Exhibit 10.1

 

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AGREEMENT AND PLAN OF MERGER

 

among

 

NATUS MEDICAL INCORPORATED,

 

SUMMER ACQUISITION CORPORATION

 

and

 

BIO-LOGIC SYSTEMS CORP.

 

Dated as of October 16, 2005

 

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TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS

   1

SECTION 1.01

   DEFINITIONS    1

ARTICLE II THE MERGER

   6

SECTION 2.01

   THE MERGER    6

SECTION 2.02

   EFFECTIVE TIME; CLOSING    7

SECTION 2.03

   EFFECT OF THE MERGER    7

SECTION 2.04

   CERTIFICATE OF INCORPORATION; BY-LAWS    7

SECTION 2.05

   DIRECTORS AND OFFICERS    7

SECTION 2.06

   CONVERSION OF SECURITIES    8

SECTION 2.07

   EMPLOYEE STOCK OPTIONS    8

SECTION 2.08

   DISSENTING SHARES    8

SECTION 2.09

   SURRENDER OF SHARES; STOCK TRANSFER BOOKS    9

SECTION 2.10

   WITHHOLDING RIGHTS    11

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   11

SECTION 3.01

   ORGANIZATION AND QUALIFICATION; SUBSIDIARIES    11

SECTION 3.02

   CERTIFICATE OF INCORPORATION AND BY-LAWS    12

SECTION 3.03

   CAPITALIZATION    12

SECTION 3.04

   AUTHORITY RELATIVE TO THIS AGREEMENT    13

SECTION 3.05

   NO CONFLICT; REQUIRED FILINGS AND CONSENTS    13

SECTION 3.06

   PERMITS; COMPLIANCE    14

SECTION 3.07

   SEC FILINGS; FINANCIAL STATEMENTS    14

SECTION 3.08

   ABSENCE OF CERTAIN CHANGES OR EVENTS    17

SECTION 3.09

   ABSENCE OF LITIGATION    17

SECTION 3.10

   EMPLOYEE BENEFIT PLANS    17

SECTION 3.11

   LABOR AND EMPLOYMENT MATTERS    20

SECTION 3.12

   PROXY STATEMENT    21

SECTION 3.13

   REAL PROPERTY; TITLE TO ASSETS    21

SECTION 3.14

   INTELLECTUAL PROPERTY    22

SECTION 3.15

   TAXES    25

SECTION 3.16

   ENVIRONMENTAL MATTERS    26

SECTION 3.17

   NO RIGHTS AGREEMENT    27

SECTION 3.18

   MATERIAL CONTRACTS    27

SECTION 3.19

   CUSTOMERS AND SUPPLIERS    29

SECTION 3.20

   INVENTORY    29

SECTION 3.21

   COMPANY PRODUCTS AND SERVICES    29

SECTION 3.22

   INSURANCE    30

SECTION 3.23

   CERTAIN BUSINESS PRACTICES    30

SECTION 3.24

   GOVERNMENT REGULATION    30

SECTION 3.25

   BROKERS    31

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

   31

SECTION 4.01

   CORPORATE ORGANIZATION; CERTIFICATE OF INCORPORATION AND BY-LAWS    31

 

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TABLE OF CONTENTS

 

SECTION 4.02

   AUTHORITY RELATIVE TO THIS AGREEMENT    31

SECTION 4.03

   NO CONFLICT; REQUIRED FILINGS AND CONSENTS    32

SECTION 4.04

   LITIGATION    32

SECTION 4.05

   FINANCING    33

SECTION 4.06

   PROXY STATEMENT    33

SECTION 4.07

   BROKERS    33

ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER

   33

SECTION 5.01

   CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER    33

ARTICLE VI ADDITIONAL AGREEMENTS

   36

SECTION 6.01

   STOCKHOLDERS’ MEETING    36

SECTION 6.02

   PROXY STATEMENT    36

SECTION 6.03

   ACCESS TO INFORMATION; CONFIDENTIALITY    37

SECTION 6.04

   NO SOLICITATION OF TRANSACTIONS    37

SECTION 6.05

   DIRECTORS’ AND OFFICERS’ INDEMNIFICATION AND INSURANCE    39

SECTION 6.06

   NOTIFICATION OF CERTAIN MATTERS    40

SECTION 6.07

   FURTHER ACTION; REASONABLE BEST EFFORTS    40

SECTION 6.08

   SUBSEQUENT FINANCIAL STATEMENTS    41

SECTION 6.09

   PUBLIC ANNOUNCEMENTS    41

SECTION 6.10

   TAX CERTIFICATE    41

SECTION 6.11

   EMPLOYEE BENEFITS    42

SECTION 6.12

   TERMINATION OF CERTAIN BENEFIT PLANS    42

SECTION 6.13

   SEVERANCE; STAY BONUSES    42

SECTION 6.14

   401(K) MATCHING CONTRIBUTIONS    43

ARTICLE VII CONDITIONS TO THE MERGER

   43

SECTION 7.01

   CONDITIONS TO THE MERGER    43

ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER

   45

SECTION 8.01

   TERMINATION    45

SECTION 8.02

   EFFECT OF TERMINATION    46

SECTION 8.03

   PAYMENTS    47

SECTION 8.04

   AMENDMENT    48

SECTION 8.05

   WAIVER    48

ARTICLE IX GENERAL PROVISIONS

   48

SECTION 9.01

   NOTICES    48

SECTION 9.02

   SEVERABILITY    49

SECTION 9.03

   ENTIRE AGREEMENT; ASSIGNMENT    49

SECTION 9.04

   PARTIES IN INTEREST    50

SECTION 9.05

   SPECIFIC PERFORMANCE    50

SECTION 9.06

   GOVERNING LAW    50

SECTION 9.07

   WAIVER OF JURY TRIAL    50

SECTION 9.08

   HEADINGS    50

SECTION 9.09

   COUNTERPARTS    50

SECTION 9.10

   NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES    50

 

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AGREEMENT AND PLAN OF MERGER, dated as of October 16, 2005 (this “Agreement”),
among Natus Medical Incorporated, a Delaware corporation (“Parent”), Summer
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent (“Merger Sub”), and Bio-logic Systems Corp., a Delaware corporation (the
“Company”).

 

A. The parties intend that, subject to the terms and conditions hereinafter set
forth, Merger Sub shall merge with and into the Company (the “Merger”), with the
Company to be the surviving corporation of the Merger (the “Surviving
Corporation”), on the terms and subject to the conditions of this Agreement and
pursuant to the General Corporation Law of the State of Delaware (the “DGCL”).

 

B. The Boards of Directors of both of Parent and Merger Sub and the Board of
Directors of the Company (the “Board”) have determined that the Merger is in the
best interests of their respective companies and stockholders and have approved
and declared advisable this Agreement and the transactions contemplated hereby.
The Board of Directors of the Company has determined, subject to the terms and
conditions of this Agreement, to recommend to the Company stockholders the
approval of this Agreement and the Merger.

 

C. Concurrently with the execution and delivery of this Agreement, and as a
material inducement to Parent’s willingness to enter into this Agreement, each
stockholder of the Company listed on Exhibit A-1 is executing and delivering to
Parent a Voting Agreement substantially in the form attached hereto as Exhibit
A-2 (each, a “Voting Agreement”) under which such stockholder agrees to vote all
shares of the Company’s capital stock beneficially owned by it, and over which
such stockholder has voting power, in favor of this Agreement and the
transactions contemplated hereby and to give Parent a proxy to do the same.

 

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

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, Parent,
Merger Sub and the Company hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.01 Definitions.

 

(a) For purposes of this Agreement:

 

“affiliate” of a specified person means a person who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such specified person.

 

“beneficial owner”, with respect to any Shares, has the meaning ascribed to such
term under Rule 13d-3(a) under the Exchange Act.

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“business day” means any day on which the principal offices of the SEC in
Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day (other than a Saturday or Sunday) on which
banks are not required or authorized to close in the City of New York.

 

“Company IT Systems” means all IT Systems used in the business of the Company or
any Subsidiary.

 

“Competing Transaction” means any of the following (other than the Merger):
(i) any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or other similar transaction
involving the Company or any Subsidiary; (ii) any sale, lease, exchange,
transfer or other disposition of all or a substantial part of the assets of the
Company or of any of the Subsidiaries, other than in the ordinary course of
business; (iii) any sale, exchange, transfer or other disposition of 16% or more
of any class of equity securities of the Company or of any of the Subsidiaries;
(iv) any tender offer or exchange offer that, if consummated, would result in
any person beneficially owning 16% or more of any class of equity securities of
the Company or of any of the Subsidiaries; (v) any solicitation in opposition to
the adoption of this Agreement by the Company’s stockholders; or (vi) any other
transaction the consummation of which would reasonably be expected to impede,
interfere with, prevent or materially delay the Merger.

 

“control” (including the terms “controlled by” and “under “common control with”)
means the possession, directly or indirectly, or as trustee or executor, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise;

 

“Environmental Laws” means any United States federal, state, local or non United
States laws, statutes, ordinances, regulations, rules, codes, orders, other
requirements of law and common law relating to (i) releases or threatened
releases of Hazardous Substances or materials containing Hazardous Substances;
(ii) exposure or alleged exposure to Hazardous Substances; (iii) the
manufacture, handling, transport, recycling, reclamation, use, treatment,
storage or disposal of Hazardous Substances or materials containing Hazardous
Substances; or (iv) pollution, natural resource damages or protection of the
environment, health or safety.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated)
under common control with the Company or any Subsidiary and which, together with
the Company or any Subsidiary, is treated as a single employer within the
meaning of Section 414(b), (c), (m) or (o) of the Code.

 

“Hazardous Substances” means (i) those substances defined in or regulated under
the following United States federal statutes and their state and local
counterparts, as each may be amended from time to time, and all regulations
thereunder: the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act and the Clean Air Act; (ii) petroleum and petroleum products, including
crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any
mixtures thereof; (iv) polychlorinated

 

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biphenyls, asbestos, mold and radon; and (v) any other contaminant, substance,
material or waste regulated by any Governmental Authority pursuant to any
Environmental Law.

 

“Healthcare Law” means the following laws or regulations relating to the
regulation of the healthcare industry (as such laws are currently enforced or as
interpreted at the Effective Time by existing, publicly available judicial and
administrative decisions and regulations): (i) Sections 1877, 1128, 1128A or
1128B of the Social Security Act (the “SSA”); (ii) the licensure, certification
or registration requirements of healthcare facilities, services or equipment;
(iii) any state certificate of need or similar law governing the establishment
of healthcare facilities or services or the making of healthcare capital
expenditures; (iv) any state law relating to fee-splitting or the corporate
practice of medicine; (v) any state physician self-referral prohibition or state
anti-kickback law; (vi) any criminal offense relating to the delivery of, or
claim for payment for, a healthcare item or service under any federal or state
healthcare program; and (vii) any federal or state law relating to the
interference with or obstruction of any investigation into any criminal offense.

 

“Intellectual Property” means, collectively, all of the following worldwide
legal rights, whether or not filed, perfected, registered or recorded, that may
exist under the laws of any jurisdiction to and under all: (i) patents, patent
applications, statutory invention registrations, patent rights, including all
continuations, continuations-in-part, divisions, reissues, reexaminations or
extensions thereof, whether now existing or hereafter filed, issues or acquired,
and all inventions, whether or not patentable (ii) trademarks, service marks,
domain names, (including, but not limited to Internet domain names, Internet and
World Wide Web URLs, and domain name registrations and pending applications
therefore) trade dress, logos, trade names, corporate names, and other
identifiers of source or goodwill, including registrations and applications for
registration thereof, (iii) rights associated with works of authorship
(including audiovisual works) including mask works and copyrights, including
copyrights in Software, and registrations and applications for registration
thereof, and (iv) rights relating to the protection of trade secrets, know-how,
invention rights, and other confidential or proprietary technical, business and
other information, including manufacturing and production processes and
techniques, research and development information, technology, drawings,
specifications, designs, plans, proposals, technical data, financial, marketing
and business data, pricing and cost information, business and marketing plans,
customer and supplier lists and information, and all rights in any jurisdiction
to limit the use or disclosure thereof.

 

“IT Systems” means computer systems, programs, networks, hardware, Software,
databases, operating systems, Internet websites, website content and links and
equipment used to process, store, maintain and operate data, information and
functions.

 

“knowledge of the Company” means the actual knowledge of any director or
executive officer (as defined in Rule 3b-7 under the Exchange Act) of the
Company. An executive officer of the Company shall be deemed to have knowledge
of such matters in this Agreement which refer to the “knowledge of the Company”
if such knowledge could have been obtained through such executive officer’s
inquiring of those employees of the Company who report directly to such
executive as to such matter.

 

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“Licensed Intellectual Property” means Intellectual Property licensed to the
Company or any Subsidiary pursuant to the Licenses.

 

“Licenses” means (i) licenses of Intellectual Property or IT Systems by the
Company or any Subsidiary to any third party, (ii) licenses of Intellectual
Property or IT Systems by any third party to the Company or any Subsidiary,
(iii) agreements between the Company or any Subsidiary and any third party
relating to the development or use of Intellectual Property or IT Systems, the
development or transmission of data, or the use, modification, framing, linking,
advertisement, or other practices with respect to Internet web sites, and
(iv) consents, settlements, decrees, orders, injunctions, judgments or rulings
governing the use, validity or enforceability of Owned Intellectual Property or
any other Intellectual Property used in, intended to be used in, or held for use
in connection with the business of the Company or any Subsidiary.

 

“Material Adverse Effect” means, when used in connection with Parent, on the one
hand, or Company or any Subsidiary, on the other, any event, circumstance,
change or effect (any such item, an “Effect”) that, individually or in the
aggregate with any other events, circumstances, changes and effects occurring
after the date hereof, is or is reasonably likely to be materially adverse to
(i) the business, financial condition, assets, liabilities or results of
operations of such entity and its subsidiaries taken as a whole or (ii) the
ability of such entity to consummate the Merger; provided, however, that none of
the following shall be deemed to constitute a Material Adverse Effect on such
entity: (A) any Effect that results from changes affecting any of the industries
or countries in which such entity operates generally or the economy or financial
markets generally (provided that such Effect does not affect such entity in a
materially disproportionate manner as compared to other similarly-situated
participants in the industry in which such entity operates), (B) any Effect
resulting from weather or any natural disaster, (C) any Effect resulting from
the announcement, pendency or consummation of the transaction contemplated by
this Agreement or resulting from the taking of any action required by this
Agreement or (D) any Effect from any change resulting from any change in laws
affecting such entity (provided that such Effect does not affect such entity in
a materially disproportionate manner as compared to other similarly-situated
participants in the industry in which such entity operates).

 

“NASDAQ” means the Nasdaq Stock Market, Inc.

 

“Owned Intellectual Property” means Intellectual Property owned by the Company
or any Subsidiary.

 

“Per Share Amount” means $8.77.

 

“person” means an individual, corporation, partnership, limited partnership,
limited liability company, syndicate, person (including a “person” as defined in
Section 13(d)(3) of the Exchange Act), trust, association or entity or
government, political subdivision, agency or instrumentality of a government.

 

“Software” means computer software, programs and databases in any form,
including Internet web sites, web content and links, all versions, updates,
corrections, enhancements, and modifications thereof, and all related
documentation.

 

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“subsidiary” or “subsidiaries” of the Company, the Surviving Corporation, Parent
or any other person means an affiliate controlled by such person, directly or
indirectly, through one or more intermediaries. (For the avoidance of doubt, for
the definition of “Subsidiary” with a capitalized “S”, see Section 3.01.)

 

“Superior Proposal” means an unsolicited written bona fide offer made by a third
party that is not subject to a financing condition to consummate any Competing
Transaction on terms that the Board determines, in its good faith judgment
(after having consulted with its financial advisor), to be more favorable to the
Company’s stockholders than the Merger; provided that, for purposes of this
definition, the percentage referred to in clauses (iii) and (iv) of the
definition of “Competing Transaction” shall be 50%.

 

“Taxes” shall mean any and all taxes, fees, levies, duties, tariffs, imposts and
other similar charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any Governmental Authority or taxing authority, including, without
limitation: taxes or other charges on or with respect to income, franchise,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers’ compensation, unemployment
compensation or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value-added or gains taxes; license,
registration and documentation fees; and customers’ duties, tariffs and similar
charges.

 

“Tax Return” means any return, report, schedule, declaration, estimate or
election (including attachments to any of the foregoing) filed or required to be
filed with any Governmental Authority or taxing authority with respect to Taxes.

 

(b) The following terms have the meaning set forth in the Sections set forth
below:

 

Defined Term

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Location
of
Definition

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Action

   §3.09

Agreement

   Preamble

Board

   Recitals

Certificate of Merger

   §2.02

Certificates

   § 2.09(b)

Change in the Company Recommendation

   § 6.04(c)

Code

   § 3.10(a)

Company

   Preamble

Company 401(k) Plan

   §6.12

Company Indemnification Provisions

   § 6.05(a)

Company Indemnified Persons

   § 6.05(a)

Company Stock Awards

   § 3.03(a)

Company Stock Option

   §2.07

Company Stock Option Plans

   §2.07

Company Stockholder Approval

   §3.04

Confidentiality Agreement

   §6.03

DGCL

   Recitals

 

5

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Disclosure Schedule

   Article III

Dissenting Shares

   §2.08

Effective Time

   §2.02

Environmental Permits

   §3.16

ERISA

   § 3.10(a)

Exchange Act

   § 3.07(a)

FDA

   § 3.24(d)

GAAP

   § 3.07(b)

Governmental Authority

   § 3.05(b)

IRS

   § 3.10(a)

Indemnification Period

   § 6.05(b)

Law

   § 3.05(a)

Lease Documents

   § 3.13(b)

Liens

   § 3.13(a)

Material Contracts

   § 3.18(a)

Merger

   Recitals

Merger Consideration

   § 2.06(a)

Merger Sub

   Preamble

Notice of Superior Proposal

   § 6.04(c)

Option Payment

   §2.07

Parent

   Preamble

Paying Agent

   § 2.09(a)

Permits

   § 3.06(a)

Permitted Liens

   § 3.13(a)

Plans

   § 3.10(a)

Proxy Statement

   §3.12

SEC

   § 3.07(a)

SEC Reports

   § 3.07(a)

Securities Act

   § 3.07(a)

Share

   § 2.06(a)

Stockholders’ Meeting

   §6.01

Subsidiary

   § 3.01(a)

Surviving Corporation

   Recitals

Voting Agreement

   Recitals

2005 Balance Sheet

   § 3.07(c)

 

ARTICLE II

THE MERGER

 

SECTION 2.01 The Merger.

 

Upon the terms hereof and subject to the conditions set forth in Article VII,
and in accordance with the DGCL, Merger Sub shall be merged with and into the
Company.

 

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SECTION 2.02 Effective Time; Closing.

 

As promptly as practicable after the conditions to the Merger set forth in
Article VII have been satisfied (and in no event later than the fifth day
thereafter), the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger in the form attached hereto as Exhibit B (the
“Certificate of Merger”) with the Secretary of State of the State of Delaware,
in such form as is required by, and executed in accordance with, the relevant
provisions of the DGCL (the date and time of such filing of the Certificate of
Merger (or such later time as may be agreed by each of the parties hereto and
specified in the Certificate of Merger) being the “Effective Time”). Immediately
prior to such filing of the Certificate of Merger, a closing (the “Closing”)
shall be held at the offices of Fenwick & West LLP, 801 California Street,
Mountain View, California, or such other place as the parties shall agree, for
the purpose of confirming the satisfaction or waiver, as the case may be, of the
conditions set forth in Article VII.

 

SECTION 2.03 Effect of the Merger.

 

At the Effective Time, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation of the Merger
(the “Surviving Corporation”). At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the DGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities,
obligations, restrictions, disabilities and duties of the Company and Merger Sub
shall become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.

 

SECTION 2.04 Certificate of Incorporation; By-laws.

 

(a) At the Effective Time, the Certificate of Incorporation of Merger Sub shall
be amended and restated in its entirety to be identical to the Certificate of
Incorporation attached hereto as Schedule 2.04(a) until thereafter amended as
provided by law and such Certificate of Incorporation.

 

(b) Unless otherwise determined by Parent prior to the Effective Time, at the
Effective Time, the By-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-laws.

 

SECTION 2.05 Directors and Officers.

 

The directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-laws of the Surviving
Corporation, and the officers of Merger Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified or
until their earlier death, resignation or removal.

 

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SECTION 2.06 Conversion of Securities.

 

At the Effective Time, by virtue of the Merger and without any action on the
part of Merger Sub, the Company or the holders of any of the following
securities:

 

(a) Each share of the Company’s common stock, par value $0.01 per share, (a
“Share”), issued and outstanding immediately prior to the Effective Time(and
including, without limitation, each share of “restricted stock” issued under the
Company’s 2004 Stock Incentive Plan)(other than any Shares to be canceled
pursuant to Section 2.06(b) and any Dissenting Shares (as hereinafter defined))
shall be canceled and shall be converted automatically into the right to receive
an amount equal to the Per Share Amount (the “Merger Consideration”) payable in
cash, without interest, to the holder of such Share, upon surrender, in the
manner provided in Section 2.09, of the certificate that formerly evidenced such
Share (or in the case of a lost, stolen or destroyed certificate, upon delivery
of an affidavit and bond, if required, in the manner provided in
Section 2.09(d));

 

(b) Each Share held in the treasury of the Company and each Share owned by
Merger Sub, Parent or any direct or indirect wholly owned subsidiary of Parent
or of the Company immediately prior to the Effective Time shall be canceled
without any conversion thereof and no payment or distribution shall be made with
respect thereto; and

 

(c) Each share of common stock of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.

 

SECTION 2.07 Employee Stock Options.

 

Effective as of the Effective Time, each option to purchase shares of Company
common stock (each such option, a “Company Stock Option”) under the Company’s
1994 Stock Option Plan, as amended, or the Company’s 2004 Stock Incentive Plan
(together, the “Company Stock Option Plans”), that is outstanding and
unexercised as of such date shall terminate and be cancelled. In consideration
for the cancellation thereof, each holder of a Company Stock Option that is
outstanding and unexercised immediately prior to the Effective Time shall be
entitled (subject to the provisions of this Section 2.07) to be paid by Parent,
with respect to each share of Company common stock subject to the Company Stock
Option, an amount in cash (subject to any applicable withholding taxes) equal to
the excess, if any, of the Per Share Amount over the applicable per share
exercise price of such Company Stock Option (the “Option Payment”). Any such
payment shall be subject to all applicable federal, state and local tax
withholding requirements. The Company shall take all necessary action to approve
the disposition of the Company Stock Options held by directors and “officers”
(as defined in Rule 16a-1(f) under the Exchange Act for purposes of this
Section) in connection with the transactions contemplated by this Agreement to
the extent necessary to exempt such dispositions and acquisitions under Rule
16b-3 of the Exchange Act.

 

SECTION 2.08 Dissenting Shares.

 

(a) Notwithstanding any provision of this Agreement to the contrary, Shares that
are issued and outstanding immediately prior to the Effective Time and that are
held by stockholders

 

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who shall have neither voted in favor of the Merger nor consented thereto in
writing and who shall have demanded properly in writing appraisal for such
Shares in accordance with Section 262 of the DGCL (collectively, the “Dissenting
Shares”) shall not be converted into, or represent the right to receive, the
Merger Consideration as provided in Section 2.06(a). Such stockholders shall be
entitled to receive payment of the appraised value of such Shares held by them
in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
Shares under such Section 262 shall thereupon be deemed to have been converted
into, and to have become exchangeable for, as of the Effective Time, the right
to receive the Merger Consideration, without any interest thereon, upon
surrender, in the manner provided in Section 2.09, of the certificate or
certificates that formerly evidenced such Shares (or in the case of a lost,
stolen or destroyed certificate, upon delivery of an affidavit and bond, if
required, in the manner provided in Section 2.09(d)).

 

(b) The Company shall give Parent (i) prompt notice of any demands for appraisal
received by the Company, withdrawals of such demands, and any other instruments
served pursuant to the DGCL and received by the Company and (ii) the opportunity
to direct all negotiations and proceedings with respect to demands for appraisal
under the DGCL. The Company shall not, except with the prior written consent of
Parent, make any payment with respect to any demands for appraisal or offer to
settle or settle any such demands.

 

SECTION 2.09 Surrender of Shares; Stock Transfer Books.

 

(a) Prior to the Effective Time, Parent shall designate a bank or trust company
reasonably satisfactory to the Company to act as agent (the “Paying Agent”) for
the holders of Shares to receive the funds to which holders of Shares shall
become entitled pursuant to Section 2.06(a), and as promptly as practicable
after the Effective Time, Parent shall deposit with the Paying Agent all the
cash necessary to pay for the Shares of Company common stock converted into the
right to receive Merger Consideration pursuant to 2.06(a) and the aggregate
amount of the Options Payments payable to holders of Company Stock Options
pursuant to Section 2.07. Such funds shall be invested by the Paying Agent as
directed by the Surviving Corporation.

 

(b) (i) As promptly as practicable after the Effective Time, Parent shall cause
to be mailed to each person who was, at the Effective Time, a holder of record
of Shares entitled to receive the Merger Consideration pursuant to
Section 2.06(a) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the “Certificates”) shall pass, only upon proper
delivery of the Certificates to the Paying Agent (or in the case of a lost,
stolen or destroyed Certificate, upon delivery of an affidavit and bond, if
required, in the manner provided in Section 2.09(d))) and instructions for use
in effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate (or in the case
of a lost, stolen or destroyed Certificate, upon delivery of an affidavit and
bond, if required, in the manner provided in Section 2.09(d)), together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor, as promptly as practicable, the Merger
Consideration for each Share formerly evidenced by such Certificate, and, upon
payment of such Merger Consideration, such

 

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Certificate shall be canceled. No interest shall accrue or be paid on the Merger
Consideration payable upon the surrender of any Certificate for the benefit of
the holder of such Certificate. If the payment equal to the Merger Consideration
is to be made to a person other than the person in whose name the surrendered
certificate formerly evidencing Shares is registered on the stock transfer books
of the Company, it shall be a condition of payment that the certificate so
surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the certificate
surrendered, or shall have established to the satisfaction of Merger Sub that
such taxes either have been paid or are not applicable.

 

(ii) Upon the Effective Time, the Company shall deliver to the Paying Agent an
electronic listing, suitable for the Paying Agent’s use, of each holder of
Company Stock Options as of the Effective Time, provided that such listing shall
be in form and content reasonably satisfactory to Parent. Parent shall instruct
the Paying Agent to deliver the Option Payment due each such holder in
accordance with Section 2.07 as promptly as practicable following the Effective
Time.

 

(c) At any time following the sixth month after the Effective Time, Parent shall
be entitled to require the Paying Agent to deliver to it any funds which had
been made available to the Paying Agent and not disbursed to holders of Shares
or Company Stock Options (including, without limitation, all interest and other
income received by the Paying Agent in respect of all funds made available to
it), and, thereafter, such holders shall be entitled to look to Parent (subject
to abandoned property, escheat and other similar laws) only as general creditors
thereof with respect to any Merger Consideration or Option Payment that may be
payable upon due surrender of the Certificates held by them. Notwithstanding the
foregoing, none of Parent, the Surviving Corporation and the Paying Agent shall
be liable to any holder of a Share for any Merger Consideration delivered in
respect of such Share to a public official pursuant to any abandoned property,
escheat or other similar law.

 

(d) In the event any Certificates shall have been lost, stolen or destroyed,
Parent shall cause the Paying Agent to deliver in exchange for such lost, stolen
or destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof, such Merger Consideration as may be required pursuant to
Section 2.06(a); provided, however, that Parent may, in its reasonable
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to indemnify Parent, the
Surviving Corporation, the Paying Agent or any of their respective
representatives or agents against any claim that may be made against such party
with respect to the Certificates alleged to have been lost, stolen or destroyed;
and provided, further, that Parent may, in its reasonable discretion, and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificate to deliver a bond in such sum as it may
reasonably direct as indemnity against such claim.

 

(e) At the close of business on the day of the Effective Time, the stock
transfer books of the Company shall be closed and thereafter there shall be no
further registration of transfers of Shares on the records of the Company. From
and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to

 

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such Shares except the right to receive the Merger Consideration and as
otherwise provided herein or by applicable law.

 

SECTION 2.10 Withholding Rights.

 

Each of Parent, Merger Sub, the Surviving Corporation and the Paying Agent shall
be entitled to deduct and withhold from any amounts otherwise payable pursuant
to this Agreement in respect of Shares or Company Stock Options such amount as
it is required to deduct and withhold with respect to the making of such payment
under the Code or any Law. To the extent that amounts are so withheld, (i) they
shall be timely paid to all appropriate Governmental Authorities and (ii) such
withheld amounts shall be treated for purposes of this Agreement as having been
paid to the holder of the Shares in respect of which such deduction and
withholding was made.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

As an inducement to Parent and Merger Sub to enter into this Agreement, and
except as disclosed in the disclosure schedule prepared by the Company and
delivered by the Company to Parent and Merger Sub prior to the execution and
delivery of this Agreement (the “Disclosure Schedule”), the Company hereby
represents and warrants to Parent and Merger Sub that:

 

SECTION 3.01 Organization and Qualification; Subsidiaries.

 

(a) Each of the Company and each subsidiary of the Company (each a “Subsidiary”)
is a corporation duly organized, validly existing and in good standing (with
respect to any Subsidiary organized under the laws of any foreign jurisdiction,
to the extent applicable to such jurisdiction) under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not prevent or materially
delay consummation of the Merger and would not have a Material Adverse Effect on
the Company. The Company and each Subsidiary is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not prevent or materially delay consummation of the Merger
and would not have a Material Adverse Effect on the Company.

 

(b) A true and complete list of all the Subsidiaries, together with the
jurisdiction of incorporation of each Subsidiary, the percentage of the
outstanding capital stock of each Subsidiary owned by the Company and each other
Subsidiary, and the names of the directors and officers of each Subsidiary, is
set forth in Section 3.01(b) of the Disclosure Schedule. Except as disclosed in
Section 3.01(b) of the Disclosure Schedule, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.

 

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SECTION 3.02 Certificate of Incorporation and By-laws.

 

The Company has heretofore made available to Parent a complete and correct copy
of the Certificate of Incorporation and the By-laws or equivalent organizational
documents, each as amended to date, of the Company and each Subsidiary. Such
Certificates of Incorporation, By-laws or equivalent organizational documents
are in full force and effect. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its Certificate of Incorporation, By-laws
or equivalent organizational documents.

 

SECTION 3.03 Capitalization.

 

(a) The authorized capital stock of the Company consists of 40,000,000 Shares.
As of the date of this Agreement, (i) 6,733,245 Shares are issued and
outstanding, all of which are validly issued, fully paid and nonassessable,
(ii) zero Shares are held in the treasury of the Company, (iii) zero Shares are
held by the Subsidiaries, and (iv) 1,303,814 Shares are reserved for future
issuance pursuant to outstanding Company Stock Options and other purchase rights
(the “Company Stock Awards”) granted pursuant to the Company Stock Option Plans.
Except as set forth in this Section 3.03, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of the Company or any Subsidiary or
obligating the Company or any Subsidiary to issue or sell any shares of capital
stock of, or other equity interests in, the Company or any Subsidiary.
Section 3.03 of the Disclosure Schedule sets forth the following information
with respect to each Company Stock Award outstanding on the date of this
Agreement: (i) the name and address of the Company Stock Award recipient;
(ii) the particular plan pursuant to which such Company Stock Award was granted;
(iii) the number of shares of Company common stock subject to such Company Stock
Award; (iv) the exercise or purchase price of such Company Stock Award; (v) the
date on which such Company Stock Award was granted; (vi) the applicable vesting
schedule; (vi) the date on which such Company Stock Award expires; (vii) the tax
status (i.e., incentive stock options or non-qualified stock options) and
(viii) whether the exercisability of or right to repurchase of such Company
Stock Award will be accelerated in any way by the transactions contemplated by
this Agreement. No options to purchase Company common stock from the Company are
outstanding other than options granted pursuant to the Company Stock Option
Plans. The Company has made available to Parent accurate and complete copies of
all Company Stock Option Plans. All Shares subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully paid
and nonassessable. There are no outstanding contractual obligations of the
Company or any Subsidiary to repurchase, redeem or otherwise acquire any Shares
or any capital stock of any Subsidiary or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Subsidiary or any other person. There are no commitments or agreements of any
character to which the Company is bound obligating the Company to accelerate the
vesting of any Company Stock Option as a result of the Merger. All outstanding
shares of Company common stock, all outstanding Company Stock Options and all
outstanding shares of capital stock of each Subsidiary have been issued and
granted in compliance in all material respects with (i) all applicable
securities laws and other applicable Laws and (ii) all requirements set forth in
applicable contracts.

 

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(b) Each outstanding share of capital stock of each Subsidiary is duly
authorized, validly issued, fully paid and nonassessable, and each such share is
owned by the Company or another Subsidiary free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company’s or any Subsidiary’s voting rights, charges and
other encumbrances of any nature whatsoever.

 

SECTION 3.04 Authority Relative to This Agreement.

 

The Company has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Merger. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the Merger have been duly and validly authorized
by all necessary corporate action on the part of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the Merger (other than, with respect to the Merger,
the approval of this Agreement and the Merger by the holders of a majority of
the then-outstanding Shares, (“Company Stockholder Approval”), and the filing
and recordation of appropriate merger documents as required by the DGCL). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The Board has unanimously
approved this Agreement and the Merger and such approvals are sufficient so that
the restrictions on business combinations set forth in Section 203(a) of the
DGCL shall not apply to the Merger. To the knowledge of the Company, no other
state takeover statute is applicable to the Merger.

 

SECTION 3.05 No Conflict; Required Filings and Consents.

 

(a) The execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, and the consummation of
the Merger by the Company will not, (i) conflict with or violate the Certificate
of Incorporation, By-laws or any resolution, currently in effect, adopted by the
Board or the stockholders of the Company or any equivalent organizational
documents of the Company or any Subsidiary, (ii) assuming that all consents,
approvals and other authorizations described in Section 3.05(b) have been
obtained and that all filings and other actions described in Section 3.05(b)
have been made or taken, conflict with or violate any United States or
non-United States national, state, provincial, municipal or local statute, law,
ordinance, regulation, rule, code, executive order, injunction, judgment, decree
or other order (“Law”) applicable to the Company or any Subsidiary or by which
any property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in any material breach of or constitute a material default (or an
event which, with notice or lapse of time or both, would become a material
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any Subsidiary pursuant
to, any Material Contract (as defined in Section 3.18).

 

(b) The execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
United States or non-United

 

13

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States national, state, provincial, municipal or local government, governmental,
regulatory or administrative authority, agency, instrumentality or commission or
any court, tribunal, or judicial or arbitral body (a “Governmental Authority”),
except for (i) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company and/or Parent are qualified to
do business, (ii) the filing with, and clearance by, the SEC of the Proxy
Statement (as defined in Section 3.12) and such reports under the Exchange Act
as may be required in connection with this Agreement, the Merger and the other
transactions contemplated by this Agreement, in accordance with the Exchange
Act, (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under those merger control laws or
regulations of any jurisdictions set forth on Section 3.05(b) of the Disclosure
Schedule and (iv) such consents approvals, orders and authorizations as may be
required by “blue sky” laws and the securities laws of any foreign country.

 

SECTION 3.06 Permits; Compliance.

 

(a) Section 3.06 of the Disclosure Schedule contains a complete and accurate
list of all material franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Authority necessary for each of the Company or the
Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (the “Permits”). Each of the Company and
the Subsidiaries is in possession of all Permits. No suspension or cancellation
of any of the Permits is pending or, to the knowledge of the Company,
threatened. Neither the Company nor any Subsidiary is, in any material respect,
in default, breach or violation of, (a) any Law applicable to the Company or any
Subsidiary or by which any property or asset of the Company or any Subsidiary is
bound or affected, including, without limitation, with respect to design,
labeling, testing and inspection of the Company’s or any Subsidiaries’ products,
and any Law of the United States Food and Drug Administration, or (b) any
Material Contract (as defined in Section 3.18) or Permit.

 

(b) (i) the Company has not received, at any time since January 1, 1999, any
formal notice or other formal communication from any Governmental Authority or
any other person regarding (A) any actual, alleged, possible, or potential
violation of or failure to comply with any term or requirement of any Permit, or
(B) any actual, proposed, possible, or potential revocation, withdrawal,
suspension, cancellation, termination of, or modification to any Permit, and
(ii) all applications required to have been filed for the renewal of any Permit
have been duly filed on a timely basis with the appropriate Governmental
Authority, and all other filings required to have been made with respect to any
such Permit have been duly made on a timely basis with the appropriate
Governmental Authority.

 

SECTION 3.07 SEC Filings; Financial Statements.

 

(a) The Company has filed all forms, reports and documents required to be filed
by it with the Securities and Exchange Commission (the “SEC”) since February 29,
2004, including (i) its Annual Reports on Form 10-K for the fiscal years ended
on the last day of February of each of the years 2004 and 2005, respectively
(ii) its Quarterly Reports on Form 10-Q for the periods ended May 31, 2005 and
August 31, 2005, (iii) all proxy statements relating to the

 

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Company’s meetings of stockholders (whether annual or special) held since
February 29, 2004 and (iv) all other forms, reports and other registration
statements required to be filed by the Company with the SEC since February 29,
2004 (the forms, reports and other documents referred to in clauses (i), (ii),
(iii) and (iv) above being, collectively, the “SEC Reports”). The SEC Reports
(i) were prepared in accordance with either the requirements of the Securities
Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), as the case may be, and the rules and
regulations promulgated thereunder, and (ii) did not, at the time they were
filed, or, if amended, as of the date of such amendment, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary is required to file any form, report or other document with the SEC.

 

(b) Each of the consolidated financial statements (including, in each case, any
notes thereto) contained in the SEC Reports was prepared in accordance with
United States generally accepted accounting principles (“GAAP”) applied on a
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto) and each fairly presents, in all material respects, the
consolidated financial position, results of operations and cash flows of the
Company and its consolidated Subsidiaries as at the respective dates thereof and
for the respective periods indicated therein (except that the unaudited interim
consolidated financial statements do not reflect normal year-end adjustments and
other adjustments described therein and do not contain footnote disclosure of
the type associated with audited financial statements).

 

(c) Except as and to the extent set forth on the consolidated balance sheet of
the Company and the consolidated Subsidiaries at August 31, 2005, including the
notes thereto (the “2005 Balance Sheet”), neither the Company nor any Subsidiary
has incurred any material liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise), except for (i) any liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since August 31, 2005 and (ii) any liabilities and obligations (A) for
financial and legal advisors and other out of pocket costs incurred in
connection with the transactions contemplated hereby or (B) otherwise incurred
as required or expressly permitted by this Agreement.

 

(d) The Company has heretofore made available to Parent complete and correct
copies of all amendments and modifications that have not been filed by the
Company with the SEC to all agreements, documents and other instruments that
previously had been filed by the Company with the SEC and are currently in
effect.

 

(e) To the knowledge of the Company, each director and executive officer of the
Company has filed with the SEC on a timely basis all statements required by
Section 16(a) of the Exchange Act and the rules and regulations thereunder since
February 29, 2004.

 

(f) The Company maintains disclosure controls and procedures required by Rule
13a-15; such controls and procedures are effective to provide reasonable
assurance that all material information concerning the Company and the
Subsidiaries is made known on a timely basis to the individuals responsible for
the preparation of the Company’s SEC filings and other public disclosure
documents. As used in this Section 3.07, the term “file” shall be broadly

 

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construed to include any manner in which a document or information is furnished,
supplied or otherwise made available to the SEC.

 

(g) The Company and the Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has made available to
Parent complete and correct copies of all written policies, manuals and other
documents promulgating such internal accounting controls.

 

(h) Since February 28, 2003, neither the Company nor any Subsidiary nor, to the
knowledge of the Company, any director, officer, employee, auditor, accountant
or representative of the Company or any Subsidiary, has received or otherwise
had or obtained knowledge of any material complaint, allegation, assertion or
claim, whether written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of the Company or any Subsidiary or their
respective internal accounting controls, including any complaint, allegation,
assertion or claim that the Company or any Subsidiary has engaged in
questionable accounting or auditing practices. No attorney representing the
Company or any Subsidiary, whether or not employed by the Company or any
Subsidiary, has reported evidence of a material violation of securities laws,
breach of fiduciary duty or similar violation by the Company or any of its
officers, directors, employees or agents to the Company Board or any committee
thereof or to any director or officer of the Company pursuant to Section 307 of
the Sarbanes-Oxley Act of 2002, and the SEC’s rules and regulations promulgated
thereunder. Since February 28, 2003, there have been no internal investigations
regarding accounting or revenue recognition discussed with, reviewed by or
initiated at the direction of the chief executive officer, principal financial
officer, the Board or any committee thereof.

 

(i) All accounts receivable of the Company and its Subsidiaries reflected on the
2005 Balance Sheet or arising thereafter have arisen from bona fide transactions
in the ordinary course of business, have been recorded in accordance with SEC
regulations and GAAP applied on a consistent basis and, to the knowledge of the
Company, are not subject to valid defenses, setoffs or counterclaims, except to
the extent the subject of a reserve made in accordance with GAAP. The Company’s
reserve for contractual allowances and doubtful accounts is, to the knowledge of
the Company, adequate and has been calculated in a manner consistent with past
practices. Since the date of the 2005 Balance Sheet, neither the Company nor any
of the Subsidiaries has modified or changed in any material respect the
practices or methods in accordance with which the Company or any of its
Subsidiaries sell goods, fill orders or record sales.

 

(j) All accounts payable of the Company and the Subsidiaries reflected on the
2005 Balance Sheet or arising thereafter are the result of bona fide
transactions in the ordinary course of business and have been paid or are not
yet due or payable. Since the date of the 2005 Balance Sheet, the Company and
the Subsidiaries have not altered in any material respects their practices for
the payment of such accounts payable, including the timing of such payment.

 

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SECTION 3.08 Absence of Certain Changes or Events.

 

Since February 28, 2005, except as expressly contemplated by this Agreement,
(a) the Company and the Subsidiaries have conducted their businesses in the
ordinary course and in a manner substantially consistent with past practice,
(b) there has not been any Material Adverse Effect on the Company, provided that
the Company’s financial condition, results of operations and cash flows as set
forth in the Company’s financial statements as of, and for the three months
ended, May 31, 2005 or in the Company’s financial statements as of, and for the
three and six months ended, August 31, 2005 shall not be regarded for this
purpose as a Material Adverse Effect occurring subsequent to February 28, 2005,
and (c) none of the Company or any Subsidiary has taken any action that, if
taken after the date of this Agreement, would constitute a breach, in any
material respect, of any of the covenants set forth in Section 5.01.

 

SECTION 3.09 Absence of Litigation.

 

There is no litigation, suit, claim, action, proceeding or investigation (an
“Action”) pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary, or any property or asset of the Company or any
Subsidiary, before any Governmental Authority, nor is there any Action that
seeks to materially delay or prevent the consummation of the Merger (other than,
in each case, any litigation, suit, claim action or proceeding originating after
the date of this Agreement with the purpose of or with the probable effect of
making illegal or enjoining the consummation of the Merger or other transactions
contemplated by this Agreement or seeking any action or result as set forth in
Section 7.01(a)(ii)). Neither the Company nor any Subsidiary nor any property or
asset of the Company or any Subsidiary is subject to any continuing order of,
consent decree, settlement agreement or similar written agreement with, or, to
the knowledge of the Company, continuing investigation by, any Governmental
Authority, or any order, writ, judgment, injunction, decree, determination or
award of any Governmental Authority.

 

SECTION 3.10 Employee Benefit Plans.

 

(a) Section 3.10(a) of the Disclosure Schedule lists (i) all employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”)) and all bonus, stock option, stock purchase,
restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, and all employment, termination, severance or other contracts
or agreements to which the Company or any Subsidiary is a party, with respect to
which the Company or any Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or any Subsidiary for the benefit of
any current or former employee, officer or director of, or any current or former
consultant to, the Company or any Subsidiary, but excluding any Foreign Plans
(as such term is defined in Section 3.10(i)) (collectively, the “Plans”). Each
Plan is in writing, and the Company has furnished to Parent or its counsel a
true and complete copy of each Plan and has delivered to Parent or its counsel a
true and complete copy of, each of the following documents, to the extent
applicable, in their currently effective form, relating to such Plan, (i) a copy
of each trust or other funding arrangement, (ii) each summary plan description
and summary of material modifications, (iii) the three most recently filed
Internal Revenue Service (the “IRS”) Form 5500s, (iv) the most

 

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recently received determination letter from the IRS for each such Plan, and
(v) the most recently prepared actuarial report and financial statement in
connection with each such Plan. Neither the Company nor any Subsidiary has any
express or implied commitment, whether legally enforceable or not, (i) to
create, incur liability with respect to or cause to exist any other employee
benefit plan, program or arrangement, (ii) to enter into any contract or
agreement to provide compensation or benefits to any individual, or (iii) to
modify, change or terminate any Plan, other than with respect to a modification,
change or termination required by ERISA or the Internal Revenue Code of 1986, as
amended (the “Code”).

 

(b) Except as described in Section 3.10(b) of the Disclosure Schedule, none of
the Plans (i) provides for the payment of separation, severance, termination or
similar-type benefits to any person, (ii) obligates the Company or any
Subsidiary to pay separation, severance, termination or similar-type benefits
solely or partially as a result of any transaction contemplated by this
Agreement, or (iii) obligates the Company or any Subsidiary to make any payment
or provide any benefit as a result of a “change in control”, within the meaning
of such term under Section 280G of the Code. None of the Plans provides for or
promises retiree medical, disability or life insurance benefits to any current
or former employee, officer or director of the Company or any Subsidiary. None
of the Plans provides for the lending of money to any director or officer of the
Company or any Subsidiary or otherwise violates, or could reasonably be expected
to violate, Section 402 of the Sarbanes-Oxley Act of 2002. Each of the Plans is
subject only to the Laws of the United States or a political subdivision
thereof.

 

(c) Each Plan is now and always has been operated in all material respects in
accordance with its terms and the requirements of all applicable Laws including,
without limitation, ERISA and the Code; the Company and the Subsidiaries have
performed, in all material respects, all obligations required to be performed by
them under, are not in any respect in default under or in violation of, and have
no knowledge of any default or violation by any party to, any Plan; no Action is
pending or, to the knowledge of the Company, threatened with respect to any Plan
(other than claims for benefits in the ordinary course) and, to the knowledge of
the Company, no fact or event exists that could reasonably be expected to give
rise to any such Action.

 

(d) Each Plan that is intended to be qualified under Section 401(a) of the Code
or Section 401(k) of the Code has timely received a favorable determination
letter from the IRS covering all of the provisions applicable to the Plan for
which determination letters are currently available that the Plan is so
qualified and each trust established in connection with any Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination letter from the IRS that it is so exempt, and
no fact or event has occurred since the date of such determination letter or
letters from the IRS which could reasonably be expected to adversely affect the
qualified status of any such Plan or the exempt status of any such trust.

 

(e) There has not been any prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. None
of the Plans is subject to Title IV of ERISA and neither the Company nor any
Subsidiary has incurred, or could reasonably be expected to incur, any liability
under, arising out of or by operation of Title IV of ERISA.

 

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(f) All contributions, premiums or payments required to be made with respect to
any Plan have been made on or before their due dates. All such contributions
have been fully deducted for income tax purposes and no such deduction has been
challenged or disallowed by any Governmental Authority and no fact or event
exists which could reasonably be expected to give rise to any such challenge or
disallowance.

 

(g) No benefit payable or that may become payable by the Company or any
Subsidiary pursuant to any agreement or arrangement as a result of, in
connection with or arising under this Agreement shall constitute an “excess
parachute payment” (as defined in Section 280G(b)(1) of the Code) that is
subject to the imposition of an excise tax under Section 4999 of the Code or
that would not be deductible by reason of Section 280G of the Code and the
regulations issued thereunder. Neither the Company nor any Subsidiary is a party
to any: (i) contract agreement or arrangement with any person (A) the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company in the nature of the Merger or
any of the other transactions contemplated by this Agreement, (B) providing any
term of employment or compensation guarantee, or (C) providing severance
benefits or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment; or (ii) benefit
plan or arrangement, any of the benefits of which shall be increased, or the
vesting of benefits of which shall be accelerated, by the occurrence of the
Merger or any of the other transactions contemplated by this Agreement, or any
event subsequent to the Merger such as the termination of employment of any
person, or the value of any of the benefits of which shall be calculated on the
basis of any of the transactions contemplated by this Agreement. Neither the
Company nor any Subsidiary has any obligation to pay any material amount or
provide any material benefit to any former employee or officer.

 

(h) The Company has no benefit plan which constitutes, or has since the
enactment of ERISA, constituted, (i) a “multiemployer plan” as defined in
Section 3(37) of ERISA, (ii) a “multiple employer plan” as defined in ERISA or
Code Section 413(c), or (iii) a “funded welfare plan” within the meaning of Code
Section 419.

 

(i) Each benefit plan or arrangement that has been established or maintained by
the Company or any Subsidiary, or that is required to be maintained or
contributed to by the law or applicable custom or rule of the relevant
jurisdiction, outside of the United States (each such benefit plan or
arrangement, a “Foreign Plan”) is listed in Section 3.10(i) of the Disclosure
Schedule. With respect to each Foreign Plan, (i) to the knowledge of the
Company, such Foreign Plan has been administered in all material respects at all
times in accordance with its terms and applicable law and regulations, (ii) to
the knowledge of the Company, there are no pending investigations by any
governmental body involving such Foreign Plan, and no pending claims (except for
claims for benefits payable in the normal operation of such Foreign Plan), suits
or proceedings against such Foreign Plan or asserting any rights or claims to
benefits under such Foreign Plan, (iii) to the knowledge of the Company, the
consummation of the transactions contemplated by this Agreement will not by
itself create or otherwise result in any liability with respect to such Foreign
Plan other than the triggering of payment to participants, and (iv) except as
required by applicable law, no condition exists that would prevent the Company
or any Subsidiary from terminating or amending any Foreign Plan at any time for
any reason in

 

19

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accordance with the terms of each such Foreign Plan (other than normal and
reasonable expenses typically incurred in a termination event).

 

(j) The Company has delivered to Parent true and complete copies of all election
statements under Section 83(b) of the Code that are in the Company’s possession
or subject to its control with respect to any unvested securities or other
property issued by the Company or any ERISA Affiliate to any of their respective
employees, non-employee directors, consultants and other service providers.

 

(k) Section 3.10(k) of the Disclosure Schedule lists all “nonqualified deferred
compensation plans” (within the meaning of Section 409A of the Code) to which
the Company or any Subsidiary is a party. Each such nonqualified deferred
compensation plan to which the Company or any Subsidiary is a party has been
operated in good faith in accordance with Section 409A of the Code and the
guidelines released thereunder. The exercise price of all Company Stock Options
is at least equal to the fair market value of the Company common stock on the
date such Company Stock Options were granted and, as a result, no recipient of a
Company Stock Option has incurred or will incur any liability under Section 409A
of the Code upon the vesting of any such Company Stock Options.

 

SECTION 3.11 Labor and Employment Matters.

 

(a) (i) There are no claims, charges or litigation pending or, to the knowledge
of the Company, threatened between the Company or any Subsidiary and any of
their respective employees, and (ii) neither the Company nor any Subsidiary is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company or any Subsidiary, nor, to the
knowledge of the Company, are there any activities or proceedings of any labor
union to organize any such employees.

 

(b) The Company and the Subsidiaries are in material compliance with all
applicable laws relating to the employment of labor, including those related to
wages, hours, immigration and naturalization, collective bargaining and the
payment and withholding of taxes and other sums as required by the appropriate
Governmental Authority. The Company and the Subsidiaries have withheld and paid
to the appropriate Governmental Authority, or are holding for payment not yet
due to such Governmental Authority, all amounts required to be withheld from
employees of the Company or any Subsidiary and are not liable for any arrears of
wages, taxes, penalties or other sums for failure to comply with any of the
foregoing. The Company and the Subsidiaries have paid in full to all employees
or adequately accrued for in accordance with GAAP consistently applied all
wages, salaries, commissions, bonuses, benefits and other compensation due to or
on behalf of such employees. There is no claim with respect to payment of wages,
salary or overtime pay that has been asserted or is now pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary
before any Governmental Authority with respect to any persons currently or
formerly employed by the Company or any Subsidiary.

 

(c) Neither the Company nor any Subsidiary is a party to, or otherwise bound by,
any consent decree with, or citation by, any Governmental Authority relating to
employees or employment practices. There is no charge or proceeding with respect
to a violation of any

 

20

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occupational safety or health standards that has been asserted or is now pending
or, to the knowledge of the Company, threatened with respect to the Company.
There is no charge of discrimination in employment or employment practices, for
any reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted or is now, to the knowledge
of the Company, threatened or pending before the United States Equal Employment
Opportunity Commission, or any other Governmental Authority in any jurisdiction
in which the Company or any Subsidiary has employed, employs or has been alleged
to employ any person that, if adversely determined, would individually or in the
aggregate, result in any material liability to the Company.

 

(d) To the knowledge of the Company no employee or consultant of the Company or
any Subsidiary is in material violation of (i) any contract or agreement with
the Company or any Subsidiary or (ii) any restrictive covenant that purports to
limit any employee’s or consultant’s ability to be employed by, or fully perform
the assigned duties for, the Company or any Subsidiary, or to refrain from using
trade secrets or proprietary information of others.

 

(e) In the past two years, there has been no “mass layoff” or “plant closing” as
defined by the Workers Adjustment and Retraining Notification (“WARN”) Act, nor
has there been any “employment loss” sufficient to require notice under the WARN
Act, in respect of the Company.

 

(f) Section 3.11(f) of the Disclosure Schedule lists as of the date of this
Agreement each employee of the Company and any Subsidiary who is on leave and
also lists, with respect to each such employee, the anticipated date of return
to full service, if applicable.

 

SECTION 3.12 Proxy Statement.

 

The proxy statement to be sent to the stockholders of the Company in connection
with the Stockholders’ Meeting (as defined in Section 6.01) (such proxy
statement, as amended or supplemented, being referred to herein as the “Proxy
Statement”), shall not, at the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company or at the
time of the Stockholders’ Meeting, contain any untrue statement of material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders’ Meeting which shall have become false or
misleading. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any information supplied in writing by Parent,
Merger Sub or any of Parent’s or Merger Sub’s representatives expressly for
inclusion in the foregoing documents. The Proxy Statement shall comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.

 

SECTION 3.13 Real Property; Title to Assets.

 

(a) Section 3.13(a) of the Disclosure Schedule lists each parcel of real
property currently owned by the Company or any Subsidiary. Each parcel of real
property owned by the Company or any Subsidiary (i) is owned free and clear of
all mortgages, pledges, liens, security

 

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interests, conditional and installment sale agreements, encumbrances, charges or
other claims of third parties of any kind, including, without limitation, any
easement, right of way or other encumbrance to title, or any option, right of
first refusal, or right of first offer (collectively, “Liens”), other than
(A) Liens for Taxes not yet due and payable, or, if due, (1) not delinquent or
(2) being contested in good faith by appropriate proceedings during which
collection or enforcement against the property is stayed; (B) inchoate
mechanics’ and materialmen’s Liens for construction in progress; (C) workmen’s,
repairmen’s, warehousemen’s and carriers’ Liens arising in the ordinary course
of business of the Company or such Subsidiary; (D) title retention or security
interests under conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business; (E) Liens related to
purchase money obligations; (F) all matters of record; and (G) Liens and other
imperfections of title and encumbrances that would not, individually or in the
aggregate, have a material adverse effect on the Company’s or any Subsidiary’s,
as the case may be, ability to occupy and utilize such property as currently
occupied or utilized(collectively, “Permitted Liens”), and (ii) is neither
subject to any governmental decree or order to be sold nor is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the knowledge of the Company, has any such
condemnation, expropriation or taking been proposed.

 

(b) Section 3.13(b) of the Disclosure Schedule lists each parcel of real
property currently leased or subleased by the Company or any Subsidiary, with
the name of the lessor and the date of the lease, sublease, assignment of the
lease, any guaranty given or leasing commissions payable by the Company or any
Subsidiary in connection therewith and each amendment to any of the foregoing
(collectively, the “Lease Documents”). True, correct and complete copies of all
Lease Documents have been delivered to Parent or its counsel. All such current
leases and subleases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing material default or event of default by the Company or any
Subsidiary or, to the knowledge of the Company, by the other party to such lease
or sublease.

 

(c) There are no contractual or legal restrictions that preclude or restrict the
ability to use any real property owned or leased by the Company or any
Subsidiary for the purposes for which it is currently being used. To the
knowledge of the Company, there are no material adverse physical conditions
affecting the real property, and improvements thereon, owned or leased by the
Company or any Subsidiary.

 

(d) Each of the Company and the Subsidiaries has good and valid title to, or, in
the case of leased properties and assets, valid leasehold or subleasehold
interests in, all of its material personal properties and assets, tangible and
intangible, necessary for the operation of its business, free and clear of any
Liens, except for Permitted Liens and such imperfections of title, if any, that
do not materially interfere with the present value of the subject property.

 

SECTION 3.14 Intellectual Property.

 

(a) Section 3.14(a) of the Disclosure Schedule sets forth a true and complete
list of (i) all patents and patent applications, trademark and copyright
registrations and applications, common law trademarks, and domain names and URLs
included in the Owned Intellectual Property, (ii) all Licenses (other than
licenses of commercially available off-the-shelf Software

 

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licensed pursuant to shrink-wrap or click-wrap licenses that is not material to
the business of the Company or any Subsidiary), and (iii) Company IT Systems and
other Owned Intellectual Property that are material to the business of the
Company or any Subsidiary (excluding for this purpose any Intellectual Property
included within clause (iv) of the definition of “Intellectual Property”
contained herein). Section 3.14(a) of the Disclosure Schedule further sets forth
a description of all proceedings or actions before any governmental body
(including the United States Patent and Trademark Office or equivalent authority
anywhere else in the world) related to any of the Intellectual Property owned by
the Company including without limitation any (x) interference, reissue,
reexamination or similar proceedings pertaining to the scope, validity and/or
ownership of any of the patents of the Company and the Subsidiaries,
(y) trademark opposition proceedings, or (z) proceedings relating to Internet
domain names.

 

(b) The conduct of the business of the Company and the Subsidiaries as currently
conducted and as currently contemplated to be conducted, the Company’s and the
Subsidiaries’ use of the Owned Intellectual Property and, to the knowledge of
the Company, Licensed Intellectual Property (other than commercially available
software licensed pursuant to shrink-wrap or click-wrap licenses) and Company IT
Systems in connection therewith and the publication, use, linking and other
practices of the Company and the Subsidiaries related to their web sites, the
content thereof and the advertisements contained therein, do not infringe upon,
misappropriate or otherwise violate the Intellectual Property rights of any
third party, and no Actions are pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary alleging any of the foregoing.
To the knowledge of the Company, no person is engaging in any activity that
infringes upon, misappropriates or otherwise violates the Owned Intellectual
Property or Licensed Intellectual Property (other than commercially available
software licensed pursuant to shrink-wrap or click-wrap licenses).

 

(c) The Company or a Subsidiary is the exclusive owner of the entire and
unencumbered right, title and interest in and to the Owned Intellectual
Property. The Company and the Subsidiaries have the right to use the Owned
Intellectual Property and Licensed Intellectual Property, and access and use the
Company IT Systems, in the continued operation of their respective businesses as
presently conducted. All necessary registration, maintenance and renewal fees
currently due in connection with the Owned Intellectual Property have been made
and all necessary documents, recordations and certificates in connection with
such Owned Intellectual Property have been filed with the relevant governmental
bodies in the United States or those foreign jurisdictions in which applications
for such Intellectual Property have been filed, as the case may be, for the
purposes of prosecuting, maintaining or perfecting such Owned Intellectual
Property.

 

(d) No Owned Intellectual Property or, to the knowledge of the Company, any
Licensed Intellectual Property (other than commercially available software
licensed pursuant to shrink-wrap or click-wrap licenses) is subject to any
outstanding decree, order, injunction, judgment or ruling restricting the use of
such Intellectual Property or that would impair the validity or enforceability
of such Intellectual Property. The Owned Intellectual Property and, to the
knowledge of the Company, the Licensed Intellectual Property (other than
commercially available software licensed pursuant to shrink-wrap or click-wrap
licenses) are subsisting, valid and enforceable, and have not been adjudged
invalid or unenforceable in whole or part.

 

23

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(e) The Owned Intellectual Property and the Licensed Intellectual Property
include all of the Intellectual Property used in the operation of the business
of the Company and the Subsidiaries, and there are no other items of
Intellectual Property that are material to the operation of the business of the
Company or any Subsidiary. There are no IT Systems, other than the Company IT
Systems, that are material to the operation of the business of the Company or
any Subsidiary.

 

(f) To the knowledge of the Company, (i) each License is valid and enforceable,
is binding on all parties thereto, and is in full force and effect; (ii) no
party to any License is in material breach thereof or default thereunder; and
(iii) neither the execution of this Agreement nor the consummation of any
Transaction shall (x) adversely affect any of the rights of the Company or any
Subsidiary with respect to the Owned Intellectual Property or Licensed
Intellectual Property, or (y) impair or interrupt the Company’s or any
Subsidiary’s access and use of, or their right to access and use, the Company IT
Systems or, to the extent applicable, their customers’ access and use of, or
their right to access and use, the Company IT Systems.

 

(g) The Company and the Subsidiaries have undertaken measures in accordance with
normal industry practice to maintain the confidentiality of the trade secrets
and other confidential Intellectual Property used in connection with the
business of the Company or any Subsidiary. To the knowledge of the Company,
(i) there has been no misappropriation by any person of any material trade
secrets or other material confidential Intellectual Property used in connection
with the business of the Company or any Subsidiary; (ii) no employee, former
employee, independent contractor or agent of the Company or any Subsidiary has
misappropriated any trade secrets of any other person in the course of
performance as an employee, independent contractor or agent of the Company or
any Subsidiary; and (iii) no employee, former employee, independent contractor
or agent of the Company or any Subsidiary is in default or breach of any term of
any employment agreement, nondisclosure agreement, assignment of invention
agreement or similar agreement or contract relating in any way to the
protection, ownership, development, use or transfer of Intellectual Property.
Without limiting the foregoing, the Company and each of its Subsidiaries has and
enforces policies requiring each employee and contractor involved in proprietary
aspects of the business or with Intellectual Property to execute nondisclosure
and proprietary information agreements. All current employees who have
contributed to the creation, invention, modification or improvement of any
Intellectual Property owned by the Company or any Subsidiary, in whole or in
part, have signed written agreements providing that all such Intellectual
Property is owned exclusively by the Company and the Subsidiaries.

 

(h) To the knowledge of the Company, the Company IT Systems are free of all
viruses, worms, and other known contaminants, and do not contain any errors or
problems, that would (i) materially disrupt the ordinary operation of such IT
Systems in the conduct of the business of the Company or any Subsidiary as
presently conducted, or (ii) have a material adverse impact on the operation of
other Software or operating systems. To the knowledge of the Company, the
Company IT Systems do not incorporate any GNU or “open” source code or object
code under which the Company IT Systems are subject to the GNU general public
license, GNU lesser general public license and other “copyleft” license. The
Company and the Subsidiaries have taken undertaken measures in accordance with
normal industry practice to secure the Company IT Systems from unauthorized
access or use by any person, and to enable the continued and uninterrupted
operation of the Company IT Systems. The access and use of

 

24

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the Company IT Systems by the Company, the Subsidiaries and any customer thereof
(to the extent applicable) in connection with the operation of the business of
the Company and the Subsidiaries as currently conducted and as currently
contemplated to be conducted do not violate any applicable Laws in any material
respect.

 

SECTION 3.15 Taxes.

 

(a) The Company and the Subsidiaries (i) have filed all Tax Returns required to
be filed by them; (ii) have timely paid all Taxes required to be paid, other
than such payments as are being contested in good faith by appropriate
proceedings; (iii) have established accruals and reserves for Taxes reflected in
the financial statements in the Company SEC Reports that are adequate to cover
all Taxes accruable through the date thereof (including interest and penalties,
if any, thereon) in accordance with GAAP; (iv) have made all estimated Tax
payments required to be made; and (v) have no liability for Taxes in excess of
the amount so paid or accruals or reserves so established except for Taxes
subsequent to the dates covered by financial statements in the Company SEC
Reports incurred in the ordinary course of business. All such Tax Returns are
true, accurate and complete. Neither the Company nor any Subsidiary is
delinquent in the payment of any Tax or in the filing of any Returns, and no
deficiencies for any Tax have been claimed, proposed, assessed or, to the
knowledge of the Company, threatened against the Company or any Subsidiary.
Neither the Company nor any Subsidiary has received any notification from the
IRS or any other taxing authority regarding any material issues that (i) are
currently pending before the IRS or any other taxing agency or authority
(including any sales or use taxing authority) regarding the Company, or
(ii) have been raised by the IRS or other taxing agency or authority and not yet
finally resolved. No Return of the Company or any Subsidiary is under audit by
the IRS or any other taxing agency or authority and any such past audits (if
any) have been completed and fully resolved to the satisfaction of the
applicable taxing agency or authority conducting such audit and all taxes
determined by such audit to be due from the Company or any Subsidiary have been
paid in full to the applicable taxing agencies or authorities. Neither the
Company nor any Subsidiary has granted any waiver of any statute of limitations
with respect to, or any extension of a period for the assessment of, any Tax,
which waiver or extension is still in effect. There are no Tax liens upon any
property or assets of the Company or the Subsidiaries except liens for current
Taxes not yet due or, if due, (A) not delinquent, or (B) being contested in good
faith by appropriate proceedings during which collection or enforcement against
the property is stayed.

 

(b) The Company and each Subsidiary have withheld and paid (and until the
Effective Time will withhold and pay) all Taxes required to have been withheld
and paid (including withholding of taxes pursuant to Sections 1441, 1442, 1445
and 1446 of the Code or similar provisions under any foreign law) in connection
with any amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party, and have timely filed all
withholding Tax Returns. Neither the Company nor any of the Subsidiaries (i) has
liability for the Taxes of any other person (other than the Company and its
Subsidiaries) by reason of having joined in the filing of a consolidated,
combined or unitary Tax Return, by contract, by transferee liability or
otherwise; (ii) is a party to or bound by any Tax sharing, tax indemnity, or Tax
allocation agreement; (iii) has filed any disclosures under Section 6662 of the
Code or comparable provisions of state, local or foreign law to prevent the
imposition of penalties with respect to any Tax reporting position taken on any
Return; (iv) has consummated,

 

25

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has participated in, or is currently participating in any transaction which was
or is a “tax shelter” transaction as defined in Sections 6662, 6011, 6012 or
6111 of the Code or the Treasury Regulations promulgated thereunder; (v) has
ever been a member of a consolidated, combined, unitary or aggregate group of
which the Company was not the ultimate parent corporation; (vi) has been a
“distributing corporation” or a “controlled corporation” in a distribution
intended to qualify under Section 355(e) of the Code within the past five years;
(vii) has received a written notice from a taxing authority for a jurisdiction
in which a Tax Return has not been filed asserting that, or inquiring as to
whether, the filing of such a Tax Return may be required; (viii) has been at any
time a member of any partnership or joint venture or the holder of a beneficial
interest in any trust for any period for which the statute of limitations for
any Tax has not expired.

 

(c) Neither the Company, any Subsidiary, nor any “dual resident corporation”
(within the meaning of Section 1503(d) of the Code) in which either the Company
or any Subsidiary is considered to hold an interest, has incurred a dual
consolidated loss within the meaning of Section 1503 of the Code. Neither the
Company nor any Subsidiary has been or will be required to include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Merger as a result of any:
(i) change in method of accounting for a taxable period ending on or prior to
the Merger; (ii) “closing agreement” as described in Section 7121 of the Code
(or any corresponding or similar provision of state, local or foreign income tax
law) executed on or prior to the Merger; (iii) intercompany transaction or any
excess loss account described in Treasury Regulation under Section 1502 of the
Code (or any corresponding or similar provision of state, local or foreign
income tax law); (iv) installment sale or open transaction disposition made on
or prior to the Merger; or (v) prepaid amount received on or prior to the
Merger. There is currently no limitation on the utilization of net operating
losses, capital losses, built-in losses, tax credits or similar items of the
Company under Section 269, 382, 383, 384 or 1502 of the Code (or any comparable
provision of foreign, state, local or municipal law). The Company is not, and
has not been at any time during the past five years, a United States real
property holding corporation within the meaning of Section 897 of the Code.

 

SECTION 3.16 Environmental Matters.

 

(a) none of the Company nor any of the Subsidiaries has committed any material
violation of, or has liability under, any Environmental Law; (b) none of the
properties (including associated soils and surface and ground waters and
building materials) currently or formerly owned, leased, used, occupied or
operated by the Company or any Subsidiary are contaminated in any material
respect with any Hazardous Substance; (c) none of the Company or any of the
Subsidiaries is liable for any material off-site contamination by Hazardous
Substances; (d) none of the Company or any of the Subsidiaries is liable under
any Environmental Law, or under any contract that allocates or assigns liability
or responsibility with respect to Environmental Laws or Hazardous Substances
(including with respect to pending or threatened liens or claims for damages,
penalties, fines or contribution) and none of the Company or any of the
Subsidiaries has received any written notice of such liability, except in the
case of any of the foregoing (in any of clauses (a), (b), (c) and (d)) that
would not have a material effect on the Company; (e) each of the Company and
each Subsidiary has all permits, licenses and other authorizations required
under any Environmental Law (“Environmental Permits”); (f) each of the Company
and

 

26

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each Subsidiary is in compliance with its Environmental Permits; and (g) neither
the execution of this Agreement nor the consummation of the Merger will require
any investigation, remediation or other action with respect to Hazardous
Substances, or any notice to or consent of Governmental Authorities or third
parties, pursuant to any applicable Environmental Law or Environmental Permit,
including, without limitation, the Connecticut Transfer Act or the New Jersey
Industrial Site Recovery Act.

 

SECTION 3.17 No Rights Agreement.

 

The Company has not adopted any stockholders’ rights plan or comparable
arrangement.

 

SECTION 3.18 Material Contracts.

 

(a) Subsections (i) through (xvii) of Section 3.18(a) of the Disclosure Schedule
lists the following types of contracts and agreements to which the Company or
any Subsidiary is a party, excluding in any case any contract that has expired
or terminated in accordance with its terms or otherwise under which no party has
any continuing rights or obligations (such contracts and agreements as are
required to be set forth in Section 3.18(a) of the Disclosure Schedule being the
“Material Contracts”):

 

(i) each “material contract” (as such term is defined in Item 610(b)(10) of
Regulation S-K of the SEC) with respect to the Company and the Subsidiaries;

 

(ii) each contract and agreement, whether or not made in the ordinary course of
business, that contemplates an exchange of consideration with a value of more
than $100,000, in the aggregate, over the term of such contract or agreement;

 

(iii) all contracts and agreements evidencing indebtedness for borrowed money;

 

(iv) all joint venture, partnership, strategic alliance and business acquisition
or divestiture agreements (and all letters of intent and term sheets relating to
any such pending transactions);

 

(v) all agreements relating to issuances of securities of the Company or any
Subsidiary (and all letters of intent and term sheets relating to any such
pending transactions);

 

(vi) all agreements between the Company, any Subsidiary or any affiliate of the
Company or any Subsidiary, on the one hand, and the Company, any Subsidiary or
any affiliate of the Company or any Subsidiary, on the other hand;

 

(vii) all exclusive distribution contracts to which the Company or any
Subsidiary is a party;

 

(viii) all broker, distributor, dealer, manufacturer’s representative,
franchise, agency, sales promotion, market research, marketing consulting and
advertising contracts and agreements to which the Company or any Subsidiary is a
party and any other contract that compensates any person based on any sales by
the Company or a Subsidiary under which, in the

 

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case of a broker, dealer, distributor, or manufacturer’s representative
contracts and agreements, the Company and the Subsidiaries made aggregate sales
in excess of $50,000 in fiscal 2005 or under which such sales are expected to
exceed $50,000 in fiscal 2006;

 

(ix) all management contracts (excluding contracts for employment) and contracts
with other consultants, including any contracts involving the payment of
royalties or other amounts calculated based upon the revenues or income of the
Company or any Subsidiary or income or revenues related to any product of the
Company or any Subsidiary to which the Company or any Subsidiary is a party;

 

(x) all contracts and agreements with any Governmental Authority to which the
Company or any Subsidiary is a party;

 

(xi) all Licenses (other than licenses of commercially available software
licensed pursuant to shrink-wrap or click-wrap licenses);

 

(xii) all contracts and agreements that limit, or purport to limit, the ability
of the Company or any Subsidiary to compete in any line of business or with any
person or entity or in any geographic area or during any period of time;

 

(xiii) all material contracts or arrangements that result in any person or
entity holding a power of attorney from the Company or any Subsidiary that
relates to the Company, any Subsidiary or their respective businesses;

 

(xiv) all agreements related to professional services rendered to the Company or
any Subsidiary in connection with the Merger and this Agreement;

 

(xv) each warranty, guaranty or other similar undertaking with respect to any
contractual performance extended by the Company or any Subsidiary (other than
warranties, guarantees and other similar undertakings extended in the ordinary
course of business pursuant to the Company’s standard arrangements with
customers, a form of which has been provided to Parent or its counsel);

 

(xvi) all contracts containing a provision of the type commonly referred to as a
“most favored nation” provision; and

 

(xvii) all other contracts and agreements, whether or not made in the ordinary
course of business, the termination or breach of which would reasonably be
expected to have a Material Adverse Effect on the Company.

 

(b) (i) All Material Contracts are valid and binding obligations of the Company
except to the extent the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws generally
affecting the rights of creditors and the application of general principles of
equity or public policy (regardless of whether such enforceability is considered
in a proceeding in equity or at law); none of the Company or any Subsidiary has
received any claim of material default under or cancellation of any Material
Contract and none of the Company or any Subsidiary is, in any material respect,
in breach or violation of, or default under, any Material Contract; (ii) to the
knowledge of the Company, no

 

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other party is, in any material respect, in breach or violation of, or default
under, any Material Contract; and (iii) neither the execution of this Agreement
nor the consummation of the Merger shall constitute a material default under,
give rise to cancellation rights under, or otherwise adversely affect any of the
material rights of the Company or any Subsidiary under any Material Contract.
The Company has furnished or made available to Parent or its counsel true and
complete copies of all Material Contracts, including any material amendments
thereto.

 

SECTION 3.19 Customers and Suppliers.

 

Section 3.19 of the Disclosure Schedule sets forth a true and complete list of
the Company’s top ten customers (based on the revenue from each such customer
during the 12-month period ended August 31, 2005). As of the date of this
Agreement, none of the Company’s customers listed in Section 3.19 of the
Disclosure Schedule and no material supplier of the Company and the
Subsidiaries, (i) has cancelled or otherwise terminated any contract with the
Company or any Subsidiary prior to the expiration of the contract term, or
(ii) to the knowledge of the Company, has threatened, or indicated its
intention, to cancel or otherwise terminate its relationship with the Company or
the Subsidiaries or to reduce substantially its purchase from or sale to the
Company or any Subsidiary of any products, equipment, goods or services.

 

SECTION 3.20 Inventory.

 

Substantially all inventory of the Company and any Subsidiary, including
consigned inventory, whether or not reflected in the 2005 Balance Sheet,
consists of a quality and quantity usable and salable in the ordinary course of
business and is sufficient for the operation of the business of the Company and
each Subsidiary in the ordinary course and consistent with past practice, except
for obsolete items and items of below-standard quality that have been written
off or written down to net realizable value on the 2005 Balance Sheet or on the
accounting records of the Company as of the date of this Agreement or the
Effective Time, as the case may be. All inventories not written off have been
priced at the lower of cost or net realizable value on a first in, first out
basis. To the knowledge of the Company, the quantities of each item of inventory
(whether raw materials, work-in-process, or finished goods) are reasonable in
the present circumstances of the Company and each Subsidiary. Schedule 3.20 sets
forth the location of all items of the Company’s and each Subsidiary’s
inventory, including consigned inventory, as of August 31, 2005. The Company
believes that its procedures for tracking and controlling consigned inventory
are adequate for such purposes.

 

SECTION 3.21 Company Products and Services.

 

(a) Each product manufactured, sold, leased or delivered by the Company or any
Subsidiary has been in conformity in all material respects with any applicable
Law. Neither the Company nor any Subsidiary has any material liabilities or
obligations for replacement or repair thereof or other damages in connection
therewith. Neither the Company nor any Subsidiary has been required to file any
notice or other report with, or provide information to, any product safety
agency, commission, board or other Governmental Authority concerning actual or
potential hazards with respect to any product manufactured by the Company or any
Subsidiary

 

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other than routine filings required of all manufacturers similarly situated.
Neither the Company nor any Subsidiary has any material liabilities or
obligations arising out of any injury to persons or property as a result of the
ownership, possession or use of any product manufactured, sold, leased or
delivered by the Company or any Subsidiary.

 

(b) Since February 28, 2003 there have been no (i) recalls related to any
product manufactured sold, leased or delivered by the Company or any Subsidiary,
or (ii) withdrawals of any product manufactured sold, leased or delivered by the
Company or any Subsidiary due to quality or safety issues.

 

SECTION 3.22 Insurance.

 

The Company and the Subsidiaries maintain insurance policies that the Company
believes are of the types and in the amounts of coverage as are usual and
customary in the context of the businesses and operations in which the Company
and the Subsidiaries are engaged.

 

SECTION 3.23 Certain Business Practices.

 

Since February 28, 2003, none of the Company, any Subsidiary or, to the
knowledge of the Company, any directors or officers, agents or employees of the
Company or any Subsidiary, has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to political activity;
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or
(iii) made any payment in the nature of criminal bribery.

 

SECTION 3.24 Government Regulation.

 

(a) To the knowledge of the Company, none of the Company, the Subsidiaries, or
any of their “managing employees” (as defined at 42 C.F.R. 420.201) has been, or
is being investigated with respect to, any activity that constitutes or could
constitute, a material violation of any Healthcare Law.

 

(b) The Company and the Subsidiaries have not, and, to the knowledge of the
Company, none of their managing employees (as defined at 42 C.F.R. 420.201)
during his or her employment or association with the Company or the Subsidiaries
has, engaged in any activity that constitutes a material violation of any
Healthcare Law.

 

(c) Neither the Company nor any of the Subsidiaries have: (i) had a material
civil monetary penalty assessed against it under Section 1128A of the SSA or any
regulations promulgated thereunder; or (ii) been convicted (as that term is
defined in 42 C.F.R. Section 1001.2) of any of the following categories of
offenses as described in SSA Section 1128(a) and (b)(1), (2), (3), or any
regulations promulgated thereunder: (A) criminal offenses relating to the
delivery of an item or service under any state or federal healthcare program;
(B) criminal offenses under federal or state law for misconduct in connection
with the delivery of a healthcare item or service or with respect to any act or
omission in a program operated by or financed in whole or in part by any
federal, state or local government agency; or (C) violations of federal or

 

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state laws relating to the interference with or obstruction of any investigation
into any criminal offense described in this paragraph (c).

 

(d) Since January 1, 2002, neither the Company nor any of the Subsidiaries have
received or been subject to: (i) any United States Food and Drug Administration
(“FDA”) Form 483’s relating to any product manufactured, sold, leased or
delivered by the Company or any Subsidiary; (ii) any FDA Notices of Adverse
Findings relating to any product manufactured, sold, leased or delivered by the
Company or any Subsidiary; or (iii) any warning letters or other written
correspondence from the FDA or any other Governmental Authority concerning any
product manufactured, sold, leased or delivered by the Company or any Subsidiary
in which the FDA or such other Governmental Authority asserted that the
operations of the Company or any Subsidiary were not in compliance with
applicable Law, regulations, rules or guidelines with respect to any product
manufactured, sold, leased or delivered by the Company or any Subsidiary.

 

SECTION 3.25 Brokers.

 

No broker, finder or investment banker (other than Dresner Securities, Inc.) is
entitled to any brokerage, finder’s or other fee or commission in connection
with this Agreement or the Merger based upon arrangements made by or on behalf
of the Company. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and Dresner Securities, Inc.
pursuant to which such firm would be entitled to any payment relating to this
Agreement or the Merger.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

As an inducement to the Company to enter into this Agreement, Parent and Merger
Sub hereby, jointly and severally, represent and warrant to the Company that:

 

SECTION 4.01 Corporate Organization; Certificate of Incorporation and By-laws.

 

Each of Parent and Merger Sub 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 and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure have such power,
authority and governmental approvals would not, individually or in the
aggregate, prevent or delay consummation of the Merger or any of the
transactions contemplated hereby. Parent has heretofore made available to the
Company a complete and correct copy of the Certificate of Incorporation and the
By-laws, each as amended to date, of Parent and Merger Sub. Such Certificates of
Incorporation and By-laws are in full force and effect.

 

SECTION 4.02 Authority Relative to This Agreement.

 

Each of Parent and Merger Sub has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the

 

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Merger. The execution and delivery of this Agreement by Parent and Merger Sub
and the consummation by Parent and Merger Sub of the Merger have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement or to consummate the Merger or any
of the other transactions contemplated hereby (other than the filing and
recordation of appropriate merger documents as required by the DGCL). This
Agreement has been duly and validly executed and delivered by Parent and Merger
Sub and, assuming due authorization, execution and delivery by the Company,
constitutes the legal, valid and binding obligation of each of Parent and Merger
Sub enforceable against each of Parent and Merger Sub in accordance with its
terms.

 

SECTION 4.03 No Conflict; Required Filings and Consents.

 

(a) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance of this Agreement by Parent and Merger Sub will not,
and the consummation of the Merger and the other transactions contemplated
hereby by Parent and Merger Sub will not, (i) conflict with or violate the
Certificate of Incorporation or By-laws of either Parent or Merger Sub,
(ii) assuming that all consents, approvals and other authorizations described in
Section 4.03(b) have been obtained and that all filings and other actions
described in Section 4.03(b) have been made or taken, conflict with or violate
any Law applicable to Parent or Merger Sub or by which any property or asset of
either of them is bound or affected, or (iii) result in any breach of, or
constitute a default (or an event which, with notice or lapse of time or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Parent or Merger Sub pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Merger
Sub is a party or by which Parent or Merger Sub or any property or asset of
either of them is bound or affected, except, with respect to clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not, individually or in the aggregate, prevent or
materially delay consummation of the Merger.

 

(b) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance of this Agreement by Parent and Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except for (i) the filing of the
Certificate of Merger with the Secretary of the State of Delaware and
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 those merger control laws or regulations of any
jurisdictions set forth on Schedule 3.05(b) and (iii) such consents, approvals,
orders and authorizations as may be required under “blue sky” laws and the
securities laws of any foreign country.

 

SECTION 4.04 Litigation.

 

As of the date of this Agreement, there are no claims, actions, suits,
proceedings or investigations of any nature pending or, to the knowledge of
Parent, threatened against Parent or Merger Sub, or any properties or assets of
Parent or Merger Sub, before any Governmental

 

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Authority that, if adversely determined, individually or in the aggregate, would
prevent or delay consummation of the Merger or any of the other transactions
contemplated hereby. As of the date of this Agreement, neither Parent nor Merger
Sub nor any property or asset of Parent or Merger Sub is subject to any court
order, writ, determination, judgment, decree, injunction determination or award
of any Governmental Authority which, individually or in the aggregate, would
prevent or delay consummation of the Merger or any of the other transactions
contemplated hereby.

 

SECTION 4.05 Financing.

 

As of the date of this Agreement, Parent has received, and has provided to the
Company, copies of, written commitments (which, as of the date of this
Agreement, have not expired or been cancelled, terminated, rescinded, amended or
otherwise modified) from Wells Fargo Bank, N.A. to provide, in the aggregate,
monies sufficient, together with the Company’s existing available cash, for the
acquisition of the shares of Company common stock pursuant to Section 2.06(a) of
this Agreement and the cancellation of Company Stock Options pursuant to
Section 2.07 of this Agreement, and all expenses associated with any of the
foregoing (including, but not limited to, applicable broker fees and expenses),
and Parent will have sufficient funds to consummate the Merger and the other
transactions contemplated by this Agreement.

 

SECTION 4.06 Proxy Statement.

 

The information supplied by Parent for inclusion in the Proxy Statement shall
not, at the date the Proxy Statement (or any amendment or supplement thereto) is
first mailed to stockholders of the Company or at the time of the Stockholders’
Meeting, 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 light of the circumstances under which they were made,
not false or misleading, or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders’
Meeting which shall have become false or misleading.

 

SECTION 4.07 Brokers.

 

No broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of Parent or Merger Sub, other than any broker, finder or
investment banker the fees of which will be payable solely by Parent or Merger
Sub.

 

ARTICLE V

CONDUCT OF BUSINESS PENDING THE MERGER

 

SECTION 5.01 Conduct of Business by the Company Pending the Merger.

 

The Company agrees that during the period from the date of this Agreement and
the Effective Time, unless Parent shall otherwise agree in writing, the
businesses of the Company and the Subsidiaries shall be conducted only in, and
the Company and the Subsidiaries shall not take any action except in, the
ordinary course of business and in a manner substantially consistent with past
practice or as expressly contemplated by this Agreement or Section 5.01 of

 

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the Disclosure Schedule, and the Company shall use its reasonable best efforts
to preserve substantially intact the business organization of the Company and
the Subsidiaries, to keep available the services of the current officers,
employees and consultants of the Company and the Subsidiaries and to preserve
the current relationships of the Company and the Subsidiaries with material
customers, material suppliers and other persons with which the Company or any
Subsidiary has significant business relations. By way of amplification and not
limitation, except as expressly contemplated by this Agreement or Section 5.01
of the Disclosure Schedule, neither the Company nor any Subsidiary shall,
between the date of this Agreement and the Effective Time, directly or
indirectly, do, or propose to do, any of the following without the prior written
consent of Parent:

 

(a) amend or otherwise change its Certificate of Incorporation or By-laws;

 

(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the issuance,
sale, pledge, disposition, grant or encumbrance of, (i) any shares of any class
of capital stock of the Company or any Subsidiary, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of the Company or any Subsidiary (except for the issuance
of a maximum of 1,303,814 Shares issuable pursuant to employee stock options
outstanding on the date hereof) or (ii) any assets of the Company or any
Subsidiary, except in the ordinary course of business and in a manner consistent
with past practice;

 

(c) declare, set aside, make or pay any dividend or other distribution, payable
in cash, stock, property or otherwise, with respect to any of its capital stock,
except for dividends by any direct or indirect wholly owned Subsidiary to the
Company or any other Subsidiary;

 

(d) reclassify, combine, split, subdivide or redeem, or purchase or otherwise
acquire, directly or indirectly, any of its capital stock (provided that the
Company may acquire “restricted stock” that is forfeited in accordance with its
terms);

 

(e) (i) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets or any other business combination) any
corporation, partnership, other business organization or any division thereof or
any amount of assets other than the acquisition of supplies or inventory in the
ordinary course of business and consistent with past practice; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise become responsible for, the obligations of
any person, or make any loans or advances, or grant any security interest in any
of its assets except in each case in the ordinary course of business and
consistent with past practice; (iii) authorize, or make any commitment with
respect to, any single capital expenditure which is in excess of $25,000 or
capital expenditures which are, in the aggregate, in excess of $100,000 for the
Company and the Subsidiaries taken as a whole; or (iv) enter into or amend any
contract, agreement, commitment or arrangement with respect to any matter set
forth in this Section 5.01(e);

 

(f) except as provided in Section 6.13, (i) increase the compensation payable or
to become payable or the benefits provided to its directors, officers or
employees, except for increases in the ordinary course of business and
consistent with past practice in salaries, wages, bonuses, incentives or
benefits of employees of the Company or any Subsidiary who are not

 

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directors or officers of the Company or any Subsidiary; (ii) enter into any
severance or termination agreements with any director, officer or other employee
of the Company or any Subsidiary; (iii) establish, adopt, enter into or amend
any collective bargaining, bonus, profit-sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or employee;

 

(g) except as required by GAAP or the SEC, make any material change in
accounting methods, principles or practices;

 

(h) make, revoke or change any election, change annual accounting Tax period,
adopt or change any Tax accounting method, file any material federal income Tax
Return or material amendment to any federal income Tax Return unless of copies
of such federal income Tax Return or material amendment have first been
delivered to Parent for its review and comment at a reasonable time prior to
filing (provided, however, that notwithstanding the provisions of this
Section 5.01(h), the Company shall not be required to delay any required filing
with the IRS or other applicable tax authority beyond such filing’s due date),
enter in any closing agreement, settle any Tax claim or assessment relating to
the Company or any of its Subsidiaries, surrender any right to claim or
assessment of Taxes, consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment relating to the Company or any
Subsidiary, or take any other similar action relating to the filing of any Tax
Return or the payment of any Tax, if such election, adoption or other action
would have the effect of increasing the Tax liability of Company or any of the
Subsidiaries for any period ending after the Effective Time or decreasing any
Tax attribute of Company or any of the Subsidiaries existing on the Effective
Time;

 

(i) pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than (A) the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice, of claims, liabilities or obligations reflected
or reserved against in the 2005 Balance Sheet or subsequently incurred in the
ordinary course of business, or (B) the payment, discharge or satisfaction of
claims, liabilities or obligations not in excess of $25,000 individually or
$50,000 in the aggregate;

 

(j) amend, modify or consent to the termination of any Material Contract, or
amend, waive, modify or consent to the termination of any material rights of the
Company or any Subsidiary thereunder, in a manner adverse in any material
respect to the Company or any Subsidiary, other than in the ordinary course of
business and consistent with past practice;

 

(k) commence or settle any Action, other than the settlement of Actions for an
aggregate amount not in excess of $50,000;

 

(l) engage in any line of business not consistent with any of the Company’s
current lines of business or abandon any existing line of business;

 

(m) (i) permit any material Owned Intellectual Property to lapse or to be
abandoned, dedicated, or disclaimed, fail to perform or make any applicable
filings, recordings or other similar actions or filings, or fail to pay all
commercially reasonable or required fees and taxes to

 

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maintain and protect its interest in any material Owned Intellectual Property,
Licensed Intellectual Property, License or Company IT Systems, (ii) sell, assign
or grant any security interest in or to any material Owned Intellectual
Property, Licensed Intellectual Property, License or Company IT Systems, other
than sales of non exclusive licenses therein in the ordinary course of business,
(iii) grant to any third party any license with respect to any material Owned
Intellectual Property, Licensed Intellectual Property or Company IT Systems,
other than in the ordinary course of business or (iv) disclose, or authorize to
be disclosed, any confidential Intellectual Property, unless such Intellectual
Property is subject to a confidentiality or non-disclosure covenant protecting
against disclosure thereof;

 

(n) fail to file with the SEC in a timely manner as required under the Exchange
Act and the rules and regulations promulgated thereunder (provided that any
filing that is deemed timely filed pursuant Rule 12b-25 under the Exchange Act
shall be deemed timely filed for this purpose) annual reports on Form 10-K,
quarterly reports on Form 10-Q or Current Reports on Form 8-K required to be
filed to report matters prescribed by Sections 1.03, 2.01, 2.02, 3.01, 3.02,
3.03, 4.01, 4.02(b), 5.01, 5.02, 5.03, 5.04 or 5.05 of Form 8-K; or

 

(o) announce an intention, enter into any formal or informal agreement or
otherwise make a commitment, to do any of the foregoing.

 

ARTICLE VI

ADDITIONAL AGREEMENTS

 

SECTION 6.01 Stockholders’ Meeting.

 

The Company, acting through the Board, shall, in accordance with applicable law
and the Company’s Certificate of Incorporation and By-laws, (i) duly call, give
notice of, convene and hold an annual or special meeting of its stockholders as
promptly as reasonably practicable following the date hereof for the purpose of
considering and taking action on this Agreement and the Merger (the
“Stockholders’ Meeting”) (provided, however, that in no event shall the Company
hold the Stockholders’ Meeting prior to January 4, 2006 or be required to hold
the Stockholders’ Meeting earlier than the thirtieth (30th) day following the
mailing of the Proxy Statement to the holders of Shares entitled to vote at the
Stockholders’ Meeting); and (ii) (A) subject to Section 6.04, include in the
Proxy Statement, and not subsequently withdraw or modify in any manner adverse
to Merger Sub or Parent, the unanimous recommendation of the Board that the
stockholders of the Company adopt this Agreement and (B) use its reasonable best
efforts to obtain such adoption. At the Stockholders’ Meeting, Parent and Merger
Sub shall cause all Shares then owned by them and their subsidiaries to be voted
in favor of the adoption of this Agreement.

 

SECTION 6.02 Proxy Statement.

 

Promptly following the date hereof, the Company shall file the preliminary Proxy
Statement with the SEC under the Exchange Act, and shall use its reasonable best
efforts to have the preliminary Proxy Statement cleared by the SEC as promptly
as practicable. Each of the Company, Parent and Merger Sub agrees to use its
reasonable best efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of and requests by the SEC

 

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and to cause the Proxy Statement and all required amendments and supplements
thereto to be mailed to the holders of Shares entitled to vote at the
Stockholders’ Meeting as promptly as reasonably practicable after the later of
(a) the tenth (10th) day after the filing of the preliminary Proxy Statement
with the SEC or (b) the day the Company is notified by the SEC that (i) it will
not be reviewing the Proxy Statement or (ii) that it has no further comments on
the preliminary Proxy Statement.

 

SECTION 6.03 Access to Information; Confidentiality.

 

(a) Upon reasonable prior notice, the Company and each Subsidiary shall furnish
Parent and Merger Sub and the financing sources of Parent or Merger Sub with
such financial, operating and other data and information as Parent or Merger
Sub, through its officers, employees or agents, may reasonably request and
afford the officers, employees, agents and financing sources of Parent and
Merger Sub access on a reasonable basis at reasonable times to the officers,
employees, properties and other facilities of the Company and the Subsidiaries,
for the purposes of securing financing, consummating the transactions
contemplated by this Agreement and engaging in integration-planning activities,
in each case to the extent permitted by applicable Law.

 

(b) All information obtained by Parent or Merger Sub pursuant to this
Section 6.03 shall be kept confidential in accordance with the Mutual
Non-Disclosure Agreement, dated July 11, 2005 (the “Confidentiality Agreement”),
by and between Parent and the Company.

 

(c) No investigation pursuant to this Section 6.03 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.

 

SECTION 6.04 No Solicitation of Transactions.

 

(a) The Company agrees that (i) the Company and each of the Subsidiaries, and
the officers and directors of the Company and each of the Subsidiaries, and any
investment banker, attorney or accountant retained by the Company or any of the
Subsidiaries will not, directly or indirectly, and (ii) the Company will not
authorize or knowingly permit, and will use its reasonable best efforts to
cause, any other agents, employees, advisors and representatives of the Company
and the Subsidiaries not to, directly or indirectly: (x) solicit, initiate or
knowingly encourage (including by way of furnishing nonpublic information) any
inquiries or the making of any proposal of offer (including, without limitation,
any proposal or offer to its stockholders) that constitutes, or may reasonably
be expected to lead to, any Competing Transaction, or (y) enter into or maintain
or continue discussions or negotiations with any person or entity in furtherance
of such inquiries or to obtain a proposal or offer for a Competing Transaction,
or (z) agree to, approve, endorse or recommend any Competing Transaction or
enter into any letter of intent or other contract, agreement or commitment
contemplating or otherwise relating to any Competing Transaction. The Company
shall notify Parent as promptly as reasonably practicable (and in any event
within one (1) business day after the Company attains knowledge thereof), orally
and in writing, if any proposal or offer, or any inquiry or contact with any
person with respect thereto, regarding a Competing Transaction is made,
specifying the material terms and conditions thereof and the identity of the
party making such proposal or offer or inquiry or contact (including

 

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material amendments or proposed material amendments). As of the date of this
Agreement, the Company shall, and shall direct or cause its and the
Subsidiaries’ directors, officers, employees, representatives and agents to,
immediately cease any discussions or negotiations with any parties that may have
been conducted heretofore with respect to a Competing Transaction. The Company
shall not release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which it is a party; provided that
the Company may waive the confidentiality provisions of any such agreement to
the extent such a waiver is in the ordinary course of its business consistent
with past practice.

 

(b) Notwithstanding anything to the contrary in this Section 6.04, the Board may
furnish information to, and enter into discussions with, a person who has made
an unsolicited, written, bona fide proposal or offer regarding a Competing
Transaction, if the Board has (i) determined, in its good faith judgment (after
having consulted with its financial advisor), that such proposal or offer is, or
could reasonably be expected to result in, a Superior Proposal, (ii) determined,
in its good faith judgment after consultation with independent legal counsel
(who may be the Company’s regularly engaged independent legal counsel), that, in
light of such proposal or offer, the furnishing of such information or entering
into discussions is required to comply with its fiduciary obligations to the
Company and its stockholders under applicable Law, (iii) provided written notice
to Parent of its intent to furnish information or enter into discussions with
such person at least two (2) business days prior to taking any such action, and
(iv) obtained from such person an executed confidentiality agreement on terms no
less favorable to the Company than those contained in the Confidentiality
Agreement (it being understood that such confidentiality agreement and any
related agreements shall not include any provision calling for any exclusive
right to negotiate with such party or having the effect of prohibiting the
Company from satisfying its obligations under this Agreement).

 

(c) Except as set forth in this Section 6.04(c), neither the Board nor any
committee thereof shall withdraw or modify, or propose to withdraw or modify, in
a manner adverse to Parent or Merger Sub, the approval or recommendation by the
Board or any such committee of this Agreement, the Merger or any other
Transaction (a “Change in the Company Recommendation”) or approve or recommend,
or cause or permit the Company to enter into any letter of intent, agreement or
obligation with respect to, any Competing Transaction. Notwithstanding the
foregoing, or anything else to the contrary contained herein, if the Board
determines, in its good faith judgment prior to the time of the Stockholders
Meeting and after consultation with independent legal counsel (who may be the
Company’s regularly engaged independent legal counsel), that it is required to
make a Change in the Company Recommendation to comply with its fiduciary
obligations to the Company and its stockholders under applicable Law, the Board
may make a Change in the Company Recommendation; provided, however, that the
Board may make a Change in the Company Recommendation as a result of a Superior
Proposal only (i) after providing written notice to Parent (a “Notice of
Superior Proposal”) advising Parent that the Board has received a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal and indicating that the
Board intends to effect a Change in the Company Recommendation and the manner in
which it intends (or may intend) to do so, (ii) if Parent does not, within four
(4) business days of Parent’s receipt of the Notice of Superior Proposal, make
an offer that the Board determines, in its good faith judgment (after having
consulted with its

 

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financial advisor) to be at least as favorable to the Company’s stockholders as
such Superior Proposal.

 

SECTION 6.05 Directors’ and Officers’ Indemnification and Insurance.

 

(a) If the Merger is consummated, for six years after the Effective Time, Parent
shall, and shall cause the Surviving Corporation to, indemnify, defend and hold
harmless, the present and former officers and directors of the Company (the
“Company Indemnified Persons”) in respect of acts or omissions occurring prior
to the Effective Time to the fullest extent permitted or provided under (i) the
Company’s Certificate of Incorporation and By-laws as in effect on the date of
this Agreement and (ii) any indemnification agreements between the Company and
such Company Indemnified Persons in effect on the date of this Agreement ((i)
and (ii) collectively, the “Company Indemnification Provisions”). In connection
therewith Parent shall advance expenses to the Company Indemnified Persons as
incurred to the fullest extent provided for under the Company Indemnification
Provisions, provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification under the DGCL. Any claims for
indemnification made under this Section 6.05(a) on or prior to the sixth
(6th) anniversary of the Effective Time shall survive such anniversary until the
final resolution thereof.

 

(b) For a period of six years from and after the Effective Time (the
“Indemnification Period”), Parent shall cause to be maintained in effect the
current policies of directors’ and officers’ and fiduciary liability insurance
maintained by the Company, including with respect to claims arising from facts
or events which occurred on or before the Effective Time (including those
related to this Agreement and the transactions contemplated hereby); provided,
however, that Parent may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to former officers and directors of the Company; and provided,
further, that if the aggregate annual premium for such policies at any time
during the Indemnification Period will exceed 175% of the per annum rate paid by
the Company and its Subsidiaries as of the date of this Agreement for such
policies, then Parent shall only be required to provide the maximum coverage on
substantially equivalent terms as is then available at an aggregate annual
premium equal to 175% of such rate. The provisions of the immediately preceding
sentence shall be deemed to have been satisfied if, prior to the Closing, the
Company shall have purchased (and the Company is hereby expressly authorized to
purchase) fully prepaid “tail” policies under the Company’s existing directors’
and officers’ liability insurance policies, such “tail” policies to (i) provide
for aggregate coverage and amounts equal to the aggregate coverage provided
under the Company’s current directors’ and officers’ liability insurance
policies, (ii) be effective for the Indemnification Period, and (iii) otherwise
be on terms and conditions reasonably acceptable to the Board of Directors of
the Company, provided that the aggregate premium therefor may not exceed
$200,000 (and if the aggregate premium for such policies for the Indemnification
Period would exceed $200,000, then the Company may purchase such coverage as is
available for an aggregate premium of $200,000). During the Indemnification
Period, the Surviving Corporation shall (x) maintain such policies in full force
and effect, (y) not amend or otherwise modify any of such policies or take any
action that would result in the cancellation, termination, amendment or
modification of any of such policies, and (z) continue to honor its obligations
under such policies.

 

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(c) The provisions of this Section 6.05 are (i) intended to be for the benefit
of, and shall be enforceable by, each Company Indemnified Person (it being
expressly agreed that the Company Indemnified Persons to whom this Section 6.05
applies shall be third party beneficiaries of this Section 6.05), and (ii) in
addition to, and not in substitution for, any other rights to indemnification or
contribution that any such Person may have pursuant to Law, by contract or
otherwise. The obligations of Parent under this Section 6.05 shall not be
terminated or modified in such a manner as to adversely affect the rights of any
Company Indemnified Person under this Section 6.05 without the consent of such
affected Company Indemnified Person.

 

(d) This Section 6.05 shall be binding on all successors and assigns of the
Surviving Corporation and Parent, and shall be enforceable by the Company
Indemnified Persons. Without limiting the foregoing, if the Surviving
Corporation or any of its successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger, or (ii) transfers all or
substantially all of its assets to any person, then and in each such case,
proper provision shall be made so that the successors and assigns of the
Surviving Corporation or its assets assume the obligations set forth in this
Section 6.05.

 

(e) This Section 6.05 is intended to be for the benefit of and to grant third
party rights to the Company Indemnified Persons, whether or not parties to this
Agreement, and each of the Company Indemnified Persons shall be entitled to
enforce the covenants contained herein. The parties hereto agree that
irreparable damage would occur to the Company Indemnified Persons in the event
that any of the provisions of Section 6.05(b) were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that each of the Company Indemnified Persons shall be entitled to an injunction
or injunctions (without the necessity of posting any bond or other security) to
prevent breaches of Section 6.05(b), this being in addition to any other remedy
to which they are entitled at law or in equity.

 

SECTION 6.06 Notification of Certain Matters.

 

The Company shall give prompt notice to Parent, and Parent shall give prompt
notice to the Company, of (a) the occurrence, or non-occurrence, of any event
the occurrence, or non-occurrence, of which reasonably could be expected to
cause any representation or warranty contained in this Agreement and made by
such person to be untrue or inaccurate in any material respect, (b) any failure
of the Company, Parent or Merger Sub, as the case may be, to comply in all
material respects with or satisfy any covenant or agreement to be complied with
or satisfied by it hereunder and (c) any other material development relating to
the business, prospects, financial condition or results of operations of the
Company and the Subsidiaries; provided, however, that the delivery of any notice
pursuant to this Section 6.06 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.

 

SECTION 6.07 Further Action; Reasonable Best Efforts.

 

(a) Upon the terms and subject to the conditions of this Agreement, each of the
parties hereto shall (i) use its reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to

 

40

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consummate and make effective the Merger, including, without limitation, using
its reasonable best efforts to obtain all permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with the Company and the Subsidiaries as are necessary for
the consummation of the Merger; provided that neither Merger Sub nor Parent will
be required by this Section 6.07 to take any action, including entering into any
consent decree, hold separate orders or other arrangements, that (A) requires
the divestiture of any assets of any of Merger Sub, Parent, the Company or any
of their respective subsidiaries or (B) limits Parent’s freedom of action with
respect to, or its ability to retain, the Company and the Subsidiaries or any
portion thereof or any of Parent’s or its affiliates’ other assets or
businesses. In case, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such action.

 

(b) Each of the parties hereto agrees to cooperate and use its reasonable best
efforts (i) to vigorously contest and resist (including without limitation,
defense through litigation on the merits) any Action, including administrative
or judicial Action, challenging this Agreement, the Merger or any of the
transactions contemplated hereby, or otherwise seeking to make illegal or to
restrict, prevent, prohibit or delay the consummation of the Merger or any of
the other transactions contemplated hereby and (ii) to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) that is in effect and that restricts,
prevents or prohibits consummation of the Merger or any of the other transaction
contemplated hereby, including, without limitation, by vigorously pursuing all
available avenues of administrative and judicial appeal.

 

SECTION 6.08 Subsequent Financial Statements.

 

The Company shall, if reasonably practicable, consult with Parent prior to
making publicly available its financial results for any period after the date of
this Agreement and prior to filing any report or document with the SEC after the
date of this Agreement, it being understood that Parent shall have no liability
by reason of such consultation; provided that, notwithstanding the provisions of
this Section, the Company shall not be required to delay any required filing
with the SEC beyond such filing’s due date.

 

SECTION 6.09 Public Announcements.

 

Parent and the Company shall consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
or the Merger and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by Law or the
rules or regulations of any United States or non-United States securities
exchange or NASDAQ. The parties have agreed upon the form of a joint press
release announcing the execution of this Agreement.

 

SECTION 6.10 Tax Certificate.

 

The Company shall provide the Parent and Merger Sub, on or not more than 30 days
prior to the Effective Time, a certificate (in a form reasonably satisfactory to
Parent and Merger Sub) meeting the requirements of Treasury regulation sections
1.897 2(h) and 1.1445.5(b)(4)(iii).

 

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SECTION 6.11 Employee Benefits.

 

As promptly as reasonably practicable after the Effective Time, Parent shall
enroll those persons who were employees of the Company or the Subsidiaries
immediately prior to the Effective Time and who remain employees of the
Surviving Corporation or the Subsidiaries or become employees of Parent
following the Effective Time (“Continuing Employees”) in Parent’s employee
benefit plans for which such employees are eligible (the “Parent Plans”),
including its medical plan, dental plan, life insurance plan and disability
plan, to the extent permitted by the terms of the applicable Parent Plans on
substantially similar terms applicable to employees of Parent who are similarly
situated based on levels of responsibility. Without limiting the generality of
the foregoing, Parent shall recognize the prior service with the Company of each
of the Continuing Employees in connection with Parent’s PTO policy, and in
connection with Parent’s qualified retirement plan for purposes of eligibility
and vesting, to the extent permitted by such policy and Parent Plans.
Notwithstanding anything in this Section 6.11 to the contrary, this Section 6.11
shall not operate to (a) duplicate any benefit provided to any Continuing
Employee or to fund any such benefit not previously funded, (b) except as
provided for in Section 6.13, require Parent to continue in effect any Plans or
any severance plan or other employee benefit plan of Parent (or prevent the
amendment, modification or termination thereof) following the Effective Time for
Parent’s employees, including the Continuing Employees, or (c) be construed to
mean the employment of the Continuing Employees is not terminable by Parent at
will at any time, with or without cause, for any reason or no reason.

 

SECTION 6.12 Termination of Certain Benefit Plans.

 

To the extent requested in writing by Parent no later than ten business days
prior to the Closing, the Company shall take (or cause to be taken) all actions
necessary or appropriate to terminate, effective no later than the date
immediately preceding the Closing, any Plan that contains a cash or deferred
arrangement intended to qualify under Section 401(k) of the Code (each, a
“Company 401(k) Plan”) in accordance with the provisions of such Company 401(k)
Plan and applicable Law. If Parent requests that any such Company 401(k) Plan be
terminated, the Board shall adopt resolutions authorizing the termination of
such Company 401(k) Plan effective no later than the day immediately preceding
the Closing, such resolutions to be subject to review and approval by Parent’s
counsel.

 

SECTION 6.13 Severance; Retention Bonuses.

 

Parent, Merger Sub and the Company agree that each of the employees of the
Company listed on Section 6.13 of the Disclosure Schedule shall be entitled to
receive a “retention bonus” or similar compensation and/or severance or
termination benefits in the amounts and otherwise on such terms and conditions
set forth in Section 6.13 of the Disclosure Schedule. At or prior to the
Effective Time, the Company and the Subsidiaries may enter into agreements
and/or Plans with such employees with respect to such compensation and/or
benefits, and from and after the Effective Time, the Surviving Corporation or
Parent shall, and shall cause its affiliates to, honor and assume, in accordance
with their terms, all such agreements and/or Plans.

 

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SECTION 6.14 401(k) Matching Contributions.

 

The Company, Parent and Merger Sub agree that, promptly after December 31, 2005
and prior to any termination required under Section 6.12, the Company or the
Surviving Corporation, as applicable, shall make the “Matching Contributions”
(as defined in the Company 401(k) Plan) to the accounts of all employees of the
Company that are participants in any Company 401(k) Plan as of December 31,
2005, and that such Matching Contributions shall be the maximum amounts
permitted under such Company 401(k) Plan, whether or not the Effective Time has
occurred on or prior to the date of payment of such Matching Contributions.

 

ARTICLE VII

CONDITIONS TO THE MERGER

 

SECTION 7.01 Conditions to the Merger.

 

(a) The obligations of each party to effect the Merger shall be subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:

 

(i) Stockholder Approval. This Agreement shall have been approved and adopted,
and the Merger shall have been duly approved, by the requisite vote under
applicable law, by the stockholders of the Company.

 

(ii) No Order. No Governmental Authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any Law (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the acquisition of Shares by Parent or Merger Sub or any affiliate of either of
them illegal or otherwise restricting, preventing or prohibiting consummation of
the Merger.

 

(b) The obligation of the Company to effect the Merger shall be subject to the
satisfaction at or prior to the Closing of the following additional conditions,
any of which may be waived in writing by the Company:

 

(i) The representations and warranties of Parent set forth herein (other than in
Section 4.02) (A) that are qualified as to Material Adverse Effect shall be true
an correct and (B) that are not so qualified as to Material Adverse Effect shall
be true and correct, in each case both when made and at and as of the Closing,
as if made at and as of such time (except to the extent expressly made as of a
particular date, in which case as of such date), except to the extent such that
the failure of such representations and warranties referred to in clause (B) to
be so true and correct does not have, and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Parent and
at the Closing the Company shall have received a certificate to such effect
executed by an executive officer of Parent.

 

(ii) The representations and warranties of Parent set forth in Section 4.02
shall be true and correct both when made and at and as of the Closing, as if
made at and as of such time and at the Closing the Company shall have received a
certificate to such effect executed by an executive officer of Parent.

 

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(iii) Parent shall have performed and complied in all material respects with all
of its covenants contained in Article VI on or before the Closing (to the extent
that such covenants require performance by Parent on or before the Closing).

 

(c) The respective obligations of Parent and Merger Sub to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
additional conditions, any of which may be waived in writing by Parent and
Merger Sub:

 

(i) The representations and warranties of the Company set forth herein (other
than in Section 3.03 (excluding the last sentence of Section 3.03(a)) and
Section 3.04) (A) that are qualified as to Material Adverse Effect shall be true
and correct and (B) that are not so qualified as to Material Adverse Effect
shall be true and correct, in each case both when made and at and as of the
Closing, as if made at and as of such time (except to the extent expressly made
as of a particular date, in which case as of such date), except to the extent
such that the failure of such representations and warranties referred to in
clause (B) to be so true and correct does not have, and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company and at the Closing Parent shall have received a certificate to such
effect executed by the chief executive officer and the principal financial
officer of the Company.

 

(ii) The representations and warranties of the Company set forth in Section 3.03
(excluding the last sentence of Section 3.03(a)) and Section 3.04 shall be true
and correct (other than in the case of Section 3.03, any de minimus failure not
to exceed 0.3% of the outstanding Company Common Stock to be true and correct)
both when made and at and as of the Closing Date, as if made at and as of such
time, and at the Closing Parent shall have received a certificate to such effect
executed by the chief executive officer and the principal financial officer of
the Company.

 

(iii) The Company shall have performed and complied in all material respects
with all of its covenants contained in Article V at or before the Closing (to
the extent that such covenants require performance by the Company at or before
the Closing), and at the Closing Parent shall have received a certificate to
such effect executed by the chief executive officer and the principal financial
officer of the Company.

 

(iv) No litigation or proceeding shall be threatened in writing or pending
(i) for the purpose or with the probable effect of making illegal or enjoining
the consummation of the Merger or other transactions contemplated by this
Agreement, (ii) seeking any action or result as set forth in
Section 7.01(a)(ii).

 

(v) The Company and the Subsidiaries shall have cash and cash equivalents in an
aggregate amount in excess of $10,500,000.

 

(vi) The Company shall have received written resignations from all of the
incumbent members of the Board, such resignations to take effect upon the
Effective Time.

 

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ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

 

SECTION 8.01 Termination.

 

This Agreement may be terminated at any time prior to the Effective Time by
action taken or authorized by the Board of Directors of the terminating party or
parties, which action (A) in the case of Section 8.01(a), Section 8.01(b)(i),
Section 8.01(b)(ii), Section 8.01(c) and Section 8.01(d), may be taken or
authorized before or after the Stockholders’ Meeting, (B) in the case of
Section 8.01(e) and Section 8.01(f), may be taken or authorized only before the
Stockholders’ Meeting, and (C) in the case of Section 8.01(b)(iii), may be taken
or authorized only after the Stockholders’ Meeting where a vote was taken:

 

(a) by mutual written consent of the Company and Parent, if the Board of
Directors of each so determines;

 

(b) by written notice of either the Company or Parent (as authorized by the
Board of Directors of the Company or Parent, as applicable):

 

(i) if the Merger shall not have been consummated by March 31, 2006, provided,
however, that the right to terminate this Agreement under this
Section 8.01(b)(i) shall not be available to any party whose failure to comply
with any provision of this Agreement has been the cause of, or resulted in, the
failure of the Merger to be consummated by such date;

 

(ii) if a Governmental Authority of competent jurisdiction 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 or the other transactions
contemplated by this Agreement, which order, decree, ruling or other action is
final and nonappealable, provided, however, that the right to terminate this
Agreement under this Section 8.01(b)(ii) shall not be available to any party
whose failure to comply with any provision of this Agreement has been the cause
of, or resulted in, such action;

 

(iii) if the Company Stockholder Approval shall not have been obtained at the
Stockholders’ Meeting, or at any adjournment or postponement thereof, at which
the vote thereon was taken; provided, however, that the right to terminate this
Agreement under this Section 8.01(b)(iii) shall not be available to the Company
where the failure to obtain the Company Stockholder Approval shall have been
caused by the failure of the Company to comply with any provision of this
Agreement or a breach of any Voting Agreement by any party thereto other than
Parent or Merger Sub;

 

(c) by the Company (as authorized by the Board) upon a breach of any
representation, warranty, covenant or agreement on the part of Parent set forth
in this Agreement, or if any representation or warranty of Parent shall have
become untrue, in either case such that the conditions set forth in
Section 7.01(b)(i) or Section 7.01(b)(ii) would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become untrue and in any such case such breach shall be incapable of being cured
or shall not have been cured in all material respects within thirty (30) days
after written notice thereof shall have been received by Parent;

 

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(d) by Parent (as authorized by its Board of Directors) upon a breach of any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, or if any representation or warranty of the Company
shall have become untrue, in either case such that the conditions set forth in
Section 7.01(c)(i) or Section 7.01(c)(ii) would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become untrue and in any such case such breach shall be incapable of being cured
or shall not have been cured in all material respects within thirty (30) days
after written notice thereof shall have been received by the Company;

 

(e) by Parent (as authorized by its Board of Directors), at any time prior to
Company Stockholder Approval, if the Company, the Board or any committee
thereof, for any reason, shall have (i) failed to call or hold the Company
Stockholders’ Meeting in accordance with Section 6.01, (ii) failed to include in
the Proxy Statement the unanimous recommendation of the Board that the
stockholders of the Company approve this Agreement and the Merger,
(iii) effected a Change in the Company Recommendation, (iv) approved or
recommended any Competing Transaction, (v) failed to reconfirm the unanimous
recommendation of the Board that the stockholders of the Company approve this
Agreement and the Merger within ten (10) business days of receipt of a written
request from Parent to do so after the public disclosure of a Competing
Transaction or (vi) failed, within ten (10) business days after any tender or
exchange offer relating to Company Common Stock commenced by any third Person
shall have been first published, sent or given, to have sent to its security
holders pursuant to Rule 14e-2 promulgated under the Exchange Act a statement
disclosing that the Board of Directors of the Company recommends rejection of
such tender offer or exchange offer; or

 

(f) by the Company (as authorized by the Board), in order to enter a definitive
acquisition agreement providing for a Superior Proposal immediately after the
termination of this Agreement, if the Board (or any special committee thereof)
in response to such Superior Proposal that did not follow a breach of
Section 6.04 has effected a Change in the Company Recommendation in accordance
with Section 6.04, provided that simultaneously with such termination the
Company pays the Termination Fee in accordance with Section 8.03.

 

SECTION 8.02 Effect of Termination.

 

In the event of termination of this Agreement as provided in Section 8.01 hereof
and any payment of a Termination Fee to the extent required by Section 8.03,
this Agreement shall forthwith become void and there shall be no liability on
the part of any of the parties, except (a) as set forth in Section 6.03(b)
(Confidentiality), this Section 8.02 (Effect of Termination) and Section 8.03
(Payments), as well as Article IX (General Provisions) to the extent applicable
to such surviving sections, each of which shall survive termination of this
Agreement, and (b) that nothing herein shall relieve any party from any further
liability for any breach of this Agreement. 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.

 

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SECTION 8.03 Payments.

 

(a) Payments by the Company. In the event that this Agreement is terminated by
the Company pursuant to Section 8.01(b)(iii) or by Parent pursuant to any of
Section 8.01(b)(iii), Section 8.01(d) (but, in the case of Section 8.01(d), only
if such termination is due to an intentional breach of any representation,
warranty or covenant by the Company), or Section 8.01(e), the Company shall
promptly, but in no event later than two business days after the date of such
termination (subject to the further provisions of this Section 8.03(a)), pay
Parent a fee equal to $2,000,000 (the “Termination Fee”); provided, that in the
case of a termination pursuant to Section 8.01(b)(iii), Section 8.01(d) (but, in
the case of Section 8.01(d), only if such termination is due to a willful or
intentional breach of any representation, warranty or covenant by the Company),
Section 8.01(e)(v) or Section 8.01(e)(vi), the Termination Fee shall be payable
only if following the date of this Agreement and prior to such termination,
(A) any Person shall have proposed to the Company or its stockholders, or
publicly announced, a Competing Transaction with respect to the Company and
(B) within nine (9) months following termination of this Agreement, (i) any
Competing Transaction with respect to the Company is consummated or (ii) the
Company enters into a contract providing for any Competing Transaction, then
such fee payment is to be made concurrently with the earlier of the consummation
of such Competing Transaction or the execution of such contract, as applicable.
In the event that this Agreement is terminated by the Company pursuant to
Section 8.01(f), the Company shall, in order to effect such termination, pay
Parent the Termination Fee concurrently with the termination of this Agreement.

 

(b) Payments by Parent. In the event that this Agreement is terminated by the
Company or Parent pursuant to Section 8.01(b)(i) or Section 8.01(b)(ii) (but in
the case of either Section 8.01(b)(i) or 8.01(b)(ii), only if (A) the Company
Stockholder Approval has occurred and (B) the condition to closing set forth in
Section 7.01(c)(v) shall be satisfied as of the date of such termination) or by
the Company pursuant to Section 8.01(c) (but in the case of Section 8.01(c),
only if such termination is due to a willful or intentional breach of any
representation, warranty or covenant by Parent), Parent shall promptly, but in
no event later than two business days after the date of such termination, pay
the Company a fee equal to the Termination Fee.

 

(c) Interest and Costs. All payments under this Section 8.03 shall be made by
wire transfer of immediately available funds to an account designated by Parent
or the Company, as applicable. The Company and Parent acknowledge that the
agreements contained in this Section 8.03 are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
neither the Company nor Parent would enter into this Agreement. Accordingly, if
the Company or Parent fails to pay in a timely manner the amounts due pursuant
to this Section 8.03 and, in order to obtain such payment, Parent, or the
Company, as applicable, makes a claim that results in a judgment against the
Company or Parent, as applicable, the Company or Parent, as applicable, shall
pay to Parent or Company, as applicable, its reasonable costs and expenses
(including reasonable attorneys’ fees and expenses) in connection with such
suit, together with interest on the amounts set forth in this Section 8.03 at
the rate of interest per annum publicly announced by Bank of America as its
prime rate, as in effect on the date such payment was required to be made.
Payment of the fees described in this Section 8.03 shall not be in lieu of
damages incurred in the event of breach of this Agreement.

 

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(d) Fees and Expenses. Except as set forth in this Section 8.03, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated; provided, however, that Parent shall pay any
necessary filing fees, and expenses (other than legal and accounting expenses)
for any reports and forms to be submitted to any Governmental Authority under
any merger control laws or regulations pursuant to Section 6.07(a), and the
Company shall pay the filing, printing and mailing fees and expenses payable on
account of the Proxy Statement.

 

SECTION 8.04 Amendment.

 

Subject to applicable Law, this Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after the adoption of
this Agreement and the Merger by the stockholders of the Company, no amendment
may be made that would reduce the amount or change the type of consideration
into which each Share shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by each
of the parties hereto.

 

SECTION 8.05 Waiver.

 

Subject to applicable Law, at any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties of any other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any agreement of any other party
or any condition to its own obligations contained herein. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.

 

ARTICLE IX

GENERAL PROVISIONS

 

SECTION 9.01 Notices.

 

All notices, requests, claims, demands and other communications hereunder shall
be in writing and shall be given (and shall be deemed to have been duly given
upon receipt) by delivery in person, by overnight courier, by facsimile or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this
Section 9.01):

 

if to Parent or Merger Sub:

 

Natus Medical Incorporated

1501 Industrial Road

San Carlos, CA 94070

Telecopier No.: (650) 802-6630

Attention: James B. Hawkins, President and Chief Executive Officer

 

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with a copy to:

 

Fenwick & West LLP

801 California Street

Mountain View, CA 94041

Telecopier No. (650) 938-5200

Attention: Daniel J. Winnike

 

if to the Company:

 

Bio-logic Systems Corp.

One Bio-logic Plaza

Mundelein, IL 60060

Telecopier No.: (847) 949-8615

Attention: Gabriel Raviv, Ph.D., Chariman and Chief Executive Officer

                  Roderick G. Johnson, President and Chief Operating Officer

 

with a copy to:

 

Katten Muchin Rosenman LLP

525 W. Monroe Street

Chicago, IL 60661

Telecopier No. (312) 577-8858

Attention: Mark D. Wood

 

SECTION 9.02 Severability.

 

If any term or other provision of this Agreement is determined by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced by
any rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Merger is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the Merger and the other transactions contemplated hereby
be consummated as originally contemplated to the fullest extent possible.

 

SECTION 9.03 Entire Agreement; Assignment.

 

This Agreement and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, including the
Disclosure Schedule, constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements,
understandings, representations, conditions, covenants and undertakings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof, it being understood that the Confidentiality Agreement shall
survive any termination of this Agreement. This Agreement shall not be assigned
(whether pursuant to a merger, by operation of law or otherwise).

 

49

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SECTION 9.04 Parties in Interest.

 

This Agreement shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, except as set forth in
Section 6.05 (which is intended to be for the benefit of the persons covered
thereby and may be enforced by such persons).

 

SECTION 9.05 Specific Performance.

 

The parties hereto agree that irreparable damage would occur in the event any
provision of this Agreement were not performed in accordance with the terms
hereof and that the parties shall be entitled to specific performance of the
terms hereof, without the necessity of posting bond or other security and
without the necessity of showing actual damages, in addition to any other remedy
at law or equity.

 

SECTION 9.06 Governing Law.

 

This Agreement shall be governed by, and construed in accordance with, the laws
of the State of Delaware applicable to contracts executed in and to be performed
in that State.

 

SECTION 9.07 Waiver of Jury Trial.

 

Each of the parties hereto hereby waives to the fullest extent permitted by
applicable law any right it may have to a trial by jury with respect to any
litigation directly or indirectly arising out of, under or in connection with
this Agreement or the Merger. Each of the parties hereto (a) certifies that no
representative, agent or attorney of any other party has represented, expressly
or otherwise, that such other party would not, in the event of litigation, seek
to enforce that foregoing waiver and (b) acknowledges that it and the other
parties hereto have been induced to enter into this Agreement and the Merger, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 9.07.

 

SECTION 9.08 Headings.

 

The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.

 

SECTION 9.09 Counterparts.

 

This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.

 

SECTION 9.10 Non-Survival of Representations and Warranties.

 

The representations and warranties of the Company, Parent and Merger Sub
contained in this Agreement, or any instrument delivered pursuant to this
Agreement, shall terminate at the

 

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Effective Time, and only the covenants that by their terms survive the Effective
Time and the provisions of this Article IX shall survive the Effective Time.

 

[Signature Page Follows]

 

51

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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.

 

NATUS MEDICAL INCORPORATED

By:   /S/    JAMES B. HAWKINS             James B. Hawkins     President and
Chief Executive Officer

SUMMER ACQUISITION CORPORATION

By:   /S/    JAMES B. HAWKINS             James B. Hawkins     President

BIO-LOGIC SYSTEMS CORP.

By:

  /S/    GABRIEL RAVIV, PH.D.             Gabriel Raviv, Ph.D.     Chairman and
Chief Executive Officer

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EXHIBIT A-1

 

Lawrence D. Damron

Pamela S. Johnson

Roderick G. Johnson

Albert Milstein

Craig W. Moore

Dorit Raviv

Gabriel Raviv, Ph.D.

Raviv Family Limited Partnership

--------------------------------------------------------------------------------

EXHIBIT A-2

 

Form of Voting Agreement

--------------------------------------------------------------------------------

EXHIBIT B

 

Form of Certificate of Merger

 

CERTIFICATE OF MERGER

OF

SUMMER ACQUISITION CORPORATION

WITH AND INTO

BIO-LOGIC SYSTEMS CORP.

 

--------------------------------------------------------------------------------

 

Pursuant to Section 251(c) of the General Corporation Law of the State of
Delaware

 

--------------------------------------------------------------------------------

 

Bio-logic Systems Corp., a Delaware corporation (“Bio-logic”), does hereby
certify to the following facts relating to the merger (the “Merger”) of Summer
Acquisition Corporation, a Delaware corporation (“Summer”), with and into
Bio-logic, with Bio-logic remaining as the surviving corporation of the Merger
(the “Surviving Corporation”):

 

FIRST: Bio-logic is incorporated pursuant to the General Corporation Law of the
State of Delaware (the “DGCL”). Summer is incorporated pursuant to the DGCL.
Bio-logic and Summer are the constituent corporations in the Merger.

 

SECOND: An Agreement and Plan of Merger has been approved, adopted, certified,
executed and acknowledged by Bio-logic and by Summer in accordance with the
provisions of subsection (c) of Section 251 of the Delaware General.

 

THIRD: The Surviving Corporation of the Merger shall be Bio-logic.

 

FOURTH: Upon the effectiveness of the Merger, the Restated Certificate of
Incorporation of Bio-logic, the Surviving Corporation, shall be amended and
restated to read in its entirety as set forth in Exhibit A attached hereto.

 

FIFTH: The Surviving Corporation is a corporation formed and existing under the
laws of the State of Delaware.

 

SIXTH: The executed Agreement and Plan of Merger is on file at the principal
place of business of Bio-logic, the Surviving Corporation, at One Bio-logic
Plaza, Mundelein, IL 60060.

 

SEVENTH: A copy of the executed Agreement and Plan of Merger will be furnished
by Bio-logic, the Surviving Corporation, on request and without cost, to any
stockholder of any constituent corporation of the Merger.

 

This Certificate of Merger shall become effective on
                                .

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IN WITNESS WHEREOF, Bio-logic has caused this Certificate of Merger to be
executed by its duly authorized officers as of                                 .

 

Bio-logic Systems Corp. By:     Name:     Its: