Exhibit 10.36
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
SONICWALL, INC.
SPECTRUM ACQUISITION CORPORATION
LASSO LOGIC, INC.
STEVEN GOODMAN
and
SAL SFERLAZZA
as Principal Stockholders
and
STEVEN GOODMAN
as Stockholder Representative
November 18, 2005

 

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TABLE OF CONTENTS

                              Page   ARTICLE 1 DEFINITIONS AND INTERPRETATIONS  
  2     1.1    
Certain Definitions
    2     1.2    
Certain Interpretations
    7          
 
        ARTICLE 2 THE MERGER     8     2.1    
The Merger
    8     2.2    
Closing and Effective Time
    8     2.3    
Legal Effect of the Merger
    9     2.4    
Certificate of Incorporation and Bylaws
    9     2.5    
Directors and Officers
    9     2.6    
Capital Stock of Constituent Corporations
    9     2.7    
Determination of Cash Balance
    13     2.8    
Dissenting Shares
    14     2.9    
Surrender of Certificates
    15     2.10    
No Further Ownership Rights in Company Capital Stock
    16     2.11    
Lost, Stolen or Destroyed Certificates
    16     2.12    
Further Assurances
    16          
 
        ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL SHAREHOLDERS     16     3.1    
Organization
    17     3.2    
Authority
    17     3.3    
Conflicts
    18     3.4    
Consents
    18     3.5    
Company Capital Structure
    18     3.6    
Subsidiaries
    19     3.7    
Company Financial Statements
    20     3.8    
No Undisclosed Liabilities
    20     3.9    
No Changes
    20     3.10    
Taxes
    20     3.11    
Employee Benefit Plans and Compensation
    23     3.12    
Intellectual Property
    26     3.13    
Restrictions on Business Activities
    30     3.14    
Properties
    30     3.15    
Material Contracts
    31     3.16    
Insurance
    33     3.17    
Litigation
    33     3.18    
Governmental Authorization
    33     3.19    
Compliance with Laws
    34     3.20    
Environmental Compliance
    34     3.21    
Interested Party Transactions
    34     3.22    
Minute Books
    35     3.23    
Brokers’ and Finders’ Fees
    35     3.24    
Accounts Receivable
    35  

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TABLE OF CONTENTS
(Continued)

                              Page     3.25    
Warranties; Indemnities
    35     3.26    
Financial Projections/Operating Plan
    35     3.27    
Banks and Brokerage Accounts
    35     3.28    
Customers and Suppliers
    36     3.29    
Representations Complete
    36          
 
        ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB     36
    4.1    
Organization, Standing and Power
    36     4.2    
Authority
    36     4.3    
Consents
    37     4.4    
Broker’s and Finders’ Fees
    37          
 
        ARTICLE 5 CONDUCT OF THE COMPANY PRIOR TO THE EFFECTIVE TIME     37    
5.1    
Conduct of Business of the Company
    37     5.2    
No Solicitation
    40          
 
        ARTICLE 6 ADDITIONAL AGREEMENTS     41     6.1    
Stockholder Approval
    41     6.2    
Commercially Reasonable Efforts; Governmental Approvals; Contract Consents
    41     6.3    
Notification of Certain Matters
    42     6.4    
Access to Information
    42     6.5    
Confidentiality
    43     6.6    
Public Disclosure
    43     6.7    
Employment Arrangements
    43     6.8    
Employee Plans
    43     6.9    
Proprietary Information and Inventions Assignment Agreement
    44     6.10    
Spreadsheet
    44     6.11    
Expenses
    44          
 
        ARTICLE 7 CONDITIONS TO THE MERGER     45     7.1    
Conditions to Obligations of Each Party
    45     7.2    
Conditions to the Obligations of Parent and Merger Sub
    45     7.3    
Conditions to Obligations of the Company and the Principal Stockholders
    47          
 
        ARTICLE 8 SURVIVAL AND INDEMNIFICATION     48     8.1    
Survival of Representations, Warranties and Covenants
    48     8.2    
Indemnification
    48     8.3    
Limitations on Indemnification
    48     8.4    
Notice of Claim
    49     8.5    
Resolution of Notice of Claim
    50     8.6    
Release of Closing Escrow Fund
    52     8.7    
Third-Party Claims
    52     8.8    
Stockholder Representative
    52     8.9    
Contingent Payment Escrow Fund
    54  

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TABLE OF CONTENTS
(Continued)

                              Page     8.10    
Notice of Release of Funds
    54          
 
        ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER     55     9.1    
Termination
    55     9.2    
Effect of Termination
    56     9.3    
Amendment
    56     9.4    
Extension and Waiver
    56          
 
        ARTICLE 10 GENERAL PROVISIONS     57     10.1    
Notices
    57     10.2    
Counterparts
    58     10.3    
Entire Agreement
    58     10.4    
Third Party Beneficiaries
    58     10.5    
Assignment
    58     10.6    
Severability
    58     10.7    
Other Remedies
    59     10.8    
Governing Law
    59     10.9    
Waiver of Jury Trial
    59     10.10    
Specific Performance
    59  

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INDEX OF EXHIBITS

      Exhibit   Description
Exhibit A
  Form of Voting Agreement
Exhibit B
  Form of Escrow Agreement
Exhibit C
  Form of Contingent Payment Escrow Agreement
Exhibit D
  Form of Legal Opinion of Montgomery Law Group, LLP

 

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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
     THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the “Agreement”) is
made and entered into as of November 18, 2005 (the “Signing Date”), by and among
SonicWALL, Inc., a California corporation (“Parent”), Spectrum Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent
(“Merger Sub”), Lasso Logic, Inc., a Delaware corporation (the “Company”), Steve
Goodman and Sal Sferlazza, principal stockholders of the Company (each, a
“Principal Stockholder,” and collectively the “Principal Stockholders”), and
Steven Goodman (the “Stockholder Representative”).
WITNESSETH:
     WHEREAS, the Boards of Directors of each of Parent, Merger Sub and the
Company believe it is in the best interests of their respective companies and
the shareholders or stockholders, as applicable, of their respective companies
that Parent acquire the Company through the statutory merger of Merger Sub with
and into the Company (the “Merger”) and, in furtherance thereof, have approved
this Agreement, the Merger and the other transactions contemplated hereby.
     WHEREAS, pursuant to the Merger, Merger Sub will merge with and into the
Company whereupon the separate corporate existence of Merger Sub will cease and
the Company will continue as a wholly-owned subsidiary of Parent, and all of the
outstanding capital stock of the Company will be converted into the right to
receive the consideration set forth herein.
     WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a material inducement to Parent and Merger Sub to enter into this
Agreement, each of the Principal Stockholders, and certain other employees of
the Company, are entering into a separate Employment Agreement (each, an
“Employment Agreement” and collectively, the “Employment Agreements”) and a
separate non-competition and non-solicitation agreement with a term of two
(2) years from the Closing Date (as defined in Section 2.2)(each, a “Non-Compete
Agreement” and collectively, the “Non-Compete Agreements”).
     WHEREAS, concurrently with the execution and delivery of this Agreement,
holders of at least 51% of the Company Common Stock and the Company Preferred
Stock, on an as converted basis, outstanding immediately prior to the Signing
Date are entering into separate Voting Agreements in the form attached hereto as
Exhibit A (each, a “Voting Agreement” and collectively, the “Voting
Agreements”).
     WHEREAS, the Company and the Principal Stockholders, on the one hand, and
Parent and Merger Sub, on the other hand, desire to make certain
representations, warranties, covenants and other agreements in connection with
the Merger.
     NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements and other covenants set forth herein, the mutual benefits to be
gained by the

 

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performance thereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and accepted, the parties
hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATIONS
     1.1 Certain Definitions. For all purposes of and under this Agreement, the
capitalized terms set forth below shall have the respective meanings ascribed
thereto below:
     “Affiliate” shall mean, as applied to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with,
that Person, (b) any other Person that owns or controls ten percent (10%) or
more of any class of equity securities (including any equity securities issuable
upon the exercise of any option or convertible security) of that Person or any
of its affiliates, or (c) as to a corporation, each director and officer
thereof, and as to a partnership, each general partner thereof, and as to a
limited liability company, each managing member or similarly authorized Person
thereof (including officers), and as to any other entity, each Person exercising
similar authority to those of a director or officer of a corporation. For the
purposes of this definition, “control” (including with correlative meanings, the
terms “controlling”, “controlled by”, and “under common control with”) as
applied to any Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through ownership of voting securities or by contract or
otherwise.
     “Ancillary Agreements” shall mean the Employment Agreements, the Voting
Agreements, the Escrow Agreement, and the Contingent Payment Escrow Agreement.
     “Breakup Fee” shall mean Two Hundred Thousand United States Dollars
$200,000.
     “Cash Amount” shall mean an amount equal to the sum of (x) Sixteen Million
One Hundred Eighty-Three Thousand Five Hundred Ninety United States Dollars
($16,183,590), plus (y) the Cash Balance as set forth in the Signing Balance
Sheet.
     “Cash Balance” shall mean, as of the Signing Balance Sheet Date, the
Company’s cash and cash equivalents as determined in accordance with GAAP.
     “Closing Escrow Cash Amount” shall mean an amount of cash equal to One
Million Eight Hundred Thousand United States Dollars ($1,800,000).
     “Closing Escrow Fund” shall mean the fund established pursuant to Section
2.6(g) into which the Closing Escrow Cash Amount is to be deposited.
     “Contingent Payment Escrow Fund” shall mean the fund established pursuant
to Section 2.6(i) into which the Contingent Payment Escrow Amount is to be
deposited.

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     “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended and as codified in Section 4980B of the Code and Section 601
et. seq. of ERISA.
     “Code” shall mean the Internal Revenue Code of 1986, as amended.
     “Company Capital Stock” shall mean the Company Common Stock and any other
shares of capital stock of the Company, taken together.
     “Company Common Stock” shall mean the common stock of the Company.
     “Company Employee” shall mean any current director, employee or consultant
of the Company or any ERISA Affiliate.
     “Company Employee Plan” shall mean any plan, program, policy, practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including without limitation, each “employee benefit plan,” within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any ERISA Affiliate for the
benefit of any Company Employee, or with respect to which the Company or any
ERISA Affiliate has or may have any liability or obligation.
     “Company Intellectual Property” shall mean any Intellectual Property and
Intellectual Property Rights that are owned by or exclusively licensed to the
Company.
     “Company International Employee Plan” shall mean any Company Employee Plan
that has been adopted or maintained by the Company or any ERISA Affiliates,
whether formally or informally, or with respect to which the Company or any
ERISA Affiliate will or may have any liability, with respect to Company
Employees who perform services outside the United States.
     “Company Material Adverse Effect” shall mean any change, event or effect
that has had, or is reasonably likely to have, a material adverse effect on the
business, assets (including intangible assets), liabilities, financial
condition, results of operations, or capitalization of the Company, taken as a
whole.
     “Company Options” shall mean options (including commitments to grant
options or other rights) to purchase or otherwise acquire Company Capital Stock
(whether or not vested) granted or otherwise issued under the Company Stock
Option Plan or Company Unit Plan.
     “Company Preferred Stock” shall mean the Series A Preferred Stock of the
Company.
     “Company Stock Option Plan” shall mean the Company’s 2005 Stock Plan.

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     “Company Unit Plan” shall mean the Company’s Employee Common Unit Option
Plan.
     “Contract” shall mean any written or oral legally binding contract,
agreement, instrument, commitment or undertaking (including leases, licenses,
mortgages, notes, guarantees, sublicenses, subcontracts and purchase orders).
     “DOL” shall mean the United States Department of Labor or any successor
thereto.
     “Employee” shall mean any Company Employee.
     “Employee Agreement” shall mean each management, employment, severance,
consulting, relocation, repatriation, expatriation, visa, work permit or other
agreement, contract or understanding between the Company or any ERISA Affiliate
and any Employee.
     “Employment Agreement” shall have the meaning ascribed to the term in the
Recitals above.
     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
     “ERISA Affiliate” shall mean each Subsidiary of the Company and any other
person or entity under common control with the Company or any of its
Subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code
and the regulations issued thereunder.
     “Escrow Agent” shall mean U.S. Bank National Association or another
institution reasonably acceptable to Parent and the Stockholder Representative.
     “Equity Value” shall mean the Cash Amount, plus the amount of Option
Exercise Proceeds, minus the Preferred Preference Amount, minus the
out-of-pocket expenses payable at the Closing as contemplated by Section 6.11.
     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
     “FMLA” shall mean the Family Medical Leave Act of 1993, as amended.
     “Fully Diluted Company Capital Stock” shall mean the aggregate number of
shares of Company Common Stock and Company Preferred Stock, including Company
Options and any other rights, whether vested or unvested convertible into,
exercisable for or exchangeable for shares of Company Common Stock, on an
as-converted, as-exercised basis.
     “GAAP” shall mean United States generally accepted accounting principles.

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     “Governmental Authority” shall mean any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission.
     “HIPAA” shall mean the Health Insurance Portability and Accountability Act
of 1996, as amended.
     “Intellectual Property” shall mean any or all of the following (i) works of
authorship including computer programs, source code, and executable code,
whether embodied in software, firmware or otherwise, architecture,
documentation, designs, files, records, data and mask works, (ii) inventions
(whether or not patentable), discoveries, improvements, and technology, (iii)
proprietary and confidential information, trade secrets and know how,
(iv) databases, data compilations and collections and technical data, (v) logos,
trade names, trade dress, trademarks and service marks, (vi) domain names, web
addresses and sites, (vii) tools, methods and processes, and (viii) any and all
instantiations of the foregoing in any form and embodied in any media.
     “Intellectual Property Rights” shall mean worldwide common law and
statutory rights associated with (i) patents and patent applications,
(ii) copyrights, copyright registrations and copyright applications, “moral”
rights and mask work rights, (iii) the protection of trade and industrial
secrets and confidential information, (iv) other proprietary rights relating to
intangible intellectual property, (v) domain name registrations,
(vi) trademarks, trade names and service marks, and registrations and
registration applications therefor (vii) analogous rights to those set forth
above, and (viii) divisions, continuations, renewals, reissuances and extensions
of the foregoing (as applicable).
     “IRS” shall mean the United States Internal Revenue Service or any
successor thereto.
     “Knowledge” with respect to the Company shall mean the knowledge of each of
the Principal Stockholders, as applicable.
     “Liability” or “Liabilities” shall mean any debt, liability or obligation,
whether accrued or fixed, absolute or contingent, matured or unmatured,
determined or determinable, known or unknown, including those arising under any
law, action or governmental order and those arising under any Contract.
     “Lien” shall mean any lien, pledge, charge, claim, mortgage, security
interest or other encumbrance of any kind whatsoever; provided, however, that as
used herein “Liens” shall not include the following: (a) liens for taxes not yet
delinquent or liens for taxes being contested in good faith and by appropriate
proceedings for which adequate reserves have been established; (b) liens in
respect of property or assets imposed by law that were incurred in the ordinary
course of business, such as carriers’, warehousemen’s, materialmen’s and
mechanics’ liens and other similar liens arising in the ordinary course of
business that are not delinquent or remain payable without penalty or that are
being contested in good faith and by appropriate proceedings; and (c) liens
incurred or deposits

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made in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other types of social security, and
other liens to secure the performance of tenders, statutory obligations,
contract bids, government contracts, performance and return of money bonds and
other similar obligations, incurred in the ordinary course of business, whether
pursuant to statutory requirements, common law or consensual arrangements.
     “Losses” shall mean all damages, costs, Liabilities, losses (including lost
profits and diminution in value), fines, penalties, Taxes, deficiencies and
expenses, including reasonable attorneys’ fees, other professionals’ and experts
fees, costs of investigation and court costs.
     “Multiemployer Plan” shall mean any “Pension Plan” which is a
“multiemployer plan,” as defined in Section 3(37) of ERISA.
     “Option Exercise Proceeds” shall mean an aggregate amount equal to the
amount of any cash that is paid or deemed to have been paid to the Company upon
the exercise of any Vested Company Options from and after the date of this
Agreement through and including the Effective Time.
     “Pension Plan” shall mean each Company Employee Plan that is an “employee
pension benefit plan,” within the meaning of Section 3(2) of ERISA.
     “Per-Share Common Amount” means the quotient obtained by dividing (x) the
Equity Value by (y) the Fully Diluted Company Capital Stock.
     “Per-Share Preferred Amount” shall mean the liquidation preference of
thirty-five cents ($0.35) in cash payable, pursuant to and in accordance with
the Certificate of Incorporation of the Company, in respect of each share of
Company Preferred Stock upon consummation of the Merger.
     “Person” shall mean any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental
Authority.
     “Preferred Preference Amount” shall mean thirty-five cents ($0.35)
multiplied by the number of outstanding shares of Company Preferred Stock.
     “Principal Stockholders” shall mean Steve Goodman and Sal Sferlazza.
     “Registered Intellectual Property” shall mean Intellectual Property and
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected or recorded with any state, government or other public legal
authority.
     “SEC” shall mean the United States Securities and Exchange Commission, or
any successor thereto.
     “Securities Act” shall mean the Securities Act of 1933, as amended.

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     “Signing Balance Sheet” shall mean the Company’s balance sheet as of the
Signing Balance Sheet Date delivered to Parent concurrently herewith, which has
been reviewed and approved in advance of the date hereof by Parent.
     “Signing Balance Sheet Date” shall mean the date of this Agreement.
     “Signing Date” shall mean the date of this Agreement.
     “Stockholder” shall mean any holder of shares of Company Capital Stock
immediately prior to the Effective Time.
     “Tax” or, collectively, “Taxes” shall mean (i) any and all U.S. federal,
state, local and non-U.S. taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes as well as public imposts, fees and social security
charges (including but not limited to health, unemployment and pension
insurance), together with all interest, penalties and additions imposed with
respect to such amounts, (ii) any liability for the payment of any amounts of
the type described in the foregoing clause (i) as a result of being a member of
an affiliated, consolidated, combined or unitary group for any period (including
any arrangement for group or consortium relief or similar arrangement), and
(iii) any liability for the payment of any amounts of the type described in the
clauses (i) or (ii) as a result of any express or implied obligation to
indemnify any other Person or as a result of any obligation under any agreement
or arrangement with any other Person with respect to such amounts and including
any liability for taxes of a predecessor entity.
     “Total Outstanding Shares” shall mean the aggregate number of shares of
Company Capital Stock issued and outstanding immediately prior to the Effective
Time.
     “U.S. Person” has the meaning set forth in Regulation S of the Securities
Act.
     “Unvested Common Stock” shall mean all outstanding shares of Common Stock
that are subject to continuing Company repurchase obligations.
     “Vested Common Stock” shall mean all outstanding shares of Common Stock
that are not subject to continuing Company repurchase obligations.
     “Vested Company Options” shall mean any Company Options that are vested as
of the Effective Time, including any such Company Option the vesting of which
accelerates at or prior to the Effective Time.
     1.2 Certain Interpretations.
          (a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of

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this Agreement unless otherwise indicated. When a reference is made in this
Agreement to Articles, such reference shall be to an Article of this Agreement
unless otherwise indicated.
          (b) The words “include”, “includes” and “including” when used herein
shall be deemed in each case to be followed by the words “without limitation.”
          (c) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
          (d) Reference to Parent shall be deemed to refer to Parent and its
subsidiaries unless the context otherwise requires.
          (e) Reference to the subsidiaries of an entity shall be deemed to
include all direct and indirect subsidiaries of such entity.
          (f) The parties hereto agree that they have been represented by legal
counsel during the negotiation and execution of this Agreement and, therefore,
waive the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or other document shall be construed
against the party drafting such agreement or document.
ARTICLE 2
THE MERGER
     2.1 The Merger. At the Effective Time and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of the General
Corporation Law of the State of Delaware (“DGCL”), Merger Sub shall be merged
with and into the Company, the separate corporate existence of Merger Sub shall
cease, and the Company shall continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. The Company, as the surviving corporation
after the Merger, is sometimes referred to herein as the “Surviving
Corporation.”
     2.2 Closing and Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 9.1, within three (3) business days following the
satisfaction or waiver of the conditions set forth in Article 7 (other than
those conditions which, by their terms, are to be satisfied or waived at
Closing, but subject to the fulfillment or waiver of those conditions), the
parties hereto shall consummate the Merger and the other transactions
contemplated hereby at a closing (the “Closing”) to occur at the offices of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road,
Palo Alto, California 94304, unless another time or place is mutually agreed
upon in writing by Parent and the Company. The date upon which the Closing shall
actually occur shall be referred to herein as the “Closing Date.” On the Closing
Date, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the “Certificate of Merger”) in customary form and
substance with the Secretary of State of the State of

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Delaware in accordance with the applicable provisions of the DGCL (the time of
acceptance of such filing by the Secretary of State of the State of Delaware
shall be referred to herein as the “Effective Time”).
     2.3 Legal Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided under the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
     2.4 Certificate of Incorporation and Bylaws.
          (a) Certificate of Incorporation. At the Effective Time the
Certificate of Incorporation of the Company shall be amended and restated in its
entirety to read the same as the Certificate of Incorporation of Merger Sub as
in effect immediately prior to the Effective Time (except that Article 1 thereof
shall be amended and restated in its entirety to read as follows: “The name of
the corporation is Lasso Logic, Inc.”), and such amended and restated
Certificate of Incorporation shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended in accordance with the DGCL and
such Certificate of Incorporation.
          (b) Bylaws. At the Effective Time the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended in accordance with the DGCL, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
     2.5 Directors and Officers. Parent shall have received a written
resignation from each of the officers and directors of the Company, effective as
of the Effective Time.
          (a) Directors. Unless otherwise determined by Parent prior to the
Effective Time, the directors of Merger Sub immediately prior to the Effective
Time shall be the directors of the Surviving Corporation as of the Effective
Time, each to hold the office of a director of the Surviving Corporation in
accordance with the provisions of the DGCL and the Certificate of Incorporation
and Bylaws of the Surviving Corporation until their successors are duly elected
and qualified.
          (b) Officers. Unless otherwise determined by Parent prior to the
Effective Time, the officers of Merger Sub immediately prior to the Effective
Time shall be the officers of the Surviving Corporation as of the Effective
Time, each to hold office in accordance with the provisions of the Bylaws of the
Surviving Corporation.
     2.6 Capital Stock of Constituent Corporations.
          (a) Merger Sub Capital Stock. Each share of Common Stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share

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of Common Stock of the Surviving Corporation. Each stock certificate of Merger
Sub evidencing ownership of any such shares shall continue to evidence ownership
of such shares of capital stock of the Surviving Corporation.
          (b) Company Capital Stock.
               (i) On the terms and subject to the conditions set forth in this
Agreement, at the Effective Time, each share of Company Common Stock that is
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in Section 2.8) and Unvested Common Stock) shall, by virtue
of the Merger and without the need for any further action on the part of the
holder thereof (except as expressly provided herein), be converted into and
represent the right to receive (without interest) a cash payment equal to the
Per-Share Common Amount.
               (ii) On the terms and subject to the conditions set forth in this
Agreement, at the Effective Time, each share of Company Preferred Stock that is
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in Section 2.8)) shall, by virtue of the Merger and without
the need for any further action on the part of the holder thereof (except as
expressly provided herein), be converted into and represent the right to receive
(without interest) a cash payment equal to the Per-Share Preferred Amount plus
the Per-Share Common Amount.
               (iii) Each share of Unvested Common Stock shall, by virtue of the
Merger and without the need for any further action on the part of the holder
thereof, be converted into and represent the right to receive a contingent cash
payment pursuant to Section 2.6(i).
          (c) Company-Owned Company Capital Stock. Notwithstanding the terms of
Section 2.6(b), each share of Company Capital Stock held by the Company
immediately prior to the Effective Time shall be cancelled and extinguished
without any conversion thereof or consideration paid therefor.
          (d) Company Options.
               (i) At the Effective Time, each outstanding Company Option under
the Company Stock Option Plan or Company Unit Plan whether or not vested, shall
by virtue of the Merger be assumed by Parent. Each Company Option so assumed by
Parent under this Agreement will continue to have, and be subject to, the same
terms and conditions of such options immediately prior to the Effective Time
except that: (x) each Company Option will be solely exercisable (or will become
exercisable in accordance with its terms) for that number of whole shares of
Parent common stock equal to the product of the number of Company Common Stock
that were issuable upon exercise of such Company Option immediately prior to the
Effective Time multiplied by the Option Exchange Ratio (as defined below),
rounded down to the nearest whole number of shares of Parent common stock and
(y) the per share exercise price for the shares of Parent common stock issuable
upon exercise of such assumed Company Option will be equal to the quotient
determined by dividing the exercise price per share of

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Company Common Stock at which such Company Option was exercisable immediately
prior to the Effective Time by the Option Exchange Ratio, rounded up to the
nearest whole cent.
               (ii) Parent shall comply with the terms of all such Company
Options and use its best efforts to ensure, to the extent required by, and
subject to the provisions of, the Company Stock Option Plan and Company Unit
Plan and permitted under the Code or other relevant laws and regulations that
any Company Options that qualified for tax treatment under Section 422 of the
Code prior to the Effective Time continue to so qualify, with the same rights,
after the Effective Time. Parent shall take all corporate actions necessary to
reserve for issuance a sufficient number of shares of Parent common stock for
delivery upon exercise of all Company Options pursuant to the terms set forth in
this Section 2.6(d). Prior to the Effective Time, the Company shall take all
actions necessary to effect the transactions contemplated by this
Section 2.6(d); provided, however, Company shall not be required to obtain
consents from optionees with respect to the option assumption formula set forth
herein.
               (iii) The “Per Share Residual Amount” shall be equal to the
quotient obtained by dividing (x) the Cash Amount by (y) the aggregate number of
shares of Company Capital Stock (including Company Options, Company Preferred
Stock, and any other rights whether vested or unvested convertible into,
exercisable for or exchangeable for, shares of Company Capital Stock on an
as-converted, exercised or exchanged to Company Common Stock basis), rounded
down to the nearest whole cent.
               (iv) The “Option Exchange Ratio” shall be equal to the quotient
obtained by dividing (x) the Per Share Residual Amount, by (y) the average
closing sale price of one share of Parent common stock as reported on the Nasdaq
National Market for the five (5) consecutive trading days preceding the Closing
Date (as adjusted as appropriate to reflect any stock splits, stock dividends,
combinations, reorganizations, reclassifications or similar events), rounded
down to the nearest whole cent.
               (v) As soon as practicable after the Closing Date, Parent shall
file with the SEC a registration statement on Form S-8 (or any successor or
other appropriate form), or another appropriate form with respect to the shares
of Parent common stock subject to such assumed Company Options and shall use its
reasonable efforts to maintain the effectiveness of such registration statement
(and maintain the current status of the prospectus or prospectuses contained
therein) for so long as such assumed Company Options remain outstanding.
          (e) Withholding Taxes. Parent or the Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable in connection
with the transactions contemplated by this Agreement such amounts as Parent or
the Exchange Agent is required to deduct and withhold under the Code or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Parent or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the former holder of
shares of Company Capital Stock

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in respect of which such deduction and withholding was made by Parent or the
Exchange Agent.
          (f) U.S. Federal Income Tax Consequences. The parties acknowledge and
agree that the Merger will be treated as a taxable purchase of the outstanding
capital stock of the Company by Parent for U.S. federal income tax purposes.
          (g) Closing Escrow Cash Amount. Effective as of Closing, Parent, the
Stockholder Representative and the Escrow Agent are entering into the Escrow
Agreement substantially in the form attached hereto as Exhibit B (the “Escrow
Agreement”). Notwithstanding anything to the contrary set forth in this
Agreement, at the Effective Time, Parent shall withhold from the cash otherwise
payable to each holder of Company Capital Stock (other than Dissenting Shares)
immediately prior to the Effective Time cash in an amount equal to such holder’s
Pro Rata Share of the Closing Escrow Cash Amount. For purposes of the foregoing,
each such holder’s “Pro Rata Share” shall be a fraction whose numerator is that
portion of the aggregate consideration to be paid pursuant to this Agreement to
such holder and the denominator is the aggregate consideration to be paid
pursuant to this Agreement to all holders of Company Capital Stock. Upon the
Closing Date, Parent shall cause the cash to be deposited with the Escrow Agent
and the Escrow Agent shall hold such cash in the Closing Escrow Fund as security
for the indemnification obligations under Article 9.
          (h) Closing Escrow Distributions. Each distribution of cash made from
the Closing Escrow Fund shall be made to the Stockholders in proportion to their
respective Escrow Fractions, as determined at the time of such distribution;
provided, however, with respect to each Key Employee Stockholder (as defined
below), any distributable amount attributable to Unvested Common Stock shall be:
(i) paid into the Contingent Payment Escrow Fund if any amounts then remain in
such account on behalf of such Key Employee Stockholder, (ii) to the Company if
any amount held on behalf of such Key Employee Stockholder had been previously
released to the Company, and (iii) in all other cases, paid to the Key Employee
Stockholder. For purposes of this Agreement, the “Escrow Fraction” of a
Stockholder at the time of any distribution of cash from the Closing Escrow Fund
means a fraction (i) having a numerator equal to the aggregate amount withheld
by Parent pursuant to Section 2.6(g) from cash otherwise payable to such
Stockholder pursuant to Section 2.6(b), and (ii) having a denominator equal to
the aggregate amount withheld by Parent pursuant to Section 2.6(g) from cash
otherwise payable to all such Stockholders pursuant to Section 2.6(b).
          (i) Contingent Payment Escrow Fund. Effective as of Closing, Parent,
the Stockholder Representative and the Escrow Agent are entering into the
Contingent Payment Escrow Agreement substantially in the form attached hereto as
Exhibit C (the “Contingent Payment Escrow Agreement”) to establish the
Contingent Payment Escrow Fund (the “Contingent Payment Escrow Fund”).
Notwithstanding anything to the contrary set forth in this Agreement, at the
Effective Time, Parent shall withhold from the cash otherwise payable to each
holder of Unvested Common Stock (other than Dissenting Shares) immediately prior
to the Effective Time cash in an amount equal to the Per-Share

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Common Amount multiplied by each share of Unvested Common Stock (excluding any
Dissenting Shares) held by such holder (the “Contingent Payment Escrow Amount”).
          (j) Interest and Withholding. All interest earned on the Closing
Escrow Fund and the Contingent Payment Escrow Fund shall be included by Parent
as taxable income or loss of Parent and the Escrow Agreement shall provide for
the Escrow Agent to make quarterly distributions to the Parent equal to forty
percent (40%) of the taxable income recognized in such quarter to satisfy any
Tax obligations that arise as a result of such interest being attributed to
Parent. Any income and gains of the Closing Escrow Fund shall be available to
Parent as part of the Closing Escrow Fund, but if not paid to Parent in
connection with the indemnification obligations owed to any Parent Indemnified
Party, or paid to Parent to cover Taxes, shall ultimately be distributable to
the Stockholders in accordance with this Agreement and the Escrow Agreement.
Each Stockholder’s pro rata portion of any income and gains of the Contingent
Payment Escrow Fund shall be distributable to such Stockholder in accordance
with this Section 2.6(j) and the Contingent Payment Escrow Agreement, unless
forfeited to Company pursuant to the terms of this Agreement and such Contingent
Payment Escrow Agreement.
     2.7 Determination of Cash Balance.
          (a) The Company has delivered to Parent a copy of the Signing Balance
Sheet. Within three (3) business days of the Closing Date, Parent may at its
option provide the Stockholder Representative with a notice (the “Signing
Balance Sheet Dispute Notice”) containing detailed written explanations of any
disputed items in the Signing Balance Sheet and Parent’s calculation of Cash
Balance. If Parent does not provide the Stockholder Representative with a
Signing Balance Sheet Dispute Notice on or prior to such date, Parent shall be
deemed to have accepted the Signing Balance Sheet (and the calculation of Cash
Balance set forth therein) as correct, final and binding for all purposes under
this Agreement. If Parent delivers a Signing Balance Sheet Dispute Notice on a
timely basis, Parent and the Stockholders’ Representative will attempt to
resolve in good faith any disputed items during the 15-day period subsequent to
the Stockholder Representative’s receipt of the Signing Balance Sheet Dispute
Notice.
          (b) If, after such 15-day period, the Stockholder Representative and
Parent cannot resolve such dispute, the unresolved disputed items will be
referred a nationally-recognized firm of certified public accountants as Parent
and Stockholder Representative may designate (the “Firm”). Such referral shall
be in the form of written statements of position by the Stockholder
Representative and Parent to the Firm, with each party having the opportunity to
respond to such written statements and any requests for statements or
information that may be made by the Firm. The Firm shall as promptly as
practicable (and in any event within 30 days) make a final determination of Cash
Balance which shall be final and binding on the parties (the “Final Cash
Balance”). Each of Parent and the Stockholder Representative shall provide the
Firm with all information and documentation that the Firm reasonably requests in
connection with its review of the disputed items. The fees and expenses incurred
by the Firm in connection with its review of the disputed items shall be borne
(i) by Parent, in the event that the Final Cash Balance

