatment or recycling of Hazardous Material generated by and taken
offsite by or on behalf of Seller prior to and through the Closing Date;

(b)          all Liabilities arising out of, under or in connection with
Excluded Contracts;

(c)          all Liabilities in respect of any pending or threatened Legal
Proceeding relating to any Excluded Asset, or any claim arising out of, relating
to or otherwise in respect of any Excluded Asset;

(d)          except to the extent specifically provided in Article VIII, all
Liabilities arising out of, relating to or with respect to (i) the employment or
performance of services, or termination of employment or services by Seller of
any individual on or before the Closing Date, (ii) workers’ compensation claims
against Seller that relate to the period on or before the Closing Date,
irrespective of whether such claims are made prior to or after the Closing, or
(iii) any U.S. Employee Benefit Plan;

 

(e)

Taxes of Seller, other than (A) Transfer Taxes and (B) accrued Taxes;

 

(f)

Transaction Expenses; and

 

(g)          Accruals in respect of director fees (other than a quarterly
retainer not to exceed $35,000 in the aggregate) and management bonuses (other
than the Senior Management Retention Plan).

 

Except as otherwise provided herein, Purchaser will not assume or be liable for
any other Liabilities of Seller arising out of, relating to or otherwise in
respect of the Business on or before the Closing Date or any other Liabilities
of Seller other than the Assumed Liabilities.

 

2.5

Further Conveyances and Assumptions; Consent of Third Parties.

(a)          From time to time following the Closing and except as prohibited by
Law, Seller shall, or shall cause its Affiliates to, make available to Purchaser
such data in personnel records of Transferred Employees as is reasonably
necessary for Purchaser to transition such Employees into Purchaser’s records.

(b)          From time to time following the Closing, Seller and Purchaser
shall, and shall cause their respective Affiliates to, execute, acknowledge and
deliver all such further conveyances, notices, assumptions, releases and
aquittances and such other instruments, and shall take such further actions, as
may be necessary or appropriate to assure fully to Purchaser and its respective
successors or assigns, all of the properties, rights, titles, interests,
estates, remedies, powers and privileges intended to be conveyed to Purchaser
under this Agreement and the Seller Documents and to assure fully to Seller and
its Affiliates and their successors and assigns, the assumption of the
liabilities and obligations intended to be assumed by Purchaser under this
Agreement and the Seller Documents, and to otherwise make effective the
transactions contemplated hereby and thereby.

(c)          Nothing in this Agreement nor the consummation of the transactions
contemplated hereby shall be construed as an attempt or agreement to assign any
Purchased Asset, including any Contract, Permit, certificate, approval,
authorization or other right, which by its terms or by Law is nonassignable
without the consent of a Third Party or a Governmental Entity or is cancelable
by a Third Party in the event of an assignment (“Nonassignable Assets”) unless
and until such consent shall have been obtained. Seller shall, and shall cause
its Affiliates to, use its commercially reasonable efforts to cooperate with
Purchaser at its request in endeavoring to obtain such consents promptly. To the
extent permitted by applicable Law, in the event consents to the assignment
thereof cannot be obtained, such Nonassignable Assets shall be held, as of and
from the Closing Date, by Seller or the applicable Affiliate of Seller in trust
for Purchaser and the covenants and obligations thereunder shall be performed by
Purchaser in Seller’s or such Affiliate’s name and all benefits and obligations
existing thereunder shall be for Purchaser’s account. Seller shall take or cause
to be taken at Seller’s expense such actions in its name or otherwise as
Purchaser may reasonably request so as to provide Purchaser with the benefits of
the Nonassignable Assets and to effect collection of money or other
consideration that becomes due and payable under the Nonassignable Assets, and
Seller or the applicable Affiliate of Seller shall promptly pay over to
Purchaser all money or other consideration received by it in respect of all
Nonassignable Assets. As of and from the Closing Date, Seller on behalf of
itself and its Affiliates authorizes Purchaser, to the extent permitted by
applicable Law and the terms of the Nonassignable Assets, at Purchaser’s
expense, to perform all the obligations and receive all the benefits of Seller
or its Affiliates under the Nonassignable Assets and appoints Purchaser its
attorney-in-fact to act in its name on its behalf or in the name of the
applicable Affiliate of Seller and on such Affiliate’s behalf with respect
thereto.

 

2.6          Purchase Price Allocation. Not later than sixty days after the
Closing Date, Purchaser shall prepare and deliver to Seller a copy of Form 8594
and any required exhibits thereto (the “Asset Acquisition Statement”) allocating
the Total Consideration among the Purchased Assets. Purchaser shall prepare and
deliver to Seller from time to time revised copies of the Asset Acquisition
Statement (the “Revised Statements”) so as to report any matters on the Asset
Acquisition Statement that need updating (including purchase price adjustments,
if any). The Total Consideration paid by Purchaser for the Purchased Assets
shall be allocated in accordance with the Asset Acquisition Statement or, if
applicable, the last Revised Statements, provided by Purchaser to Seller, and
all income Tax Returns and reports filed by Purchaser and Seller shall be
prepared consistently with such allocation, unless otherwise required by Law.

2.7          Receivables. Seller shall provide reasonable assistance to
Purchaser in the collection of accounts receivable. If Seller receives payment
in respect of accounts receivable that are included in the Purchased Assets,
then Seller shall promptly forward such payment to Purchaser.

2.8          Senior Management Retention Plan Escrow. At Closing, Purchaser
shall deposit in escrow the amounts to be distributed under the Senior
Management Retention Plan pursuant to the terms of an escrow agreement, the form
of which shall be mutually agreed upon between the parties.

ARTICLE III

 

CONSIDERATION

3.1          Consideration. The aggregate consideration for the Purchased Assets
shall be (a) an amount in cash equal to the Purchase Price and (b) the
assumption of the Assumed Liabilities (together with the Purchase Price, the
“Total Consideration”). The “Purchase Price” shall consist of the following:

(a)          the amount of Transaction Fees payable at Closing (provided that
the aggregate Transaction Fees shall not exceed $1,200,000);

(b)          the amount of principal, accrued interest and termination fee, if
any, under the Credit Agreement;

 

(c)

the amount of repayment obligations under the Restructuring Agreements;

 

(d)

the amount payable at Closing under the Solectron Agreement;

 

 

(e)

the amount payable at Closing under the Imation Agreement;

 

 

(f)

the amount payable at Closing under the Hitachi Agreement; and

 

 

(g)

$100,000.

 

Notwithstanding the foregoing, on behalf of Seller, Purchaser may effect the
direct payment of the applicable portions of the Purchase Price to the entitled
recipients, as contemplated above, by wire transfer of immediately available
funds into accounts designated by such recipients.

3.2          Payment of Purchase Price. On the Closing Date, Purchaser shall pay
the Purchase Price to Seller (or the recipients set forth in Section 3.1), which
shall be paid by wire transfer of immediately available funds into accounts
designated by Seller (or the recipients set forth in Section 3.1) in writing not
fewer than three Business Days prior to the Closing Date.

ARTICLE IV

 

CLOSING AND TERMINATION

4.1          Closing Date. The consummation of the purchase and sale of the
Purchased Assets and the assumption of the Assumed Liabilities provided for in
Article II hereof (the “Closing”) shall take place at the offices of Weil,
Gotshal & Manges LLP located at 200 Crescent Court, Suite 300, Dallas, Texas (or
at such other place as the parties may designate in writing) at 10:00 a.m.
(Dallas, Texas time) on a date to be specified by the parties (the “Closing
Date”), which date shall be no later than the third Business Day after
satisfaction or waiver of the conditions set forth in Article IX (other than
conditions that by their nature are to be satisfied at Closing, but subject to
the satisfaction or waiver of those conditions at such time), unless another
time, date or place is agreed to in writing by the parties hereto.

4.2          Termination of Agreement. This Agreement may be terminated prior to
the Closing Date as follows, whether before or after Stockholder Approval shall
have been obtained:

(a)          at the election of Seller or Purchaser on or after December 31,
2006 or such later date established pursuant to Section 4.3 (such date, the
“Termination Date”), if the Closing shall not have occurred by the close of
business on such date, provided that the terminating party is not in material
default of any of its obligations hereunder; and provided further, that the
right to terminate this Agreement pursuant to this Section 4.2(a) shall not be
available to any party whose breach of any provision of this Agreement has been
the cause of, or resulted, directly or indirectly, in, the failure of the
Closing to be consummated by the Termination Date;

(b)          by mutual written consent of Seller and Purchaser, in each case
duly authorized by their respective boards of directors;

(c)          by written notice from Purchaser to Seller that there has been an
event, change, occurrence or circumstance that, individually or in the aggregate
with any such events, changes, occurrences or circumstances has had or would
reasonably be expected to have a Material Adverse Effect, other than as a
result, directly or indirectly, of any action or failure to act by Purchaser or
its Affiliates;

(d)          by Purchaser or Seller, if there shall be in effect a final
nonappealable Order of a Governmental Entity of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby; it being agreed that the parties hereto shall
promptly appeal any adverse determination which is not nonappealable (and pursue
such appeal with reasonable diligence); provided, however, that the right to
terminate this Agreement under this Section 4.2(d) shall not be available to a
party if such Order was primarily due to the failure of such party to perform
any of its obligations under this Agreement;

(e)          by Purchaser, if Seller shall have breached or failed to perform
any of its representations, warranties, covenants or agreements set forth in
this Agreement, or if any representation or warranty of Seller shall have become
untrue, in either case such that the conditions set forth in Section 9.2(a)
would not be satisfied and such breach is incapable of being cured or, if
capable of being cured, shall not have been cured within ten days following
receipt by Seller of notice of such breach from Purchaser;

(f)           by Seller, if Purchaser shall have breached or failed to perform
any of its representations, warranties, covenants or agreements set forth in
this Agreement, or if any representation or warranty of Purchaser shall have
become untrue, in either case such that the conditions set forth in Section
9.3(a) would not be satisfied and such breach is incapable of being cured or, if
capable of being cured, shall not have been cured within ten days following
receipt by Purchaser of notice of such breach from Seller;

(g)          by Purchaser or Seller, if at the Stockholder Meeting or any
adjournment thereof at which this Agreement has been voted upon, the Stockholder
Approval shall not have been obtained;

(h)          by Purchaser: (i) if Seller shall have breached any of its
obligations under Section 7.4 such that it materially adversely affects the
protections intended to be afforded to Purchaser under such provision; (ii) if
the board of directors of Seller shall (A) amend, withdraw, modify, change,
condition or qualify the Seller Recommendation in a manner adverse to Purchaser
(or shall fail to reaffirm the Seller Recommendation upon the request of
Purchaser), (B) approve or recommend to the stockholders of Seller an
Acquisition Proposal (other than by Purchaser or its Affiliates), (C) approve or
recommend that the stockholders of Seller tender their stock in Seller in any
tender or exchange offer that is an Acquisition Proposal (other than by
Purchaser or its Affiliates), or (D) approve a resolution or agree to do any of
the foregoing; or (iii) any Person or group (other than Purchaser or its
Affiliates) acquires Beneficial Ownership of a majority of the outstanding stock
of Seller, or if any other Third Party Acquisition shall have occurred;

(i)           by Seller, if and only if simultaneously with such termination,
(i) Seller enters into a definitive agreement for a Superior Proposal in
accordance with, and has otherwise complied in all material respects with, the
terms of Section 7.4, including the notice provisions therein and the obligation
to negotiate with Purchaser in good faith, and (ii) Seller shall have paid
Purchaser the Termination Fee in accordance with Section 4.5; or

(j)           by written notice from Seller to Purchaser that there has been an
event, change, occurrence or circumstance that, individually or in the aggregate
with any such events, changes, occurrences or circumstances has had or would
reasonably be expected to have a Purchaser Material Adverse Effect, other than
as a result, directly or indirectly, of any action or failure to act by Seller
or its Affiliates.

4.3          Extension of Termination Date. Notwithstanding the foregoing,
either Purchaser or Seller shall have the option to extend, from time to time,
the Termination Date for additional periods of time not to exceed 60 days in the
aggregate if all other conditions to the Closing are satisfied or capable of
then being satisfied and the sole reason that the Closing has not been
consummated is that the Stockholder Meeting has not yet been held as a result of
the time required to complete the SEC review process related to the Proxy
Statement; provided that the right to extend the Termination Date pursuant to
this Section 4.3 shall not be available to any party whose breach of any
provision of this Agreement has been the cause of, or resulted, directly or
indirectly, in, the failure of the Closing to be consummated by the Termination
Date.

4.4          Procedure upon Termination. In the event of termination and
abandonment by Purchaser or Seller, or both, pursuant to Section 4.2 hereof,
written notice thereof shall forthwith be given to the other party or parties,
and this Agreement shall terminate, provided that no such termination by Seller
shall be effective unless and until Seller shall have paid the Termination Fee
required to be paid by it pursuant to Section 4.5, if applicable.

 

4.5

Effect of Termination.

(a)          In the event of termination of this Agreement by either Seller or
Purchaser as provided in Section 4.2, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Seller or Purchaser
or their respective Affiliates except (i) with respect to Section 7.7,
Section 7.11, this Section 4.5 and Article XI and (ii) with respect to any
liabilities for damages incurred or suffered by a party as a result of the
willful and material breach by the other party of any of its representations,
warranties, covenants or other agreements set forth in this Agreement.

(b)          If this Agreement is terminated pursuant to Section 4.2(e), Seller
shall pay to Purchaser an amount up to $750,000 (the “Expense Reimbursement”) to
reimburse Purchaser for all reasonable out-of-pocket expenses and fees incurred
by it in connection with this Agreement, the Purchaser Documents and the
transactions contemplated hereby and thereby.

 

(c)

Notwithstanding any other provision of this Agreement, if:

(i)           this Agreement is terminated pursuant to Section 4.2(h) or
Section 4.2(i); or

(ii)          this Agreement is terminated pursuant to Section 4.2(a) (provided
that the reason for the Closing not having previously occurred shall not be the
failure to satisfy the conditions set forth in Section 9.3(a) through no fault
of Seller), Section 4.2(e) or Section 4.2(g) and within 12 months following such
termination Seller enters into a definitive agreement with respect to an
Acquisition Proposal or any Third Party Acquisition occurs;

then Seller shall pay to Purchaser a fee of $2,000,000 less any Expense
Reimbursement previously provided (the “Termination Fee”).

(d)          Payment of any Expense Reimbursement or Termination Fee pursuant to
this Section 4.5 shall be promptly made (and in no event later than two Business
Days after the occurrence of the event giving rise to such payment obligation)
by wire transfer of immediately available funds to an account designated by
Purchaser; provided, however, that if this Agreement is terminated pursuant to
Section 4.2(i), the Termination Fee shall be paid simultaneously with such
termination.

