Exhibit 10.1
STOCK PURCHASE AGREEMENT
AMONG
ULTRALIFE BATTERIES, INC.
AND
INNOVATIVE SOLUTIONS CONSULTING, INC.,
MICHELE A. ALOISIO,
MARC DELAVERGNE,
THOMAS R. KNOWLTON,
KENNETH J. WOOD,
AND
W. MICHAEL COOPER
DATED AS OF SEPTEMBER 12, 2007

 

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TABLE OF CONTENTS

              Page
SECTION 1. DEFINITIONS
    1  
 
       
SECTION 2. PURCHASE AND SALE OF TARGET SHARES
    7  
(a) Basic Transaction
    7  
(b) Purchase Price; Allocation; Payment
    7  
(c) Closing
    10  
(d) Deliveries at Closing
    10  
(e) Closing Balance Sheet
    10  
(f) Dispute Mechanism for Certain Matters
    11  
 
       
SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES
    11  
(a) Sellers’ Representations and Warranties
    11  
(b) Buyer’s Representations and Warranties
    12  
 
       
SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES
    13  
(a) Organization, Qualification, and Corporate Power
    13  
(b) Capitalization
    13  
(c) Non-contravention
    14  
(d) Brokers’ Fees
    14  
(e) Title to Assets
    14  
(f) Subsidiaries
    14  
(g) Financial Statements
    14  
(h) Events Subsequent to Most Recent Fiscal Year End
    15  
(i) Undisclosed Liabilities
    17  
(j) Legal Compliance
    17  
(k) Tax Matters
    17  
(l) Real Property
    19  
(m) Intellectual Property
    22  
(n) Tangible Assets
    25  
(o) Inventory
    25  
(p) Contracts
    25  
(q) Notes and Accounts Receivable
    26  
(r) Powers of Attorney
    26  
(s) Insurance
    26  
(t) Litigation
    27  
(u) Product Warranty
    27  
(v) Product Liability
    27  
(w) Employees
    28  
(x) Employee Benefits
    28  
(y) Guaranties
    31  
(z) Environmental, Health, and Safety Matters
    31  
(aa) Systems Continuity
    32  
(bb) Certain Business Relationships with Target
    33  

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              Page
(cc) Customers and Suppliers
    33  
(dd) Disclosure
    33    
SECTION 5. PRE-CLOSING COVENANTS
    33  
(a) General
    33  
(b) Notices and Consents
    33  
(c) Operation of Business
    33  
(d) Preservation of Business
    34  
(e) Full Access
    34  
(f) Notice of Developments
    34  
(g) Exclusivity
    34  
(h) Maintenance of Real Property
    34  
(i) Leases
    34  
(j) Tax Matters
    34  
(k) S Corporation Status
    35  
 
       
SECTION 6. POST-CLOSING COVENANTS
    35  
(a) General
    35  
(b) Litigation Support
    35  
(c) Transition
    36  
(d) Confidentiality
    36  
(e) Termination of Aloisio Guarantees
    36  
(f) Release of Target by Sellers
    37  
 
       
SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE
    37  
(a) Conditions to Buyer’s Obligation
    37  
(b) Conditions to Sellers’ Obligation
    40  
 
       
SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT
    41  
(a) Survival of Representations and Warranties
    41  
(b) Indemnification Provisions for Buyer’s Benefit
    41  
(c) Indemnification Provisions for Sellers’ Benefit
    42  
(d) Matters Involving Third Parties
    42  
(e) Determination of Adverse Consequences
    43  
(f) Setoff against Holdback Payments; Priority
    43  
(g) Other Indemnification Provisions
    43  
SECTION 9. TAX MATTERS
    44  
(a) Tax Indemnification
    44  
(b) Responsibility for Filing Tax Returns
    44  
(c) Cooperation on Tax Matters
    44  
(d) Tax Sharing Agreements
    45  
(e) Certain Taxes and Fees
    45  
(f) Section 338(h)(10) Election
    45  
(g) Tax Adjustment
    46  

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              Page
SECTION 10. TERMINATION
    47  
(a) Termination of Agreement
    47  
(b) Effect of Termination
    47  
 
       
SECTION 11. MISCELLANEOUS
    47  
(a) Nature of Sellers’ Obligations
    47  
(b) Press Releases and Public Announcements
    48  
(c) No Third-Party Beneficiaries
    48  
(d) Entire Agreement
    48  
(e) Succession and Assignment
    48  
(f) Counterparts
    48  
(g) Headings
    48  
(h) Notices
    48  
(i) Governing Law
    49  
(j) Amendments and Waivers
    49  
(k) Severability
    50  
(l) Expenses
    50  
(m) Construction
    50  
(n) Incorporation of Exhibits, Annexes, and Schedules
    50  
(o) Specific Performance
    50  
(p) Submission to Jurisdiction
    51  
(q) Tax Disclosure Authorization
    51  
(r) Attorneys Fees
    51  

Attachments to Stock Purchase Agreement
Exhibit A: Target Financial Statements
Annex I: Exceptions to Sellers’ Representations and Warranties
Annex II: Exceptions to Buyer’s Representations and Warranties
Target Disclosure Schedule

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STOCK PURCHASE AGREEMENT
     This Stock Purchase Agreement (this “Agreement”) is entered into as of
September 12, 2007, by and among Ultralife Batteries, Inc., a Delaware
corporation (“Buyer”), and Innovative Solutions Consulting, Inc., a Maryland
corporation (“Target”), Michele A. Aloisio, Marc DeLaVergne, Thomas R. Knowlton,
Kenneth J. Wood, and W. Michael Cooper (each a “Seller” and collectively,
“Sellers”). Buyer, Target and Sellers are referred to collectively herein as the
“Parties.”
RECITALS
     A. The Sellers own all of the outstanding stock of Target as of the date of
this Agreement.
     B. This Agreement contemplates a transaction in which Buyer will purchase
from Sellers, and Sellers will sell to Buyer, all of the outstanding capital
stock of Target in return for cash.
     NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
SECTION 1. DEFINITIONS
     “Adverse Consequences” means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys’ fees and expenses.
     “Affiliate” means a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
     “Affiliated Group” means any affiliated group within the meaning of Code
Section 1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
     “Aloisio Guarantees” has the meaning set forth in Section 6(e) below.
     “Auditor” has the meaning set forth in Section 2(f) below.
     “Basis” means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
     “Buyer” has the meaning set forth in the preface above.
     “Closing” has the meaning set forth in Section 2(c) below.
     “Closing Balance Sheet” has the meaning set forth in Section 2(e) below.

 

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     “Closing Date” has the meaning set forth in Section 2(c) below.
     “Closing Payment” has the meaning set forth in Section 2(b) below.
     “COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA
and Code Section 4980B and of any similar state law.
     “Code” means the Internal Revenue Code of 1986, as amended.
     “Confidential Information” means any information concerning the businesses
and affairs of the Target that is not already generally available to the public.
     “Controlled Group” has the meaning set forth in Code Section 1563.
     “Disclosure Schedule” has the meaning set forth in Section 4 below.
     “Employee Benefit Plan” has the meaning set forth in Section 4(x) below.
     “Employee Pension Benefit Plan” has the meaning set forth in ERISA
Section 3(2).
     “Employee Welfare Benefit Plan” has the meaning set forth in ERISA
Section 3(1).
     “Encumbrance Documents” has the meaning set forth in Section 4(l) below.
     “Enforcement Costs” has the meaning set forth in Section 11(r) below.
     “Environmental, Health, and Safety Requirements” shall mean all federal,
state, local, and foreign statutes, regulations, ordinances, and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations, and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances, or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise, or radiation, each as amended and as
now or hereafter in effect.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.
     “ERISA Affiliate” means any Person that is a member of a “controlled group
of corporations” with, or is under “common control” with, or is a member of the
same “affiliated service group” with Target, as defined in Section 414 of the
Code.
     “Estoppel Certificates” has the meaning set forth in Section 7(a) below.
     “Fiduciary” has the meaning set forth in ERISA Section 3(21).
     “Financial Statements” has the meaning set forth in Section 4(g) below.

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     “First Holdback Excess Payment” has the meaning set forth in Section 2(b)
below.
     “First Holdback Payment” has the meaning set forth in Section 2(b) below.
     “First Measuring Period” has the meaning set forth in Section 2(b) below.
     “GAAP” means United States generally accepted accounting principles as in
effect from time to time, consistently applied.
     “Holdback Payments” has the meaning set forth in Section 2(b) below. For
the avoidance of doubt, the term “Holdback Payments” may include, as applicable,
the First Holdback Payment, the First Holdback Excess Payment, the Second
Holdback Payment and the Third Holdback Payment.
     “Improvements” has the meaning set forth in Section 4(l) below.
     “Indemnified Party” has the meaning set forth in Section 8(d) below.
     “Indemnifying Party” has the meaning set forth in Section 8(d) below.
     “Intellectual Property” means all of the following in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade
names, corporate names, Internet domain names, and rights in telephone numbers,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including source code, executable code, data,
databases, and related documentation), (g) all advertising and promotional
materials, (h) all other proprietary rights, and (i) all copies and tangible
embodiments thereof (in whatever form or medium).
     “Knowledge” means actual knowledge after reasonable investigation.
     “Lease Consents” has the meaning set forth in Section 7(a) below.
     “Leased Real Property” means all leasehold or subleasehold estates and
other rights to use or occupy any land, buildings, structures, improvements,
fixtures, or other interest in real property held by Target.
     “Leases” means all leases, subleases, licenses, concessions and other
agreements (written or oral), including all amendments, extensions, renewals,
guaranties, and other agreements with

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respect thereto, pursuant to which Target holds any Leased Real Property,
including the right to all security deposits and other amounts and instruments
deposited by or on behalf of Target thereunder.
     “Liability” means any liability or obligation of whatever kind or nature
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due), including any liability for Taxes.
     “Lien” means any mortgage, pledge, lien, encumbrance, charge, or other
security interest, other than (a) liens for Taxes not yet due and payable and
(b) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
     “Material Adverse Effect” or “Material Adverse Change” means any effect or
change that would be materially adverse to the business, assets, condition
(financial or otherwise), operating results, operations, or business prospects
of Target, taken as a whole, or on the ability of Sellers to consummate timely
the transactions contemplated hereby (regardless of whether or not such adverse
effect or change can be or has been cured at any time or whether Buyer has
knowledge of such effect or change on the date hereof).
     “Most Recent Balance Sheet” means the balance sheet contained within the
Most Recent Financial Statements.
     “Most Recent Financial Statements” has the meaning set forth in Section
4(g) below.
     “Most Recent Fiscal Month End” has the meaning set forth in Section 4(g)
below.
     “Most Recent Fiscal Year End” has the meaning set forth in Section 4(g)
below.
     “Multiemployer Plan” has the meaning set forth in ERISA Section 3(37).
     “Non-Disturbance Agreements” has the meaning set forth in Section 7(a)
below.
     “Ordinary Course of Business” means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
     “Party” has the meaning set forth in the preface above.
     “Permitted Encumbrances” means with respect to each parcel of Real
Property: (a) real estate taxes, assessments and other governmental levies,
fees, or charges imposed with respect to such Real Property that are (i) not due
and payable as of the Closing Date or (ii) that are being contested in good
faith and for which appropriate reserves have been established in accordance
with GAAP; (b) mechanics’ liens and similar liens for labor, materials, or
supplies provided with respect to such Real Property incurred in the Ordinary
Course of Business for amounts that are (i) not due and payable as of the
Closing Date or (ii) being contested in good faith and for which appropriate
reserves have been established in accordance with GAAP; (c) zoning, building
codes and other land use laws regulating the use or occupancy of such Real
Property or the activities conducted thereon which are imposed by any
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such Real Property and are not violated by the current use or occupancy of such
Real Property or the operation of Target’s business as currently conducted
thereon; and (d) easements, covenants, conditions, restrictions, and other
similar matters of record affecting title to such Real Property which do not or
would not impair the use or occupancy of such Real Property in the operation of
Target’s business as currently conducted thereon.
     “Person” means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, any other business entity, or a
governmental entity (or any department, agency, or political subdivision
thereof).
     “Prohibited Transaction” has the meaning set forth in ERISA Section 406 and
Code Section 4975.
     “Purchase Price” has the meaning set forth in Section 2(b) below.
     “Real Property” has the meaning set forth in Section 4(l) below.
     “Real Property Laws” has the meaning set forth in Section 4(l) below.
     “Released Parties” has the meaning set forth in Section 6(f) below.
     “Released Claims” has the meaning set forth in Section 6(f) below.
     “Reportable Event” has the meaning set forth in ERISA Section 4043.
     “Requisite Sellers” means Sellers holding a majority in interest of the
Target Shares as set forth in Section 4(b) of the Disclosure Schedule.
     “Re-Sale Transaction” has the meaning set forth in Section 2(b)(vi) below.
     “Sales” means revenues, determined in accordance with GAAP, that are
achieved by Target in the ordinary course of business.
     “Second Holdback Excess Payment” has the meaning set forth in Section 2(b)
below.
     “Second Holdback Payment” has the meaning set forth in Section 2(b) below.
     “Second Measuring Period” has the meaning set forth in Section 2(b) below.
     “Section 338(h)(10) Election” has the meaning set forth in Section 9(f)
below.
     “Section 338(h)(10) Election Liability” has the meaning set forth in
Section 9(g) below.
     “Securities Act” means the Securities Act of 1933, as amended.
     “Securities Exchange Act” means the Securities Exchange Act of 1934, as
amended.
     “Seller” and “Sellers” have the meanings set forth in the preface above.

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     “Subsidiary” means, with respect to any Person, any corporation, limited
liability company, partnership, association, or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers, or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association, or other business entity (other
than a corporation), a majority of partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof
and for this purpose, a Person or Persons own a majority ownership interest in
such a business entity (other than a corporation) if such Person or Persons
shall be allocated a majority of such business entity’s gains or losses or shall
be or control any managing director or general partner of such business entity
(other than a corporation). The term “Subsidiary” shall include all Subsidiaries
of such Subsidiary.
     “Systems” has the meaning set forth in Section 4(aa) below.
     “Target” has the meaning set forth in the preface above.
     “Target Share” means any share of the common stock, par value $0.10 per
share, of Target.
     “Tax” or “Taxes” means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not and including any
obligations to indemnify or otherwise assume or succeed to the Tax liability of
any other Person.
     “Tax Adjustment” has the meaning set forth in Section 9(g) below.
     “Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
     “Third Holdback Payment” has the meaning set forth in Section 2(b) below.
     “Third Measuring Period” has the meaning set forth in Section 2(b) below.
     “Third Party Claim” has the meaning set forth in Section 8(d) below.
     “Treasury Regulations” means the Treasury Regulations promulgated under the
Code.

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SECTION 2. PURCHASE AND SALE OF TARGET SHARES
     (a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, Buyer agrees to purchase from each Seller, and each Seller agrees to
sell to Buyer, all of his or her or its Target Shares for the consideration
specified below in this Section 2.
     (b) Purchase Price; Allocation; Payment. The aggregate consideration for
the Target Shares shall be up to $3,000,000, subject to adjustments after
Closing pursuant to Section 2(b)(iii) for accrued interest on Holdback Payments
(as so adjusted, the “Purchase Price”). The Purchase Price shall be allocated
among Sellers in proportion to their respective holdings of Target Shares as set
forth in Section 4(b) of the Disclosure Schedule. On the terms and subject to
the conditions set forth herein, Buyer shall pay the Purchase Price to Sellers
as follows:
          (i) At Closing, Buyer shall pay Sellers the aggregate amount of
$1,000,000 by wire transfer of immediately available funds into an account
designated by Sellers prior to the Closing Date (the “Closing Payment”). The
Closing Payment shall be made by a single wire transfer; it is the
responsibility of Sellers to distribute the Closing Payment amongst themselves.
          (ii) On the terms and subject to the conditions set forth below, Buyer
shall pay Sellers in up to three installments an additional aggregate amount of
up to, but in no event more than, $2,000,000 (the “Holdback Payments”), as
follows:
          (A) Buyer shall pay Sellers an amount (the “First Holdback Payment”)
equal to 20% of (1) Sales during the period commencing on the Closing Date and
ending on the last day of the fourth full fiscal quarter of Target following the
Closing Date (the “First Measuring Period”) less (2) $4,000,000. For the
purposes of example only, if the Closing Date is August 17, 2007, the First
Measuring Period would begin on August 17, 2007 and end at midnight on
September 30, 2008.
          (B) Buyer shall pay Sellers an amount (the “Second Holdback Payment”)
equal to 20% of (1) Sales during the 12-month period commencing on the first day
following the conclusion of the First Measuring Period (the “Second Measuring
Period”) less (2) $4,000,000.
          (C) Buyer shall pay Sellers an amount (the “Third Holdback Payment”)
equal to 20% of (1) Sales during the 12-month period commencing on the first day
following the conclusion of the Second Measuring Period (the “Third Measuring
Period”) less (2) $4,000,000.
          (D) If the First Holdback Payment yields an amount less than or equal
to $750,000, then Buyer shall pay Sellers such amount within 60 days of the
conclusion of the First Measuring Period. If the First Holdback Payment yields
an amount greater than $750,000, then Buyer shall pay Sellers $750,000 within
60 days of the conclusion of the First Measuring Period and the amount by which
the First Holdback Payment exceeds $750,000 (the “First Holdback Excess
Payment”) shall be paid to Sellers within 60 days of the conclusion of either
the Second Measuring Period or the Third Measuring Period, as described below.

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          (E) If the Second Holdback Payment plus the First Holdback Excess
Payment, if any, yields an amount less than or equal to $750,000, then Buyer
shall pay Sellers such amount within 60 days of the conclusion of the Second
Measuring Period. If the Second Holdback Payment plus the First Holdback Excess
Payment, if any, yields an amount greater than $750,000, then Buyer shall pay
Sellers $750,000 within 60 days of the conclusion of the Second Measuring
Period, and the amount by which the Second Holdback Payment and the First
Holdback Excess Payment together exceed $750,000 (the “Second Holdback Excess
Payment”) shall be paid to Sellers within 60 days of the conclusion of the Third
Measuring Period.
          (F) The Third Holdback Payment shall be paid (along with the Second
Holdback Excess Payment, if any) to Sellers within 60 days of the conclusion of
the Third Measuring Period.
          (G) The following is an illustration of the operation of
Section 2(b)(ii). For purposes of this illustration, it is assumed that Sales
during the First Measuring Period, the Second Measuring Period and the Third
Measuring Period were each $9,000,000. Since Sales during the First Measuring
Period were $9,000,000, the amount of the First Holdback Payment would be
$1,000,000 (i.e. 20% of the result of $9,000,000 minus $4,000,000), and Sellers
would receive $750,000 within 60 days of the conclusion of the First Measuring
Period. The First Holdback Excess Payment would be $250,000 and it would
rollover for payment within 60 days of the conclusion of the Third Measuring
Period (because the payments made for the Second Measuring Period would be in
excess of $750,000, as discussed in the next sentence). Since Sales during the
Second Measuring Period were also $9,000,000, the amount of the Second Holdback
Payment would also be $1,000,000. Accordingly, Sellers would receive $750,000
within 60 days of the conclusion of the Second Measuring Period, and the
remaining $250,000 attributable to the Second Measuring Period, along with the
First Holdback Excess Payment would rollover for payment within 60 days of the
conclusion of the Third Measuring Period. Since the combined amount of the First
Holdback Excess Payment and the remaining $250,000 attributable to the Second
Measuring Period would be $500,000, there cannot be a Third Holdback Payment, as
the upper limit of $2,000,000 on the aggregate amount of the Holdback Payments
would bar any additional payments. As a result, the $500,000 attributable to the
combination of the First Holdback Excess Payment and the remaining $250,000
attributable to the Second Measuring Period would be paid to Sellers within
60 days of the conclusion of the Third Measuring Period and there after Sellers
would not be entitled to any additional Holdback Payments. The foregoing assumes
that Buyer did not exercise its right of setoff under Section 8.
          (H) Each of the Holdback Payments shall be made by a single wire
transfer of immediately available funds into an account designated by Sellers
prior to the applicable payment deadline; it is the responsibility of Sellers to
distribute each Holdback Payment amongst themselves. Concurrently with the
payment of each of the Holdback Payments or the determination that a Holdback
Payment has not been achieved, Buyer shall provide Sellers with a notice that
substantiates in reasonable detail the basis for the Holdback Payment or the
determination that the Holdback Payment has not been achieved.

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          (iii) Buyer shall pay interest accrued at a rate of 5% per annum to
Sellers on the First Holdback Excess Payment and the Second Holdback Excess
Payment, in each case at the time such payments are made by Buyer to Sellers.
Interest on the First Holdback Excess Payment shall accrue from the 60th
calendar day after the conclusion of the First Measuring Period. Interest on the
Second Holdback Excess Payment shall accrue from the 60th calendar day after the
conclusion of the Second Measuring Period. Payments hereunder shall be applied
first to any interest due in respect of the First Holdback Excess Payment and
then any interest due in respect of the Second Holdback Excess Payment.
          (iv) EACH OF THE HOLDBACK PAYMENTS IS SUBJECT TO THE RIGHT OF SETOFF
IN FAVOR OF BUYER UNDER SECTION 8. NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, IN NO EVENT SHALL THE AGGREGATE AMOUNT OF THE HOLDBACK PAYMENTS
(EXCLUDING INTEREST UNDER SECTION 2(b)(iii)) EXCEED $2,000,000.
          (v) Following the Closing, until the expiration of the Third Measuring
Period:
          (A) Subject to Section 2(b)(vi), Buyer shall maintain the business of
Target as a separate, wholly-owned subsidiary of Buyer, and during such period
any transactions between Buyer and such subsidiary shall be on an arm’s length
basis or on terms that are more favorable to such subsidiary than terms
negotiated on an arm’s length basis, and during such period Buyer shall keep
separate accounting books and records for the business of Target; and
          (B) Subject to Section 2(b)(vi), Buyer shall operate the business of
Target in the ordinary course, exercising reasonable business judgment with
respect thereto, with due consideration given to the past practices of the
business of Target, and Buyer shall not take any actions that are manifestly
intended to deny Sellers the opportunity to receive Holdback Payments. In
addition, Buyer shall have the right to permanently discontinue and terminate
the business of Target if Buyer determines after the exercise of reasonable
business judgment that such actions are in its best interests and provided
further that such actions are not taken with the manifest intent to deny Sellers
the opportunity to receive Holdback Payments.
          (vi) Following the Closing, notwithstanding the terms of
Section 2(b)(v), Buyer shall have the right to sell the business of Target to a
third-party in a bona fide arm’s length transaction during any period in which
the possibility remains under the terms of Section 2(b)(ii) that Sellers can
receive Holdback Payments (a “Re-Sale Transaction”). For purposes of
Section 2(b)(vi), a Re-Sale Transaction shall consist of a sale of substantially
all of the assets of the business of Target, as the same existed on the Closing
Date, a sale of more than 50% of the Target Shares, or any other transaction
that would have the effect of conveying substantially all of the business of
Target, as the same existed on the Closing Date, to a third-party who is not an
Affiliate of Buyer or Sellers, in each case during, and only during, any period
in which the possibility remains under the terms of Section 2(b)(ii) that
Sellers can receive Holdback Payments. In any such Re-Sale Transaction (provided
the possibility remains under the terms of Section 2(b)(ii) that Sellers can
receive Holdback Payments):

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          (A) If the net proceeds received by Buyer on account of the Re-Sale
Transaction are less than or equal to $1,000,000, then Sellers shall be entitled
to retain any Holdback Payments already paid to Sellers and shall be entitled to
receive either the First Holdback Excess Payment or the Second Holdback Excess
Payment or both of them, provided in each case that such payment or payments
have already been earned in accordance with the terms of Section 2(b)(ii), but
Sellers shall not be entitled to any additional Holdback Payments and their
rights with respect thereto under this Agreement and otherwise shall be
extinguished and Sellers shall have no further rights to pursue Buyer, the
purchaser in the Re-Sale Transaction or any Affiliate of such parties for any
additional consideration; or
          (B) If the net proceeds received by Buyer on account of the Re-Sale
Transaction are greater than $1,000,000, then following the closing of such
Re-Sale Transaction Sellers shall be entitled to a amount equal to 50% of the
amount by which such net proceeds exceed $1,000,000, up to a maximum amount of
$2,000,000, and less the aggregate amount of any Holdback Payments paid to
Sellers or earned and due to be paid to Sellers in accordance with the terms of
Section 2(b)(ii). Thereafter, Sellers shall not be entitled to any additional
Holdback Payments and their rights with respect thereto under this Agreement
shall be extinguished and Sellers shall have no further rights to pursue Buyer,
the purchaser in the Re-Sale Transaction or any Affiliate of such parties for
any additional consideration. For illustrative purposes, assuming Sellers had
received a First Holdback Payment of $750,000 but had not earned any additional
Holdback Payments and further assuming that a hypothetical Re-Sale Transaction
yielded net proceeds to Buyer of $6,000,000, the amount due to Sellers in
respect thereof would be calculated by: subtracting $1,000,000 from $6,000,000
to yield $5,000,000; multiplying the result of $5,000,000 by 0.5 to yield
$2,500,000; applying the $2,000,000 limitation to yield $2,000,000; and
subtracting from $2,000,000 the First Holdback Payment of $750,000 to yield an
aggregate amount due to Sellers of $1,250,000.
     (c) Closing. The closing of the transactions contemplated by this Agreement
(the “Closing”) shall take place at the offices of Harter Secrest & Emery LLP,
in Rochester, New York, commencing at 10:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other place (including remotely, via electronic
means), time and date as Buyer and Requisite Sellers may mutually determine (the
“Closing Date”); provided, however, that the Closing Date shall be no later than
September 12, 2007.
     (d) Deliveries at Closing. At the Closing, (i) Sellers will deliver to
Buyer the various certificates, instruments, and documents referred to in
Section 7(a) below, (ii) Buyer will deliver to Sellers the various certificates,
instruments, and documents referred to in Section 7(b) below, (iii) each Seller
will deliver to Buyer stock certificates representing all of his or its Target
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) Buyer will deliver to Sellers the consideration specified in Section
2(b) above.
     (e) Closing Balance Sheet. Within 45 days following Closing, Buyer will
prepare a closing balance sheet (the “Closing Balance Sheet”) and deliver the
same to Sellers. Buyer will

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cause the Closing Balance Sheet to be derived from the books and records of
Target, and to present fairly the assets and liabilities of Target as of the
Closing Date, in accordance with GAAP.
     (f) Dispute Mechanism for Certain Matters. In the event that another
provision of this Agreement refers to this section for a dispute process, then
in connection with such calculation, accounting treatment or other matter, then
either party may submit such dispute, or the resolution of only such item or
items thereof as are in dispute, to BDO Seidman LLP (the “Auditor”) for
computation, verification or resolution in accordance with the provisions of
this Agreement. Buyer and Sellers shall make readily available to the Auditor
all relevant books and records (including work papers of a party’s independent
public accountants) as the Auditor reasonably requests. The Auditor’s
computation or verification of the account, calculation or item or resolution of
such disputed item or items thereof (as the case may be), which Buyer and
Sellers will instruct the Auditor to deliver to them within 30 days after
submission to the Auditor, will be final and binding upon the parties for all
purposes relating to this Section 2(f), and the Auditor’ fees and expenses
therefor will be borne by the non-prevailing party or, in the event that each
party prevails on some of the issues in dispute, will be shared proportionately,
as determined by the Auditor.
SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES
     (a) Sellers’ Representations and Warranties. Each Seller represents and
warrants to Buyer that the statements contained in this Section 3(a) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(a)) with
respect to himself or itself, except as set forth in Annex I attached hereto.
          (i) Organization of Certain Sellers. Seller (if a corporation or other
entity) is duly organized, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation or other formation.
          (ii) Authorization of Transaction. Seller has full power and authority
(including full corporate or other entity power and authority) to execute and
deliver this Agreement and to perform his, her, or its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of Seller,
enforceable in accordance with its terms and conditions. Seller need not give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement. The execution, delivery, and
performance of this Agreement and all other agreements contemplated hereby have
been duly authorized by Seller.
          (iii) Non-contravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (A) to the Knowledge of Sellers violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which Seller is
subject or, if Seller is an entity, any provision of its charter, bylaws, or
other governing documents, (B) conflict with, result in a breach of, constitute
a default under,

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result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which Seller is a
party or by which he or it is bound or to which any of his or its assets is
subject, that individually or in the aggregate could reasonably be expected to
have a Material Adverse Effect on Target’s business or financial condition, or
(C) result in the imposition or creation of a Lien upon or with respect to the
Target Shares.
          (iv) Brokers’ Fees. Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
          (v) Target Shares. Seller holds of record and owns beneficially the
number of Target Shares set forth next to his or its name in Section 4(b) of the
Disclosure Schedule, free and clear of any restrictions on transfer (other than
any restrictions under the Securities Act and state securities laws), Taxes,
Liens, options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. Seller is not a party to any option, warrant, purchase
right, or other contract or commitment that could require Seller to sell,
transfer, or otherwise dispose of any capital stock of Target (other than this
Agreement). Seller is not a party to any voting trust, proxy, or other agreement
or understanding with respect to the voting of any capital stock of Target.
     (b) Buyer’s Representations and Warranties. Buyer represents and warrants
to Sellers that the statements contained in this Section 3(b) are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(b)), except
as set forth in Annex II attached hereto.
          (i) Organization of Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
          (ii) Authorization of Transaction. Buyer has full power and authority
(including full corporate or other entity power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of Buyer, enforceable in
accordance with its terms and conditions. Buyer need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement. The execution, delivery, and performance of this
Agreement and all other agreements contemplated hereby have been duly authorized
by Buyer.
          (iii) Non-contravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Buyer is subject or any provision of its
charter, bylaws, or other governing documents or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract,

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lease, license, instrument, or other arrangement to which Buyer is a party or by
which it is bound or to which any of its assets is subject.
          (iv) Brokers’ Fees. Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could become
liable or obligated.
          (v) Investment. Buyer is not acquiring the Target Shares with a view
to or for sale in connection with any distribution thereof within the meaning of
the Securities Act.
          (vi) Financial Ability. Buyer presently maintains the financial
ability to consummate the transactions contemplated by this Agreement and meet
its financial obligations hereunder and, to the extent Buyer deems necessary,
has obtained a commitment from a lender of Buyer’s choice to provide the
financing described in Section 7(a)(viii).
SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES
     Sellers jointly and severally represent and warrant to Buyer that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 4), except as set forth in the disclosure
schedule delivered by Sellers to Buyer on the date hereof and initialed by the
Parties (the “Disclosure Schedule”). Nothing in the Disclosure Schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other item itself).
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
     (a) Organization, Qualification, and Corporate Power. Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland. Target is duly authorized to conduct business and
is in good standing under the laws of each jurisdiction where such qualification
is required. Target has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Sellers have
delivered to Buyer correct and complete copies of the charter and bylaws of
Target (as amended to date). The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record books of
Target are correct and complete. Target is not in default under or in violation
of any provision of its charter or bylaws.
     (b) Capitalization. The entire authorized capital stock of Target consists
of 1,000,000 Target Shares, of which 11,265.676 Target Shares are issued and
outstanding and no Target Shares are held in treasury. All of the issued and
outstanding Target Shares have been

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duly authorized, are validly issued, fully paid, and non-assessable, and are
held of record by the respective Sellers as set forth in Section 4(b) of the
Disclosure Schedule. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require Target to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation rights, phantom stock, profit
participation, or similar rights with respect to Target. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of Target.
     (c) Non-contravention. Except as set forth on Section 4(c) of the
Disclosure Schedule, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) to the
Knowledge of Sellers violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Lien upon any of
its assets). Target does not need to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
     (d) Brokers’ Fees. Target has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
     (e) Title to Assets. Except as set forth on Section 4(e) of the Disclosure
Schedule, Target has good and marketable title to, or a valid leasehold interest
in, the properties and assets used by Target, located on its premises, or shown
on the Most Recent Balance Sheet or acquired after the date thereof, free and
clear of all Liens, except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet.
     (f) Subsidiaries. Target has no Subsidiaries.
     (g) Financial Statements. Attached hereto as Exhibit A are the following
financial statements (collectively the “Financial Statements”): (i) an unaudited
balance sheet and statements of income, changes in stockholders’ equity, and
cash flow as of and for the fiscal year ended December 31, 2006 (the “Most
Recent Fiscal Year End”) for Target; and (ii) an unaudited balance sheet and
statements of income, changes in stockholders’ equity, and cash flow (the “Most
Recent Financial Statements”) as of and for the six months ended June 30, 2007
(the “Most Recent Fiscal Month End”) for Target. Except as set forth on Section
4(g) of the Disclosure Schedule, the Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of Target as of such dates and the results of operations of Target for
such periods, are correct and complete, and are consistent with the books and
records of Target (which books and records are correct and complete); provided,
however, that the Most

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Recent Financial Statements are subject to normal year-end adjustments (which
will not be material individually or in the aggregate) and lack footnotes and
other presentation items.
     (h) Events Subsequent to Most Recent Fiscal Year End. Except as set forth
on Section 4(h) of the Disclosure Schedule, since the Most Recent Fiscal Year
End, there has not been any Material Adverse Change. Without limiting the
generality of the foregoing, since that date:
          (i) Target has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
          (ii) Target has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
either involving more than $10,000 or outside the Ordinary Course of Business;
          (iii) no party (including Target) has accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than $10,000
to which Target is a party or by which Target is bound;
          (iv) Target has not imposed any Liens upon any of its assets, tangible
or intangible;
          (v) Except as set forth on Section 4(h)(v) of the Disclosure Schedule,
Target has not made any capital expenditure (or series of related capital
expenditures) either involving more than $10,000 or outside the Ordinary Course
of Business;
          (vi) Target has not made any capital investment in, any loan to, or
any acquisition of the securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions) either involving more than
$10,000 or outside the Ordinary Course of Business;
          (vii) Except as set forth on Section 4(h)(vii) of the Disclosure
Schedule, Target has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for borrowed money or
capitalized lease obligation either involving more than $5,000 singly or $10,000
in the aggregate;
          (viii) Target has not delayed or postponed the payment of accounts
payable and other Liabilities outside the Ordinary Course of Business;
          (ix) Target has not cancelled, compromised, waived, or released any
right or claim (or series of related rights and claims) either involving more
than $10,000 or outside the Ordinary Course of Business;
          (x) Except as set forth on Section 4(h)(x) of the Disclosure Schedule,
Target has not transferred, assigned, or granted any license or sublicense of
any rights under or with respect to any Intellectual Property;

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          (xi) there has been no change made or authorized in the charter or
bylaws of Target;
          (xii) Except as set forth on Section 4(h)(xii) of the Disclosure
Schedule, Target has not issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to purchase or
obtain (including upon conversion, exchange, or exercise) any of its capital
stock;
          (xiii) Target has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
          (xiv) Target has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property, except for normal wear
and tear due to ordinary use;
          (xv) Target has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
          (xvi) Target has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
          (xvii) Target has not granted any increase in the base compensation of
any of its directors, officers, and employees outside the Ordinary Course of
Business;
          (xviii) Target has not adopted, amended, modified, or terminated any
bonus, profit sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan);
          (xix) Target has not made any other change in employment terms for any
of its directors, officers, and employees outside the Ordinary Course of
Business;
          (xx) Target has not made or pledged to make any charitable or other
capital contribution outside the Ordinary Course of Business;
          (xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving Target;
          (xxii) Target has not discharged a material Liability or Lien outside
the Ordinary Course of Business;
          (xxiii) Target has not made any loans or advances of money;
          (xxiv) Target has not disclosed any Confidential Information outside
the Ordinary Course of Business, and all disclosures of Confidential Information
made within the Ordinary Course of Business were subject to not less than a
reasonable level of customary legal

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protection for disclosures of the type in light of the circumstances surrounding
such disclosures; and
          (xxv) Target has not committed to any of the foregoing.
     (i) Undisclosed Liabilities. Target has no Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Most Recent
Balance Sheet and (ii) Liabilities which have arisen after the Most Recent
Fiscal Month End in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
     (j) Legal Compliance. Target and its predecessors and Affiliates, if any,
have complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder
and including the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq.) of
federal, state, local, and foreign governments (and all agencies thereof) except
for any non-compliance that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect on Target’s business or
financial condition, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
     (k) Tax Matters.
          (i) Target (and any predecessor of Target) has been a validly electing
S corporation within the meaning of Code Section 1361 and Section 1362 at all
times during its existence and Target will be an S corporation up to and
including the Closing Date.
          (ii) Target has no potential liability for any Tax under Code
Section 1374. Target has not, in the past 10 years, (A) acquired assets from
another corporation in a transaction in which Target’s Tax basis for the
acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the
transferor or (B) acquired the stock of any corporation that is a qualified
subchapter S subsidiary.
          (iii) Target has filed all Tax Returns that it was required to file
under applicable laws and regulations. All such Tax Returns were correct and
complete in all respects and have been prepared in substantial compliance with
all applicable laws and regulations. All Taxes due and owing by Target (whether
or not shown on any Tax Return) have been paid. Target currently is not the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where Target does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Liens for Taxes (other than Taxes not yet due and payable) upon any
of the assets of Target.
          (iv) Target has withheld and paid all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.

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          (v) No Seller or director or officer (or employee responsible for Tax
matters) of Target expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. No foreign, federal, state, or
local tax audits or administrative or judicial Tax proceedings are pending or
being conducted with respect to Target. Target has not received from any
foreign, federal, state, or local taxing authority (including jurisdictions
where Target has not filed Tax Returns) any (i) notice indicating an intent to
open an audit or other review, (ii) request for information related to Tax
matters, or (iii) notice of deficiency or proposed adjustment for any amount of
Tax proposed, asserted, or assessed by any taxing authority against Target;
Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to Target for taxable periods ended on or after
December 31, 2003, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. Sellers
have delivered to Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by Target filed or received since December 31, 2003.
          (vi) Target has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
          (vii) Target is not a party to any agreement, contract, arrangement or
plan that has resulted or would result, separately or in the aggregate, in the
payment of (i) any “excess parachute payment” within the meaning of Code
Section 280G (or any corresponding provision of state, local or foreign Tax law)
and (ii) any amount that will not be fully deductible as a result of Code 162(m)
(or any corresponding provision of state, local or foreign Tax law). Target has
not been a United States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified in Code
Section 897(c)(1)(A)(ii). Target has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section 6662. Target is not a
party to or bound by any Tax allocation or sharing agreement. Target (A) has not
been a member of an Affiliated Group filing a consolidated federal income Tax
Return (other than a group the common parent of which was Target) or (B) has no
Liability for the Taxes of any Person (other than Target) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
          (viii) The unpaid Taxes of Target (A) did not, as of the Most Recent
Fiscal Month End, exceed the reserve for Tax Liability (rather than any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of the Most Recent Balance Sheet (rather than
in any notes thereto) and (B) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of Target in filing their Tax Returns. Since the date of the Most
Recent Balance Sheet, Target has not incurred any liability for Taxes arising
from extraordinary gains or losses, as that term is used in GAAP, outside the
Ordinary Course of Business consistent with past custom and practice.
          (ix) Target will not 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 Closing Date as a result of any: (A) change in
method of accounting for a taxable period ending on or prior to the Closing
Date; (B) “closing agreement” as described in Code Section

