Exhibit 10.1

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

GREEN MOUNTAIN COFFEE ROASTERS, INC.,

KARMA MERGER SUB, INC.

KEURIG, INCORPORATED

AND

THE SECURITYHOLDER REPRESENTATIVE, IN SUCH

CAPACITY, NAMED HEREIN

Dated as of May 2, 2006

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TABLE OF CONTENTS

 

ARTICLE I THE MERGER

   1    1.1    The Merger    1    1.2    Effective Time; Closing    1    1.3   
Effect of the Merger    2    1.4    Certificate of Incorporation and Bylaws    2
   1.5    Directors and Officers    2    1.6    Conversion of Securities    3   
1.7    Surrender of Certificates.    8    1.8    No Further Ownership Rights in
Company Stock    10    1.9    Lost, Stolen or Destroyed Certificates    10   
1.10    Payment at Closing of Unpaid Company Transaction Expenses and Closing
Date Company Indebtedness    10    1.11    Post-Closing Adjustment of Purchase
Price    11    1.12    Securityholder Representative    13    1.13    Further
Action    16

ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   16    2.1    Organization; Standing and Power; Organizational Documents;
Subsidiaries    16    2.2    Capital Structure    17    2.3    Authority;
Non-Contravention; Necessary Consents.    18    2.4    Financial Statements   
20    2.5    Liabilities; Indebtedness    20    2.6    Absence of Certain
Changes or Events    21    2.7    Taxes.    22    2.8    Intellectual Property
   23    2.9    Compliance; Permits.    26    2.10    Litigation    27    2.11
   Brokers' and Finders' Fees; Fees and Expenses    27    2.12    Employee
Benefit Plans    27    2.13    Title to Properties    29    2.14   
Environmental Matters    29    2.15    Contracts    30    2.16    Disclosure   
32    2.17    Fairness Opinion    32    2.18    Insurance    33    2.19   
Product Liability    33    2.20    Inventories    33    2.21    Affiliate
Transactions    33

ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

   34    3.1    Organization; Standing and Power; Organizational Documents    34
   3.2    Authority; Non-Contravention; Necessary Consents    34    3.3   
Availability of Funds    35    3.4    Disclosure    35

 

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   3.5    Board Approval    36    3.6    Parent Ownership of Company Stock    36

ARTICLE IV CONDUCT BY THE COMPANY PRIOR TO THE EFFECTIVE TIME OF THE MERGER

   36    4.1    Conduct of Business by the Company    36

ARTICLE V ADDITIONAL AGREEMENTS

   39    5.1    Vote of Company Stockholders    39    5.2    Board
Recommendation    40    5.3    Acquisition Proposals    40    5.4   
Confidentiality; Access to Information; No Modification of Representations,
Warranties or Covenants    42    5.5    Public Disclosure    43    5.6   
Regulatory Filings; Reasonable Efforts    43    5.7    Company Stock Options and
Company Warrants    45    5.8    Employee Benefits    47    5.9    Director,
Officer and Employee Liability; Insurance    48    5.10    FIRPTA Compliance   
49    5.11    Merger Sub Compliance    49    5.12    Financing Arrangements   
49    5.13    Escrow Agreement    50    5.14    No Transfers by Parent of
Company Stock    50

ARTICLE VI CONDITIONS TO THE MERGER

   50    6.1    Conditions to the Obligations of Each Party to Effect the Merger
   50    6.2    Additional Conditions to the Obligations of the Company    50   
6.3    Additional Conditions to the Obligations of Parent and Merger Sub    51

ARTICLE VII INDEMNIFICATION

   52    7.1    Survival of Representations and Warranties    52    7.2   
Indemnification by Company Securityholders    52    7.3    Indemnification by
Parent    53    7.4    Indemnification Claims Procedure    53    7.5    Third
Party Claims    54    7.6    Limits on Indemnification    55    7.7    Treatment
of Indemnification Payments to Parent Indemnified Parties    56    7.8    Effect
of Investigation, Disclosure or Knowledge    56    7.9    Escrow Funds and This
Article VII as Sole and Exclusive Remedy; Cap on Parent Indemnification
Obligation for Certain Breaches    56

ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER

   57    8.1    Termination    57    8.2    Notice of Termination; Effect of
Termination    58    8.3    Fees and Expenses    58    8.4    Termination Fee   
59    8.5    Amendment    59    8.6    Extension; Waiver    59

 

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ARTICLE IX GENERAL PROVISIONS

   59    9.1    Notices    59    9.2    Interpretation; Knowledge    61    9.3
   Additional Definitions    61    9.4    Terms Defined Elsewhere    63    9.5
   Counterparts    66    9.6    Entire Agreement; Third-Party Beneficiaries   
66    9.7    Severability    67    9.8    Other Remedies    67    9.9   
Governing Law Jurisdiction    67    9.10    Rules of Construction    67    9.11
   Assignment    67    9.12    No Waiver    68    9.13    Waiver of Jury Trial
   68    9.14    Enforcement    68    9.15    Currency    68    9.16   
Facsimile Signature    68

 

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as
of May 2, 2006, by and among Green Mountain Coffee Roasters, Inc., a Delaware
corporation (“Parent”), Karma Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent (“Merger Sub”), Keurig, Incorporated, a
Delaware corporation (the “Company”), and the Securityholder Representative (as
defined below).

RECITALS

A. The respective boards of directors of each of Parent, Merger Sub and the
Company have deemed it advisable and in the best interests of their respective
corporations and stockholders that the Merger be consummated and have approved
this Agreement and the transactions contemplated hereby, including the Merger
upon the terms and subject to the conditions set forth herein pursuant to the
Delaware General Corporation Law (the “DGCL”).

B. The Board of Directors of the Company has resolved to recommend to its
stockholders approval and adoption of this Agreement.

C. Parent, as the sole stockholder of Merger Sub, has approved and adopted this
Agreement.

D. Parent, Merger Sub and the Company desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.

NOW, THEREFORE, in consideration of the foregoing, and the covenants, promises
and representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. Subject to and upon the terms and conditions of this Agreement
and the applicable provisions of the DGCL, at the Effective Time, (i) Merger Sub
shall be merged with and into the Company (the “Merger”), (ii) the separate
corporate existence of Merger Sub shall cease, and (iii) the Company shall
continue as the surviving corporation (the Company, as the surviving corporation
in the Merger, is sometimes referred to as the “Surviving Corporation”) and
wholly-owned subsidiary of Parent.

1.2 Effective Time; Closing.

(a) As soon as practicable on the Closing Date, and subject to the provisions of
this Agreement, the parties hereto shall cause the Merger to be consummated by
filing a Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the

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relevant provisions of the DGCL (the “Certificate of Merger”) (the time of such
filing with the Secretary of State of the State of Delaware (or such later time
as may be agreed in writing by the Company and Parent and specified in the
Certificate of Merger) being the “Effective Time”) as soon as practicable on or
after the Closing Date.

(b) Subject to the satisfaction or, to the extent permitted by applicable law,
waiver of all the conditions to closing contained in Article VI hereof (other
than such conditions as may, by their terms, only be satisfied at the Closing or
on the Closing Date), the closing of the Merger (the “Closing”) shall take place
at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Beacon Street,
Boston, MA 02108, no later than the third business day after the satisfaction
or, to the extent permitted by applicable law, waiver of the conditions set
forth in Sections 6.1(a) and 6.1(c), but not before June 15, 2006 unless the
parties otherwise agree in writing, or at such other time, date and location as
the parties may agree in writing. The date on which the Closing occurs is
referred to herein as the “Closing Date.”

1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided in this Agreement and the applicable provisions of the DGCL,
including Section 259 thereof. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all of the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all of the debts, liabilities, obligations and
duties of the Company and Merger Sub shall become the debts, liabilities,
obligations and duties of the Surviving Corporation.

1.4 Certificate of Incorporation and Bylaws. At the Effective Time, the
Certificate of Incorporation of the Company shall be amended and restated to be
identical to the Certificate of Incorporation of Merger Sub, and, as so amended
and restated, shall be the Certificate of Incorporation of the Surviving
Corporation until further amended in accordance with the provisions thereof and
applicable law; provided, however, that at the Effective Time, Article I of the
Certificate of Incorporation of the Surviving Corporation shall read as follows:
“The name of the corporation is Keurig, Incorporated.”; provided further, that,
at the Effective Time, the Certificate of Incorporation of the Surviving
Corporation shall comply with Section 5.9. At the Effective Time, the Bylaws of
the Company (the “Bylaws”) shall be amended and restated to be identical to the
bylaws of Merger Sub, and, as so amended and restated, shall be the Bylaws of
the Surviving Corporation until further amended in accordance with the
provisions thereof and applicable law; provided, however, that, at the Effective
Time, the Bylaws of the Surviving Corporation shall comply with Section 5.9.

1.5 Directors and Officers. From and after the Effective Time, the initial
directors of the Surviving Corporation shall be the directors of Merger Sub
serving immediately prior to the Effective Time, until their resignation or
removal or their respective successors are duly elected or appointed and
qualified, as the case may be. The initial officers of the Surviving Corporation
shall be the officers of the Company serving immediately prior to the Effective
Time, until their resignation or removal or their respective successors are duly
appointed.

 

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1.6 Conversion of Securities.

(a) Certain Definitions. The following terms shall have the following
definitions:

“Aggregate Preferred Priority Amount” shall mean the aggregate amount of all
Preferred Per Share Priority Payments.

“Charter” shall mean the Company’s Amended and Restated Certificate of
Incorporation filed with the Secretary of State of the State of Delaware on
February 4, 2002, as amended by a Certificate of Amendment filed with the
Secretary of State of the State of Delaware on October 30, 2003.

“Closing Date Company Indebtedness” shall mean the amount of Company
Indebtedness immediately prior to the Closing, as certified by the Company’s
Chief Financial Officer.

“Closing Date Purchase Price” shall mean an amount equal to the Purchase Price
minus the Escrow Amount.

“Company Common Stock” shall mean shares of Common Stock, par value $0.01 per
share, of the Company.

“Company Indebtedness” shall mean, without double counting, (i) all liabilities
and obligations, contingent or otherwise, of the Company, including, without
limitation, penalties, interest and premiums: (A) in respect of borrowed money,
(B) evidenced by bonds, notes, debentures, or similar instruments, (C) for the
payment of money relating to a capitalized lease obligation, or (D) evidenced by
a letter of credit or a reimbursement obligation of such Person with respect to
any letter of credit (excluding the cash collateralized standby letter of credit
comprising the Company’s security deposit in respect of its headquarters lease);
and (ii) all liabilities and obligations of others of the kind described in the
preceding clause (i) that the Company has guaranteed or which are secured by an
encumbrance on any assets or property of the Company (excluding the Company’s
guarantee of the corporate American Express credit cards provided to certain
Company employees for which the Company guarantees payment on behalf of such
Company employees).

“Company Option” shall mean an option to purchase shares of Company Common Stock
granted under one of the Option Plans.

“Company Preferred Stock” shall mean, collectively, shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock.

“Company Securities” shall mean, collectively, Company Stock (other than Company
Stock held by Parent or Merger Sub), Vested Company Options and Company
Warrants.

“Company Securityholders” shall mean the holders of Company Securities (other
than Parent and Merger Sub) outstanding immediately prior to the Effective Time.

 

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“Company Stock” shall mean, collectively, shares of Company Common Stock and
Company Preferred Stock.

“Company Transaction Expenses” shall mean any and all legal, accounting,
consulting, investment banking, financial advisory and other out-of-pocket fees
and expenses payable by the Company (including amounts payable under the 2006
SMT Cash Bonus Sale Incentive Program described in Section 2.2(b) of the Company
Disclosure Schedule), in each case in connection with this Agreement, the Merger
or any of the transactions contemplated hereby.

“Company Warrants” shall have the meaning set forth in Section 2.2(c).

“Escrow Amount” means $20,000,000.

“Option Plans” shall mean, collectively, the Company’s 2005 Stock Option Plan
and 1995 Stock Option Plan, each as amended.

“Per Share Merger Consideration” shall mean (1) with respect to a share of
Company Common Stock outstanding immediately prior to the Effective Time (other
than shares of Company Common Stock owned by Parent or Merger Sub, or by any
direct or indirect wholly owned Subsidiary of Parent or Merger Sub), an amount
equal to the quotient obtained by dividing (a) the Total Common Consideration by
(b) the sum of (i) the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (excluding shares of Company Common
Stock owned by Parent or Merger Sub, or by any direct or indirect wholly owned
Subsidiary of Parent or Merger Sub) plus (ii) the number of shares of Company
Common Stock subject to Company Options outstanding immediately prior to the
Effective Time plus (iii) the number of shares of Company Common Stock subject
to Company Warrants outstanding immediately prior to the Effective Time plus
(iv) the number of shares of Company Common Stock into which all shares of
Company Preferred Stock outstanding immediately prior to the Effective Time
(excluding shares of Company Preferred Stock owned by Parent or Merger Sub, or
by any direct or indirect wholly owned Subsidiary of Parent or Merger Sub) would
be converted were such shares of Company Preferred Stock converted at such time
into shares of Company Common Stock pursuant to Article Fourth, Subpart I, § 5
of the Charter; and (2) with respect to a share of Company Preferred Stock
outstanding immediately prior to the Effective Time (excluding shares of Company
Preferred Stock owned by Parent or Merger Sub, or by any direct or indirect
wholly owned Subsidiary of Parent or Merger Sub), an amount equal to the
consideration payable in respect of such share of Company Preferred Stock upon
the Merger in accordance with the Charter, which is the sum of (a) the
applicable Preferred Per Share Priority Payment plus (b) the product of (i) the
quotient obtained in (1) above multiplied by (ii) with respect to a share of
Series A Preferred Stock, 1.00, with respect to a share of Series B Preferred
Stock, 1.07558, and with respect to a share of Series C Preferred Stock, 1.00.

“Preferred Per Share Priority Payment” shall equal, with respect to each share
of Company Preferred Stock outstanding immediately prior to the Effective Time
(other than shares of Company Preferred Stock owned by Parent or Merger Sub, or
by any direct or indirect wholly owned Subsidiary of Parent or Merger Sub), the
amount described in the Charter to which a holder of such share is entitled to
receive upon a merger or consolidation of the

 

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Company, which for the Series A Preferred Stock is $4.8497 per share; for the
Series B Preferred Stock is $4.8497 per share, plus the per share amount of all
accrued and unpaid dividends on shares of Series B Preferred Stock, calculated
as set forth in Article Fourth, Subpart I, § 1.01(a) of the Charter, through the
date immediately preceding the date on which the Effective Time occurs; and for
the Series C Preferred Stock is $2.9099 per share, plus the per share amount of
all accrued and unpaid dividends on shares of Series C Preferred Stock,
calculated as set forth in § 1.01(b) of the Charter, through the date
immediately preceding the date on which the Effective Time occurs.

“Purchase Price” shall mean One Hundred Four Million Two Hundred Fifty Thousand
United States Dollars ($U.S. 104,250,000), provided, that, if at or prior to the
Closing Parent transfers any of its shares to any third party and as a result of
such transfer Parent owns fewer shares of Company Stock than the number of such
shares set forth in Section 3.6, then without limitation of any other rights or
remedies available to the Company hereunder, the Purchase Price shall be
commensurately increased to reflect such reduced ownership.

“Series A Preferred Stock” shall mean shares of the Company’s Series A
Convertible Preferred Stock, par value $0.01 per share.

“Series B Preferred Stock” shall mean shares of the Company’s Series B
Convertible Redeemable Preferred Stock, par value $0.01 per share.

“Series C Preferred Stock” shall mean shares of the Company’s Series C
Convertible Redeemable Preferred Stock, par value $0.01 per share.

“Total Common Consideration” shall equal (a) the sum of (i) the Closing Date
Purchase Price plus (ii) the aggregate exercise price of all Company Options and
Company Warrants outstanding immediately prior to the Effective Time, minus
(b) the sum of (i) the Aggregate Preferred Priority Amount, (ii) Closing Date
Company Indebtedness, if any, and (iii) the amount of Unpaid Company Transaction
Expenses, if any; provided, however, that solely for purposes of the definition
of Per Share Merger Consideration as used in Section 5.7(a)(ii), clause (a)(i)
of this definition of Total Common Consideration shall read “the Purchase Price”
(rather than “the Closing Date Purchase Price”).

“Unpaid Company Transaction Expenses” shall mean Company Transaction Expenses
remaining unpaid immediately prior to the Closing, and shall also include the
Opinion Fee referred to in Section 3(b) of the SGAS Engagement Letter
notwithstanding the payment thereof prior to the Closing.

“Vested Company Options” shall mean Company Options to the extent vested and
exercisable immediately prior to the Effective Time.

(b) Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Merger Sub, the Company or any Company Securityholders,
the following shall occur:

(i) Company Stock. Each share of Company Stock issued and outstanding
immediately prior to the Effective Time (including any shares of Company Common

 

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Stock issued upon exercise or conversion at that time of any Company Option,
Company Warrant or share of Company Preferred Stock), other than any shares of
Company Stock to be canceled pursuant to Section 1.6(b)(ii) and any Dissenting
Shares, will be canceled and extinguished and automatically converted into the
right to receive the applicable Per Share Merger Consideration, without
interest, together with any additional consideration which may be payable in
respect of such share of Company Stock pursuant to the Escrow Agreement and this
Agreement, upon surrender of the Certificate formerly representing such share of
Company Stock in the manner provided in Section 1.7 (or in the case of a lost,
stolen or destroyed certificate, upon delivery of an affidavit and indemnity, if
required, in the manner provided in Section 1.9).

(ii) Cancellation of Treasury and Parent Owned Stock. Each share of Company
Stock that, immediately prior to the Effective Time, is (A) owned by the
Company, Parent or Merger Sub, or any direct or indirect wholly-owned Subsidiary
of the Company, Parent or Merger Sub or (B) held in the treasury of the Company,
shall be canceled and extinguished without any conversion thereof, and no cash
or other consideration shall be delivered or deliverable in exchange therefor.

(iii) Capital Stock of Merger Sub. Each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become, and shall represent, one fully paid and nonassessable
share of common stock of the Surviving Corporation with the same rights, powers
and privilege as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.

(iv) Dissenting Shares.

(A) Notwithstanding anything in this Agreement to the contrary, any shares of
Company Stock (other than shares of Company Stock to be canceled pursuant to
Section 1.6(b)(ii)) outstanding immediately prior to the Effective Time,
eligible under the DGCL to exercise appraisal rights and held by a holder who
has not voted in favor of the Merger or consented thereto in writing and who has
exercised and perfected appraisal rights for such shares in accordance with
Section 262 of the DGCL and has not effectively withdrawn or lost such appraisal
rights (collectively, the “Dissenting Shares”) shall not be converted into or
represent the right to receive the applicable Per Share Merger Consideration in
respect of such shares of Company Stock as provided in Section 1.6(b)(i), and
the holder or holders of such shares shall be entitled only to such rights as
may be granted to such holder or holders in Section 262 of the DGCL.

(B) Notwithstanding the provisions of Section 1.6(b)(iv)(A), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) such holder’s appraisal rights under Section 262 of the DGCL,
then, as of the later of the Effective Time and the occurrence of such event,
such holder’s shares of Company Stock shall automatically be converted into and
represent only the right to receive the applicable Per Share Merger
Consideration in respect of such shares of Company Stock as provided in
Section 1.6(b)(i), without interest, upon surrender of the Certificate formerly
representing such shares of Company Stock.

 

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(C) The Company shall (i) comply with the requirements of Section 262 of the
DGCL, (ii) give Parent prompt written notice of any written demand received by
the Company pursuant to Section 262 of the DGCL, or withdrawals of such demands,
and promptly provide copies of any documents or instruments served pursuant to
Section 262 of the DGCL and received by the Company, and (iii) give Parent the
opportunity to participate in all negotiations and proceedings with respect to
any such demands. The Company shall not make any payment or settlement offer
prior to the Effective Time with respect to any such demand unless Parent shall
have consented in writing to such payment or settlement offer, which consent
shall not be unreasonably withheld.

(c) Company Options and Company Warrants. At the Effective Time, Company Options
and Company Warrants outstanding immediately prior to the Effective Time shall
be treated as provided in Sections 5.7(a) and 5.7(b), respectively.

(d) Escrow.

(i) General; Proportionate Percentage. At the Effective Time, as part of the
Purchase Price payable to Company Securityholders hereunder, Parent shall
deposit, or cause to be deposited, with the Escrow Agent, an amount in cash
equal to the Escrow Amount to be held in escrow upon the terms and conditions
set forth in the escrow agreement substantially in the form attached as Exhibit
A hereto (the “Escrow Agreement”), to be entered into at the Closing by and
among Parent, the Securityholder Representative, on behalf of the Company
Securityholders, and The Bank of New York or such other escrow agent mutually
acceptable to Parent, the Company and the Securityholder Representative, as
escrow agent (the “Escrow Agent”), providing Parent with recourse against
amounts held in escrow by the Escrow Agent, as such funds may be adjusted from
time to time in accordance with the terms of this Agreement and the Escrow
Agreement (the “Escrow Funds”), to satisfy the Company Securityholders’
indemnification obligations under Article VII of this Agreement and the Company
Securityholders’ obligations, if any, under Section 1.11(e)(ii) of this
Agreement, subject to the terms and conditions set forth in the Escrow Agreement
and this Agreement. With respect to each Company Securityholder, for purposes of
determining the amount of cash consideration payable hereunder to such Company
Securityholder to be included as part of the Escrow Amount delivered to the
Escrow Agent pursuant to this Section 1.6(d)(i), each Company Securityholder
will be deemed to have contributed his, her or its Proportionate Percentage of
the Escrow Amount. “Proportionate Percentage” shall mean, with respect to each
Company Securityholder, a fraction, expressed as a percentage, the numerator of
which is (x) the aggregate Per Share Merger Consideration (minus the aggregate
Preferred Per Share Priority Payments included in such aggregate Per Share
Merger Consideration), Option Consideration and Warrant Consideration payable to
such Company Securityholder after the Effective Time pursuant to Sections 1.6,
5.7(a)(i) and 5.7(b) hereof, and the denominator of which is (y) the aggregate
Per Share Merger Consideration (minus the Aggregate Preferred Priority Amount),
Option Consideration and Warrant Consideration payable to all Company
Securityholders after the Effective Time pursuant to Sections 1.6, 5.7(a)(i) and
5.7(b) hereof. On or before the Effective Time, the Company will provide the
Escrow Agent with a schedule setting forth each Company Securityholder’s name,
current address as reflected in the Company’s records, current taxpayer
identification or social security number as reflected in the Company’s records
and such Company Securityholder’s Proportionate Percentage and the resultant
dollar portion of the Escrow Amount deemed contributed by such Company
Securityholder.

 

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(ii) Investment of Escrow Amount. The Escrow Amount shall be held in a
segregated interest-bearing account. The interest, earnings and income that
accrue upon the Escrow Funds during the period of time during which the Escrow
Funds are held in such account (the “General Escrow Earnings”) shall be deemed
to be part of the Escrow Funds. The Escrow Amount and General Escrow Earnings
shall be initially invested by the Escrow Agent in a U.S. Treasury money market
fund and in such other securities as may be directed in writing by both Parent
and the Securityholder Representative pursuant to the terms of the Escrow
Agreement.

(iii) Release of Escrow Funds. The Escrow Funds (or any portion thereof) shall
be distributed to Company Securityholders, Parent or the Securityholder
Representative, as applicable, at the times, and upon the terms and conditions
set forth in the Escrow Agreement.

The terms and provisions of the Escrow Agreement and the transactions
contemplated thereby are specific terms of the Merger, and receipt of the
Required Stockholder Approvals shall constitute approval by the Company
Securityholders, as specific terms of the Merger, of, and the irrevocable
agreement of such Company Securityholders to be bound by and comply with, the
Escrow Agreement and all of the arrangements and provisions of this Agreement
relating thereto, including without limitation the deposit with the Escrow Agent
of such Company Securityholder’s Proportionate Percentage of the Escrow Amount
as a part of the Purchase Price payable to such Company Securityholder
hereunder, the indemnification obligations of the Company Securityholders as set
forth in Article VII hereof, the Company Securityholders’ obligations, if any,
under Section 1.11(e)(ii) of this Agreement, and the appointment and sole
authority to act on behalf of the Company Securityholders of the Securityholder
Representative, as provided for herein and in the Escrow Agreement.

1.7 Surrender of Certificates.

(a) Cash Deposit With Paying Agent. At the Effective Time, Parent shall deposit,
or cause to be deposited, in cash, with The Bank of New York (the “Paying
Agent”), for the benefit of the Company Securityholders such amount as is
required to make payment of the aggregate amount of Per Share Merger
Consideration payable pursuant to Section 1.6(b) and the aggregate amount of
Option Consideration and Warrant Consideration payable pursuant to Section 5.7.
Cash deposited with the Paying Agent shall hereinafter be referred to as the
“Paying Agent Fund”.

(b) Surrender and Exchange Procedures. Within two business days following the
Effective Time, Parent shall cause the Paying Agent to mail to each holder of
record (as of the Effective Time) of a certificate or certificates (the
“Certificates”) which immediately prior to the Effective Time represented
outstanding shares of Company Stock whose shares were converted into the right
to receive the applicable Per Share Merger Consideration pursuant to
Section 1.6: (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Paying Agent and shall be
in such form and have such other reasonable provisions not inconsistent with
this Agreement as Parent may specify, including provisions whereby the holder of
record of such Certificate(s) irrevocably agrees to, and to be bound by, the
provisions hereof relating to the Securityholder Representative (including
without limitation the appointment of the Securityholder Representative as such
holder’s representative and attorney-in-fact as provided

 

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herein), the deposit with the Escrow Agent of such holder’s Proportionate
Percentage of the Escrow Amount as a deduction from the cash consideration
payable to such holder hereunder, the provisions of Article VII and the Escrow
Agreement), and (ii) instructions for use in effecting the surrender of the
Certificates (including a means of hand-delivery) in exchange for the applicable
Per Share Merger Consideration. In addition, at the Closing, Parent shall make
available to any holders of Company Stock attending the Closing the documents
set forth in clauses (i) and (ii) of the preceding sentence. Upon the surrender
of Certificates for cancellation to the Paying Agent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto to the reasonable satisfaction of Parent and the Paying
Agent, the holder of record of such Certificates shall be entitled to receive,
and the Paying Agent shall (and Parent shall cause the Paying Agent to) pay to
such holder, in exchange therefor the applicable Per Share Merger Consideration,
without interest, in respect of each share of Company Stock formerly represented
thereby, and the Certificates so surrendered shall forthwith be canceled. If
payment in respect of any Certificate is to be made to a Person other than the
Person in whose name such Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
otherwise be in proper form for transfer, that the signatures on such
Certificate or any related stock power shall be properly guaranteed and that the
Person requesting such payment shall have established to the satisfaction of
Parent and the Paying Agent that any transfer and other Taxes required by reason
of such payment to a Person other than the registered holder of such Certificate
have been paid or are not applicable. Until surrendered, outstanding
Certificates (other than Certificates representing shares of Company Stock
described in Section 1.6(b)(ii) and any Dissenting Shares) will be deemed from
and after the Effective Time, for all corporate purposes, to evidence only the
right to receive the applicable Per Share Merger Consideration, in cash, without
interest, into which such shares of Company Stock shall have been so converted.

(c) Required Withholding. Each of the Paying Agent, the Escrow Agent, Parent,
and the Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
Company Securityholders such amounts as may be required to be deducted or
withheld therefrom under the Internal Revenue Code of 1986, as amended, and any
Treasury Regulations issued thereunder (the “Code”), or under any provision of
state, local or foreign Tax law. To the extent such amounts are so deducted or
withheld, the amount of such consideration shall be treated for all purposes
under this Agreement as having been paid to the Person to whom such
consideration would otherwise have been paid.

(d) No Liability. Notwithstanding anything to the contrary in this Section 1.7,
neither the Paying Agent, the Surviving Corporation nor any party hereto shall
be liable to a Company Securityholder for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.

(e) Investment of Paying Agent Fund. The Paying Agent may invest any cash
included in the Paying Agent Fund as directed by Parent on a daily basis;
provided that no such investment or loss thereon shall affect the amounts
payable to Company Securityholders pursuant to this Agreement, for which Parent
shall remain fully liable. Any interest and other income resulting from such
investment (i) shall become a part of the Paying Agent Fund, and (ii) any
amounts in excess of the amounts payable in accordance with this Agreement to
the holders of Company Securities outstanding immediately prior to the Effective
Time shall promptly be paid to Parent or the Surviving Corporation, as the case
may be, and no part thereof shall accrue to the benefit of the holders of
Company Securities.

 

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(f) Termination of Paying Agent Fund. Any portion of the Paying Agent Fund that
remains undistributed nine months after the Effective Time shall, at the request
of Parent, be delivered to Parent or otherwise according to the instruction of
Parent, and any holders of any Certificate who have not surrendered such
Certificate in compliance with this Section 1.7, and any former holders of
Vested Company Options or Company Warrants who have not delivered the
appropriate documentation as provided in Section 5.7 in order to receive the
Option Consideration or Warrant Consideration to which such holders are entitled
pursuant to Section 5.7, shall, after such delivery of such undistributed
portion of the Paying Agent Fund to Parent, look only to Parent and the
Surviving Corporation for the payment, pursuant to Sections 1.6 and 1.7, of the
applicable Per Share Merger Consideration in respect of each share of Company
Stock formerly represented by such Certificate or, pursuant to Section 5.7, of
such Option Consideration or Warrant Consideration.

1.8 No Further Ownership Rights in Company Stock. All cash paid upon the
surrender for exchange of shares of Company Stock in accordance with the terms
hereof and all cash deposited with the Escrow Agent in accordance with the terms
hereof shall be deemed to have been paid in full satisfaction of all rights
pertaining to such shares of Company Stock, and from and after the Effective
Time, the stock transfer books of the Company shall be closed and there shall be
no further registration of transfers on the records of the Company of shares of
Company Stock which were outstanding immediately prior to the Effective Time
(including the shares of Company Common Stock issuable upon conversion of any
shares of Company Preferred Stock or exercise of any Company Option or Company
Warrant). From and after the Effective Time, the holders of Certificates shall
cease to have any rights with respect to shares of Company Stock formerly
represented thereby, except as otherwise provided herein or by applicable law.
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 I.

1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificate shall
have been lost, stolen or destroyed, the Paying Agent shall, and Parent shall
cause the Paying Agent to, distribute in exchange for such lost, stolen or
destroyed Certificate, upon the making of an affidavit of that fact by the
holder thereof and indemnity to the Paying Agent (if required), the applicable
Per Share Merger Consideration payable, in cash, without interest, to such
holder pursuant to Section 1.6 in respect of such shares of Company Stock
formerly represented by such lost, stolen or destroyed Certificate.

1.10 Payment at Closing of Unpaid Company Transaction Expenses and Closing Date
Company Indebtedness. If the Company lacks sufficient funds on hand to pay at
the Closing any Unpaid Company Transaction Expenses or Closing Date Company
Indebtedness and the Company shall have so advised Parent at least two business
days prior to the Closing, then Parent shall, concurrently with the Closing,
either provide the Company with the funds to pay such Unpaid Company Transaction
Expenses and Closing Date Company Indebtedness (and the Company will apply such
funds to make such payment at the Closing), or at the Closing Parent shall
disburse such funds directly to pay such Unpaid Company Transaction Expenses and
Closing Date Company Indebtedness, so that, in either case, immediately after
such payment by the Company or Parent, there will be no Unpaid Company
Transaction Expenses and no Company Indebtedness.

 

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1.11 Post-Closing Adjustment of Purchase Price.

(a) (i) Within 60 days after the Closing Date, the Company’s continuing
management team, including the Company’s Chief Executive Officer and Chief
Financial Officer immediately prior to the Closing (“Continuing Management”),
shall present to Parent and the Securityholder Representative, on behalf of the
Company Securityholders, its determination of Closing Net Working Capital,
together with appropriate supporting documentation. Parent and the
Securityholder Representative shall use their reasonable efforts to agree upon
the Closing Net Working Capital within 20 days after Parent receives Continuing
Management’s determination of the Closing Net Working Capital. In connection
with their review of the Continuing Management’s determination of the Closing
Net Working Capital, Parent and the Securityholder Representative and their
respective Representatives shall have reasonable access to all of the Company’s
properties, books, Contracts, records and personnel related to the Continuing
Management’s determination of Closing Net Working Capital.

(b) As used in this Section 1.11, “Closing Net Working Capital” shall mean, as
of the close of business on the Closing Date, (i) all the current assets of the
Company (as determined in accordance with generally accepted accounting
principles (“GAAP”) applied on a basis consistent with the Company Balance Sheet
and the Financial Statements, including with respect to revenue recognition
methodologies), minus (ii) all the current liabilities of the Company (as
determined in accordance with GAAP applied on a basis consistent with the
Company Balance Sheet and the Financial Statements); provided, however, that,
for purposes of determining Closing Net Working Capital, current liabilities
shall not include the amount of any Unpaid Company Transaction Expenses and
Closing Date Company Indebtedness which was deducted from the Closing Date
Purchase Price in determining Total Common Consideration.

(c) If Parent and the Securityholder Representative do not agree upon the amount
of the Closing Net Working Capital within 20 days after Parent receives
Continuing Management’s determination of Closing Net Working Capital, thereafter
either Parent or the Securityholder Representative may direct Deloitte & Touche
LLP or, if such firm is unable or unwilling to act in the capacity contemplated
hereby, such other independent public accounting firm as shall be agreed in
writing by the Securityholder Representative and Parent (Deloitte & Touche LLP,
or such other independent public accounting firm, the “Independent Accounting
Firm”) to determine the disputed Closing Net Working Capital. If the issues in
dispute are submitted to the Independent Accounting Firm for resolution:
(i) Parent and the Securityholder Representative will each furnish to the other
and to the Independent Accounting Firm such work papers and other documents and
information relating to the disputed issues as the other or the Independent
Accounting Firm may reasonably request which are available to that party or
parties, or its or their independent public accountants, and will be afforded
the opportunity to present to the Independent Accounting Firm any material
relating to the determination and to discuss the determination with the
Independent Accounting Firm; and (ii) the Independent Accounting Firm shall
consider only those items or amounts in the calculation of Closing Net Working
Capital as to which the Parent and the Securityholder Representative have
disagreed.

 

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(d) The Securityholder Representative and Parent shall use their commercially
reasonable efforts to cause the Independent Accounting Firm to render and
deliver to the Securityholder Representative and Parent a written determination
resolving the matters submitted to it and the resultant Closing Net Working
Capital (the “Accountants’ Determination”) within 20 days after the
Securityholder Representative or Parent first gives notice that it is directing
the Independent Accounting Firm to determine the disputed Closing Net Working
Capital. The Accountants’ Determination shall be binding and conclusive on all
parties and not subject to appeal or any proceeding of any type brought by any
party, and the Securityholder Representative and Parent agree that judgment may
be entered upon the Accountants’ Determination in any court of competent
jurisdiction. The fees and expenses of the Independent Accounting Firm, and the
fees and expenses of the other party’s Representatives incurred in connection
with any dispute resolution pursuant to this Section 1.11, shall be borne by the
Company Securityholders and Parent in inverse proportion as they may prevail on
the matters resolved by the Independent Accounting Firm, which proportionate
allocation shall be calculated on an aggregate basis based on the relative
dollar values of the amounts in dispute and shall be determined by the
Independent Accounting Firm at the time the Accountants’ Determination is
rendered. To the extent the Company Securityholders are required to bear any
fees and expenses of the Independent Accounting Firm or of any Representatives
of Parent or of the Securityholder Representative as provided in this
Section 1.11(d), the amount of such fees and expenses shall be paid from the
Escrow Funds on a current basis upon request of the Securityholder
Representative in accordance with the Escrow Agreement. To the extent Parent is
required to bear any fees and expenses of any Representatives or of the
Securityholder Representative as provided in this Section 1.11(d) and such fees
and expenses were previously paid from the Escrow Funds, Parent shall forthwith
replenish the Escrow Funds to the extent of such fees and expenses so previously
paid.

(e) The Purchase Price shall be adjusted, upwards or downwards, as follows:

(i) if the Closing Net Working Capital as agreed or finally determined pursuant
to this Section 1.11 exceeds $7,500,000 (the “Reference Amount”) by an amount
greater than $200,000, the Purchase Price shall be adjusted upwards in an amount
equal to the product of (A) the amount equal to the difference between the
Closing Net Working Capital as so finally agreed or determined and the Reference
Amount multiplied by (B) the difference (such difference, the “Unowned
Percentage”) between (x) one (1.00) and (y) a fraction, expressed as a
percentage, the numerator of which is (I) the number of shares of Company Stock
owned by Parent or Merger Sub, or by any direct or indirect wholly owned
Subsidiary of Parent or Merger Sub, immediately prior to the Effective Time,
assuming the conversion into Company Common Stock at such time of all shares of
Company Preferred Stock owned by Parent or Merger Sub, or by any direct or
indirect wholly owned Subsidiary of Parent or Merger Sub, and the denominator of
which is (II) the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time, assuming the conversion into or
exercise for Company Common Stock at such time of all Company Preferred Stock,
Company Options (whether or not vested) and Company Warrants (such amount,
together with interest thereon pursuant to Section 1.11(f), the “Excess Working
Capital Payment”). In such event, Parent (x) shall pay the Excess Working
Capital Payment to the Paying Agent for distribution to the Company
Securityholders (other than holders of any Dissenting Shares) and (y) within
five business days after receipt by the Paying Agent of the Excess Working
Capital Payment, the Paying Agent shall, and Parent shall cause the Paying Agent
to, distribute to each Company Securityholder such Company Securityholder’s
Proportionate Percentage of the Excess Working Capital Payment in accordance
with payment procedures established by the Paying Agent;

 

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(ii) if the Reference Amount exceeds the Closing Net Working Capital as agreed
or finally determined pursuant to this Section 1.11 by an amount greater than
$200,000, the Purchase Price shall be adjusted downwards in an amount equal to
the product of (A) an amount equal to the difference between the Reference
Amount and the Closing Net Working Capital as so finally agreed or determined
multiplied by (B) the Unowned Percentage (such amount, together with interest
thereon pursuant to Section 1.11(f), the “Working Capital Shortfall Payment”),
and in such event, the Working Capital Shortfall Payment shall be paid, and the
Securityholder Representative shall direct the Escrow Agent to make such
payment, to Parent from the Escrow Funds; and

(iii) if the Reference Amount is neither less than nor greater than the Closing
Net Working Capital Amount as agreed or finally determined pursuant to this
Section 1.11 by an amount greater than $200,000, no change to the Purchase Price
shall be made.

(f) Amounts to be paid by Parent to the Paying Agent or by the Escrow Agent to
Parent pursuant to Section 1.11(e) (i) shall bear interest from the Closing Date
to the date of such payment at a rate equal to the rate of interest from time to
time announced publicly by Bank of America, N.A. as its prime rate, calculated
on the basis of a year of 365 days and the number of days elapsed, and
(ii) shall be made within three business days of agreement upon, or final
determination of, the Closing Net Working Capital pursuant to this Section 1.11,
by wire transfer of United States dollars in immediately available funds to the
account of the Paying Agent or Parent, as applicable, previously designated by
the Paying Agent or Parent, as applicable.

(g) Notwithstanding the foregoing or any other provision of this Agreement, to
the extent that any amounts have been included as a current liability or current
asset in Closing Net Working Capital, as finally determined or agreed, or, to
the extent that the amount of any item has been specifically resolved in the
calculation of Closing Net Working Capital, as finally determined or agreed,
such amounts shall not be separately recoverable as Losses pursuant to
Section 7.2.

1.12 Securityholder Representative.

(a) Immediately upon receipt of the Required Stockholder Approvals, each Company
Securityholder shall be deemed to have consented to the appointment of United
States Trust Company, N.A., as Trustee of the Memorial Drive Trust, as such
Company Securityholder’s representative and attorney-in-fact (the
“Securityholder Representative”), with full power of substitution, to act on
behalf of the Company Securityholders to the extent and in the manner set forth
in this Agreement and the Escrow Agreement. The powers and authority of the
Securityholder Representative shall include:

(i) The power and authority to execute as Securityholder Representative this
Agreement and the Escrow Agreement;

(ii) The power and authority to give or receive any notice or instruction
permitted or required under this Agreement or the Escrow Agreement, to be given
or received by any Company Securityholder, and each of them (other than notice
for service of

 

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process relating to any Legal Proceeding, which notice must be given to each
Company Securityholder individually, as applicable), and to take any and all
action for and on behalf of the Company Securityholders, and each of them, under
this Agreement or the Escrow Agreement;

(iii) The power and authority to contest, negotiate, defend, compromise or
settle any actual or threatened Legal Proceedings for which a Parent Indemnified
Party may be entitled to indemnification through counsel selected by the
Securityholder Representative and solely at the cost, risk and expense of the
Company Securityholders, authorize payment to any Parent Indemnified Party of
any of the Escrow Funds, or any portion thereof, in satisfaction of any Parent
Claims, 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 Parent Claims, resolve any Parent Claims, take any actions
in connection with the resolution of any dispute relating hereto or to the
transactions contemplated hereby by arbitration, settlement or otherwise, and
take or forego any or all actions permitted or required of any Company
Securityholder or necessary in the judgment of the Securityholder Representative
for the accomplishment of the foregoing and all of the other terms, conditions
and limitations of this Agreement and the Escrow Agreement;

(iv) The power and authority to consult with legal counsel, independent public
accountants and other experts selected by it, solely at the cost and expense of
the Company Securityholders;

(v) The power and authority to review, negotiate and agree to and authorize any
payments from the Escrow Funds in satisfaction of any payment obligation, in
each case, on behalf of the Company Securityholders, as contemplated in the
Escrow Agreement;

(vi) The power and authority to waive any terms and conditions of this Agreement
or the Escrow Agreement providing rights or benefits to the Company
Securityholders (other than the payment to Company Securityholders of the Per
Share Merger Consideration, the Option Consideration and Warrant Consideration
in accordance with the terms hereof and in the manner provided herein); and

(vii) The power and authority to take any actions in regard to such other
matters as are reasonably necessary for the consummation of the transactions
contemplated hereby or as the Securityholder Representative reasonably believes
are in the best interests of the Company Securityholders.

(b) All decisions, actions, consents and instructions by the Securityholder
Representative shall be binding upon all of the Company Securityholders, and no
Company Securityholder shall have the right to object to, dissent from, protest
or otherwise contest the same. Parent and Merger Sub shall be entitled to rely
on any decision, action, consent or instruction of the Securityholder
Representative as being the decision, action, consent or instruction of the
Company Securityholders, and Parent and Merger Sub are hereby relieved from any
liability to any Person for acts done by them in accordance with any such
decision, act, consent or instruction.

(c) The Securityholder Representative may resign at any time, and may be removed
for any reason or no reason by the vote or written consent of Company
Securityholders

 

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holding a majority interest (determined with respect to each Company
Securityholder’s Proportionate Percentage) in the Escrow Fund at the time of
such vote or written consent (the “Majority Holders”). In the event of the
death, incapacity, resignation or removal of the Securityholder Representative,
a new Securityholder Representative shall be appointed by the vote or written
consent of the Majority Holders. Notice of such vote or a copy of the written
consent appointing such new Securityholder Representative shall be sent to
Parent and, after the Effective Time, to the Surviving Corporation, such
appointment to be effective upon the later of the date indicated in such consent
or the date such consent is received by Parent and, after the Effective Time,
the Surviving Corporation; provided that until such notice is received, Parent,
Merger Sub and the Surviving Corporation, as applicable, shall be entitled to
rely on the decisions, actions, consents and instructions of the prior
Securityholder Representative as described in Section 1.12(b).

(d) The Securityholder Representative shall not be liable to the Company
Securityholders for actions taken pursuant to this Agreement or the Escrow
Agreement, except to the extent such actions shall have been determined by a
court of competent jurisdiction to have constituted willful misconduct or fraud.
Except in cases where a court of competent jurisdiction has made such a finding,
the Company Securityholders shall severally (in accordance with their respective
Proportionate Percentages) indemnify and hold harmless the Securityholder
Representative from and against any and all losses, liabilities, claims,
actions, damages and expenses, including reasonable attorneys’ fees and
disbursements, arising out of and in connection with its activities as
Securityholder Representative under this Agreement, the Escrow Agreement or
otherwise. The Securityholder Representative may engage attorneys, accountants
and other professionals and experts. The Securityholder Representative may rely
conclusively upon information, reports, statements and opinions prepared or
presented by such professionals, and any action taken by the Securityholder
Representative based on such reliance shall be deemed conclusively to have been
taken in good faith and in the exercise of reasonable judgment.