(e)          Seller acknowledges that the agreements contained in this
Section 4.5 are an integral part of the transaction contemplated by this
Agreement, and that Purchaser would not have entered into this Agreement without
such agreements; accordingly, if Seller fails to promptly pay any amounts due
pursuant to this Section 4.5 and, in order to obtain such payment, Purchaser
commences a suit that results in a judgment against Seller for such amounts,
Seller shall pay to Purchaser its costs and expenses (including reasonable
attorneys’ fees) in connection with such suit, together with interest on the
such amounts due pursuant to this Section 4.5 from the date of the event giving
rise to such payment obligations at the prime rate of JPMorgan Chase Bank in
effect as of such date.

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Purchaser that:

5.1          Corporate Organization; Foreign Qualification. Seller is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Delaware, and has all corporate power and authority
required to own, lease and operate its properties and to carry on its business
as now conducted. Seller is duly qualified to do business as a foreign
corporation and is in good standing in the jurisdictions set forth in Schedule
5.1, which includes each jurisdiction where the character of the property owned,
leased or operated by it or the nature of its activities makes qualification
necessary. Seller has made available to Purchaser true, complete and correct
copies of (i) the Restated Certificate of Incorporation (including any related
certificate of designation of preferences, rights and limitations with respect
to any authorized shares of Seller’s preferred stock) and the Bylaws of Seller,
each as in effect as of the date hereof (respectively, the “Seller Charter” and
“Seller Bylaws”) and (ii) corporate minute books of Seller in respect of
meetings of the board of directors of Seller or any committees thereof from
January 2002 through the date hereof. The minute books of Seller reflect all
action taken and authorizations made that are required to be reflected therein.

5.2          Corporate Authorization. Subject to the authorization and approval
of this Agreement, and the consummation of the transactions contemplated hereby,
by the vote of the holders of a majority of the issued and outstanding Common
Shares (“Stockholder Approval”), Seller has all requisite power, authority and
legal capacity to execute and deliver this Agreement, and Seller and each of the
Subsidiaries, respectively, has all the requisite power, authority and legal
capacity to execute and deliver the Ancillary Agreements to which it is a party
and each other agreement, document, or instrument or certificate contemplated by
this Agreement or to be executed by Seller or the Subsidiaries in connection
with the transactions contemplated by this Agreement (collectively, the “Seller
Documents”), to perform their respective 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 Seller
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized and approved by all requisite
corporate action on the part of Seller and each of the Subsidiaries and no other
corporate proceedings on the part of Seller or any Subsidiary are necessary to
authorize or consummate this Agreement or any Seller Document, or the other
transactions contemplated hereby or thereby, except for the Stockholder
Approval. On or prior to the date hereof, Seller’s board of directors has
(i) determined that this Agreement, the Seller Documents and the transactions
contemplated hereby and thereby, are fair to and in the best interests of Seller
and the stockholders of Seller, (ii) adopted resolutions approving this
Agreement, the Seller Documents and the transactions contemplated hereby and
thereby, and (iii) adopted resolutions declaring this Agreement advisable and
recommending to the stockholders of Seller that they vote in favor of adopting
and approving this Agreement. This Agreement has been duly and validly executed
and delivered by Seller and (assuming the due authorization, execution and
delivery hereof by the other parties) constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except as may be limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws affecting the rights of creditors generally and of general
principles of equity.

 

5.3

Noncontravention; Approvals and Consents.

(a)          Except as set forth in Schedule 5.3(a), the execution, delivery and
performance by Seller of this Agreement, and by Seller and the Subsidiaries of
the Seller Documents, and the transactions contemplated hereby and thereby, do
not and will not contravene, conflict with, constitute a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any Person any right of payment or reimbursement,
termination, cancellation, modification or acceleration, loss of a material
benefit under or result in the creation or imposition of any Lien upon any of
the assets or properties of Seller or any Subsidiary under, any of the terms,
conditions or provisions of, (i) the Seller Charter or Seller Bylaws or
comparable organizational documents of any Subsidiary or (ii) subject to
obtaining the Stockholder Approval and the taking of the actions described in
Section 5.3(b), (A) any Laws binding upon or applicable to Seller or any
Subsidiary or by which any of its assets or properties is bound, (B) any
Contract to which Seller or any Subsidiary is a party or by which any of its
assets or properties is bound, or (C) any Permit, excluding from the foregoing
clauses (A) and (B) contraventions, conflicts, violations, breaches, defaults,
rights of payment or reimbursement, terminations, cancellations, modifications,
accelerations and creations and impositions of Liens that, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect (but not excluding any conflicts, violations, breaches, defaults, rights
of payment or reimbursement, terminations, cancellations, modifications,
accelerations and creations or impositions of Liens under any Material
Contract).

(b)          Except (i) for the filing of the Proxy Statement and as set forth
in Schedule 5.3(b), no consent, waiver, approval or action of, filing with or
notice to any Governmental Entity or Third Party is necessary or required under
any of the terms, conditions or provisions of any Law or any Contract to which
Seller or any Subsidiary is a party or by which any of its assets or properties
is bound for the execution, delivery and performance by Seller of this
Agreement, and by Seller and the Subsidiaries of the Seller Documents, and the
transactions contemplated hereby and thereby, excluding from the foregoing such
consents, waivers, approvals, actions, filings and notices that the failure to
make or obtain, as the case may be, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Affect (but not excluding any
consents, approvals, actions, filings and notices necessary or required under
any Material Contract).

5.4          Financial Statements. Each of the audited consolidated financial
statements and unaudited interim consolidated financial statements of Seller and
the Subsidiaries (including the notes thereto and as restated in certain
circumstances prior to the date of this Agreement) included in the SEC Documents
(i) complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC, including the
Sarbanes-Oxley Act, applicable thereto, (ii) were prepared in accordance with
GAAP consistently applied throughout the periods involved (except as may be
indicated therein or in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q of the SEC) and (iii) fairly present the
consolidated financial position of Seller and the Subsidiaries as at the
respective dates thereof and the results of its consolidated operations and cash
flows for the respective periods then ended.

5.5          No Undisclosed Liabilities. Except as set forth in Schedule 5.5,
there are no liabilities or obligations of Seller or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, or determined, and there is
no existing condition, situation or set of circumstances that would reasonably
be expected to result in such liabilities or obligations, other than
(i) liabilities or obligations disclosed, provided for or reserved against in
the unaudited consolidated balance sheet of Seller and the Subsidiaries as of
June 30, 2006 (the “Seller Balance Sheet”) or disclosed in the notes thereto or
(ii) liabilities or obligations incurred after June 30, 2006 (the “Balance Sheet
Date”) in the Ordinary Course of Business.

5.6          Title to Purchased Assets; Sufficiency. Each of Seller and the
Subsidiaries has good and marketable title to or a valid leasehold estate in,
free and clear of any Liens, all personal properties and assets reflected on the
Seller Balance Sheet at the Balance Sheet Date other than (i) the Permitted
Exceptions and (ii) the Liens securing the obligations under the Credit
Agreement and the Convertible Notes, all of which are to be released at Closing
as contemplated by Section 9.2(i) (except for properties or assets subsequently
sold in the Ordinary Course of Business).

5.7          Absence of Certain Changes. Since the Balance Sheet Date, except as
set forth in Schedule 5.7 or as set forth in the SEC Documents, Seller and the
Subsidiaries have conducted their respective businesses only in the Ordinary
Course of Business and since the Balance Sheet Date, there has not been any
event, occurrence or development, that individually or in the aggregate,
constitutes or would be reasonably expected to have a Material Adverse Effect.
Without limiting the generality of the foregoing, since the Balance Sheet Date,
except as set forth in Schedule 5.7 or as set forth in the SEC Documents, there
has not been:

(a)          any amendment or change in the Seller Charter or Seller Bylaws or
comparable organizational documents of any Subsidiary;

(b)          any material change by Seller or any Subsidiary in its accounting
methods, principles or practices;

(c)          any material Tax election made, rescinded or changed, any change in
method of accounting with respect to Taxes or any compromise or settlement of
any proceeding with respect to any material Tax liability;

(d)          any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) or capital return in respect
of any capital stock of Seller or any Subsidiary or any redemption, purchase or
other acquisition by Seller or any Subsidiary of any capital stock of Seller or
any Subsidiary or other Equity Interests in Seller or any Subsidiary, or any
amendment of any material term of any Equity Interest in Seller or any
Subsidiary;

(e)          any sale, assignment, transfer, lease or other disposition or
agreement to sell, assign, transfer, lease or otherwise dispose of any of the
assets of Seller or any Subsidiary other than in the Ordinary Course of
Business;

(f)           any acquisition (by merger, consolidation, or acquisition of stock
or assets) by Seller or any Subsidiary of any corporation, partnership or other
business organization or division thereof or any Equity Interest therein for
consideration, or any loan or advance to any Person;

(g)          any incurrence of, guarantee with respect to, or provision of
credit support for, any indebtedness by Seller or any Subsidiary other than
pursuant to the Credit Agreement in the Ordinary Course of Business, or any
creation or assumption by Seller or any Subsidiary of any Lien on any material
asset;

(h)          (i) any employment, deferred compensation, severance or similar
agreement entered into or amended by Seller or any Subsidiary, on the one hand,
and any employee, on the other hand, (ii) any increase in the compensation
payable or to become payable by it to any of its directors or officers or
generally applicable to all or any category of Seller’s or any Subsidiary’s
employees, (iii) any increase in the coverage or benefits available under any
vacation pay, company awards, salary continuation or disability, sick leave,
deferred compensation, bonus or other incentive compensation, insurance, pension
or other employee benefit plan, payment or arrangement made to, for or with any
of the directors of officers of Seller or any Subsidiary or generally applicable
to all or any category of Seller’s or any Subsidiary’s employees or
(iv) severance pay arrangements made to, for or with such directors, officers or
employees other than, in the case of clauses (ii) and (iii) of this Section
5.7(h) and only with respect to employees who are not officers or directors of
Seller or any Subsidiary, increases in the Ordinary Course of Business and that
in the aggregate have not resulted in a material increase in the benefits or
compensation expense of Seller or any Subsidiary;

(i)           any loan, advance or capital contribution made by Seller or any
Subsidiary to, or investment in, any Person other than loans, advances or
capital contributions, or investments of Seller or any Subsidiary made in the
Ordinary Course of Business;

(j)           (i) any waiver, direct or indirect, by Seller or any Subsidiary of
any right or rights of material value or (ii) any payment of any material debt,
liability or other obligation, except for payments made in the Ordinary Course
of Business;

(k)          any payment, loan or advance of any amount to or in respect of, or
the sale, transfer or lease of any properties or assets (whether real, personal
or mixed, tangible or intangible) to, or entering into of any agreement,
arrangement, or transaction with or on behalf of, any officer, director, or
employee of Seller or any Subsidiary or any of their Affiliates, or any business
or entity in which Seller or any Subsidiary or any of their Affiliates, or
relative of any such Person, has any material, direct or indirect, interest,
except for directors’ fees, compensation to the officers and employees of Seller
or any Subsidiary in the Ordinary Course of Business, and advancement or
reimbursement of expenses in the Ordinary Course of Business;

(l)           any issuance, sale or disposition of any capital stock or other
Equity Interest in Seller or any Subsidiary or issuance or grant of any options,
warrants or other rights to purchase any such capital stock or Equity Interest
or any securities convertible into or exchangeable for such capital stock or
Equity Interest or any other change in the issued and outstanding capitalization
of Seller or any Subsidiary;

(m)         any amendment, alteration or modification in the terms of any
currently outstanding options, warrants or other rights to purchase any capital
stock or Equity Interest in Seller or any Subsidiary or any securities
convertible into or exchangeable for such capital stock or Equity Interest,
including, without limitation, any reduction in the exercise or conversion price
of any such rights or securities, any change to the vesting or acceleration
terms of any such rights or securities, or any change to terms relating to the
grant of any such rights or securities;

(n)          any capital expenditure, other than capital expenditures consistent
with and not materially in excess of the proposed capital expenditures
identified in Schedule 5.7(n);

(o)          any action that, if it had been taken after the date hereof, would
have required the consent of Purchaser under Section 7.1; or

(p)          any agreement to take any of the actions specified in this
Section 5.7, except for this Agreement.

 

5.8

Taxes. Except as set forth in Schedule 5.8,

(a)          (i) All Tax Returns required to be filed by or on behalf of each of
Seller, any Subsidiary and any Affiliated Group of which Seller or any
Subsidiary is or was a member relating to the Business or the Purchased Assets
have been duly and timely filed with the appropriate Taxing Authority in all
jurisdictions in which such Tax Returns are required to be filed, and all such
Tax Returns are true, complete and correct in all material respects; (ii) all
Taxes of the Seller and each Subsidiary, and all Taxes relating to the Business
or the Purchased Assets, have been fully and timely paid; (iii) with respect to
any period for which Tax Returns have not yet been filed or for which Taxes are
not yet due or owing, the Seller and each Subsidiary have made due and
sufficient accruals for such Taxes in the Financial Statements and its books and
records; and (iv) all required estimated Tax payments sufficient to avoid any
underpayment penalties or interest have been made by or on behalf of the Seller
and each Subsidiary;

(b)          All deficiencies asserted or assessments made as a result of any
examinations by any Taxing Authority of the Tax Returns of the Seller and each
Subsidiary, and all Tax Returns relating to the Purchased Assets or the
Business, have been fully paid, and there are no other audits or investigations
by any Taxing Authority in progress, nor has Seller or any Subsidiary received
any notice from any Taxing Authority that it intends to conduct such an audit or
investigation.

(c)          Schedule 5.8(c) lists (i) all types of Taxes paid, and all types of
Tax Returns filed by or on behalf of Seller or any Subsidiary and (ii) all of
the jurisdictions that impose such Taxes or with respect to which Seller or any
Subsidiary has a duty to file such Tax Returns. Seller has made available
complete copies of material Tax Returns filed by it or any Subsidiary relating
to taxable periods that ended after December 31, 2002.

(d)          Seller and each Subsidiary have complied in all material respects
with all applicable Laws relating to the payment and withholding of Taxes and
have duly and timely withheld and paid over to the appropriate Taxing
Authorities all amounts required to be so withheld and paid over under all
applicable Laws.

(e)          No claim has been made by a Taxing Authority in a jurisdiction in
which Seller or any Subsidiary does not currently file a Tax Return such that
Seller or such Subsidiary is or may be subject to taxation by that jurisdiction.