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is greater than Cash Balance as determined by the Company in the Signing Balance
Sheet by an amount equal to or greater than five percent (5%) of Cash Balance as
determined by the Company in the Signing Balance Sheet, (ii) from the cash in
the Closing Escrow Fund, in the event that the Final Cash Balance is less than
the Cash Balance as determined by Company in the Signing Balance Sheet by an
amount equal to or greater than five percent (5%) of Cash Balance as determined
by Company in the Signing Balance Sheet, or (iii) in all other circumstances,
fifty percent (50%) by Parent and fifty percent (50%) from the cash in the
Closing Escrow Fund.
          (c) If the amount of Cash Balance is finally agreed upon by Parent and
the Stockholder Representative or otherwise finally determined as provided in
clause “(a)” or clause “(b)” above following the Closing, and the amount of Cash
Balance as so finally agreed upon or determined exceeds the amount of Cash
Balance as set forth in the Signing Balance Sheet, Parent shall make additional
payments to the Stockholders in the amount of such excess. If the amount of Cash
Balance is finally agreed upon by Parent and the Stockholder Representative or
otherwise finally determined as provided in clause “(a)” or clause “(b)” above
following the Closing, and the amount of Cash Balance as so finally agreed upon
or determined is less than the amount of Cash Balance as set forth in the
Signing Balance Sheet, the Stockholder Representative and Parent shall jointly
instruct the Escrow Agent to release to Parent cash from the Closing Escrow Fund
in an amount equal to the amount of such deficit.
     2.8 Dissenting Shares.
          (a) Notwithstanding any other provisions of this Agreement to the
contrary, any shares of Company Capital Stock held by a Stockholder who has
demanded and perfected appraisal rights for such shares in accordance with the
DGCL and who, as of the Effective Time, has not effectively withdrawn or lost
such appraisal rights (“Dissenting Shares”), shall not be converted into or
represent a right to receive the consideration for Company Capital Stock set
forth in Section 2.6, but the holder thereof shall only be entitled to such
rights as are provided by the DGCL.
          (b) Notwithstanding the provisions of Section 2.8(a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) such holder’s appraisal rights under the DGCL, then, as of the
later of the Effective Time or the occurrence of such event, such holder’s
shares shall automatically be converted into and represent only the right to
receive the consideration for Company Capital Stock set forth in Section 2.6,
without interest thereon, upon surrender of the Certificate or Certificates
representing such shares, subject to the contributions to the Closing Escrow
Fund or the Contingent Payment Escrow Fund to be made from such consideration as
provided in Sections 2.6(g) or 2.6(i), respectively.
          (c) The Company shall give Parent (i) prompt notice of any written
demand for appraisal rights received by the Company pursuant to the applicable
provisions of the DGCL, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such

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demands or offer to settle or settle any such demands. Notwithstanding the
foregoing, to the extent that Parent or the Company (i) makes any payment or
payments in respect of any Dissenting Shares in excess of the consideration that
otherwise would have been payable in respect of such shares in accordance with
this Agreement or (ii) incurs any other reasonable costs or expenses in respect
of any Dissenting Shares (excluding payments for such shares) (together
“Dissenting Share Payments”), Parent shall be entitled to indemnification as set
forth in Article 9 in respect of such Dissenting Share Payments; provided,
however, that to the extent Parent makes any payment in respect of any
Dissenting Shares and the sum of (x) the amount of such payment plus (y) the
amount of any other reasonable costs or expenses incurred by Parent in respect
of any Dissenting Shares (excluding payments for such shares), is less than the
consideration that otherwise would have been payable in respect of such
Dissenting Shares in accordance with this Agreement, then Parent shall
distribute to the Stockholders, on the same basis as the Cash Amount has been
distributed to them, additional cash in an amount equal to the amount of such
difference.
     2.9 Surrender of Certificates.
          (a) Exchange Agent. The secretary of Parent shall serve as the
exchange agent (the “Exchange Agent”) for the Merger.
          (b) Parent to Provide Cash. At the Effective Time, (i) Parent shall
make available to the Exchange Agent for exchange in accordance with this
Article 2 the cash payable pursuant to Sections 2.6(b), in exchange for
outstanding shares of Company Capital Stock (other than the Closing Escrow Cash
Amount and the Contingent Payment Escrow Amount) and (ii) Parent shall deposit
into the Closing Escrow Fund and the Contingent Payment Escrow Fund the Closing
Escrow Cash Amount and Contingent Payment Escrow Amount, respectively.
          (c) Exchange Procedures. On or promptly after the Closing Date and in
any event within five (5) business days after the Closing Date, Parent shall
mail or cause to be mailed to each holder of record of shares of Company Capital
Stock (the certificates evidencing such shares being referred to herein as a
“Certificate” and, collectively, as “Certificates”), at the address set forth
opposite each such holder’s name on the Spreadsheet (as defined in
Section 6.10), a letter of transmittal in customary form and substance (which
shall specify that delivery shall be effected, and risk of loss and title shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent and the Stockholder
Representative may reasonably specify and contain an acknowledgment that the
rights of a holder of Company Capital Stock to receive consideration in the
Merger are subject to the indemnification provisions set forth in Article 8 and
elsewhere in this Agreement) and instructions for use in effecting the surrender
of Certificates in exchange for shares of Parent Common Stock and cash pursuant
to Section 2.6. Upon surrender of a Certificate for cancellation, subject to
Section 2.11, to the Exchange Agent, or such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder of
such Certificate shall be entitled to receive from the Exchange Agent in
exchange

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therefor, a cash payment equal to the cash to which such holder is entitled
pursuant to Section 2.6(b), less the amount of cash to be deposited into the
Closing Escrow Fund on such holder’s behalf pursuant to Section 2.6(g) or the
Contingent Payment Escrow Fund pursuant to Section 2.6(i), and the Certificate
so surrendered shall forthwith be canceled. Until so surrendered, each
Certificate outstanding after the Effective Time will be deemed for all
corporate purposes to evidence only the right to receive the consideration set
forth in Section 2.6.
          (d) No Liability. Notwithstanding anything to the contrary in this
Section 2.9, none of the Exchange Agent, Parent, the Surviving Corporation or
any other party hereto shall be liable to a holder of shares of Company Capital
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
     2.10 No Further Ownership Rights in Company Capital Stock. The shares of
Parent Common Stock and cash paid in respect of the surrender for exchange of
shares of Company Capital Stock in accordance with the terms hereof shall be
deemed to be full satisfaction of all rights pertaining to such shares of
Company Capital Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Capital Stock
that were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article 2.
     2.11 Lost, Stolen or Destroyed Certificates. In the event any Certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof, such amount, if any, as may be required pursuant to Section 2.6;
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the holder of such lost, stolen or
destroyed Certificates to either (i) deliver a bond in such amount as it may
reasonably direct, or (ii) provide an indemnification agreement in a form and
substance acceptable to Parent, against any claim that may be made against
Parent or the Exchange Agent with respect to the Certificates alleged to have
been so lost, stolen or destroyed.
     2.12 Further Assurances. If at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the Company and Merger Sub, and the officers and directors of Parent and the
Surviving Corporation shall be fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES

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OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
     The Company and each Principal Stockholder hereby represents and warrants
to Parent and Merger Sub, subject to such exceptions as are disclosed in the
disclosure schedule (referencing the appropriate section and paragraph numbers
or that are disclosed with respect to other sections or paragraphs but it is
readily apparent from such disclosure that such information is applicable to the
original section or paragraph) supplied as of the date hereof by the Company to
Parent (the “Disclosure Schedule”), as follows:
     3.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has the corporate power to own its properties and to carry on its
business as currently conducted. The Company is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each jurisdiction
in which such qualification or license is required. The Company has delivered a
true and correct copy of its Certificate of Incorporation and Bylaws, each as
amended to date and in full force and effect on the date hereof, to Parent.
Section 3.1 of the Disclosure Schedule contains a complete and accurate list of
the directors and officers of the Company as of the date hereof. The operations
now being conducted by the Company are not now and have never been conducted by
the Company under any other name. Section 3.1 of the Disclosure Schedule also
contains a complete and accurate list of every state or foreign jurisdiction in
which the Company has employees or facilities.
     3.2 Authority. The Company has all requisite corporate power and authority
to enter into this Agreement and any Ancillary Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Ancillary Agreements to which
the Company is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company and no further action is required on the part of the
Company to authorize the Agreement and any Ancillary Agreements to which it is a
party and the transactions contemplated hereby and thereby. The approval of the
principal terms of the Merger by (i) holders of a majority of the Company Common
Stock and the Company Preferred Stock (voting together as a single class on an
as-converted to common basis), and (ii) holders of a majority of the Company
Preferred Stock (voting together as a single class on an as-converted to common
basis) (together (i) and (ii), the “Requisite Stockholder Approval”) are the
only approvals of the Stockholders that are necessary to consummate the Merger
and the other transactions contemplated hereby under the DGCL, the Certificate
of Incorporation and Bylaws of the Company and any Contract to which the Company
is a party or otherwise bound. The Board of Directors of the Company has
unanimously approved this Agreement, the Merger and the other transactions
contemplated hereby. This Agreement and each of the Ancillary Agreements to
which the Company is a party has been duly executed and delivered by the Company
and assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as enforcement thereof may be limited by (i) bankruptcy,

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insolvency, reorganization, moratorium and similar laws, both state and federal,
affecting the enforcement of creditors’ rights or remedies in general as from
time to time in effect or (ii) the exercise by courts of equity powers.
     3.3 Conflicts. The execution and delivery by the Company of this Agreement
and any Ancillary Agreement to which the Company is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
(x) conflict with or result in any violation of or default under (with or
without notice or lapse of time, or both) or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a “Conflict”) (i) any provision of
the Certificate of Incorporation and Bylaws of the Company, (ii) any Contract to
which the Company is a party or any of its properties or assets is subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its properties or assets or (y) result in
the imposition or creation of any Lien upon or with respect to any of the assets
owned or used by the Company, except in the case of clauses (x)(ii), (x)(iii)
and (y) where such Conflict or Lien does not constitute a Company Material
Adverse Effect.
     3.4 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with any Governmental Authority or any third
party, including a party to any Contract with the Company (so as not to trigger
any Conflict), is required by or with respect to the Company in connection with
the execution and delivery of this Agreement and any Ancillary Agreement to
which the Company is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws, (ii) the Requisite Stockholder
Approval, (iii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings that, if not obtained or made, would not
constitute a Company Material Adverse Effect, and (iv) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware.
Section 3.4 of the Disclosure Schedule sets forth a complete and accurate list
of all consents, waivers and approvals of parties to any Contract as are
required thereunder in connection with the Merger, or for any such Contracts to
remain in full force and effect without limitation, modification or alteration
after the Effective Time so as to preserve all rights of, and benefits to, the
Surviving Corporation under such Contracts from and after the Effective Time.
     3.5 Company Capital Structure.
          (a) The authorized capital stock of the Company consists of 21,000,000
shares of Common Stock and 10,211,401 shares of Preferred Stock. As of the date
hereof, the capitalization of the Company is as set forth in Section 3.5(a) of
the Disclosure Schedule. The total number of shares of each class and series of
Company Capital Stock outstanding as of the date hereof, the total number of
shares underlying each security convertible into, or exercisable or exchangeable
for, shares of Company Capital Stock outstanding as of the date hereof and the
total number of shares underlying all Company Options outstanding as of the date
hereof is as set forth in Section 3.5(a) of the Disclosure Schedule. As of the
date hereof, each one (1) outstanding share of

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Company Preferred Stock is convertible into one (1) share of Company Common
Stock. The Company Capital Stock is held by the Persons with the domicile
addresses and in the amounts set forth in Section 3.5(a) of the Disclosure
Schedule. All outstanding shares of Company Capital Stock are duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of the
Company, or any agreement to which the Company is a party or by which it is
bound. All outstanding shares of Company Capital Stock and Company Options have
been issued or repurchased (in the case of shares that were outstanding and
repurchased by the Company or any Stockholder of the Company) in compliance with
all applicable federal, state, foreign, or local statues, laws, rules, or
regulations, including federal and state securities laws. The Company has not,
and will not have, suffered or incurred any Liability relating to or arising out
of the issuance or repurchase of any Company Capital Stock or Company Options,
or out of any agreements or arrangements relating thereto. There are no declared
or accrued but unpaid dividends with respect to any shares of Company Capital
Stock. The Company has no other capital stock authorized, issued or outstanding.
No vesting provisions, repurchase options, risks of forfeiture or other
conditions under any applicable stock restriction agreement or other agreement
with the Company that are applicable to any shares of Company Capital Stock,
Company Options or to any other rights to purchase Company Capital Stock, will
accelerate as a result of the Merger or as a result of any other events (whether
or not associated with the Merger). No shares of Company Capital Stock are
unvested or subject to a repurchase option, risk of forfeiture or other
condition under any applicable stock restriction agreement or other agreement
with the Company.
          (b) Except for the Company Stock Option Plan and the Company Unit
Plan, the Company has never adopted or maintained any stock option plan or other
plan providing for equity compensation of any Person. Section 3.5(b) of the
Disclosure Schedule sets forth for each outstanding Company Option, the name of
the holder of such option or warrant, the number of shares of Company Capital
Stock issuable upon the exercise of such option or warrant and the exercise
price of such option or warrant. Except for the Company Options, there are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company. Except as
contemplated hereby, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company. As a result of
the Merger, Parent will be the sole record and beneficial holder of all issued
and outstanding Company Capital Stock and all rights to acquire or receive any
shares of Company Capital Stock, whether or not such shares of Company Capital
Stock are outstanding.
     3.6 Subsidiaries. The Company does not have, and has never had, any
subsidiaries or any “affiliated” companies (within the meaning of Rule 145
promulgated

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under the Securities Act) and does not otherwise own, and has never otherwise
owned, any shares of capital stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
other business entity.
     3.7 Company Financial Statements. Section 3.7 of the Disclosure Schedule
sets forth the Company’s unaudited balance sheet as of September 30, 2005, and
the related unaudited statement of income, cash flow and shareholders’ equity
for the nine-month period then ended, and the unaudited balance sheets as of
December 31, 2004 and the related unaudited statements of income, cash flow and
shareholders’ equity for the twelve-month period then ended (the “Company
Financial Statements”). The Company Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated and consistent with each other (except that the unaudited Company
Financial Statements do not contain footnotes and other presentation items that
may be required by GAAP). The Company Financial Statements present fairly in all
material respects the Company’s financial condition and operating results as of
the dates and during the periods indicated therein. The Company’s unaudited
balance sheet as of September 30, 2005, is referred to hereinafter as the
“Current Balance Sheet” and the date thereof is referred to herein as the
“Current Balance Sheet Date.” The Company maintains and shall continue to
maintain an adequate system of internal controls established and administered in
accordance with GAAP.
     3.8 No Undisclosed Liabilities. The Company has no Liability that would be
required to be reflected in financial statements prepared in accordance with
GAAP except Liabilities (i) reflected in the Current Balance Sheet, or
(ii) incurred in the ordinary course of business consistent with past practices
since the Current Balance Sheet Date and through the Signing Date, which do not
exceed $50,000 in the aggregate.
     3.9 No Changes. From the Current Balance Sheet Date through the date
hereof, except with respect to the transactions contemplated hereby, (a) the
business of the Company has been conducted in the ordinary course and consistent
with past practices, (b) there has not been any employment dispute, including
any claims or matters raised by any individuals or any workers’ representative
organization or union regarding labor trouble or claim of wrongful discharge or
other unlawful employment or labor practice or action with respect to the
Company, (c) there has not been any destruction of, damage to, or loss of any
material assets or business of the Company, or any Significant Customer or
Significant Supplier (whether or not covered by insurance) and (d) the Company
has not taken any of the actions described in paragraphs (i) through (xxi) of
Section 5.1(b) hereof.
     3.10 Taxes.
          (a) The Company has (i) prepared and timely filed all U.S. federal,
state, local and non-U.S. returns, estimates, information statements and reports
(“Returns”) relating to any and all Taxes concerning or attributable to the
Company or its operations and such Returns are true and correct in all material
respects and have been completed in accordance with applicable law in all
material respects and (ii) timely paid all Taxes it is required to pay.

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          (b) The Company has timely paid or withheld with respect to Company
Employees and other third parties all U.S. federal, state and non-U.S. income
taxes and social security charges and similar fees, Federal Insurance
Contribution Act, Federal Unemployment Tax Act and other Taxes required to be
withheld, and has timely paid such Taxes withheld over to the appropriate
authorities.
          (c) The Company has not been delinquent in the payment of any Tax, nor
is there any Tax deficiency outstanding, assessed or proposed against the
Company, nor has the Company executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any Tax.
          (d) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for such
an audit or other examination.
          (e) The Company has no liabilities for unpaid Taxes which have not
been accrued or reserved on the Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has not incurred any
liability for Taxes since the date of the Current Balance Sheet other than in
the ordinary course of business.
          (f) The Company has made available to Parent or its legal counsel
copies of all Tax Returns for the Company filed for all periods since its
inception.
          (g) There are (and immediately following the Effective Time there will
be) no Liens on the assets of the Company relating to or attributable to Taxes
other than Liens for Taxes not yet due and payable.
          (h) The Company has no Knowledge of any basis for the assertion of any
claim relating or attributable to Taxes that, if adversely determined, would
result in any Lien on the assets of the Company.
          (i) None of the Company’s assets are treated as “tax-exempt use
property,” within the meaning of Section 168(h) of the Code.
          (j) The Company has (i) never been a member of an affiliated group
(within the meaning of Code §1504(a)) filing a consolidated federal income Tax
Return (other than a group the common parent of which was Company), (ii) never
been a party to any Tax sharing, indemnification or allocation agreement,
(iii) no liability for the Taxes of any Person (other than Company) under
Treasury Regulation § 1.1502-6 (or any similar provision of state, local or
foreign law, including any arrangement for group or consortium relief or similar
arrangement), as a transferee or successor, by contract or agreement, or
otherwise and (iv) never been a party to any joint venture, partnership or other
arrangement that could be treated as a partnership for Tax purposes.
          (k) The Company has not been, at any time, a “United States Real
Property Holding Corporation” within the meaning of Section 897(c)(2) of the
Code.

