Exhibit 10.48
STOCK PURCHASE AGREEMENT
AMONG
ULTRALIFE BATTERIES, INC.
AND
STATIONARY POWER SERVICES, INC.
AND
WILLIAM MAHER
OCTOBER 30, 2007

 

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TABLE OF CONTENTS

          Section   Page
SECTION 1. Definitions
    1  
 
       
SECTION 2. Purchase and Sale of Target Shares
    6  
 
       
(a) Basic Transaction
    6  
(b) Purchase Price; Payment
    6  
(c) Closing
    8  
(d) Deliveries at Closing
    8  
(e) Post-Closing Purchase Price Adjustment
    8  
 
       
SECTION 3. Transaction Representations and Warranties
    9  
 
       
(a) Seller’s Representations and Warranties
    9  
(b) Buyer’s Representations and Warranties
    12  
 
       
SECTION 4. Target Representations and Warranties
    14  
 
       
(a) Organization, Qualification, and Corporate Power
    14  
(b) Capitalization
    14  
(c) Non-contravention
    15  
(d) Brokers’ Fees
    15  
(e) Title to Assets
    15  
(f) Subsidiaries
    15  
(g) Financial Statements
    15  
(h) Events Subsequent to Most Recent Fiscal Year End
    15  
(i) Undisclosed Liabilities
    17  
(j) Legal Compliance
    18  
(k) Tax Matters
    18  
(l) Real Property
    20  
(m) Intellectual Property
    23  
(n) Tangible Assets
    26  
(o) Inventory
    26  
(p) Contracts
    26  
(q) Notes and Accounts Receivable
    28  
(r) Powers of Attorney
    28  
(s) Insurance
    28  
(t) Litigation
    29  
(u) Product Warranty
    29  
(v) Product Liability
    29  
(w) Employees
    29  

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          Section   Page
SECTION 4. Target Representations and Warranties (cont’d)
       
 
       
(x) Employee Benefits
    30  
(y) Guaranties
    33  
(z) Environmental, Health, and Safety Matters
    33  
(aa) Certain Business Relationships with Target
    34  
(bb) Customers and Suppliers
    35  
(cc) Disclosure
    35  
 
       
SECTION 5. Pre-Closing Covenants
    35  
 
       
(a) General
    35  
(b) Notices and Consents
    35  
(c) Operation of Business
    35  
(d) Preservation of Business
    36  
(e) Full Access
    36  
(f) Notice of Developments
    36  
(g) Exclusivity
    36  
(h) Maintenance of Real Property
    36  
(i) Leases
    36  
(j) Tax Matters
    36  
(k) S Corporation Status
    37  
(l) Employee Benefits and Welfare Matters
    37    
SECTION 6. Post-Closing Covenants
    37    
(a) General
    37  
(b) Litigation Support
    37  
(c) Transition
    38  
(d) Confidentiality
    38  
(e) Release of Target by Seller
    38  
 
       
SECTION 7. Conditions to Obligation to Close
    39  
 
       
(a) Conditions to Buyer’s Obligation
    39  
(b) Conditions to Seller’s Obligation
    41  
 
       
SECTION 8. Remedies for Breaches of This Agreement
    42  
 
       
(a) Survival of Representations and Warranties
    42  
(b) Indemnification Provisions for Buyer’s Benefit
    43  
(c) Indemnification Provisions for Seller’s Benefit
    44  
(d) Matters Involving Third Parties
    44  
(e) Determination of Adverse Consequences
    46  
(f) Setoff against Promissory Note Payments; Priority
    46  
(g) Other Indemnification Provisions
    46  
 
       
SECTION 9. Tax Matters
    47  
 
       
(a) Tax Indemnification
    47  
(b) Responsibility for Filing Tax Returns
    47  
(c) Cooperation on Tax Matters
    47  

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          Section   Page
(d) Tax Sharing Agreements
    48  
(e) Certain Taxes and Fees
    48  
(f) Section 338(h)(10) Election
    48  
(g) Tax Adjustment
    49  
(h) Tax Refund
    50  
 
       
SECTION 10 Termination
    50  
 
       
(a) Termination of Agreement
    50  
(b) Effect of Termination
    50  
 
       
SECTION 11
    51  
 
       
(a) Press Releases and Public Announcements; Confidentiality
    51  
(b) No Third-Party Beneficiaries
    51  
(c) Entire Agreement
    51  
(d) Succession and Assignment
    52  
(e) Counterparts
    52  
(f) Headings
    52  
(g) Notices
    52  
(h) Governing Law
    53  
(i) Amendments and Waivers
    53  
(j) Severability
    53  
(k) Expenses
    53  
(l) Construction
    53  
(m)Incorporation of Exhibits, Annexes, and Schedules
    54  
(n) Specific Performance
    54  
(o) Submission to Jurisdiction
    54  
(p) Tax Disclosure Authorization
    54  

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Attachments to Stock Purchase Agreement

1.   Annex I: Exceptions to Seller’s Representations and Warranties   2.   Annex
II: Exceptions to Buyer’s Representations and Warranties   3.   Disclosure
Schedule for Target   4.   Exhibit A: Form of Promissory Note   5.   Exhibit B:
Financial Statements of Target   6.   Exhibit C: Form of Lease Agreement   7.  
Exhibit D-1: Form of Employment Agreement for William Maher       Exhibit D-2:
Form of Employment Agreement for Edward Bellamy   8.   Exhibit E: Form of
Registration Rights Agreement

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STOCK PURCHASE AGREEMENT
     This Stock Purchase Agreement (this “Agreement”) is entered into as of
October 30, 2007, by and among Ultralife Batteries, Inc., a Delaware corporation
(“Buyer”), Stationary Power Services, Inc., a Florida corporation (“Target”),
and William Maher (“Seller”). Buyer, Target and Seller are referred to
collectively herein as the “Parties.”
RECITALS
     A. Seller owns all of the outstanding capital stock of Target.
     B. This Agreement contemplates a transaction in which Buyer will purchase
from Seller, and Seller will sell to Buyer, all of the outstanding capital stock
of Target in return for certain consideration described below.
     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
     “Adjusted Net Worth” has the meaning set forth in Section 2(e) below.
     “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, actual 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.
     “Auditor” has the meaning set forth in Section 2(e) 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.
     “Closing Date” has the meaning set forth in Section 2(c) below.

 

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     “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, Seller or Buyer, as the context requires, 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).
     “Employment Agreements” means the forms of employment agreement attached as
Exhibits D-1 and D-2 to this Agreement.
     “Encumbrance Documents” has the meaning set forth in Section 4(l) 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.
     “Equity Payments” has the meaning set forth in Section 2(b)(iii) below.
     “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).

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     “Financial Statements” has the meaning set forth in Section 4(g) below.
     “GAAP” means United States generally accepted accounting principles as in
effect from time to time, consistently applied.
     “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 Agreement” means the form of Lease Agreement attached as Exhibit C
to this Agreement.
     “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 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

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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 Seller 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).
     “Measuring Periods” means the following periods of time: (i) the period
commencing on the Closing Date and ending on December 31, 2008; (ii) the period
commencing on January 1, 2009 and ending on December 31, 2009; (iii) the period
commencing on January 1, 2010 and ending on December 31, 2010; (iv) the period
commencing on January 1, 2011 and ending on December 31, 2011; and (v) the
period commencing on January 1, 2012 and ending on December 31, 2012. Each of
such Measuring Periods may be referred to individually as a “Measuring Period.”
     “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

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and other land use laws regulating the use or occupancy of such Real Property or
the activities conducted thereon which are imposed by any governmental authority
having jurisdiction over 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.
     “Promissory Note” has the meaning set forth in Section 2(b)(ii) below.
     “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.
     “Registrable Securities” means those Ultralife Shares issuable to Seller in
accordance with the provisions of Section 2(b)(iii).
     “Registration Rights Agreement” means the form of Registration Rights
Agreement attached as Exhibit E to this Agreement.
     “Reportable Event” has the meaning set forth in ERISA Section 4043.
     “Sales” means revenues, determined in accordance with GAAP, that are
achieved by Target in the ordinary course of business.
     “Securities Act” means the Securities Act of 1933, as amended.
     “Securities Exchange Act” means the Securities Exchange Act of 1934, as
amended.
     “Seller” has the meaning set forth in the preface above.
     “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

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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.
     “Target” has the meaning set forth in the preface above.
     “Target Share” means any share of the common stock, par value $0.01 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 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 Party Claim” has the meaning set forth in Section 8(d) below.
     “Treasury Regulations” means the Treasury Regulations promulgated under the
Code.
     “Ultralife Shares” means shares of common stock, par value $0.10 per share,
of Ultralife Batteries, Inc.
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 Seller, and Seller agrees to sell to
Buyer, all of his Target Shares for the consideration specified below in this
Section 2.
     (b) Purchase Price; Payment. The aggregate consideration for the Target
Shares shall be up to $10,000,000, subject to adjustment after Closing as
provided by Section 2(e), plus up to 100,000 Ultralife Shares (together, as
adjusted, the “Purchase Price”). On the terms and subject to the conditions set
forth herein, Buyer shall pay the Purchase Price to Seller as follows:
(i) At Closing, Buyer shall pay Seller the aggregate amount of $6,000,000 by
wire transfer of immediately available funds into an account designated by
Seller prior to the Closing Date (the “Closing Payment”). The Closing Payment
shall be