(e) The Securityholder Representative will serve without compensation but will
be reimbursed on a current basis from the Escrow Funds for any expenses incurred
or anticipated to be incurred without gross negligence or bad faith on the part
of the Securityholder Representative and arising out of or in connection with
the acceptance or administration of the Securityholder Representative’s duties
hereunder, including the reasonable fees and expenses of any legal counsel,
accountants and other professionals and experts retained by the Securityholder
Representative, and will also be entitled to receive from the Escrow Funds
amounts payable to the Securityholder Representative in accordance with
subsection (d) above. In addition, and without limitation of the foregoing, each
Company Securityholder agrees that such Company Securityholders’ Proportionate
Percentage of such reasonable expenses (and any amounts payable to the
Securityholder Representative in accordance with Subsection (d) above) may be
deducted by the Securityholder Representative from amounts distributed to the
Company Securityholders from the Escrow Funds prior to delivery of such Escrow
Funds to the Company Securityholders.

(f) The Required Stockholder Approvals shall also be deemed to constitute
approval of all arrangements relating to the transactions contemplated hereby
and to the provisions hereof binding upon the Company Securityholders, including
Article VII and the provisions of the Escrow Agreement.

 

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1.13 Further Action. If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either the Company or Merger Sub acquired or to be
acquired by the Surviving Corporation as a result of the Merger or otherwise to
carry out this Agreement, the officers and directors of Parent and the Surviving
Corporation shall be authorized to execute and deliver, in the name of and on
behalf of either the Company or Merger Sub, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Parent and Merger Sub as set forth in
this Article II, subject to such exceptions and disclosures as are set forth in
the disclosure schedule supplied by the Company to Parent and dated as of the
date hereof (the “Company Disclosure Schedule”) (each section of which shall
qualify only the specifically identified sections or subsections hereof to which
such Company Disclosure Schedule section relates and shall not qualify any other
provision of this Agreement, except to the extent there is a specific
cross-reference or it is readily apparent from the face of such disclosure that
such disclosure is applicable to such other provision, including as an exception
to the representations and warranties in such other provision).

2.1 Organization; Standing and Power; Organizational Documents; Subsidiaries.

(a) Organization; Standing and Power. The Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (ii) has the requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted, and (iii) is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction listed in
Section 2.1(a) of the Company Disclosure Schedule, which are the only
jurisdictions in which the character of the properties owned, leased or operated
by the Company or the nature of its business makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing, would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.

(b) Organizational Documents. The Company has delivered or made available to
Parent a true and correct copy of the Charter and of the Bylaws, each as amended
to date (collectively, the “Company Organizational Documents”), and each such
instrument is in full force and effect. The Company is not in violation of any
of the provisions of the Company Organizational Documents. The minutes of
meetings of the Company’s Board of Directors and stockholders that have been
made available for inspection by Parent prior to the date hereof accurately
reflect in all material respects the proceedings at such meetings.

 

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(c) No Subsidiaries. Except as set forth on Schedule 2.1(c) of the Company
Disclosure Schedule, as of the date hereof, the Company (i) has no Subsidiaries,
and (ii) does not directly or indirectly own any equity, partnership, membership
or similar interest in, or any interest convertible into, exercisable for the
purchase of or exchangeable for any such equity, partnership, membership or
similar interest, and is not under any current or prospective obligation to form
or participate in, provide funds to, make any loan to, capital contribution in
or other investment in, or assume any liability or obligation of, any Person
(excluding the Company’s guarantee of the corporate American Express credit
cards provided to certain Company employees).

2.2 Capital Structure.

(a) Capital Stock. The authorized capital stock of the Company consists of:
(i) 7,100,000 shares of Company Common Stock; and (ii) 2,153,091 shares of
Company Preferred Stock, 103,091 of which shares have been designated as Series
A Preferred Stock, 500,000 of which shares have been designated as Series B
Preferred Stock, and 1,550,000 of which shares have been designated as Series C
Preferred Stock. As of the date of this Agreement: (i) 3,412,421 shares of
Company Common Stock are issued and outstanding; (ii) 60,342 shares of Series A
Preferred Stock are issued and outstanding; (iii) 500,000 shares of Series B
Preferred Stock are issued and outstanding; (iv) 1,550,000 shares of Series C
Preferred Stock are issued and outstanding; and (v) 60,342, 537,790 and
1,550,000 shares of Company Common Stock are reserved for future issuance upon
conversion of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, respectively. All of the issued and outstanding shares
of Company Stock have been, and all of the shares of Company Common Stock that
may be issued (i) pursuant to the Option Plans, (ii) pursuant to the Company
Warrants, and (iii) upon conversion of shares of Company Preferred Stock will
be, when issued in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and nonassessable. Section 2.2(a) of the
Company Disclosure Schedule sets forth a list of all record holders of Company
Stock as of the date of this Agreement, the address of each such holder as known
to the Company on the date hereof, the class, series and number of shares of
Company Stock held by such holder and, in the case of shares of Company
Preferred Stock held by such holder, the number of shares of Company Common
Stock into which such shares of Company Preferred Stock are convertible as of
the date hereof. There are no outstanding bonds, debentures or other
indebtedness of the Company having the right to vote or convertible or
exchangeable for securities having the right to vote. No shares of Company Stock
or other equity or ownership interests of the Company have been issued in
violation of any rights, agreements, arrangements or commitments under any
provision of applicable law, the Company Organizational Documents or any
Contract to which the Company is a party or by which the Company is bound.

(b) Stock Options. Except for the Option Plans and the Company Warrants, the
Company does not have any stock option plan or any other compensatory or
incentive plan, program, agreement or arrangement providing for any stock
appreciation right, phantom stock, interest in the ownership or earnings of the
Company or other equity equivalent or equity-based compensation, award or right
for any Person. As of the date of this Agreement, 1,452,438 shares of Company
Common Stock remain authorized and reserved for issuance under the Option Plans,
of which 1,220,338 shares of Company Common Stock are reserved for issuance upon
the exercise of currently outstanding Company Options. Section 2.2(b) of the
Company Disclosure

 

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Schedule sets forth the following information as of the date hereof with respect
to each Company Option outstanding on the date hereof: (i) the name and address
of the holder, (ii) the term of the Company Option, (iii) the number of shares
of Company Common Stock subject to the Company Option and (iv) the exercise
price per share of such Company Option. The Company has made available to Parent
accurate and complete copies of the Option Plans and any amendments thereto.

(c) Warrants. As of the date of this Agreement, 87,751 shares of Company Common
Stock are reserved for issuance upon the exercise of outstanding warrants to
purchase Company Common Stock (the “Company Warrants”). Section 2.2(c) of the
Company Disclosure Schedule sets forth the following information as of the date
hereof with respect to each Company Warrant outstanding on the date hereof:
(i) the name and address of the holder, (ii) the term of the Company Warrant,
(iii) the number of shares of Company Common Stock subject to the Company
Warrant and (iv) the exercise price per share of such Company Warrant. The
Company has made available to Parent accurate and complete copies of all
outstanding unexercised Company Warrants and any amendments thereto.

(d) Other Securities. Except as otherwise set forth or referred to in this
Section 2.2, Section 2.2 of the Company Disclosure Schedule or the Charter, and
except for rights granted to Parent and Merger Sub pursuant to this Agreement,
as of the date hereof, there are no securities, options, warrants, calls,
rights, contracts, commitments, agreements, instruments, arrangements,
understandings, obligations or undertakings of any kind to which the Company is
a party or by which the Company is bound that obligate the Company to issue,
deliver, sell or transfer, or cause to be issued, delivered, sold or
transferred, or to repurchase, redeem or otherwise acquire, or that relate to
the holding, voting or disposition of, or that restrict the issuance, delivery,
sale or transfer of, any issued or unissued shares of capital stock or other
securities of the Company, or obligating the Company to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, instrument, arrangement, understanding, obligation or undertaking.

2.3 Authority; Non-Contravention; Necessary Consents.

(a) Authority; Valid and Binding Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery by the Company of this Agreement, the
performance by the Company of its obligations hereunder and the consummation by
the Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the Company,
subject, in the case of such consummation, only to the Required Stockholder
Approvals. This Agreement has been duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery hereof by Parent and
Merger Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or similar laws now or hereafter in effect relating to creditors’ rights
generally and by general principles of equity.

 

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(b) Board Approval; Required Stockholder Action.

(i) On or prior to the date hereof, the Board of Directors of the Company
(i) approved this Agreement and the Merger, (ii) determined that this Agreement
and the Merger are fair to and in the best interests of the Company and the
holders of Company Stock (other than Parent) and declared the advisability of
this Agreement, (iii) determined to recommend that the holders of Company Stock
vote, or act by written consent, in favor of adoption of this Agreement and
approval of the Merger, and directed that this Agreement be submitted to the
holders of Company Stock for adoption, and (iv) fixed the date of this Agreement
as the record date for the determination of holders of Company Stock entitled to
vote or execute a written consent or written consents to effect the Required
Stockholder Approvals.

(ii) The affirmative vote or action by written consent of the holders of
outstanding shares of Company Stock, voting together as a single class,
representing a majority of the voting power of all outstanding shares of Company
Stock (with each share of Company Preferred Stock having such number of votes
equal to the whole number of shares of Company Common Stock into which such
share of Company Preferred Stock is convertible), is the only action by the
holders of any class or series of Company Stock required under the DGCL and the
Company Organizational Documents to adopt this Agreement and approve the Merger
and the consummation of the transactions contemplated hereby (the “Statutory
Merger Stockholder Approval”). The consent, given by vote at a meeting duly
called and held for such purpose for which notice shall have been given to all
holders of Series B Preferred Stock and Series C Preferred Stock in the manner
provided in the Bylaws or by written consent in lieu thereof, of the holders of
outstanding shares of Series B Preferred Stock and Series C Preferred Stock
which, if converted would entitle such holders to hold 65% of the Company Common
Stock issuable upon conversion of Series B Preferred Stock and Series C
Preferred Stock, is the only action by the holders of any class or series of
Company Stock, and no other action by the Company or any other Person is,
required to obtain the consent to the Merger and the actions contemplated hereby
for purposes of Section 2.9.1 of the Stock Rights Agreement dated February 4,
2002 (the “Stock Rights Agreement Consent” and, together with the Statutory
Merger Stockholder Approval, the “Required Stockholder Approvals”).

(c) Non-Contravention. The execution and delivery of this Agreement by the
Company does not, and the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby do not and will not: (i) conflict with or violate the Company
Organizational Documents, (ii) subject to obtaining the Statutory Merger
Stockholder Approval, and compliance with the requirements set forth in
Section 2.3(d), conflict with or violate any material Legal Requirement
applicable to the Company or by which any property or asset of the Company is
bound, or (iii) subject to obtaining the Stock Rights Agreement Consent, result
in any breach of or constitute a default (or an event that, with notice or lapse
of time or both, would become a default) under, or impair the Company’s rights
or alter the rights or obligations of any third party under, or give to others
any rights of termination, amendment, modification, acceleration or cancellation
of, allow the imposition of any fees or penalties under, require the offering or
making of any payment or redemption under, give rise to any increased,
guaranteed, accelerated or additional rights or entitlements of any Person or
otherwise adversely affect any rights of the Company under, or result in the
creation of a Lien on any properties or assets of the Company pursuant to, any
note, bond, mortgage, indenture, permit, franchise, obligation or other Contract
to which the Company

 

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is a party or by which the Company or any of its properties or assets are bound,
other than, in the case of clause (iii) of this Section 2.3(c), as would not be
reasonably expected to have, in the aggregate, a Material Adverse Effect.

(d) Necessary Consents. No consent, approval, order, permit or authorization of,
or registration, declaration, notice or filing with, any supranational,
national, state, provincial, municipal, or local or foreign government, or any
instrumentality, subdivision, court, tribunal, or arbitral or judicial body
(including any grand jury), or any regulatory or administrative authority,
branch, agency or commission or other governmental authority or instrumentality
(each, a “Governmental Entity”) is required to be filed, obtained or made by the
Company in connection with the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder or the
consummation by the Company of the transactions contemplated hereby, except for:
(i) the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware and, if applicable, appropriate documents with the relevant
authorities of other states in which the Company and/or Parent are qualified to
do business, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR
Act”), and satisfaction of such other requirements of the comparable laws of
other jurisdictions, including, if applicable, foreign antitrust or competition
laws, (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal, state
securities or “blue sky” laws and the securities laws of any foreign country,
and (iv) such other consents, authorizations, filings, approvals and
registrations set forth in Section 2.3(d) of the Company Disclosure Schedule.
The consents, approvals, orders, authorizations, registrations, declarations and
filings set forth in clauses (i) through (iv) of this Section 2.3(d) are
referred to herein as the “Necessary Consents.”

2.4 Financial Statements. The Company has previously made available to Parent
true and complete copies of (i) the Company’s audited balance sheets as of
December 31, 2005 and 2004, and the related statements of operations, redeemable
preferred stock and stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2005, together with all related notes and
schedules thereto, and (ii) the Company’s unaudited balance sheets as of
March 31, 2006, and the related statements of operations and cash flows for the
period then ended (collectively, the “Financial Statements”). The Financial
Statements (i) present fairly, in all material respects, the financial position,
results of operations and cash flows of the Company as of the respective dates
thereof and for the respective periods indicated therein (except, in the case of
the unaudited Financial Statements referred to above, to the extent they exclude
footnotes and are subject to normal year-end adjustments), (ii) have been
prepared in conformity with GAAP applied on a consistent basis throughout the
periods indicated therein, and (iii) have been prepared in accordance with the
books and records of the Company. The Company’s audited balance sheet as of
December 31, 2005 included in the Financial Statements, together with all
related notes and schedules thereto, is referred to as the “Company Balance
Sheet.”

2.5 Liabilities; Indebtedness. Except as and to the extent accrued or reserved
against in accordance with GAAP on the Company Balance Sheet, since the date of
the Company Balance Sheet, the Company has incurred no liabilities (absolute,
accrued, contingent or otherwise) of a nature required by GAAP to be reflected
in a balance sheet of the Company or disclosed in the related notes and
schedules thereto other than (i) any liabilities which did not and have not had,
individually or in the aggregate, a Material Adverse Effect, (ii) liabilities
and obligations

 

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incurred in the ordinary course of business, and (iii) liabilities incurred in
connection with the Company’s auction process or the transactions contemplated
hereby. This Section 2.5 shall not be deemed to apply (i) to liabilities of the
type covered by the representations and warranties set forth in Sections 2.7,
2.8, 2.12 or 2.14, or (ii) liabilities referenced in the statements included in
Sections 2.9, 2.10 and 2.13(a), solely to the extent such statements referred to
in this clause (ii) are qualified to the Knowledge of the Company and the
representation made thereby is true and correct. The Company does not have any
Company Indebtedness other than Permitted Indebtedness.

2.6 Absence of Certain Changes or Events. Since the date of the Company Balance
Sheet through the date hereof, (i) the Company has conducted its business only
in the ordinary course (excluding actions taken and payments arising from or
related to the Company’s auction process, this Agreement or the transactions
contemplated hereby), (ii) there has not been any change, event or development
or prospective change, event or development that has had or is reasonably likely
to have a Material Adverse Effect, and (iii) since the date of the Company
Balance Sheet through the date hereof, the Company has not:

(a) declared, set aside, made or paid any dividend on, or other distribution
(whether in cash, stock, equity securities or property) in respect of, any
Company Stock, or purchased or redeemed any Company Securities;

(b) made any material change in its accounting methods, principles or practices,
except as required by GAAP;

(c) written down any of its assets, including any write-down of the value of
inventory or accounts receivable, other than in the ordinary course of business;

(d) made any Tax election or accounting method change that is reasonably likely
to adversely affect in any material respect the Tax liability or Tax attributes
of the Company, or settled or compromised any material income tax liability;

(e) forgiven or canceled any debts or claims other than in the ordinary course
of business consistent with past practice, or waived, canceled, terminated or
allowed to lapse any material Intellectual Property rights or other rights
material to the Company’s business;

(f) made any loans, advances or capital contributions to, or investments in, any
other Person other than employee advances for travel and entertainment expenses
made in the ordinary course of business consistent with past practice (including
the Company’s guarantee of the corporate American Express credit cards provided
to certain Company employees for which the Company guarantees payment on behalf
of such Company employees) and trade accounts receivable;

(g) mortgaged, pledged or subjected to any Lien, any of its properties or
assets, except any inchoate liens for Taxes or similar unpaid charges;

(h) acquired or disposed of any assets or properties, other than in the ordinary
course of business (excluding cash payments made to professional advisors in
connection with the Company’s auction process, this Agreement or the
transactions contemplated hereby);

 

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(i) made any payment of any nature to any Company employee, director or
consultant other than salary, bonuses or fees and reimbursement of expenses
payable in the ordinary course of business;

(j) experienced any material labor dispute with, or claim of unfair labor
practices by, any Company employees;

(k) suffered any loss, damage, destruction or other casualty affecting any of
its material properties or assets, whether or not covered by insurance; or

(l) entered into any agreement to do any of the foregoing.

2.7 Taxes.

(a) The Company has (i) prepared and timely (taking into account any valid
extensions) filed all material Tax Returns required to be filed by the Company
and such Tax Returns are accurate and complete in all material respects, and
(ii) timely paid or accrued all material Taxes shown as being due on such Tax
Returns or for which the Company is otherwise liable as of the date hereof;

(b) The Company has not received written notice from any jurisdiction in which
the Company does not file a Tax Return that the Company is required to file a
Tax Return in such jurisdiction;

(c) No deficiency for any Taxes has been asserted, assessed or proposed against
the Company in writing that has not been resolved and paid in full;

(d) No action, audit or proceeding relating to Taxes or any Tax Returns of the
Company has been formally commenced or is presently pending, and no written
notification has been received that such action, audit or proceeding is pending
or threatened;

(e) There are no outstanding waivers or extensions regarding the application of
the statute of limitations with respect to any Tax;

(f) There are no Liens for Taxes upon the assets of the Company other than
statutory Liens for Taxes not yet due and payable;

(g) The Company is not, and has not been, a “United States Real Property Holding
Corporation” within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code;

(h) The Company has never been a member of an affiliated group (within the
meaning of Section 1504(a) of the Code) filing a consolidated federal income Tax
Return;

(i) The Company is not a party to or is bound by any Tax sharing or Tax
indemnity agreement or any other agreement of a similar nature;

(j) The Company is not and has not been a party to any “reportable transaction”
as defined in Treasury Regulation Section 1.6011-4(b); and

 

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(k) All material Taxes that the Company is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the appropriate Governmental Entity.

2.8 Intellectual Property.

(a) Section 2.8(a)(i) of the Company Disclosure Schedule sets forth a true and
complete list as of the date of this Agreement of all registered Trademarks and
applications for registration of Trademarks owned by or exclusively licensed to
the Company (collectively, “Company Registered Marks”), Section 2.8(a)(ii) of
the Company Disclosure Schedule sets forth a true and complete list as of the
date of this Agreement of all patents and patent applications owned by or
exclusively licensed to the Company (collectively, the “Company Patents”) and
Section 2.8(a)(iii) of the Company Disclosure Schedule sets forth a true and
complete list as of the date of this Agreement of all registered Copyrights and
all pending applications for registration of Copyrights owned by or exclusively
licensed to the Company (collectively, the “Company Registered Copyrights” and,
together with the Company Registered Marks and the Company Patents, the “Company
Registered IP”). No Company Registered IP has been or is now involved in any
interference, reissue, reexamination, opposition or cancellation proceeding and,
to the Knowledge of the Company, no such action is or has been threatened with
respect to any of the Company Registered IP. All issued Patents and registered
Trademarks included in the Company Registered IP have been registered or
obtained in accordance with all applicable legal requirements and are currently
in compliance in all material respects with all legal requirements (including
the timely post-registration filing of affidavits of use and incontestability
and renewal applications) other than any requirement that, if not satisfied,
would not result in a cancellation of any such issued Patents or registered
Trademarks or otherwise materially affect the priority, validity and
enforceability of such issued Patents or registered Trademarks. All issued
Patents and registered Trademarks included in the Company Registered IP are
valid, subsisting and, to the Knowledge of the Company, enforceable, and no
notice or claim challenging the validity or enforceability or alleging the
misuse of any such issued Patents or registered Trademarks has been received by
the Company. The Company has not taken any action or failed to take any action
that could reasonably be expected to result in the abandonment, cancellation,
forfeiture, relinquishment, invalidation or unenforceability of any of the
Company Registered IP, and all filing, examination, issuance, post-registration
and maintenance fees, annuities and the like associated with or required with
respect to any of the Company Registered IP have been timely paid.
Section 2.8(a)(iv) of the Company Disclosure Schedule sets forth a true and
complete list as of the date of this Agreement of all Software which is owned
by, or exclusively licensed to, the Company as of the date hereof. Except for
actions in the ordinary course of the Company’s business, there are no actions
that must be taken within four months from the date of this Agreement, including
the payment of fees or the filing of documents, for the purposes of maintaining,
perfecting, or renewing any rights in any registered or applied for Intellectual
Property listed in Section 2.8(a) of the Company Disclosure Schedule.

(b) Section 2.8(b)(i) of the Company Disclosure Schedule sets forth a true and
complete list as of the date of this Agreement of all Contracts to which the
Company is a party or otherwise bound granting any right to any material
Intellectual Property of the Company (collectively, the “Outbound License
Contracts”), indicating for each the title and the parties thereto.
Section 2.8(b)(ii) of the Company Disclosure Schedule sets forth a true and
complete

 

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list as of the date of this Agreement of all Contracts to which the Company is a
party or otherwise bound granting to the Company any material right under or
with respect to any Intellectual Property owned by a third party that is used in
connection with the business of the Company, other than commercially available
standard desktop software applications used generally in the Company’s
operations and that are licensed for a license fee of no more than $25,000 in
the aggregate pursuant to a “shrink wrap” or “click through” license
(collectively, the “Inbound License Contracts”), indicating for each the title
and the parties thereto. Section 2.8(b)(iii) of the Company Disclosure Schedule
lists the amount as of the date of this Agreement of any future royalty, license
fee or other payments that may become payable by the Company under each such
Inbound License Contract by reason of the use or exploitation of the
Intellectual Property licensed thereunder. No loss or expiration of any material
Intellectual Property licensed to the Company under any Inbound License Contract
is pending or reasonably foreseeable or, to the Knowledge of the Company,
threatened. Section 2.8(b)(iv) of the Company Disclosure Schedule sets forth a
true and complete list as of the date of this Agreement of all Contracts
restricting the Company’s rights to use or register any material Intellectual
Property owned by the Company (collectively, the “IP Contracts”). Each Outbound
License Contract, Inbound License Contract, and IP Contract is valid, binding
upon, and enforceable by or against the parties thereto in accordance with its
terms. The Company has complied in all material respects with, and is not in
breach nor has received any asserted or threatened claim of breach of, any
Outbound License Contract, Inbound License Contract, or IP Contract, and the
Company has no Knowledge of any material dispute, threatened dispute, breach or
anticipated material breach by any other Person to any such Contract.