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7121 (or any corresponding or similar provision of state, local or foreign
income Tax law) executed on or prior to the Closing Date; (C) intercompany
transactions or any excess loss account described in Treasury Regulations under
Code Section 1502 (or any corresponding or similar provision of state, local or
foreign income Tax law); (D) installment sale or open transaction disposition
made on or prior to the Closing Date; or (E) prepaid amount received on or prior
to the Closing Date.
          (x) Target has not distributed stock of another Person, or has had its
stock distributed by another Person, in a transaction that was purported or
intended to be governed in whole or in part by Code Section 355 or Section 361.
          (xi) Target has not, since October 3, 2004, (A) granted to any person
an interest in a nonqualified deferred compensation plan (as defined in Code
Section 409A) which interest has been or, upon the lapse of a substantial risk
of forfeiture with respect to such interest, will be subject to the Tax imposed
by Code Section 409A, or (B) modified the terms of any nonqualified deferred
compensation plan in a manner that could cause an interest previously granted
under such plan to become subject to the Tax imposed by Code Section 409A. No
person has a right to be indemnified by Target for any Tax imposed by Code
Section 409A.
     (l) Real Property.
          (i) Target does not own any Real Property.
          (ii) Section 4(l)(ii) of the Disclosure Schedule sets forth the
address of each parcel of Leased Real Property, and a true and complete list of
all Leases for each such Leased Real Property (including the date and name of
the parties to such Lease document). Target has delivered to Buyer a true and
complete copy of each such Lease document, and in the case of any oral Lease, a
written summary of the material terms of such Lease. Except as set forth in
Section 4(l)(ii) of the Disclosure Schedule, with respect to each of the Leases:
          (A) such Lease is legal, valid, binding, enforceable and in full force
and effect;
          (B) the transaction contemplated by this Agreement does not require
the consent of any other party to such Lease (except for those Leases for which
Lease Consents (as hereinafter defined) are obtained), will not result in a
breach of or default under such Lease that individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect on Target’s
business or financial condition, and will not otherwise cause such Lease to
cease to be legal, valid, binding, enforceable and in full force and effect on
identical terms following the Closing;
          (C) Target’s possession and quiet enjoyment of the Leased Real
Property under such Lease has not been disturbed and there are no disputes with
respect to such Lease;
          (D) neither Target nor any other party to the Lease is in breach or
default under such Lease, and no event has occurred or circumstance exists
which, with

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the delivery of notice, the passage of time or both, would constitute such a
breach or default, or permit the termination, modification or acceleration of
rent under such Lease;
          (E) no security deposit or portion thereof deposited with respect to
such Lease has been applied in respect of a breach or default under such Lease
which has not been redeposited in full;
          (F) Target neither owes or will owe in the future any brokerage
commissions or finder’s fees with respect to such Lease;
          (G) the other party to such Lease is not an Affiliate of, and
otherwise does not have any economic interest in, Target;
          (H) Target has not subleased, licensed or otherwise granted any Person
the right to use or occupy such Leased Real Property or any portion thereof;
          (I) Target has not collaterally assigned or granted any other Lien in
such Lease or any interest therein; and
          (J) there are no Liens on the estate or interest created by such
Lease.
          (iii) The Leased Real Property identified in Section 4(l)(ii) of the
Disclosure Schedule (collectively, the “Real Property”), comprises all of the
real property used or intended to be used in, or otherwise related to, Target’s
business; and Target is not a party to any agreement or option to purchase any
real property or interest therein.
          (iv) All buildings, structures, fixtures, building systems and
equipment, and all components thereof, including the roof, foundation,
load-bearing walls and other structural elements thereof, heating, ventilation,
air conditioning, mechanical, electrical, plumbing and other building systems,
environmental control, remediation and abatement systems, sewer, storm and waste
water systems, irrigation and other water distribution systems, parking
facilities, fire protection, security and surveillance systems, and
telecommunications, computer, wiring and cable installations, included in the
Real Property (the “Improvements”) are in good condition and repair (except for
ordinary wear and tear) and sufficient for the operation of Target’s business.
There are no structural deficiencies or latent defects affecting any of the
Improvements and there are no facts or conditions affecting any of the
Improvements which would, individually or in the aggregate, interfere in any
respect with the use or occupancy of the Improvements or any portion thereof in
the operation of Target’s business as currently conducted thereon.
          (v) There is no condemnation, expropriation or other proceeding in
eminent domain, pending or, to the Knowledge of Sellers, threatened, affecting
any parcel of Real Property or any portion thereof or interest therein. There is
no injunction, decree, order, writ or judgment outstanding, nor any claims,
litigation, administrative actions or similar proceedings, pending or
threatened, relating to the ownership, lease, use or occupancy of the Real
Property or any portion thereof, or the operation of Target’s business as
currently conducted thereon.
          (vi) The Real Property is in compliance with all applicable building,
zoning, subdivision, health and safety and other land use laws, including the
Americans with Disabilities

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Act of 1990, as amended, and all insurance requirements affecting the Real
Property (collectively, the “Real Property Laws”), and the current use and
occupancy of the Real Property and operation of Target’s business thereon does
not violate any Real Property Laws. Target has not received any notice of
violation of any Real Property Law and there is no basis for the issuance of any
such notice or the taking of any action for such violation. There is no pending
or anticipated change in any Real Property Law that will materially impair the
ownership, lease, use or occupancy of any Real Property or any portion thereof
in the continued operation of Target’s business as currently conducted thereon.
          (vii) Each parcel of Real Property has direct vehicular and pedestrian
access to a public street adjoining the Real Property, or to the Knowledge of
Sellers has vehicular and pedestrian access to a public street via an insurable,
permanent, irrevocable and appurtenant easement benefiting such parcel of Real
Property, and to the Knowledge of Sellers such access is not dependent on any
land or other real property interest which is not included in the Real Property.
None of the Improvements or any portion thereof is dependent for its access, use
or operation on any land, building, improvement or other real property interest
which is not included in the Real Property.
          (viii) All water, oil, gas, electrical, steam, compressed air,
telecommunications, sewer, storm and waste water systems and other utility
services or systems for the Real Property have been installed and are
operational and sufficient for the operation of Target’s business as currently
conducted thereon. Each such utility service enters the Real Property from an
adjoining public street or valid private easement in favor of the supplier of
such utility service or appurtenant to such Real Property, and is not dependent
for its access, use or operation on any land, building, improvement or other
real property interest which is not included in the Real Property.
          (ix) All certificates of occupancy, permits, licenses, franchises,
approvals and authorizations (collectively, the “Real Property Permits”) of all
governmental authorities, boards of fire underwriters, associations or any other
entity having jurisdiction over the Real Property which are required or
appropriate to use or occupy the Real Property or operate Target’s business as
currently conducted thereon, have been issued and are in full force and effect.
Section 4(l)(ix) of the Disclosure Schedule lists all material Real Property
Permits held by Target with respect to each parcel of Real Property. Target has
delivered to Buyer a true and complete copy of all Real Property Permits. Target
has not received any notice from any governmental authority or other entity
having jurisdiction over the Real Property threatening a suspension, revocation,
modification or cancellation of any Real Property Permit and there is no basis
for the issuance of any such notice or the taking of any such action. The Real
Property Permits are transferable to Buyer without the consent or approval of
the issuing governmental authority or entity, no disclosure, filing or other
action by Target is required in connection with such transfer, and Buyer shall
not be required to assume any additional liabilities or obligations under the
Real Property Permits as a result of such transfer.
          (x) To the Knowledge of Sellers, the classification of each parcel of
Real Property under applicable zoning laws, ordinances and regulations permits
the use and occupancy of such parcel and the operation of Target’s business as
currently conducted thereon, and permits the Improvements located thereon as
currently constructed, used and occupied.

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There are sufficient parking spaces, loading docks and other facilities at such
parcel to comply with such zoning laws, ordinances and regulations. Target’s use
or occupancy of the Real Property or any portion thereof or the operation of
Target’s business as currently conducted thereon is not dependent on a
“permitted non-conforming use” or “permitted non-conforming structure” or
similar variance, exemption or approval from any governmental authority.
          (xi) To the Knowledge of Sellers, the current use and occupancy of the
Real Property and the operation of Target’s business as currently conducted
thereon does not violate any easement, covenant, condition, restriction or
similar provision in any instrument of record or other unrecorded agreement
affecting such Real Property (the “Encumbrance Documents”). Neither Sellers nor
Target has received any notice of violation of any Encumbrance Documents, and
there is no basis for the issuance of any such notice or the taking of any
action for such violation.
          (xii) To the Knowledge of Sellers, none of the Improvements encroach
on any land which is not included in the Real Property or on any easement
affecting such Real Property, or violate any building lines or set-back lines,
and there are no encroachments onto any of the Real Property, or any portion
thereof, which encroachment would interfere with the use or occupancy of such
Real Property or the continued operation of Target’s business as currently
conducted thereon.
          (xiii) To the Knowledge of Sellers, each parcel of Real Property is a
separate lot for real estate tax and assessment purposes, and no other real
property is included in such tax parcel. There are no Taxes, assessments, fees,
charges or similar costs or expenses imposed by any governmental authority,
association or other entity having jurisdiction over the Real Property
(collectively, the “Real Estate Impositions”) with respect to any Real Property
or portion thereof which are delinquent. There is no pending or threatened
increase or special assessment or reassessment of any Real Estate Impositions
for such parcel.
          (xiv) None of the Real Property or any portion thereof is located in a
flood hazard area (as defined by the Federal Emergency Management Agency).
     (m) Intellectual Property.
          (i) Target owns and possesses or has the right to use pursuant to a
valid and enforceable, written license, sublicense, agreement, or permission all
Intellectual Property used in the operation of the businesses of Target as
presently conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available for use by
Target on identical terms and conditions immediately subsequent to the Closing
hereunder. Target has taken the actions described on Section 4(m)(i) of the
Disclosure Schedule to maintain and protect each item of Intellectual Property
that Target owns or uses.
          (ii) Except as set forth on Section 4(m)(ii) of the Disclosure
Schedule, Target has not received notice that it has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of Sellers and the directors and
officers (and employees with responsibility for Intellectual Property matters)
of Target have ever received any charge, complaint, claim, demand, or notice
alleging any such

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interference, infringement, misappropriation, or violation (including any claim
that Target must license or refrain from using any Intellectual Property rights
of any third party). To the Knowledge of any of Sellers and the directors and
officers (and employees with responsibility for Intellectual Property matters)
of Target, no third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of Target.
          (iii) Section 4(m)(iii) of the Disclosure Schedule identifies each
patent or registration that has been issued to Target with respect to any of its
Intellectual Property, identifies each pending patent application or application
for registration which Target has made with respect to any of its Intellectual
Property, and identifies each license, sublicense, agreement, or other
permission which Target has granted to any third party with respect to any of
its Intellectual Property (together with any exceptions). Sellers have delivered
to Buyer correct and complete copies of all such patents, registrations,
applications, licenses, sublicenses, agreements, and permissions (as amended to
date). Section 4(m)(iii) of the Disclosure Schedule also identifies each
material unregistered trademark, service mark, trade name, corporate name or
Internet domain name, computer software item (other than commercially available
off-the-shelf software purchased or licensed for less than a total cost of
$1,000 in the aggregate) and each material unregistered copyright used by Target
in connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section 4(m)(iii) of the
Disclosure Schedule:
          (A) Target owns and possesses all right, title, and interest in and to
the item, free and clear of any Lien, license, or other restriction or
limitation regarding use or disclosure;
          (B) the item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
          (C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any of Sellers
and the directors and officers (and employees with responsibility for
Intellectual Property matters) of Target, is threatened which challenges the
legality, validity, enforceability, use, or ownership of the item, and there are
no grounds for the same;
          (D) Target has never agreed to indemnify any Person for or against any
interference, infringement, misappropriation, or other conflict with respect to
the item; and
          (E) no loss or expiration of the item is threatened, pending, or
reasonably foreseeable, except for patents expiring at the end of their
statutory terms (and not as a result of any act or omission by Sellers or
Target, including without limitation, a failure by Sellers or Target to pay any
required maintenance fees).
          (iv) Section 4(m)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that Target uses pursuant
to license, sublicense, agreement, or permission. The Sellers have delivered to
Buyer correct and complete copies of all such licenses, sublicenses, agreements,
and permissions (as amended to date). With

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respect to each item of Intellectual Property required to be identified in
Section 4(m)(iv) of the Disclosure Schedule:
          (A) the license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force and effect;
          (B) the license, sublicense, agreement, or permission will continue to
be legal, valid, binding, enforceable, and in full force and effect on identical
terms following consummation of the transaction contemplated hereby;
          (C) no party to the license, sublicense, agreement, or permission is
in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination, modification,
or acceleration thereunder;
          (D) no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof;
          (E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and correct
with respect to the underlying license;
          (F) the underlying item of Intellectual Property is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
          (G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any of Sellers
and the directors and officers (and employees with responsibility for
Intellectual Property matters) of Target, is threatened that challenges the
legality, validity, or enforceability of the underlying item of Intellectual
Property, and there are no grounds for the same; and
          (H) Target has not granted any sublicense or similar right with
respect to the license, sublicense, agreement, or permission.
          (v) To the Knowledge of any of Sellers and the directors and officers
(and employees with responsibility for Intellectual Property matters) of Target:
(A) Target has not in the past nor will interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual Property
rights of third parties as a result of the continued operation of its businesses
as presently conducted; (B) there are no facts that indicate a likelihood of any
of the foregoing; and (C) no notices regarding any of the foregoing (including,
without limitation, any demands or offers to license any Intellectual Property
from any third party) have been received.
          (vi) Sellers have taken all necessary and desirable action to maintain
and protect all of the Intellectual Property of Target and will continue to
maintain and protect all of the Intellectual Property of Target prior to Closing
so as not to adversely affect the validity or enforceability thereof. To the
Knowledge of any of Sellers, the owners of any of the Intellectual Property
licensed to Target have taken all necessary and desirable action to maintain and
protect the Intellectual Property covered by such license.

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          (vii) Sellers have complied in all material respects with and are
presently in compliance in all material respects with all foreign, federal,
state, local, governmental (including, but not limited to, the Federal Trade
Commission and State Attorneys General), administrative or regulatory laws,
regulations, guidelines and rules applicable to any Intellectual Property and
Sellers shall take all steps necessary to ensure such compliance until Closing.
     (n) Tangible Assets. Target owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of their
businesses as presently conducted. Each such tangible asset is free from defects
(patent and latent), has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used.
     (o) Inventory. The inventory of Target consists of raw materials and
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet (rather than in notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of Target.
     (p) Contracts. Section 4(p) of the Disclosure Schedule lists the following
contracts and other agreements to which Target is a party:
          (i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person regardless of amount;
          (ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of which
will extend over a period of more than one year, result in a loss to Target, or
involve consideration in excess of $10,000;
          (iii) any agreement concerning a partnership or joint venture;
          (iv) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation;
          (v) any agreement concerning confidentiality or non-competition;
          (vi) any agreement with any of Sellers and their Affiliates (other
than Target);
          (vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers, and employees;
          (viii) any collective bargaining agreement;

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          (ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $10,000 or providing severance benefits;
          (x) any agreement under which it has advanced or loaned any amount to
any of its directors, officers, and employees outside the Ordinary Course of
Business;
          (xi) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect;
          (xii) any agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
          (xiii) any agreement under which Target has advanced or loaned any
other Person any amounts; or
          (xiv) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
Sellers have delivered to Buyer a correct and complete copy of each written
agreement (as amended to date) listed in Section 4(p) of the Disclosure Schedule
and a written summary setting forth the terms and conditions of each oral
agreement referred to in Section 4(p) of the Disclosure Schedule. With respect
to each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transaction contemplated hereby; (C) no party
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination, modification,
or acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement.
     (q) Notes and Accounts Receivable. Except as set forth on Section 4(q) of
the Disclosure Schedule, all notes and accounts receivable of Target are
reflected properly on their books and records, are valid receivables subject to
no setoffs or counterclaims, are current and collectible, and will be collected
in accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of Target.
     (r) Powers of Attorney. Except as set forth on Section 4(r) of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of Target.
     (s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers’ compensation coverage and
bond and surety arrangements) to which Target has been a party, a named insured,
or otherwise the beneficiary of coverage at any time within the past 10 years:
          (i) the name, address, and telephone number of the agent;

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          (ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
          (iii) the policy number and the period of coverage;
          (iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a description
of how deductibles and ceilings are calculated and operate) of coverage; and
          (v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transaction contemplated
hereby; (C) neither Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. Target has been covered during the past 10 years by
insurance in scope and amount customary and reasonable for the businesses in
which they have engaged during the aforementioned period. Section 4(s) of the
Disclosure Schedule describes any self-insurance arrangements affecting Target.
     (t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each
instance in which Target (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or , to the Knowledge of any
of Sellers and the directors and officers (and employees with responsibility for
litigation matters) of Target, is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 4(t) of the Disclosure
Schedule could result in any Material Adverse Change. None of Sellers and the
directors and officers (and employees with responsibility for litigation
matters) of Target has any reason to believe that any such action, suit,
proceeding, hearing, or investigation may be brought or threatened against
Target or that there is any Basis for the foregoing.
     (u) Product Warranty. Except as set forth on Section 4(u) of the Disclosure
Schedule, each product manufactured, sold, leased, or delivered by Target has
been in conformity with all applicable contractual commitments and all express
and implied warranties, and Target has no Liability (and there is no Basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
for replacement or repair thereof or other damages in connection therewith.
     (v) Product Liability. Target has no Liability (and there is no Basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
arising out of any injury to individuals or

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property as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by Target.
     (w) Employees. Section 4(w) of the Disclosure Schedule includes a list of
current employees of Target as of the signing of this Agreement. Except as noted
on Section 4(w) of the Disclosure Schedule, to the Knowledge of any of Sellers
and the directors and officers (and employees with responsibility for employment
matters) of Target, no executive, key employee, or group of employees has any
plans to terminate employment with Target. Target is not a party to or bound by
any collective bargaining agreement, nor has Target experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. Target has not committed any unfair labor practice. None of Sellers
and the directors and officers (and employees with responsibility for employment
matters) of Target has any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of Target.
     (x) Employee Benefits.
          (i) Section 4(x) of the Disclosure Schedule lists all employee benefit
plans and collective bargaining, employment or severance agreements or other
similar arrangements which Target, or any ERISA Affiliate, has ever sponsored,
maintained, or to which contributions are made or have ever been made, or for
which obligations have been incurred, for the benefit of employees or former
employees of Target or an ERISA Affiliate, including, without limitation,
(1) any “employee benefit plan” (within the meaning of Section 3(3) of ERISA),
(2) any profit-sharing, deferred compensation, bonus, stock option, stock
purchase, pension, retainer, consulting, retirement, severance, welfare or
incentive plan, agreement or arrangement, (3) any plan, agreement or arrangement
providing for “fringe benefits” or perquisites to employees, officers, directors
or agents, including but not limited to benefits relating to automobiles, clubs,
vacation, child care, parenting, sabbatical, sick leave, tuition reimbursement,
medical, dental, hospitalization, life insurance, disability insurance and other
types of insurance, and (4) any employment agreement. The plans, agreements and
arrangements described in this Section 4(x) are referred to herein as “Employee
Benefit Plans.”
          (ii) None of the Employee Benefit Plans is, and neither Target nor any
other ERISA Affiliate has ever contributed to or had any obligation to
contribute to, (i) a plan subject to Title IV of ERISA or Section 412 of the
Code, (ii) a “multiemployer plan” (within the meaning of Section 3(37) of
ERISA), (iii) or a “multiple employer plan” (within the meaning of Section
413(c) of the Code), any “voluntary employees’ beneficiary association” (within
the meaning of Section 501(c)(9) of the Code), or any “multiple employer welfare
arrangement” (within the meaning of Section 3(40) of ERISA).
          (iii) None of the Employee Benefit Plans, nor any trust created
thereunder, now holds or has heretofore held as assets any stock or securities
issued by Target or any ERISA Affiliate.
          (iv) Target has delivered to Buyer true and complete copies of all
documents (including plan documents, trust agreements and insurance contracts)
and summary plan descriptions of the Employee Benefit Plans or summary
descriptions of any such Employee

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Benefit Plan not otherwise in writing. Target has delivered to Buyer true and
complete copies of the most recent determination letters and the Forms 5500
filed in the most recent three plan years with respect to any Employee Benefit
Plan, including all schedules thereto and financial statements with attached
opinions of independent accountants. Target has delivered to Buyer summaries of
material modifications and material communications distributed within the last
year to the participants of each Employee Benefit Plan. Target has delivered to
Buyer all communications received from or sent to the Internal Revenue Service,
Pension Benefit Guaranty Corporation or the Department of Labor within the last
three years and any Forms 5330 required to be filed by Target or any ERISA
Affiliate, whether related to a Employee Benefit Plan or otherwise. Target and
any ERISA Affiliate, as applicable, have maintained all employee data necessary
to administer each Employee Plan, including all data required to be maintained
under Sections 107 and 209 of ERISA, and such data is true and correct and is
maintained in usable form.
          (v) Each Employee Benefit Plan (and any related trust agreement) has
been maintained, funded and administered in accordance with its terms and the
terms of any applicable collective bargaining agreement, and Target, and each
ERISA Affiliate, is in compliance with the applicable provisions of ERISA, the
Code and all laws applicable thereto. Without limitation of the foregoing:
          (A) None of Target, any ERISA Affiliate, nor any Employee Benefit Plan
fiduciary has, with respect to the Employee Benefit Plans, engaged in a
non-exempt Prohibited Transaction, and no event or condition exists with respect
to any Employee Benefit Plan which constitutes a reportable event within the
meaning of Section 4043 of ERISA, as to which a waiver is not applicable. No
event has occurred and no condition exists with respect to any Employee Benefit
Plan which would give rise to any Liability under the Code or ERISA, including
but not limited to Sections 511, 4971, 4972, 4975, 4976, 4977, 4979, 4980B,
4980D, 4980E, 4980F or 6652 of the Code, or to any fine or civil penalty under
Sections 502, 4069 or 4071 of ERISA.
          (B) Target and each ERISA Affiliate have complied in all respects with
COBRA, the Health Insurance Portability & Accountability Act of 1996, and
Medicare Part D with respect to any events occurring prior to and including the
Closing Date. Each Employee Benefit Plan that is subject to Section 1862(b)(1)
of the Social Security Act has been operated in compliance with the secondary
payor requirements of Section 1862 of such Act.
          (C) Each Employee Benefit Plan that constitutes a “welfare benefit
plan,” within the meaning of Section 3(1) of ERISA, and for which contributions
are claimed by Target or any ERISA Affiliate as deductions under any provision
of the Code, is in compliance with all applicable requirements pertaining to
such deduction. §4(x) of the Disclosure Schedule discloses whether each welfare
plan is (i) unfunded, (ii) with respect to welfare plans subject to the
provisions of the Code, funded through a “welfare benefit fund”, as such term is
defined in Section 419(e) of the Code, or other funding mechanism or
(iii) insured.

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          (D) Arrangements which constitute “nonqualified deferred compensation
plans” as defined by §409A of the Code have been administered in compliance with
§409A or an exemption therefrom since January 1, 2005.
          (E) All reports, returns and similar documents with respect to each
Employee Benefit Plan required to be filed with any Governmental Authority or
distributed to any participant of each Employee Benefit Plan have been duly and
timely filed or distributed. All contributions, fees, interest, penalties and
assessments that are payable by or for Target or any ERISA Affiliate have been
timely reported, fully paid and discharged. There are no unpaid contributions,
fees, penalties, interest or assessments due from Target or any ERISA Affiliate
or from any other person that are or could become a Lien on any asset of Target
or any ERISA Affiliate or could otherwise adversely affect the business or
assets of Target or any ERISA Affiliate, and no assets of Target or any ERISA
Affiliate are subject to (or expected to be subject to) any such Lien. Target
and each ERISA Affiliate have collected or withheld all amounts that are
required to be collected or withheld by them to discharge their obligations, and
all of those amounts have been paid to the appropriate Employee Benefit Plans or
governmental agencies or set aside in appropriate accounts for future payment
when due.
          (vi) No actions, suits, disputes or claims (other than routine claims
for benefits in the ordinary course) are pending or threatened with respect to
any Employee Benefit Plan. No audits, inquiries, reviews, proceedings, claims,
or demands are pending with any governmental authority with respect to any
Employee Benefit Plan. There are no facts which could give rise to any Liability
in the event of any such investigation, claim, action, suit, audit, review, or
other proceeding (including, without limitation, any claim for breach of
fiduciary duty).
          (vii) Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service that such Employee Benefit Plan is qualified
under Section 401(a) of the Code, and such determination letter considers the
Uruguay Round Agreements Act, the Small Business Job Protection Act of 1996, the
Uniformed Services Employment and Reemployment Rights Act of 1994, the Taxpayer
Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of
1998, and the Community Renewal Tax Relief Act of 2000. Each Employee Benefit
Plan that is intended to be qualified under Section 401(a) of the Code has been
timely amended to reflect the provisions of the Economic Growth & Tax Relief
Reconciliation Act of 2001 and any other statutory or regulatory changes
requiring amendments, and has been timely submitted for a determination letter
regarding the provisions of the Economic Growth & Tax Relief Reconciliation Act
of 2001 if the deadline for such submission has passed. No event has occurred
that will or could give rise to the revocation of any applicable determination
letter, or the disqualification or loss of tax-exempt status of any such
Employee Benefit Plan or trust under Sections 401(a) or 501(a) of the Code.
          (viii) Each of the Employee Benefit Plans can be terminated within a
period of thirty (30) days following the Closing Date, without any additional
contribution to such Employee Benefit Plan or the payment of any additional
compensation or amount or acceleration of any benefits.

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          (ix) No Employee Benefit Plan provides for or continues medical or
health benefits, or life insurance or other benefits (through insurance or
otherwise) for any Person or any dependent or beneficiary of any Person after
such employee’s retirement or other termination of employment except as may be
required by COBRA or applicable state law, and there has been no communication
to any Person that could reasonably be expected to promise or guarantee any such
benefits.
          (x) No condition exists as a result of which Target or any ERISA
Affiliate would have any Liability, whether absolute or contingent, including
any obligations under the Employee Benefit Plans, with respect to any
misclassification of a Person performing services for Target or an ERISA
Affiliate as an independent contractor rather than as an employee.
          (xi) All contributions (including all employer contributions and
employee salary reduction contributions) and premium payments which are or have
been due have been paid to or with respect to each Employee Benefit Plan within
the time required by law. All required or discretionary (in accordance with
historical practices) payments, premiums, contributions, reimbursements, or
accruals for all periods ending prior to or as of the Closing Date shall have
been made or properly accrued on the Closing Balance Sheets or will be properly
accrued on the books and records of Target and each ERISA Affiliate as of the
Closing Date. None of the Employee Benefit Plans has any unfunded liabilities
which are not reflected on the Closing Balance Sheet or the books and records of
Target and each ERISA Affiliate.
          (xii) The consummation of the transactions contemplated by this
Agreement will not entitle any individual to severance pay, and will not
accelerate the time of payment or vesting, or increase the amount of
compensation due to any individual. None of the Employee Benefit Plans obligates
Target or any ERISA Affiliate to pay separation, severance, termination or
similar benefits solely as a result of any transaction contemplated by this
Agreement or solely as a result of “change of control” (as such term is defined
in Section 280G of the Code).
     (y) Guaranties. Target is not a guarantor or otherwise is liable for any
Liability or obligation (including indebtedness) of any other Person.
     (z) Environmental, Health, and Safety Matters. Except as set forth on
Section 4(z) of the Disclosure Schedule:
          (i) Target and its predecessors and Affiliates have complied and are
in compliance with all Environmental, Health, and Safety Requirements.
          (ii) Without limiting the generality of the foregoing, Target and its
Affiliates have obtained and complied with, and are in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of their
facilities and the operation of their business; a list of all such permits,
licenses and other authorizations is set forth on Section 4(z)(ii) of the
Disclosure Schedule.
          (iii) Neither Target nor its predecessors or Affiliates has received
any written or oral notice, report or other information regarding any actual or
alleged violation of Environmental, Health, and Safety Requirements, or any
Liabilities or potential Liabilities,

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including any investigatory, remedial or corrective obligations, relating to any
of them or its facilities arising under Environmental, Health, and Safety
Requirements.
          (iv) None of the following exists at any property or facility owned or
operated by Target: (1) underground storage tanks, (2) asbestos-containing
material in any form or condition, (3) materials or equipment containing
polychlorinated biphenyls, or (4) landfills, surface impoundments, or disposal
areas.
          (v) Neither Target nor its predecessors or Affiliates have treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including without limitation any hazardous
substance, or owned or operated any property or facility (and no such property
or facility is contaminated by any such substance) in a manner that has given or
would give rise to Liabilities, including any Liability for response costs,
corrective action costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (“CERCLA”), the Solid Waste
Disposal Act, as amended (“SWDA”) or any other Environmental, Health, and Safety
Requirements.
          (vi) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called “transaction-triggered” or
“responsible property transfer” Environmental, Health, and Safety Requirements.
          (vii) Neither Target nor its predecessors or Affiliates has, either
expressly or by operation of law, assumed or undertaken any Liability, including
without limitation any obligation for corrective or remedial action, of any
other Person relating to Environmental, Health, and Safety Requirements.
          (viii) No facts, events or conditions relating to the past or present
facilities, properties or operations of Target or its predecessors or Affiliates
will prevent, hinder or limit continued compliance with Environmental, Health,
and Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements, or give
rise to any other Liabilities pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
     (aa) Systems Continuity. Except as set forth on Section 4(aa) of the
Disclosure Schedule, none of the computer software, computer hardware (whether
general or special purpose), telecommunications capabilities (including all
voice, data and video networks) and other similar or related items of automated,
computerized, and/or software systems and any other networks or systems and
related services that are used by or relied on by Target in the conduct of its
business (collectively, the “Systems”) have experienced bugs, failures,
breakdowns, or continued substandard performance in the past 12 months that has
caused any substantial disruption or interruption in or to the use of any such
Systems by Target.

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     (bb) Certain Business Relationships with Target. None of Sellers, their
Affiliates, Sellers’ directors, officers, employees and stockholders and
Target’s directors, officers, employees, and stockholders has been involved in
any business arrangement or relationship with Target within the past 12 months,
and none of Sellers, their Affiliates, Seller’s directors, officers, employees
and stockholders and Target’s directors, officers, employees, and stockholders
owns any asset, tangible or intangible, which is used in the business of Target.
     (cc) Customers and Suppliers.
          (i) Section 4(cc) of the Disclosure Schedule lists the 10 largest
customers of Target for each of the two most recent fiscal years and sets forth
opposite the name of each such customer the percentage of consolidated net sales
attributable to such customer. Section 4(cc) of the Disclosure Schedule also
lists any additional current customers that Target anticipates shall be among
the 10 largest customers for the current fiscal year.
          (ii) Since the date of the Most Recent Balance Sheet, no supplier of
Target has indicated that it shall stop, or decrease the rate of, supplying
materials, products or services to Target, and no customer listed on
Section 4(cc) of the Disclosure Schedule has indicated that it shall stop, or
decrease the rate of, buying materials, products or services from Target.
     (dd) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
SECTION 5. PRE-CLOSING COVENANTS
     The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
     (a) General. Each of the Parties will use his, her, or its best efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the Closing conditions set forth in
Section 7 below).
     (b) Notices and Consents. Sellers will cause Target to give any notices to
third parties, and will cause Target to use its best efforts to obtain any third
party consents referred to in Section 4(c) above, the Lease Consents, and the
items set forth on Section 5(b) of the Disclosure Schedule. Each of the Parties
will (and Sellers will cause Target to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(a)(ii), Section 3(b)(ii), and Section 4(c)
above.
     (c) Operation of Business. Sellers will not cause or permit Target to
engage in any practice, take any action, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of the
foregoing, Sellers will not cause or permit Target to (i) declare, set aside, or
pay any dividend or make any distribution whatsoever with respect to its capital
stock (whether in cash or in kind) or redeem, purchase, or otherwise acquire any
of its

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capital stock or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 4(h) above.
     (d) Preservation of Business. Sellers will cause Target to keep its
business and properties substantially intact, including its present operations,
physical facilities, working conditions, insurance policies, and relationships
with lessors, licensors, suppliers, customers, and employees.
     (e) Full Access. Each of Sellers will permit, and Sellers will cause Target
to permit, representatives of Buyer (including legal counsel and accountants) to
have full access at all reasonable times, and in a manner so as not to interfere
with the normal business operations of Target, to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to Target.
     (f) Notice of Developments. Sellers will give prompt written notice to
Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in Section 3
above. No disclosure by any Party pursuant to this Section 5(f), however, shall
be deemed to amend or supplement Annex I, Annex II, or the Disclosure Schedule
or to prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
     (g) Exclusivity. None of Sellers will (and Sellers will not cause or permit
Target to) (i) solicit, initiate, or encourage the submission of any proposal or
offer from any Person relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets, of Target
(including any acquisition structured as a merger, consolidation, or share
exchange) or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. None of Sellers will vote their Target Shares in favor of any such
acquisition. Sellers will notify Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
     (h) Maintenance of Real Property. Sellers will cause Target to maintain the
Real Property, including all of the Improvements, in substantially the same
condition as of the date of this Agreement, ordinary wear and tear excepted, and
shall not demolish or remove any of the existing Improvements, or erect new
improvements on the Real Property or any portion thereof, without the prior
written consent of Buyer.
     (i) Leases. Except to the extent necessary to satisfy the Closing
conditions set forth in Section 7 below, Sellers will not cause or permit any of
Target’s Leases to be amended, modified, extended, renewed or terminated, nor
shall Target enter into any new lease, sublease, license or other agreement for
the use or occupancy of any real property, without the prior written consent of
Buyer.
     (j) Tax Matters. Without the prior written consent of Buyer, Target shall
not make or change any election, change an annual accounting period, adopt or
change any accounting method, file any amended Tax Return, enter into any
closing agreement, settle any Tax claim or

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assessment relating to Target, surrender any right to claim a refund of Taxes,
consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment relating to Target, or take any other similar action
relating to the filing of any Tax Return or the payment of any Tax, if such
election, adoption, change, amendment, agreement, settlement, surrender, consent
or other action would have the effect of increasing the Tax liability of Target
for any period ending after the Closing Date or decreasing any Tax attribute of
Target existing on the Closing Date.
     (k) S Corporation Status. Target and Sellers shall not revoke Target’s
election to be taxed as an S corporation within the meaning of Code Section 1361
and Section 1362. Target and Sellers shall not take or allow any action, other
than the sale of Target’s stock pursuant to this Agreement, that would result in
the termination of Target’s status as a validly electing S corporation within
the meaning of Code Section 1361 and Section 1362.
     (l) [INTENTIONALLY DELETED].
     (m) Restrictive Stock Transfer Agreements. Prior to Closing, Target and
Sellers shall cancel any restrictive stock transfer agreements or similar
agreements between or among them that pertain to the Shares.
     (n) 401(k) Plan Termination. Notwithstanding anything in this Agreement to
the contrary, prior to Closing, Sellers shall cause the Company to terminate the
Innovative Solutions Consulting, Inc. 401(k) Plan (the “401(k) Plan”) and any
other Company Plan intended to be qualified under Code Section 401(a) or 403(a).
In addition, (a) Sellers shall cause the Company to remove, or Sellers shall
cause to resign, as a trustee under the 401(k) Plan Michele A. Aloisio and each
other trustee, if any, of the 401(k) Plan, effective as of the Closing Date; and
(b) Sellers shall cause the Company to appoint, effective as of the Closing
Date, successor trustees designated by Buyer.
SECTION 6. POST-CLOSING COVENANTS
     The Parties agree as follows with respect to the period following the
Closing.
     (a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
Sellers acknowledge and agree that from and after the Closing Buyer will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to Target.
     (b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date

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involving Target, each of the other Parties will cooperate with him or it and
his or its counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 8 below).
     (c) Transition. None of Sellers will take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of Target from maintaining the same
business relationships with Target after the Closing as it maintained with
Target prior to the Closing. Each of Sellers will refer all customer inquiries
relating to the businesses of Target to Buyer from and after the Closing.
     (d) Confidentiality. Each of the parties hereto will treat and hold as such
all of the Confidential Information of the other parties, refrain from using any
of the Confidential Information except in connection with this Agreement, and
deliver promptly to such other party or destroy, at the request and option of
disclosing party, all tangible embodiments (and all copies) of the Confidential
Information which are in his, her, or its possession. In the event that any
party is requested or required pursuant to written or oral question or request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process to disclose any Confidential
Information, such party will notify the disclosing party promptly of the request
or requirement so that the disclosing party may seek an appropriate protective
order or waive compliance with the provisions of this Section 6(d). If, in the
absence of a protective order or the receipt of a waiver hereunder, any of
receiving parties is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or party in a proceeding therein or
else stand liable for contempt, such party may disclose the Confidential
Information to the tribunal or such person involved in such action; provided,
however, that the disclosing party shall use his, her, or its best efforts to
obtain, at the reasonable request of the disclosing party, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the disclosing party shall
designate. The foregoing provisions shall not apply to any Confidential
Information that is generally available to the public immediately prior to the
time of disclosure unless such Confidential Information is so available due to
the actions of a party, nor shall the foregoing provisions apply to Buyer to the
extent Buyer is required to disclose such information in order to comply with
its disclosure obligations as a publicly-traded company under applicable federal
securities laws and stock exchange rules and listing standards.
     (e) Termination of Aloisio Guarantees. Michele A. Aloisio is a party to
certain guarantees as more fully identified in Schedule Section 6(e) of the
Disclosure Schedules (the “Aloisio Guarantees”). Buyer has represented to
Sellers that it is Buyer’s intention to refinance or otherwise terminate the
debt that is guaranteed by the Aloisio Guarantees, and Sellers are relying on
this representation in entering into this Agreement. Therefore, as further
commitment under Buyer’s representation, Buyer hereby agrees to, promptly after
Closing, take all actions and execute all documents reasonably necessary to have
the Aloisio Guarantees released, and Buyer hereby agrees and covenants to
defend, indemnify and hold harmless Michele A. Aloisio on any action, suit,
proceeding or other claim against him pursuant to the Aloisio Guarantees that
arises out of or directly relates to facts and circumstances occurring
exclusively after the Closing Date. For the avoidance of doubt, the Parties
acknowledge that Buyer shall have no indemnity

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obligation hereunder with respect to facts and circumstances occurring on or
before the Closing Date.
     (f) Release of Target by Sellers. Effective at and (only) upon Closing,
each Seller (each a “Releasing Party”) hereby irrevocably and unconditionally
releases and forever discharges the Target and its respective successors and
assigns (the “Released Parties”) from any and all claims, charges, complaints,
causes of action, damages, agreements and liabilities of any kind or nature
whatsoever, including any claim by the Sellers against the Target for
indemnification or for advances with respect to actions or omissions (or claims
or allegations thereof) of Sellers prior to the Closing in their capacities as
shareholders, officers, directors or employees of the Target (“Released
Claims”), whether known or unknown and whether at law or in equity, arising from
conduct occurring on or prior to the Closing Date, including without limitation
any Released Claims relating to or arising out of such Seller’s ownership of
Stock; provided that (i) nothing contained herein shall release the Target from
any of its post-Closing obligations and liabilities to a Releasing Party created
under this Agreement or constitute a waiver of any claims that such Releasing
Party may bring or have for indemnification by the Released Parties under
Section 8, and (ii) this release shall only relate to those claims arising from
conduct or omissions occurring on or before the Closing.
     (g) Winding-Up of 401(k) Plan. It is understood that Target will be
responsible for ensuring the proper liquidation of the 401(k) Plan after the
Closing Date and the operation of the 401(k) Plan on a terminated basis in
compliance with applicable law pending completion of the termination and
liquidation process.
SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE
     (a) Conditions to Buyer’s Obligation. Buyer’s obligation to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
          (i) the representations and warranties set forth in Section 3(a) and
Section 4 above shall be true and correct in all material respects at and as of
the Closing Date, except to the extent that such representations and warranties
are qualified by terms such as “material” and “Material Adverse Effect,” in
which case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;
          (ii) Sellers shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing, except to the
extent that such covenants are qualified by terms such as “material” and
“Material Adverse Effect,” in which case Sellers shall have performed and
complied with all of such covenants in all respects through the Closing;
          (iii) Target shall have procured all of the third party consents
specified in Section 5(b) above;
          (iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction

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or before any arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation,
(C) affect adversely the right of Buyer to own the Target Shares and to control
Target, or (D) affect adversely the right of Target to own its assets and to
operate its businesses (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
          (v) Sellers shall have delivered to Buyer a certificate to the effect
that each of the conditions specified above in Section 7(a)(i)-(iv) is satisfied
in all respects;
          (vi) the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Section 3(a)(ii), Section 3(b)(ii), and Section 4(c) above;
          (vii) Buyer shall have received the resignations, effective as of the
Closing, of each director and officer of Target other than those whom Buyer
shall have specified in writing at least five business days prior to the
Closing;
          (viii) Buyer shall have obtained on terms and conditions satisfactory
to it any debt or equity financing it needs in order to consummate the
transactions contemplated hereby and fund the working capital requirements of
Target after the Closing;
          (ix) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby shall be satisfactory in form and substance to Buyer;
          (x) Target shall have obtained and delivered to Buyer a written
consent for the assignment of each of the Leases, as well as a modification of
the use restriction in the lease agreement for the premises located at 44180
Airport View Drive, Hollywood, Maryland, to permit fabrication and manufacturing
activities and a waiver of tenant’s obligation under such lease agreement to
surrender such premises to landlord in the condition in which such premises were
originally delivered to tenant and, if requested by Buyer’s lender, a waiver of
landlord liens, collateral assignment of lease or leasehold mortgage from the
landlord or other party whose consent thereto is required under such Lease (the
“Lease Consents”), in form and substance satisfactory to Buyer and Buyer’s
lender;
          (xi) Target shall have obtained and delivered to Buyer an estoppel
certificate with respect to each of the Leases, dated no more than 30 days prior
to the Closing Date, from the other party to such Lease, in form and substance
satisfactory to Buyer (the “Estoppel Certificates”);
          (xii) Target shall have obtained and delivered to Buyer a
non-disturbance agreement with respect to each of the Leases for the Leased Real
Property, in form and substance satisfactory to Buyer, from each lender
encumbering any real property underlying the Leased Real Property for such Lease
(the “Non-Disturbance Agreements”);

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          (xiii) no damage or destruction or other change has occurred with
respect to any of the Real Property or any portion thereof that, individually or
in the aggregate, would materially impair the use or occupancy of the Real
Property or the operation of Target’s business as currently conducted thereon;
          (xiv) each of Marc DeLaVergne, Thomas R. Knowlton, and Kenneth J. Wood
shall have entered into employment agreements with Buyer (or an Affiliate of
Buyer) on terms reasonably satisfactory to Buyer, and such agreements shall be
in full force and effect as of the Closing;
          (xv) Sellers shall have delivered to Buyer copies of the certificate
of incorporation of Target certified on or soon before the Closing Date by the
Secretary of State (or comparable officer) of the jurisdiction of Target’s
incorporation;
          (xvi) Sellers shall have delivered to Buyer copies of the certificate
of good standing of Target issued on or soon before the Closing Date by the
Secretary of State (or comparable officer) of the jurisdiction of Target’s
organization and of each jurisdiction in which each such Target is qualified to
do business;
          (xvii) Sellers shall have delivered to Buyer a certificate of the
secretary or an assistant secretary of Target, dated the Closing Date, in form
and substance reasonably satisfactory to Buyer, as to (i) no amendments to the
Certificate of Incorporation of Target since the date specified in clause
(xxii) above; (ii) the bylaws of Target; and (iii) any resolutions of the board
of directors of Target relating to this Agreement and the transactions
contemplated hereby;
          (xviii) Each Seller shall have delivered to Buyer a release of all
claims against Target, in form and substance satisfactory to Buyer, and shall
have entered into confidentiality, non-solicitation, non-compete and
non-disparagement agreements with Target on terms satisfactory to Buyer, and
such releases and agreements shall be in full force and effect as of the
Closing.
          (xix) Any amounts owed by Target to Sellers shall have been paid in
full and, at the request of Buyer, Sellers shall deliver to Target a release to
such effect in form and substance satisfactory to Buyer.
          (xx) Buyer shall have obtained the approval of its lenders of this
Agreement and the transactions contemplated thereby.
          (xxi) Buyer shall have obtained the approval of its board of directors
of this Agreement and the transactions contemplated thereby.
          (xxii) Target and each Seller shall have delivered to Buyer signed
copies of any applicable forms and attachments thereto required in connection
with the Section 338(h)(10) Election pursuant to Section 9(f) below.
          (xxiii) W. Michael Cooper shall have discontinued any use or occupancy
of the premises located at 44180 Airport View Drive, Hollywood, Maryland for the
private practice of

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law or any other activity other than activities within the scope of and pursuant
to his then current duties as an employee of Target.
Buyer may waive any condition specified in this Section 7(a) if it executes a
writing so stating at or prior to the Closing.
     (b) Conditions to Sellers’ Obligation. The obligation of Sellers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
          (i) the representations and warranties set forth in Section 3(b) above
shall be true and correct in all material respects at and as of the Closing
Date, except to the extent that such representations and warranties are
qualified by terms such as “material” and “Material Adverse Effect,” in which
case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;
          (ii) Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing, except to the extent
that such covenants are qualified by terms such as “material” and “Material
Adverse Effect,” in which case Buyer shall have performed and complied with all
of such covenants in all respects through the Closing;
          (iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
          (iv) Buyer shall have delivered to Sellers a certificate to the effect
that each of the conditions specified above in Section 7(b)(i)-(iii) is
satisfied in all respects;
          (v) the Parties shall have received all authorizations, consents, and
approvals of governments and governmental agencies referred to in
Section 3(a)(ii), Section 3(b)(ii), and Section 4(c) above;
          (vi) all actions to be taken by Buyer in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Requisite Sellers.
The Requisite Sellers may waive any condition specified in this Section 7(b) on
behalf of all Sellers if they execute a writing so stating at or prior to the
Closing.

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SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT
     (a) Survival of Representations and Warranties.
          (i) All of the representations and warranties of the Parties contained
in Section 3 of this Agreement shall survive the Closing hereunder (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty or covenant at the time of Closing) and continue in full force and
effect forever thereafter (subject to any applicable statutes of limitations).
          (ii) Except for those representations and warranties of the Parties
contained in Sections 4(a)-(f) (inclusive), (j), (k) and (z) of this Agreement,
all of the representations and warranties of the Parties contained in Section 4
of this Agreement, shall survive the Closing hereunder (even if the damaged
Party knew or had reason to know of any misrepresentation or breach of warranty
or covenant at the time of Closing) and continue in full force and effect for a
period of 3 years from the Closing Date. This provision shall not extinguish
claims that are made within 3 years of the Closing Date but that remain
unresolved on or after the date that is 3 years after the Closing Date.
          (iii) All of the representations and warranties of the Parties
contained in Sections 4(a)-(f) (inclusive), (j), (k) and (z) of this Agreement
shall survive the Closing hereunder (even if the damaged Party knew or had
reason to know of any misrepresentation or breach of warranty or covenant at the
time of Closing) and continue in full force and effect until the expiration of
any applicable statutes of limitations (after giving effect to any extensions or
waivers) plus 60 days.
     (b) Indemnification Provisions for Buyer’s Benefit.
          (i) In the event any Seller breaches (or in the event any third party
alleges facts that, if true, would mean any Seller has breached) any of his,
her, or its representations, warranties, and covenants contained herein (other
than the covenants in Section 2(a) above and the representations and warranties
in Section 3(a) above) and, provided that Buyer makes a written claim for
indemnification against any Seller pursuant to Section 11(h) below within the
survival period (if there is an applicable survival period pursuant to Section
8(a) above), then each Seller shall be obligated jointly and severally to
indemnify Buyer from and against the entirety of any Adverse Consequences Buyer
may suffer (including any Adverse Consequences Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or the alleged breach); provided,
however, that Sellers shall not have any obligation to indemnify Buyer from and
against any Adverse Consequences resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or alleged breach) of any representation
or warranty of Sellers contained in Sections 4(g)-(i) inclusive, Sections
4(l)-(y) inclusive and Sections 4(aa)-(dd) inclusive above until Buyer has
suffered Adverse Consequences by reason of all such breaches (or alleged
breaches) in excess of a $30,000 aggregate threshold, at which point Sellers
will be obligated to indemnify Buyer from and against only such Adverse
Consequences above such $30,000 aggregate threshold.

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          (ii) In the event any Seller breaches (or in the event any third party
alleges facts that, if true, would mean any Seller breached) any of his, her, or
its covenants in Section 2(a) above or any of his, her, or its representations
and warranties in Section 3(a) above, and provided that Buyer makes a written
claim for indemnification against such a Seller pursuant to Section 11(h) below
within the survival period (if there is an applicable survival period pursuant
to Section 8(a) above), then such Seller shall indemnify Buyer from and against
the entirety of any Adverse Consequences Buyer may suffer (including any Adverse
Consequences Buyer may suffer after the end of any applicable survival period)
resulting from arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
          (iii) Each Seller shall be obligated jointly and severally to
indemnify Buyer from and against the entirety of any Adverse Consequences Buyer
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by any occurrence or circumstance related to Target or its business that
first arose, in whole or in part, on or before the Closing Date.
          (iv) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL THE AGGREGATE LIABILITY OF SELLERS TO BUYER UNDER THIS SECTION 8(B)
EXCEED THE PURCHASE PRICE.
     (c) Indemnification Provisions for Sellers’ Benefit. In the event Buyer
breaches (or in the event any third party alleges facts that, if true, would
mean Buyer has breached) any of its representations, warranties, and covenants
contained herein and, provided that any Seller makes a written claim for
indemnification against Buyer pursuant to Section 11(h) below within such
survival period (if there is an applicable survival period pursuant to Section
8(a) above), then Buyer shall indemnify each Seller from and against the
entirety of any Adverse Consequences suffered (including any Adverse
Consequences suffered after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
     (d) Matters Involving Third Parties.
          (i) If any third party shall notify any Party (the “Indemnified
Party”) with respect to any matter (a “Third Party Claim”) which may give rise
to a claim for indemnification against any other Party (the “Indemnifying
Party”) under this Section 8, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
          (ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the

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Indemnifying Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (C) the Third
Party Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect to, the
Third Party Claim is not, in the good faith judgment of the Indemnified Party,
likely to establish a precedential custom or practice materially adverse to the
continuing business interests or the reputation of the Indemnified Party, and
(E) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
          (iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
          (iv) In the event any of the conditions in Section 8(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys’ fees and expenses), and (C) the Indemnifying Parties will
remain responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 8.
     (e) Determination of Adverse Consequences. All indemnification payments
under this Section 8 and Section 9(a) shall be deemed adjustments to the
Purchase Price.
     (f) Setoff against Holdback Payments; Priority. Any indemnification to
which Buyer is entitled under this Agreement as a result of any Adverse
Consequences Buyer may suffer may be satisfied by Buyer setting-off such
indemnification amounts against any Holdback Payments due to Sellers, and Buyer
shall seek to satisfy such indemnification amounts against any Holdback Payments
due to Sellers prior to and before seeking to satisfy such indemnification
amounts against other assets of Sellers. The exercise by Buyer of such right of
setoff shall not preclude Buyer from pursuing other remedies available to Buyer
against Sellers.
     (g) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) any Party may have
with respect to Target or the transactions contemplated by this Agreement. Each
Seller hereby agrees that he, she, or it will not make any claim for
indemnification against Target by reason of the fact that he, she, or it was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a

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partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by
Buyer against such Seller (whether such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement, applicable law, or otherwise).
SECTION 9. TAX MATTERS
     The following provisions shall govern the allocation of responsibility as
between Buyer and Sellers for certain tax matters following the Closing Date:
     (a) Tax Indemnification. Each Seller shall jointly and severally indemnify
Target, Buyer, and each Buyer Affiliate and hold them harmless from and against
without duplication, any loss, claim, liability, expense, or other damage
attributable to (i) all Taxes (or the non-payment thereof) of Target for all
Taxable periods ending on or before the Closing Date and the portion through the
end of the Closing Date for any Taxable period that includes (but does not end
on) the Closing Date (“Pre-Closing Tax Period”), (ii) all Taxes of any member of
an affiliated, consolidated, combined or unitary group of which Target (or any
predecessor of Target) is or was a member on or prior to the Closing Date,
including pursuant to Treasury Regulation Section 1.1502-6 or any analogous or
similar state, local, or foreign law or regulation, and (iii) any and all Taxes
of any person (other than Target) imposed on Target as a transferee or
successor, by contract or pursuant to any law, rule, or regulation, which Taxes
relate to an event or transaction occurring before the Closing.
     (b) Responsibility for Filing Tax Returns. At their expense, Sellers shall
prepare or caused to be prepared and file or caused to be filed all Tax Returns
for Target for periods ending on or before the Closing Date. Sellers shall
permit Buyer to review and comment on each such Tax Return described in the
preceding sentence prior to filing. Buyer shall have the right to contest the
contents of all such Tax Returns, and any conflict between Sellers and Buyer
with respect thereto shall be resolved in accordance with the provisions of
Section 2(f), except that the parties shall have twenty (20) days in which to
attempt to reach mutual agreement before referring the calculation to the
Auditor.
     (c) Cooperation on Tax Matters.
          (i) Buyer, Target, and Sellers shall cooperate fully, as and to the
extent reasonably requested by the other Party, in connection with the filing of
Tax Returns pursuant to Section 9(c) and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other Party’s request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Target and Sellers agree (A) to retain all books and records with respect to Tax
matters pertinent to Target relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Sellers, any extensions thereof) of the respective
taxable periods, and

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to abide by all record retention agreements entered into with any taxing
authority, and (B) to give the other Party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other Party so requests, Target or Sellers, as the case may be, shall allow the
other Party to take possession of such books and records.
          (ii) Buyer and Sellers further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
          (iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to report
pursuant to Code Section 6043 and all Treasury Regulations promulgated
thereunder.
     (d) Tax Sharing Agreements. All Tax sharing agreements or similar
agreements with respect to or involving Target shall be terminated as of the
Closing Date and, after the Closing Date, Target shall not be bound thereby or
have any liability thereunder.
     (e) Certain Taxes and Fees. All transfer, documentary, sales, use, stamp,
registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and interest) incurred in
connection with consummation of the transactions contemplated by this Agreement
shall be paid by Sellers when due, and Sellers will, at their own expense, file
all necessary Tax Returns and other documentation with respect to all such
Taxes, fees and charges, and, if required by applicable law, Buyer will, and
will cause its Affiliates to, join in the execution of any such Tax Returns and
other documentation.
     (f) Section 338(h)(10) Election.
          (i) At Buyer’s request, Target and each Seller shall join with Buyer
in making an election under Sections 338(h)(10) of the Code and the Treasury
Regulations, including Treasury Regulation Section 1.338(h)(10)-1T(c)(1), and
any corresponding or similar elections under state, local or foreign Tax Law
(collectively, a “Section 338(h)(10) Election”) with respect to the purchase and
sale of the Target Shares. Target and Sellers shall include any income, gain,
loss, deduction, or other Tax item resulting from the Section 338(h)(10)
Election on their Tax Returns to the extent required by applicable law.
          (ii) Buyer shall be responsible for the preparation and filing of all
forms and documents required in connection with the Section 338(h)(10) Election.
Sellers shall execute and deliver to Buyer such documents or forms as are
reasonably requested and are required by any law, rule or regulation to complete
properly the Section 338(h)(10) Election no later than 60 days after the
Closing. For the purposes of executing the Section 338 Election, on or prior to
the Closing Date, Seller and Buyer will execute two copies of the applicable
Internal Revenue Service form and all attachments required to be filed therewith
pursuant to applicable Treasury Regulations.
          (iii) Buyer, not less than 30 days prior to the date the forms
required under Section 338(h)(10) of the Code are required to be filed, will
provide Sellers with a valuation statement reflecting, as of the Closing Date,
the fair market values of all of the assets and the

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liabilities and obligations of the Target. Buyer and Sellers will file, and will
cause their Affiliates to file, all Tax Returns and statements, forms and
schedules in connection therewith in a manner consistent with such valuation and
will take no position contrary thereto unless required to do so by applicable
Tax laws.
          (iv) To the extent permitted by state and local law, the principles
and procedures of this section will also apply with respect to
Section 338(h)(10) Election or equivalent or comparable provision under state or
local law. Sellers will make any election similar to a Section 338(h)(10)
Election which is optional under any state or local law, and will cooperate and
join in any election made by Target, Buyer or its Affiliates to effect such an
election so as to treat the transaction as a sale of assets for state and local
income Tax purposes.
     (g) Tax Adjustment. If Buyer makes a Section 338(h)(10) Election, and if
such Section 338(h)(10) Election causes each Seller’s after-Tax net proceeds
from the sale of Target’s stock to be less than the after-Tax net proceeds that
such Seller would have received had the Section 338(h)(10) Election not been
made, taking into account all appropriate state, federal and local Tax
implications (the “Section 338(h)(10) Election Liability”), then Buyer shall pay
to Sellers, in cash, an aggregate amount determined pursuant to the following
scale (the “Tax Adjustment”):
          (i) If the aggregate amount of the Section 338(h)(10) Election
Liability is more than $1 but less than $50,000, then Buyer shall pay Sellers
the aggregate amount of the Section 338(h)(10) Election Liability;
          (ii) If the aggregate amount of the Section 338(h)(10) Election
Liability is at least $50,000 but less than $77,000, then Buyer shall pay
Sellers the aggregate amount of $50,000; or
          (iii) If the aggregate amount of the Section 338(h)(10) Election
Liability is $77,000 or more, then Buyer shall pay Sellers an aggregate amount
equal to 65% of the aggregate amount of the Section 338(h)(10) Election
Liability.
The amount of the Tax Adjustment shall be paid to each eligible Seller prior to
the date that any Tax return is required to be filed in which the
Section 338(h)(10) Election would have an impact on a Seller’s Tax liability. If
a Tax impact would occur in multiple years, only the amount necessary to pay a
Tax Adjustment for each year shall be paid in that year. In order to be entitled
to a Tax Adjustment each Seller shall provide Buyer with a schedule, not later
than 30 days before the due date of the Tax return with respect to which the Tax
Adjustment is requested, computing the amount of the Tax Adjustment. The Tax
Adjustment shall reflect the actual calculation of each Seller’s tax and shall
not be based on assumed or hypothetical Tax rates. Buyer shall have the right to
contest the calculation of any requested Tax Adjustment, and any conflict with
respect to the calculation of a Tax Adjustment shall be resolved in accordance
with the provisions of Section 2(f), except that the parties shall have 20 days
in which to attempt to reach mutual agreement before referring the calculation
to the Auditor.

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SECTION 10. TERMINATION
     (a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
          (i) Buyer and Requisite Sellers may terminate this Agreement by mutual
written consent at any time prior to the Closing;
          (ii) Buyer may terminate this Agreement prior to the Closing by giving
written notice to Requisite Sellers on or before the 15th day following the date
of this Agreement (or such shorter time if Closing occurs within such 15-day
period) if Buyer is not satisfied with the results of its continuing business,
legal, environmental, and accounting due diligence regarding Target;
          (iii) Buyer may terminate this Agreement by giving written notice to
Requisite Sellers at any time prior to the Closing (A) in the event any of
Sellers has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Buyer has notified
Requisite Sellers of the breach, and the breach has continued without cure for a
period of 15 days after the notice of breach or (B) if the Closing shall not
have occurred on or before September 28, 2007, by reason of the failure of any
condition precedent under Section 7(a) hereof (unless the failure results
primarily from Buyer itself breaching any representation, warranty, or covenant
contained in this Agreement); and
          (iv) Requisite Sellers may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing (A) in the event Buyer has
breached any material representation, warranty, or covenant contained in this
Agreement in any material respect, any Seller has notified Buyer of the breach,
and the breach has continued without cure for a period of 15 days after the
notice of breach or (B) if the Closing shall not have occurred on or before
September 28, 2007, by reason of the failure of any condition precedent under
Section 7(b) hereof (unless the failure results primarily from any Seller
breaching any representation, warranty, or covenant contained in this
Agreement).
     (b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).
SECTION 11. MISCELLANEOUS
     (a) Nature of Sellers’ Obligations.
          (i) The covenants of each Seller in Section 2(a) above concerning the
sale of his, her, or its Target Shares to Buyer and the representations and
warranties of each Seller in Section 3(a) above concerning the transaction are
individual, and not joint and several, obligations. This means that the
particular Seller making the representation, warranty, or covenant shall be
solely responsible to the extent provided in Section 8(b)(ii) above for any
Adverse Consequences Buyer may suffer as a result of any breach thereof.

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          (ii) The remainder of the representations, warranties, and covenants
in this Agreement are joint and several obligations. This means that each Seller
shall be responsible to the extent provided in Section 8(b)(i) and (iii) above
for the entirety of any Adverse Consequences Buyer may suffer as a result of any
breach thereof.
     (b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of Buyer and Requisite Sellers;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Parties prior to making
the disclosure).
     (c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
     (d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof, including, but not limited to that certain letter of intent and term
sheet dated as of June 1, 2007, which letter of intent and term sheet are hereby
terminated.
     (e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his,
her, or its rights, interests, or obligations hereunder without the prior
written approval of Buyer and Requisite Sellers; provided, however, that Buyer
may (i) assign any or all of its rights and interests hereunder to one or more
of its Affiliates and (ii) designate one or more of its Affiliates to perform
its obligations hereunder (in any or all of which cases Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
     (f) Counterparts. This Agreement may be executed in one or more
counterparts (including by means of facsimile), each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
     (g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of hereof.
     (h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given (i) when delivered
personally to the recipient, (ii) one business day after being sent to the
recipient by reputable overnight courier service (charges prepaid), (iii) one
business day after being sent to the recipient by facsimile transmission or
electronic mail, or (iv) four business days after being mailed to the recipient
by certified or

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registered mail, return receipt requested and postage prepaid, and addressed to
the intended recipient as set forth below:

         
 
  If to Buyer:   Ultralife Batteries, Inc.
 
      2000 Technology Parkway
 
      Newark, NY 14513
 
      Attention: General Counsel
 
      Facsimile: (315) 331-7048
 
       
 
  With a copy to:   Harter Secrest & Emery LLP
 
      1600 Bausch & Lomb Place
 
      Rochester, NY 14604
 
      Attention: Jeffrey H. Bowen, Esq.
 
      Facsimile: (585) 232-2152
 
       
 
  If to Sellers:   Mr. Michele Aloisio
 
      44850 Joy Chapel Road
 
      Hollywood, MD 20636
 
      Attention: Michele A. Aloisio
 
      Phone: (301) 373-6555
 
       
 
  And:   Mr. Marc DeLaVergne
 
      2585 Aspen Road
 
      Port Republic, MD 20676
 
      Phone: (410) 586-8763  
 
  With a copy to:   Bowie & Jensen, LLC
 
      29 W. Susquehanna Ave., Suite 600
 
      Towson, MD 21204
 
      Attention: Michael D. Oliver
 
      Facsimile: (410) 583-2437

For the avoidance of doubt, any notice, request, demand, claim, or other
communication hereunder to be given to Sellers shall be deemed given to all of
the Sellers if it is given to Mr. Aloisio and Mr. DeLaVergne in accordance with
the provisions above. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
     (i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
     (j) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by Buyer and
Requisite Sellers. No waiver by any Party of any provision of this Agreement or
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be valid unless the

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same shall be in writing and signed by the Party making such waiver nor shall
such waiver be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such default,
misrepresentation, or breach of warranty or covenant.
     (k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
     (l) Expenses. Each of Buyer, Sellers, and Target will bear his, her, or its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. If, and
only if, the transactions contemplated by this Agreement are consummated in
accordance with the terms of this Agreement, then (i) Sellers shall be
responsible for all of their own legal costs and expenses incurred in connection
with such transactions, as well as all of Target’s legal costs and expenses
incurred in connection with such transactions, and at Closing Seller’s shall
reimburse Buyer for any amounts already paid by or through Target for Sellers’
and Target’s legal costs and expenses incurred in connection with such
transactions; (ii) Sellers shall be responsible for up to the first $15,000 in
accounting costs and expenses incurred by Target in connection with such
transactions, and at Closing Seller’s shall reimburse Buyer for such amount; and
(iii) Buyer shall be responsible for Target’s other costs and expenses incurred
in connection with such transactions; provided, however, in no event shall Buyer
have any responsibility or liability whatsoever for any obligation undertaken by
Sellers or Target to pay any finder’s fee, commission or similar payment in
connection with this Agreement or the transactions contemplated hereby.
     (m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word “including” shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
     (n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
     (o) Specific Performance. Each Party acknowledges and agrees that the other
Parties would be damaged irreparably in the event any provision of this
Agreement is not performed in accordance with its specific terms or otherwise is
breached, so that a Party shall be entitled to

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injunctive relief to prevent breaches of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in addition to
any other remedy to which such Party may be entitled, at law or in equity. In
particular, the Parties acknowledge that the business of Target is unique and
recognize and affirm that in the event Sellers breach this Agreement, money
damages would be inadequate and Buyer would have no adequate remedy at law, so
that Buyer shall have the right, in addition to any other rights and remedies
existing in its favor, to enforce its rights and the other Parties’ obligations
hereunder not only by action for damages but also by action for specific
performance, injunctive, and/or other equitable relief.
     (p) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court having jurisdiction in Wayne County,
New York, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each Party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or at equity.
     (q) Tax Disclosure Authorization. Notwithstanding anything herein to the
contrary, the Parties (and each Affiliate and Person acting on behalf of any
Party) agree that each Party (and each employee, representative, and other agent
of such Party) may disclose to any and all Persons, without limitation of any
kind, the transaction’s tax treatment and tax structure (as such terms are used
in Code Sections 6011 and 6112 and regulations thereunder) contemplated by this
agreement and all materials of any kind (including opinions or other tax
analyses) provided to such Party or such Person relating to such tax treatment
and tax structure, except to the extent necessary to comply with any applicable
federal or state securities laws; provided, however, that such disclosure many
not be made until the earlier of date of (A) public announcement of discussions
relating to the transaction, (B) public announcement of the transaction, or (C)
execution of an agreement to enter into the transaction. This authorization is
not intended to permit disclosure of any other information including (without
limitation) (A) any portion of any materials to the extent not related to the
transaction’s tax treatment or tax structure, (B) the identities of participants
or potential participants, (C) the existence or status of any negotiations,
(D) any pricing or financial information (except to the extent such pricing or
financial information is related to the transaction’s tax treatment or tax
structure), or (E) any other term or detail not relevant to the transaction’s
tax treatment or the tax structure.
     (r) Attorneys Fees. Notwithstanding any other provision herein, if Buyer or
Sellers incur expenses (including but not limited to reasonable attorneys’ fees
and other professional fees) to enforce their respective rights to payments
hereunder (collectively, “Enforcement Costs”), and the prevailing party or
parties in any such action or matter (whether or not an actual lawsuit or other
action is filed) shall be entitled to recover from the non-prevailing party or
parties all of the Enforcement Costs so incurred by such prevailing party or
parties, and the non-prevailing party or parties hereby agree to pay such
Enforcement Costs.
[THE SIGNATURES OF THE PARTIES APPEAR ON THE NEXT PAGE]

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     IN WITNESS WHEREOF, the Parties hereto have executed this Stock Purchase
Agreement as of the date first above written.

            BUYER:

Ultralife Batteries, Inc.
      /s/ Peter F. Comerford       Peter F. Comerford, Vice President of     
Administration and General Counsel        SELLERS:
      /s/ Michele A. Aloisio       Michele A. Aloisio, Individually           
/s/ Marc DeLaVergne       Marc DeLaVergne, Individually            /s/ Thomas R.
Knowlton       Thomas R. Knowlton, Individually            /s/ Kenneth J. Wood  
    Kenneth J. Wood, Individually            /s/ W. Michael Cooper       W.
Michael Cooper, Individually            TARGET:

Innovative Solutions Consulting, Inc.
      /s/ Michele A. Aloisio       Michele A. Aloisio, President           

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