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made by a single wire transfer. The Closing Payment shall be subject to
adjustment after Closing as provided by Section 2(e).
(ii) At Closing, Buyer shall execute and deliver to Seller a subordinated
convertible promissory note with a principal amount of $4,000,000 and a term of
three years in the form attached hereto as Exhibit A (the “Promissory Note”).
(iii) Following the Closing, during the Measuring Periods if Target achieves
certain Sales target, then Buyer shall issue up to an aggregate of 100,000
Ultralife Shares to Seller on the following terms and conditions (the “Equity
Payments”):
     (A) The first time Sales exceed $14,000,000 during any of the Measuring
Periods, and only the first time such threshold is exceeded, Buyer shall issue
20,000 Ultralife Shares to Seller.
     (B) The first time Sales exceed $16,500,000 during any of the Measuring
Periods, and only the first time such threshold is exceeded, Buyer shall issue
an additional 20,000 Ultralife Shares to Seller.
     (C) The first time Sales exceed $19,000,000 during any of the Measuring
Periods, and only the first time such threshold is exceeded, Buyer shall issue
an additional 20,000 Ultralife Shares to Seller.
     (D) The first time Sales exceed $22,000,000 during any of the Measuring
Periods, and only the first time such threshold is exceeded, Buyer shall issue
an additional 20,000 Ultralife Shares to Seller.
     (E) The first time Sales exceed $25,000,000 during any of the Measuring
Periods, and only the first time such threshold is exceeded, Buyer shall issue
an additional 20,000 Ultralife Shares to Seller.
     (F) The following illustrates how the Equity Payments are earned. If Sales
were $17,000,000 during the period commencing on the Closing Date and ending on
December 31, 2008, $18,000,000 during the period commencing on January 1, 2009
and ending on December 31, 2009, and $26,000,000 during the period commencing on
January 1, 2010 and ending on December 31, 2010, then (1) Buyer would issue to
Seller 40,000 Ultralife Shares for the period commencing on the Closing Date and
ending on December 31, 2008 because both the $14,000,000 and the $16,500,000
Sales thresholds would have been satisfied in that Measuring Period; (2) Buyer
would not issue any Ultralife Shares to Seller for the period commencing on
January 1, 2009 and ending on December 31, 2009 because the $14,000,000 and the
$16,500,000 Sales thresholds would have been already satisfied during the prior
Measuring Period and none of the three additional Sales thresholds (i.e.,
$19,000,000, $22,000,000 and $25,000,000) were satisfied during such period; and
(3) Buyer would issue to Seller 60,000 Ultralife Shares for the period
commencing on January 1, 2010 and ending on December 31, 2010 because each of
the $19,000,000, $22,000,000 and $25,000,000 Sales thresholds would have been
satisfied during such Measuring Period. Finally, because an aggregate of

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100,000 Ultralife Shares would have been then issued to Seller, Seller would not
be entitled to any additional Ultralife Shares during the remaining Measuring
Periods.
     (G) Notwithstanding anything herein to the contrary, in no event shall the
aggregate number of Ultralife Shares issuable as Equity Payments exceed 100,000
shares. In the event of a stock split or other re-capitalization event affecting
the Ultralife Shares, the number of shares issuable as Equity Payments shall be
adjusted accordingly.
     (H) Any Equity Payments due from Buyer to Seller hereunder shall be made
within ten days of the completion of the audit by Buyer’s independent public
accountant of the books and records of Buyer and its affiliates, including
Target, for the applicable Measuring Period and shall be made in accordance with
Buyer’s customary practices for issuing securities in transactions that are
exempt from registration under Section 5 of the Securities Act.
     (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 date as Buyer and Seller may mutually
determine (the “Closing Date”); provided, however, that the Closing Date shall
be no later than November 30, 2007.
     (d) Deliveries at Closing. At the Closing, (i) Seller will deliver to Buyer
the various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) Buyer will deliver to Seller the various certificates, instruments,
and documents referred to in Section 7(b) below, (iii) Seller will deliver to
Buyer stock certificates representing all of his Target Shares, endorsed in
blank or accompanied by duly executed assignment documents, and (iv) Buyer will
deliver to Seller the consideration specified in Section 2(b) above.
     (e) Post-Closing Purchase Price Adjustment.
(i) A closing balance sheet will be prepared and finally determined as provided
by this Section 2(e), whereupon all references herein to the “Closing Balance
Sheet” will mean the same as so finally determined. Within 45 days following
Closing, Buyer will prepare the Closing Balance Sheet and deliver the same to
Seller. Buyer will 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. The Closing Balance Sheet will be prepared from
Target’s books and records and will be true, correct and complete in all
material respects, consistent with Target’s books and records, and will fairly
present the financial condition of Target as of the Closing Date. Buyer agrees
that the Seller shall participate in the preparation of the Closing Balance
Sheet.
(ii) Within 60 days after the delivery of the Closing Balance Sheet, Buyer and
Seller shall mutually agree on the contents of the Closing Balance Sheet, which

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will then be final and binding upon the parties for all purposes. If the parties
fail such mutual agreement within such period, then either Buyer or Seller may
submit the Closing Balance Sheet, 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 Seller 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 Closing Balance Sheet or resolution of such disputed item or items thereof
(as the case may be), which Buyer and Seller 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(e), 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.
(iii) For all purposes relating to this Section 2(e), “Adjusted Net Worth” means
the net worth of Target, as defined by GAAP and as shown on the Closing Balance
Sheet, calculated and determined in accordance with the methodology set forth on
Schedule 2(e), which Adjusted Net Worth shall include the adjusted book value of
the Real Property transferred to Seller prior to Closing as contemplated by
Section 4(l)(i).
(iv) The amount of the Closing Payment, as finally determined pursuant to the
provisions hereof following the Closing, shall be $6,000,000 less the amount (if
any) by which the Adjusted Net Worth is less than $500,000.
(v) If the amount of the Adjusted Net Worth as so finally determined is less
than $500,000, then Seller shall, within ten days after such final
determination, pay the amount of such deficiency to Buyer by wire transfer of
immediately available funds to an account designated by Buyer. If the amount of
the Adjusted Net Worth as so finally determined is greater than $500,000, then
Buyer shall, within ten days after such final determination, pay the amount of
such excess to Seller by wire transfer of immediately available funds to an
account designated by Seller.
(vi) If Seller does not satisfy any deficiency he owes under Section 2(e)(v)
within the prescribed time, then Buyer shall have the right to setoff the amount
of such deficiency against any amounts owed by Buyer to Seller under the
Promissory Note. The exercise by Buyer of such right of setoff shall not
preclude Buyer from pursuing other remedies available to Buyer against Seller.
SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES
     (a) Seller’s Representations and Warranties. Seller represents and warrants
to Buyer that the statements contained in this Section 3(a) are correct and
complete as of the date of

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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, except as
set forth in Annex I attached hereto.
(i) Authorization of Transaction. Seller has full power and authority to execute
and deliver this Agreement and to perform his 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.
(ii) 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 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, 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 is bound or to which any of his assets is subject, or (C) result in the
imposition or creation of a Lien upon or with respect to the Target Shares.
(iii) 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.
(iv) 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, which constitute all of the issued and outstanding Target
Shares, 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.
(v) Investment Representations for Ultralife Shares. Seller acknowledges that
any Ultralife Shares acquired by Seller pursuant to this Agreement shall be
acquired by Seller for his own account, for investment purposes only, and not
with a view to or for distributing or reselling such securities or any part
thereof or

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interest therein. Seller, either alone or together with his representatives, has
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of any investment by him
in Ultralife Shares, and has so evaluated the merits and risks of any such
investment to his satisfaction. As of the Closing Date, Seller shall be able to
bear the economic risk of an investment in the Ultralife Shares offered pursuant
to this Agreement and shall be able to afford a complete loss of any such
investment. Seller acknowledges that at the time Seller was offered the
Ultralife Shares pursuant to this Agreement, Seller was and, at the date hereof,
Seller is, and at the Closing Date Seller will be, an “accredited investor” as
defined in Rule 501 under the Securities Act. Seller acknowledges that he has
been afforded: (A) the opportunity to ask such questions as he has deemed
necessary of, and to receive answers from, representatives of Buyer concerning
the terms and conditions of the offer and sale of any Ultralife Shares offered
pursuant to this Agreement, and the merits and risks of investing in such
securities; (B) access to information about Buyer and Buyer’s financial
condition, results of operations, business, properties, management and prospects
sufficient to enable Seller to evaluate his investment; and (C) the opportunity
to obtain such additional information that Buyer possesses or can acquire
without unreasonable effort or expense that is reasonably necessary to permit
Seller to make an informed investment decision with respect to any Ultralife
Shares to be acquired by Seller pursuant to this Agreement. Seller understands
and acknowledges that any Ultralife Shares acquired by Seller pursuant to this
Agreement were offered and acquired by him without registration under the
Securities Act in a private transaction pursuant to the exemption from
registration under Section 5 of the Securities Act provided by Section 4(2) of
the Securities Act and that such securities are and shall be “restricted
securities” as defined in Rule 144 under the Securities Act and thus such
securities shall not be freely transferable by Seller. Seller understands and
acknowledges that except as set forth in Section 3(a)(vi) below, Buyer is not
providing Seller with any registration rights in connection with any Ultralife
Shares offered pursuant to this Agreement. Seller understands and acknowledges
that Buyer shall rely on the accuracy and truthfulness of Seller’s
representations herein in order to avail of the exemption from registration
under Section 5 of the Securities Act provided by Section 4(2) of the Securities
Act.
(vi) Registration Rights. Buyer hereby grants Seller piggyback registration
rights as it relates to any future Registration Statement and covenants to
include to the extent legally permissible and subject to any limitations imposed
by the underwriter or placement agent, if applicable, Registrable Securities in
such Registration Statement. If at any time prior to the removal of restrictive
legends pursuant to Rule 144(k)(a) Buyer proposes to register shares of Common
Stock under the Securities Act other than on Forms S-8, S-4 or any successor
forms in connection with a public offering of such shares for cash (a “ Proposed
Registration”) and (b) a Registration Statement covering the resale of all of
the Registrable Securities is not been effective and available for sales thereof
by Seller, Buyer shall at such time promptly give Seller written notice of such
Proposed Registration. Buyer shall use its best efforts to cause such
Registration

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Statement to cover the resale of the Registrable Securities, which have not
otherwise been registered or covered under a current effective Registration
Statement, which Registration Statement shall state that in accordance with
Rule 416 promulgated under the Securities Act, such Registration Statement also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon stock splits, stock dividends or similar transactions. The
Seller and the Buyer shall enter into a separate Registration Rights Agreement
in substantially the form attached to hereto as Exhibit E consistent with the
provision of this Section 3(a)(iv), which Registration Rights Agreement shall
contain customary representations and warranties and provisions regarding
indemnification and contribution.
     (b) Buyer’s Representations and Warranties. Buyer represents and warrants
to Seller 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, 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.

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(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) Access to Information. Buyer has such knowledge of the business and
financial affairs of the Target and possesses a sufficient degree of
sophistication, knowledge and experience in financial and business matters such
that Buyer is capable of evaluating the information provided to Buyer by Seller
and Target about Target’s business, including Target’s assets and liabilities,
and the economic risks of acquiring the Target Shares. Buyer acknowledges and
agrees that Target and Seller make no further representations or warranties to
Buyer regarding the Target or the Target Shares, other than as set forth in this
Agreement. Specifically, Buyer acknowledges and agrees, that Target and Seller
give no assurances, representations or warranties as to the continued viability
of the Target as a going concern or otherwise or its future profitability after
Buyer’s purchase.
(vii) Litigation; Judgments. There are no pending or threatened, suits, actions,
grievances or proceedings against or relating to Buyer, the business or any
property or asset of the business of Buyer that individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect on Buyer’s
ability to consummate the transactions contemplated by this Agreement. There is
no unsatisfied or outstanding judgment, decree, injunction, rule or order of any
governmental entity or arbitrator which (i) could reasonably be expected to have
a Material Adverse Effect on Buyer or the business of Buyer or (ii) seeks to
enjoin or prohibit the consummation of the transactions contemplated by this
Agreement.
(viii) Equity Payments. The Equity, if and when issued pursuant to the
Convertible Note, will be duly authorized, validly issued, fully paid and non
assessable shares of common stock of Buyer. Upon delivery of such shares, Seller
will receive good and unencumbered title to such shares, free and clear of all
liens, restrictions, charges, encumbrances and other security interests of any
kind or nature whatsoever, except for any restrictions existing under applicable
securities laws and the restrictions imposed by this Agreement.
(ix) Reports and Financial Statements. As of their respective dates, the
periodic reports (the “Reports”) filed by Buyer with the Securities and Exchange
Commission (the “Commission”) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) complied or will comply in all material respects
with the then applicable published rules and regulations of the Commission with
respect thereto (including, without limitation, rules related to the financial
statements included therein) at the date of their issuance and did not or will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Buyer
has filed all reports and filings with the SEC required pursuant to the
Securities Act or 1933 or the Exchange Act on a timely basis. Each such report
or filing is true,

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correct and complete in all material respects and does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which they were made,
not misleading.
SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES
     Seller represents and warrants 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 Seller 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 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 Florida. 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 in which it presently proposes to engage 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. Seller has 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 Ten 10,000 Target Shares, of which 100 Target Shares are issued and
outstanding and no Target Shares are held in treasury. All of the issued and
outstanding Target Shares have been duly authorized, are validly issued, fully
paid, and non-assessable, and are held of record by the respective Seller 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,
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.

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     (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) 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. The 2007
Lexus GS450HU is currently leased by Target and used by Seller. All of Target’s
rights in and to that Lexus shall be distributed to Seller prior to closing and
Seller shall assume all obligations with respect to the lease of the Lexus.
     (f) Subsidiaries. Target has no Subsidiaries.
     (g) Financial Statements. Attached hereto as Exhibit B are the following
financial statements (collectively the “Financial Statements”): (i) an audited
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. The Financial Statements have
been prepared from Target’s books and records, are true, correct and complete in
all material respects, are consistent with Target’s books and records 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);
     (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:

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(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 $100,000 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 $100,000 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 $100,000 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
$100,000 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 $100,000 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) Target has not transferred, assigned, or granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(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;

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(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;
(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; 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 (rather than in any notes thereto) and (ii) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business
(none of

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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), 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 except where the failure to comply would not have a
Material Adverse Effect..
     (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.
(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

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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. Seller 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 7121 (or any corresponding or

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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) Except as set forth on Section 4(l)(i) of the Disclosure Schedule, Target
does not own any Real Property. The Real Property owned by Target shall be
distributed to Seller prior to Closing together with all mortgages and other
encumbrances related to the Real Property, all of which shall be assumed by
Seller or Seller’s affiliate to whom the Real Property is transferred.
(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, 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;

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     (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
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 Real Property identified in Section 4(l)(i) and 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 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 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

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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) Except as set forth in Section 4 (l) (vi) of the Disclosure Schedule, 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 Act of 1990, as amended (“ADA”), 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 has vehicular and pedestrian
access to a public street via an insurable, permanent, irrevocable and
appurtenant easement benefiting such parcel of Real Property, and 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

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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) 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. 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) 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 Seller 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) 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) 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.

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(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 necessary or desirable for the operation of the businesses
of Target as presently conducted and as presently proposed to be 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 all necessary and desirable action to maintain and protect each item of
Intellectual Property that Target owns or uses.
(ii) Target has not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties, and none of Seller and the directors and officers (and employees with
responsibility for Intellectual Property matters) of Target has ever received
any charge, complaint, claim, demand, or notice alleging any such 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 Seller 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). Seller 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;

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     (C) no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand is pending or, to the Knowledge of any of Seller 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 Seller or Target, including
without limitation, a failure by Seller 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. Seller has delivered to Buyer
correct and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With 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 transactions 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 Seller 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

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     (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 Seller 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) Seller 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 Seller, 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.
(vii) Seller 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 Seller 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 and as presently proposed to be 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 any 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:

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(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 Seller 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;
(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.
Seller 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,

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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 transactions 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. 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. All accounts receivable collected by Buyer shall be applied on a first
in, first out basis. Buyer shall continue Target’s customary collection
practices following Closing and shall provide Seller with all normal and
customary information relating to the accounts receivable that were in existence
on the Closing Date, including all normal aging reports, following the Closing.
Any accounts receivable determined by Buyer to be uncollectible shall be
reassigned to Seller, subject, however, to buyer’s indemnification rights
hereunder.
     (r) Powers of Attorney. 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;
(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

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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 Seller 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 Seller 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. 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, subject only to the reserve for product warranty claims
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. Section 4(u) of the
Disclosure Schedule includes copies of the standard terms and conditions of sale
or lease for Target (containing applicable guaranty, warranty, and indemnity
provisions). No product manufactured, sold, leased, or delivered by Target is
subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease set forth in Section 4(u) of the
Disclosure Schedule.
     (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 property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by Target.
     (w) Employees. Except as set forth on Section 4(w) of the Disclosure
Schedule, to the Knowledge of Seller 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 Seller and the directors and
officers (and employees with responsibility for

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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 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

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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.
     (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.

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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.
(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

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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.
(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) of the Disclosure Schedule.
(iii) Neither Target nor, to its Knowledge, 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

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any Liabilities or potential Liabilities, including any investigatory, remedial
or corrective obligations, relating to any of them or its facilities arising
under Environmental, Health, and Safety Requirements.
(iv) To knowledge of Target, 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, to its Knowledge, 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, to its Knowledge, 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, to its Knowledge, 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) Certain Business Relationships with Target. None of Seller, their
Affiliates, Seller’ 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 Seller, their Affiliates, Seller’s directors, officers,

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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.
     (bb) Customers and Suppliers.
(i) Section 4(bb) 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(bb) 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(bb) of the
Disclosure Schedule has indicated that it shall stop, or decrease the rate of,
buying materials, products or services from Target.
     (cc) 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. Seller 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 Seller 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. Seller 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,
Seller 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 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;
provided, however, that nothing herein

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contained shall prohibit Target from making cash distributions to the Seller
(whether in the form of dividends or compensation) so long as such distributions
do not cause the Adjusted Net Worth to be materially less than $500,000.
     (d) Preservation of Business. Seller 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 Seller will permit, and Seller 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. Seller 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. Seller will not (and Seller 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. Seller will not vote its Target Shares in favor of any such
acquisition. Seller 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. Seller 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, Seller 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

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method, file any amended Tax Return, enter into any closing agreement, settle
any Tax claim or 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 Seller 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 Seller shall not take or allow any action, other
than the sale of Target’s stock pursuant to this Agreement, which 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) Employee Benefits and Welfare Matters. Notwithstanding anything in this
Agreement to the contrary, prior to Closing, Seller shall cause the Target to
terminate the Stationary Power Services, Inc. 401(k) Plan (the “401(k) Plan”)
and any other Target Plan intended to be qualified under Code Section 401(a) or
403(a). In addition, (a) Sellers shall cause the Target to remove, or Seller
shall cause to resign, as a trustee under the 401(k) Plan, Seller and each other
trustee, if any, of the 401(k) Plan, effective as of the Closing Date; and
(b) Seller shall cause the Target 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).
Seller 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
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

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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. Seller will not 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. Seller shall 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) Release of Target by Seller. Effective at and (only) upon Closing,
Seller (the “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 Seller against the Target for indemnification or for
advances with respect to actions or omissions (or claims or allegations thereof)
of Seller 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 Seller’s ownership of securities of Target;
provided that (i) nothing contained herein shall release Released Parties from
any of their post-Closing obligations and liabilities to Releasing Party created
under this Agreement or constitute a waiver of any claims that Releasing Party
may bring or have for indemnification by the Released Parties

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under Section 8, and (ii) this release shall only relate to those claims arising
from conduct or omissions occurring on or before the Closing.
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) Seller shall have performed and complied with all of his 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 Seller 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 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) Seller 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;

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(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 Seller 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, 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) [INTENTIONALLY OMITTED]
(xii) [INTENTIONALLY OMITTED]
(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) William Maher and Edward Bellamy shall have entered into the Employment
Agreements with Buyer (or an Affiliate of Buyer) in the forms attached hereto as
Exhibits D-1 and D-2, respectively, and such agreements shall be in full force
and effect as of the Closing;
(xv) Seller 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) Seller 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 Target is qualified to do business;
(xvii) Seller 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;

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(xviii) Seller shall have entered into a confidentiality, non-solicitation,
non-compete and non-disparagement agreement with Target on terms satisfactory to
Buyer, and such agreement shall be in full force and effect as of the Closing.
(xix) Any amounts owed by Target to Seller shall have been paid in full and, at
the request of Buyer, Seller 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 and consent for payment of the Promissory
Note and Equity Payments and there shall be no payment default under Buyer’s
loan agreements with its lenders unless waived by Buyer’s lenders.
(xxi) Buyer shall have obtained the approval of its board of directors of this
Agreement and the transactions contemplated thereby.
(xxii) Target and Seller shall have delivered to Buyer signed copies of the
applicable forms and attachments thereto required in connection with the Section
338(h)(10) Election pursuant to Section 9(f) below.
(xxiii) Target and Seller or an affiliate of Seller shall have entered into the
Lease Agreement and such agreement shall be in full force and effect as of the
Closing.
(xxiv) Buyer shall have received from Bonadio and Company, LLP audited Financial
Statements of Target for the year ended December 31, 2006.
(xxv) Seller and Buyer shall have entered into the Registration Rights
Agreement.
(xxvi) Buyer’s acquisition of Reserve Power Systems, Inc. shall have been
completed as of the Closing Date.
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 Seller’s Obligation. The obligation of Seller 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

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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 Seller 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 Seller;
(vii) William Maher and Edward Bellamy shall have entered into the Employment
Agreements with Buyer (or an Affiliate of Buyer) in the forms attached hereto as
Exhibits D-1 and D-2, respectively, and such agreements shall be in full force
and effect as of the Closing;
(viii) Buyer and Seller shall have entered into the Registration Rights
Agreement; and
(ix) Buyer shall have paid in full, or caused Target to pay in full at Closing,
those obligations of Target set forth on Schedule 7(b)(ix).
Seller may waive any condition specified in this Section 7(b) if it executes a
writing so stating at or prior to closing.
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).

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(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
two years from the Closing Date. This provision shall not extinguish claims that
are made within two years of the Closing Date but that remain unresolved on or
after the date that is two 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 Seller breaches (or in the event any third party alleges facts
that, if true, would mean Seller has breached) any of his 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 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 Seller shall be
obligated 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 Seller 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)-(cc)
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 Seller will be obligated to indemnify Buyer from and against only
such Adverse Consequences above such $30,000 aggregate threshold.
Notwithstanding the other provisions of this Section 8(b)(i) to the contrary,
Seller will be obligated to indemnify Buyer from and against any and all Adverse
Consequences resulting from, arising out of, or relating to (a) the failure of
the Real Property to be in compliance with ADA standards; (b) the Urban America,
Inc. warranty matter described in Disclosure Schedule 4(i); (c) the Global
Crossing preferential payment matter described in Disclosure Schedule 4(j); and
(d) the Ohio, West Virginia and Louisiana Department of Revenue matters
described in Disclosure Schedule 4(j).

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(ii) In the event Seller breaches (or in the event any third party alleges facts
that, if true, would mean Seller breached) any of his covenants in Section 2(a)
above or any of his representations and warranties in Section 3(a) above, and
provided that Buyer makes a written claim for indemnification against 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 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) Seller shall 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 Seller to Buyer under this Section 8(b) exceed
THE PURCHASE PRICE.
     (c) Indemnification Provisions for Seller’s Benefit.
(i) 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 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 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).
(ii) Buyer shall indemnify Seller from and against the entirety of any Adverse
Consequences Seller 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, after the Closing Date.
     (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

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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 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.

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     (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 Promissory Note Payments; Priority; Escrow.
(i) Any indemnification to which Buyer is entitled under this Agreement as a
result of any Adverse Consequences Buyer may suffer may, at Buyer’s election, be
satisfied by Buyer setting-off such indemnification amounts against any amounts
due to Seller under the Promissory Note, and Buyer shall seek to satisfy such
indemnification amounts against such amounts due to Seller under the Promissory
Note 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 Seller.
(ii) In the event the Global Crossing preferential payment matter described in
Disclosure Schedule 4(j) has not been resolved by the date the Promissory Note
is converted in accordance with its terms or by the maturity date of the
Promissory Note if not so converted, the principal amount of the Promissory Note
shall be reduced by $500,000 and Buyer shall put $500,000 in escrow with a
commercial bank selected by Buyer to act as escrow agent, which amount shall be
held solely for purposes of satisfying any claims arising out of the Global
Crossing preferential payment matter. Sellers and Buyer agree to enter into an
escrow agreement with the escrow agent containing customary terms and terms
consistent with this Section 8(f)(ii).
     (g) Other Indemnification Provisions. Buyer and Seller acknowledge and
agree that the foregoing indemnification provisions in this Section 8 shall be
the exclusive remedy of Buyer and Seller with respect to Target, Seller, and the
transactions contemplated by this Agreement. The party entitled to
indemnification hereunder shall take all reasonable steps to mitigate all
damages, upon and after becoming aware of any event that could reasonably be
expected to give rise to any such losses that are indemnifiable hereunder. No
party shall be entitled to indemnification to the extent of any insurance, of
any tax deduction or benefit actually realized, refund or credit, or any other
benefits actually realized resulting from or which may be claimed as a result of
the facts and circumstance relating to any indemnifiable claim. If any damages
are covered by insurance, the party seeking indemnity hereunder shall use all
reasonable efforts to recover the amount of such losses from the insurer of such
insurance, which such recovery shall reduce the amount of losses to be
indemnified. To the extent either party discharges any claims for
indemnification hereunder, that party shall be segregated to all rights of the
other parties against third parties. Seller hereby agrees that he will not make
any claim for indemnification against Target by reason of the fact that he was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a 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 Seller (whether

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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 Seller for certain tax matters following the Closing Date:
     (a) Tax Indemnification. Seller shall 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. Buyer acknowledges that the
Target will no longer be eligible for S corporation status after the Closing
Date. Accordingly, a final Form 1120S for the Target will be required to be
prepared for the period January 1, 2007 through the end of the Closing Date.
Such income tax return will be provided by the Seller allocating income and
expenses to this period according to the closing of the books method, in
accordance with Section 1377(a)(2) of the Code. At his expense, Seller 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. Seller 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 Seller and Buyer with respect
thereto shall be resolved in accordance with the provisions of Section 2(e)(ii),
except that the parties shall have 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 Seller 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
Seller agree (A) to retain all books and records with respect to Tax matters
pertinent to Target

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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 Seller, any extensions thereof) of the respective taxable periods, and 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 Seller, as the case may be, shall allow the other Party to
take possession of such books and records.
(ii) Buyer and Seller 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 Seller 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.
(iv) Buyer shall not with out the prior written consent of the Seller file, or
cause to be filed, any amended Tax Return or claim for Tax Refund, with respect
to the Target for pre-Closing Tax Period, to the extent any such filing may
adversely effect the liability of the Seller, unless advised in writing that
such filing is required by law.
     (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 Seller when due, and Seller will, at his 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 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. In such case, Target and Seller 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.

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(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. Seller
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 Seller
with a valuation statement reflecting, as of the Closing Date, the fair market
values of all of the assets and the liabilities and obligations of the Target.
Buyer and Seller 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. Seller
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 Seller’s after-Tax net proceeds from the sale
of Target’s stock to be less than the after-Tax net proceeds that 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 Seller, in
cash, an aggregate amount determined pursuant to the following (the “Tax
Adjustment”):
(i) If the aggregate amount of the Section 338(h)(10) Election Liability is less
than or equal to $125,000, then Buyer shall pay Seller the aggregate amount of
the Section 338(h)(10) Election Liability.
The amount of the Tax Adjustment shall be paid to 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, 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 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

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of Section 2(e)(ii), except that the parties shall have 20 days in which to
attempt to reach mutual agreement before referring the calculation to the
Auditor.
     (h) Tax Refund. Any Tax Refund pertaining to the pre-Closing Period
(reduced by any Taxes imposed on the Target as a result of
  such refund) shall be for the account of, and paid over to the Seller.
SECTION 10. TERMINATION
     (a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) Buyer and Seller may terminate this Agreement by mutual written consent at
any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written notice to Seller on or
before the 25th day following the date of this Agreement 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 Seller at
any time prior to the Closing (A) in the event Seller has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, Buyer has notified Seller of the breach, and the breach has
continued without cure for a period of 10 days after the notice of breach or
(B) if the Closing shall not have occurred on or before November 30, 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) Seller 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 10 days after the notice of breach or
(B) if the Closing shall not have occurred on or before November 30, 2007, by
reason of the failure of any condition precedent under Section 7(b) hereof
(unless the failure results primarily from 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).

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SECTION 11. MISCELLANEOUS
     (a) Press Releases and Public Announcements; Confidentiality.
(i) 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 Seller; 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).
(ii) 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 11(a)(ii). 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.
     (b) 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.
     (c) 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

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in any way to the subject matter hereof, including, but not limited to that
certain letter of intent and term sheet dated as of July 16, 2007, as amended or
extended, which letter of intent and term sheet are hereby terminated.
     (d) 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 Seller; 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).
     (e) 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.
     (f) 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 this Agreement.
     (g) 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 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
 
      Facsimile: (585) 232-2152
 
       
 
  If to Seller:   William Maher
 
      525 Tallahassee Drive
 
      St. Petersburg, FL 33702
 
      Facsimile:                                        

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  With a copy to:   Johnson, Pope, Bokor, Ruppel & Burns, LLP
 
      911 Chestnut Street
 
      Clearwater, FL 33756
 
      Attention: Michael G. Little
 
      Facsimile: 727-462-0365

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.
     (h) 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.
     (i) 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
Seller. 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 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.
     (j) 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.
     (k) Expenses. Each of Buyer, Seller and Target will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby; provided, however,
that Seller shall also bear the costs and expenses of Target (including all of
their legal fees and expenses) in connection with this Agreement and the
transactions contemplated hereby in the event that the transactions contemplated
by this Agreement are consummated.
     (l) 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)

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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.
     (m) 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.
     (n) 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 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
Seller breaches 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.
     (o) 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.
     (p) 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.

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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.    
 
       
 
  By: /s/ John D. Kavazanjian
 
   
 
  John D. Kavazanjian    
 
  Chief Executive Officer    
 
       
 
  SELLER:    
 
       
 
  By: /s/ William Maher    
 
       
 
  William Maher, Individually    
 
       
 
  TARGET:    
 
       
 
  Stationary Power Services, Inc.    
 
       
 
  /s/ William Maher    
 
       
 
  William Maher    
 
  President    

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