(c) As of the date of this Agreement, except as would not, individually or in
the aggregate, have a Material Adverse Effect:

(i) The Company owns all right, title and interest in and to the Company
Registered IP and all other material Intellectual Property used in and which is
material to the business of the Company as currently conducted that is not
licensed to the Company pursuant to a written license agreement, free and clear
of any Liens or other adverse claims or interests, and the Company has not
received any notice or claim challenging the Company’s ownership of any of such
Intellectual Property. None of such Intellectual Property owned by the Company
is subject to any outstanding order, judgment, or stipulation restricting the
use thereof by the Company;

(ii) The Company is not, nor will, as a result of the execution and delivery of
this Agreement, the performance by the Company of any of its obligations
hereunder, or the consummation of the transactions contemplated hereby, be in
breach of any license, sublicense or other agreement relating to the
Intellectual Property used in the business of the Company as currently
conducted;

(iii) The Company is not a party to any currently pending Legal Proceeding which
involves a claim of infringement of any Intellectual Property right of any third
party, and has not received written notice of any such threatened claim;

(iv) None of the products or services distributed, sold or offered by the
Company, nor any technology, materials or other Intellectual Property used,
displayed, published, sold, distributed or otherwise commercially exploited by
or for the Company has

 

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infringed upon, misappropriated, or violated, or does infringe upon,
misappropriate or violate any Intellectual Property of any third party in any
material respect, and the Company has not received any notice or claim (whether
written, oral, or otherwise) asserting or suggesting that any such infringement,
misappropriation or violation is occurring or may have occurred. To the
Company’s Knowledge, no third party is misappropriating or infringing any
material Intellectual Property owned by the Company in any material respect; and

(v) The Company has taken commercially reasonable measures to protect and
maintain the confidentiality of all information that constitutes or that at any
time constituted a Trade Secret of the Company.

(d) As used in this Agreement, “Intellectual Property” shall mean all
intellectual property rights arising from or associated with the following,
whether protected, created or arising under the laws of the United States or any
other jurisdiction: (a) all inventions and discoveries (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications and patent disclosures, together with all
re-issuances, continuations, continuations-in-part, divisionals, revisions,
extensions and reexaminations thereof and any patents issued therefrom, and
rights in respect of utility models or industrial designs (collectively,
“Patents”); (b) all trade names, trademarks and service marks (whether
registered or unregistered), domain names and other Internet addresses or
identifiers, trade dress and similar rights, including all goodwill associated
therewith, and all applications, registrations and renewals (including intent to
use applications) in connection therewith (collectively, “Trademarks”); (c) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith (whether registered or unregistered)
(collectively, “Copyrights”); (d) all know-how, trade secrets, technical
information and confidential business information (whether patentable or
unpatentable and whether or not reduced to practice), including inventions,
discoveries, algorithms, ideas, research and development, formulas,
compositions, manufacturing and production processes, techniques and methods,
technical data, designs, drawings, blueprints, patterns, specifications,
assembly procedures, test procedures, instruction manuals, operation manuals,
maintenance manuals, reliability data, quality control data, customer and
supplier lists, parts lists, pricing and cost information and business and
marketing plans and proposals (collectively, “Trade Secrets”); (e) all computer
software (excluding generally commercially available software licensed on
standard terms or having an acquisition price of less than $100,000), including
data and related documentation (collectively, “Software”); and (f) all other
moral rights, publicity rights and any other proprietary, intellectual or
industrial property rights of any kind or nature that do not comprise or are not
protected by Trademarks, Patents, Copyrights or Trade Secrets.

(e) Export Restrictions. The Company has not exported or transmitted products or
other materials in connection with the Company’s business to any country to
which such export or transmission is restricted by any applicable law, without
first having obtained all necessary and appropriate United States or foreign
government licenses or permits.

(f) Employee Confidentiality Agreements. All current and former employees,
consultants and contractors of the Company who have participated in the creation
of any Intellectual Property that is used by the Company in the conduct of their
respective businesses have entered into proprietary information, confidentiality
and assignment agreements substantially in the Company’s standard forms as
provided to Parent. To the Company’s

 

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Knowledge, no employee of or consultant to the Company is obligated under any
agreement or subject to any judgment, decree or order of any Governmental
Entity, or any other restriction that would interfere with the use of his or her
best efforts to carry out his or her duties for the Company or to promote the
interests of the Company or that would conflict with the Company’s business. To
the Company’s Knowledge, at no time during the conception of or reduction to
practice of any Intellectual Property owned by the Company was any developer,
inventor or other contributor to such Intellectual Property operating under any
grants from any Governmental Entity or private source, performing research
sponsored by any Governmental Entity or private source or subject to any
employment agreement or invention assignment or nondisclosure agreement or other
obligation with any third party that could adversely affect the Company’s rights
in such Intellectual Property. To the Company’s Knowledge, there exist no
inventions by current and former employees or consultants of the Company, made
or otherwise conceived prior to their beginning employment or consultation with
the Company, that have been or will be incorporated into any of the Company’s
Intellectual Property or products.

(g) Names. Section 2.8(g)(i) of the Company Disclosure Schedule sets forth a
list as of the date of this Agreement of all of the corporate names used by the
Company (collectively, the “Names”). Section 2.8(g)(ii) of the Company
Disclosure Schedule sets forth a list of all jurisdictions, and the locations in
such jurisdictions, in which the Names, or any variations thereof, are used by
the Company as of the date of this Agreement. The Company has the full legal
right to use the Names in each of such jurisdictions and locations. The Company
has not granted any third party any right to use any Name or any variations
thereof.

2.9 Compliance; Permits.

(a) Compliance. The Company is not in violation of any Legal Requirement
applicable to the Company, except for violations that, individually or in the
aggregate, have not and would not cause the Company to lose any material benefit
or incur any material liability. The Company has not received during the past
five years any notice, order, complaint or other communication from any
Governmental Entity or any other Person that the Company is not in compliance in
any material respect with any law applicable to it. As of the date hereof, no
investigation or review by any Governmental Entity is pending or, to the
Knowledge of the Company, threatened, against the Company. There is no judgment,
injunction, order or decree binding upon the Company which has, or would
reasonably be expected to have, the effect of prohibiting or materially
impairing any material business practice of the Company, any acquisition of
material property by the Company or the conduct of business by the Company as
currently conducted.

(b) Permits. The Company holds all permits, licenses, variances, clearances,
consents, commissions, franchises, exemptions, orders, approvals, certificates,
waivers, concessions, registrations, or other authorizations of any Governmental
Entities (“Permits”) that are material to the operation of the Company’s
business as currently conducted (collectively, “Company Permits”). As of the
date hereof, no suspension, cancellation, modification, revocation or nonrenewal
of any of the Company Permits is pending or, to the Knowledge of the Company,
threatened. The Company is in compliance in all material respects with the terms
of the Company Permits. The Company will continue to have the use and benefit of
all Company Permits following consummation of the transactions contemplated
hereby. Section 2.9(b) of the Company Disclosure Schedule sets forth as of the
date hereof each of the material Company Permits.

 

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2.10 Litigation. There are no claims, suits, actions, inquiries, audits,
investigations or proceedings pending or, to the Knowledge of the Company,
threatened against the Company or any material property or asset of the Company,
before any Governmental Entity, or any arbitrator, or any other arbitration,
mediation or similar proceeding (each, a “Legal Proceeding”) that seeks to
restrain, enjoin or prevent the consummation of the transactions contemplated
hereby or which has had or would reasonably be expected to have a Material
Adverse Effect.

2.11 Brokers’ and Finders’ Fees; Fees and Expenses. Except for fees and expense
reimbursement payments payable to SG Americas Securities, LLC (“SGAS”) pursuant
to the Company’s engagement letter with SGAS dated August 25, 2005 (the “SGAS
Engagement Letter”), the Company has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage, investment banking or finders’ fees
or agents’ commissions or any similar charges in connection with this Agreement
or the transactions contemplated hereby. The Company has furnished to Parent a
complete and correct copy of all agreements between the Company and SGAS
pursuant to which SGAS would be entitled to any payment relating to the
transactions contemplated hereby.

2.12 Employee Benefit Plans.

(a) Schedule; Definitions. Section 2.12(a) of the Company Disclosure Schedule
sets forth a list of all material Employee Plans of the Company as of the date
of this Agreement. For purposes of this Agreement, the following terms have the
following definitions:

“Benefit Arrangement” means any material employment, termination, change in
control or severance contract, arrangement or policy and each material plan,
arrangement, program, agreement or commitment providing for insurance coverage
(without limitation, any self-insured arrangements), workers’ compensation,
disability benefits, supplemental unemployment benefits, retirement benefits,
life, health or accident benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights, stock purchases or other
forms of incentive compensation which, in each case, (a) is not a Welfare Plan
or Pension Plan, (b) is entered into, maintained, contributed to or required to
be contributed to, as the case may be, by the Company, and (c) covers any
Employee or their beneficiaries.

“Employee” means any current or former employee or director of the Company or
any of its Subsidiaries.

“Employee Plans” means all Benefit Arrangements, multiemployer plans, Pension
Plans and Welfare Plans.

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

“ERISA Affiliate” shall mean any trade or business, whether or not incorporated,
that together with the Company would be deemed a “single employer” within the
meaning of Section 4001(b) of ERISA.

 

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“Pension Plan” means any “employee pension benefit plan” as defined in
Section 3(2) of ERISA (other than a multiemployer plan) which the Company
maintains or is required to contribute to or with respect to which the Company
or any ERISA Affiliate has any liability (contingent or direct).

“Welfare Plan” means any “employee welfare benefit plan” as defined in
Section 3(1) of ERISA, which the Company maintains or is required to contribute
to, and under which the Company or any ERISA Affiliate may incur any liability.

(b) Benefit Plans. With respect to each Employee Plan, the Company has delivered
or made available to Parent a true, complete and correct copy of (i) such
Employee Plan and the most recent summary plan description, if any, related to
such Employee Plan, (ii) each trust agreement or other funding arrangement
relating to such Employee Plan, (iii) the two most recent annual reports (Form
5500) filed with the IRS with respect to such Employee Plan, (iv) the most
recent actuarial report or financial statement relating to such Employee Plan,
and (v) the most recent determination letter, if any, issued by the IRS with
respect to such Employee Plan.

(c) Compliance. Each Employee Plan has been administered in all material
respects in accordance with its terms and in compliance with all applicable law,
including ERISA and the Code.

(d) Qualification. The Company on behalf of itself and each ERISA Affiliate
hereby represents that: (i) each Employee Plan which is intended to qualify
under Section 401(a), Section 401(k), Section 401(m) or Section 4975(e)(7) of
the Code has received a favorable determination letter or similar letter from
the IRS as to its qualified status, and, to the Knowledge of the Company, no
event has occurred since the date of such letter that could reasonably be
expected to result in loss of tax qualification. No suit, administrative
proceeding, action or other litigation has been brought that has not been
satisfied, or to the Knowledge of the Company, is threatened, against or with
respect to any such Employee Plan, including any audit or inquiry by the IRS or
United States Department of Labor (other than routine benefits claims by
Employee Plan participants or beneficiaries).

(e) Title IV Pension Plans. No Employee Plan is a Pension Plan subject to Title
IV of ERISA. No material liability under Title IV of ERISA has been incurred by
Company that has not been satisfied in full, and no condition exists that
presents a material risk to Company or any ERISA Affiliate of incurring or being
subject (whether primarily, jointly or secondarily) to a material liability
thereunder.

(f) Effect of Transaction/280G. Except as expressly contemplated by this
Agreement, neither the execution of this Agreement nor the consummation of the
transactions contemplated by this Agreement will constitute an event under any
Employee Plan that will require or trigger any material payment (severance pay
or otherwise), acceleration of payment, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any Employee. No such payment will fail to be deductible by the Company for
federal income tax purposes due to the operation of Section 280G of the Code.

 

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(g) Labor. The Company is not a party to any collective bargaining agreement or
union contract with respect to Employees and no collective bargaining agreement
is being negotiated by the Company. There is no labor dispute, strike or work
stoppage against the Company pending or, to the Knowledge of the Company,
threatened or reasonably anticipated which may materially interfere with the
respective business activities of the Company. To the Knowledge of the Company,
neither the Company nor any of its representatives or Employees has committed
any material unfair labor practice in connection with the operation of the
Company’s business. There are no actions, suits, claims, labor disputes or
grievances pending, or, to the Knowledge of the Company, threatened relating to
any labor, safety or discrimination matters involving any Employee, including
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, be material to
the Company. The Company has not engaged in any unfair labor practices within
the meaning of the National Labor Relations Act.

(h) Employment Matters. The Company is in compliance with all applicable
foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment, employee
safety and wages and hours, except where non-compliance would not be material to
the Company.

2.13 Title to Properties.

(a) Properties. The Company does not own any real property. Section 2.13(a) of
the Company Disclosure Schedule sets forth a true, complete and correct list as
of the date hereof of all real property currently leased by the Company. All
such current leases are in full force and effect, and to the Knowledge of the
Company there is not, under any of such leases, any existing default or event,
which with notice or lapse of time, or both, would constitute a material
default. With respect to each such current leased property (i) there are no
pending or, to the Knowledge of the Company, threatened condemnation proceedings
relating to the Company’s leasehold interests in such leased property or any
portion thereof, and (ii) the Company has not received written notice of any
pending or threatened special assessment relating to such leased property or
otherwise have any Knowledge of any pending or threatened special assessment
relating thereto.

(b) Title. The Company has title to, or, in the case of leased properties and
assets, valid leasehold interests in, all of its tangible properties and assets
used or held for use in its business, free and clear of any Liens except
(i) Liens imposed by law in respect of obligations not yet due which are owed in
respect of Taxes, (ii) mechanic’s and materialman’s liens incurred in the
ordinary course of business, and (iii) Liens which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.

2.14 Environmental Matters.

(a) Hazardous Material. To the Knowledge of the Company, no underground storage
tanks and no amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including PCBs, asbestos, petroleum, toxic mold, urea-formaldehyde
and all substances listed as hazardous substances pursuant to the Comprehensive

 

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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, but excluding office and janitorial supplies (a “Hazardous
Material”), are present on any property now or formerly owned, leased or
operated by the Company.

(b) Hazardous Materials Activities. Except as would not be reasonably likely to
result in a material liability to the Company, the Company has not transported,
stored, used, manufactured, disposed of, released, removed or exposed its
Employees or others to Hazardous Materials or manufactured any product
containing a Hazardous Material in violation of any Environmental Law.

(c) Environmental Claims. As of the date hereof, (i) there are no existing or,
to the Knowledge of the Company, threatened environmental claims against the
Company, and (ii) the Company has not received any written, or to the Knowledge
of the Company, oral notification of any allegation of any actual, or potential
responsibility for, or any inquiry or investigation regarding, any disposal,
release or threatened release at any location of any Hazardous Material
generated or transported by the Company.

(d) Disclosure. The Company does not have, and has never commissioned the
preparation of, any environmental documents, studies or reports (including
without limitation, Phase I and Phase II investigation reports) relating to
(i) any facilities or real property ever owned, operated or leased by the
Company, or (ii) any environmental liability of the Company.

(e) Environmental Law. “Environmental Law” means all Legal Requirements
(including common law) regulating (i) the use, handling, management, storage,
disposal, transport, release or remediation of Hazardous Material, (ii) the
exposure of persons to Hazardous Materials, (iii) occupational health and
safety, or (iv) pollution or protection of the environment, including without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Clean Air Act, the
Water Pollution Control Act, the Safe Drinking Water Act, the New Jersey
Industrial Sites Recovery Act and the Toxic Substances Control Act.

2.15 Contracts.

(a) Scheduled Contracts. For purposes of this Agreement, “Company Scheduled
Contract” shall mean the following Contracts to the extent in effect on the date
hereof:

(i) each Contract with (A) each of the top ten customers of the Company based on
revenues recognized by the Company from such customers in 2005 and (B) each of
the top ten manufacturers or suppliers of the Company based on costs recognized
by the Company in 2005 for the purchase of products or services;

(ii) any Contract providing for indemnification to or from any Person with
respect to liabilities arising from or relating to any current or former
business of the Company or any predecessor Person, or any guaranty other than
product warranties or any agreement of indemnification entered into in
connection with any sale or license of products, technology, Intellectual
Property or services;

 

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(iii) any Contract containing any covenant of the Company (A) limiting, or
purporting to limit, in any respect the ability of the Company to engage in any
line of business or operate in any geographic area or compete with any Person
during any period of time, (B) granting any exclusive distribution rights,
(C) agreeing to purchase a minimum amount of goods or services in excess of
$250,000 in the aggregate in any consecutive 12-month period, (D) agreeing to
purchase goods or services exclusively from any Person or (E) requiring the
Company to give “most favored nation” pricing to any customer, potential
customer or any class of customers or to provide exclusive or “most favored
nation” access to any product or product features, excluding customizations, to
any customers, potential customers or any class of customers (it being
understood that agreements to provide updates, enhancements or new versions of
Company products as they become available shall not be considered “most favored
nation” access) or any type of special discount rights to any customer,
potential customer or any class of customers;

(iv) any Contract pursuant to which the Company has any material ownership
interest in any other Person or other business enterprise;

(v) any Contract requiring the Company to provide proprietary technology or
know-how to any third party for any product or manufacturing process or
technique that is material to the Company;

(vi) any Contract containing any material support, maintenance or service
obligation on the part of the Company, other than warranty obligations in the
ordinary course of business;

(vii) any mortgages, notes, indentures, guarantees, loans or credit agreements,
grants of security interests or other Contracts relating to Company Indebtedness
in a principal amount in excess of $150,000 that is outstanding or may be
incurred on the terms thereof, other than accounts receivables and payables
incurred in the ordinary course of business consistent with past practice;

(viii) any other agreement, contract or commitment that involves future
expenditures or obligations by or of the Company in excess of $250,000 in any
consecutive 12-month period in any individual case;

(ix) any Contract with any officer or director of the Company, other than
(A) advances or reimbursement for travel and entertainment expenses, (B) any
standard form of invention assignment and confidentiality agreement,
(C) employee benefits generally available to Employees of the Company (including
stock options), (D) Benefit Arrangements with an Affiliate listed in
Section 2.12(a) of the Company Disclosure Schedule, and (E) “at will” employment
offer letters;

(x) any Contract to which the Company and any holder of more than 10% of the
shares of Company Stock (calculated on an as-converted basis) outstanding on the
date hereof are parties;

(xi) any employment Contract, other than Contracts for employment covered in
clause (ix) of this Section 2.15, that involves an aggregate future or potential
liability in excess of $150,000;

 

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(xii) any Contract relating to settlement of any administrative or judicial
proceedings within the past five years; and

(xiii) any other Contract that is material to the Company.

(b) Schedule. Section 2.15(b) of the Company Disclosure Schedule sets forth a
list of all Company Scheduled Contracts to which the Company is a party or by
which the Company is bound as of the date hereof. The Company has made available
to Parent true, complete and correct copies of each Contract listed in
Section 2.15(b) of the Company Disclosure Schedule.

(c) No Breach. Each Company Scheduled Contract is (i) a legal, valid, and
binding agreement, (ii) in full force and effect, and (iii) enforceable against
the Company and, to the Knowledge of the Company, against the other parties
thereto, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws now or hereafter in effect relating
to creditors’ rights generally. The Company has not received any written notice
from the counter-party to a Company Scheduled Contract threatening to terminate
such Company Scheduled Contract. Neither the Company nor, to the Knowledge of
the Company, any other party is in breach or has violated any provision of, or
committed or failed to perform any act which, with or without notice, lapse of
time or both would constitute a material default under the provisions of, any
Company Scheduled Contract which is in effect as of the date hereof.

2.16 Disclosure.

(a) None of the information supplied or to be supplied by or on behalf of the
Company for inclusion in any information statement or other disclosure document
related to the Stockholders’ Meeting, if any, or otherwise distributed generally
to the holders of Company Stock in connection with seeking the Required
Stockholder Approvals (as it may be amended or supplemented, the “Information
Statement”) will, at the time the Information Statement is so distributed to the
holders of Company Stock, at the time of the Stockholders’ Meeting, if any, or
at the time the last consent in writing required to effect the Required
Stockholder Approvals is executed, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Information
Statement, insofar as it relates to the Stockholders’ Meeting, if any, or a
solicitation of written consents from the holders of Company Stock for approval
of this Agreement and the transactions contemplated hereby, will comply as to
form in all material respects with the provisions of the DGCL. If at any time
prior to the Stockholders’ Meeting, if any, or the time the last consent in
writing required to effect the Required Stockholder Approvals is executed, any
event relating to the Company should be discovered by the Company, which should
be set forth in a supplement to the Information Statement, the Company shall
promptly inform Parent and shall promptly prepare and distribute such
supplement. Notwithstanding the foregoing, no representation or warranty is made
by the Company with respect to statements made in the Information Statement
about Parent supplied by Parent for inclusion therein.

2.17 Fairness Opinion. The Board of Directors of the Company has received the
opinion of SGAS dated the date of this Agreement, to the effect that, as of the
date of this Agreement, the

 

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Per Share Merger Consideration is fair, from a financial point of view, to the
holders of Company Stock (other than Parent). The Company has provided, or will
promptly provide, a true and correct copy of such opinion to Parent. As of the
date hereof, such opinion has not been withdrawn, revoked or modified.

2.18 Insurance. Section 2.18 of the Company Disclosure Schedule sets forth a
true and complete list as of the date hereof of all policies or binders of
casualty, fire, general liability, product liability, workmen’s compensation,
vehicular, directors’ and officers’ liability and all other types of insurance
held by or on behalf of the Company as of the date hereof, together with
carriers and liability limits for each such policy. As of the date hereof, such
policies and binders are in full force and effect and are in conformity in all
material respects with the requirements of all leases or other agreements to
which the Company is a party. No application for such policies or binders
included a material misstatement or omission. The Company is not in default in
any material respect with respect to any provision contained in any such policy
or binder. As of the date hereof, there are no outstanding unpaid claims under
any such policy or binder and the Company has not received any notice of
cancellation, termination, reduction of coverage or non-renewal of any such
policy or binder. No claim currently is pending under any such policy or binder
involving an amount in excess of $50,000.

2.19 Product Liability. Section 2.19 of the Company Disclosure Schedule contains
an accurate summary of the Company’s standard warranty policies as of the date
hereof. There are no exceptions to the standard warranty policies applicable to
the assets of or products sold by the Company. To the Company’s Knowledge, there
is no product liability, warranty, material backcharge, material additional
work, field repair or other claims by any third party (whether based on contract
or tort and whether relating to personal injury, including death, property
damage or economic loss) arising from (a) services rendered by the Company, or
(b) the sale, distribution, erection or installation of products by the Company,
or the manufacture of products by the Company whether delivered to a customer
before or after the Closing Date (except with respect to any liability or
obligation arising out of or related to any action by Parent after the Closing
Date).

2.20 Inventories. The inventories of the Company, whether reflected on the
Company Balance Sheet or subsequently acquired, are generally of a quality and
quantity usable and/or salable in the ordinary course of business. The
inventories of the Company as of the date of the Company Balance Sheet are
reflected on the Company Balance Sheet and in the books and records of the
Company in accordance with GAAP applied on a basis consistent with past practice
(except as described in the notes to the Company Balance Sheet).

2.21 Affiliate Transactions.

(a) No Affiliate of the Company (i) owns or has owned, directly or indirectly,
or has or has had any interest in, any property (real or personal, tangible or
intangible) that the Company uses or has used in or pertaining to the business
of the Company, or (ii) has or has had any business dealings or a financial
interest in any transaction with the Company or involving any assets or property
of the Company, other than business dealings or transactions conducted in the
ordinary course of business at prevailing market prices and on prevailing market
terms.

 

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(b) There are no outstanding notes payable to, accounts receivable from or
advances by the Company to, and the Company is not a debtor or creditor other
than in respect of employee advances for travel and entertainment expenses made
in the ordinary course of business, and has no liability or other obligation of
any nature to, any Affiliate of the Company. Since the date of the Company
Balance Sheet, the Company has not incurred any obligation or liability to, or
entered into or agreed to enter into any transaction with or for the benefit of,
any Affiliate of the Company, other than (i) the transactions contemplated by
this Agreement, and (ii) compensatory payments made and benefits granted to,
advances or reimbursement for travel and entertainment expenses made to, and the
Company’s guarantee of the corporate American Express credit card for the
benefit of, the Company’s Chief Executive Officer.

(c) For the avoidance of doubt, for purposes of this Section 2.21, neither Van
Houtte, Inc. nor any of its Affiliates shall be deemed to be an Affiliate of the
Company. Section 2.21(c) of the Company Disclosure Schedule lists all Contracts
between Van Houtte, Inc. and/or any of its Affiliates and the Company.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF

PARENT AND MERGER SUB

Parent and Merger Sub jointly and severally represent and warrant to the
Company, as follows:

3.1 Organization; Standing and Power; Organizational Documents.

(a) Organization; Standing and Power. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and has the requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted.

(b) Organizational Documents. Parent has delivered or made available to the
Company a true and correct copy of (i) the certificate of incorporation and
bylaws, or other analogous organizational or governing documents, of Parent,
each as amended to date (collectively, the “Parent Organizational Documents”)
and (ii) the certificate of incorporation and bylaws of Merger Sub, each as
amended to date (the “Merger Sub Organizational Documents”). Each of the Parent
Organizational Documents and the Merger Sub Organizational Documents is in full
force and effect and neither Parent nor Merger Sub is in violation of any of the
provisions of the Parent Organizational Documents or the Merger Sub
Organizational Documents, respectively.

3.2 Authority; Non-Contravention; Necessary Consents.

(a) Authority. Each of Parent and Merger Sub has all requisite corporate power
and authority to execute and deliver this Agreement, to perform their respective
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery by Parent and Merger Sub of this Agreement, the
performance by Parent and Merger Sub of their respective obligations hereunder
and the consummation by Parent and Merger Sub of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of Parent and Merger Sub. This Agreement has been duly

 

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executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes a valid
and binding obligation of Parent and Merger Sub, enforceable against Parent and
Merger Sub in accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws now or
hereafter in effect relating to creditors’ rights generally and by general
principles of equity. Parent, as the sole stockholder of Merger Sub, has
approved and adopted this Agreement.

(b) Non–Contravention. The execution and delivery of this Agreement by Parent
and Merger Sub does not, and the performance by Parent and Merger Sub of their
obligations hereunder and the consummation by Parent and Merger Sub of the
transactions contemplated hereby do not and will not: (i) conflict with or
violate the Parent Organizational Documents or the Merger Sub Organizational
Documents, (ii) subject to compliance with the requirements set forth in
Section 3.2(c), conflict with or violate any material Legal Requirement
applicable to Parent or Merger Sub or (iii) result in any breach of, constitute
a default (or an event that, with notice or lapse of time or both, would become
a default) under, require any consent of any Person pursuant to, impair Parent’s
rights or alter the rights or obligations of any third party under, or give to
others any right of termination, amendment, modification, acceleration or
cancellation of, allow the imposition of any fees or penalties under, require
the offering or making of any payment or redemption under, give rise to any
increased, guaranteed, accelerated or additional rights or entitlements of any
Person or otherwise adversely affect any rights of the Parent under, or result
in the creation of a Lien on any properties or assets of Parent pursuant to, any
note, bond, mortgage, indenture, permit, franchise, obligation or other Contract
to which Parent is a party or by which Parent or any of its properties or assets
are bound, except as would not, individually or in the aggregate, reasonably be
expected to impair or delay in any material respect Parent’s or Merger Sub’s
ability to timely perform their respective obligations hereunder or timely
consummate the transactions contemplated hereby.

(c) Necessary Consents. No consent, approval, order, permit or authorization of,
or registration, declaration, notice or filing with, any Governmental Entity is
required to be filed, sought, obtained or made by Parent or Merger Sub in
connection with the execution and delivery by Parent and Merger Sub of this
Agreement, the performance by Parent and Merger Sub of their respective
obligations hereunder or the consummation by Parent and Merger Sub of the
transactions contemplated hereby, except for the Necessary Consents.

3.3 Availability of Funds. Parent currently has binding written commitments (the
“Commitment Letters”) from responsible financial institutions to provide,
subject to the terms and conditions set forth therein, the funds necessary to
pay the Purchase Price and consummate the transactions contemplated by this
Agreement, including the payment of fees and expenses that are for the account
of Parent. True and correct copies of the Commitment Letters have been
previously furnished to the Company. At the Closing, Parent shall have
sufficient immediately available funds, in cash, to pay the aggregate amounts
payable hereunder to the Company Securityholders and to provide the Company with
or disburse directly the funds to be so provided or disbursed pursuant to
Section 1.10.

3.4 Disclosure. None of the information supplied or to be supplied by or on
behalf of Parent or Merger Sub for inclusion in the Information Statement will,
at the time the Information Statement is distributed to the stockholders of the
Company, at the time of the Stockholders’

 

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Meeting, if any, or at the time the last consent in writing required to effect
the Required Stockholder Approvals is executed, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, no representation or warranty is made by Parent or Merger Sub with
respect to any statements made or information included in the Information
Statement not supplied by Parent or Merger Sub for inclusion therein.

3.5 Board Approval. On or prior to the date hereof, the board of directors of
each of Parent and Merger Sub has, at a meeting thereof duly called and held, or
by written consent, (i) determined the Merger to be advisable and (ii) approved
this Agreement and the transactions contemplated hereby, including the Merger.

3.6 Parent Ownership of Company Stock. Parent owns beneficially and is entitled
to vote (i) 1,642,727 shares of Company Common Stock, (ii) 42,323 shares of
Series A Preferred Stock, (iii) 115,546 shares of Series B Preferred Stock and
(iv) 470,708 shares of Series C Preferred Stock.

ARTICLE IV

CONDUCT BY THE COMPANY PRIOR TO THE

EFFECTIVE TIME OF THE MERGER

4.1 Conduct of Business by the Company.

(a) Ordinary Course. During the period from the date hereof and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, the Company shall, except as otherwise expressly contemplated by
this Agreement or to the extent that Parent shall otherwise consent in writing
(i) carry on its business only in the ordinary course, (ii) pay its debts and
Taxes when due, and pay or perform other material obligations when due,
(iii) use reasonable efforts to preserve substantially intact its present
business organization and assets, taken as a whole, (iv) use reasonable efforts
to keep available the services of the current officers, employees and
consultants of the Company and (v) use reasonable efforts to manage in the
ordinary course its business relationships with customers, suppliers and other
Persons with which the Company has significant business relations.

(b) Required Consent. Without limiting the generality of Section 4.1(a), except
as permitted or contemplated by the terms of this Agreement, and except as
provided in Section 4.1(b) of the Company Disclosure Schedule, without the prior
written consent of Parent, during the period from the date hereof and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Effective Time, the Company shall not, directly or indirectly, do any of the
following:

(i) Amend the Company Organizational Documents;

(ii) Adopt a plan of complete or partial liquidation or dissolution;

(iii) Declare, accrue, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any Company Stock (other than dividend accruals in respect of the Series B
Preferred Stock and

 

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Series C Preferred Stock), or split, combine or reclassify any Company Stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for, any Company Stock (other than distributions of cash
of the Company (as defined by GAAP));

(iv) Purchase, redeem or otherwise acquire, directly or indirectly, any shares
of Company Stock;

(v) Issue, sell, pledge, dispose of or otherwise subject to any encumbrance any
shares of capital stock of the Company, or any securities convertible into
shares of capital stock of the Company, or subscriptions, rights, warrants or
options to acquire any shares of capital stock of the Company or any securities
convertible into shares of capital stock of the Company, or any other ownership
interest in the Company, or enter into other agreements or commitments of any
character obligating it to issue any such securities or rights, other than
issuances of Company Common Stock upon the exercise of Company Options or
Company Warrants or upon the conversion of shares of Company Preferred Stock;

(vi) Acquire any corporation, partnership, limited liability company, other
business organization or division thereof or any material amount of assets
thereof, or any material equity or voting interest in or a material portion of
the assets of any business or any Person or division thereof, or enter into any
joint venture, strategic alliance or similar contract or arrangement;

(vii) Sell, lease, license or otherwise dispose of any properties or assets of
the Company except (A) properties or assets which are not, individually or in
the aggregate, material to the business of Company or (B) the sale, licensing
and distribution of Company products, technology and services in the ordinary
course of business consistent with past practice;

(viii) Make any loans, advances or capital contributions to, or investments in,
any other Person (excluding the Company’s guarantee of the corporate American
Express credit cards provided to certain Company employees), other than employee
advances for travel and entertainment expenses made in the ordinary course of
business consistent with past practice and trade accounts receivable;

(ix) Except as required by GAAP as concurred with by its independent auditors,
make any material change in its methods, principles or practices of accounting;

(x) Make or change any Tax election, change any annual Tax accounting period,
adopt or change any method of Tax accounting, file any amended Tax Return, enter
into any closing agreement, settle any Tax claim or assessment, surrender any
right to claim a Tax refund, or consent to the extension or waiver of the
limitations period applicable to any Tax claim or assessment;

(xi) Write down any of its assets, including any write down of the value of
inventory or accounts receivable, other than in the ordinary course of business;

(xii) Commence or enter into any settlement of any Legal Proceeding other than
settlements involving only the payment of money in an amount not in excess of
$100,000 individually for any one settlement or $250,000 in the aggregate for
all such settlements, other than in connection with this Agreement and the
transactions contemplated hereby;

 

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(xiii) Except as required by Legal Requirements, Employee Plans, Contracts
currently binding on the Company or policies of the Company currently in effect
which are, in the case of such Contracts and policies, set forth in
Section 2.12(a) of the Company Disclosure Schedule, and except as contemplated
by this Agreement, (A) increase in any manner the amount of compensation or
fringe benefits of, pay any bonus to or grant severance or termination pay to
any Employee of the Company, (B) make any increase in or commitment to increase
any benefits provided under any Employee Plan (including any severance plan),
adopt or amend or make any commitment to establish, terminate, adopt or amend
any Employee Plan or make any contribution, other than regularly scheduled
contributions made to an Employee Plan in effect on the date hereof, (C) enter
into, amend or terminate any employment, severance, termination or
indemnification agreement (other than “at-will” offer letters, and employment
agreements in any jurisdiction outside the United States on substantially the
same terms as the Company’s existing employment agreements in such jurisdiction)
or enter into any collective bargaining agreement, or (D) enter into any
agreement with any Employee the benefits of which are (in whole or in part)
contingent or the terms of which are altered upon the occurrence of a
transaction involving the Company of the nature contemplated hereby; provided,
that (x) nothing herein shall be construed as prohibiting the Company from
taking actions that are described in Section 4.1(b)(v) hereof and (y) nothing
herein shall prohibit the Company from entering into severance agreements and
granting severance or termination pay to any Employee in the ordinary course of
business in connection with the termination of such Employee’s employment in
reasonable amounts as the Company deems advisable, in its good faith judgment,
to avoid a material risk of litigation, not to exceed $150,000 in the aggregate
or $50,000 to any single Employee;

(xiv) Forgive or cancel any debts or claims other than in the ordinary course of
business, or waive, cancel, terminate or allow to lapse any material
Intellectual Property rights or other rights material to the Company’s business;

(xv) Enter into or renew any Contracts containing, or otherwise subject the
Surviving Corporation or Parent to, any non-competition or exclusivity
restrictions on the Company or the Surviving Corporation or Parent, or any of
their respective businesses, following the Closing;

(xvi) Take any action that would or is reasonably likely to result in any of the
conditions to the Merger set forth in Article VI not being satisfied, that would
impair the ability of the Company to consummate the Merger in accordance with
the terms hereof or materially delay such consummation;

(xvii) Hire (A) any non-senior management level employees other than in the
ordinary course of business consistent with past practice or (B) any senior
management level employees;

(xviii) Incur any Company Indebtedness other than Company Indebtedness under the
Company’s Loan and Security Agreement dated August 18, 2005 with Silicon Valley
Bank in order to fund working capital needs in the ordinary course of business
(“Permitted Indebtedness”);

 

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(xix) Mortgage, pledge or subject to any Lien, any properties or assets, except
in connection with Permitted Indebtedness and except for inchoate liens for
Taxes not yet due and payable;

(xx) Make or commit to make capital expenditures in excess of $250,000 in the
aggregate in any consecutive 12 month period;

(xxi) Enter into any Contract requiring the Company to pay in excess of $150,000
in the aggregate in any one month period, except in the ordinary course of
business; or

(xxii) Agree to take any of the actions described in (i) through (xxi) above.

ARTICLE V

ADDITIONAL AGREEMENTS

5.1 Vote of Company Stockholders.

(a) Written Consents or Meeting of Company Stockholders. As promptly as
reasonably practicable after the execution hereof, subject to Section 5.3(d),
the Company will use all reasonable efforts, including if necessary soliciting
from its stockholders written consents or proxies to obtain, as expeditiously as
reasonably practicable, the Required Stockholder Approvals. To the extent
required to obtain the Required Stockholder Approvals, the Company shall call
and convene a meeting of its stockholders (the “Stockholders’ Meeting”) in
accordance with the DGCL and the Company Organizational Documents to consider
and vote on proposals to effect the Required Stockholder Approvals (the “Company
Proposals”). Notwithstanding anything to the contrary contained in this
Agreement, the Company may adjourn or postpone the Stockholders’ Meeting to the
extent necessary to ensure that any supplement or amendment to the Information
Statement is provided to its stockholders in advance of a vote on the Company
Proposals or, if as of the time for which the Stockholders’ Meeting is
originally scheduled there are insufficient shares of Company Stock represented
(either in person or by proxy) to constitute a quorum necessary to conduct the
business of such Stockholders’ Meeting.

(b) Parent Review of Information Statement. The Company will provide Parent (and
its counsel) with a reasonable opportunity to review any Information Statement
and comment thereon prior to its distribution to the Company’s stockholders, and
will provide Parent with a copy thereof concurrently with such distribution (it
being understood that in connection with seeking the Required Stockholder
Approvals, provision to the Company’s stockholders of a copy of this Agreement
and the financial statements of the Company is hereby agreed to). The Company
shall promptly advise Parent in writing if at any time prior to the Effective
Time the Company obtains knowledge of any facts that might make it necessary or
appropriate to amend or supplement the Information Statement in order to make
the statements contained therein not misleading.

 

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(c) Parent Written Consent. Concurrently with the execution and delivery of this
Agreement, Parent has delivered to the Company a written consent of Parent in
its capacity as a holder of Company Stock, with respect to all shares of Company
Stock owned by Parent, in favor of effecting the Required Stockholder Approvals,
which consent Parent acknowledges is coupled with an interest and shall be
irrevocable.

5.2 Board Recommendation. Except as permitted by Section 5.3(d), until the time
that the Required Stockholder Approvals are obtained, (i) the Company’s Board of
Directors shall recommend that the Company’s stockholders vote in favor of the
Company Proposals, (ii) any Information Statement shall include a statement to
the effect that the Company’s Board of Directors has recommended that the
Company’s stockholders vote in favor of the Company Proposals, and (iii) neither
the Company’s Board of Directors nor any committee thereof shall withdraw, amend
or modify, or propose or resolve to withdraw, amend or modify in a manner
adverse to Parent, the recommendation of the Company’s Board of Directors that
the Company’s stockholders vote in favor of the Company Proposals.

5.3 Acquisition Proposals.

(a) No Solicitation. The Company agrees that neither it nor any of its officers
and directors shall, and that it shall take all action necessary to ensure that
none of its Affiliates or Representatives shall, directly or indirectly:
(i) solicit, initiate, knowingly encourage or knowingly facilitate any
inquiries, proposals or offers with respect to, or the making, submission or
announcement of, any Acquisition Proposal; (ii) participate in any discussions,
conversations, negotiations or other communications (in each case, other than to
refer to the Company’s inability hereunder to participate in any such
discussion, conversation, negotiation or other communication) regarding, or
furnish to any Person (other than Parent and its Representatives) any nonpublic
information with respect to, any Acquisition Proposal; (iii) engage in
discussions with any Person with respect to any Acquisition Proposal, except as
to the existence of these provisions; (iv) approve, endorse or recommend any
Acquisition Proposal (except to the extent specifically permitted pursuant to
Section 5.3(c) or Section 5.3(d); or (v) enter into any letter of intent or
similar document or any contract, agreement or commitment providing for any
Acquisition Proposal or transaction contemplated thereby. The Company will
immediately cease and cause to be terminated any and all existing activities,
discussions, negotiations or other communications with any third parties
conducted heretofore with respect to the foregoing. The Company shall not
release any Person from, or waive any provision of, any confidentiality or
standstill agreement to which the Company is a party, without the prior written
consent of Parent. For purposes of this Agreement, an “Acquisition Proposal”
means any inquiry, proposal or offer from, or any indication of interest by, any
Person relating to a possible Alternative Transaction.

(b) Notification of Unsolicited Acquisition Proposals. As promptly as
practicable after receipt of any Acquisition Proposal or any request for
nonpublic information or inquiry which the Company believes would lead to an
Acquisition Proposal, the Company shall, subject to any confidentiality
obligation with the party making such request or inquiry in effect as of the
date hereof, provide to Parent oral and written notice of the material terms and
conditions of such Acquisition Proposal, request or inquiry, and the identity of
the Person or group making any such Acquisition Proposal, request or inquiry.
Upon receipt of such an Acquisition Proposal, or such a request or inquiry, the
Company shall, subject to any existing

 

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confidentiality obligation with the party which submitted such Acquisition
Proposal or made such request or inquiry, provide Parent as promptly as
practicable oral and written notice setting forth all such information as is
reasonably necessary to keep Parent informed in all material respects of the
status and details (including material amendments or proposed material
amendments) of such Acquisition Proposal, request or inquiry.

(c) Superior Offers. Notwithstanding anything contained herein to the contrary,
prior to such time as the Required Stockholder Approvals have been obtained, the
Company may, in response to a Superior Offer or in response to a bona fide
Acquisition Proposal from a third party that the Company’s Board of Directors
has in good faith concluded (following the receipt of the advice of its outside
legal counsel and its financial advisor) is, or is reasonably likely to result
in, a Superior Offer, in each case which did not result from a breach of
Section 5.3(a) and provided the Company shall have given Parent the notification
provided for in Section 5.3(b) and that at least three full business days have
elapsed since the receipt by Parent of such notification (it being understood
that if Parent receives such notification at 3:00 p.m. EST on a particular
business Monday (by way of example), the third business day shall be deemed to
have elapsed at 3:00 p.m. EST on Thursday, assuming that Tuesday, Wednesday and
Thursday are also business days), furnish information concerning its business,
properties or assets to such Person (provided that the Company (A) has
previously or concurrently furnished such information to Parent and (B) shall
furnish such information pursuant to a confidentiality agreement which is at
least as favorable to Parent as the Confidentiality Agreement), and may
participate in discussions and negotiations with such Person, making such
Acquisition Proposal or Superior Offer if, but only if, in the good faith
judgment of the Company’s Board of Directors (following the receipt of the
advice of its outside legal counsel), the failure to provide such information or
access or to engage in such discussions or negotiations would be reasonably
likely to result in a violation of its fiduciary duties under applicable law.
For the purposes of this Agreement, a “Superior Offer” means any bona fide,
unsolicited, written proposal made by a third party for an Alternative
Transaction, the terms of which the Board of Directors of the Company determines
in its good faith judgment (after receiving the advice of its legal and
financial advisors), taking into account all of the terms and conditions of such
proposal and this Agreement (including the form of consideration to be received
by the Company’s stockholders, any termination fee or expense reimbursement
payable under this Agreement, any conditions to the consummation thereof and the
likelihood of the Alternative Transaction being consummated and including any
proposal by Parent to amend the terms of this Agreement), to be more favorable
to the Company’s stockholders than the Merger, to have a reasonable likelihood
of closing, and for which financing, to the extent required, is then committed
or which, in the good faith judgment of the Board of Directors of the Company,
is reasonably capable of being, and likely to be, obtained on the terms set
forth in such proposal.

(d) Change of Recommendation. Notwithstanding anything contained herein to the
contrary, prior to such time as the Required Stockholder Approvals have been
obtained, in response to the receipt of a Superior Offer, the Board of Directors
of the Company may, subject to the further provisions of this Section 5.3(d),
(i) withhold, withdraw, amend or modify its recommendation in favor of the
Company Proposals and (ii) terminate this Agreement (any of the actions
described in clauses (i) and (ii), a “Permitted Fiduciary Action”), if (in the
case of clause (i) or (ii)) (A) the Superior Offer has been made and has not
been withdrawn and continues to be a Superior Offer, (B) the Board of Directors
of the Company has concluded in good faith, after receipt of advice of outside
legal counsel, that, in light of such Superior Offer,

 

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the failure of the Board of Directors to take such Permitted Fiduciary Action is
reasonably likely to result in a breach of its fiduciary obligations to the
stockholders of the Company under applicable law and (C) the Company shall have
complied in all material respects with subsections (a), (b) and (c) of this
Section 5.3; provided, that, in addition to the foregoing requirements of this
Section 5.3(d), the Company may take such Permitted Fiduciary Action only if
(x) it has first given Parent at least three full business days (calculated as
provided in Section 5.3(c)) prior written notice that it is prepared to take
such Permitted Fiduciary Action and (y) during such three business day period,
if Parent so requests, the Company negotiates with Parent in good faith
concerning a possible amendment of the terms of this Agreement and the Merger
which could cause such Superior Offer to cease to be a Superior Offer.

(e) No Other Vote. The Company shall not submit to the vote of its stockholders
any Acquisition Proposal, or propose to do so except as otherwise required
pursuant to the Company Organizational Documents or applicable provisions of the
DGCL relating to the rights of stockholders to call meetings of stockholders.
Notwithstanding anything to the contrary in this Agreement, the Company’s Board
of Directors shall be permitted to take such action so as to comply with its
duties of disclosure and candor to its stockholders under applicable Legal
Requirements.

5.4 Confidentiality; Access to Information; No Modification of Representations,
Warranties or Covenants.

(a) Confidentiality. The parties acknowledge that the Company and Parent have
previously executed a Confidentiality Agreement dated January 19, 2006 (the
“Confidentiality Agreement”), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms and each of Parent and the
Company will hold, and will cause its respective Representatives to hold any
Confidential Information (as defined in the Confidentiality Agreement)
confidential in accordance with the terms of the Confidentiality Agreement.
Notwithstanding anything to the contrary herein or in the Confidentiality
Agreement, any party of this Agreement (and any employee, representative, or
other agent of any party to this Agreement) may disclose to any and all Persons,
without limitation of any kind, the tax treatment and tax structure of the
transactions contemplated by this Agreement (the “Transactions”) and all
materials of any kind (including opinions or other tax analyses) that are
provided to it relating to such tax treatment and tax structure; provided,
however, that such disclosure may not be made to the extent required to be kept
confidential to comply with any applicable federal or state securities laws. For
the avoidance of doubt, the parties acknowledge and agree that the tax treatment
and tax structure of any Transaction does not include the name of any party to
the Transaction or any sensitive business information (including the name and
other specific information about any party’s Intellectual Property or other
proprietary assets) unless such information is necessary to understand the
purported or claimed federal income tax treatment of the Transaction.

(b) Access to Information. The Company will afford Parent and Parent’s
employees, advisors, auditors, agents, bankers, accountants, counsel and other
representatives (collectively, “Representatives”) reasonable access during
normal business hours to its Representatives, properties, offices, plants and
other facilities, books, records and personnel, and

 

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shall furnish Parent with such financial, operating and other data and
information as Parent may reasonably request, during the period prior to the
Effective Time to confirm the accuracy of the Company’s representations and
warranties, and the Company’s performance of its covenants and agreements,
contained herein; provided, however, that the Company may restrict or prohibit
the foregoing access to the extent that any law, treaty, rule or regulation of
any Governmental Entity requires such prohibition or restriction. In addition,
any information obtained from the Company pursuant to the access contemplated by
this Section 5.4(b) shall be subject to the Confidentiality Agreement.

(c) Notification of Certain Matters. The Company shall give written notice to
Parent promptly upon the Company becoming aware of (i) the occurrence or
non-occurrence of any change, condition or event the occurrence or
non-occurrence of which would render any representation or warranty of the
Company contained in this Agreement, if made on or immediately following the
date of such event, untrue or inaccurate in any material respect and which
untruth or inaccuracy would result in the nonfulfillment of any of the
conditions to the respective obligations of Parent and Merger Sub to consummate
the Merger, (ii) the occurrence of any change, condition or event that has had
or is reasonably likely to have a Material Adverse Effect, (iii) any failure of
the Company or any Affiliate of the Company to comply with or satisfy in any
material respect any covenant or agreement to be complied with or satisfied by
it hereunder that would result in the nonfulfillment of any of the conditions to
the respective obligations of Parent and Merger Sub to consummate the Merger,
(iv) any notice or other communication from any Person alleging that the consent
of such Person is or may be required in connection with the consummation of the
transactions contemplated by this Agreement or (v) any Legal Proceeding pending
or, to the Knowledge of the Company, threatened against a party or the parties
relating to the transactions contemplated by this Agreement.

(d) No Modification of Representations, Warranties or Covenants. No information
or knowledge obtained pursuant to this Section 5.4 or Section 5.6 shall affect
or be deemed to modify any representation or warranty contained herein, the
covenants or agreements of the parties hereto or the conditions to the
obligations of the parties hereto under this Agreement, except to the extent
provided in Section 7.8.

5.5 Public Disclosure. Without limiting any other provision of this Agreement,
Parent and the Company will consult with each other before issuing, and provide
each other the opportunity to review, comment and agree upon any press release
or public statement with respect to this Agreement and the transactions
contemplated hereby, including the Merger and any Acquisition Proposal and will
not issue any such press release or make any such public statement prior to
providing such opportunity. The parties have agreed to the text of the joint
press release announcing the signing of this Agreement.

5.6 Regulatory Filings; Reasonable Efforts.

(a) Regulatory Filings. Each of Parent, Merger Sub and the Company shall
coordinate and cooperate with one another in making, and as promptly as
practicable after the date hereof, each of Parent, Merger Sub and the Company
shall make, all filings, notices, petitions, statements, registrations,
submissions of information, application or submission of other documents
required by any Governmental Entity in connection with this Agreement, the
Merger and the transactions contemplated hereby, including: (i) Notification and
Report Forms

 

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with the United States Federal Trade Commission (the “FTC”) and the Antitrust
Division of the United States Department of Justice (the “DOJ”) as required by
the HSR Act; (ii) any other filing necessary to obtain any Necessary Consent;
(iii) any filings under any other comparable pre-merger notification forms
required by the merger notification or control laws or other antitrust or
competition of any applicable jurisdiction; and (iv) any filings required under
the Securities Act of 1933, as amended (the “Securities Act”), the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), any other federal
securities laws, any applicable state or securities or “blue sky” laws and the
securities laws of any foreign country, or under any other Legal Requirement.
Each of Parent, Merger Sub and the Company will cause all documents that it is
responsible for filing with any Governmental Entity under this Section 5.6(a) to
comply in all material respects with all applicable Legal Requirements.

(b) Exchange of Information. Parent, Merger Sub and the Company each shall
promptly supply the others with any information which may be required in order
to effectuate any filings or application pursuant to Section 5.6(a). Except
where prohibited by applicable Legal Requirements, and subject to the
Confidentiality Agreement and any joint defense agreement entered into between
the parties or their counsel, each of the Company, Merger Sub and Parent shall
consult with the others prior to taking any action in or with respect to any
such filing, shall, to the extent reasonably required to permit appropriate
coordination of efforts, permit the others to review and discuss in advance, and
consider in good faith the views of the others in connection with any analyses,
appearances, presentations, memoranda, briefs, white papers, arguments, opinions
and proposals before making or submitting any of the foregoing to any
Governmental Entity by or on behalf of any party hereto in connection with any
investigations or proceedings in connection with this Agreement or the
transactions contemplated hereby (including under any antitrust or fair trade
Legal Requirement), coordinate with the others in preparing and exchanging such
information and promptly provide the others (and their counsel) with copies of
all filings, presentations or submissions (and a summary of any oral
presentations) made by such party with any Governmental Entity in connection
with this Agreement or the transactions contemplated hereby, provided that with
respect to any such filing, presentation or submission, each of Parent, Merger
Sub and the Company need not supply the others (or their counsel) with copies
(or in case of oral presentations, a summary) to the extent that any law,
treaty, rule or regulation of any Governmental Entity applicable to such party
requires such party or its Subsidiaries to restrict or prohibit access to any
such properties or information.

(c) Notification. Each of Parent, Merger Sub and the Company will notify the
others promptly upon the receipt of: (i) any comments from any officials of any
Governmental Entity in connection with any filings made pursuant hereto and
(ii) any request by any officials of any Governmental Entity for amendments or
supplements to any filings made pursuant to, or information provided to comply
in all material respects with, any Legal Requirements. Whenever any event occurs
that is required to be set forth in an amendment or supplement to any filing
made pursuant to Section 5.6(a), Parent, Merger Sub or the Company, as the case
may be, will promptly inform the others of such occurrence and cooperate in
filing with the applicable Governmental Entity such amendment or supplement.

(d) Reasonable Efforts. Subject to the express provisions of Section 5.3 hereof
and upon the terms and subject to the conditions set forth herein, each of the
parties agrees to use all commercially reasonable efforts to take, or cause to
be taken, all actions, and to

 

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do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including using all commercially
reasonable efforts to accomplish the following: (i) the taking of all
commercially reasonable acts necessary to cause the conditions precedent set
forth in Article VI to be satisfied; (ii) the obtaining of all necessary actions
or nonactions, waivers, consents, approvals, qualifications, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity; (iii) the obtaining of all necessary
consents, approvals or waivers from third parties, including all Necessary
Consents (provided, that the parties will discuss in good faith procedures to
pursue third party consents, if any, with respect to the Merger (it being
understood that failure to obtain any one or more such consents, in and of
itself, shall not constitute a failure by the Company to comply with any of its
covenants herein or a failure of a condition to Closing hereunder)); (iv) the
defending of any suits, claims, actions, investigations or proceedings, whether
judicial or administrative (including actions by a private party) challenging
this Agreement or the consummation of the transactions contemplated hereby;
(v) the taking of all reasonable actions necessary to have vacated, lifted,
reversed or overturned any order, decree, ruling, judgment, injunction or other
action (whether temporary, preliminary or permanent) that is in effect and that
enjoins, restrains, conditions, makes illegal or otherwise restricts or
prohibits the consummation of the transactions contemplated by this Agreement
and (vi) the execution or delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement.

5.7 Company Stock Options and Company Warrants.

(a) Treatment of Company Options.

(i) Vested Company Options. At the Effective Time, each Company Option
outstanding immediately prior to the Effective Time, to the extent such Company
Option is a Vested Company Option, shall automatically be converted into the
right to receive an amount (the “Option Consideration”) in cash equal to the
product of (A) the excess of (x) the Per Share Merger Consideration with respect
to a share of Company Common Stock over (y) the per share exercise price of such
Option and (B) the number of shares of Company Common Stock subject to such
Company Option. At or prior to the Closing, the Company will provide to Parent a
schedule setting forth the aggregate Option Consideration payable to each holder
of Company Options in accordance with this Section 5.7(a). At least five
business days prior to the Closing, Parent will cause the Paying Agent to
provide to the Company, for distribution to the holders of Company Options,
appropriate instructions and form documentation (including with respect to Tax
withholding, and including provisions whereby each such holder irrevocably
agrees to, and to be bound by, the provisions hereof relating to the
Securityholder Representative (including without limitation the appointment of
the Securityholder Representative as such holder’s representative and
attorney-in-fact as provided herein), the deposit with the Escrow Agent of such
holder’s Proportionate Percentage of the Escrow Amount as a part of the Purchase
Price payable to such holder hereunder, the provisions of Article VII and the
Escrow Agreement) to be completed, signed and submitted by such holders to the
Paying Agent at or after the Effective Time in order to receive payment of the
Option Consideration. Parent will instruct and cause the Paying Agent to make
such payment to each such holder not later than one business day after receipt
from such holder of such documentation.

 

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(ii) Unvested Company Options. At the Effective Time, each Company Option
outstanding immediately prior to the Effective Time, to the extent such Company
Option is not a Vested Company Option (each, a “Continuing Company Option”),
shall be, and Parent agrees that each Continuing Company Option will be, assumed
by Parent at the Effective Time and converted into an option (a “Parent Option”)
to purchase shares of common stock, par value $.01 per share, of Parent (“Parent
Common Stock”). With respect to any such Parent Option, (A) the number of shares
of Parent Common Stock to be subject to such Parent Option will be determined by
multiplying the number of shares of Company Common Stock subject to such
Continuing Company Option immediately prior to the Effective Time by the Option
Exchange Ratio (as defined below), rounding any fractional share up to the
nearest whole share, and (B) the exercise price per share of Parent Common Stock
of such Parent Option will be determined by dividing the exercise price per
share of Company Common Stock applicable to such Continuing Company Option by
the Option Exchange Ratio, and rounding the exercise price thus determined down
to the nearest whole cent (the “Parent Exercise Price”). Except as provided
above, each Parent Option shall be subject to the same material terms and
conditions (including, without limitation, expiration date, vesting, including
acceleration of vesting, and exercise provisions) as were applicable to such
Continuing Company Option immediately prior to the Effective Time. Continuing
Company Options to which Section 421 of the Code applies by reason of their
qualification as incentive stock options under Section 422 of the Code shall,
notwithstanding the preceding sentence, be adjusted in a manner that complies
with Section 424(a) of the Code. For purposes of this Agreement, the “Option
Exchange Ratio” shall mean the quotient obtained by dividing (X) the Per Share
Merger Consideration in respect of a share of Company Common Stock by (Y) the
Parent Market Price. The “Parent Market Price” shall mean the average closing
sale price of one share of Parent Common Stock on the Nasdaq National Market for
the 5 most recent trading days that Parent Common Stock has traded ending on the
trading day one day prior to the Closing Date, as reported in the New York
edition of the Wall Street Journal. For the avoidance of doubt, an adjustment of
the Purchase Price pursuant to Section 1.11(e) shall have no affect on, or
result in any adjustment of, the Option Exchange Ratio.

(iii) Registration Statement. Parent shall prepare and file, on the Closing
Date, with the Securities and Exchange Commission a registration statement under
the Securities Act on Form S-8 with respect to the shares of Parent Common Stock
issuable upon exercise of the Parent Options and shall maintain the
effectiveness of such registration statement for so long as any Parent Options
remain outstanding. Parent shall take all corporate actions necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
pursuant to the terms of the Parent Options.

(b) Treatment of Company Warrants. The Company shall use all reasonable efforts
to assure, including if applicable obtaining written agreements or consents from
the holders of Company Warrants (such an agreement or consent, a “Company
Warrantholder Consent”), that each Company Warrant shall be either (i) exercised
in full in accordance with its terms at or prior to the Closing, or
(ii) automatically cancelled effective as of the Effective Time in exchange for
a cash payment (the “Warrant Consideration”) equal to the product of (A) the
excess of (x) the Per Share Merger Consideration with respect to a share of
Company Common

 

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Stock over (y) the per share exercise price of such Company Warrant and (B) the
number of shares of Company Common Stock subject to such Company Warrant. At or
prior to the Closing, the Company will provide to Parent a schedule setting
forth the aggregate Warrant Consideration payable to each holder of a Company
Warrant in accordance with this Section 5.7(b). At least five business days
prior to the Closing, Parent will cause the Paying Agent to provide to the
Company, for distribution to the holders of Company Warrants, appropriate
instructions and form documentation (including with respect to Tax withholding,
and including provisions whereby each such holder irrevocably agrees to, and to
be bound by, the provisions hereof relating to the Securityholder Representative
(including without limitation the appointment of the Securityholder
Representative as such holder’s representative and attorney-in-fact as provided
herein), the deposit with the Escrow Agent of such holder’s Proportionate
Percentage of the Escrow Amount as a part of the Purchase Price payable to such
holder hereunder, the provisions of Article VII and the Escrow Agreement) to be
completed, signed and submitted by such holders to the Paying Agent at or after
the Effective Time in order to receive payment of the Warrant Consideration.
Parent will instruct and cause the Paying Agent to make such payment to each
such holder not later than one business day after receipt from such holder of
such documentation.

5.8 Employee Benefits.

(a) Service Credit; Eligibility. Following the Effective Time, Parent shall
arrange for each Employee who is a participant in a Welfare Plan, including any
vacation plan or program (the “Company Participants”), who becomes an employee
of Parent, any Parent subsidiary or the Surviving Corporation and their
dependents to be eligible for employee welfare benefits no less favorable in the
aggregate than those received by such Company Participants immediately prior to
the Effective Time. Each Company Participant shall be given service credit for
all purposes under Parent’s employee welfare benefit plans and arrangements,
including for eligibility to participate in (provided that no retroactive
contributions will be required), and eligibility for vesting under Parent
employee welfare benefit plans and arrangements with respect to his or her
length of service with the Company (and its predecessors) prior to the Closing
Date, except to the extent that such crediting would result in duplication of
benefits. Parent shall use commercially reasonable efforts to cause any and all
pre-existing condition (or actively at work or similar) limitations, eligibility
waiting periods and evidence of insurability requirements under any Parent
employee welfare benefit plans and arrangements to be waived with respect to
such Company Participants (and their beneficiaries) and shall provide them with
credit for any co-payments, deductibles, and offsets (or similar payments) made
during the plan year which includes the Closing Date for the purposes of
satisfying any applicable deductible, out-of-pocket, or similar requirements
under any Parent employee welfare benefit plans or arrangements in which they
are eligible to participate after the Closing Date.

(b) Assumption of Agreements. As of the Closing Date, Parent shall assume and
honor and shall cause the Surviving Corporation to honor in accordance with
their terms all employment, severance and other compensation agreements and
arrangements existing prior to the Closing Date to which the Company is a party
(for the avoidance of doubt, including to the extent applicable, employee stock
option plans and agreements of the Company).

 

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5.9 Director, Officer and Employee Liability; Insurance.

(a) From and after the Effective Time, Parent shall, or shall cause the
Surviving Corporation to, indemnify and hold harmless each person who is now, or
has been at any time prior to the date of this Agreement or who becomes prior to
the Effective Time, an officer, director or employee of the Company (the
“Company Indemnified Parties”) against (i) all losses, claims, damages, costs,
expenses, liabilities, judgments or amounts paid in settlement (the “Company
Indemnified Liabilities”) in connection with any claim, action, suit, proceeding
or investigation by reason of the fact that such person is or was a director,
officer or employee of the Company, whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, at or after the Effective Time and (ii) all Company Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to, this Agreement or the transactions contemplated hereby, in
each case to the full extent a corporation is permitted by law to indemnify its
own directors, officers and employees (the “Company Indemnified Proceedings”).
In the event any Company Indemnified Party is or becomes involved in any Company
Indemnified Proceeding, Parent shall, or shall cause the Surviving Corporation,
as applicable, to pay expenses in advance of the final disposition of any such
Company Indemnified Proceeding to such Company Indemnified Party to the full
extent permitted by law upon receipt of any undertaking contemplated by
Section 145 of the DGCL. Without limiting the foregoing, in the event any such
Company Indemnified Proceeding is brought against any Company Indemnified Party,
(i) such Company Indemnified Parties may retain counsel of his or her choosing,
(ii) Parent shall, or shall cause the Surviving Corporation, as applicable, to
pay all reasonable and documented fees and expenses of such counsel for the
Company Indemnified Parties promptly as statements therefor are received, and
(iii) Parent and the Surviving Corporation will use all reasonable efforts to
assist in the defense of any such matter; provided, however, that neither Parent
nor the Surviving Corporation shall be liable for any settlement of any claim
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. Any Company Indemnified Party wishing to claim
indemnification under this Section 5.9(a) upon becoming aware of any such
Company Indemnified Proceeding shall promptly notify Parent or the Surviving
Corporation, as applicable (but the failure to so notify Parent or the Surviving
Corporation shall not relieve Parent or the Surviving Corporation from any
liability it may have under this Section 5.9(a) except to the extent such
failure materially prejudices Parent or the Surviving Corporation), and shall
deliver to Parent or the Surviving Corporation, as applicable, the undertaking
contemplated by Section 145 of the DGCL. The Company Indemnified Parties as a
group may retain only one law firm to represent them with respect to each such
Company Indemnified Proceeding unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Company Indemnified Parties, in which case, the foregoing
limitation shall not apply and, without limitation of Parent’s and the Surviving
Corporation’s other indemnification obligations under this Section 5.9(a),
Parent shall, or shall cause the Surviving Corporation to, pay the reasonable
and documented fees and expenses of all of the Company Indemnified Parties,
including such fees and expenses of such additional law firm(s).

(b) Parent will, and will cause the Surviving Corporation to, fulfill and honor
all rights to indemnification existing as of the date of this Agreement in favor
of the Company Indemnified Parties, including pursuant to any indemnification
agreements between the Company and any Company Indemnified Party. Following the
Effective Time, the Certificate of

 

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Incorporation and Bylaws of the Surviving Corporation will contain provisions
with respect to exculpation and indemnification that are at least as favorable
to the Company Indemnified Parties as those contained in the Certificate of
Incorporation and Bylaws of the Company as in effect on the date hereof, which
provisions will not be amended, repealed or otherwise modified in any manner
that would adversely affect the rights thereunder of the Company Indemnified
Parties.

(c) The Surviving Corporation shall, and the Parent shall cause the Surviving
Corporation to, maintain in effect for not less than three years after the
Effective Time the policies of directors’ and officers’ liability insurance
maintained by the Company as of the date hereof with respect to matters
occurring prior to or at the Effective Time; provided, however, that (i) the
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which are no less advantageous to the
Company Indemnified Parties with an insurance company or companies, the claims
paying ability of which is substantially equivalent to the claims paying ability
of the insurance company or companies providing such insurance coverage as of
the date hereof for directors and officers of the Company, and (ii) the
Surviving Corporation shall not be required to pay an annual premium for such
insurance in excess of four times the last annual premium paid prior to the date
hereof, but in such case shall purchase as much coverage as possible for such
amount.

(d) The provisions of this Section 5.9 (i) are intended to be for the benefit
of, and shall be enforceable by, the Company Indemnified Parties and their heirs
and personal representatives and shall be binding on Parent and the Surviving
Corporation and its successors and assigns and (ii) shall be in addition to, and
not in substitution for, any other rights to indemnification or contribution
that any such person may have by contract or otherwise. In the event Parent or
the Surviving Corporation or any successor or assign (i) consolidates with or
merges into any other Person and shall not be the continuing or surviving
corporation or entity in such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any Person, then, and in each
case, proper provision shall be made so that the successor and assign of Parent
or the Surviving Corporation, as the case may be, honors the obligations set
forth with respect to Parent or the Surviving Corporation, as the case may be,
in this Section 5.9.

5.10 FIRPTA Compliance. On the Closing Date, the Company shall deliver to Parent
a properly executed statement in a form reasonably acceptable to Parent for
purposes of satisfying Parent’s obligations under Treasury Regulation
Section 1.1445-2(c)(3).

5.11 Merger Sub Compliance. Parent shall cause Merger Sub to comply with all of
Merger Sub’s obligations under or relating to this Agreement. Merger Sub shall
not engage in any business, which is not in connection with the Merger pursuant
to this Agreement.

5.12 Financing Arrangements.

(a) Parent and Merger Sub shall use all reasonable efforts to obtain the
financing contemplated by the Commitment Letters as soon as possible and in any
event by the time of the Closing as provided in Section 1.2(b).

(b) The Company shall, and shall cause its Representatives to, use all
reasonable efforts to cooperate with Parent and Merger Sub in obtaining the
financing

 

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contemplated by the Commitment Letters within the time period specified in
Section 5.12(a), provided the Company shall not be required to incur any
significant expenses in carrying out such cooperation unless Parent funds such
expenses in advance and the Company’s current directors shall not be required to
take corporate action to authorize or approve such financing.

5.13 Escrow Agreement. Parent, the Company and the Securityholder Representative
agree to execute the Escrow Agreement at the Closing.

5.14 No Transfers by Parent of Company Stock. Parent covenants and agrees that
it will not, directly or indirectly, sell, assign or transfer or take any other
action such that immediately prior to the Effective Time it would own
beneficially and of record less than the number of, any shares of Company Stock
owned by it as of the date hereof as set forth in Section 3.6.

ARTICLE VI

CONDITIONS TO THE MERGER

6.1 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:

(a) Company Stockholder Approval. The Required Stockholder Approvals shall have
been validly obtained under the DGCL and the Company Organizational Documents.

(b) No Order. No Legal Requirement, including any temporary restraining order,
preliminary or permanent injunction or other order, preventing the consummation
of the Merger shall have been enacted, issued, promulgated, enforced or entered
by any Governmental Entity and remain in effect, and there shall not be any
Legal Requirement enacted, issued, promulgated, enforced or entered by any
Governmental Entity or deemed applicable to the Merger in effect that makes the
consummation of the Merger illegal.

(c) Hart-Scott-Rodino. The waiting period applicable to the consummation of the
Merger (and any extension thereof) under the HSR Act shall have expired or been
earlier terminated.

6.2 Additional Conditions to the Obligations of the Company. The obligation of
the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following additional
conditions, any of which may be waived, in writing, exclusively by the Company:

(a) Representations and Warranties. The representations and warranties of Parent
and Merger Sub contained in this Agreement shall be true and correct on the date
hereof and as of the Closing Date with the same force and effect as if made on
and as of the Closing Date (except that those representations and warranties
which address matters only as of the date of this Agreement or another
particular date shall have been true and correct only as of such date). The
Company shall have received a certificate with respect to the foregoing signed
on behalf of Parent, with respect to the representations and warranties of
Parent, by an authorized executive officer of Parent, and a certificate with
respect to the foregoing signed on behalf of Merger Sub, with respect to the
representations and warranties of Merger Sub, by an authorized executive officer
of Merger Sub.

 

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(b) Agreements and Covenants. Each of Parent and Merger Sub shall have performed
or complied in all material respects (except that in the case of Section 5.14,
such performance and compliance shall be in all respects) with all agreements
and covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing Date, and the Company shall have received a
certificate with respect to the foregoing signed on behalf of Parent, with
respect to the agreements and covenants of Parent, by an authorized executive
officer of Parent, and a certificate with respect to the foregoing signed on
behalf of Merger Sub, with respect to the agreements and covenants of Merger
Sub, by an authorized executive officer of Merger Sub.

(c) Escrow Agreement. Parent, the Securityholder Representative and the Escrow
Agent shall have executed and delivered the Escrow Agreement.

6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following additional conditions, any of which may be waived, in writing,
exclusively by Parent and Merger Sub:

(a) Representations and Warranties. The representations and warranties of the
Company contained in this Agreement shall be true and correct (without giving
effect to any qualification as to materiality or Material Adverse Effect
contained in any specific representation or warranty other than qualifications
as to those specific provisions of such representations and warranties that call
for a listing of specific types of items or agreements) on the date hereof and
as of the Closing Date (except that those representations and warranties which
address matters only as of the date of this Agreement or another particular date
shall have been true and correct only as of such date), unless, in each case or
in the aggregate, the failure of such representations and warranties to be true
and correct has not had and would not have a Material Adverse Effect. Parent and
Merger Sub shall have received a certificate with respect to the foregoing
signed on behalf of the Company by an authorized executive officer of the
Company.

(b) Agreements and Covenants. The Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent and Merger Sub shall have received a certificate to such effect
signed on behalf of the Company by an authorized executive officer of the
Company.

(c) Material Adverse Effect. No Material Adverse Effect shall have occurred
since the date hereof and be continuing.

(d) Exercise or Cancellation of Company Warrants. The Company Warrants shall
have either been exercised in full or, to the extent a Company Warrant has not
been so exercised, the holder thereof shall have executed and delivered to the
Company (and the Company shall have delivered to Parent a true and correct copy
of) a Company Warrantholder Consent reasonably satisfactory to Parent providing
for the automatic cancellation of such Company Warrant, effective at the
Effective Time, in exchange for the cash payment to such holder of the Warrant
Consideration as described in Section 5.7(b), and waiving any applicable notice
requirement relating to the Merger to the extent such notice was not timely
given.

 

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(e) Maximum Dissenting Shares. Not more than 10% of the Company Stock
outstanding immediately prior to the Effective Time (for this purpose assuming
the conversion into or exercise for Company Common Stock immediately prior to
the Effective Time of all then outstanding Company Preferred Stock, Company
Warrants and Vested Company Options) shall be Dissenting Shares.

(f) Escrow Agreement. The Securityholder Representative and the Escrow Agent
shall have executed and delivered the Escrow Agreement.

ARTICLE VII

INDEMNIFICATION

7.1 Survival of Representations and Warranties. The representations and
warranties of the Company, Parent and Merger Sub contained in this Agreement and
any schedule, certificate or other document delivered pursuant hereto or in
connection with the transactions contemplated hereby shall survive the Closing
until the date that is 12 months after the Closing Date. No party shall have any
liability whatsoever with respect to any such representations and warranties
unless a claim is made hereunder prior to the expiration of the survival period
for such representation or warranty, in which case such representation and
warranty shall survive as to such claim until such claim has been finally
resolved.

7.2 Indemnification by Company Securityholders. After the Effective Time, each
Company Securityholder shall be deemed to have agreed, and hereby agrees, in
accordance with and subject to the provisions set forth herein and in the Escrow
Agreement, to save, defend, indemnify and hold harmless, solely from and to the
extent of the Escrow Funds, Parent, Merger Sub, the Surviving Corporation and
their Affiliates, and their respective Representatives, successors and assigns
of each of the foregoing (collectively, the “Parent Indemnified Parties”), from
and against any and all losses, damages, liabilities, deficiencies, claims,
diminution of value, interest, awards, judgments, penalties, costs and expenses
(including reasonable attorneys’ fees and costs and other reasonable
out-of-pocket expenses incurred in investigating, preparing or defending the
foregoing) (hereinafter collectively, “Losses”), asserted against, incurred,
sustained or suffered by any Parent Indemnified Party as a result of, arising
out of or relating to any of the following (each, a “Parent Claim”):

(a) any breach of any representation or warranty made by the Company contained
in this Agreement or any schedule, certificate or other document delivered
pursuant hereto or in connection with the transactions contemplated hereby,
without giving effect to any limitations or qualifications thereto as to
materiality or Material Adverse Effect (other than such qualifications as to
materiality or Material Adverse Effect in Sections 2.4, 2.5 and 2.6 and other
than qualifications as to those specific provisions of such representations and
warranties that call for a listing of specific types of items or agreements), or
subject to Section 7.8, to knowledge or subsequent supplements or updates to the
Company Disclosure Schedule;

(b) any breach of any covenant or agreement by the Company contained in this
Agreement or any schedule, certificate or other document delivered pursuant
hereto or in connection with the transactions contemplated hereby (including as
a result of the action or failure to act of the Company);

 

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(c) any amounts in excess of the applicable Per Share Merger Consideration
required to be paid to holders of Dissenting Shares, including any interest
required to be paid thereon;

(d) provided Parent has complied with Section 1.10, the amount of any Company
Transaction Expenses not paid at the Closing to the extent, if any, not included
as a current liability of the Company in the determination of Closing Net
Working Capital pursuant to Section 1.11 and not included as Unpaid Company
Transaction Expenses for the purpose of determining Total Common Consideration;
and

(e) the amount of any Closing Date Company Indebtedness or Permitted
Indebtedness to the extent, if any, not included as a current liability of the
Company in the determination of Closing Net Working Capital pursuant to
Section 1.11 and not included for the purpose of determining Total Common
Consideration.

7.3 Indemnification by Parent. After the Effective Time, Parent shall save,
defend, indemnify and hold harmless the Company Securityholders and their
Affiliates and the respective Representatives, successors and assigns of each of
the foregoing (collectively, the “Company Securityholder Indemnified Parties”)
from and against any and all Losses asserted against, incurred, sustained or
suffered by any of the foregoing as a result of, arising out of or relating to
any of the following (each, a “Company Securityholder Claim”):

(a) any breach of any representation or warranty made by Parent or Merger Sub
contained in this Agreement or any schedule, certificate or other document
delivered pursuant hereto or in connection with the transactions contemplated
hereby (without giving effect to any limitations or qualifications as to
materiality, Material Adverse Effect, knowledge or other exception set forth
therein); and

(b) any breach of any covenant or agreement by Parent or Merger Sub contained in
this Agreement or any schedule, certificate or other document delivered pursuant
hereto or in connection with the transactions contemplated hereby.

7.4 Indemnification Claims Procedure.

(a) If a Parent Indemnified Party reasonably determines in good faith that a
Parent Claim has occurred or will occur, an authorized officer or representative
of such Parent Indemnified Party, as applicable, shall so notify the
Securityholder Representative as promptly as possible and in any event with 15
days of such Parent Indemnified Party becoming aware of the existence of such
Parent Claim, and each such notice shall be in writing and shall describe with
reasonable specificity the nature and a good faith estimate of the amount of
such Parent Claim, provided that the failure of the Parent Indemnified Party to
provide such notice within such 15 day period shall not relieve the Company
Securityholders from their indemnification obligations as set forth in this
Article VII, except to the extent that such Company Securityholders are
materially prejudiced by such failure. Except as provided in this Article VII,
and subject to the limitations set forth in this Article VII, the procedure for
satisfaction of Parent Claims is set forth in the Escrow Agreement.

(b) If a Company Securityholder Indemnified Party reasonably determines in good
faith that a Company Securityholder Claim has occurred or will occur, such
Company

 

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Securityholder Indemnified Party or an authorized officer or representative of
such Company Securityholder Indemnified Party, or the Securityholder
Representative, on behalf of such Company Securityholder Indemnified Party,
shall so notify Parent as promptly as possible, and in any event within 15 days
of such Company Securityholder Indemnified Party, or the Securityholder
Representative, on behalf of such Company Securityholder Indemnified Party,
becoming aware of the existence of such Company Securityholder Claim, and each
such notice shall be in writing and shall describe with reasonable specificity
the nature and a good faith estimate of the amount of such Company
Securityholder Claim, provided that the failure of the Company Securityholder
Indemnified Party to provide such notice within such 15-day period shall not
relieve Parent from its indemnification obligations as set forth in this Article
VII, except to the extent that Parent is materially prejudiced by such failure.

7.5 Third Party Claims.

(a) In order for a Parent Indemnified Party or a Company Securityholder
Indemnified Party (as applicable, an “Indemnified Party”) to be entitled to any
indemnification hereunder in respect of, arising out of or involving a Loss or a
claim or demand made by any third party against the Indemnified Party (a “Third
Party Claim”), such Indemnified Party shall deliver notice thereof to the
Securityholder Representative, on behalf of the Company Securityholders, or to
Parent, as applicable (the “Indemnifying Party”) with reasonable promptness
after receipt by such Indemnified Party of written notice of the Third Party
Claim and shall provide the Securityholder Representative (if the Company
Securityholders are the Indemnifying Party) or Parent (if Parent is the
Indemnifying Party) with such information with respect thereto as such
Indemnifying Party may reasonably request. The failure to provide such notice,
however, shall not release the Indemnifying Party from any of its obligations
under this Article VII except to the extent that such Indemnifying Party is
materially prejudiced by such failure.

(b) The Company Securityholders (if they are the Indemnifying Party), acting by
and through the Securityholder Representative, or Parent (if it is the
Indemnifying Party), as applicable, shall have the right and shall be given the
opportunity, upon written notice to the Parent Indemnified Party or the
Securityholder Representative, respectively, within 15 days of receipt of notice
from the Indemnified Party of the commencement of such Third Party Claim, to
assume and control the defense thereof at the expense of the Indemnifying Party
with counsel selected by the Indemnifying Party and reasonably satisfactory to
the Indemnified Party. The Company Securityholders (if they are the Indemnifying
Party), acting by and through the Securityholder Representative, or Parent (if
it is the Indemnifying Party) shall be liable for the fees and expenses of
counsel employed by the Indemnified Party for any period during which such
Indemnifying Party has failed to assume the defense thereof. If the Company
Securityholders (if they are the Indemnifying Party), acting by and through the
Securityholder Representative, do not, or if Parent (if Parent is the
Indemnifying Party) does not, expressly elect to assume the defense of such
Third Party Claim within the time period and otherwise in accordance with the
first sentence of this Section 7.5(b), the Securityholder Representative (if the
Company Securityholders are the Indemnifying Party) or Parent (if Parent is the
Indemnifying Party) shall have the sole right to assume the defense of such
Third Party Claim. If the Company Securityholders (if they are the Indemnifying
Party), acting by and through the Securityholder Representative, or Parent (if
it is the Indemnifying Party) assumes the defense of such Third Party Claim,
such Indemnified Party shall have the right to employ separate counsel and to

 

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participate in (but not control) the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Securityholder Representative (if the Company Securityholders are the
Indemnifying Party) or Parent (if Parent is the Indemnifying Party) or (ii) the
named parties to the Third Party Claim (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party, and the Indemnified Party
reasonably determines that representation by counsel to the Indemnifying Party
of both the Indemnifying Party and such Indemnified Party may present such
counsel with a conflict of interest. If the Securityholder Representative (if
the Company Securityholders are the Indemnifying Party) or Parent (if Parent is
the Indemnifying Party) assumes the defense of any Third Party Claim, the Parent
Indemnified Parties or the Securityholder Representative, acting on behalf of
the Company Securityholders, respectively, shall, at the Indemnifying Party’s
expense, cooperate with the Indemnifying Party in such defense and make
available to the Indemnifying Party all witnesses, pertinent records, materials
and information in the Indemnified Party’s possession or under the Indemnified
Party’s control relating thereto as is reasonably required by the Indemnifying
Party. Whether or not the Company Securityholders (if they are the Indemnifying
Party), acting by and through the Securityholder Representative, elect, or
Parent (if it is the Indemnifying Party) elects, to assume the defense of such
Third Party Claim in accordance with this Section 7.5(b), the Indemnified Party
shall not, except at its sole cost and expense, enter into any settlement or
compromise or consent to the entry of any judgment with respect to such Third
Party Claim without the consent of the Securityholder Representative (if the
Company Securityholders are the Indemnifying Party) or Parent (if Parent is the
Indemnifying Party). If the Securityholder Representative (if the Company
Securityholders are the Indemnifying Party) or Parent (if Parent is the
Indemnifying Party) assumes the defense of any Third Party Claim, the
Indemnifying Party shall be entitled to enter into any settlement or compromise
or consent to the entry of any judgment with respect to such Third Party Claim,
provided such settlement, compromise or judgment (i) does not involve a finding
or admission of wrongdoing on the part of the Indemnified Party, (ii) includes
an unconditional written release by the claimant or plaintiff of the Indemnified
Party from all liability in respect of such Third Party Claim and (iii) does not
impose equitable remedies or any obligation on the Indemnified Party other than
solely the payment of money damages for which the Indemnified Party will be
indemnified hereunder.

(c) The Securityholder Representative (if the Company Securityholders are the
Indemnifying Party) or Parent (if Parent is the Indemnifying Party) shall not be
entitled to require that any action be made or brought against any other Person
before a claim for indemnification is made against it hereunder by the
Indemnified Party.

7.6 Limits on Indemnification. In addition to the limitations on indemnification
set forth elsewhere in this Article VII, and notwithstanding anything to the
contrary contained in this Agreement, (i) neither the Company Securityholders
(if they are the Indemnifying Party) nor Parent (if it is the Indemnifying
Party) shall be liable for any claim for indemnification pursuant to
Section 7.2(a) or Section 7.3(a), as the case may be, unless and until the
aggregate amount of indemnifiable Losses which may be recovered from such
Indemnifying Party equals or exceeds $1,043,000, in which case the Indemnifying
Party shall be liable for the full amount of such Losses above such amount,
(ii) the amount of any such Losses shall be calculated net of insurance proceeds
actually received by the Indemnified Party in respect of such Losses and the
Indemnified Party agrees to promptly seek reimbursement for any and all Losses
from any

 

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applicable insurance coverage (it being agreed that any indemnification
hereunder is not to be deemed insurance, whether primary, excess or otherwise),
(iii) in calculating the amount of any such Losses, there shall be taken into
account any net Tax benefit or detriment of the Indemnified Party arising from
the incurrence or payment of any such Losses or the receipt of, or right to
receive, any indemnity payment hereunder, (iv) there shall not be any multiple
recovery for any Losses and (v) in no event shall any Indemnified Party be
entitled to recover punitive damages (except to the extent the Indemnified Party
sustains Losses comprised of punitive damages arising from a Third Party Claim)
or damages calculated on the bases of a diminution in value of any Company
Stock, stock of the Surviving Corporation or Parent Common Stock. In computing
the amount of any such Tax benefit or detriment, the Indemnified Party shall be
deemed to recognize all other items of income, gain, loss, deduction or credit
before recognizing any item arising from the receipt of (or right to receive)
any indemnity payment hereunder or the incurrence or payment of any indemnified
Loss. For the avoidance of doubt, no Tax detriment shall be deemed to be
realized by an Indemnified Party from the receipt of an indemnity payment which
is properly treated as an adjustment to the Per Share Merger Consideration,
Option Consideration or Warrant Consideration pursuant to Section 7.7. The
Indemnified Party may not make a claim for indemnification under Section 7.2(a)
or Section 7.3(a), as the case may be, for breach by the Indemnifying Party of
any representation or warranty after the expiration of the survival period
specified in Section 7.1. All Parent Claims will be subject to and made in
accordance with, and will be governed by, the Escrow Agreement.

7.7 Treatment of Indemnification Payments to Parent Indemnified Parties. The
Company Securityholders, the Securityholder Representative and Parent agree to
(and Parent agrees to cause all Parent Indemnified Parties to) treat any
indemnification amount received by any Parent Indemnified Party pursuant to this
Article VII as adjustments to the Per Share Merger Consideration, Option
Consideration and Warrant Consideration for all Tax purposes, to the maximum
extent permitted by applicable Legal Requirements.

7.8 Effect of Investigation, Disclosure or Knowledge. If the Effective Time
occurs, Parent expressly reserves the right to seek indemnification under this
Article VII for any Losses arising out of or relating to any breach of any
representation, warranty or covenant contained herein, notwithstanding any
investigation by, disclosure to or knowledge of Parent in respect of any fact or
circumstance that reveals the occurrence of any such breach, whether before or
after the execution and delivery hereof; provided, that, notwithstanding the
foregoing or any other provision of this Agreement, to the extent that as a
result of any such investigation or disclosure Parent has, prior to the Closing,
actual knowledge of such breach which would entitle Parent and Merger Sub,
pursuant to Section 6.3(a), 6.3(b) or 6.3(c), not to consummate the Merger, or,
pursuant to Section 8.1(d)(ii), to terminate this Agreement, and Parent and
Merger Sub elect to consummate the Merger, then the Parent Indemnified Parties
shall be deemed to have irrevocably waived any right to indemnification for any
Losses asserted against, incurred, sustained or suffered by any Parent
Indemnified Party as a result of, arising out of or relating to such breach or
such facts or circumstances.

7.9 Escrow Funds and This Article VII as Sole and Exclusive Remedy; Cap on
Parent Indemnification Obligation for Certain Breaches.

(a) Notwithstanding any provision of this Article VII or any other provision of
this Agreement, following the Effective Time, recovery from the Escrow Funds
shall be the

 

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sole and exclusive remedy of the Parent Indemnified Parties for any breaches of
any representation, warranty, covenant or agreement contained in this Agreement
or in any schedule, certificate or other document delivered pursuant hereto or
in connection with the transactions contemplated hereby. Without limiting the
ability of the Parent Indemnified Parties to bring a claim based on fraud
(provided that in the case of such a claim, in no event shall any Company
Securityholder be liable for an amount exceeding the amount of cash
consideration actually received by such Company Securityholder pursuant to this
Agreement), the provisions of this Article VII and the provisions of the Escrow
Agreement constitute the sole and exclusive remedy of the Parent Indemnified
Parties with respect to all claims relating to this Agreement, any schedule,
certificate or other document delivered pursuant hereto or in connection with
the transactions contemplated hereby, or the Escrow Agreement.

(b) Without limiting the ability of the Company Securityholders, or the
Securityholder Representative, on behalf of the Company Securityholders, to
bring a claim based on fraud, the maximum aggregate amount of indemnifiable
Losses which may be recovered by Company Securityholder Indemnified Parties
pursuant to Section 7.3(a) shall be $20,000,000.

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time:

(a) by mutual written consent duly authorized by the respective boards of
directors of Parent and the Company;

(b) by either the Company or Parent, by written notice to the other no earlier
than three business days after June 30, 2006 (such date being referred to as the
“Original End Date”) if the Original End Date cannot be or has not been validly
extended pursuant to this Section 8.1(b), and if the Merger shall not have been
consummated by the Original End Date; provided, that the Original End Date may
be extended to July 31, 2006 (the “Final End Date”) by either Parent or the
Company, by written notice to the other on or within two business days after the
Original End Date, if the Merger shall not have been consummated by the Original
End Date as of the result of a failure to satisfy the condition set forth in
Section 6.1(c) as of the Original End Date; provided, however, that the right to
terminate this Agreement under this Section 8.1(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 be consummated on or before the Original End
Date or the Final End Date, as applicable;

(c) by either the Company or Parent if a Governmental Entity shall have issued
an order, decree or ruling or taken any other action (including the failure to
have taken an action), in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, which order, decree, ruling or
other action shall have become final and nonappealable;

(d) (i) by the Company, if Parent or Merger Sub breaches in any material respect
or fails to perform in any material respect any of its representations,
warranties or covenants contained in this Agreement and such breach or failure
to perform is either incurable

 

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or has not been cured on or prior to five days before the Original End Date or,
if the Original End Date has been validly extended pursuant to Section 8.1(b),
five days before the Final End Date, and such breach or failure to perform would
permit the Company, pursuant to Section 6.2(a) or 6.2(b), not to consummate the
Merger or (ii) by Parent, if the Company breaches or fails to perform in any
material respect any of its representations, warranties or covenants contained
in this Agreement and such breach or failure to perform is either incurable or
has not been cured on or prior to five days before the Original End Date or, if
the Original End Date has been validly extended pursuant to Section 8.1(b), five
days before the Final End Date, and such breach or failure to perform would
permit Parent and Merger Sub, pursuant to Section 6.3(a) or 6.3(b), not to
consummate the Merger;

(e) by Parent, at any time prior to the Required Stockholder Approvals having
been obtained, if a Company Triggering Event shall have occurred; and

(f) by the Company, in accordance and subject to compliance with the terms of
Section 5.3(d).

For purposes of this Agreement, a “Company Triggering Event” shall be deemed to
have occurred if: (i) the Company’s Board of Directors or any committee thereof
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Parent its recommendation to the Company’s stockholders to
vote, or act by written consent, in favor of the Company Proposals or (ii) the
Board of Directors of the Company or any committee thereof shall have approved
or recommended any Acquisition Proposal or Superior Offer.

8.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 8.1 will be effective immediately upon the delivery by
the terminating party of a valid written notice of termination to the other
party hereto in accordance with the terms hereof. In the event of the
termination of this Agreement as provided in Section 8.1, this Agreement shall
be of no further force or effect, except that (i) Section 5.4(a), Section 5.5,
this Section 8.2, Section 8.3, Section 8.4 (to the extent applicable in
accordance with its terms) and Article IX shall survive the termination of this
Agreement and remain in full force and effect (in the case of Article IX, solely
to the extent applicable to the other surviving provisions set forth in this
clause (i)) and (ii) nothing herein shall relieve any party from liability for
any breach of any covenant or agreement contained in this Agreement prior to
termination. No termination of this Agreement shall affect the obligations of
the parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.

8.3 Fees and Expenses. All fees and expenses of Parent or Merger Sub incurred in
connection with this Agreement and the transactions contemplated hereby,
including fees and expenses of accountants, financial advisors, financial
sponsors, lenders, legal counsel and other advisors, shall be paid by Parent
whether or not the Merger is consummated. Except as provided in Section 1.10 (if
the Closing occurs), all fees and expenses of the Company incurred in connection
with this Agreement and the transactions contemplated hereby, including fees and
expenses of its financial advisors (including SGAS) and legal counsel (including
Skadden, Arps, Slate, Meagher & Flom LLP), shall be paid by the Company. In the
event of a termination of this Agreement, the obligation of each party to pay
its own expenses will be subject to any rights of such party arising from a
breach of this Agreement by the other.

 

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8.4 Termination Fee. So long as Parent and Merger Sub shall not have materially
breached their obligations under this Agreement, in the event that this
Agreement is validly terminated pursuant to Section 8.1(e) or 8.1(f) and within
nine months of such termination an Alternative Transaction is approved by the
Company’s Board of Directors and is consummated, then simultaneously with the
consummation of such Alternative Transaction, the Company shall pay to Parent,
in immediately available funds, a fee of Three Million One Hundred Twenty Nine
Thousand United States Dollars (U.S. $3,129,000).

8.5 Amendment. Subject to applicable law, this Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval and adoption of this Agreement
by the stockholders of the Company; provided, that, after approval and adoption
of this Agreement by the stockholders of the Company, no amendment shall be made
which under the DGCL requires further approval by the stockholders of the
Company without such further stockholder approval. This Agreement may not be
amended, modified or supplemented in any manner, whether by course of conduct or
otherwise, except by execution of an instrument in writing signed on behalf of
each of Parent, Merger Sub and the Company.

8.6 Extension; Waiver. At any time prior to the Effective Time any party hereto,
by action taken or authorized by its respective Board of Directors, may, to the
extent legally allowed: (i) extend the time for the performance of any of the
obligations or other acts of the other parties 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 executed and
delivered by a duly authorized officer on behalf of such party. Delay in
exercising any right under this Agreement shall not constitute a waiver of such
right.

ARTICLE IX

GENERAL PROVISIONS

9.1 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed duly given (i) on the date of delivery if delivered
personally, (ii) on the date of confirmation of receipt (or, the first business
day following such receipt if the date is not a business day) of transmission by
telecopy or telefacsimile, or (iii) on the date of confirmation of receipt (or,
the first business day following such receipt if the date is not a business day)
if delivered by a nationally recognized courier service. All notices hereunder
shall be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:

 

(a)    if to Parent or Merger Sub, to:    Green Mountain Coffee Roasters, Inc.
   33 Coffee Lane    Waterbury, Vermont 05676    Attention:    Frances Rathke   
   Chief Financial Officer    Telephone No.:    (802) 244-5621    Telecopy No.:
   (802) 244-6566

 

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   with a copy to:       Gibson, Dunn & Crutcher LLP    200 Park Avenue    New
York, NY 10166    Attention:    Dennis J. Friedman    Telephone No.:    (212)
351-3900    Telecopy No.:    (212) 351-6201 (b)    if to the Company, to:   
Keurig, Incorporated    101 Edgewater Drive    Wakefield, MA 01880    Attention:
   Nicholas Lazaris       Chief Executive Officer    Telephone No.:    (781)
246-3466 x110    Telecopy No.:    (781) 346-3499    with a copy to:      
Skadden, Arps, Slate, Meagher & Flom LLP    One Beacon Street    Boston, MA
02108    Attention:    Kent A. Coit    Telephone No.:    (617) 573-4835   
Telecopy No.:    (617) 573-4822 (c)    if to the Securityholder Representative,
to:    United States Trust Company, N.A., as    Trustee of the Memorial Drive
Trust    600 Fourteenth Street N.W.    Washington, D.C. 20005-3314    Attention:
   Norman Goldberg    Telephone No.:    (202) 585-4175    Telecopy No.:    (202)
783-7054

 

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                       with a copy to:    Goodwin Procter LLP    Exchange Place
   53 State Street    Boston, MA 02109    Attention:    Mark Burnett   
Telephone No.:    (617) 570-1031    Telecopy No.:    (617) 523-1231

9.2 Interpretation; Knowledge. 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 this Agreement unless otherwise
indicated. For purposes of this Agreement, the words “include,” “includes” and
“including,” when used herein, shall be deemed in each case to be followed by
the words “without limitation.” The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.

9.3 Additional Definitions. For purposes of this Agreement:

(a) An “Affiliate” of any Person means another Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such first Person, where “control”, including the
terms “controlled by” and “under common control with” means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, as trustee or executor, as general partner or managing
partner, or otherwise, including the ownership, directly or indirectly, of
securities having the power to elect a majority of the board of directors or
similar body governing the affairs of such Person, it being understood and
agreed that for purposes of this Agreement, neither Parent nor any of its
Affiliates shall be deemed to be an Affiliate of the Company;

(b) “Alternative Transaction” means a transaction or series of related
transactions (other than the transactions contemplated by this Agreement or any
amendment of this Agreement) involving (A) any direct or indirect acquisition or
purchase of all or any portion of the capital stock of the Company or assets of
the Company (other than inventory to be sold in the ordinary course of business
consistent with past practice), (B) any merger, consolidation or other business
combination involving the Company or (C) any recapitalization, reorganization or
any other extraordinary business transaction involving or otherwise relating to
the Company;

(c) “Contract” shall mean any agreement, contract, subcontract, settlement
agreement, lease, instrument, note, warranty, purchase order, license,
sublicense, or other legally binding commitment or understanding, whether
written or oral and whether express or implied;

 

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(d) “Knowledge” means, with respect to the Company, with respect to any matter
in question, the actual knowledge, after due inquiry, of Nicholas Lazaris,
Stephen Sanford or Michael Degnan;

(e) “Legal Requirements” shall mean any federal, state, local, municipal,
foreign or other law, statute, constitution, ordinance, code, order, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by any Governmental
Entity;

(f) “Liens” shall mean any lien, pledge, claim, charge, encumbrance, mortgage,
limitation, condition, equitable interest, option, security interest, easement,
encroachment, right of first refusal, adverse claim or restriction of any kind,
including any restriction on or transfer or other assignment, as security or
otherwise, of or relating to use, quiet enjoyment, voting, transfer, receipt of
income or exercise of any other attribute of ownership;

(g) “Material Adverse Effect” means any change, event, violation, inaccuracy,
circumstance, effect or state of facts (any such item, an “Effect”) that,
individually or when taken together with all other previously occurring Effects,
is materially adverse to (X) the business, operations, assets, financial
condition or results of operations of the Company or (Y) the ability of the
Company to perform its obligations under this Agreement or to consummate the
transactions contemplated hereby; provided, however, that in no event shall any
of the following, either alone or in combination, be deemed to constitute, nor
shall any of the following be taken into account in determining whether there
has been or will be, a Material Adverse Effect: (A) any Effect resulting from
compliance with the terms and conditions of this Agreement, including payment of
the fees and expenses of the Company’s accountants, attorneys and financial
advisor in connection with the Company’s auction process, this Agreement and the
Merger; (B) any Effect that results from changes affecting the industry in which
the Company operates generally (whether in the United States or
internationally), which changes in each case do not materially
disproportionately affect the Company; (C) any Effect arising directly from or
that is directly related to the public announcement of this Agreement, or the
pendency of the Merger, including the loss of any employees, customers,
suppliers, roaster partners or distributors; (D) any impact on or consequence to
the Company of any action or omission of Parent in its capacity as a roaster
partner of the Company or any communications by Parent with any customer,
supplier, roaster partner or distributor of the Company; or (E) any Effect
referred to in Section 2.6 of the Company Disclosure Schedule, provided that if
the description of such Effect sets forth a dollar limit, then with respect to
such Effect, only to the extent of such dollar limit. For the avoidance of
doubt, Section 2.6 of the Company Disclosure Schedule shall mean only
Section 2.6 and not Sections 2.6(c), 2.6(e), 2.6(g), 2.6(i) or 2.6(l);

(h) “Person” shall mean any individual, corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization, entity or Governmental Entity;

(i) “Subsidiary,” when used with respect to any party, shall mean any
corporation or other organization, whether incorporated or unincorporated, at
least a majority of the securities or other interests of which having by their
terms ordinary voting power to elect a majority of the board of directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries;

 

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(j) “Tax Return” shall mean any return, declaration, report, claim for refund,
information return or similar document filed or required to be filed with
respect to any Taxes, including any amendment thereof; and

(k) “Taxes” shall mean any and all federal, state, local and foreign taxes and
other similar governmental charges, 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, together with all interest, penalties and additions
imposed with respect to such amounts.

9.4 Terms Defined Elsewhere. The following terms are defined elsewhere in this
Agreement, as indicated below:

 

Accountants' Determination    1.11(d) Acquisition Proposal    5.3(a) Affiliate
   9.3(a) Aggregate Preferred Priority Amount    1.6(a) Agreement    Preamble
Alternative Transaction    9.3(b) Benefit Arrangement    2.12(a) Bylaws    1.4
Certificate of Merger    1.2(a) Certificates    1.7(b) Charter    1.6(a) Closing
   1.2(b) Closing Date    1.2(b) Closing Date Company Indebtedness    1.6(a)
Closing Date Purchase Price    1.6(a) Closing Net Working Capital    1.11(b)
Code    1.7(c) Commitment Letters    3.3 Company    Preamble Company Balance
Sheet    2.4 Company Common Stock    1.6(a) Company Disclosure Schedule   
Article II Company Indebtedness    1.6(a) Company Indemnified Liabilities   
5.9(a) Company Indemnified Parties    5.9(a) Company Indemnified Proceedings   
5.9(a) Company Option    1.6(a) Company Organizational Documents    2.1(b)
Company Participants    5.8(a) Company Patents    2.8(a) Company Permits   
2.9(b) Company Preferred Stock    1.6(a) Company Proposals    5.1(a)

 

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Company Registered Copyrights    2.8(a) Company Registered IP    2.8(a) Company
Registered Marks    2.8(a) Company Scheduled Contract    2.15(a) Company
Securities    1.6(a) Company Securityholder Claim    7.3 Company Securityholder
Indemnified Parties    7.3 Company Securityholders    1.6(a) Company Stock   
1.6(a) Company Transaction Expenses    1.6(a) Company Triggering Event    8.1(f)
Company Warrantholder Consent    5.7(b) Company Warrants    2.2(c), 1.6(a)
Confidentiality Agreement    5.4(a) Continuing Company Option    5.7(a)(ii)
Continuing Management    1.11(a) Contract    9.3(c) Copyrights    2.8(d) DGCL   
Recitals Dissenting Shares    1.6(b)(iv) DOJ    5.6(a) Effect    9.3(h)
Effective Time    1.2(a) Employee    2.12(a) Employee Plans    2.12(a)
Environmental Law    2.14(e) ERISA    2.12(a) ERISA Affiliate    2.12(a) Escrow
Agent    1.6(d)(i) Escrow Agreement    1.6(d)(i) Escrow Amount    1.6(a) Escrow
Funds    1.6(d)(i) Excess Working Capital Payment    1.11(e)(i) Exchange Act   
5.6(a) Final End Date    8.1(b) Financial Statements    2.4 FTC    5.6(a) GAAP
   1.11(b) General Escrow Earnings    1.6(d)(ii) Governmental Entity    2.3(d)
Hazardous Material    2.14(a) HSR Act    2.3(d) Inbound License Contracts   
2.8(b) Indemnified Party    7.5(a) Indemnifying Party    7.5(a) Independent
Accounting Firm    1.11(c) Information Statement    2.16(a) Intellectual
Property    2.8(d)

 

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IP Contracts    2.8(b) Knowledge    9.3(d) Legal Proceeding    2.10 Legal
Requirements    9.3(e) Liens    9.3(f) Losses    7.2 Majority Holders    1.12(c)
Material Adverse Effect    9.3(g) Merger    1.1 Merger Sub    Preamble Merger
Sub Organizational Documents    3.1(b) Names    2.8(g) Necessary Consents   
2.3(d) Option Consideration    5.7(a)(i) Option Exchange Ratio    5.7(a)(ii)
Option Plans    1.6(a) Original End Date    8.1(b) Outbound License Contracts   
2.8(b) Parent    Preamble Parent Claim    7.2 Parent Common Stock    5.7(a)(ii)
Parent Exercise Price    5.7(a)(ii) Parent Indemnified Parties    7.2 Parent
Market Price    5.7(a)(ii) Parent Option    5.7(a)(ii) Parent Organizational
Documents    3.1(b) Patents    2.8(d) Paying Agent    1.7(a) Paying Agent Fund
   1.7(a) Pension Plan    2.12(a) Per Share Merger Consideration    1.6(a)
Permits    2.9(b) Permitted Fiduciary Action    5.3(d) Permitted Indebtedness   
4.1(b)(xviii) Person    9.3(h) Preferred Per Share Priority Payment    1.6(a)
Proportionate Percentage    1.6(d)(i) Purchase Price    1.6(a) Reference Amount
   1.11(e)(i) Representatives    5.4(b) Required Stockholder Approvals   
2.3(b)(ii) Securities Act    5.6(a) Securityholder Representative    1.12(a)
Series A Preferred Stock    1.6(a) Series B Preferred Stock    1.6(a) Series C
Preferred Stock    1.6(a) SGAS    2.11 SGAS Engagement Letter    2.11

 

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Software    2.8(d) Statutory Merger Stockholder Approval    2.3(b)(ii) Stock
Rights Agreement Consent    2.3(b)(ii) Stockholders' Meeting    5.1(a)
Subsidiary    9.3(i) Superior Offer    5.3(c) Surviving Corporation    1.1 Tax
Return    9.3(j) Taxes    9.3(k) Third Party Claim    7.5(a) Total Common
Consideration    1.6(a) Trade Secrets    2.8(d) Trademarks    2.8(d)
Transactions    5.4(a) Unowned Percentage    1.11(e)(i) Unpaid Company
Transaction Expenses    1.6(a) Vested Company Options    1.6(a) Warrant
Consideration    5.7(b) Welfare Plan    2.12(a) Working Capital Shortfall
Payment    1.11(e)(ii)

9.5 Counterparts. This Agreement may be executed in two 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.

9.6 Entire Agreement; Third-Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
are not intended to confer upon any other Person any rights or remedies
hereunder and constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements, arrangements,
communications and understandings, both written and oral, among the parties with
respect to the subject matter hereof and thereof (including the letter agreement
dated April 14, 2006 between Parent and the Company), except for the
Confidentiality Agreement which shall continue in full force and effect until
the Closing and shall survive any termination of this Agreement. Neither this
Agreement nor the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, including the Company
Disclosure Schedule, are intended to confer upon any other Person any rights or
remedies hereunder except (i) as provided in Section 5.9(d), (ii) if the
Effective Time occurs, the rights of the holders of Company Stock, Company
Options and Company Warrants to receive the consideration provided for in
Article I and Section 5.7 and the rights of Company Securityholders (and the
right of the Securityholder Representative to enforce such rights) to receive
amounts which may become distributable to them in accordance with Article VII
and the Escrow Agreement, and (iii) for the right of the Company, on behalf of
the holders of Company Stock, Company Options and Company Warrants, to enforce
this Agreement and claim and obtain damages on their behalf (subject to and
without limitation of Section 9.8), in the event of Parent’s or Merger Sub’s
breach of this Agreement or fraud, which right is hereby acknowledged and agreed
by Parent and Merger Sub.

 

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9.7 Severability. In the event that any provision or portion of any provision of
this Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be 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. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the greatest extent possible,
the economic, business and other purposes of such void or unenforceable
provision.

9.8 Other Remedies. Except as otherwise provided herein (including, if the
Effective Time occurs, the limitations set forth in Article VII), 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.

9.9 Governing Law Jurisdiction. This Agreement and all disputes or controversies
arising out of or relating to this Agreement or the transactions contemplated
hereby shall be governed by, and construed in accordance with, the laws of the
State of Delaware, regardless of the laws of any other jurisdiction that might
otherwise govern under applicable principles of conflicts of laws of the State
of Delaware. Each party hereby irrevocably (i) submits to the jurisdiction of
any Delaware state court or any United States federal court located in the State
of Delaware with respect to any suit, action or proceeding arising out of or
relating to this Agreement or for recognition and enforcement of any judgment in
respect thereof brought by any other party or its successors or assigns,
(ii) agrees that such courts will be proper forums in which to adjudicate any
such suit, action or proceeding and (iii) agrees that it will not object to such
venue or the jurisdiction of such courts. Each of the parties hereby irrevocably
and unconditionally waives, and agrees not to assert, by way of motion or as a
defense, counterclaim or otherwise, in any suit, action or proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby,
(a) any claim that it is not personally subject to the jurisdiction of the
above-named courts for any reason other than the failure lawfully to serve
process, (b) any claim that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise)
and (c) to the fullest extent permitted by law, any claim that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum,
(ii) the venue of such suit, action or proceeding is improper or (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.

9.10 Rules of Construction. The parties hereto agree that they have been
represented by 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 will
be construed against the party drafting such agreement or document.

9.11 Assignment. No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder, as the case may be, in whole or in part, by
operation of law or otherwise, without the prior written approval of the other
parties. Any purported assignment in violation of this Section 9.11 shall be
void; provided, however, that Merger Sub may assign this Agreement to another
wholly-owned Subsidiary of Parent without the prior written approval of

 

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the Company (which wholly-owned subsidiary of Parent shall then be deemed to be
“Merger Sub” for all purposes of this Agreement) and Merger Sub may make a
collateral assignment of its rights under this Agreement to its senior secured
lender; provided further, that no assignment shall limit the assignor’s
obligations hereunder. Subject to the preceding sentence, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and permitted assigns.

9.12 No Waiver. No failure or delay on the part of any party hereto in the
exercise of any right hereunder will impair such right or be construed to be a
waiver of, or acquiescence in, any breach of any representation, warranty or
agreement herein, nor will any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right.

9.13 Waiver of Jury Trial. EACH OF PARENT, MERGER SUB AND THE COMPANY HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE
ACTIONS OF PARENT, MERGER SUB OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT HEREOF.

9.14 Enforcement. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly,
each of the parties shall be entitled to specific performance of the terms
hereof, including an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any Delaware State or federal court located in the State of Delaware, this
being in addition to any other remedy to which they are entitled at law or in
equity. Each of the parties further hereby waives (a) any defense in any action
for specific performance that a remedy at law would be adequate and (b) any
requirement under any law to post security as a prerequisite to obtaining
equitable relief.

9.15 Currency. All references to “dollars” or “$” or “US$” in this Agreement
refer to United States dollars, which is the currency used for all purposes in
this Agreement.

9.16 Facsimile Signature. This Agreement may be executed by facsimile signature
and a facsimile signature shall constitute an original for all purposes.

[Remainder of Page Intentionally Left Blank]

[Signature Page Follows]

 

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

 

GREEN MOUNTAIN COFFEE ROASTERS, INC. By:  

/s/ Frances G. Rathke

Name:   Frances G. Rathke Title:   Chief Financial Officer KARMA MERGER SUB,
INC. By:  

/s/ Frances G. Rathke

Name:   Frances G. Rathke Title:   President KEURIG, INCORPORATED By:  

/s/ Nicholas Lazaris

Name:   Nicholas Lazaris Title:   President and Chief Executive Officer

UNITED STATES TRUST COMPANY, N.A., as

Trustee of the Memorial Drive Trust, solely in its

capacity as Securityholder Representative

By:  

/s/ Norman R. Goldberg

Name:   Norman R. Goldberg Title:   Managing Director