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          (l) No adjustment relating to any Return filed by the Company has been
proposed formally or, to the Knowledge of the Company, informally by any tax
authority to the Company or any representative thereof.
          (m) The Company has not constituted either a “distributing
corporation” or a “controlled corporation” in a distribution of stock intended
to qualify for tax-free treatment under Section 355 of the Code.
          (n) No claim has ever been made by a taxing authority in a
jurisdiction where the Company does not file Returns that it is or may be
subject to taxation by that jurisdiction.
          (o) The Company does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention between the United States and such foreign country.
          (p) None of the outstanding indebtedness of the Company constitutes
indebtedness with respect to which any interest deductions may be disallowed
under Sections 163(i), 163(l) or 279 of the Code or under any other provision of
applicable law.
          (q) The Company has not engaged in a reportable transaction within the
meaning of Treasury Regulations §1.6011-(4)(b), including a transaction that is
the same as or substantially similar to one of the types of transactions that
the Internal Revenue Service has determined to be a tax avoidance transaction
and identified by notice, regulation, or other form of published guidance as a
listed transaction, as set forth in Treasury Regulations §1.6011-4(b)(2).
          (r) The Company will not be required to include any income or gain or
exclude any deduction or loss from taxable income as a result of any (i) change
in method of accounting under Section 481(c) of the Code, (ii) closing agreement
under Section 7121 of the Code, (iii) deferred intercompany gain or excess loss
account under Treasury Regulations under Section 1502 of the Code (or in the
case of each of clauses (i), (ii), and (iii), under any similar provision of
applicable law), (iv) installment sale or open transaction disposition or
(v) prepaid amount.
          (s) The Disclosure Schedule sets forth the following information with
respect to the Company: (a) the basis of the Company in its assets; (b) the
amount of any net operating loss, net capital loss, unused investment, foreign,
or other Tax credit and the amount of any limitation upon any of the foregoing;
and (c) the amount of any deferred gain or loss allocable to the Company arising
out of any deferred intercompany transaction as defined in Treasury Regulation
§1.1502-13 or any similar provision of applicable law.
          (t) No Stockholder holds shares of Company Capital Stock that are
non-transferable and subject to a substantial risk of forfeiture within the
meaning of Section 83 of the Code with respect to which, to the Knowledge of the
Company, a valid election under Section 83(b) of the Code has not been made, and
no payment to any Stockholder of any portion of the consideration payable
pursuant to this Agreement will

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result in compensation or other income to such Stockholder with respect to which
Parent, the Company or any subsidiary of Parent or the Company would be required
to deduct or withhold any Taxes.
     3.11 Employee Benefit Plans and Compensation.
          (a) Section 3.11(a) of the Disclosure Schedule contains a complete and
accurate list of each Company Employee Plan and each Employee Agreement. Neither
the Company nor any ERISA Affiliate has made any plan or commitment to establish
any new Company Employee Plan or Employee Agreement, to modify any Company
Employee Plan or Employee Agreement (except to the extent required by law or to
conform any such Company Employee Plan or Employee Agreement to the requirements
of any applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to adopt or enter into any
Company Employee Plan or Employee Agreement. Section 3.11(a) of the Disclosure
Schedule sets forth a table setting forth the name, compensation and annual
bonus of each Company Employee.
          (b) The Company has provided to Parent (i) correct and complete copies
of all documents embodying each Company Employee Plan and each Employee
Agreement including, without limitation, all amendments thereto and all related
trust documents administrative service agreements, group annuity contracts,
group insurance contracts, and policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Company Employee Plan, (ii) the
three (3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the Code
in connection with each Company Employee Plan, (iii) if the Company Employee
Plan is funded, the most recent annual and periodic accounting of Company
Employee Plan assets, (iv) the most recent summary plan description together
with the summary(ies) of material modifications thereto, if any, required under
ERISA with respect to each Company Employee Plan, (v) all communications
material to any Company Employee or Company Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company, (vi) all correspondence
to or from any governmental agency relating to any Company Employee Plan,
(vii) all standard COBRA forms and related notices, (viii) the most recent
annual actual valuations, if any, prepared for each Company Employee Plan,
(ix) all discrimination tests for each Company Employee Plan for the three
(3) most recent plan years (if applicable), and (x) all IRS determination,
opinion, notification and advisory letters with respect to each Company Employee
Plan, if any.
          (c) The Company and its ERISA Affiliates have performed all
obligations required to be performed by them under each Company Employee Plan,
and each Company Employee Plan has been established and maintained in all
respects in accordance with its terms and in material compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code. Any Company Employee Plan intended to be qualified
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has obtained a favorable

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determination, notification, advisory and/or opinion letter, as applicable, as
to its qualified status from the IRS. For each Company Employee Plan that is
intended to be qualified under Section 401(a) of the Code there has been no
event, condition or circumstance that has adversely affected or is likely to
adversely affect such qualified status. No “prohibited transaction,” within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA (and the regulations issued
thereunder), has occurred with respect to any Company Employee Plan. There are
no actions, suits or claims pending, or, to the Knowledge of the Company,
threatened or reasonably anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan. Each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, Company or any of its ERISA Affiliates (other than ordinary
administration expenses). There are no audits, inquiries or proceedings pending
or, to the Knowledge of the Company or any ERISA Affiliates, threatened by the
IRS or DOL, or any other Governmental Authority with respect to any Company
Employee Plan. Neither the Company nor any Affiliate is subject to any penalty
or tax with respect to any Company Employee Plan under Section 502(i) of ERISA
or Sections 4975 through 4980 of the Code. The Company and each ERISA Affiliate
have timely made all contributions and other payments required by and due under
the terms of each Company Employee Plan.
          (d) Neither the Company nor any ERISA Affiliate has ever maintained,
established, sponsored, participated in, or contributed to, any (i) Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code,
(ii) Multiemployer Plan, (iii) plan described in Section 413 of the Code, or
(iv) a “funded welfare plan” within the meaning of Section 419 of the Code. No
Company Employee Plan provides health benefits that are not fully insured
through an insurance contract.
          (e) No Company Employee Plan or Employee Arrangement provides, or
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any Person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Company Employee (either individually or to Company Employees as a group)
or any other Person that such Company Employee(s) or other Person would be
provided with retiree life insurance, retiree health or other retiree employee
welfare benefits, except to the extent required by statute.
          (f) The Company and each Affiliate has, prior to the Effective Time,
complied in all materials respects with the health care continuation
requirements of COBRA, FMLA, HIPAA, the Women’s Health and Cancer Rights Act of
1998, the Newborns’ and Mothers’ Health Protection Act of 1996, and any similar
provisions of state law applicable to Company Employees.
          (g) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan,

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Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Company Employee.
          (h) No payment or benefit which has been, will or may be made by the
Company or its Affiliates with respect to any Company Employee or any other
“disqualified individual” (as defined in Section 280G of the Code and the
regulations thereunder) will be characterized as a “parachute payment,” within
the meaning of Section 280G(b)(2) of the Code. No amounts are or will be
included in income for any current or former employee by operation of Code
Section 409A.
          (i) The Company: (i) is in compliance in all material respects with
all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Company Employees; (ii) has
withheld and reported all amounts required by law or by agreement to be withheld
and reported with respect to wages, salaries and other payments to Employees;
(iii) is not liable for any arrears of wages or any taxes or any penalty for
failure to comply with any of the foregoing; and (iv) is not liable for any
payment to any trust or other fund governed by or maintained by or on behalf of
any governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Company Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice). There are no pending, reasonably anticipated, or to the
Knowledge of the Company, threatened claims or actions against the Company under
any worker’s compensation policy or long-term disability policy. Neither the
Company nor any Affiliate has direct or indirect liability with respect to any
misclassification of any Person as an independent contractor rather than as an
employee, or with respect to any employee leased from another employer. The
services provided by each of the Company’s and its Affiliates’ Company Employees
is terminable at the will of the Company and its Affiliates and any such
termination would result in no liability to the Company or any Affiliate.
          (j) No work stoppage or labor strike against the Company or any
Affiliate is pending, reasonably anticipated or, to the Knowledge of the
Company, threatened. The Company does not know of any activities or proceedings
of any labor union to organize any Company Employees. There are no actions,
suits, claims, labor disputes or grievances pending, or, to the Knowledge of the
Company, threatened or reasonably anticipated relating to any labor, safety or
discrimination matters involving any Company Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints. The
Company has not engaged in any unfair labor practices within the meaning of the
National Labor Relations Act. The Company is not presently, nor has it been in
the past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Company Employees and no collective bargaining
agreement is being negotiated with respect to Company Employees. Neither the
Company nor any of its Subsidiaries have incurred any material liability or
material

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obligation under the Work Adjustment and Retraining Notification Act or any
similar state or local law which remains unsatisfied.
          (k) Neither the Company nor any Affiliate currently or has ever had
the obligation to maintain, establish, sponsor, participate in, be bound by or
contribute to any Company International Employee Plan.
     3.12 Intellectual Property.
          (a) Section 3.12(a) of the Disclosure Schedule contains a complete and
accurate list of (i) all Registered Intellectual Property owned by, or filed in
the name of, the Company (the “Company Registered Intellectual Property”), and
(ii) any proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the “PTO”) or equivalent authority anywhere
in the world) related to any of the Company Registered Intellectual Property,
including all actions required to be taken by the Company within one hundred
twenty (120) days following the Closing Date.
          (b) Each item of Company Intellectual Property owned by the Company
including all Company Registered Intellectual Property listed in Section 3.12(a)
of the Disclosure Schedule, and to the Company’s Knowledge, each item of Company
Intellectual Property exclusively licensed to the Company, is free and clear of
any Liens, other than licenses pursuant to which the Company grants
non-exclusive rights to any third party with respect to the Company’s products
in the ordinary course of business. The Company is the sole owner or exclusive
licensee of all Company Intellectual Property.
          (c) To the extent that any Intellectual Property has been developed or
created on behalf of the Company independently or jointly by any person other
than the Company, the Company has a written agreement with such person with
respect thereto, and the Company thereby has obtained ownership of, and is the
exclusive owner of, all such Intellectual Property therein and associated
Intellectual Property Rights by operation of law or by valid assignment, and has
required the waiver of all non-assignable rights, including but not limited to,
all author or moral rights.
          (d) The Company has not transferred ownership of, or granted any
exclusive license of or exclusive right to use, or authorized the retention of
any exclusive rights to use or joint ownership of, any Company Intellectual
Property, to any other Person.
          (e) Other than “shrink-wrap” and similar widely available binary code
and commercial end-user licenses with license fees under $5,000
(“Commercially-Available Licenses”), but not including Open Source Materials (as
defined in Section 3.12(q)), the Company Intellectual Property constitutes all
the Intellectual Property and Intellectual Property Rights used in or necessary
for the conduct of the business of the Company as it currently is conducted,
including, without limitation, the design, development, manufacture, use, import
and sale of products, technology and services (including products, technology or
services currently under development).

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          (f) Other than (i) Commercially-Available Licenses, but not including
Open Source Materials, and (ii) other non-exclusive licenses and related
agreements with respect thereto of the Company’s products to end-users pursuant
to written agreements that have been entered into in the ordinary course of
business, Section 3.12(f) of the Disclosure Schedule contains a complete and
accurate list of all Contracts to which the Company is a party and pursuant to
which the Company (A) grants any rights to any third party under or with respect
to any Company Intellectual Property; or (B) is granted any rights under the
Intellectual Property Right of any third party. No third party who has licensed
Intellectual Property or Intellectual Property Rights to the Company has
ownership rights or license rights to improvements made by the Company to such
Intellectual Property that are made within the scope of the license.
          (g) Other than (i) Commercially-Available Licenses, but not including
Open Source Materials, and (ii) other non-exclusive licenses and related
agreements with respect thereto of the Company’s products to end-users pursuant
to written agreements that have been entered into in the ordinary course of
business, Section 3.12(g) of the Disclosure Schedule contains a complete and
accurate list of all Contracts between the Company and any other Person wherein
or whereby the Company has agreed to, or assumed, any obligation or duty to
defend, indemnify, reimburse, hold harmless, or guaranty such other Person with
respect to the actual or alleged infringement or misappropriation by the Company
or such other Person of the Intellectual Property Rights of any Person other
than the Company.
          (h) The operation of the business of the Company as it currently is
conducted, including but not limited to the design, development, use, import,
manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of the Company,
does not infringe or misappropriate the Intellectual Property Rights of any
Person, or constitute unfair competition or trade practices under the laws of
any jurisdiction in which the Company conducts business or in which the Company
sells or offers for sale, directly or indirectly, products or services. The
Company has not received any notice from any Person claiming that such operation
or any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates the Intellectual Property Rights of any Person or constitutes
unfair competition or trade practices under the laws of any jurisdiction in
which the Company conducts business or in which the Company sells or offers for
sale, directly or through licensees or distributors, products or services, nor
does Company have any Knowledge of any basis therefor.
          (i) Each item of Company Registered Intellectual Property is valid and
subsisting (other than pending applications for Company Registered Intellectual
Property), and all necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such Company
Registered Intellectual Property. Other than as

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set forth in Section 3.12(a) of the Disclosure Schedule, there are no actions
that must be taken by the Company within one-hundred twenty (120) days of the
Closing Date, including the payment of any registration, maintenance or renewal
fees or the filing of any documents, applications or certificates for the
purposes of maintaining, perfecting or preserving or renewing any Company
Registered Intellectual Property. In each case in which the Company has acquired
ownership of any Intellectual Property Rights from any Person, the Company has
obtained a valid and enforceable assignment sufficient to irrevocably transfer
all rights in such Intellectual Property and the associated Intellectual
Property Rights (including the right to seek past and future damages with
respect thereto) to the Company and, to the maximum extent provided for by, and
in accordance with, applicable laws and regulations, the Company has recorded
each such assignment with the relevant governmental authorities, including the
PTO, the U.S. Copyright Office, or their respective equivalents in any relevant
foreign jurisdiction, as the case may be.
          (j) There are no Contracts between the Company and any other Person
with respect to Company Intellectual Property or other Intellectual Property
used in or necessary to the conduct of the business as it is currently conducted
under which there is any dispute regarding the scope of such Contract, or
performance under such Contract including with respect to any payments to be
made or received by the Company thereunder.
          (k) Neither the execution of this Agreement by the Company nor the
transactions contemplated by this Agreement, including the assignment to Parent
by operation of law or otherwise of any Contracts to which the Company is a
party, will result in (i) Parent, Merger Sub, the Company or the Surviving
Corporation granting to any third party any right to or with respect to any
Intellectual Property owned by, or licensed to, any of them under any Contract
to which the Company is a party or by which it is bound, (ii) Parent, Merger
Sub, the Company or the Surviving Corporation being bound by, or subject to, any
non-compete or other material restriction on the operation or scope of their
respective businesses under any Contract to which the Company is a party or by
which it is bound, or (iii) Parent, Merger Sub, the Company or the Surviving
Corporation being obligated to pay any royalties or other material amounts to
any third party under any Contract to which the Company is a party or by which
it is bound in excess of those payable by any of them, respectively, in the
absence of this Agreement or the transactions contemplated hereby.
          (l) To the Knowledge of the Company, no Person or entity is infringing
or misappropriating any Company Intellectual Property.
          (m) The Company has taken all reasonable steps that are required or
necessary to protect the Company’s rights in confidential information and trade
secrets of the Company or provided by any other Person or entity to the Company.
Without limiting the foregoing, the Company has, and enforces, a policy
requiring each employee, consultant, and contractor to execute proprietary
information, confidentiality and assignment agreements substantially in the
Company’s standard forms, and all current and former employees, consultants and
contractors of the Company have executed such

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an agreement in substantially the Company’s standard form, a copy of which had
been delivered to Parent.
          (n) As of the date of this Agreement, and to the Knowledge of the
Company, no Company Intellectual Property is subject to any proceeding or
outstanding decree, order, judgment or settlement agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by the Company or
may affect the validity, use or enforceability of such Company Intellectual
Property.
          (o) To the Knowledge of the Company, no (i) product, technology,
service or publication of the Company, (ii) material published or distributed by
the Company, or (iii) conduct or statement of the Company constitutes obscene
material, a defamatory statement or material, false advertising or otherwise
violates any law or regulation of any jurisdiction in which the Company conducts
business or in which the Company sells or offers for sale, directly or through
licensees or distributors, products and services.
          (p) No government funding, facilities or resources of a university,
college, other educational institution or research center or funding from third
parties was used in the development of the Company Intellectual Property, and no
Governmental Authority, university, college, other educational institution or
research center has any claim or right in or to the Company Intellectual
Property. No current or former employee, consultant or independent contractor of
the Company who was involved in, or who contributed to, the creation or
development of any Company Intellectual Property, has performed services for the
government, a university, college or other educational institution, or a
research center, during a period of time during which such employee, consultant
or independent contractor was also performing services for the Company.
          (q) Section 3.12(q) of the Disclosure Schedule contains a complete and
accurate list of all Intellectual Property of the Company, of a third party or
in the public domain that constitutes open source, public source or freeware
Intellectual Property, or any modification or derivative thereof, including any
version of any software licensed pursuant to any GNU general public license or
limited general public license (“Open Source Materials”) that was used in,
incorporated into, integrated or bundled with any Intellectual Property that is,
or was, used by the Company in its business, or incorporated in or used in the
development or compilation of any products or technology of the Company, and
describes the manner in which such Open Source Materials were used (such
description shall include whether (and, if so, how) the Open Source Materials
were modified and/or distributed by the Company or its Subsidiary).
          (r) The Company has not (i) incorporated Open Source Materials into,
or combined Open Source Materials with, any Company products or technology,
(ii) distributed Open Source Materials in conjunction with any Company
Intellectual Property or Company products or technology, or (iii) used Open
Source Materials in such a way that, with respect to (i) or (ii) creates, or
purports to create, obligations for the Company with respect to any Company
Intellectual Property or grants, or purports to grant, to any third party, any
rights or immunities under any Company products or

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technology (including, but not limited to, using any Open Source Materials that
require, as a condition of use, modification and/or distribution of such Open
Source Materials that other software incorporated into, derived from or
distributed with such Open Source Materials be (A) disclosed or distributed in
source code form, (B) be licensed for the purpose of making derivative works, or
(C) be redistributable at no charge).
          (s) The Company has secured all export licenses necessary or
appropriate for the distribution of the Company’s products, services and
technology outside of the United States in any jurisdiction in which the Company
conducts business or in which the Company sells or offers for sale, directly or
through licensees or distributors, products and services, and all such licenses
are in full force and effect.
          (t) The Company’s products do not contain any virus, Trojan horse,
worm or other software routines or hardware components designed to permit
unauthorized access, to disable, erase or otherwise harm software, hardware or
data.
     3.13 Restrictions on Business Activities. Section 3.13 of the Disclosure
Schedule sets forth a complete and accurate list of each Contract
(non-competition or otherwise), judgment, injunction, order or decree to which
the Company is a party or otherwise binding upon the Company which has or may
reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company (including any restrictions on selling,
licensing, manufacturing or otherwise distributing any of its technology or
products or from providing services to customers or potential customers or any
class of customers, in any geographic area, during any period of time, or in any
segment of the market, any acquisition of property (tangible or intangible) by
the Company, the conduct of business by the Company, or otherwise limiting the
freedom of the Company to engage in any line of business or to compete with any
Person.)
     3.14 Properties.
     (a) The Company does not own any real property, nor has the Company ever
owned any real property. Section 3.14(a) of the Disclosure Schedule sets forth a
complete and accurate list of all real property currently leased by the Company
or otherwise used or occupied by the Company for the operation of the Company’s
business (the “Leased Real Property”), the name of the lessor, the name and date
of each lease agreement related thereto and each amendment thereto. The Company
has provided Parent true, correct and complete copies of all leases, lease
guaranties, subleases, agreements for the leasing, use or occupancy of, or
otherwise granting a right in or relating to the Leased Real Property, including
all amendments, terminations and modifications thereof, and there are no other
lease agreements for real property affecting the real property or to which
Company is bound. All such lease Contracts are valid and enforceable and not in
default, no rentals are past due, and no circumstance exists, which, with
notice, the passage of time or both, could constitute a default under any such
lease agreement. The Company has received no notice of a default, alleged
failure to perform, or any offset or counterclaim with respect to any such lease
agreement, which has not been fully remedied and withdrawn. The consummation of
the Merger and the other transactions contemplated hereby will not affect the
enforceability against any Person of

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any such lease agreement or the rights of the Company or the Surviving
Corporation to the continued use and possession of the real property for the
conduct of business as presently conducted. The Leased Real Property is in good
operating condition and repair and is maintained in a manner consistent with
standards generally followed with respect to similar properties, and to the
Knowledge of the Company is structurally sufficient and otherwise suitable for
the conduct of the business as presently conducted and free from structural,
physical and mechanical defects.
          (b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, Personal and mixed, used or held for use in its
business, free and clear of any Liens, except Liens for Taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which do not
detract from the value or interfere with the present use of the property subject
thereto or affected thereby. The foregoing assets and the Company Intellectual
Property constitute all of the assets used in, and necessary for, the business
of the Company as currently conducted or currently contemplated to be conducted.
          (c) All material items of equipment owned or leased by the Company is
adequate for the conduct of the business of the Company as currently conducted
and as currently contemplated to be conducted and in good operating condition,
regularly and properly maintained, subject to normal wear and tear.
          (d) The Company has sole and exclusive ownership, free and clear of
any Liens, of all customer lists, customer contact information, customer
correspondence and customer licensing and purchasing histories relating to its
current and former customers not reserved by such customer. No Person other than
the Company possesses any claims or rights with respect to use of such customer
information.
     3.15 Material Contracts.
          (a) Section 3.15 of the Disclosure Schedule sets forth a complete and
accurate list of the following Contracts in effect as of the date hereof
(together with the Contracts set forth in Section 3.12(f) and (g) (Intellectual
Property), Section 3.13 (Restrictions on Business Activities) or Section 3.14(a)
(Leases), of the Disclosure Schedule, each a “Material Contract” and,
collectively, the “Material Contracts”):
               (i) any employment or consulting Contract with an employee or
individual consultant or salesperson, or consulting or sales Contract with a
firm or other organization;
               (ii) any Contract or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;

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               (iii) any Contract relating to the lease of personal property
involving future payments in excess of $25,000 individually or $50,000 in the
aggregate;
               (iv) any Contract relating to capital expenditures and involving
future payments in excess of $25,000 individually or $50,000 in the aggregate;
               (v) any Contract relating to the disposition or acquisition of
assets or any interest in any business enterprise outside the ordinary course of
the Company’s business;
               (vi) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other Contracts relating to the borrowing of
money or extension of credit (other than trade payables in the ordinary course
of business consistent with past practices);
               (vii) any Contract for the purchase by the Company of goods or
services involving in excess of $25,000 individually or $50,000 in the
aggregate;
               (viii) any Contract for the purchase by customers of goods or
services involving in excess of $25,000 individually or $50,000 in the
aggregate;
               (ix) any dealer, distribution, joint marketing, strategic
alliance or development Contract;
               (x) any standstill or similar Contract;
               (xi) any non-employee sales representative, original equipment
manufacturer, manufacturing, value added, remarketer, reseller, or independent
software vendor, or other Contract for use or distribution of the Company’s
products, technology or services;
               (xii) any Contract (a) of a nature required to be disclosed on
Section 3.21 of the Disclosure Schedule, or (b) granting a power of attorney,
agency or similar authority to another person or entity;
               (xiii) any other Contract that (a) involves future payments in
excess of $25,000 individually or $50,000 in the aggregate or more and is not
cancelable without penalty within thirty (30) days, (b) has an unexpired term as
of the Current Balance Sheet Date in excess of twelve months and is not
otherwise listed on Section 3.15 of the Disclosure Schedule, or (c) is otherwise
material to the business of the Company and not otherwise listed on Section 3.15
of the Disclosure Schedule; or
               (xiv) except as set forth on Schedule 3.15(a)(xiv), any Contract
in which the Company has agreed to no limitation on the Company’s liability
thereunder.
          (b) The Company is in compliance with and has not breached, violated
or defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any Material Contract, nor
does the Company have any

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Knowledge of any event that would constitute such a breach, violation or default
with the lapse of time, giving of notice or both. Each Material Contract is in
full force and effect, enforceable in accordance with its terms, and the Company
is not in default thereunder, nor, to the Knowledge of the Company, is any party
obligated to the Company pursuant to any such Material Contract in default
thereunder. Following the Effective Time, the Surviving Corporation will be
permitted to exercise all of its rights under the Material Contracts without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would otherwise be required to pay
pursuant to the terms of such Material Contracts had the transactions
contemplated by this Agreement not occurred.
     3.16 Insurance. Section 3.16 of the Disclosure Schedule contains a complete
and accurate list of all insurance policies and bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company or any of its Affiliates (the “Insurance Policies”). There is no
claim by the Company or any of its Affiliates pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed or that
the Company or any of its Affiliates has a reason to believe will be denied or
disputed by the underwriters of such policies or bonds. In addition, there is no
pending claim of which its total value (inclusive of defense expenses) will
exceed the policy limits. All premiums due and payable under all such policies
and bonds have been paid, (or if installment payments are due, will be paid if
incurred prior to the Closing Date) and the Company and its Affiliates are
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
The Company has no Knowledge or reasonable belief of threatened termination of,
or premium increase with respect to, any of such policies.
     3.17 Litigation. There is no action, suit, claim or proceeding of any
nature pending or, to the Knowledge of the Company, threatened against the
Company, its properties (tangible or intangible) or any of its officers or
directors (in their capacity as such), nor to the Knowledge of the Company is
there any reasonable basis therefor. There is no investigation or other
proceeding pending or, to the Knowledge of the Company, threatened against the
Company, any of its properties (tangible or intangible) or any of its officers
or directors (in their capacity as such) by or before any Governmental
Authority, nor to the Knowledge of the Company is there any reasonable basis
therefor. No Governmental Authority has at any time challenged or questioned the
legal right of the Company to conduct its operations as presently or previously
conducted or as presently contemplated to be conducted.
     3.18 Governmental Authorization. Each consent, license, permit, grant or
other authorization (i) pursuant to which the Company currently operates or
holds any interest in any of its properties, or (ii) which is required for the
operation of the Company’s business as currently conducted or currently
contemplated to be conducted or the holding of any such interest (collectively,
“Company Authorizations”) has been issued or granted to the Company. The Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.

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     3.19 Compliance with Laws. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation applicable to the
Company, its business or its assets (whether tangible or intangible).
     3.20 Environmental Compliance.
          (a) The Company has not (i) operated any underground storage tanks at
any property that the Company has at any time owned, operated, occupied or
leased, or (ii) released any amount of any substance that has been designated by
any Governmental Authority or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a “Hazardous Material”), but excluding office
and janitorial supplies properly and safely maintained. No Hazardous Materials
are present in, on or under any property (including the land and the
improvements, ground water and surface water thereof) that the Company has at
any time owned, operated, occupied or leased.
          (b) The Company has not transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law or in a manner that would result in liability to the
Company, nor has the Company disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (any or all of the foregoing being
collectively referred to herein as “Hazardous Materials Activities”) in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Authority to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
          (c) No action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending, or to the Knowledge of the Company,
threatened, concerning any Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of the Company. The Company has no Knowledge of any
fact or circumstance that could involve the Company in any environmental
litigation or impose upon the Company any environmental liability.
     3.21 Interested Party Transactions. To the Knowledge of the Company, no
officer, director, consultant or shareholder of the Company (nor any ancestor,
sibling, descendant or spouse of any of such Persons, or any trust, partnership
or corporation in which any of such Persons has or has had an interest), has or
has had, directly or indirectly, (i) an interest in any entity which furnished
or sold, or furnishes or sells, services, products or technology that the
Company furnishes or sells, or proposes to furnish or sell, (ii) any interest in
any entity that purchases from or sells or furnishes to the Company, any goods
or services, or (iii) a beneficial interest in any Contract to which the Company
is a party; provided, however, that ownership of no more than one percent

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(1%) of the outstanding capital stock of a corporation shall not be deemed to be
an “interest in any entity” for purposes of this Section 3.21. There are no
Contracts with regard to contribution or indemnification between or among any of
the Stockholders.
     3.22 Minute Books. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company and contain accurate summaries of all
meetings or actions by written consent of the Board of Directors (or committees
thereof) of the Company and contain all shareholder actions by written consent
since the time of incorporation of the Company.
     3.23 Brokers’ and Finders’ Fees. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders’ fees or
agents’ commissions or any similar charges in connection with the Agreement or
any transaction contemplated hereby.
     3.24 Accounts Receivable. All of the Company’s accounts receivable arose in
the ordinary course of business, are carried at values determined in accordance
with GAAP consistently applied, and are collectible except to the extent of
reserves therefor set forth in the Current Balance Sheet or, for receivables
arising subsequent to the Current Balance Sheet Date, as reflected on the books
and records of the Company (which are prepared in accordance with GAAP). No
Person has any Lien on any of the Company’s accounts receivable and no request
or agreement for deduction or discount has been made with respect to any of the
Company’s accounts receivable.
     3.25 Warranties; Indemnities. Except for the warranties and indemnities
contained in those Contracts set forth in Section 3.12(g) of the Disclosure
Schedule and warranties implied by law, the Company has not given any warranties
or indemnities relating to products or technology sold or services rendered by
the Company.
     3.26 Financial Projections/Operating Plan. The Company has made available
to Parent certain financial projections with respect to the Company’s business
which projections were prepared for internal use only. Such projections were
prepared in good faith and are based on assumptions believed by the Company to
be reasonable as of the date of this Agreement; provided, however, that the
failure to achieve any aspect of such projections prepared in good faith shall
not be deemed to constitute a breach of any representation or warranty of the
Company.
     3.27 Banks and Brokerage Accounts. Section 3.27 of the Disclosure Schedule
sets forth (a) a complete and accurate list of the names and locations of all
banks, trust companies, securities brokers and other financial institutions at
which the Company has an account or a safe deposit box or maintains a banking,
custodial, trading or other similar relationship, and (b) a complete and
accurate list and description of each such account, box and relationship,
indicating in each case the account number and the names of the respective
officers, employees, agents or other similar representatives of the Company
having signatory power with respect thereto.

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     3.28 Customers and Suppliers. Since June 30, 2005, none of the ten
(10) largest customers of the Company on the basis of orders booked during the
three months prior to the Signing Date (the “Significant Customers”) or the
thirty (30) largest suppliers of the Company on the basis of cost of goods or
services purchased by the Company during the last twelve (12) calendar months
prior to the Signing Date (the “Significant Suppliers”) has cancelled or
materially reduced or, to the Knowledge of the Company, threatened to cancel or
materially reduce its business with the Company. To the Knowledge of the
Company, no such Significant Customer or Significant Supplier is threatened with
bankruptcy or insolvency.
     3.29 Representations Complete. None of the representations or warranties
made by the Company herein or in any Ancillary Agreement or schedule or exhibit
hereto, including the Disclosure Schedule, or in any certificate or other
document furnished by the Company pursuant to this Agreement or in connection
with the transactions contemplated hereby, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
     Each of Parent and Merger Sub hereby represents and warrants to the Company
and the Principal Stockholders, subject to such exceptions as are specifically
disclosed in the disclosure schedule (referencing the appropriate section and
paragraph numbers) supplied as of the date hereof by Parent to Company (the
“Parent Disclosure Schedule”), as follows as of the date hereof and as of the
Effective Time:
     4.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified or licensed would have a Parent Material Adverse Effect.
     4.2 Authority. Each of Parent and Merger Sub has all requisite corporate
power and authority to enter into this Agreement and any Ancillary Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Ancillary
Agreements to which it is a party and the consummation of the transactions

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contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub and no further action is
required on the part of Parent or Merger Sub to authorize the Agreements or the
Ancillary Agreements to which it is a party and the transactions contemplated
hereby and thereby. This Agreement and any Ancillary Agreements to which Parent
and Merger Sub are parties have been duly executed and delivered by Parent and
Merger Sub and constitute the valid and binding obligations of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with their
respective terms, except as enforcement thereof may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium and similar laws, both
state and federal, affecting the enforcement of creditors’ rights or remedies in
general as from time to time in effect or (ii) the exercise by courts of equity
powers.
     4.3 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority, or any
third party, including a party to any Contract with Parent (so as not to trigger
any Conflict) is required by or with respect to Parent or Merger Sub in
connection with the execution and delivery of this Agreement and any Ancillary
Agreements to which Parent or Merger Sub is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws, (ii) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings that, if not obtained or made, would not have a Parent Material Adverse
Effect, and (iii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware.
     4.4 Broker’s and Finders’ Fees. Neither Parent nor Merger Sub has incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders’ fees or agents’ commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
ARTICLE 5
CONDUCT OF THE COMPANY
PRIOR TO THE EFFECTIVE TIME
     5.1 Conduct of Business of the Company.
          (a) Except as set forth on Schedule 5.1(a) or except to the extent
that Parent shall otherwise consent in writing (which consent shall not be
unreasonably withheld or delayed), until the earlier of the Effective Time or
the termination of this Agreement pursuant to Section 9.1, the Company shall
conduct its business and operations (including working capital and cash
management practices and the collection of accounts receivable) in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, pay the debts and Taxes of the Company when due (subject to
Section 5.1(b)(xiii)), pay or perform its other obligations when due, and, to
the extent consistent with such business, preserve intact the Company’s present
business organizations, use reasonable efforts to keep available the services of
the Company’s present officers, key employees and consultants and preserve the
Company’s relationships with customers, suppliers, distributors, licensors,
licensees, and others

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having business dealings with it, all with the goal of preserving unimpaired the
Company’s goodwill and ongoing businesses at the Effective Time.
          (b) Except (x) as set forth on Schedule 5.1(b), (y) to the extent that
Parent shall otherwise consent in writing (which consent shall not be
unreasonably withheld or delayed), or (z) as contemplated hereunder or under the
Ancillary Agreements, until the earlier of the Effective Time or the termination
of this Agreement pursuant to Section 9.1, the Company shall not:
               (i) cause or permit any amendments to its Certificate of
Incorporation, Bylaws or other organizational documents of the Company;
               (ii) declare, set aside, or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company Capital Stock, or split, combine or reclassify any Company Capital Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of Company Capital Stock, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of Company
Capital Stock (or options, warrants or other rights exercisable therefor);
               (iii) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of capital stock of the Company or any securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities except for issuances of Company Capital Stock
pursuant to the exercise of outstanding Company Options;
               (iv) grant any severance or termination pay (whether in cash,
equity or otherwise) to any officer or employee except pursuant to Contracts
outstanding, or policies existing, on the date hereof and set forth on
Schedule 5.1(b)(iv), or adopt any new severance plan, or amend or modify or
alter in any respect any such severance plan, agreement or arrangement existing
on the date hereof, or grant any equity-based compensation;
               (v) adopt or amend any Company Employee Plan, enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or Employee, or increase the salaries, wage rates,
or other compensation of its Employees except payments made pursuant to standard
written agreements outstanding on the date hereof and disclosed on Schedule
5.1(b)(v) or except to the extent required by law;
               (vi) except as set forth on Schedule 5.1(b)(vi), hire or
terminate (other than for cause) any Employees, or knowingly encourage any
Employees to resign from the Company or any Affiliate;
               (vii) waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options

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granted under any of such plans, except for the acceleration of vesting of
Company Options held by the Persons listed on Schedule 5.1(b)(vii) pursuant to
agreements with the Company in effect as of the Signing Date;
               (viii) incur any indebtedness (other than trade payables in the
ordinary course of business consistent with past practices) or guarantee any
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
               (ix) pay, discharge or satisfy, in an amount in excess of $25,000
in any one case, or $50,000 in the aggregate, any Liability, other than the
payment, discharge or satisfaction of Liabilities reflected or reserved against
in the Current Balance Sheet;
               (x) make any expenditures (including any capital expenditures) or
enter into any commitment or transaction exceeding $25,000 individually or
$50,000 in the aggregate;
               (xi) sell, lease, license or otherwise dispose of any of its
properties or assets (whether tangible or intangible), including without
limitation the sale of any accounts receivable of the Company, except the sale
of Company’s products in the ordinary course of business consistent with past
practices;
               (xii) revalue any of its assets (whether tangible or intangible),
including writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business and consistent with
GAAP;
               (xiii) make or change any election in respect of Taxes, adopt or
change any accounting method or practices (other than as required by GAAP),
settle any claim or assessment in respect of Taxes, consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of Taxes, or file any material Tax Return or any amended Tax Return, unless such
Tax Return has been provided to Parent for its review and consent a reasonable
period of time prior to the due date for filing;
               (xiv) waive or release any right or claim of the Company;
               (xv) commence, threaten or settle any litigation;
               (xvi) (A) sell, license or transfer to any Person any rights to
any Company Intellectual Property or enter into any agreement with respect to
any Company Intellectual Property with any Person or entity, (B) buy or license
any Intellectual Property or enter into any agreement with respect to the
Intellectual Property of any Person or entity, (C) enter into any agreement with
respect to the development of any Intellectual Property with a third party, or
(D) change pricing or royalties charged by the Company to its customers or
licensees, or the pricing or royalties set or charged by Persons who have
licensed Intellectual Property to the Company;

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               (xvii) acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
Company’s business;
               (xviii) enter into, renew, fail to renew, renegotiate, amend or
otherwise modify, or materially breach the terms of any Material Contract;
               (xix) terminate, amend or fail to renew any Insurance Policy;
               (xx) terminate or fail to review or preserve any Company
Authorization; or
               (xxi) take, or agree in writing or otherwise to take, any of the
actions described in Section 5.1(b)(i) through Section 5.1(b)(xx) hereof, or any
other action that would prevent the Company or any of the Principal Stockholders
from performing, or cause the Company or any of the Principal Stockholders not
to perform, their respective covenants hereunder.
     5.2 No Solicitation. Until the earlier of the Effective Time or the
termination of this Agreement pursuant to Section 9.1, neither the Company nor
the Principal Stockholders shall (nor shall the Company or Principal
Stockholders permit, as applicable, any of their respective officers, directors,
employees, shareholders, agents, representatives or affiliates to), directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, knowingly encourage, initiate or participate in
any inquiry, negotiations or discussions with respect to any offer or proposal
to purchase or otherwise acquire all or any part of the Company’s business,
properties or technologies, or all or any amount of the Company Capital Stock
(whether or not outstanding), whether by merger, purchase of assets, tender
offer, license or otherwise, (b) disclose any information not customarily
disclosed to any Person concerning the Company’s business, properties or
technologies, or afford to any Person access to its properties, technologies,
books or record not customarily afforded such access, (c) assist or cooperate
with any Person to make any proposal to purchase or otherwise acquire all or any
part of the Company’s business, properties or technologies or all or any amount
of the Company Capital Stock other than sales to customers in the ordinary
course, or (d) enter into any Contract with any Person providing for any of the
foregoing. In the event that the Company, any Principal Stockholder, or any of
the Company’s affiliates shall receive any offer, proposal, or request, directly
or indirectly, of the type referenced in clauses (a), (c), or (d) above, or any
request for disclosure or access as referenced in clause (b) above, the Company
or such Principal Stockholder, as applicable, shall immediately (x) suspend any
discussions with such offeror or party with regard to such offers, proposals, or
requests and (y) notify Parent thereof, including information as to the identity
of the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Parent may reasonably request. The parties hereto agree that
it would be impossible to measure in money the damages to Parent that would

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occur in the event that the provisions of this Section 5.2 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties hereto that Parent shall be entitled to seek
an immediate injunction or injunctions, without the necessity of proving the
inadequacy of money damages as a remedy and without the necessity of posting any
bond or other security, to prevent breaches of the provisions of this
Section 5.2 and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which Parent may be entitled at law or in
equity.
ARTICLE 6
ADDITIONAL AGREEMENTS
     6.1 Stockholder Approval.
          (a) As soon as practicable following the execution of this Agreement,
Company will take all action necessary in accordance with the DGCL and its
Certificate of Incorporation and Bylaws to (i) convene a special meeting of the
Stockholders to be held as promptly as practicable for the purpose of obtaining,
or (ii) obtain, by written consent, the Requisite Stockholder Approval.
          (b) Notice of Stockholder Consent. As promptly as practicable
following the receipt of the Requisite Stockholder Approval, the Company shall
give written notice of this Agreement, the proposed Merger and the Requisite
Stockholder Approval to all Stockholders pursuant to the requirements of the
DGCL.
          (c) The materials submitted to the Stockholders by the Company in
respect of this Agreement, the proposed Merger and the Requisite Stockholder
Approval shall comply in all respects with the applicable provisions of the DGCL
and shall have been subject to prior review and comment by Parent and shall
include information regarding the Company, the Requisite Stockholder Approval,
the terms of the Merger and this Agreement and such other documents as may be
reasonably required by Parent. Each of Parent and Merger Sub, on the one hand,
and the Company, on the other, shall provide to the other such information about
itself as the other shall reasonably request in connection with any Stockholder
notice or communications required under this Section 6.1 and the DGCL.
     6.2 Commercially Reasonable Efforts; Governmental Approvals; Contract
Consents. Subject to the terms and conditions set forth in this Agreement, each
of the parties hereto shall use commercially reasonable efforts to take
promptly, or cause to be taken promptly, all actions, and to do promptly, or
cause to be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to satisfy the conditions set forth in Article 7
and to remove any injunctions or other impediments or delays, legal or
otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties hereto
the benefits contemplated by this Agreement.

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          (a) Each of the Company and Parent shall promptly execute and file, or
join in the execution and filing of, any application, notification or other
document that may be necessary in order to obtain the authorization, approval or
consent of any Governmental Authority, whether federal, state, local or foreign,
which may be reasonably required, or which Parent may reasonably request, in
connection with the consummation of the Merger and the other transactions
contemplated hereby. Each of the Company and Parent shall use commercially
reasonable efforts to obtain all such authorizations, approvals and consents.
Each of the Company and Parent shall promptly inform the other of any material
communication between the Company or Parent (as applicable) and any Governmental
Authority regarding the Merger or any other transactions contemplated hereby. If
the Company or Parent or any affiliate thereof shall receive any formal or
informal request for supplemental information or documentary material from any
Governmental Authority with respect to the Merger or any other transactions
contemplated hereby, then the Company or Parent (as applicable) shall make, or
cause to be made, as soon as reasonably practicable, a response in compliance
with such request. Each of the Company and Parent shall direct, in its sole
discretion, the making of such response, but shall consider in good faith the
views of the other.
          (b) The Company shall use commercially reasonable efforts to obtain
all necessary consents, waivers and approvals of any parties to any Contract as
are required thereunder in connection with the Merger or for any such Contracts
to remain in full force and effect so as to preserve all rights of, and benefits
to, the Surviving Corporation under such Contract from and after the Effective
Time.
     6.3 Notification of Certain Matters. The Company shall give prompt notice
to Parent of: (i) the occurrence or non-occurrence of any event, the occurrence
or non-occurrence of which has caused or is likely to cause any representation
or warranty of the Company or any Principal Stockholder, respectively and as the
case may be, set forth in this Agreement to be untrue or inaccurate at or at any
time prior to the Effective Time, and (ii) any failure of the Company or any
Principal Stockholder, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that no such notice shall be required in the event
such occurrence or non-occurrence or failure has not resulted in, and is
reasonably likely not to result in, Losses to the Company in excess of $25,000.
No information or knowledge obtained pursuant to this Section 6.3 shall affect
or be deemed to modify any representation or warranty contained herein, the
right to indemnification under Article 8 or the conditions to the obligations of
the parties to consummate the Merger in accordance with the terms and provisions
hereof.
     6.4 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during the
period commencing on the Signing Date and continuing through the earlier of the
Effective Time or the termination of this Agreement, to (i) the Company’s
properties, books, contracts, commitments and records, (ii) other information
concerning the business, properties and Personnel (subject to restrictions
imposed by applicable law) of the Company as Parent may reasonably request, and
(iii) employees, officers, directors, customers, suppliers and creditors of the
Company as may be reasonably necessary or

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appropriate for the purpose of enabling Parent to familiarize itself with the
business of the Company. The Company shall afford Parent and its accountants,
counsel and other representatives copies of internal financial statements
(including Tax Returns and supporting documentation) and any other documentation
reasonably requested by Parent, promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 6.4 shall
affect or be deemed to modify any representation or warranty contained herein,
the right to indemnification under Article 8 or the conditions to the
obligations of the parties to consummate the Merger in accordance with the terms
and provisions hereof.
     6.5 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 6.4 hereof, or in
connection with the negotiation and execution of this Agreement or the
effectuation of the Merger and the other transactions contemplated hereby, shall
be governed by the terms of the Confidential Disclosure Agreement (the
“Confidential Disclosure Agreement”) between the Company and Parent.
     6.6 Public Disclosure. No party shall issue or make any statement or other
communication or disclosure to any third party (other than their respective
agents or employees of the Company) regarding this Agreement, the Merger or the
other transactions contemplated hereby, including, if applicable, the
termination of this Agreement and the reasons therefor, without the written
consent of the other party hereto, subject to Parent’s obligation to comply with
applicable laws and the rules and regulations of the Nasdaq Stock Market and the
Company’s obligation to comply with applicable laws.
     6.7 Employment Arrangements. Parent may offer certain persons who are
employees of the Company immediately prior to the Closing Date “at-will”
employment by Parent or the Surviving Corporation, to be effective as of the
Closing Date, upon proof of citizenship or appropriate employment authorization
from the U.S. Immigration and Naturalization Service or the United States
Department of State evidencing a right to work in the United States. Such
“at-will” employment arrangements will (i) be set forth in offer letters based
on Parent’s standard form (each, an “Offer Letter”), (ii) be subject to and in
compliance with Parent’s applicable human resources policies and procedures,
(iii) have terms, including the position and salary of such employee, which will
be determined by Parent, and (iv) supersede any prior employment agreements and
other arrangements with such employee in effect prior to the Closing Date. Each
employee of the Company who remains an employee of Parent or the Surviving
Corporation after the Closing Date shall be referred to hereafter as a
“Continuing Employee.” Continuing Employees shall be eligible to receive
benefits, including, if applicable, eligibility for participation in stock
option plans, bonus plans and 401(k) plans, consistent with Parent’s applicable
human resources policies and subject to Section 6.9.
     6.8 Employee Plans. The Company and its Affiliates, as applicable, shall
each terminate, effective as of the day immediately preceding the Closing Date,
unless Parent provides notice to the Company prior to such time that such
termination is not necessary: (i) any and all group severance, separation or
salary continuation plans, programs, or

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arrangements, and (ii) any and all 401(k) plans. Parent shall receive from the
Company evidence that the Company’s and each of its Affiliate’s, as applicable,
plan(s) and/or program(s) have been terminated pursuant to resolutions of each
such entity’s Board of Directors (the form and substance of such resolutions
shall be subject to review and approval of Parent), effective no later than the
day immediately preceding the Closing Date. The Company also shall take such
other actions in furtherance of terminating such plans, policies and
arrangements as Parent may reasonably require. With respect to each benefit
plan, program, practice, policy or arrangement maintained by Parent or a
subsidiary of Parent in which employees of the Company subsequently participate
(the “Parent Plans”), for purposes of determining eligibility and vesting (but
not for accrual of pension benefits), service with the Company (or predecessor
employers to the extent the Company provides past service credit under
applicable Company Employee Plans) shall be treated as service with Parent;
provided, that such service shall not be recognized to the extent that such
recognition would result in a duplication of benefits or to the extent that such
service was not recognized under the applicable Company Employee Plan. In the
event that distribution or rollover of assets from the trust of a 401(k) plan
which is terminated is reasonably anticipated to trigger liquidation charges,
surrender charges, or other fees to be imposed upon the account of any
participant or beneficiary of such terminated plan or upon the Company or the
plan sponsor, then the Company shall take such actions as are necessary to
reasonably estimate the amount of such charges and/or fees and provide such
estimate to Parent in the Signing Balance Sheet.
     6.9 Proprietary Information and Inventions Assignment Agreement. The
Company will use its commercially reasonable efforts to cause each employee and
contractor of the Company not already a party to a proprietary information and
inventions assignment agreement with the Company to enter into and execute such
agreement in a form reasonably satisfactory to Parent.
     6.10 Spreadsheet. At the Closing, the Company shall deliver to Parent a
spreadsheet (the “Spreadsheet”), which spreadsheet shall be certified as
complete and correct by the Chief Executive Officer of the Company as of the
Closing and which shall separately list, as of the Closing, (a) all record
holders of Company Capital Stock and their respective addresses, the number of
shares of Company Capital Stock held of record by each such holder, and the
amount of cash to be deposited into the Closing Escrow Fund and Contingent
Payment Escrow Fund, as applicable, on behalf of such holder and (b) all holders
of outstanding options to purchase shares of Company Common Stock with their
respective addresses and, for each such option, the number of shares of Company
Common Stock for which such option is exercisable, the strike price, whether the
option is intended to be an Incentive Stock Option (as defined in Section 422 of
the Code), the grant date and the vesting schedule, including a description of
any acceleration or early-exercise provisions.
     6.11 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties incurred by a party in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the