(f)           No agreement, waiver or other document or arrangement extending or
having the effect of extending the period for assessment or collection of Taxes
(including, but not limited to, any applicable statute of limitation) or the
period for filing any Tax Return has been executed or filed with any Taxing
Authority by or on behalf of Seller. Seller has not requested any extension of
time within which to file any Tax Return, which Tax Return has since not been
filed.

(g)          There are no Liens for Taxes upon the Purchased Assets, except for
Permitted Exceptions.

(h)          The Seller is not a “foreign person” within the meaning of
section 1445 of the Code.

(i)           Neither the Seller nor any of the Subsidiaries (A) is, or has
been, a member of an affiliated, consolidated, combined or unitary group and
(B) has any liability for the Taxes of any Person (other than the Subsidiaries)
under Treasury Regulation section 1.1502-6 (or any similar provision of Law), or
as a transferee or successor, by Contract or otherwise, other than the group of
which the Seller is the common parent.

(j)           None of the Purchased Assets is an interest (other than
indebtedness within the meaning of section 163 of the Code) in an entity taxable
as a partnership, trust or real estate mortgage investment conduit for federal
income tax purposes.

(k)          No issue has been raised by written inquiry of any Governmental
Entity, which, by application of the same principles, would reasonably be
expected to affect the Tax liability of the Seller or any Subsidiary in any
taxable period (or portion thereof) ending after the Closing Date.

(l)           There are no powers of attorney with respect to any Tax matter
currently in force that would, in any manner, bind, obligate or restrict
Purchaser.

(l)           Neither the Seller nor any Subsidiary is party to, bound by or
obligated under, any Tax sharing, allocation or indemnity agreement or similar
Contract or arrangement or any Contract that obligates the Seller or any
Subsidiary to make any payment computed by reference to the Taxes, taxable
income or taxable losses of any other Person that would, in any manner, bind,
obligate or restrict Purchaser.

(m)         Neither the Seller nor any of its Subsidiaries have executed or
entered into any written agreement with, or obtained or have a pending
application for any written consents or written clearances or any other Tax
rulings from, nor has there been any written agreement executed or entered into
on behalf of any of them with any Taxing Authority, relating to material Taxes,
including any IRS private letter rulings or comparable rulings of any Taxing
Authority and closing agreements pursuant to Section 7121 of the Code or any
predecessor provision thereof or any similar provision of any Law.

(n)          None of the Purchased Assets or any property used in the Business
is (i) property required to be treated as being owned by another Person pursuant
to the provisions of section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986, (ii) “tax-exempt use property” within the meaning of section 168(h)(1)
of the Code, (iii) “tax-exempt bond financed property” within the meaning of
section 168(g) of the Code, (iv) “limited use property” within the meaning of
Rev. Proc. 2001-28, (v) described in section 168(g)(1)(A) of the Code with
respect to which any Seller or any of its Affiliates has claimed depreciation
deductions in determining its U.S. federal income tax liability, or (vi) subject
to any provision of Law comparable to any of the provisions listed above.

(o)          Neither the Seller nor any of the Subsidiaries have constituted a
“distributing corporation” or a “controlled corporation” (within the meaning of
section 355(a)(1)(A) of the Code) in a distribution of shares qualifying for
Tax-free treatment under section 355 of the Code) (a) in the two years prior to
the date of this Agreement or (b) in a distribution that could otherwise
constitute part of a “plan” or “series of related transactions” (within the
meaning of section 355(e) of the Code) in conjunction with this acquisition.

(p)          Neither the Seller nor any of the Subsidiaries has participated in
any international boycott within the meaning of section 999 of the Code.

(q)          Neither the Seller nor any of the Subsidiaries has, or has ever
had, a permanent establishment in any country other than its country of
organization, nor has any Subsidiary ever engaged in a trade or business in any
country other than its country of organization that subjected it to Tax in such
country.

(r)           Each of the Seller and its Subsidiaries has disclosed on its
federal Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax (within the meaning of section
6662 of the Code).

(s)           Neither the Seller nor any Subsidiary has participated in any way
(i) in any “tax shelter” within the meaning of Section 6111 (as in effect prior
to the enactment of P.L. 108 357 or any comparable laws of jurisdictions other
than the United States) of the Code or (ii) in any “reportable transaction”
within the meaning of Treasury Regulation Section 1.6011 4 (as in effect at the
relevant time) (or any comparable regulations of jurisdictions other than the
United States).

5.9          Real Property. Schedule 5.9 sets forth each parcel of real property
owned, leased or used by Seller and the Subsidiaries (the “Real Property”). Each
of Seller and the Subsidiaries has good and marketable fee simple title to each
property identified as owned by it and a valid leasehold interest under a lease
or sublease covering each property identified as leased by it, free and clear of
all Liens other than (i) Liens that do not, individually or in the aggregate,
materially impair the conduct by Seller or any Subsidiary of their businesses
thereon or materially detract from the value thereof, (ii) Permitted Exceptions,
and (iii) the Liens securing the obligations under the Credit Agreement and the
Convertible Notes, all of which are to be released at Closing as contemplated by
Section 9.2(i). The use of the Real Property by Seller and the Subsidiaries in
their businesses as presently conducted conforms with applicable zoning Laws,
regulations and Permits. Neither Seller nor any Subsidiary is obligated under or
bound by any Contract, right of first refusal or other contractual right to
sell, lease or dispose of any Real Property that is owned by Seller or any
Subsidiary. Each of Seller and the Subsidiaries enjoys peaceful and undisturbed
possession under the leases or subleases for all Real Property that is leased or
subleased by Seller or any Subsidiary.

5.10       Accounts Payable and Inventory. All accounts payable and other
current liabilities reflected on the Seller Balance Sheet represent accounts
payable for products and services purchased in the Ordinary Course of Business.
Except as set forth in Schedule 5.10-1, all inventory of Seller and the
Subsidiaries reflected on the Seller Balance Sheet consisted, as of such dates,
of a quality and quantity usable and salable in the Ordinary Course of Business.
Since the Balance Sheet Date, each of Seller and the Subsidiaries has (i) only
incurred accounts payable and other current liabilities (other than Transaction
Fees) in the Ordinary Course of Business and has discharged its accounts payable
and other current liabilities in accordance with past practice and
(ii) purchased and maintained inventory in an amount that it reasonably believe
to be appropriate for normal requirements of its business and current business
conditions consistent with past practices. The inventories of Seller and the
Subsidiaries set forth in the Seller Balance Sheet were valued at the lower of
cost (on a FIFO basis) or market and were properly stated therein in accordance
with GAAP consistently applied. Adequate reserves have been reflected in the
Seller Balance Sheet for obsolete, excess, damaged, slow-moving, or otherwise
unusable inventory, which reserves were calculated in a manner consistent with
past practice and in accordance with GAAP consistently applied. The inventories
of Seller and the Subsidiaries constitute sufficient quantities for the normal
operation of business in accordance with past practice. Schedule 5.10-2 sets
forth an aging schedule of Seller’s and the Subsidiaries’ accounts payable as of
the Balance Sheet Date.

5.11       Intellectual Property. As of the date hereof and except as set forth
in Schedule 5.11,

(a)          Schedule 5.11(a) sets forth an accurate and complete list of all
Patents and pending Patent applications, registered Marks, pending applications
for registration of Marks, unregistered Marks, registered Copyrights, and
Internet domain names that are owned or filed by Seller or any of its
Subsidiaries (collectively, the “Seller Registered Intellectual Property”).
Schedule 5.11(a) lists: (i) the record owner of each such item of Seller
Registered Intellectual Property; (ii) the jurisdictions in which each such item
of Intellectual Property has been issued or registered or in which any such
application for issuance or registration of such item of Intellectual Property
has been filed; and (iii) the registration or application date, if and as
applicable.

(b)          Seller or one of its Subsidiaries either (i) is the sole and
exclusive owner of all right, title and interest in and to, or (ii) possesses
valid rights to use, sell, license and/or otherwise commercially exploit (but
not necessarily the exclusive right to use, sell, license and/or otherwise
commercially exploit), as the case may be, all Purchased Intellectual Property,
Purchased Technology, and Intellectual Property licensed to Seller or any of its
Subsidiaries under the Intellectual Property Licenses as the same is used, sold,
licensed and otherwise commercially exploited by Seller or its Subsidiaries in
the Business as presently conducted and as currently proposed to be conducted,
free and clear of all Liens or any other obligations to others (except for those
specified in the Intellectual Property Licenses listed in Schedule
5.12(a)(vii)).

(c)          To the Knowledge of Seller, the Purchased Intellectual Property,
the Purchased Technology, the development, manufacturing, licensing, marketing,
importation, offer for sale, sale or use of any products and services in
connection with the Business as presently and as currently proposed to be
conducted, and the present and currently proposed business practices, methods
and operations of Seller and its Subsidiaries do not infringe, dilute,
constitute or result from an unauthorized use or misappropriation of, or violate
any Intellectual Property, Technology or other right of any Person. To the
Knowledge of Seller, the Purchased Intellectual Property, the Purchased
Technology and the Intellectual Property licensed to Seller or any of its
Subsidiaries under the Intellectual Property Licenses include all of the
Intellectual Property and Technology reasonably necessary and sufficient to
enable Seller and its Subsidiaries to conduct the Business in the manner in
which such Business is currently being conducted, and to the Knowledge of
Seller, currently proposed to be conducted.

(d)          To the Knowledge of Seller, no Person is infringing, diluting,
violating, misusing or misappropriating any Purchased Intellectual Property or
Purchased Technology owned or claimed to be owned by, or exclusively licensed
to, Seller or one of its Subsidiaries, and no claims of infringement, dilution,
violation, misuse or misappropriation of any Purchased Intellectual Property or
Purchased Technology have been made against any Person by Seller or any of its
Subsidiaries.

(e)          Except as set forth in Schedule 5.11(e), Seller and its
Subsidiaries are not the subject of any pending or, to the Knowledge of Seller,
threatened Legal Proceedings that involve a claim of infringement, unauthorized
use, misappropriation, dilution or violation by any Person against Seller or any
of its Subsidiaries relating to or challenging the ownership, use, validity or
enforceability of any Purchased Intellectual Property, Purchased Technology or
Intellectual Property licensed to Seller or any of its Subsidiaries under the
Intellectual Property Licenses. Seller and its Subsidiaries have not received
written (including by electronic mail) notice of any such threatened claim and,
to the Knowledge of Seller, there are no facts or circumstances that would form
a reasonable basis for any such claim or challenge. The Purchased Intellectual
Property and the Purchased Technology, and all of Seller’s and its Subsidiaries’
rights in and to the Purchased Intellectual Property, the Purchased Technology
and the Intellectual Property licensed to Seller and its Subsidiaries have not
been determined by non-appealable Legal Proceedings to be invalid or
unenforceable and, to the Knowledge of Seller, there is no basis to believe that
any of the foregoing Intellectual Property or Technology is not valid and
enforceable.

(f)           No material Trade Secret included in the Purchased Intellectual
Property or Purchased Technology has been authorized to be disclosed or has been
actually disclosed by Seller or any of its Subsidiaries to any Seller employee,
consultant or independent contractor or any Third Party other than to Seller
employees, advisors, consultants or independent contractors or Third Parties who
are subject to a written non-disclosure agreement, restricting the disclosure
and use of such Trade Secrets. Seller and its Subsidiaries have taken adequate
security measures to protect the confidentiality and value of all such Trade
Secrets and any other material non-public, proprietary information of Seller and
its Subsidiaries (and any confidential information owned by a Third Party to
whom Seller or any of its Subsidiaries has a confidentiality obligation) which
measures are reasonable in the industry in which Seller and its Subsidiaries
operate. Each Seller employee, consultant and independent contractor involved in
the creation or development of any item included in the Purchased Intellectual
Property and/or Purchased Technology owned or claimed to be owned by Seller or
one of its Subsidiaries has entered into a written non-disclosure and invention
assignment agreement with Seller or one of its Subsidiaries in a form provided
to Purchaser prior to the date hereof.

(g)          Schedule 5.11(g) sets forth a complete and accurate list of (i) all
Software included in the Purchased Intellectual Property and/or Purchased
Technology exclusively owned or claimed to be owned by Seller or any of its
Subsidiaries (collectively, the “Seller Software”), and (ii) all Software not
exclusively owned by Seller or any of its Subsidiaries and incorporated,
embedded or bundled with any Software listed in subclause (i) above, but
excluding any Excluded Rights and Software.

(h)          Seller and its Subsidiaries have not incorporated any “open
source,” “freeware,” “shareware” or other Software having similar licensing or
distribution models in any Seller Software. Except as set forth in Schedule
5.11(h)(i), Seller and its Subsidiaries have not licensed or provided to any
Third Party, or otherwise permitted any Third Party to access or use, any source
code or related materials for any Seller Software. Except as set forth in
Schedule 5.11(h)(ii), neither Seller nor any of its Subsidiaries are currently
party to any source code escrow agreement or any other agreement (or a party to
any agreement obligating Seller or any of its Subsidiaries to enter into a
source code escrow agreement or other agreement) requiring the deposit of source
code or related materials for any such Seller Software.

(i)           Except with respect to any Excluded Rights and Software, and
except pursuant to the Intellectual Property Licenses listed in Schedule
5.12(a)(vii), neither Seller nor any of its Subsidiaries is required, obligated,
or under any liability whatsoever, to make any payments by way of royalties,
fees or otherwise or provide any other consideration of any kind, to any owner
or licensor of, or other claimant to, any Purchased Intellectual Property or
Purchased Technology, or any other Person (other than salaries and sales
commissions paid to employees and sales agents in the Ordinary Course of
Business), with respect to any Purchased Intellectual Property and/or Purchased
Technology.

(j)           All necessary registration, maintenance, renewal and other
relevant filing fees in connection with any of the Seller Registered
Intellectual Property that has been issued or registered or is the subject of a
pending application have been timely paid, and all documents, certificates and
other relevant filings in connection with such Seller Registered Intellectual
Property that are required to be filed with the relevant Governmental Entities
in the United States or foreign jurisdictions, as the case may be, have been
timely filed for the purpose of maintaining such Seller Registered Intellectual
Property and all issuances, registrations and applications therefor. Except as
set forth in Schedule 5.11(j), there are no annuities, payments, fees, responses
to office actions or other filings necessary to be made and having a due date
with respect to any such Seller Registered Intellectual Property within ninety
(90) days after the date of this Agreement.

(k)          There are no orders, judgments, decrees, writs, rulings,
arbitration awards, settlement agreements or stipulations to which Seller or any
of its Subsidiaries is a party or by which Seller or any of its Subsidiaries is
bound that restrict Seller’s or any of its Subsidiaries’ rights to use any
Purchased Intellectual Property or Purchased Technology.

(l)           The consummation of the transactions contemplated hereby will not
result in the loss or impairment of Purchaser’s right to own or use any of the
Purchased Intellectual Property or Purchased Technology as the same is used,
sold, licensed and otherwise commercially exploited by Seller or its
Subsidiaries in the Business as presently conducted and as currently proposed to
be conducted. Neither this Agreement nor any transaction contemplated by this
Agreement will result in the grant of any license or other rights with respect
to any Purchased Intellectual Property or Purchased Technology to any Third
Party pursuant to any Contract to which Seller or any of its Subsidiaries is a
party or by which any assets or properties of Seller or any of its Subsidiaries
is bound.

 

5.12

Material Contracts.

(a)          Schedule 5.12 sets forth a true, complete and correct list of the
following Contracts to which Seller or any Subsidiary is a party or by which its
assets or properties is bound (collectively, the “Material Contracts”):

(i)           Contracts the performance of which could reasonably be expected to
require annual expenditures by or liabilities of any party thereto in excess of
$25,000 in any calendar year and not otherwise set forth on Schedule 5.12;

(ii)          Contracts providing for the any future contingent payment in
excess of $25,000 and not otherwise set forth on Schedule 5.12;

 

(iii)

Contracts with any Major Customer or Major Supplier;

(iv)         Contracts containing covenants limiting the freedom of Seller or
any Subsidiary or any of their Affiliates (including Purchaser and its
Affiliates after the Closing) to engage in any line of business or compete with
any Person, in any product line or line of business, or operate at any location;

(v)          Contracts or other instruments providing for the borrowing or
lending of money, in an amount in excess of $25,000, whether as borrower, lender
or guarantor;

(vi)         Contracts relating to joint ventures, alliances, partnerships, or
joint development or similar arrangements with any Third Party;

(vii)       Intellectual Property Licenses, royalty Contracts or any other
Contracts relating to any Purchased Intellectual Property or Purchased
Technology (excluding any Excluded Rights and Software);

(viii)      Contracts with current or former officers, directors, consultants,
independent contractors or agents for employment, and all severance, change in
control or similar arrangements with any current or former directors, officers,
employees, consultants, independent contractors or agents that will result in
any obligation (absolute or contingent) of Seller or any Subsidiary to make any
payment to any current or former directors, officers, employees, consultants,
independent contractors or agents following either the consummation of the
transactions contemplated hereby, termination of employment (or the relevant
relationship), or both;

 

(ix)

Contracts with Affiliates of Seller or any Subsidiary;

(x)          Contracts with any Governmental Entity that have a remaining term
in excess of ninety days or are not cancelable (without material penalty, cost
or other liability) within ninety days;

 

(xi)

Contacts relating to any material Permits;

 

(xii)

Contracts relating to the Real Property;

 

(xiii)      Contracts or commitments in which Seller or any Subsidiary has
granted manufacturing rights or exclusive marketing rights relating to any
product or service, any group of products or services or any territory;

(xiv)      Contracts for the acquisition or sale, directly or indirectly (by
merger or otherwise), of assets (whether tangible or intangible, other than
inventory sold in the Ordinary Course of Business) or the capital stock of
another Person;

(xv)        Contracts relating to the capital stock or other ownership in assets
of another Person, including Contracts containing voting, management, change of
control, or transfer provisions related to such capital stock or other assets;
or

(xvi)      Contracts that are “material contracts” as such term is defined in
Item 601 of Regulation S-K of the SEC that have not been filed with or as an
exhibit to the SEC Documents.

(b)          True, complete and correct copies of the written Material Contracts
and descriptions of oral Material Contracts, if any, have been delivered to
Purchaser. Each of the Material Contracts is a valid and binding obligation of
Seller or any Subsidiary party thereto and, to the Knowledge of Seller, the
other parties thereto, enforceable against the other parties thereto in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and of general principles of equity. Except for the consummation of
the transactions contemplated hereby and by the Seller Documents, no event has
occurred that would, on notice or lapse of time or both, entitle the holder of
any indebtedness issued pursuant to a Material Contract to accelerate, or that
does accelerate, the maturity of any such indebtedness.

(c)          Neither Seller nor any Subsidiary is, or has received any notice
from any Third Party alleging that Seller or any Subsidiary is, or, to the
Knowledge of Seller, no Third Party is, in breach, default or violation (each a
“Default”) (and no event has occurred or not occurred through Seller’s or any
Subsidiary’s inaction or, to the Knowledge of Seller, through the action or
inaction of any Third Parties, which with notice or the lapse of time or both
would constitute a Default) of any term, condition or provision of any Material
Contract.

(d)          Neither Seller nor any Subsidiary has received notice of the
termination of, or intent to terminate or otherwise fail to fully perform, any
Material Contract and otherwise has no reason to believe, that the parties to
any Material Contract will not fulfill their obligations thereunder in all
material respects.

 

5.13

Employee Benefits.

(a)          Except as set forth in Schedule 5.13(a), none of Seller or any
Subsidiary or any ERISA Affiliate maintains, administers, sponsors or otherwise
has any obligations or liability, contingent or otherwise, with respect to any
Employee Benefit Plan. The items required to be listed in Schedule 5.13(a) are
referred to collectively herein as the “Seller Employee Plans.”

(b)          Seller has delivered to Purchaser current, accurate and complete
copies of the following documents with respect to each Seller Employee Plan (as
applicable): (i) any plans and related trust documents, insurance contracts or
other funding arrangements and all amendments thereto; (ii) the most recent
summary plan description and summary of material modification; (iii) written
summaries of any non-written Seller Employee Plan; (iv) the most recent IRS
determination letter; and (v) for the two most recent plan years (A) the Forms
5500 and attached schedules, (B) audited financial statements and (C) actuarial
valuation reports.

(c)          None of the Seller Employee Plans is subject to title IV of ERISA.
None of Seller or any Subsidiary or any ERISA Affiliate has any outstanding
liability (whether absolute or contingent) under title IV of ERISA. An “ERISA
Affiliate” means any Person that would be treated as a single employer with
Seller or any Subsidiary under section 414(b), (c), (m) or (o) of the Code.

(d)          Each Seller Employee Plan that is intended to be qualified under
section 401(a) of the Code and each trust forming a part thereof has received a
favorable determination or opinion from the IRS of its qualification. To the
Knowledge of Seller, nothing has occurred, whether by action or failure to act,
that could reasonably be expected to cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or Tax under
ERISA or the Code.

(e)          To the Knowledge of Seller, each Seller Employee Plan has been
maintained in all material respects in compliance with its terms and with the
requirements prescribed by any and all applicable Laws, including ERISA and the
Code. All amendments and actions to bring each of the Seller Employee Plans into
conformity with the applicable provisions of ERISA, the Code and other
applicable Laws have been made or taken except to the extent that such
amendments or actions are not required by Law to be made or taken until a date
after the Closing Date and are disclosed in Schedule 5.13(e). To Knowledge of
Seller, nothing has been done or omitted to be done and no transaction or
holding of any asset under or in connection with any Seller Employee Plan has
occurred that will make Seller or any Subsidiary or any officer or director of
Seller or any Subsidiary subject to any material liability under title I of
ERISA or liable for any material Tax pursuant to section 4975 of the Code
(assuming the taxable period of any such transaction expired as of the date
hereof).

(f)           Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will, either alone or in
combination with any other event, (i) result in any payment becoming due to any
present or former employee of Seller or any Subsidiary, (ii) increase any
benefits otherwise payable under any Seller Employee Plan, or (iii) result in
the acceleration of the time of payment or vesting of any such payment or
benefit except as may be otherwise provided in this Agreement or required by
ERISA or the Code. There is no Contract, Seller Employee Plan or other
arrangement covering any employee or former employee of Seller or any Subsidiary
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to the terms of sections 162(m) or 280G of
the Code, or in the event of any such payment, Seller shall make its best
efforts to disclose such payments to its stockholders and to obtain approval of
such payments by the required percentage of its stockholders so that the
payments may be deducted. Schedule 5.13(f) sets forth the maximum aggregate
amount payable in respect of any and all payments, costs, excise Taxes, fees and
expenses due, payable, owed or forgiven as a result of termination pursuant to
any severance agreement, Contract, Seller Employee Plan or other arrangement
existing on the date hereof pursuant to which Seller or any Subsidiary has any
obligation or liability (contingent or otherwise) in connection with the
termination of any officer of Seller or any Subsidiary.

(g)          Except as set forth in Schedule 5.13(g), there has been no
amendment to, written interpretation or announcement (whether or not written)
relating to, or change in employee participation or coverage under, any Seller
Employee Plan that is not within the ordinary course of the maintenance and
administration of such Seller Employee Plan and that would increase the expense
of maintaining such Seller Employee Plan above the level of the expense incurred
in respect thereof for the year ended December 31, 2005.

(h)          Neither Seller nor any Subsidiary has, or has ever had any,
obligation or liability (contingent or otherwise) with respect to any retiree
health insurance, life insurance or other welfare benefits under any Seller
Employee Plan, other than as mandated by section 4980B of the Code or under
applicable Law and at the expense of the participant or the participant’s
beneficiary. Each Seller Employee Plan may be amended or terminated without
incurring any liability thereunder to Seller or any Subsidiary except as
otherwise provided by ERISA or the Code.

(i)           No Seller Employee Plan is under audit or is the subject of an
audit or investigation by the IRS, the Department of Labor or any other
Governmental Entity, nor, to the Knowledge of Seller, is any such audit or
investigation pending. No actions, suits, termination proceedings or claims
(other than routine claims for benefits in the Ordinary Course) are pending or,
to the Knowledge of Seller, threatened with respect to any Seller Employee Plan,
the assets of any Seller Employee Plan, or the plan administrator or any
fiduciary of any Seller Employee Plan with respect to the operation of such
plan, and there are no facts or circumstances exist that could reasonably be
expected to give rise to any such actions, suits, termination proceedings or
claims.

(j)           Any individual who performs services for Seller or any Subsidiary
and who is not treated as an employee of Seller or such Subsidiary for federal
income Tax purposes is not an employee for such purposes.

(k)          With respect to each Seller Benefit Plan which is maintained
outside of the United States primarily for the benefit of persons substantially
all of whom are nonresident aliens (each, a “Foreign Plan”): (i) all
contributions and other payments required by Law or by the terms of the Foreign
Plan have been made or, if applicable, accrued in accordance with normal
accounting practices; (ii) the fair market value of assets of each funded
Foreign Plan, the liability of each insurer for any Foreign Plan funded through
insurance or the book reserve established for any Foreign Plan, together with
any accrued contributions, is sufficient to procure or provide for the accrued
benefit obligations, as of the Closing Date, with respect to all current or
former participants in such plan according to the actuarial assumptions and
valuations most recently used to determine employer contributions to such
Foreign Plan, and no transaction contemplated by this Agreement shall cause the
assets or insurance obligations to be less than such benefit obligations; and
(iii) each Foreign Plan required to be registered has been registered and has
been maintained in good standing with applicable regulatory authorities.

 

5.14

Labor Matters.

(a)          Neither Seller nor any Subsidiary is a party to any labor or
collective bargaining agreement, and no employees of Seller or any Subsidiary
are represented by any labor or similar organization. Within the preceding three
years, there have been no representation or certification proceedings, or
petitions seeking a representation proceeding, pending, or to the Knowledge of
Seller, threatened to be brought or filed with the National Labor Relations
Board or any other labor relations tribunal or authority. Within the preceding
three years there have been no organizing activities involving Seller or any
Subsidiary in respect of any group of employees of Seller or any Subsidiary.

(b)          There are no strikes, work stoppages, slowdowns, lockouts,
arbitrations or grievances or other labor disputes pending, or to the Knowledge
of Seller threatened, against or involving Seller or any Subsidiary. There are
no unfair labor practice charges, grievances or complaints pending, or to the
Knowledge of Seller threatened, by or on behalf of any employee or group of
employees of Seller or any Subsidiary, and, to the Knowledge of Seller, there is
no basis for any such charges, grievances or complaints.

(c)          There are no charges, grievances, complaints or claims against
Seller or any Subsidiary pending or, to the Knowledge of Seller, threatened to
be brought or filed with any Governmental Entity or arbitrator based on, arising
out of, in connection with, or otherwise relating to the employment or
termination of employment of any Person by Seller or any Subsidiary, and, to the
Knowledge of Seller, there is no basis for any such charges, grievances,
complaints or claims.

(d)          There has been no “mass layoff” or “plant closing” as defined by
the Worker Adjustment and Retraining Notification Act, as amended, in respect of
Seller or any Subsidiary within the 12 months prior to the date hereof.

(e)          All employees of Seller and the Subsidiaries possess all applicable
passports, visas, permits and other authorizations required by all applicable
immigration or similar Laws to be employed by and to perform services for and on
behalf of Seller and the Subsidiaries. Seller and each Subsidiary and their
employees have complied in all material respects with all applicable immigration
and similar Laws.

(f)           Except as set forth in Schedule 5.14(f), neither Seller nor any
Subsidiary employs any leased employees or independent contractors with respect
to the business of Seller or the Subsidiaries.

5.15       Litigation. All actions, suits, claims, investigations, arbitrations
or proceedings pending, or to the Knowledge of Seller threatened, against Seller
or any Subsidiary or any of their assets or properties before any Governmental
Entity and a description thereof are set forth in Schedule 5.15. There is no
action, suit, claim, investigation, arbitration or proceeding pending, or to the
Knowledge of Seller threatened, against Seller or any Subsidiary or any of their
assets or properties before any Governmental Entity that has had, or would be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect, and to the Knowledge of Seller, there is no basis for any such
action, suit, claim, investigation, arbitration or proceeding. None of Seller or
any Subsidiary or, to the Knowledge of Seller, any officer, director or employee
of Seller or any Subsidiary has been permanently or temporarily enjoined by any
order, judgment or decree of any Governmental Entity from engaging in or
continuing any conduct or practice in connection with the business or assets of
Seller or any Subsidiary nor, to the Knowledge of Seller, is Seller or any
Subsidiary or any officer, director or employee of Seller or any Subsidiary
under any investigation related to Seller’s or any Subsidiary’s business by any
Governmental Entity.

 

5.16

Compliance with Laws; Permits.

(a)          Neither Seller nor any Subsidiary is in material violation of, or
has materially violated, any applicable provisions of any Laws. Neither Seller
nor any Subsidiary has received notice of and, to the Knowledge of Seller,
neither Seller nor any Subsidiary is being investigated with respect to, or has
been threatened to be charged with or given notice of, any material violation of
any applicable Law. None of Seller or any Subsidiary or any directors, officers,
agents or employees of Seller or any Subsidiary has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.

(b)          Except as set forth in Schedule 5.16(b)-1 (or as set forth in
Schedule 5.17 with respect to Environmental Permits), Seller and each Subsidiary
has, maintains in full force and effect, and is in compliance with all Permits
required by Seller and the Subsidiaries to own, lease and operate its properties
and to carry on its businesses as currently conducted, except to the extent that
any failure to hold a Permit would not reasonably be expected to have a Material
Adverse Effect. Schedule 5.16(b)-2 sets forth all actions, proceedings or
investigations, pending, or to the Knowledge of Seller, threatened against
Seller or any Subsidiary that could be reasonably be expected to result in the
suspension, loss or revocation of any Permit, except to the extent that any
suspension, loss or revocation would not reasonably be expected to have a
Material Adverse Effect.

 

5.17

Environmental Matters. Except as set forth in Schedule 5.17:

(a)          Seller and each Subsidiary is and has been in compliance with all
Environmental Laws and Seller and each Subsidiary has, maintains in full force
and effect, and is in compliance with, all Environmental Permits for Seller and
the Subsidiaries to own, lease and operate its properties and to carry on their
businesses as currently conducted, except where the failure to so comply with
Environmental Laws or to obtain and comply with such Environmental Permits would
not result in Environmental Liabilities that could reasonably be expected to
exceed $25,000, and all such Environmental Permits are valid, uncontested and in
good standing;

(b)          the Real Property and, to the Knowledge of Seller, any real
property previously owned, leased or operated by Seller or any Subsidiary, any
predecessor, or any company or business acquired by Seller or any Subsidiary, is
free of contamination by Hazardous Substances that could reasonably be expected
to result in Environmental Liabilities in excess of $25,000;

(c)          there are no investigations, claims or proceedings pending, or to
the Knowledge of Seller threatened, against Seller or any Subsidiary, any Real
Property, or to the Knowledge of Seller any real property previously owned,
leased or used operated by or for Seller or any Subsidiary, any predecessor, or
any company or business acquired by Seller or any Subsidiary, with respect to
violations of or potential liability under Environmental Laws or Environmental
Permits;

(d)          none of Seller or any Subsidiary or any predecessor has entered
into or assumed by contract or operation of law or otherwise, any obligation,
liability, order, settlement, judgment or decree relating to or arising under
Environmental Laws;

(e)          there are no facts, circumstances or conditions regarding current
or past operations of Seller or any Subsidiary, any predecessor, or any company
or business acquired by Seller or any Subsidiary that would result in any
request, claim or requirement seeking payment from Seller or any Subsidiary for
response to or remediation of Hazardous Substances;

(f)           there are no past or present treatment storage or disposal
facilities as such facilities are defined by the Resource Conservation and
Recovery Act, 42 U.S.C. § 6901 et seq., on, at, or under any Real Property, or
to the Knowledge of Seller any real property owned, leased or operated by or for
Seller or any Subsidiary, any predecessor, or any company or business acquired
by Seller or any Subsidiary; and

(g)          Seller has provided to Purchaser copies of all existing
environmental reports, reviews and audits and all written information pertaining
to actual or potential Environmental Liabilities, in each case relating to
Seller or any Subsidiary, any predecessor or any company or business acquired by
Seller or any Subsidiary.

5.18       Insurance. Each of Seller and the Subsidiaries maintains insurance
policies (the “Insurance Policies”) against all risks of a character and in such
amounts as are customarily insured against by similarly situated companies in
the same or similar businesses. Schedule 5.18 contains a true, complete and
correct list of all Insurance Policies of Seller and the Subsidiaries,
specifying the insurer, coverage, deductible, and term of each Insurance Policy.
Each Insurance Policy is in full force and effect and is valid, outstanding and
enforceable, and all premiums due thereon have been paid in full. None of the
Insurance Policies will terminate or lapse (or be affected in any other
materially adverse manner) by reason of the transactions contemplated by this
Agreement. Each of Seller and the Subsidiaries has complied in all material
respects with the provisions of each Insurance Policy. No insurer under any
Insurance Policy has canceled or generally disclaimed liability under any such
policy or, to the Knowledge of Seller, indicated any intent to do so or not to
renew any such policy. All claims under the Insurance Policies have been filed
in a timely fashion. Since Seller’s and each Subsidiary’s formation, there have
been no historical gaps in insurance coverage of Seller or such Subsidiary.

5.19       Accounts Receivable. The accounts and notes receivable reflected on
the Seller Balance Sheet and all accounts or notes receivable arising since the
Balance Sheet Date represent bona fide claims of Seller and the Subsidiaries
against customers for sales made, services performed or other charges or valid
consideration arising on or before the date thereof in the Ordinary Course of
Business and require no additional performance by Seller or any Subsidiary to
render them valid. Any applicable reserves for returns or doubtful accounts have
been reflected in the Seller Balance Sheet, which reserves are adequate and were
calculated in a manner consistent with past practice and in accordance with GAAP
consistently applied. Except as set forth in Schedule 5.19-1, neither Seller nor
any Subsidiary has accounts or loans receivable from any of their Affiliates or
from any director, officer, stockholder or employee of Seller or any Subsidiary,
except for advances for business expenses incurred in the Ordinary Course of
Business and not in excess of $10,000. None of the accounts or the notes
receivable of Seller or any Subsidiary are subject to any right of setoff or
counterclaims. Schedule 5.19-2 sets forth an aging schedule of Seller’s and
Subsidiaries’ accounts receivable as of the Balance Sheet Date.

5.20       Personnel. Set forth in Schedule 5.20 is a list setting forth:
(i) the name of each officer of Seller and the Subsidiaries, specifying the
title of each such Person; and (ii) the name of each director of Seller and the
Subsidiaries. Seller has delivered to Purchaser a true, complete and correct
schedule of the annual salary, bonus, and other compensation that each Employee
of Seller or Subsidiary is currently entitled to receive, specifying the title
of each such Person.

5.21       Affiliate Transactions. Except as set forth in Schedule 5.21, and
except for employment agreements with officers of Seller set forth in
Schedule 5.12(a)(viii), there are no Contracts with any (i) present or former
officer or director of Seller or any Subsidiary or any of their immediate family
members, (ii) record or beneficial owner of five percent or more of any voting
securities of Seller or any Subsidiary or (iii) Affiliate of Seller or any such
officer, director, family member or beneficial owner.

5.22       Major Suppliers and Customers. Set forth in Schedule 5.22-1 is a list
of the 10 largest suppliers and the 10 largest service providers to Seller and
the Subsidiaries based on the dollar value of materials or services purchased by
Seller and the Subsidiaries for each of the year ended December 31, 2004, the
year ended December 31, 2005, and the seven months ended July 31, 2005 and July
31, 2006, respectively (collectively, the “Major Suppliers”). Set forth in
Schedule 5.22-2 is a list of the 10 largest customers of Seller and the
Subsidiaries based on the dollar value of revenue generated by such customers
for each of the year ended December 31, 2004, the year ended December 31, 2005,
and the seven months ended July 31, 2005 and July 31, 2006, respectively
(collectively, the “Major Customers”). There has not been, nor as a result of
the transactions contemplated by this Agreement is there reasonably anticipated
to be, any change in relations with any Major Supplier or Major Customer. The
current suppliers and service providers of Seller and the Subsidiaries provide
sufficient materials and services for the operation of the Seller’s and the
Subsidiaries’ businesses as operated on the date hereof.

5.23       Minute Books. The minute books of Seller and each Subsidiary
accurately reflect in all respects all material actions taken by written consent
or resolution and meetings held by the respective stockholders, boards of
directors and committees of each of them. The stock record books of Seller and
each Subsidiary accurately reflect in all material respects all transactions in
Seller’s and such Subsidiary’s capital stock of all classes. True, correct and
complete copies of the minute books and stock record books of Seller and each
Subsidiary have been delivered to Purchaser prior to the date hereof. Nothing
that has not been reflected in the minute books and/or stock records of Seller
or any Subsidiary could have, individually or in the aggregate, a Material
Adverse Effect.

5.24       Brokers and Finders; Opinion of Financial Advisor. Other than St.
Charles Capital, LLC, whose fees are set forth in Schedule 5.24, there is no
investment banker, financial advisor, broker, finder or other intermediary that
has been retained by, or is authorized to act on behalf of, Seller or any
Subsidiary that might be entitled to any fee or commission from Seller, any
Subsidiary, Purchaser or any of their respective Affiliates upon consummation of
any of the transactions contemplated by this Agreement or the Seller Documents.
The board of directors of Seller has received the opinion of St. Charles
Capital, LLC, dated the date of this Agreement, to the effect that the Total
Consideration to be received by Seller is fair, from a financial point of view,
to Seller.

5.25       Subsidiaries. Schedule 5.25 sets forth the name of each Subsidiary
and, with respect to each Subsidiary, the jurisdiction in which it is
incorporated or organized, the jurisdictions, if any, in which it is qualified
to do business, the number of shares of its authorized capital stock, the number
and class of shares thereof duly issued and outstanding, the names of all
stockholders or other equity owners and the number of shares of stock owned by
each stockholder or the amount of equity owned by each equity owner. Each
Subsidiary is a duly organized and validly existing corporation, partnership or
other entity in good standing under the Laws of the jurisdiction of its
incorporation or organization, and has all corporate or entity power and
authority required to own, lease and operate its properties and to carry on its
business as now conducted. Each Subsidiary is duly qualified to do business as a
foreign corporation or entity and is in good standing under the Laws of each
jurisdiction which includes each jurisdiction where the character of the
property owned, leased or operated by it or the nature of its activities makes
qualification necessary. The outstanding shares of capital stock or equity
interests of each Subsidiary have been duly authorized and validly issued and
are fully paid and nonassessable and free of preemptive or similar rights. No
shares of capital stock are held by any Subsidiary as treasury stock. Except as
set forth in Schedule 5.25, no Subsidiary has issued any Equity Interests in
such Subsidiary and there are no outstanding agreements or other obligations of
any Subsidiary to issue, sell, repurchase, redeem or otherwise acquire any
Equity Interests in any Subsidiary. The Seller does not own, directly or
indirectly, any capital stock or equity securities of any Person other than the
Subsidiaries. Except as set forth on Schedule 5.25, there are no material
restrictions on the ability of the Subsidiaries to make distributions of cash to
their respective equity holders.

 

5.26

SEC Documents.

(a)          Except as set forth in Schedule 5.26(a) or as restated or
reclassified in an SEC Document prior to the date of this Agreement, as of their
respective dates, each form, report, schedule, statement, or other document
required to be filed or otherwise furnished by Seller with or to the SEC since
January 1, 2002, in each case including all exhibits, appendices, attachments
and amendments thereto, whether filed or otherwise furnished therewith or
incorporated by reference therein (collectively, the “SEC Documents”), which are
all of the documents that Seller was required to file with the SEC since such
date: (i) complied as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and if applicable,
the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated
thereunder (the “Sarbanes-Oxley Act”); and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
Subsidiaries is or has been required to file any form, report, schedule,
statement, or other document with the SEC.

(b)          Seller maintains disclosure controls and procedures required by
Rule 13a-15 or 15d-15 under the Exchange Act; such controls and procedures are
effective to ensure that all material information concerning Seller, including
the Subsidiaries, is made known on a timely basis to the individuals responsible
for the preparation of Seller’s filings with the SEC and other public disclosure
documents. Based on their most recent evaluation, Seller’s principal executive
officer and principal financial officer have disclosed to Seller’s auditors and
its audit committee (i) all significant deficiencies in the design or operation
of internal controls that could adversely affect Seller’s ability to timely and
accurately record, process, summarize and report financial data and (ii) any
fraud, whether or not material, that involves management or other employees who
have a significant role in Seller’s internal controls and a summary of any such
disclosure is set forth in Schedule 5.26(b).

(c)          As used in this Section 5.26, the term “file” shall be broadly
construed to include any manner in which a document or information is furnished,
supplied or otherwise made available to the SEC.

5.27       Takeover Law. The Seller has taken all appropriate actions so that
the restrictions on business combinations in section 203 of the DGCL will not
apply with respect to or as a result of the execution or performance of the
Agreement, the Seller Documents, or the transactions contemplated hereby or
thereby.

ARTICLE VI

 

REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT

Each of Purchaser and Parent hereby represents and warrants to Seller that:

6.1          Corporate Organization; Foreign Qualification. Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Delaware. Parent is a company duly organized, validly
existing and in good standing under the Laws of Norway. Each of Purchaser and
Parent has all requisite power and authority required to own, lease and operate
its properties and to carry on its business as now conducted. Each of Purchaser
and Parent is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned,
leased or operated by it or the nature of its activities makes qualification
necessary.

6.2          Corporate Authorization. Each of Purchaser and Parent has all
requisite power, authority and legal capacity to execute and deliver this
Agreement, the Ancillary Agreements to which it is a party and each other
agreement, document, or instrument or certificate contemplated by this Agreement
or to be executed by Purchaser or Parent in connection with the transactions
contemplated by this Agreement (collectively, the “Purchaser Documents”), to
perform their respective 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 Purchaser Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized and approved by all requisite corporate action on the
part of Purchaser and Parent and no other corporate proceedings on the part of
Purchaser or Parent are necessary to authorize or consummate this Agreement or
any Purchaser Document, or the other transactions contemplated hereby or
thereby, except for the Stockholder Approval. This Agreement has been duly and
validly executed and delivered by Purchaser and Parent, and (assuming the due
authorization, execution and delivery hereof by the other parties) constitutes
the legal, valid and binding obligation of Purchaser and Parent, enforceable
against Purchaser and Parent in accordance with its terms, except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and of general principles of equity.

6.3          Certain Legal Proceedings. There is no pending Legal Proceeding
that has been commenced against Purchaser or Parent and that challenges, or may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, any transactions contemplated by this Agreement and to the Knowledge of
Purchaser, no such Legal Proceeding has been threatened.

 

6.4

Noncontravention; Approvals and Consents.

(a)          The execution, delivery and performance by Purchaser and Parent of
this Agreement, the Purchaser Documents to which either of them is a party, and
the other transactions contemplated hereby and thereby, does not and will not
contravene, conflict with, constitute a violation or breach of, constitute (with
or without notice or lapse of time or both) a default under, result in or give
to any Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration, loss of a material benefit under or result in the
creation or imposition of any Lien upon any of the assets or properties of
Purchaser or Parent under, any of the terms, conditions or provisions of (i) the
certificate of incorporation or bylaws of Purchaser or the comparable
organizational documents of Parent, or (ii) (A) any Laws binding upon or
applicable to Purchaser or Parent or by which any of their respective assets or
properties are bound, (B) any Contract to which Purchaser or Parent is a party
or by which any of its assets or properties are bound, or (C) any Permit,
excluding from the foregoing clauses (A) and (B) contraventions, conflicts,
violations, breaches, defaults, rights of payment or reimbursement,
terminations, cancellations, modifications, accelerations and creations and
impositions of Liens that, individually or in the aggregate, would not
reasonably be expected to have a Purchaser Material Adverse Effect.

(b)          No consent, waiver, approval or action of, filing with or notice to
any Governmental Entity or Third Party is necessary or required under any of the
terms, conditions or provisions of any Law or any Contract to which Purchaser or
Parent is a party or by which any of its assets or properties are bound for the
execution, delivery and performance by Purchaser or Parent of this Agreement,
the Purchaser Documents to which it is a party, and the other transactions
contemplated hereby and thereby, excluding from the foregoing such consents,
waivers, approvals, actions, filings and notices that the failure to make or
obtain, as the case may be, individually or in the aggregate, would not
reasonably be expected to have a Purchaser Material Adverse Affect.

6.5          Sufficient Funds. Purchaser has adequate funds and/or available
financing arrangements to consummate the transactions contemplated by this
Agreement and to pay any expenses incurred by Purchaser in connection with the
transactions contemplated by this Agreement.

6.6          Brokers and Finders. Other than Friedman, Billings, Ramsey & Co.,
Inc., all of whose fees and expenses will be borne by Purchaser (or its
designee), there is no investment banker, financial advisor, broker, finder or
other intermediary that has been retained by, or is authorized to act on behalf
of Purchaser or Parent that might be entitled to any fee or commission from
Seller, any Subsidiary, Purchaser, Parent or any of their respective Affiliates
upon consummation of any of the transactions contemplated by this Agreement or
the Purchaser Documents.

ARTICLE VII

 

COVENANTS

7.1          Seller Interim Operations. Except as expressly permitted by this
Agreement, without the prior consent of Purchaser, from the date hereof until
the Closing, Seller shall conduct its business only in the Ordinary Course of
Business, and shall use commercially reasonable efforts to (i) preserve intact
its present business organization, (ii) keep available the services of Seller’s
officers, key employees and consultants, and (iii) preserve existing
relationships with Seller’s customers, suppliers, service providers and other
Persons with which Seller has business relationships. Without limiting the
generality of the foregoing, and as an extension thereof, except as set forth on
Schedule 7.1 or as otherwise contemplated by this Agreement, without the prior
consent of Purchaser, from the date hereof until the Closing, Seller shall not,
directly or indirectly:

 

(a)

propose or adopt any change in Seller Charter or Seller Bylaws;

(b)          split, combine or reclassify any shares of capital stock or amend
the terms of any rights, warrants or options to acquire its securities,
(ii) declare, set aside or pay any dividend other than dividends paid in Common
Shares (including, without limitation, an extraordinary dividend) or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of its capital stock, or (iii) redeem, repurchase or otherwise acquire
or offer to redeem, repurchase, or otherwise acquire any of its Equity
Interests;

(c)          (i) issue, deliver, sell, grant, pledge, encumber or transfer or
authorize the issuance, delivery, sale, grant, pledge, encumbrance or transfer
of, or agree to commit to issue, sell or deliver (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) any Equity Interests or (ii) alter or amend any Contract governing
its outstanding Equity Interests;

(d)          merge with or acquire (by merger, consolidation, acquisition of
stock or assets, joint venture or otherwise of a direct or indirect ownership
interest or investment), in one transaction or series of related transactions,
any Person, any Equity Interests or other securities of any Person, any division
or business of any Person or all or substantially all of the assets of any
Person;

(e)          sell, lease, encumber or otherwise dispose of any assets or
securities with a market or book value in excess of $10,000 individually or
$50,000 in the aggregate, other than inventory sold in the Ordinary Course of
Business;

(f)           (i) (A) incur any indebtedness for borrowed money, except to fund
operations of the business in the Ordinary Course of Business from borrowings
under the Credit Agreement, (B) issue or sell any debt securities of Seller,
(C) make any loans, advances or capital contributions to, or investments in, any
other Person, other than in the Ordinary Course of Business and in no event in
an aggregate principal amount in excess of $10,000, (D) assume, guarantee or
endorse, or otherwise become liable or responsible (whether directly,
contingently or otherwise) for, the obligations of any Person, or (E) alter or
amend in any way any compensation (including without limitation, any commission
schedule) or other payments due to employees or independent contractors of
Seller or (ii) enter into or materially amend any Contract to effect any of the
transactions prohibited by this Section 7.1(f);

(g)          discharge or otherwise make any payment in respect of Seller’s
outstanding Convertible Notes other than interest paid in Common Shares;

(h)          (i) except as required by any Material Contract, increase the
amount of compensation of any director or officer of Seller, (ii) except as
required by any Material Contract or pursuant to a Seller severance policy
existing on the date hereof, grant any severance or termination pay to any
director, employee, consultant, independent contractor or agent of Seller,
(iii) adopt any employee benefit plan, (iv) provide for the payment of any
amounts as a result of the consummation of the transactions contemplated by this
Agreement except the Transaction Fees, (v) enter into any new Seller Employee
Plan, (vi) amend any Seller Employee Plan, or (vii) pay any bonuses;

(i)           authorize or incur any capital expenditure other than capital
expenditures consistent with and not materially in excess of the proposed
capital expenditures identified in Schedule 5.7(n);

(j)           make any changes in its accounting methods, principles or
practices currently in effect, except as required by the SEC, the Financial
Accounting Standards Board or GAAP, in each case as concurred in by its
independent public accountants;

(k)          settle, pay or discharge, any litigation, investigation,
arbitration, proceeding or other claim for an amount in excess of $25,000;

(l)           (i) make or revoke any material Tax election or take any position
on any Tax Return filed on or after the date of this Agreement or adopt any
method therein that is inconsistent with elections made, positions taken or
methods used in preparing or filing similar returns in prior periods unless such
position or election is pursuant to changes in applicable Law or the Code,
(ii) enter into any settlement or compromise of any material Tax liability,
(iii) file any amended Tax Return, (iv) change any annual Tax accounting period,
(v) enter into any closing agreement, (vi) surrender any right to claim a Tax
refund or (vii) give or request any waiver of a statute of limitation with
respect to any Tax Return;

 

(m)

enter into any new line of business;

(n)          except as set forth in Schedule 7.1(n), adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Seller;

(o)          except as required by any Material Contract, grant any loan,
advance, extensions of credit to current or former employees or forgiveness or
deferral of any loans due from any employee;

(p)          adopt new programs or change existing programs that relate to
employment Contracts, severance benefits, change in control benefits, bonuses,
commissions, base salaries, 401(k) and pension benefits, phantom stock grants,
incentive trips, prizes and awards, vacation and PTO benefits, health and
medical benefits or any other remuneration of any kind to any employee;

(q)          adopt, modify or waive any right under or amend or modify any
material term of any Material Contract, except as set forth in Schedule 7.1(q);

(r)           take any action that would result in any representation or
warranty of Seller contained in this Agreement that is qualified as to
materiality becoming untrue as of the Closing Date or any representation or
warranty not so qualified becoming untrue in any material respect as of the
Closing Date;

(s)           except as required by applicable Law or GAAP, reduce in any
material respect any of its assets, including writing up or down the value of
inventory in any material manner or writing-off notes or accounts receivable in
any material manner, or reduce any of its reserves;

 

(t)

permit to lapse any Permit;

(u)          sell, assign, license or encumber any Intellectual Property other
than in the Ordinary Course of Business; or

 

(v)

authorize, agree or commit to do any of the foregoing.

7.2          Taxes. Except as otherwise provided herein, Seller shall timely
file or cause to be timely filed (in all cases, giving effect to any valid
extension granted to Seller by an appropriate Governmental Entity), consistent
with past practice, all Tax Returns due prior to the Closing Date and, except as
otherwise provided herein, shall timely pay, or cause to be timely paid (in all
cases, giving effect to any valid extension granted to Seller by an appropriate
Governmental Entity) all Taxes due and payable by or with respect to Seller.

7.3          SEC Reports. Seller shall cause the forms, reports, schedules,
statements and other documents required to be filed with the SEC by Seller
between the date hereof and the Closing Date to be prepared and filed in
accordance with the requirements set forth in Section 5.26(a).

 

7.4

Acquisition Proposals; Board Recommendation.

(a)          Seller shall immediately terminate, and shall cause its
Representatives to immediately terminate, all existing discussions or
negotiations, if any, with any Person conducted heretofore with respect to, or
that would reasonably be expected to lead to, an Acquisition Proposal. Seller or
its Representatives shall immediately demand that each Person that has
heretofore executed a confidentiality agreement with or for the benefit of
Seller or any of its Representatives with respect to such Person’s consideration
of a possible Acquisition Proposal to immediately return or destroy (which
destruction shall be certified in writing by such Person to Seller) all
confidential information heretofore furnished by Seller or any of its
Representatives to such Person or any of its Representatives.

(b)          From the date of this Agreement until the Closing Date, Seller
shall not, and Seller shall cause its Representatives not to, (i) solicit,
initiate, encourage or take any other action to facilitate any proposal, inquiry
or request that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal, (ii) participate or engage in discussions or negotiations
with, or disclose or provide any non-public information relating to Seller to,
or afford access to any of the properties, books or records of Seller to, any
Person that has made an Acquisition Proposal or such a proposal, inquiry or
request or any of such Person’s Affiliates or Subsidiaries or any of its or
their Representatives, (iii) except as provided in this Section 7.4 and subject
to compliance herewith, enter into any agreement or agreement in principle with
any Person that has made an Acquisition Proposal or such a proposal, inquiry or
request or any of such Person’s Affiliates or Subsidiaries or any of its or
their Representatives, or (iv) grant any waiver or release under, or fail to
enforce to the maximum extent possible, any standstill or similar agreement by
any Person who has made an Acquisition Proposal or such a proposal, inquiry or
request; provided, however, that prior to obtaining Stockholder Approval, Seller
and its Representatives may take any of the actions described in clause (ii) of
this Section 7.4(b) in respect of a Person that makes an Acquisition Proposal
subsequent to the date hereof if, but only if, (A) such Person has submitted an
unsolicited bona fide written Acquisition Proposal that did not result from a
violation by Seller of its obligations under this Section 7.4 or Section 7.12
and at such time Seller has fully complied in all material respects with its
obligations under this Section 7.4, and Seller is proceeding in good faith with
respect to its obligations under Section 7.12, to the extent applicable,
(B) such Person has entered into a confidentiality agreement with Seller on
terms that are substantially similar to the terms of the Confidentiality
Agreement, (C) such Acquisition Proposal constitutes a Superior Proposal, (D) a
majority of the board of directors of Seller has reasonably determined in good
faith, following consultation with outside counsel expert in Delaware law, that
taking such action is required in order for the members of the board of
directors of Seller to comply with their fiduciary duties imposed by Delaware
law, and (E) prior to disclosing or providing any such non-public information
described in clause (ii) of this Section 7.4(b), Seller shall disclose or
provide all such information to Purchaser.

(c)          Seller shall immediately advise Purchaser, telephonically and in
writing, of Seller’s receipt of any Acquisition Proposal, substantive indication
of interest or any proposal, inquiry or request related to, or that may
reasonably be expected to lead to, or that contemplates the possibility of, any
Acquisition Proposal. Seller shall immediately provide Purchaser, in writing and
in detail, with the terms and conditions of any such Acquisition Proposal, or
such proposal, inquiry or request, and the identity of the Person making the
same, and copies of any written materials received from such Person. Seller
shall continuously update, but in no event not later than one day after such
discussions or negotiations, Purchaser on the status and content of any
discussions or negotiations regarding any Acquisition Proposal and shall
immediately advise Purchaser, telephonically and in writing, of any change in
any of the price, form of consideration, structure, terms and conditions or
other meaningful terms of any Acquisition Proposal. Immediately upon
determination by the board of directors of Seller that an Acquisition Proposal
constitutes a Superior Proposal, Seller shall deliver to Purchaser a written
notice advising Purchaser that the board of directors of Seller has so
determined, specifying in detail the terms and conditions of such Superior
Proposal.

(d)          The board of directors of Seller has adopted a resolution
unanimously recommending the adoption and approval of this Agreement and the
transactions contemplated hereby by the stockholders of Seller (the “Seller
Recommendation”), and, except as provided in the next sentence, the board of
directors of Seller shall at all times recommend approval of this Agreement and
the transactions contemplated hereby by the stockholders of Seller and shall not
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Purchaser, its approval or recommendation of this Agreement and the transactions
contemplated hereby. The board of directors of Seller shall be permitted to
(i) withdraw or modify in a manner adverse to Purchaser (or not to continue to
make) its recommendation to the stockholders of Seller with respect to a
Superior Proposal or (ii) enter into an agreement relating to a Superior
Proposal if, but only if, (A) a majority of the board of directors of Seller has
reasonably determined in good faith, following consultation with outside counsel
expert in Delaware law, that taking such action is required in order for the
members of the board of directors of Seller to comply with their fiduciary
duties imposed by Delaware law, (B) Seller has given Purchaser three Business
Days’ prior written notice of its intention to withdraw or modify such
recommendation or enter into such Agreement, Seller has negotiated in good faith
with Purchaser to revise this Agreement (if so requested by Purchaser) so that
the Superior Proposal of such Person no longer constitutes a Superior Proposal,
and the board of directors of Seller has considered in good faith any proposed
changes to this Agreement proposed by Purchaser (it being understood and agreed
that any amendment to the financial or other material terms of such Superior
Proposal shall require a new three Business Day period to afford Purchaser time
to negotiate with Seller as contemplated above), (C) Seller has fully complied
with its obligations under this Section 7.4, and (D) simultaneously with
entering into any such agreement relating to a Superior Proposal, Seller shall
pay the Termination Fee in accordance with Section 4.2. Nothing in this
Section 7.4 shall prohibit Seller or its board of directors from taking and
disclosing to the stockholders of Seller a position with respect to an
Acquisition Proposal by a Third Party to the extent required under the Exchange
Act; provided, however, that unless and until this Agreement is terminated in
accordance with Section 4.2, nothing in this sentence shall affect the
obligations of Seller and its board of directors under any other provision of
this Agreement, including Section 7.12.

 

7.5

Efforts and Assistance.

(a)          Each of the parties hereto will act in good faith and use
commercially reasonable efforts to take, or cause to be taken, all actions, to
file, or caused to be filed, all documents and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements as
promptly as practicable, including obtaining all necessary consents, waivers,
approvals, authorizations, Permits or orders from all Governmental Entities or
other Third Parties. Each of the parties hereto shall also refrain from taking,
directly or indirectly, any action that would impair such party’s ability to
consummate the transactions contemplated by this Agreement and the Ancillary
Agreements.

(b)          The parties hereto shall cooperate with one another in determining
whether any action by or in respect of, or filing with, any Governmental Entity
is required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any Material Contracts, in connection with the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements. Each of the parties hereto will take all actions necessary
to obtain (and will cooperate with each other in obtaining) any consent,
approval, waiver, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private Third Party required to be
obtained or made by the parties hereto in connection with any action
contemplated by this Agreement or the Ancillary Agreements.

(c)          The parties hereto shall have the right to review in advance, and
to the extent reasonably practicable each will consult the other on, all the
information relating to the other parties that appears in any filing made with,
or written materials submitted to, any Third Party or any Governmental Entity in
connection with the transactions contemplated by this Agreement and the
Ancillary Agreements.

7.6          Preservation of Records. Seller and Purchaser agree that each of
them shall preserve and keep the records held by it or their Affiliates
following the Closing relating to the Business for a period of three years from
the Closing Date and shall make such records and personnel available to the
other as may be reasonably required by such party in connection with, among
other things, any insurance claims by, Legal Proceedings against or governmental
investigations of Seller or Purchaser or any of their Affiliates or in order to
enable Seller or Purchaser to comply with their respective obligations under
this Agreement and each other agreement, document or instrument contemplated
hereby or thereby. In the event Seller or Purchaser wishes to destroy (or permit
to be destroyed) such records after that time, such party shall first give
ninety days prior written notice to the other and such other party shall have
the right at its option and expense, upon prior written notice given to such
party within that ninety-day period, to take possession of the records within
180 days after the date of such notice.

7.7          Public Announcements. So long as this Agreement is in effect and
for a period of one (1) year thereafter, the parties shall consult with each
other before issuing any press release or making any public statement with
respect to this Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby and shall not issue any such press release or
make any such public statement without the prior consent of the other party,
which shall not be unreasonably withheld or delayed, except as may be required
by applicable Law or any listing agreement with any national securities
exchange. Seller acknowledges and agrees that Purchaser may disclose the terms
of this Agreement, the Ancillary Agreements, and the transactions contemplated
hereby and thereby to the Purchaser’s potential sources of financing and their
Representatives. Purchaser acknowledges and agrees that Seller may disclose the
terms of this Agreement, the Ancillary Agreements, and the transactions
contemplated hereby and thereby to Seller’s creditors, vendors, suppliers and
customers and their Representatives.

 

7.8

Access to Information; Notification of Certain Matters.

(a)          From the date hereof until the Closing Date and subject to
applicable Law, Seller shall (i) give Purchaser and its Representatives access
during normal business hours to Seller’s offices, properties, books and records;
(ii) furnish or make available to Purchaser and its Representatives any
financial and operating data and other information as those Persons may
reasonably request; and (iii) instruct its Representatives to cooperate with the
reasonable requests of Purchaser in its investigation. Any investigation
pursuant to this Section 7.8(a) shall be conducted in a manner that will not
interfere unreasonably with the conduct of the business of Seller and shall be
in accordance with any other existing agreements or obligations binding on
Seller. No investigations pursuant to this Section 7.8(a) shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto. Not later than 30 days following the close of
each calendar month (commencing with August 2006) through the Closing Date,
Seller will deliver to Purchaser unaudited monthly financial statements of
Seller for such calendar month, which financial statements shall be prepared in
accordance with GAAP consistently applied throughout the periods involved and
fairly present the financial position of Seller as at the respective dates
thereof and the results of its operations and cash flows for the respective
periods then ended (except for normal year-end adjustments and the absence of
footnotes). To the extent Seller’s outstanding obligations under the Credit
Agreement exceed $10,000,000, then Seller shall, for so long as such obligations
exceed $10,000,000, deliver to Purchaser weekly reports of its outstanding
obligations under the Credit Agreement, the form of which shall be reasonably
acceptable to Purchaser.

(b)          Seller shall give prompt notice to Purchaser, and Purchaser shall
give prompt notice to Seller, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would reasonably be expected to
cause any representation or warranty of such party contained in this Agreement
to no longer be true and correct in all material respects (excluding for such
purpose any materiality qualification contained in such representation or
warranty); (ii) any failure of Seller or Purchaser to materially comply with or
satisfy, or the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which would reasonably be expected to cause the failure by such
party to materially comply with or satisfy, any covenant, condition or agreement
to be complied with or satisfied by it hereunder; (iii) any notice or other
communication from any Third Party alleging that the consent of such Third Party
is or may be required in connection with the transactions contemplated by this
Agreement or any Ancillary Agreement; (iv) any actions, suits, claims,
investigations or proceedings commenced or, to the best of the Knowledge of
Purchaser or Knowledge of Seller, as applicable, threatened against, or
affecting such party that, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to this Agreement or that relate
to the consummation of the transactions contemplated hereby or by the Ancillary
Agreements; and (v) the occurrence of any event, development or circumstance
that has had or would be reasonably expected to result in a Material Adverse
Effect or Purchaser Material Adverse Effect; provided, however, that the
delivery of any notice pursuant to this Section 7.8(b) shall not limit or
otherwise affect the remedies available hereunder to the party giving or
receiving such notice.

(c)          From the date hereof until the Closing Date, Seller shall give
Purchaser and its Representatives access during normal business hours to the
Real Property for the purpose of conducting visual inspections of the Real
Property, taking measurements, making surveys and generally for the performance
of standard “Phase I” investigations relating to the Real Property; provided,
however, Purchaser shall (i) restore any damage to the Real Property or any
adjacent property caused by such actions within a reasonable time period after
such entry; (ii) not unreasonably interfere with the conduct of the business of
Seller; and (iii) not conduct any soil borings, or groundwater testing or any
other “Phase II” testing without the prior written consent of Seller. Purchaser
shall not disturb the Real Property beyond what is reasonably necessary to
conduct its investigations.

7.9          Further Assurances. Each of the parties hereto shall use their
respective reasonable best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all other things necessary, proper or advisable
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings, and otherwise to satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement.

7.10       Disposition of Litigation. Seller will consult with Purchaser with
respect to any action by any Third Party to restrain or prohibit or otherwise
oppose the transactions contemplated by this Agreement or the Ancillary
Agreements and, subject to Section 7.4, will use its reasonable best efforts to
resist any such effort to restrain or prohibit or otherwise oppose the
transactions contemplated by this Agreement or the Ancillary Agreements.
Purchaser may participate in the defense of any stockholder litigation against
Seller and its directors relating to the transactions contemplated by this
Agreement at Purchaser’s sole cost and expense. In addition, subject to
Section 7.4, Seller will not voluntarily cooperate with any Third Party that has
sought or may hereafter seek to restrain or prohibit or otherwise oppose the
transactions contemplated by this Agreement and the Ancillary Agreements and
will cooperate with Purchaser to resist any such effort to restrain or prohibit
or otherwise oppose the transactions contemplated by this Agreement and the
Ancillary Agreements.

7.11       Confidentiality Agreement. The parties acknowledge that the
confidentiality agreement, dated as of July 5, 2006, between Seller and Parent
(the “Confidentiality Agreement”) shall continue in full force and effect in
accordance with its terms until the earlier of the Closing Date and the
expiration of the Confidentiality Agreement according to its terms and any
information or material obtained pursuant to this Agreement shall be governed by
the terms of the Confidentiality Agreement.

 

7.12

Stockholder Meeting; Proxy Statement.

(a)          Seller shall duly call, give notice of, convene and hold a meeting
of its stockholders (the “Stockholder Meeting”) as promptly as practicable for
the purpose of obtaining Stockholder Approval, and Seller shall use its best
efforts to hold the Stockholder Meeting as soon as practicable after the date on
which the Proxy Statement is cleared by the SEC.

(b)          In connection with this Agreement and the Stockholder Meeting,
Seller shall prepare and file with the SEC, as promptly as practicable and at
Seller’s expense, a proxy statement relating to the Stockholder Meeting
(together with any amendments thereof or supplements thereto and any other
required proxy materials, the “Proxy Statement”) and shall use its reasonable
best efforts to respond to the comments of the SEC and to cause the Proxy
Statement to be mailed to the stockholders of Seller as promptly as practicable;
provided, however, that prior to the filing of the Proxy Statement, Seller shall
consult with Purchaser with respect to such filing and shall afford Purchaser
reasonable opportunity to comment thereon. Seller shall promptly notify
Purchaser of the receipt of comments of the SEC and of any request from the SEC
for amendments or supplements to the Proxy Statement or for additional
information, and will promptly supply Purchaser with copies of all
correspondence between Seller and the SEC or members of its staff with respect
to the Proxy Statement. If at any time prior to the Stockholder Meeting any
event should occur that is required by applicable Law to be set forth in an
amendment of, or a supplement to, the Proxy Statement, Seller will prepare and
mail such amendment or supplement; provided, however, that prior to such
mailing, Seller shall consult with Purchaser with respect to such amendment or
supplement and shall afford Purchaser reasonable opportunity to comment thereon.
Subject to the provisions of Section 7.4, the Seller Recommendation, together
with a copy of the opinion referred to in Section 5.24, shall be included in the
Proxy Statement.

(c)          Seller represents and warrants that the Proxy Statement will (i) as
of the time the Proxy Statement (or any amendment thereof or supplement thereto)
is first mailed to its stockholders and as of the time of the Stockholder
Meeting, not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading and (ii) comply as to form in all material
respects with the provisions of the Exchange Act.

7.13       Use of Names. Seller hereby agrees that upon the Closing, Purchaser
shall have all of Seller’s right to the use of the name “Exabyte” and any
related names, service marks, trademarks, trade names, d/b/a names, fictitious
names, identifying symbols, logos, emblems or signs containing or comprising the
foregoing, or otherwise as used in the Business, including any right of Seller
to use or seek to enjoin the use of any name or mark confusingly similar thereto
(collectively, the “Seller Marks”) and after the Closing Seller shall not, and
shall not authorize any Affiliate to, use such name or any variation or
simulation thereof. Subject to the requisite authorization and approval by the
vote of the holders of Common Shares at the Stockholder Meeting, Seller shall
amend the Seller Charter, effective as of the Closing, to change Seller’s name
to eliminate the reference to “Exabyte”.

 

7.14

Non-Competition.

(a)          For a period from the date hereof until the third anniversary of
the Closing Date, Seller shall not, directly or indirectly, own, manage,
operate, control or participate in the ownership, management, operation or
control of any business, whether in corporate, proprietorship or partnership
form or otherwise, engaged in the design, manufacture, marketing and sales of
tape storage devices, media and related information solutions for workstations,
midrange servers and enterprise storage networks, or that otherwise competes
with Purchaser or its Affiliates (a “Restricted Business”); provided, however,
that the restrictions contained in this Section 7.14(a) shall not restrict the
acquisition by Seller, directly or indirectly, of less than 2% of the
outstanding capital stock of any publicly traded company engaged in a Restricted
Business. The parties hereto specifically acknowledge and agree that the remedy
at law for any breach of the foregoing will be inadequate and that Purchaser, in
addition to any other relief available to it, shall be entitled to temporary and
permanent injunctive relief without the necessity of proving actual damage or
posting any bond whatsoever.

(b)          The parties hereto agree that, if any court of competent
jurisdiction in a final nonappealable judgment determines that a specified time
period, a specified business limitation or any other relevant feature of this
Section 7.14 is unreasonable, arbitrary or against public policy, then a lesser
time period, business limitation or other relevant feature which is determined
by such court to be reasonable, not arbitrary and not against public policy may
be enforced against the applicable party.

7.15       Letter of Credit. If, prior to Closing, Seller delivers to Purchaser
forecasts pertaining to the Business along with related supporting documents, in
form and substance satisfactory to Purchaser, establishing the need for
additional working capital financing beyond what is currently provided to Seller
under the Credit Agreement, Purchaser shall provide a letter of credit to Wells
Fargo for an amount up to $2 million (the “Letter of Credit”) to support a
further extension of credit to Seller by Wells Fargo under the Credit Agreement
in an amount equal to the amount specified in the Letter of Credit. Purchaser’s
obligation in this Section 7.15 shall be subject to the execution of an
intercreditor agreement between Purchaser and Wells Fargo on terms reasonably
acceptable to Purchaser and Wells Fargo.

ARTICLE VIII

 

EMPLOYEES AND EMPLOYEE BENEFITS

 

8.1

Employment.

(a)          Transferred Employees. Prior to the Closing, Purchaser shall
deliver, in writing, an offer of employment (on an “at will” basis) to all U.S.
Employees of Seller to commence such employment immediately upon the Closing.
Each such offer of employment shall be at the same salary or hourly wage rate
and position in effect immediately prior to the Closing Date. Such individuals
who accept such offer by the Closing Date are hereinafter referred to as the
“Transferred Employees.” Subject to applicable Laws, on and after the Closing
Date, Purchaser shall have the right to dismiss any or all Transferred Employees
at any time, with or without cause, and to change the terms and conditions of
their employment (including compensation and employee benefits provided to
them).

(b)          Excluded Employees. Any U.S. Employee who is offered employment by
Purchaser prior to Closing but who does not accept an offer of employment by
Purchaser and commence work with Purchaser immediately after the Closing
pursuant to Section 8.1(a) is hereinafter referred to as an “Excluded Employee.”

8.2          Standard Procedure. Pursuant to the “Standard Procedure” provided
in section 5 of Revenue Procedure 96-60, 1996-2 C.B. 399, (i) Purchaser and
Seller shall report on a predecessor/successor basis as set forth therein,
(ii) Seller will not be relieved from filing a Form W-2 with respect to any
Transferred Employees, and (iii) Purchaser will undertake to file (or cause to
be filed) a Form W-2 for each such Transferred Employee only with respect to the
portion of the year during which such Employees are employed by the Purchaser
that includes the Closing Date, excluding the portion of such year that such
Employee was employed by Seller or the Subsidiaries.

 

8.3

Employee Benefits.

(a)          Benefits. As soon as reasonably practicable following the Closing,
Purchaser shall provide the Transferred Employees with benefits under
Purchaser’s existing employee benefit plans (“Purchaser Plans”) provided to
similarly situated employees of Purchaser. Notwithstanding anything to the
contrary in this Agreement, nothing in this Agreement shall be construed as
requiring any compensation or employee benefit plans, programs or arrangements
to continue to be maintained by Purchaser with respect to the Transferred
Employees for any specified period after the Closing Date.

(b)          Accrued Vacation. Purchaser shall provide, without duplication of
benefits, credit to all Transferred Employees under Purchaser’s vacation policy
with respect to accrued or unused vacation as of the Closing Date, to the extent
properly accrued or otherwise reserved on the Seller Balance Sheet.

(c)          COBRA. Purchaser shall provide COBRA coverage for qualifying
Excluded Employees, Transferred Employees and Former Employees.

(d)          401(k) Plans. Effective as of the Closing Date, Seller shall cause
the tax-qualified 401(k) plans in which Transferred Employees were eligible to
participate immediately prior to the Closing Date (“Seller 401(k) Plans”) to
fully vest such employees’ accrued benefit through the Closing Date thereunder.
Purchaser shall permit each Transferred Employee who participated in a Seller
401(k) Plan to elect to make direct rollovers of their account balances into a
401(k) plan maintained by Purchaser (“Purchaser 401(k) Plan”) as of Closing,
including the direct rollover of any outstanding loan balances under such plans
such that the Transferred Employees will continue to make payments under the
terms of such loans under the applicable Purchaser 401(k) Plan, subject to
compliance with applicable law and subject to the terms of the Purchaser 401(k)
Plan.

(e)          Severance. Purchaser shall be exclusively responsible for all
severance obligations with respect to (i) the Transferred Employees under
Seller’s existing severance policy and severance agreements set forth on
Schedule 8.3(e) and (ii) Carroll Wallace, under the terms of his offer letter
with the Seller dated October 31, 2003.

ARTICLE IX

 

CONDITIONS TO CLOSING

9.1          Conditions to the Obligations of Each Party. The obligations of
Seller and Purchaser to consummate the transactions contemplated hereby are
subject to the satisfaction or waiver, at or prior to the Closing, of the
following conditions:

 

(a)

Stockholder Approval shall have been obtained; and

(b)          no Governmental Entity of competent authority or jurisdiction shall
have issued any Law or taken any other action then in effect, which restrains,
enjoins or otherwise prohibits or makes illegal the consummation of the
transactions contemplated hereby; provided, however, that the parties hereto
shall use their commercially reasonable best efforts to have any such Law or
other legal restraint vacated.

9.2          Conditions to the Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated hereby are subject to the
satisfaction or waiver, at or prior to the Closing, of the following further
conditions:

(a)          (i) Seller shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date; (ii) the representations and warranties of Seller set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date with the same effect as though made as of the Closing Date (in
each case without giving effect to any limitation as to “materiality” or
“Material Adverse Effect” set forth therein and except that the accuracy of
representations and warranties that by their terms speak as of a specified date
will be determined as of such date); provided, however, that in the event of a
breach of a representation or warranty, the condition set forth in this Section
9.2(a) shall be deemed satisfied unless the effect of all such breaches of
representations and warranties taken together have resulted in, or would
reasonably be expected to result in, a Material Adverse Effect; and
(iii) Purchaser shall have received a certificate signed by the Chief Executive
Officer and the Chief Financial Officer of Seller to the foregoing effect;

(b)          Seller shall have obtained or made all consents, approvals or
actions of, filings with or notices to any Governmental Entity or Third Party
set forth in Schedule 5.3(b);

(c)          the Ancillary Agreements shall have been consummated and shall be
in full force and effect;

(d)          there shall not have been or occurred any event, change, occurrence
or circumstance that, individually or in the aggregate with any such events,
changes, occurrences or circumstances, has had or which would reasonably be
expected to have a Material Adverse Effect since the Balance Sheet Date;

(e)          Seller shall have provided Purchaser with an affidavit of
non-foreign status of Seller that complies with section 1445 of the Code (a
“FIRPTA Affidavit”);

(f)           Seller shall have delivered, or caused to be delivered, to
Purchaser a duly executed bill of sale in the form of Exhibit A hereto;

(g)          Seller shall have delivered, or caused to be delivered, to
Purchaser a duly executed assumption agreement in the form of Exhibit B hereto
and duly executed assignments of the registrations and applications included in
the Purchased Intellectual Property, in a form reasonably acceptable to
Purchaser and suitable for recording in the U.S. Patent and Trademark Office,
U.S. Copyright Office or equivalent foreign agency, as applicable, and general
assignments of all other Purchased Intellectual Property;

(h)          Seller shall have delivered, or caused to be delivered, to
Purchaser, a duly executed power of attorney in the form of Exhibit C hereto;

(i)           Seller shall have delivered all instruments and documents
necessary to release any and all Liens (other than Permitted Exceptions) on the
Purchased Assets, including appropriate UCC financing statement amendments
(termination statements); and

(j)           Seller shall have delivered, or caused to be delivered, to
Purchaser such other documents as Purchaser may reasonably request.

9.3          Conditions to the Obligations of Seller. The obligations of Seller
to consummate the transactions contemplated hereby are subject to the
satisfaction or waiver, at or prior to the Closing, of the following further
conditions:

(a)          (i) Purchaser shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Closing Date; (ii) the representations and warranties of Purchaser set forth in
this Agreement shall be true and correct as of the date of this Agreement and as
of the Closing Date with the same effect as though made as of the Closing Date
(in each case without giving effect to any limitation as to “materiality” or
“Purchaser Material Adverse Effect” set forth therein and except that the
accuracy of representations and warranties that by their terms speak as of a
specified date will be determined as of such date); provided, however, that in
the event of a breach of a representation or warranty, the condition set forth
in this Section 9.3(a) shall be deemed satisfied unless the effect of all such
breaches of representations and warranties taken together have resulted in, or
would reasonably be expected to result in, a Purchaser Material Adverse Effect;
and (iii) Seller shall have received a certificate signed by an officer of each
of Purchaser to the foregoing effect;

(b)          Purchasers shall have delivered, or caused to be delivered, to
Seller evidence of the wire transfers referred to in Section 3.2 hereof;

(c)          Purchaser shall have delivered, or caused to be delivered, to
Seller a duly executed assumption agreement in the form attached hereto as
Exhibit B hereto; and

(d)          Purchaser shall have delivered, or caused to be delivered, to
Seller such other documents as Seller chaser may reasonably request.

ARTICLE X

 

TAXES

10.1       Transfer Taxes. Purchaser shall (i) be responsible for any and all
sales, use, stamp, documentary, filing, recording, transfer, real estate
transfer, stock transfer, gross receipts, registration, duty, securities
transactions or similar fees or taxes or governmental charges (together with any
interest or penalty, addition to tax or additional amount imposed) as levied by
any Taxing Authority in connection with the transactions contemplated by this
Agreement (collectively, “Transfer Taxes”), regardless of the Person liable for
such Transfer Taxes under applicable Law and (ii) timely file or caused to be
filed all necessary documents (including all Tax Returns) with respect to
Transfer Taxes. The Seller and Purchaser shall take all commercially reasonable
steps to reduce or eliminate, to the extent possible, all such Taxes.

10.2       Cooperation on Tax Matters. Purchaser and Seller shall furnish or
cause to be furnished to each other, as promptly as practicable, such
information and assistance relating to the Purchased Assets and the Assumed
Liabilities as is reasonably necessary for the preparation and filing of any Tax
Return, claim for refund or other filings relating to Tax matters, for the
preparation for any Tax audit, for the preparation for any Tax protest, for the
prosecution or defense of any suit or other proceeding relating to Tax matters.

ARTICLE XI

 

MISCELLANEOUS

11.1       Fees and Expenses. Except as otherwise specifically provided herein,
all fees and expenses incurred in connection herewith and the transactions
contemplated hereby shall be paid by the party incurring expenses, whether or
not the transactions contemplated hereby are consummated.

11.2       Jurisdiction. Except as otherwise expressly provided in this
Agreement, the parties hereto agree that any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought exclusively in the Court of Chancery of the State of Delaware or, if
such court does not have jurisdiction over the subject matter of such proceeding
or if such jurisdiction is not available, in the United States District Court
for the District of Delaware, and each of the parties hereby consents to the
exclusive jurisdiction of those courts (and of the appropriate appellate courts
therefrom) in any suit, action or proceeding and irrevocably waives, to the
fullest extent permitted by Law, any objection that it may now or hereafter have
to the laying of the venue of any suit, action or proceeding in any of those
courts or that any suit, action or proceeding that is brought in any of those
courts has been brought in an inconvenient forum. Process in any suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any of the named courts. Without limiting the
foregoing, each party agrees that service of process on it by notice as provided
in Section 11.5 shall be deemed effective service of process.

11.3       Amendments; No Waivers. Any provision of this Agreement may be
amended or waived prior to the Closing Date, if, and only if, the amendment or
waiver is in writing and signed, in the case of an amendment, by Seller and
Purchaser, or in the case of a waiver, by the party against whom the waiver is
to be effective. At any time prior to the Closing Date, any party hereto may
with respect to any other party hereto (i) extend the time for the performance
of any of the obligations or other acts of such other party contained herein,
(ii) waive any inaccuracies in the representations and warranties of such other
party contained herein or in any document delivered pursuant hereto or
(iii) waive compliance with any of the covenants, agreements or conditions of
such other party contained herein. No such extension or waiver shall be deemed
or construed as a continuing extension or waiver on any occasion other than the
one on which such extension or waiver was granted or as an extension or waiver
with respect to any provision of this Agreement not expressly identified in such
extension or waiver on the same or any other occasion. No failure or delay by
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by Law.

11.4       Governing Law. This Agreement shall be construed in accordance with
and governed by the internal Laws of the State of Delaware applicable to
contracts executed and fully performed within the State of Delaware,
notwithstanding any conflict of law provisions to the contrary.

11.5       Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given (i) when delivered personally by
hand (with written confirmation of receipt), (ii) when sent by facsimile (with
written confirmation of transmission) or (iii) one Business Day following the
day sent by overnight courier (with written confirmation of receipt), in each
case at the following addresses and facsimile numbers (or to such other address
or facsimile number as a party may have specified by notice given to the other
party pursuant to this provision):

If to Seller, to:

Exabyte Corporation

2108 55th Street

Boulder, Colorado 80301

Attention: Tom Ward

Facsimile No.: (303) 417-7900

 

with a copy, which shall not constitute notice, to:

Holland & Hart LLP

555 Seventeenth Street, Suite 3200

Denver, Colorado 80202

Attention: Susan L. Oakes

Facsimile No.: (303) 713-6291

 

If to Purchaser or Parent, to:

Tandberg Data ASA

Kjelsasveien 161

P.O. Box 134, Kjelsas

N-0411 Oslo, Norway

Attention: Live Aker

Facsimile No.: +47 22189550

 

with copies, which shall not constitute notice, to:

Bugge, Arentz-Hansen & Rasmussen

Stranden 1

P.O. Box 1524 Vika

N-0117 Oslo, Norway

Attention: Svein Gerhard Simonnæs

Facsimile No.: +47 22830795

 

and

 

Weil, Gotshal & Manges LLP

200 Crescent Court, Suite 300

Dallas, Texas 75201

Attention: R. Scott Cohen

Facsimile No.: (214) 746-7777

 

11.6       Severability. If any term or other provision of this Agreement is
invalid, illegal, or incapable of being enforced by any law or public policy,
all other terms or provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.

11.7       Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the consent of the
other parties hereto. Any purported assignment in violation hereof shall be null
and void.

11.8       Non-Recourse. No past, present or future director, officer, employee,
incorporator, member, partner, stockholder, Affiliate, agent, attorney or
representative of Purchaser or its Affiliates shall have any liability for any
obligations or liabilities of Purchaser under this Agreement or the Purchaser
Document of or for any claim based on, in respect of, or by reason of, the
transactions contemplated hereby and thereby.

11.9       Guarantee of Purchaser Obligations. Subject to the terms, limitations
and conditions set forth herein, Parent hereby unconditionally, irrevocably and
absolutely guarantees to Seller the due and punctual performance and discharge
of all of Purchaser’s obligations under this Agreement and the transactions
contemplated hereby, including the due and punctual payment of the Purchase
Price. Parent is a party to this Agreement solely for the purposes of this
Section 11.9.

11.10     Survival. None of the representations, warranties, covenants or
agreements in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Closing Date, provided, however, this Section 11.10
shall not limit any covenant or agreement of the parties that by its terms
contemplates performance after the Closing Date or the termination of this
Agreement.

11.11     Third Party Beneficiaries. The terms and provisions of this Agreement
are intended solely for the benefit of the parties hereto and their respective
successors and permitted assigns. No provision of this Agreement is intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.

11.12     Enforcement of Agreement. Seller acknowledges and agrees that
Purchaser could be damaged irreparably if any of the provisions of this
Agreement are not performed in accordance with their specific terms.
Accordingly, Seller agrees that, (i) it will waive, in any action for specific
performance, the defense of adequacy of a remedy at Law and (ii) in addition to
any other right or remedy to which Purchaser may be entitled, at Law or in
equity, Purchaser will be entitled to enforce any provision of this Agreement by
a decree of specific performance and to temporary, preliminary and permanent
injunctive relief to prevent breaches or threatened breaches of any of the
provisions of this Agreement, without posting any bond or other undertaking.

11.13     Entire Agreement. This Agreement, together with the Schedules and
Annexes hereto, constitute the entire agreement between the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof.

11.14     Authorship. The parties agree that the terms and language of this
Agreement were the result of negotiations between the parties and, as a result,
there shall be no presumption that any ambiguities in this Agreement shall be
resolved against any party. Any controversy over construction of this Agreement
shall be decided without regard to events of authorship or negotiation.

11.15     Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.

***Remainder of this page intentionally left blank***

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers, as of the date first written
above.

 

PURCHASER:

 

TANDBERG DATA CORP.

By: /s/ Gudmundur Einarsson                                

Name: Gudmundur Einarsson

Title: CEO

PARENT:

SOLELY FOR PURPOSES OF ARTICLE VI AND SECTION 11.9:

TANDBERG DATA ASA

By: /s/ Gudmundur Einarsson                                

Name: Gudmundur Einarsson

Title: CEO

SELLER:

EXABYTE CORPORATION

By: /s/ Tom Ward                                                   

Name: Tom Ward

Title: CEO and President