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obligation of the respective party incurring such fees and expenses; provided,
however, that in the event the Merger is consummated, the Stockholders shall pay
all out-of-pocket expenses incurred by the Company in connection with the
contemplated transaction, including, without limitation all attorney and
accountant fees (with such payment being made at the Closing by way of a
reduction to the Equity Value).
ARTICLE 7
CONDITIONS TO THE MERGER
     7.1 Conditions to Obligations of Each Party. The respective obligations of
the Company and the Principal Stockholders and of Parent and Merger Sub to
effect the Merger shall be subject to the satisfaction, at or prior to the
Effective Time, of the following conditions:
          (a) No Orders. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting the consummation of the Merger or any other transaction
contemplated hereby.
          (b) No Injunctions. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other similar legal restraint shall be in effect that has the
effect of prohibiting the consummation of the Merger or any other transaction
contemplated hereby.
          (c) Governmental Approvals. Parent and the Company shall have obtained
all consents and approvals from any Governmental Authority that are necessary to
consummate the Merger and the other transactions contemplated hereby.
          (d) Requisite Stockholder Approval. The Company shall have obtained
the Requisite Stockholder Approval and such Requisite Stockholder Approval shall
not have been rescinded, revoked or otherwise repudiated.
          (e) Legal Proceedings. No Governmental Authority shall have commenced,
or notified either Parent or the Company or any of their respective
representatives that such Governmental Authority intends to commence,
proceedings to restrain, prohibit, condition, rescind or take any substantially
similar action with respect to any of the transactions contemplated by this
Agreement or any of the Ancillary Agreements, unless such Governmental Authority
shall have withdrawn such notice and abandoned all such proceedings.
     7.2 Conditions to the Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to consummate the Merger and the other transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by Parent and Merger Sub:

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          (a) Covenants. The Company and the Principal Stockholders shall have
performed and complied in all material respects with all material covenants and
obligations under this Agreement required to be performed and complied with by
such parties as of the Closing.
          (b) No Company Material Adverse Change. Since the Signing Date, there
shall not have occurred any event or condition of any kind or character that has
had, or is reasonably likely to have, a Company Material Adverse Change. For
purposes of this Section 7.2(b), “Company Material Adverse Change” shall mean a
material adverse change in the business, capitalization, assets (including
intangible assets), liabilities, financial condition or results of operations of
Company, taken as a whole; provided, however, that none of the following
(individually or in combination) shall be deemed to constitute, or shall be
taken into account in determining whether there has been, a Company Material
Adverse Change: (a) any adverse effect to the extent resulting from general
business or economic conditions; (b) any adverse effect to the extent resulting
from conditions generally affecting any industry or industry sector in which the
Company operates or competes; (c) any adverse effect to the extent resulting
from the announcement, execution or delivery of this Agreement or the pendency
or consummation of the Merger; (d) any adverse effect to the extent resulting
from any change in accounting requirements or principles or any change in
applicable laws, rules or regulations or the interpretation thereof; or (e) any
adverse effect to the extent resulting from (i) any action taken by the Company
at Parent’s direction, (ii) the failure to take any action referred to in
Section 5.1 that was not taken by the Company because Parent unreasonably
withheld or delayed its consent, or (iii) the payment of any amounts due to, or
the provision of any other benefits to, any Persons or entities pursuant to the
Company’s obligations under Contracts in existence as of the date of this
Agreement and disclosed in the Disclosure Schedule.
          (c) Representations and Warranties. The representations and warranties
of the Company and the Principal Stockholders shall be true and correct as of
the Closing in all material respects (without regard to any materiality
qualifications contained therein).
          (d) Certificate of the Company. Parent shall have received a
certificate of the Company, executed by the Chief Executive Officer of the
Company, certifying as to the matters set forth in Section 7.2(a), (b) and (c)
hereof, which certificate will include a reaffirmation of the representations
and warranties of the Company set forth in this Agreement and the Ancillary
Agreements as of the Effective Time.
          (e) Certificate of the Principal Stockholders. Parent shall have
received a certificate of each of the Principal Stockholders, executed by the
Chief Executive Officer of the Company, certifying as to the matters set forth
in Section 7.2(a) and Section 7.2(b) hereof.
          (f) Good Standing Certificates. Parent shall have received good
standing certificates with respect to the Company issued by the Secretaries of
State of the States of California and Delaware and a tax good standing
certificate with respect to the

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Company issued by the California Franchise Tax Board, each dated within two days
prior to the Closing.
          (g) Legal Opinion. Parent shall have received a legal opinion from
Montgomery Law Group, LLP, legal counsel to the Company, as to the matters set
forth in Exhibit D.
          (h) Ancillary Agreements. Each Ancillary Agreement shall be in full
force and effect and none of the parties thereto (other than Parent or Merger
Sub and, in the case of the Escrow Agreement and Contingent Payment Escrow
Agreement, the Escrow Agent) shall have taken any action to rescind, revoke or
otherwise repudiate such party’s Ancillary Agreement(s).
          (i) FIRPTA Certificate. Parent shall have received a certificate, in a
form reasonably acceptable to Parent, for purposes of satisfying Parent’s
obligations under Treasury Regulation Section 1.1445-2(c)(3), validly executed
by the Chief Executive Officer of the Company.
          (j) Company Stockholder Approval. The Company shall have obtained the
Requisite Stockholder Approval and such Requisite Stockholder Approval shall not
have been rescinded, revoked or otherwise repudiated.
          (k) Employment Matters. Effective as of the Closing Date, each of the
Employees of the Company listed on Schedule 7.2(k) of the Disclosure Schedule
(the “Identified Individuals”) shall have accepted and not rescinded Parent’s
offer of employment and shall have executed and delivered to Parent the
Employment Agreement and Non-Compete Agreement, which Agreement shall be in full
force and effect from the Closing Date.
     7.3 Conditions to Obligations of the Company and the Principal
Stockholders. In addition to the conditions set forth in Section 8.1, the
obligations of the Company and each of the Principal Stockholders to consummate
the Merger and the other transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective Time of the following condition,
which may be waived, in writing, exclusively by the Company and the Principal
Stockholders:
          (a) Covenants. Each of Parent and Merger Sub shall have performed and
complied in all material respects with all material covenants and obligations
under this Agreement required to be performed and complied with by it as of the
Closing.
          (b) Representations and Warranties. The representations and warranties
of the Company and the Principal Stockholders shall be true and correct as of
the Closing in all material respects (without regard to any materiality
qualifications contained therein).
          (c) Certificate of Parent. The Company shall have received a
certificate of Parent, executed by a duly authorized officer of Parent,
certifying as to the matters set forth in Sections 7.3(a) and (b) hereof.

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ARTICLE 8
SURVIVAL AND INDEMNIFICATION
     8.1 Survival of Representations, Warranties and Covenants. The
representations, warranties, covenants and obligations of the Company and the
Principal Stockholders and of Parent and Merger Sub set forth in this Agreement,
any certificate or other instrument delivered pursuant hereto, or any Ancillary
Agreement, shall survive for a period of twelve (12) months following the
Closing Date (the “Termination Date”); provided, however, that any such
covenants and obligations of Parent or Merger Sub that pursuant to their terms
continue beyond the Termination Date shall survive the Closing in accordance
with their terms. If a Notice of Claim has been delivered in compliance with
this Article 8 prior to the Termination Date, then such representations,
warranties, covenants and obligations, as the case may be, shall survive as to
such claim until the claim has been finally resolved.
     8.2 Indemnification.
          (a) Parent and its Affiliates, including the Surviving Corporation,
and their respective officers, directors, employees, agents, successors and
assigns (each, a “Parent Indemnified Party” and collectively, the “Parent
Indemnified Parties”), shall, subject to Section 8.3, be held harmless against
all Losses incurred or sustained by the Parent Indemnified Parties, or any of
them, directly or indirectly, as a result of, arising out of or relating to
(i) any breach of a representation or warranty of the Company or the Principal
Stockholders set forth in this Agreement or in any certificate or instrument
delivered in connection herewith (including, without limitation, the Signing
Balance Sheet and the Spreadsheet) or in any Ancillary Agreement, (ii) any
failure by the Company or the Principal Stockholders to perform or comply with
any covenant applicable to it contained in this Agreement or in any Ancillary
Agreement, (iii) any fraud or (iv) any amount payable (and not paid) from the
Closing Escrow Fund as described in Section 2.8(c) (Dissenting Shares) or
Section 2.7(c) (Cash Balance). There shall not exist any right of contribution
from the Surviving Corporation or Parent with respect to any Loss for which
indemnity may be claimed hereunder.
          (b) Each Stockholder and each Stockholder’s Affiliates, officers,
directors, employees, agents, successors and assigns, as applicable (each, a
“Company Indemnified Party” and collectively, the “Company Indemnified
Parties”), shall, subject to Section 8.3, be held harmless by Parent against all
Losses incurred or sustained by the Company Indemnified Parties, or any of them,
directly or indirectly, as a result of or arising out of (i) any breach of a
representation or warranty of the Parent or Merger Sub set forth in this
Agreement or in any certificate or instrument delivered in connection herewith
or in any Ancillary Agreement or (ii) any failure by Parent or Merger Sub to
perform or comply with any covenant applicable to it contained in this Agreement
or in any Ancillary Agreement.
     8.3 Limitations on Indemnification

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          (a) Notwithstanding Section 8.2, no Parent Indemnified Party or
Company Indemnified Party may recover pursuant to the indemnity set forth in
Section 8.2 unless and until Losses in excess of $50,000 in the aggregate (the
“Deductible Amount”) has or have been incurred, after which case such Person
shall be entitled to recover pursuant to the indemnity set forth in Section 8.2
only with respect to any such Losses in excess of the Deductible Amount;
provided, however, that the limitations set forth in this Section 8.3(a) shall
not apply to (i) any claim against the Closing Escrow Fund based on fraud or
(ii) any claim described in Section 2.7(c).
          (b) Claims for indemnification against the Closing Escrow Fund shall
be the sole and exclusive remedy for the Parent Indemnified Parties with respect
to claims resulting from or relating to any of the matters set forth in
Section 8.2(a)(i), (ii), or (iv).
          (c) Nothing in this Agreement shall limit the liability of any Person
in respect of any fraud committed by such Person; provided, however, that no
Person shall be liable for any fraud committed by any other Person, except, in
the case of a claim for indemnification brought pursuant to Section 8.2(a)(iii)
above, to the extent of such Person’s beneficial interest in the Closing Escrow
Fund.
          (d) The maximum aggregate amount that all Company Indemnified Parties
shall be eligible to recover pursuant to the indemnity set forth in
Section 8.2(b) shall be equal to the amount initially deposited by Parent into
the Closing Escrow Fund (subject to any adjustment made pursuant to
Section 2.7(c)).
     8.4 Notice of Claim.
          (a) As used herein, the term “Claim” shall mean a claim for
indemnification under this Article 8, “Indemnified Party” shall mean any Parent
Indemnified Party or Company Indemnified Party making a claim for
indemnification pursuant to Sections 8.2(a) or 8.2(b) respectively, and
“Indemnifying Party” shall mean the Closing Escrow Fund, in the case of a claim
brought pursuant to Sections 8.2(a), or Parent, in the case of a claim brought
pursuant to Section 8.2(b). Subject to the terms of this Agreement, the
Indemnified Party shall give written notice of a Claim (a “Notice of Claim”) to
the Indemnifying Party (with a copy to the Escrow Agent and the Stockholder
Representative) promptly after such Indemnified Party becomes aware of the
existence of any potential claim by such Indemnified Party for indemnification
from the Indemnifying Party under this Article 8; provided, however, no Notice
of Claim shall be required in connection with any dispute relating to the
determination of Cash Balance, which disputes shall be governed by the
procedures set forth in Section 2.7.
          (b) Each Notice of Claim by an Indemnified Party given pursuant to
Section 8.4(a) shall contain the following information: (i) that such
Indemnified Party has directly or indirectly incurred, paid or properly accrued,
or sustained or, in good faith, believes it is reasonably likely that it shall
have to directly or indirectly incur or sustain, Losses in an aggregate stated
amount arising from such Claim (which amount may be the amount of damages
claimed by a third party in an action brought against such

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Indemnified Party based on alleged facts, which if true, would give rise to
liability for Losses indemnifiable to such Indemnified Party under this Article
8); and (ii) a brief description, in reasonable detail (to the extent reasonably
available to such Indemnified Party), of the facts, circumstances or events
giving rise to the alleged Losses based on such Indemnified Party’s good faith
belief thereof, including the identity and address of any third-party claimant
(to the extent reasonably available to such Indemnified Party) and copies of any
formal demand or complaint, the amount of Losses, the date each such item was
incurred, paid or properly accrued, or sustained, or the basis for such
anticipated liability, and the specific nature of the breach to which such item
is related.
          (c) An Indemnified Party may submit a Notice of Claim at any time
during the period commencing with the Effective Time and ending on the
Termination Date, but shall not be permitted to bring a Notice of Claim at any
time after the Termination Date (and any delivery or attempted delivery of a
Notice of Claim after such time shall be void and of no force or effect).
Notwithstanding anything contained herein to the contrary, any Claims for Losses
specified in any Notice of Claim delivered to an Indemnifying Party prior to
expiration of the Termination Date shall remain outstanding until such Claims
for Losses have been resolved or satisfied, notwithstanding the passage of the
Termination Date. Until the Termination Date, no delay on the part of an
Indemnified Party in giving the Indemnifying Party a Notice of Claim shall
relieve the Indemnifying Party from any of its obligations under this Article 8
unless (and then only to the extent that) the Indemnifying Party is materially
prejudiced thereby.
     8.5 Resolution of Notice of Claim. Each Notice of Claim given by an
Indemnified Party shall be resolved as follows:
          (a) If, within twenty (20) days after a Notice of Claim is received by
the Indemnifying Party, the Indemnifying Party (or, in the case of the Closing
Escrow Fund, the Stockholder Representative) does not contest such Notice of
Claim in writing to the Indemnified Party delivering such Notice of Claim, the
Indemnifying Party shall be conclusively deemed to have consented to the
recovery by the Indemnified Party of the full amount of Losses specified in the
Notice of Claim in accordance with this Article 8. Such recovery shall be
limited, in the case of claims brought pursuant to Section 8.2(a), to the
forfeiture of that portion of the Closing Escrow Fund having an aggregate value
equal to such Losses. In the case of claims brought pursuant to Section8.2(b),
such recovery shall be by payment of additional cash equal to the value of such
Losses to the Stockholders in proportion to their respective Pro Rata Share of
the remaining portion of the Closing Escrow Fund. Notwithstanding anything in
this Section 8.5(a) to the contrary, where the basis for a claim against an
Indemnifying Party is that an Indemnified Party has become aware of the
existence of a potential claim and reasonably anticipates that it will incur or
sustain Losses, no payment or distribution will be made to such Indemnified
Party for such Losses unless and until such Losses are actually incurred, or
properly accrued or sustained.
          (b) If the Indemnifying Party (or, in the case of the Closing Escrow
Fund, the Stockholder Representative) gives the Indemnified Party delivering a
Notice of Claim written notice contesting all or any portion of such Notice of
Claim (a “Contested

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Claim”) (with a copy to the Escrow Agent) within the twenty (20) day period
specified in Section 8.5(a), then such Contested Claim shall be resolved by
either (i) a written settlement agreement executed by Parent and the Stockholder
Representative (a copy of which shall be furnished to the Escrow Agent, if
applicable) or (ii) in the absence of such a written settlement agreement within
forty-five (45) days following receipt by the Indemnified Party of the written
notice from the Indemnifying Party (or, in the case of the Closing Escrow Fund,
the Stockholder Representative), by arbitration between Parent and the
Stockholder Representative in accordance with the terms and provisions of
Section 8.5(c). In the event that an Indemnified Party shall prevail in any such
arbitration, the Indemnified Party shall be entitled to recover, in addition to
any other rights they may have, the amount of Losses awarded in such
arbitration. The prevailing party’s recovery shall be limited, in the case of
claims brought pursuant to Section 8.2(a), to the forfeiture of that portion of
the Closing Escrow Fund having an aggregate value equal to such awarded Losses.
In the case of claims brought pursuant to Section 8.2(b), such recovery shall be
by payment of additional cash equal to the value of such awarded Losses to the
Stockholders in proportion to their respective Pro Rata Share of the remaining
portion of the Closing Escrow Fund.
          (c) Arbitration.
               (i) Contested Claims under Section 8.5(c)(ii) and disputes
pursuant to Section 8.10 shall be submitted for arbitration, unless the amount
of the Losses is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator mutually agreeable to Parent
and the Stockholder Representative. In the event that within thirty (30) days
after submission of any dispute to arbitration, Parent and the Stockholder
Representative (or, in the case of a dispute under Section 8.10, the Key
Employee Stockholder) cannot mutually agree on one arbitrator, the matter shall
be settled by arbitration conducted by three arbitrators consisting of one
arbitrator selected by Parent, one arbitrator selected by the Stockholder
Representative (or Key Employee Stockholder), and one arbitrator selected by the
two arbitrators so selected by Parent and the Stockholder Representative (or Key
Employee Stockholder). The arbitrator or arbitrators, as the case may be, shall
set a limited time period and establish procedures designed to reduce the cost
and time for discovery while allowing the parties an opportunity, adequate in
the sole judgment of the arbitrator or majority of the three arbitrators, as the
case may be, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrator or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys’
fees and costs, to the same extent as a competent court of law or equity, should
the arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any Contested Claim or the
characterization of any termination of a Key Employee Stockholder shall be
binding and conclusive upon the parties to this Agreement. Such decision shall
be written and shall be supported by

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written findings of fact and conclusions, which shall set forth the award,
judgment, decree or order awarded by the arbitrator(s).
               (ii) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be held in
the County of Santa Clara, under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
     8.6 Release of Closing Escrow Fund. Subject to the provisions of
Section 8.1, the Closing Escrow Fund then held by the Escrow Agent shall be
released by the Escrow Agent to the Stockholders at 5:00 p.m., local time at
Parent’s headquarters, on the Termination Date; provided, however, that the
escrow period shall not terminate with respect to any amount which, in the
reasonable judgment of Parent, is necessary to satisfy any unsatisfied claims
specified in any Notice of Claim theretofore delivered to the Escrow Agent and,
in the case of claims made pursuant to Section 8.2(a), the Stockholder
Representative, prior to the Termination Date with respect to facts and
circumstances existing prior to the Termination Date and unresolved prior to the
Termination Date (“Unresolved Claims”). On the Termination Date, the Escrow
Agent shall deliver the entire remaining portion of the Closing Escrow Fund
(other than amounts set forth in any such pending Notices of Claim to satisfy
any Unresolved Claims), as described above, in the following manner: (i) first,
to the Stockholder Representative for any Stockholder Representative Expenses
(as defined in Section 8.8(b)), and (ii) then to the Stockholders in proportion
to their respective Pro Rata Portions of the remaining portion of the Closing
Escrow Fund. Thereafter, as soon as any such Unresolved Claims have been
resolved, the Escrow Agent shall deliver the remaining portion of the Closing
Escrow Fund, if any, no longer required to satisfy such previously Unresolved
Claims in the manner set forth in the preceding sentence.
     8.7 Third-Party Claims. In the event Parent becomes aware of a third party
claim (a “Third Party Claim”) which Parent reasonably believes may result in a
demand for indemnification pursuant to this Article 8, Parent shall notify the
Stockholder Representative of such claim, and the Stockholder Representative
shall be entitled on behalf of the Indemnifying Parties, at its expense, to
participate in, but not to determine or conduct, the defense of such Third Party
Claim. Parent shall have the right in its sole discretion to conduct the defense
of, and to settle, any such Third Party Claim; provided, however, that except
with the prior written consent of such settlement by the Stockholder
Representative (which consent shall not be unreasonably withheld or delayed), no
settlement of any such Third Party Claim with third party claimants shall be
determinative of the amount of Losses relating to such matter. In the event that
the Stockholder Representative has consented to any such settlement, the
Indemnifying Parties shall have no power or authority to object under any
provision of this Article 8 to the amount of any Third Party Claim by Parent
against the Closing Escrow Fund with respect to such settlement.
     8.8 Stockholder Representative.

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          (a) The approval by the Stockholders of the principal terms of the
Merger shall automatically and without any further action on the part of any
Stockholder constitute the appointment of the Stockholder Representative as the
agent and attorney-in-fact for each of the Stockholders, to give and receive
notices and communications, to authorize payment to any Indemnified Party from
the Closing Escrow Fund in satisfaction of claims by any Indemnified Party, to
object to such payments, to bring any claim for indemnification on behalf of any
Company Indemnified Party, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, to assert, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to, any other claim by
any Indemnified Party against any Stockholder or by any such Stockholder against
any Indemnified Party or any dispute between any Indemnified Party and any such
Stockholder, in each case relating to this Agreement or the transactions
contemplated hereby, and to take all other actions that are either (i) necessary
or appropriate in the judgment of the Stockholder Representative for the
accomplishment of the foregoing or (ii) specifically mandated by the terms of
this Agreement. Such agency may be changed by the Stockholders from time to time
upon not less than thirty (30) days’ prior written notice to Parent; provided,
however, that the Stockholder Representative may not be removed unless holders
of a majority in interest of the Closing Escrow Fund agree to such removal and
to the identity of the substituted agent. A vacancy in the position of
Stockholder Representative may be filled by the holders of a majority in
interest of the Closing Escrow Fund. No bond shall be required of the
Stockholder Representative, and the Stockholder Representative shall not receive
any compensation for its services. Notices or communications to or from the
Stockholder Representative shall constitute notice to or from the Stockholders
          (b) The Stockholder Representative shall not be liable for any act
done or omitted hereunder as Stockholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Stockholders on whose
behalf the Closing Escrow Fund was constituted shall indemnify the Stockholder
Representative and hold the Stockholder Representative harmless against any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Stockholder Representative and arising out of or in connection with
the acceptance or administration of the Stockholder Representative’s duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Stockholder Representative (“Stockholder Representative
Expenses”). Promptly after the Termination Date, and subject to Section 8.6, any
cash or other property that remains available in the Closing Escrow Fund shall
constitute security for the indemnification obligations set forth in the
immediately preceding sentence and shall be released to the Stockholder
Representative upon delivery by the Stockholder Representative to Parent and the
Escrow Agent prior to the Termination Date of a certificate signed by the
Stockholder Representative (i) stating that the Stockholder Representative is
entitled to such indemnity payment, (ii) specifying in reasonable detail the
basis of such claim, and (iii) accompanied by any additional documentation
evidencing the validity of the Stockholder Representative Expenses reasonably
requested by the Escrow Agent, Parent or any holder of Company Capital Stock. A
decision, act, consent or instruction of the Stockholder Representative shall
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Stockholders and shall be final, binding and conclusive upon the Stockholders,
and the Escrow Agent and Parent may rely upon any such decision, act, consent or
instruction of the Stockholder Representative as being the decision, act,
consent or instruction of the Stockholders. The Escrow Agent and Parent are
hereby relieved from any liability to any Person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholder
Representative.
     8.9 Contingent Payment Escrow Fund. Each Stockholder that is a holder of
shares of Unvested Common Stock (a “Key Employee Stockholder”) shall become a
party to the Contingent Payment Escrow Agreement. Pursuant to such Contingent
Payment Escrow Agreement, such Key Employee Stockholder shall be entitled, in
consideration of cancellation of all shares of Unvested Common Stock, to
contingent payments in an amount and upon such dates as specified in such
agreement (the “Payment Schedule”). In the event such Key Employee Stockholder
ceases to be an employee or consultant (a “Service Provider”) to the Parent for
any reason other than as a result of a termination for Cause (as such term is
defined in such Stockholder’s Employment Agreement, each dated as of the
Effective Date) (a “Termination for Convenience”), the Escrow Agent shall
deliver to such Stockholder that portion of the Contingent Payment Escrow Fund
equal to any and all amounts that remain payable to such Stockholder pursuant to
the Payment Schedule. In the event the Company terminates such Key Employee
Stockholder’s status as a Service Provider for Cause or the Key Employee
Stockholder resigns as a Service Provider other than for Good Reason (as such
term is defined in such Key Employee Stockholder’s Employment Agreement), the
Escrow Agent shall deliver to Parent that portion of the Contingent Payment
Escrow Fund equal to any and all amounts that remain payable to such Key
Employee Stockholder pursuant to the Payment Schedule (a “Termination Other than
for Convenience”).
     8.10 Notice of Release of Funds.
          (a) Within ten (10) business days of any Stockholder that is a party
to the Contingent Payment Escrow Agreement ceasing to be a Service Provider, the
Parent shall deliver to the Escrow Agent, with a copy to the Key Employee
Stockholder, a notice requesting the release of all funds from the Contingent
Payment Escrow Fund that are being held on behalf of such Key Employee
Stockholder (“Contingent Payment Release Notice”). Such Contingent Payment
Release Notice shall specify whether the termination of services is a
Termination for Convenience or a Termination Other than for Convenience.
          (b) If, within twenty (20) days after a Contingent Payment Release
Notice is received by the Key Employee Stockholder, such Key Employee
Stockholder does not contest such notice in writing to the Parent, with a copy
to the Escrow Agent, the Key Employee Stockholder shall be conclusively deemed
to have consented to characterization of the separation as a Termination for
Convenience or a Termination Other than for Convenience, as applicable. If,
within such twenty (20) day period the Key Employee Stockholder does timely
contest the characterization of such termination

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of services, then the characterization of the termination of service as either a
Termination for Convenience or a Termination Other than for Convenience shall be
resolved by either (i) a written settlement agreement executed by Parent and the
applicable Key Employee Stockholder (a copy of which shall be furnished to the
Escrow Agent, if applicable) or (ii) in the absence of such a written settlement
agreement within forty-five (45) days following receipt by the Key Employee
Stockholder of the written notice from the Parent, by arbitration between Parent
and the Key Employee Stockholder in accordance with the terms and provisions of
Section 8.5(c).
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
     9.1 Termination. Except as provided in Section 9.2, this Agreement may be
terminated and the Merger abandoned at any time prior to the Closing:
          (a) by mutual agreement of Parent and the Company;
          (b) by Parent or the Company, if the Closing Date shall not have
occurred by December 9, 2005; provided, however, that the right to terminate
this Agreement under this Section 9.1(b) shall not be available to any party
whose action or failure to act has been a principal cause of, or resulted in,
the failure of the Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
          (c) by Parent or the Company, if the Requisite Stockholder Approval
has not been obtained by written consent of the Company Stockholders or at a
meeting of the Company’s Stockholders duly called and held in accordance with
the Company’s Certificate of Incorporation, or any postponement or adjournment
thereof; provided, however, that the right to terminate this Agreement under
this Section 9.1(c) shall not be available to any party whose action or failure
to act has been a principal cause of, or resulted in, the failure to obtain the
Requisite Stockholder Approval at a meeting of the Company’s Stockholders and
such action or failure to act constitutes a breach of this Agreement;
          (d) by Parent or the Company, if (i) a court of competent jurisdiction
or other Governmental Authority shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger or any
other material transaction contemplated by this Agreement, or (ii) any statute,
rule, regulation or order is enacted, promulgated or issued by any Governmental
Authority that would make consummation of the Merger illegal;
          (e) by Parent, if (i) it is not in material breach of its obligations
under this Agreement and (ii) there has been a breach of any representation,
warranty, covenant or agreement of the Company or the Principal Stockholders
contained in this Agreement

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such that the conditions set forth in Section 7.2(a) or Section 7.2(b) would not
be satisfied at the time of such breach and such breach has not been cured
within ten (10) business days after written notice thereof to the Company or the
applicable Principal Stockholder; provided, however, that no cure period shall
be required for a breach which by its nature cannot be cured;
          (f) by Parent, if the Board of Directors of the Company shall
withhold, withdraw, change or otherwise modify in a manner adverse to Parent its
unanimous recommendation that the Stockholders adopt this Agreement and approve
the Merger;
          (g) by Parent, if Parent’s review of the Signing Balance Sheet, to be
completed no more than three business days after the Signing Date, reveals that
Company’s financial position is materially weaker than previously disclosed; or
          (h) by the Company, if (i) none of the Company or the Principal
Stockholders is in material breach of its obligations under this Agreement and
(ii) there has been a breach of any representation, warranty, covenant or
agreement contained in this Agreement such that the conditions set forth in
Section 7.3(a) or Section 7.3(b) would not be satisfied and such breach has not
been cured within ten (10) business days after written notice thereof to Parent;
provided, however, that no cure period shall be required for a breach which by
its nature cannot be cured.
          (i) by Parent, upon payment of the Breakup Fee.
     9.2 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub, the
Company or the Principal Stockholders, or their respective officers, directors
or shareholders, if applicable; provided, however, that (i) each party hereto
shall remain liable for any breaches of this Agreement prior to its termination;
(ii) the provisions of Section 6.5 (Confidentiality), Section 6.6 (Public
Disclosure) and Section 6.11 (Expenses), Article 10 (General Provisions) and
this Section 9.2 shall remain in full force and effect and survive any
termination of this Agreement pursuant to the terms of this Article 9; and
(iii) in the event of a termination of this Agreement by Parent or Company (for
purposes of this clause, the “Terminating Party”) pursuant to either
Section 9.1(e) or 9.1(h), respectively, the other party shall within ten
(10) days following the date of such termination reimburse the Terminating Party
for the Terminating Party’s reasonable expenses (including reasonable attorneys’
and accountants’ fees and expenses) incurred in connection with the transactions
contemplated herein.
     9.3 Amendment. The parties hereto may amend this Agreement at any time
solely by executing an instrument in writing signed on behalf of the party
against whom enforcement is sought.
     9.4 Extension and Waiver. At any time prior to the Closing, Parent, the
Company and the Principal Stockholders may, to the extent legally permitted,
(i) extend

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the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE 10
GENERAL PROVISIONS
     10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:

  (a)   if to Parent, Merger Sub or Surviving Corporation to:

     SonicWALL, Inc.
     1143 Borregas Avenue
     Sunnyvale, CA 94089-1306
     Attention: Legal Department
     Telephone No.: (408) 745-9600
     Facsimile No.: (408) 745-9300
with a copy to:
     Wilson Sonsini Goodrich & Rosati
     Professional Corporation
     650 Page Mill Road
     Palo Alto, CA 94304
     Attention: Page Mailliard, Esq.
     Telephone No.: (650) 320-4644
     Facsimile No.: (650) 493-6811

  (b)   if to the Company, to:

     Lasso Logic, Inc.
     118 Second Street, 4th Floor
     San Francisco, CA 94105
     Attention: Legal Department
     Telephone No.: (415) 357-9688
     Facsimile No.: (415) 358-8679

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with a copy to:
     Montgomery Law Group, LLP
     525 Middlefield Road, Suite 250
     Menlo Park, CA 94025
     Attention: John Montgomery, Esq.
     Telephone No.: (650) 331-7002
     Facsimile No.: (650) 331-7001

  (c)   If to the Stockholder Representative, to:

     Steven Goodman
     2670 Chestnut Street
     San Francisco, CA 94123
          (d) If to a Principal Stockholder, to the address set forth opposite
his, her or its name in the Spreadsheet delivered to Parent at the Closing Date
or to any new address delivered by such Principal Stockholder to Parent.
     10.2 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
     10.3 Entire Agreement. This Agreement, the Exhibits hereto, the Disclosure
Schedule, the Confidential Disclosure Agreement, and the documents and
instruments and other agreements among the parties hereto referenced herein
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both written
and oral, among the parties with respect to the subject matter hereof.
     10.4 Third Party Beneficiaries. No provisions of this Agreement are
intended, nor shall be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any client, customer,
employee, affiliate, shareholder, partner or any party hereto or any other
Person unless specifically provided otherwise herein and, except as so provided,
all provisions hereof shall be personal solely between the parties to this
Agreement except that Article 2 is intended to benefit the Stockholders and
Sections 8.1 and 8.2 are intended to benefit the Stockholders and the other
Persons described therein.
     10.5 Assignment. This Agreement shall not be assigned by operation of law
or otherwise, except that Parent may assign its rights and delegate its
obligations hereunder to an Affiliate controlled by Parent as long as Parent
remains ultimately liable for all of Parent’s obligations hereunder.
     10.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be

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illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other Persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto.
     10.7 Other Remedies. Any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
     10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the jurisdiction and venue of
any court within Santa Clara County, State of California, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by
the laws of the State of California for such Persons and waives and covenants
not to assert or plead any objection which they might otherwise have to such
jurisdiction, venue and such process.
     10.9 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
     10.10 Specific Performance. The parties hereto agree that irreparable
damage would occur if any provision of this Agreement were not performed in
accordance with the terms hereof and that the parties shall be entitled to seek
an injunction or injunctions to prevent breaches of this Agreement, in addition
to any other remedy to which they are entitled at law or in equity.
[Remainder of page intentionally left blank.]

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CONFIDENTIAL
     IN WITNESS WHEREOF, Parent, Merger Sub, the Company, each Principal
Stockholder and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.

                  SONICWALL, INC.    
 
           
 
  By:        
 
                Name: Matthew Medeiros         Title: President and CEO    
 
                SPECTRUM ACQUISITION CORPORATION    
 
           
 
  By:        
 
                Name: Matthew Medeiros         Title: President and CEO    

SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

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     IN WITNESS WHEREOF, Parent, Merger Sub, the Company, each Principal
Stockholder and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.

                  LASSO LOGIC, INC.    
 
           
 
  By:        
 
                Name: Steven Goodman         Title: Chief Executive Officer    

SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

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     IN WITNESS WHEREOF, Parent, Merger Sub, the Company, each Principal
Stockholder and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.

         
 
  STOCKHOLDER REPRESENTATIVE    
 
       
 
       
 
  Steven Goodman    

SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

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     IN WITNESS WHEREOF, Parent, Merger Sub, the Company, each Principal
Stockholder and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.

         
 
  PRINCIPAL STOCKHOLDERS:    
 
       
 
       
 
  Steven Goodman    
 
       
 
       
 
  Sal Sferlazza    

SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION