Exhibit 10.1

EXECUTION COPY

 

 

AGREEMENT AND PLAN OF MERGER BY AND AMONG

MERCURY COMPUTER SYSTEMS, INC.,

KING MERGER INC.,

KOR ELECTRONICS,

AND

THE SECURITYHOLDERS’ REPRESENTATIVE NAMED HEREIN

Dated as of December 22, 2011

 

 

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TABLE OF CONTENTS

 

     Page  

ARTICLE I DEFINITIONS; CERTAIN RULES OF CONSTRUCTION

     2   

Section 1.01. Definitions

     2   

Section 1.02. Certain Matters of Construction

     16   

ARTICLE II THE MERGER

     17   

Section 2.01. The Merger

     17   

Section 2.02. Closing; Effective Time

     17   

Section 2.03. Articles of Incorporation and Bylaws of the Surviving Corporation

     18   

Section 2.04. Directors and Officers of the Surviving Corporation

     18   

Section 2.05. Effects of the Merger

     18   

ARTICLE III MERGER CONSIDERATION; CONVERSION OF SHARES

     18   

Section 3.01. Conversion of Stock

     18   

Section 3.02. Total Merger Consideration

     19   

Section 3.03. Surrender of Certificates

     20   

Section 3.04. Treatment of Options

     21   

Section 3.05. Working Capital Adjustment

     22   

Section 3.06. Withholding

     25   

Section 3.07. Dissenting Shares

     25   

Section 3.08. Changes in Shares

     25   

Section 3.09. Further Assurances

     25   

ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY

     26   

Section 4.01. Organization

     26   

Section 4.02. Power and Authorization

     26   

Section 4.03. Authorization of Governmental Authorities

     27   

Section 4.04. Noncontravention

     27   

Section 4.05. Capitalization of the Company

     28   

Section 4.06. Financial Matters

     28   

Section 4.07. Absence of Certain Developments

     30   

Section 4.08. Debt; Guarantees

     30   

Section 4.09. Assets

     30   

Section 4.10. Real Property

     31   

Section 4.11. Intellectual Property

     32   

Section 4.12. Legal Compliance; Illegal Payments; Permits

     35   

Section 4.13. Tax Matters

     36   

Section 4.14. Employee Benefit Plans

     39   

Section 4.15. Environmental Matters

     41   

Section 4.16. Contracts

     42   

 

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     Page  

Section 4.17. Government Contracts

     44   

Section 4.18. Related Party Transactions

     47   

Section 4.19. Customers and Suppliers

     47   

Section 4.20. Labor Matters

     48   

Section 4.21. Litigation; Governmental Orders

     48   

Section 4.22. Insurance

     49   

Section 4.23. Books and Records

     49   

Section 4.24. No Brokers

     49   

ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

     50   

Section 5.01. Organization

     50   

Section 5.02. Power and Authorization

     50   

Section 5.03. Authorization of Governmental Authorities

     50   

Section 5.04. Noncontravention

     51   

Section 5.05. No Brokers

     51   

Section 5.06. Merger Sub Capitalization

     51   

Section 5.07. Litigation

     51   

Section 5.08. Financing

     51   

ARTICLE VI COVENANTS OF THE PARTIES

     51   

Section 6.01. Conduct of the Business of the Company and its Subsidiaries

     51   

Section 6.02. Access to Information

     54   

Section 6.03. Commercially Reasonable Efforts; Notices and Consents

     54   

Section 6.04. Expenses

     54   

Section 6.05. Notification of Certain Matters

     54   

Section 6.06. Publicity

     54   

Section 6.07. Conditions to the Contemplated Transactions; Further Assurances

     55   

Section 6.08. Certain Employment and Employee Benefits Matters

     55   

Section 6.09. Directors’ and Officers’ Indemnification and Insurance

     57   

Section 6.10. Merger Sub and Surviving Corporation

     58   

Section 6.11. Section 280G Approval

     58   

Section 6.12. Shareholder Merger Approval

     58   

ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB AT THE
CLOSING

     59   

Section 7.01. Representations and Warranties

     59   

Section 7.02. Agreements and Covenants

     59   

Section 7.03. Delivery of Closing Certificates

     59   

Section 7.04. Qualifications

     60   

 

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Section 7.05. Absence of Litigation

     60   

Section 7.06. Consents, etc

     60   

Section 7.07. Proceedings and Documents

     60   

Section 7.08. Ancillary Agreements

     60   

Section 7.09. Resignations

     60   

Section 7.10. No Material Adverse Change

     60   

Section 7.11. Payoff Letters and Lien Releases, etc

     60   

Section 7.12. DLA Opinion

     61   

Section 7.13. Non-Competition Agreements

     61   

Section 7.14. Principal Shareholders Agreements

     61   

ARTICLE VIII CONDITIONS TO THE COMPANY’S OBLIGATIONS AT THE CLOSING

     61   

Section 8.01. Representations and Warranties

     61   

Section 8.02. Agreements and Covenants

     61   

Section 8.03. Officers Certificate

     61   

Section 8.04. Qualifications

     61   

Section 8.05. Absence of Litigation

     61   

Section 8.06. Ancillary Agreements

     61   

ARTICLE IX INDEMNIFICATION

     62   

Section 9.01. Indemnification by the Securityholders

     62   

Section 9.02. Indemnification by the Parent

     64   

Section 9.03. Time for Claims; Notice of Claims

     65   

Section 9.04. Third Party Claims

     66   

Section 9.05. Indemnity Escrow

     68   

Section 9.06. Knowledge and Investigation

     69   

Section 9.07. Remedies Cumulative

     69   

Section 9.08. Sole Remedy

     69   

Section 9.09. Merger Consideration Adjustment

     69   

Section 9.10. Insurance

     69   

ARTICLE X TAX MATTERS

     70   

Section 10.01. Tax Indemnification

     70   

Section 10.02. Tax Return Preparation

     70   

Section 10.03. Computation of Taxes for Straddle Periods

     72   

Section 10.04. Section 338(g)

     72   

Section 10.05. Allocation of Certain Expenses

     72   

Section 10.06. Tax Sharing Agreements

     73   

Section 10.07. Certain Taxes and Fees

     73   

Section 10.08. Cooperation on Tax Matters

     73   

Section 10.09. Control

     73   

Section 10.10. Section 280G Vote Solicitation

     74   

Section 10.11. Tax Treatment of Escrow

     75   

 

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ARTICLE XI TERMINATION

     75   

Section 11.01. Termination of Agreement

     75   

Section 11.02. Effect of Termination

     76   

ARTICLE XII MISCELLANEOUS

     76   

Section 12.01. Notices

     76   

Section 12.02. Succession and Assignment; No Third-Party Beneficiaries

     78   

Section 12.03. Amendments and Waivers

     78   

Section 12.04. Provisions Concerning the Securityholders’ Representative

     79   

Section 12.05. Entire Agreement

     81   

Section 12.06. Counterparts; Facsimile Signature

     81   

Section 12.07. Severability

     81   

Section 12.08. Governing Law

     82   

Section 12.09. Jurisdiction; Venue; Service of Process

     82   

Section 12.10. Specific Performance

     83   

Section 12.11. Waiver of Jury Trial

     83   

 

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EXHIBITS

EXHIBIT

 

A    Form of Escrow Agreement B    Agreement of Merger C    Letter of
Transmittal D    Form of Option Cancellation Acknowledgement E    Form of FIRPTA
Certificate F    Form of DLA Opinion G-1    Form of Non-Competition Agreement
(California) G-2    Form of Non-Competition Agreement (Colorado) H    Form of
Principal Shareholders Agreement

ANNEXES

ANNEX

 

I    List of Principal Shareholders II    Net Working Capital Calculation
Schedule III    Securityholders Subject to Non-Compete IV    Directors and
Officers of Surviving Corporation; Resignations

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (as amended, modified or supplemented from
time to time, this “Agreement”) is made and entered into as of December 22, 2011
by and among MERCURY COMPUTER SYSTEMS, INC., a Massachusetts corporation
(“Parent”), King Merger Inc., a California corporation and a wholly-owned
subsidiary of Parent (“Merger Sub”), KOR ELECTRONICS, a California corporation
(the “Company”), and Shareholder Representative Services LLC, a Colorado limited
liability company, solely in its capacity as the Securityholders’ Representative
(as defined below).

RECITALS

WHEREAS, the Board of Directors of the Company (the “Company Board”) has
determined that this Agreement and the transactions contemplated hereby,
including the merger of Merger Sub with and into the Company (the “Merger”) in
accordance with the California General Corporation Law (the “CGCL”), with the
Company continuing as the surviving corporation in the Merger and a wholly-owned
subsidiary of Parent, are advisable, fair to and in the best interests of the
shareholders of the Company (the “Shareholders”), and has approved this
Agreement and the transactions contemplated hereby, including the Merger, and
recommended that the Shareholders adopt this Agreement and approve the Merger,
all upon the terms and subject to the conditions set forth herein;

WHEREAS, concurrently with the execution of this Agreement, the holders of
outstanding shares of capital stock of the Company listed on Annex I hereto (the
“Principal Shareholders”), holding shares of common stock, par value $0.0001 per
share, of the Company (the “Common Stock” with such outstanding common shares
being referred to herein as the “Common Shares”), and all of the issued and
outstanding shares of Series F convertible preferred stock, par value $0.0001
per share, of the Company (the “Preferred Stock” and, together with the Common
Shares, referred to herein as the “Shares”), in the aggregate representing more
than 50% of the outstanding Common Stock, more than 50% of the outstanding
Preferred Stock and more than 50% of the total voting power of the capital stock
of the Company, have executed and delivered a written consent adopting this
Agreement and approving the Merger upon the terms and subject to the terms set
forth herein;

WHEREAS, the Boards of Directors of Parent and Merger Sub have each determined
that this Agreement and the transactions contemplated hereby, including the
Merger, are advisable and in the best interests of their respective
shareholders, and have approved this Agreement and the transactions contemplated
hereby, including the Merger, and Parent, as the sole stockholder of Merger Sub,
has adopted this Agreement and approved the Merger, all upon the terms and
subject to the conditions set forth herein;

WHEREAS, by virtue of the Merger, all Shares will be converted into the right to
receive cash, as described herein;

WHEREAS, in connection with the Merger, all of the issued and outstanding
options to acquire Common Stock (the “Options”) will be terminated, with holders
of Vested Options (defined herein) receiving a cash payment as provided herein;
and

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WHEREAS, contemporaneously with the Closing (as defined herein), Parent and
Merger Sub shall enter into an Indemnity Escrow Agreement with Wells Fargo Bank,
N.A., as escrow agent (the “Escrow Agent”), and the Securityholders’
Representative, as the representative of the Shareholders and the holders of the
Vested Options (collectively, the “Securityholders”), substantially in the form
of Exhibit A hereto (the “Escrow Agreement”).

AGREEMENT

NOW THEREFORE, in consideration of the premises and mutual promises herein made,
and in consideration of the representations, warranties and covenants herein
contained, the parties to this Agreement hereby agree as follows:

ARTICLE I

DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.

Section 1.01. Definitions.

(a) In addition to the other terms defined throughout this Agreement, the
following terms shall have the following meanings when used in this Agreement:

“8(a) Business Development Concern” means a firm that the SBA has certified as
eligible for participation in the 8(a) Business Development Program as described
in 48 C.F.R. § 19.800 and 15 U.S.C. § 637(a).

“1933 Act” means the Securities Act of 1933, as amended.

“Accounting Principles” means GAAP as in effect on the Most Recent Balance Sheet
Date applied on a basis consistent with the methodology used to prepare the Net
Working Capital Calculation Schedule.

“Action” means any claim, controversy, action, cause of action, suit,
litigation, arbitration, investigation, opposition, interference, audit,
assessment, hearing, complaint, demand or other legal proceeding (whether
sounding in contract, tort or otherwise, whether civil or criminal and whether
brought at law or in equity) that is commenced, brought, conducted, tried or
heard by or before, or otherwise involving, any Governmental Authority.

“Affiliate” means, with respect to any specified Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For purposes of the foregoing, (a) a
Person shall be deemed to control a specified Person if such Person (or a Family
Member of such Person) possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such specified Person or
(b) if such other Person is at such time a direct or indirect beneficial holder
of at least 10% of any class of the Equity Interests of such specified Person.

 

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“Ancillary Agreements” means the Escrow Agreement, the Option Cancellation
Acknowledgements, the Letter of Transmittal, the Non-Competition Agreements, the
Principal Shareholder Agreements and each of the other agreements, certificates,
instruments and documents to be executed and delivered by the parties in
connection with the Contemplated Transactions.

“Appraisal Costs” means any costs incurred by the Company before or after the
Effective Time in connection with any Dissenting Shares pursuant to Section 3.07
(Dissenting Shares), including payments required to be made to holders of
Dissenting Shares and legal fees, but only to the extent that (i) such payments
exceed the Merger Consideration that would otherwise have been payable to such
holders in the Merger had their Shares not been Dissenting Shares and (ii) such
fees and expenses are not paid by the Company prior to the Effective Time.

“Business” means the businesses conducted by the Company and its Subsidiaries as
of the date hereof.

“Business Day” means any day other than a Saturday or a Sunday or a weekday on
which banks in Boston, Massachusetts are authorized or required to be closed.

“Change of Control Payment” means (a) any bonus, severance or other payment or
other form of Compensation that is created, accelerated, accrues or becomes
payable by the Company to any present or former director, stockholder, employee
or consultant thereof, including pursuant to any employment agreement, benefit
plan or any other Contractual Obligation, including any Taxes payable on or
triggered by any such payment (other than payments in respect of the Shares and
Options under or as described in Article III of this Agreement, including
payments in respect of Vested Options that have been accelerated in connection
with the Contemplated Transactions in accordance with Section 3.04), to the
extent the Company or any Subsidiary is responsible for the payment or
reimbursement of any such Taxes and (b) without duplication of any other amounts
included within the definition of Company Transaction Expenses, any other
payment, expense or fee that accrues or becomes payable by the Company to any
Governmental Authority or other Person under any Legal Requirement or
Contractual Obligation, including in connection with the making of any filings,
the giving of any notices or the obtaining of any consents, authorizations or
approvals, in the case of each of (a) and (b), as a result of, or in connection
with, the execution and delivery of this Agreement or any Ancillary Agreement or
the consummation of the Contemplated Transactions.

“Classified Government Contract” means any Government Contract where any portion
of the agreement or performance of the agreement is classified pursuant to
Executive Order 13292.

“Closing Cash Amount” means the amount of cash and cash equivalents held by the
Company and the Company’s Subsidiaries, net of outstanding checks, as of the
close of business on the day immediately preceding the Closing Date.

 

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“Closing Date” means the date on which the Closing actually occurs.

“Closing Debt Amount” means the amount of Debt of the Company as of the Closing
Date immediately prior to the Closing.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Company Disclosure Schedule” means the separate set of schedules relating to
this Agreement and prepared by the Company and delivered by the Company to
Parent immediately prior to the execution and delivery of this Agreement.

“Company Intellectual Property Rights” means all Licensed Intellectual Property
Rights and Owned Intellectual Property Rights.

“Company’s Knowledge,” “Knowledge of the Company” and similar formulations mean
that one or more of Kevin Carnino, Thomas O’Hara, Wayne Girard, Brett Keating,
Peter Reese, Theodore Batch, Richard Halvas and Matthew Hughes (a) has actual
knowledge of the fact or other matter at issue or (b) should have had actual
knowledge of such fact or other matter assuming the diligent exercise of such
individual’s duties as an officer or employee of the Company or a Subsidiary of
the Company and after reasonable inquiry of all employees of the Company/or such
Subsidiary reasonably expected to have actual knowledge of such fact or matter.

“Company Products” means any products being sold, manufactured or developed, and
any services being provided, by the Company and its Subsidiaries in connection
with and/or related to the Business as currently conducted.

“Company Transaction Expenses” means all costs, fees and expenses incurred in
connection with or in anticipation of the negotiation, execution and delivery of
this Agreement and the Ancillary Agreements or the consummation of the
Contemplated Transactions to the extent such costs, fees and expenses are
payable or reimbursable by the Company, including, (i) all fees and expenses of
Pagemill Partners and all other brokerage fees, commissions, finders’ fees or
financial advisory fees, (ii) the fees and expenses of DLA Piper LLP (US) and
Mayer Hoffman McCann P.C. and all other fees and expenses of legal counsel,
accountants, consultants and other experts and advisors so incurred, (iii) all
Change of Control Payments, (iv) the cost of any D&O coverage obtained pursuant
to Section 6.09; (v) all Appraisal Costs, (vi) without duplication of any
Appraisal Costs, to the extent not covered by the insurance referred to in
Section 6.09(b), all other costs and expenses incurred by the Company or any
Subsidiary in connection with any claim asserted by any Securityholders in
connection with the Contemplated Transactions (other than a claim for payment of
amounts due under Article III or the Escrow Agreement) and (vii) all costs and
expenses of the Securityholders’ Representative not funded by the SR Escrow
Amount. Company Transaction Expenses will not include the fees of the Escrow
Agent pursuant to the Escrow Agreement or the Paying Agent pursuant to the
Paying Agent Agreement.

 

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“Compensation” means, with respect to any Person, all salaries, compensation,
remuneration, bonuses or benefits of any kind or character whatsoever (including
issuances or grants of Equity Interests), made directly or indirectly by the
Company or any of its Subsidiaries to or for the benefit of such Person or any
Family Member of such Person.

“Contemplated Transactions” means the transactions contemplated by this
Agreement, including (a) the Merger, (b) the cancellation of the Options and the
making of the Option Payments, (c) the execution, delivery and performance of
the Ancillary Agreements, and (d) the payment of fees and expenses relating to
such transactions.

“Contractual Obligation” means, with respect to any Person, any contract,
agreement, deed, mortgage, lease, sublease, license, sublicense or other
commitment, promise, undertaking, obligation, arrangement, instrument or
understanding, whether written or oral, to which or by which such Person is a
party or otherwise subject or bound or to which or by which any property,
business, operation or right of such Person is subject or bound.

“Debt” means, with respect to any Person, and without duplication, all
Liabilities of such Person (a) for borrowed money (including amounts outstanding
under overdraft facilities, and all principal, accrued interest, penalties, fees
and premiums), (b) evidenced by notes, bonds, debentures or other similar
Contractual Obligations, (c) in respect of “earn-out” obligations and other
obligations for the deferred purchase price of property, goods or services
(other than trade payables or accruals incurred in the Ordinary Course of
Business), (d) for the capitalized liability under all capital leases of such
Person (determined in accordance with GAAP), (e) in respect of letters of credit
and bankers’ acceptances, (f) for Contractual Obligations relating to interest
rate protection, swap agreements and collar agreements, in each case, to the
extent payable if such Contractual Obligation is terminated at the Closing, and
(g) in the nature of Guarantees of the obligations described in clauses
(a) through (f) above of any other Person.

“Deferred Merger Consideration” means any additional consideration payable with
respect to the Shares and Vested Options pursuant to Section 3.05 (Working
Capital Adjustment) or pursuant to the Escrow Agreement.

“Distribution” means a declaration, setting aside or payment by the Company or
any of its Subsidiaries of any dividend or other distribution (whether in cash,
equity or property) on or with respect to, or redemption, purchase or other
acquisition by the Company or any of its Subsidiaries of, any Equity Interest of
the Company or any Subsidiaries.

“Employee Plan” means any plan, program, policy, arrangement or Contractual
Obligation, whether formal or informal, whether or not reduced to writing, and
whether covering a single individual or a group of individuals, that is (a) a
welfare plan within the meaning of Section 3(1) of ERISA, (b) a pension benefit
plan within the meaning of Section 3(2) of ERISA, (c) a stock bonus, stock
purchase, stock option, restricted stock,

 

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stock appreciation right or similar equity-based plan or (d) any other
deferred-compensation, retirement, severance, welfare-benefit, reimbursement,
bonus, profit-sharing, incentive or fringe-benefit plan, program or arrangement.

“Encumbrance” means any charge, claim, community or other marital property
interest, equitable or ownership interest, lien, license, option, pledge,
security interest, mortgage, deed of trust, right of way, easement,
encroachment, servitude, right of first offer or first refusal, buy/sell
agreement and any other restriction or covenant with respect to, or condition
governing the use, construction, voting (in the case of any security or Equity
Interest), transfer, receipt of income or exercise of any other attribute of
ownership (other than, in the case of a security, any restriction on the
transfer of such security arising solely under federal and state securities
laws). “Encumbered” has a meaning correlative with the foregoing,

“Enforceable” means, with respect to any Contractual Obligation stated to be
Enforceable by or against any Person, that such Contractual Obligation is a
legal, valid and binding obligation of such Person enforceable by or against
such Person in accordance with its terms, except to the extent that enforcement
of the rights and remedies created thereby is subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application
affecting the rights and remedies of creditors and to general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).

“Environmental Laws” means any Legal Requirement relating to (a) releases or
threatened releases of Hazardous Substances, (b) pollution or protection of
public health or the environment or worker safety or health or (c) the
manufacture, handling, transport, use, treatment, storage, or disposal of
Hazardous Substances.

“Equity Interest” means, with respect to any Person, (a) any capital stock,
partnership or membership interest, unit of participation or other similar
interest (however designated) in such Person and (b) any option, warrant,
purchase right, conversion right, exchange right or other Contractual Obligation
which would entitle any other Person to acquire any such interest in such Person
or otherwise entitle any other Person to share in the equity, profits, earnings,
losses or gains of such Person (including stock appreciation, phantom stock,
profit participation or other similar rights).

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974.

“Escrow Amount” means $10,500,000.

“Facilities” means any buildings, plants, improvements or structures located on
the Real Property.

“Family Member” means, with respect to any individual, (a) such Person’s spouse,
(b) each parent, brother, sister or child of such Person or such Person’s
spouse, (c) the spouse of any Person described in clause (b) above, (d) each
child of any Person described in clauses (a), (b) or (c) above, (e) each trust
created for the benefit of one or

 

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more of the Persons described in clauses (a) through (d) above and (f) each
custodian or guardian of any property of one or more of the Persons described in
clauses (a) through (e) above in his or her capacity as such custodian or
guardian.

“Fully-Diluted Common Share Number” means the total number of issued and
outstanding shares of Common Stock immediately prior to the Effective Time
calculated on a fully-diluted basis assuming the exercise in full of all Vested
Options that are outstanding at such time, but without giving effect to any
potential conversion of the Preferred Stock.

“GAAP” means generally accepted accounting principles in the United States as in
effect from time to time.

“Government Contract” means any Contractual Obligation between the Company or
any of its Subsidiaries in its capacity as a prime contractor and any United
States Government department or agency or an agency of a foreign sovereign. A
task, purchase or delivery order under a Government Contract shall not
constitute a separate Government Contract, but shall be part of the Government
Contract to which it relates.

“Government Order” means any order, writ, judgment, injunction, decree,
stipulation, ruling, decision, verdict, determination or award made, issued or
entered by or with any Governmental Authority.

“Government Subcontract” means any Contractual Obligation between the Company or
any of its Subsidiaries and any prime contractor or upper-tier subcontractor
relating to a Contractual Obligation between such Person and any United States
Government department or agency or an agency of a foreign sovereign, and any
subcontract under a Government Contract awarded by the Company or any of its
Subsidiaries to another party in each case including any task orders or delivery
orders issued under such Contractual Obligation or subcontract.

“Governmental Authority” means any United States federal, state, local,
municipal or any foreign government, or political subdivision thereof,
regulatory, self-regulatory, or any multinational organization or authority, or
any other authority, agency, bureau, board, court, department, tribunal,
instrumentality or commission thereof entitled to exercise any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power, any court or tribunal, or any arbitrator or arbitral body.

“Guarantee” means, with respect to any Person, (a) any guarantee of the payment
or performance of, or any contingent obligation in respect of, any Debt or other
Liability of any other Person, (b) any other arrangement whereby credit is
extended to any obligor (other than such Person) on the basis of any promise or
undertaking of such Person (i) to pay the Debt or other Liability of such
obligor, (ii) to purchase any obligation owed by such obligor, (iii) to purchase
or lease assets under circumstances that are designed to enable such obligor to
discharge one or more of its obligations or (iv) to maintain the capital,
working capital, solvency or general financial condition of such obligor and
(c) any liability as a general partner of a partnership or as a venturer in a
joint venture in respect of Debt or other Liabilities of such partnership or
venture.

 

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“Hazardous Substance” means any pollutant, petroleum, or any fraction thereof,
contaminant or toxic or hazardous material (including toxic mold), substance or
waste.

“HUBZone Small Business Concern” means a Small Business Concern that appears on
the List of Qualified HUBZone Small Business Concerns maintained by the Small
Business Administration (13 CFR § 126.103).

“Indemnified Person” means, with respect to any Indemnity Claim, each Parent
Indemnified Person or Securityholder Indemnified Person asserting the Indemnity
Claim (or on whose behalf the Indemnity Claim is asserted) under Section 9.01 or
9.02, as the case may be (it being understood that, as contemplated by
Section 9.04 or Article X, the Securityholders’ Representative will be the sole
and exclusive agent, representative and attorney-in-fact for each of the
Securityholders for all purposes of asserting Indemnity Claims, receiving and
giving notices and service of process in respect thereof, making filings with
any court or other Governmental Authority in respect thereof and controlling and
otherwise making all decisions in connection with each Indemnity Claim brought
on behalf of any Securityholder Indemnified Person under Section 9.02, and the
term “Indemnified Person” shall mean the Securityholders’ Representative to the
extent that it is acting in such capacity on behalf of any Securityholder).

“Indemnifying Party” means, with respect to any Indemnity Claim, the party or
parties against whom such Indemnity Claim may be or has been asserted (it being
understood that, without in any way limiting the Securityholders’ payment and
other obligations under any Contractual Obligation or Governmental Order arising
out of, relating to, or resulting from any Indemnity Claim, as contemplated by
Section 9.04 or Article X, the Securityholders’ Representative will be the sole
and exclusive agent, representative and attorney-in-fact for each of the
Securityholders for all purposes of responding to and defending Indemnity
Claims, receiving and giving notices and service of process in respect thereof,
making filings with any court or other Governmental Authority in respect
thereof, controlling and otherwise making all decisions on behalf of each of the
Securityholders in connection with each Indemnity Claim brought against any of
the Securityholders under Section 9.01 or Article X, and the term “Indemnifying
Party” shall mean the Securityholders’ Representative when it is acting in such
capacity on behalf of any or all of the Securityholders.

“Indemnity Claim” means a claim for indemnity under Section 9.01 or 9.02 or
Article X, as the case may be.

“Intellectual Property Rights” means any and all statutory and/or common rights
of every kind and nature, throughout the world, in, arising out of, or
associated with:

(b) patents, utility models and all reissues, divisions, re-examinations,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof and patentable inventions;

 

8

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(c) copyrights, works of authorship, including computer programs, source code
and executable code, whether embodied in software, firmware, documentation,
designs, files, records, schematics, layouts or data, and mask works, rights of
privacy and publicity, moral rights, database rights provided by law, and all
other proprietary rights;

(d) trademarks, trade names, service marks, service names, brands, trade dress
and logos, and the goodwill associated therewith;

(e) domain names, web addresses and uniform resource locators (URLs);

(f) confidential information, trade secrets, and, to the extent confidential
discoveries, innovations, know-how, proprietary information (including ideas,
research and development, formulas, algorithms, compositions, processes and
techniques, data, designs, drawings, specifications, customer and supplier
lists, pricing and cost information, business and marketing plans and proposals,
graphics, illustrations, artwork, documentation, and manuals), including
improvements, modifications, works in process, derivatives, or changes, to any
of the foregoing;

(g) any other intellectual property or similar corresponding or equivalent
rights to any of the foregoing anywhere in the world; and

(h) any and all registrations and applications relating to any of the foregoing.

“Key Employees” means each of the persons listed in Annex III hereto.

“Legal Requirement” means any United States federal, state or local or any
foreign law, statute, standard, ordinance, code, rule, regulation, resolution or
promulgation, or any Government Order, or any Permit granted under any of the
foregoing, or any similar provision having the force or effect of law.

“Liability” means, with respect to any Person, any liability or obligation of
such Person whether known or unknown, whether asserted or unasserted, whether
determined, determinable or otherwise, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, whether directly
incurred or consequential, whether due or to become due and whether or not
required under GAAP to be accrued on the financial statements of such Person.

“Licensed Intellectual Property Rights” means Intellectual Property Rights
licensed to the Company or any of its Subsidiaries that are used in and/or
necessary for the conduct of the Business as currently conducted.

“Material Adverse Effect” means a material adverse effect on the business,
assets, properties, financial condition, or results of operations or prospects
of the Company; provided, however, that in no event shall any change resulting
from changes in general

 

9

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business, financial, political, capital market or economic conditions (including
any change resulting from any hostilities, war or military or terrorist attack)
be taken into account in the determination of whether a Material Adverse Effect
has occurred, except to the extent such change adversely affects the Company
more than other companies in its industry.

“Merger Consideration” means the Per Common Share Initial Merger Consideration
or Per Preferred Share Initial Merger Consideration, as applicable plus any
Deferred Merger Consideration.

“Net Working Capital” means the remainder of (a) the current assets of the
Company reflected in the line items included in the Net Working Capital
Calculation Schedule, but excluding cash and cash equivalents, minus (b) the
current liabilities of the Company reflected in the line items included in the
Net Working Capital Calculation Schedule, in each case, calculated as of the
close of business on the day immediately preceding the Closing Date in
accordance with the Accounting Principles; provided, that Net Working Capital
shall not take into account any amounts in respect of Tax assets or Tax
liabilities, the current portions of any amounts reflected in the Closing Debt
Amount or any accrued liabilities that constitute Company Transaction Expenses.

“Net Working Capital Adjustment Amount” means the difference between (a) the
amount of the Net Working Capital as finally determined pursuant to Section 3.05
and (b) the Net Working Capital Target.

“Net Working Capital Calculation Schedule” means the calculation of Net Working
Capital attached as Annex II hereto.

“Net Working Capital Target” means $5,314,000.

“Option Payments” means the amount to be paid to any holder of Vested Options
pursuant to Section 3.04 and the Escrow Agreement.

“Ordinary Course of Business” means an action taken by any Person in the
ordinary course of such Person’s business that is consistent with the past
customs and practices of such Person (including past practice with respect to
quantity, amount, magnitude and frequency, standard employment and payroll
policies and past practice with respect to management of working capital and the
making of capital expenditures) and that is taken in the ordinary course of the
normal day-to-day operations of such Person.

“Organizational Conflict of Interest” means that because of other activities or
relationships with other Persons, a Person is unable or potentially unable to
render impartial assistance or advice to the Government, or the person’s
objectivity in performing the contract work is or might be otherwise impaired,
or a person has an unfair competitive advantage as further defined in FAR
subpart 9.5.

 

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“Organizational Documents” means, with respect to any Person (other than an
individual), (a) the certificate or articles of incorporation or organization
and any joint venture, limited liability company, operating or partnership
agreement and other similar documents adopted or filed in connection with the
creation, formation or organization of such Person and (b) all by-laws, voting
agreements and similar documents, instruments or agreements relating to the
organization or governance of such Person, in each case, as amended or
supplemented.

“Owned Intellectual Property Rights” means Intellectual Property Rights owned by
the Company or any of its Subsidiaries that are used in or necessary for the
conduct of the Business as currently conducted.

“Parent Disclosure Schedule” means the separate set of schedules relating to
this Agreement and prepared and delivered by Parent to the Company and the
Securityholders’ Representative immediately prior to the execution and delivery
of this Agreement.

“Paying Agent Agreement” means the written agreement between the Company and the
Paying Agent regarding the Paying Agent’s services.

“Per Common Share Initial Merger Consideration” means the quotient obtained by
dividing (a) the sum of the Total Common/Option Merger Consideration plus the
aggregate exercise price of all Vested Options less $8,621,428.57 by (b) the
Fully-Diluted Common Share Number.

“Per Option Gross Merger Consideration” means the quotient obtained by dividing
(a) the Total Common/Option Merger Consideration by (b) the Fully-Diluted Common
Share Number.

“Per Preferred Share Initial Merger Consideration” means an amount equal to
(i) the Total Preferred Merger Consideration less $2,028,571.43 divided by
(ii) the total number of shares of Preferred Stock outstanding immediately prior
to the Effective Time.

“Permits” means, with respect to any Person, any license, franchise, permit,
consent, approval, right, privilege, certificate or other similar authorization
issued by, or otherwise granted by, any Governmental Authority to which or by
which such Person is subject or bound or to which or by which any property,
business, operation or right of such Person is subject or bound.

“Permitted Encumbrance” means (a) statutory liens for current Taxes not yet
delinquent or the amount or validity of which is being contested in good faith
by appropriate proceedings and for which appropriate reserves have been
established in accordance with the Accounting Principles, (b) mechanics’,
materialmen’s, carriers’, workers’, repairers’ and similar statutory liens
arising or incurred in the Ordinary Course of Business the existence of which
would not constitute an event of default under, or breach of, a Real Property
Lease and the Liabilities of the Company in respect of which are not overdue or
otherwise in default, and (c) liens to secure landlords, lessors or renters
under leases or rental agreements (to the extent the Company or the applicable
Subsidiary is not in default under such lease or rental agreement).

 

11

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“Person” means any individual or any corporation, association, partnership,
limited liability company, joint venture, joint stock or other company, business
trust, trust, organization, Governmental Authority or other entity of any kind.

“Pre-Closing Tax Period” means 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.

“Pro Rata Common/Option Payment Percentage” means, as to any holder of Common
Shares or Vested Options, a fraction (expressed as a percentage) (i) the
numerator of which is the total number of Common Shares held by such holder plus
the total number of Common Shares subject to Vested Options held by such holder,
immediately prior to the Effective Time, and (ii) the denominator of which is
the Fully Diluted Common Share Number.

“Pro Rata Escrow Percentage” means:

(i) with respect to any former holder of Preferred Stock, a fraction (expressed
as a percentage) equal to (A) times (B), where (A) equals 2/10.5 and (B) equals
a fraction, (x) the numerator of which is the total amount of Total Preferred
Merger Consideration paid to such Securityholder as a holder of Preferred Stock
pursuant to Section 3.03 and (y) the denominator of which is the Total Preferred
Merger Consideration paid to all holders of Preferred Stock pursuant to
Section 3.03; and

(ii) with respect to any former holder of Common Stock or Vested Options, a
fraction (expressed as a percentage) equal to (A) times (B), where (A) equals
8.5/10.5 and (B) equals a fraction, (x) the numerator of which is the total
amount of Total Common/Option Merger Consideration paid to such Securityholder
as a holder of Common Stock and the total Option Payments paid to such
Securityholder as a holder of Vested Options, pursuant to Sections 3.03 and 3.04
and (y) the denominator of which is the total payments to holders of Common
Stock and Vested Options pursuant to Sections 3.03 and 3.04.

“Pro Rata Proceeds Percentage” means, with respect to any Securityholder, a
fraction (expressed as a percentage) (i) the numerator of which is the total
amount of Total Preferred Merger Consideration paid to such Securityholder as a
holder of Preferred Stock, the Total Common/Option Merger Consideration paid to
such Securityholder as a holder of Common Stock and the total Option Payments
paid to such Securityholder as a holder of Vested Options, pursuant to Sections
3.03 and 3.04 and (ii) the denominator of which is the total payments to
Securityholders paid pursuant to Sections 3.03 and 3.04

“Publicly Available Software” means each of: (a) any software that contains, or
is derived in any manner (in whole or in part) from, any software that is
distributed as free software, open source software (e.g. Linux) or similar
licensing or distribution models;

 

12

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and (b) any software that requires as a condition of use, modification and/or
distribution of such software that such software or other software incorporated
into, derived from or distributed with such software (i) be disclosed or
distributed in source code form, (ii) be licensed for the purpose of making
derivative works, or (iii) be redistributable at no charge.

“Representative” means, with respect to any Person, any director, officer,
employee, agent, manager, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.

“Return Arbiter” means an independent accounting firm mutually acceptable to
Parent and the Securityholders’ Representative which is engaged to resolve a
dispute related to a Tax Return for a Pre-Closing Tax Period.

“Small Business Concern” means a concern, including its Affiliates, that is
independently owned and operated, not dominant in the field of operation in
which it is bidding on Government Contracts, and qualified as a small business
under the criteria and size standards in 13 CFR part 121 (See, FAR section
19.102 and 15 U.S.C. § 632).

“SR Escrow Amount” equals $150,000.

“Straddle Period” means any taxable period that includes, but does not end, on
the Closing Date.

“Subsidiary” means, with respect to any specified Person, any other Person of
which such specified Person, directly or indirectly through one or more
Subsidiaries, (a) owns at least 50% of the outstanding Equity Interests entitled
to vote generally in the election of the Board of Directors or similar governing
body of such other Person, or (b) has the power to generally direct the business
and policies of that other Person, whether by contract or as a general partner,
managing member, manager, joint venturer, agent or otherwise.

“Tax” or “Taxes” means any and all federal, state, local, or foreign taxes,
charges, fees, levies or other assessments, including income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, escheat, withholding, social security (or similar, including FICA),
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.

“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.

“Total Common/Option Merger Consideration” means the Total Merger Consideration
less the Total Preferred Merger Consideration.

 

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“Total Preferred Merger Consideration” means an amount equal to $6.9371
multiplied by the number of shares of Preferred Stock outstanding immediately
prior to the Effective Time.

“Treasury Regulations” means the regulations promulgated under the Code.

“Vested Options” means any Options that, at the Effective Time and after giving
effect to any acceleration of vesting made by the Company Board, are presently
exercisable for shares of Common Stock.

“Veteran-Owned Small Business Concern” means a small business concern— (1) not
less than 51% of which is owned by one or more veterans (as defined at 38 U.S.C.
§ 101(2)) or, in the case of any publicly owned business, not less than 51% of
the stock of which is owned by one or more veterans; and (2) the management and
daily business operations of which are controlled by one or more veterans.

(j) In addition to the defined terms in paragraph (a) above, the following terms
are defined elsewhere in this Agreement:

 

Term

  

Section

Accounting Firm

   Section 3.05(e)

Agreement

   Preamble

Assets

   Section 4.09(a)

Audited Financials

   Section 4.06(a)(i)

Audits

   Section 4.17(b)(iv)

Certificates

   Section 3.03(c)

CGCL

   Recitals

Closing

   Section 2.02(a)

Common Stock

   Recitals

Company

   Preamble

Company Board

   Recitals

Company Plan

   Section 4.14(a)

Company Registrations

   Section 4.11(c)

Company Stock Plans

   Section 3.04(a)

Continuing Employee

   Section 6.08(a)

Current Liability Policies

   Section 4.22

Dissenting Shares

   Section 3.07(a)

DoD

   Section 4.17(b)(ix)

Effective Time

   Section 2.02(b)

Eligible Holder

   Section 3.01(a)

ERISA Affiliate

   Section 4.14(a)

Escrow Agent

   Recitals

Escrow Agreement

   Recitals

Estimated Closing Balance Sheet

   Section 3.05(a)

Estimated Closing Statement

   Section 3.05(a)

Estimated Closing Date Merger Consideration

   Section 3.05(b)

 

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Term

  

Section

Exchange Fund

   Section 3.03(b)

FAR

   Section 4.17(b)(ix)

Final Closing Balance Sheet

   Section 3.05(e)

Final Closing Statement

   Section 3.05(e)

Financials

   Section 4.06(a)(ii)

Inbound IP Contracts

   Section 4.11(d)

Indemnified Parties

   Section 6.09(a)

IP Contracts

   Section 4.11(d)

Internal Revenue Service

   Section 4.14(a)

Leased Real Property

   Section 4.10(a)

Letter of Transmittal

   Section 3.03(c)

Liability Policies

   Section 4.22

Losses

   Section 9.01(a)

Material Company Contract

   Section 4.16(b)

Merger

   Recitals

Merger Sub Common Stock

   Section 5.06

Most Recent Balance Sheet

   Section 4.06(a)(ii)

Most Recent Balance Sheet Date

   Section 4.06(a)(ii)

Non-Competition Agreements

   Section 7.13

Option Cancellation Acknowledgement

   Section 3.04(a)

Options

   Recitals

Outbound IP Contracts

   Section 4.11(d)

Outside Date

   Section 4.10(a)

Parent Indemnified Person

   Section 9.01(a)

Paying Agent

   Section 3.03(a)

PDI

   Section 4.01(b)

Preferred Stock

   Recitals

Principal Shareholders

   Recitals

Principal Shareholders Agreements

   Section 7.14

Proposed Final Closing Balance Sheet

   Section 3.05(c)

Proposed Final Closing Statement

   Section 3.05(c)

Real Property

   Section 4.10(a)

Real Property Leases

   Section 4.10(a)

SBA

   Section 4.17(b)(vi)

Scheduled Intellectual Property Rights

   Section 4.11(c)

Security Clearance Holder

   Section 4.17(g)

Securityholder

   Recitals

Securityholder Indemnified Person

   Section 9.02(a)

Securityholders’ Representative

   Section 12.04(a)

Severance Plan

   Section 6.08(f)

Shareholder

   Recitals

Shareholder Approval

   Section 10.10

Shareholder Approval Rules

   Section 10.10

Shareholder Documents

   Section 3.03(c)

Shares

   Recitals

 

15

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Term

  

Section

Specified Indemnity Matters

   Section 9.01(a)(iv)

Straddle Period

   Section 10.01

Surviving Corporation

   Section 2.01

Tax Contest Claims

   Section 10.09(a)

Tax Claims

   Section 9.04(a)

Third Party Claim

   Section 9.04(a)

Total Merger Consideration

   Section 3.02

Working Capital Dispute Notice

   Section 3.05(d)

Section 1.02. Certain Matters of Construction.

(a) 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.

(b) Section and subsection headings are not to be considered part of this
Agreement, are included solely for convenience, are not intended to be full or
accurate descriptions of the content of the Sections or subsections of this
Agreement and shall not affect the construction hereof.

(c) Except as otherwise explicitly specified to the contrary herein, (i) the
words “hereof,” “herein,” “hereunder” and words of similar import shall refer to
this Agreement as a whole and not to any particular Section or subsection of
this Agreement and reference to a particular Section of this Agreement shall
include all subsections thereof, (ii) references to a Section, Exhibit or
Annex means a Section of, or Exhibit or Annex to this Agreement, unless another
agreement is specified, (iii) definitions shall be equally applicable to both
the singular and plural forms of the terms defined, and references to the
masculine, feminine or neuter gender shall include each other gender, (iv) the
word “including” means including without limitation, (v) any reference to “$” or
“dollars” means United States dollars and (vi) references to a particular
statute or regulation include all rules and regulations thereunder and any
successor statute, rule or regulation, in each case as amended or otherwise
modified from time to time.

(d) Neither the listing nor description of any item, matter or document in
either the Company Disclosure Schedule or the Parent Disclosure Schedule nor the
furnishing or availability for review of any document will be construed to
modify, qualify or disclose an exception to any representation or warranty of
any party made herein or in connection herewith, except to the extent that such
representation or warranty specifically refers to either the Company Disclosure
Schedule or the Parent Disclosure Schedule, as applicable, and such
modification, qualification or exception is clearly described in such Schedule.

 

16

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(e) The parties intend that each representation, warranty and covenant contained
herein will have independent significance. If any party has breached or
violated, or if there is an inaccuracy in, any representation, warranty or
covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached or violated, or in respect of which there is not an inaccuracy, will
not detract from or mitigate the fact that the party has breached or violated,
or there is an inaccuracy in, the first representation, warranty or covenant.

(f) Unless the context clearly requires otherwise, when used herein “or” shall
not be exclusive (i.e., “or” shall mean “and/or”).

(g) Time is of the essence with regard to all dates and time periods set forth
or referred to in this Agreement.

(h) Where this Agreement states that the Company has “made available” any
document to the Parent, that means the document has been posted to the Company’s
data room as of 7:00 a.m. E.S.T. on December 22, 2011.

(i) In the event any inconsistency between this Agreement and the agreement of
merger to be filed with the Secretary of the State of California pursuant to
Section 2.02(b), the terms of this Agreement shall control.

ARTICLE II

THE MERGER.

Section 2.01. The Merger. Upon the terms and subject to the satisfaction or
waiver, if permissible, of the conditions set forth in Article VII and VIII
hereof, and in accordance with the CGCL, at the Effective Time, (a) Merger Sub
shall be merged with and into the Company, (b) the separate corporate existence
of Merger Sub shall cease and (c) the Company shall, as the surviving
corporation in the Merger, continue its existence under the CGCL as a
wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the “Surviving
Corporation.”

Section 2.02. Closing; Effective Time.

(a) The closing of the transactions contemplated by this Agreement (the
“Closing”) shall be held at the offices of Bingham McCutchen LLP, One Federal
Street, Boston MA 02110, or at such other location as Parent and the Company may
agree, at 11:00 a.m., Boston, Massachusetts time, on December 27, 2011 or if the
conditions set forth in Article VII and VIII are not satisfied or waived, if
permissible, on such date, on the next Business Day following the satisfaction
or waiver of such conditions, if permissible (other than in each case conditions
which by their nature are to be satisfied or waived at the Closing and are
expected to be satisfied at the Closing, but subject to the satisfaction or, if
permissible, waiver of such conditions) (such date, the “Closing Date”), unless
another date and time is agreed to in writing by Parent and the Company.

 

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(b) On the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing an agreement of merger, in substantially the form attached
hereto as Exhibit B, together with the related officers’ certificates required
by Section 1103 of the CGCL, with the Secretary of State of the State of
California in such form as required by, and executed in accordance with, the
relevant provisions of the CGCL (the date and time of such filing, or such later
date and time as may be specified in such filing by mutual agreement of Parent,
Merger Sub and the Company, the “Effective Time”).

Section 2.03. Articles of Incorporation and Bylaws of the Surviving Corporation.
As of the Effective Time, (i) the articles of incorporation of the Company shall
be amended and restated in their entirety to read as the articles of
incorporation of Merger Sub as in effect immediately prior to the Effective
Time; provided, however, that Article I of the Articles of Incorporation of the
Surviving Corporation shall be amended to read as follows: “The name of this
corporation is KOR Electronics” and such amended and restated articles of
incorporation shall be the articles of incorporation of the Surviving
Corporation until thereafter changed or amended in accordance with the
provisions thereof and applicable Legal Requirements and (ii) the bylaws of the
Company shall be the bylaws of the Surviving Corporation until thereafter
changed or amended in accordance with the provisions thereof and applicable
Legal Requirements.

Section 2.04. Directors and Officers of the Surviving Corporation. Subject to
applicable Legal Requirements, as of the Effective Time, (i) the persons named
on Annex IV hereto shall be the directors of the Surviving Corporation until
their respective successors are duly elected and qualified or their earlier
death, resignation or removal and (ii) the officers of the Company shall be the
officers of the Surviving Corporation until their respective successors are duly
appointed and qualified, or their earlier death, resignation or removal.

Section 2.05. Effects of the Merger. As of the Effective Time, the Merger shall
have the effects set forth in the CGCL. Without limiting the generality of the
foregoing, from and after the Effective Time, all the property, rights,
privileges and powers of the Company and Merger Sub shall vest in the Surviving
Corporation, and all claims, obligations, liabilities, debts and duties of the
Company and Merger Sub shall become the claims, obligations, liabilities, debts
and duties of the Surviving Corporation.

ARTICLE III

MERGER CONSIDERATION; CONVERSION OF SHARES.

Section 3.01. Conversion of Stock.

(a) At the Effective Time, each Share (other than Shares held by the Company and
any Dissenting Shares) shall, by virtue of the Merger and without any action on
the part of the holder thereof (any such holder, an “Eligible Holder”), be
converted into and thereafter evidence the right to receive the Per Common Share
Initial Merger Consideration or Per Preferred Share Initial Merger
Consideration, in cash,

 

18

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without interest, together with any additional portion of the Deferred Merger
Consideration that becomes payable with respect to the Common Stock or Preferred
Stock, as applicable, pursuant to this Agreement or the Escrow Agreement. Each
Share issued and outstanding immediately prior to the Effective Time, when
converted in accordance with this Section 3.01(a), shall no longer be
outstanding, shall automatically be canceled and shall cease to exist.

(b) After the Effective Time, each Eligible Holder who holds certificates
formerly representing Shares shall have no rights with respect to the Surviving
Corporation in such Eligible Holder’s capacity as a Shareholder, except the
right to receive, without interest, the Per Common Share Initial Merger
Consideration or Per Preferred Share Initial Merger Consideration, in cash,
without interest, upon delivery of the Shareholder Documents, together with any
Deferred Merger Consideration in respect of each such Share that becomes payable
pursuant to this Agreement or the Escrow Agreement.

(c) At the Effective Time, each share of common stock, with no stated par value,
of Merger Sub (“Merger Sub Common Stock”) issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of Parent, be converted into and thereafter evidence one
share of common stock, with no stated par value, of the Surviving Corporation.

(d) At the Effective Time, each Share held by the Company as a treasury share
immediately prior to the Effective Time shall be canceled and retired and shall
cease to exist, and no payment shall be made with respect thereto.

(e) At and after the Effective Time, there shall be no transfers on the share
transfer books of the Company of any shares of capital stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged as provided in this
Section 3.01 and Section 3.03.

Section 3.02. Total Merger Consideration. The aggregate consideration payable
with respect to the Shares (other than Dissenting Shares) and the cancellation
of all other Equity Interests in the Company at Closing will be equal to an
amount in cash (such aggregate consideration, the “Total Merger Consideration”)
calculated as follows:

(a) $70,000,000 U.S. dollars;

(b) less the Closing Debt Amount;

(c) less the amount of any Company Transaction Expenses not otherwise paid prior
to the Closing Date and prior to the calculation of Net Working Capital;

(d) plus the Closing Cash Amount;

 

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(e) plus the Net Working Capital Adjustment Amount (if Net Working Capital is
greater than the Net Working Capital Target);

or

less the Net Working Capital Adjustment Amount (if Net Working Capital is less
than the Net Working Capital Target).

The Total Merger Consideration shall be subject to adjustment in accordance with
Section 3.05 and Article IX.

Section 3.03. Surrender of Certificates.

(a) Paying Agent. Wells Fargo Bank, N.A., or such other institution selected by
Parent with the reasonable consent of the Company, shall act as payment agent
(the “Paying Agent”) in the Merger.

(b) Parent to Provide Cash. Promptly (and in any event within two (2) Business
Days) after the Effective Time, Parent shall deliver to the Paying Agent for
payment in accordance with this Section 3.03 cash in an amount sufficient to
permit payment of the aggregate Estimated Closing Date Merger Consideration,
calculated pursuant to Section 3.05(b) (the “Exchange Fund”). At the Closing,
Parent shall deposit the Escrow Amount and the SR Escrow Amount with the Escrow
Agent pursuant to the Escrow Agreement.

(c) Exchange Procedures. Promptly after the Effective Time, Parent shall cause
to be mailed to each holder of record of a certificate or certificates (the
“Certificates”) that immediately prior to the Effective Time represented
outstanding Shares, whose Shares were converted into the right to receive the
Merger Consideration: (i) a letter of transmittal in the form attached hereto as
Exhibit C (the “Letter of Transmittal”); (ii) such other customary documents as
may be required pursuant to the Letter of Transmittal; (iii) instructions for
use in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent, together with such Letter of Transmittal and such other documents, duly
completed and validly executed in accordance with the instructions thereto
(collectively, the “Shareholder Documents”); and (iv) in the case of the
Principal Shareholders, execution and delivery of a Principal Shareholders
Agreement (in the event not delivered at the Closing and the Parent elects to
waive the conditions set forth in Section 7.14), the holder of such Certificate
shall be entitled to receive in exchange therefor the Estimated Closing Date
Merger Consideration determined in accordance with Section 3.05(b), and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Certificate that prior to the Effective Time represented Shares
will be deemed from and after the Effective Time, for all corporate purposes
other than the payment of dividends. to evidence the right to receive the Merger
Consideration.

 

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(d) Termination of Exchange Fund. Any portion of the Exchange Fund which remains
undistributed to the Shareholders six (6) months after the Effective Time shall
be delivered to Parent, upon demand, and any former Shareholders who have not
previously complied with this Section 3.03 shall thereafter look only to Parent
for payment of their claim for the Merger Consideration.

Section 3.04. Treatment of Options.

(a) Options. A listing of each of the Company’s stock option plans, programs and
arrangements (collectively, the “Company Stock Plans”) and all outstanding
Options is set forth in Section 3.04(a) of the Company Disclosure Schedule.
Section 3.04(a) of the Company Disclosure Schedule also sets forth with respect
to each Option the name of the Company Stock Plan under which such Option was
issued, the holder thereof, the number of shares subject thereto, the exercise
price thereof and the dates of scheduled vesting thereof and describes any terms
thereof that require acceleration of such vesting by virtue of the Contemplated
Transactions and any proposed additional vesting of such Options prior to the
Effective Time. On or prior to the Closing Date, the Company Board (or an
authorized committee thereof) shall take all actions necessary to ensure that
all outstanding Options shall be cancelled effective as of the Effective Time.
At the Closing or as soon as thereafter practicable, each holder of an
outstanding Vested Option shall deliver to the Paying Agent, on behalf of the
Company and Parent, an acknowledgement of such cancellation in the form of
Exhibit D (each an “Option Cancellation Acknowledgement”). Effective as of the
Effective Time, each optionholder who is a holder of an outstanding Vested
Option, upon the delivery of such optionholder’s duly executed Option
Cancellation Acknowledgement, shall become entitled to receive (i) a cash
payment in an amount equal to (a) minus (b) where (a) equals (A) the excess of
(x) the Per Option Gross Merger Consideration over (y) the exercise price per
share of Common Stock subject to such Vested Option, multiplied by (B) the
number of shares of Common Stock subject to such Vested Option for which such
Option shall not theretofore have been exercised and (b) equals the sum of the
Escrow Amount and SR Escrow Amount multiplied by such optionholder’s Pro Rata
Escrow Percentage. For the avoidance of doubt, no consideration shall be payable
hereunder in respect of the cancellation of any unvested Options or any Options
having an exercise price equal to or in excess of the Per Option Gross Merger
Consideration. The Company will not accelerate the vesting of any Options except
as set forth in Section 3.04(a) of the Company Disclosure Schedule.

(b) Company Stock Plans. On or prior to the Closing Date, the Company Board (or
an authorized committee thereof) shall take any actions necessary to ensure that
the Company Stock Plans terminate as of the Effective Time (including amending
such Company Stock Plans), the provisions in any other plan or agreement
providing for the issuance, transfer or grant of any Equity Interests of the
Company shall terminate as of the Effective Time, and no holder of an Option or
any participant in any Company Stock Plan or other plan or any party to a
Contractual Obligation with the Company shall have any right thereunder to
acquire any Equity Interests of the Company.

 

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Section 3.05. Working Capital Adjustment.

(a) Estimated Closing Balance Sheet and Estimated Closing Statement. The Company
has prepared in good faith and provided to Parent prior to the execution and
delivery of this Agreement an estimated consolidated balance sheet of the
Company as of the close of business on the day immediately preceding the Closing
Date (as the same may be adjusted upon agreement of the Company and the Parent
in response to comments of Parent and its Representatives provided to the
Company prior to the Closing, the “Estimated Closing Balance Sheet”), together
with a written statement setting forth in reasonable detail its good faith
estimates of the Closing Debt Amount, Closing Cash Amount and Net Working
Capital, each as derived from the Estimated Closing Balance Sheet, and the
Company Transaction Expenses (as the same may be adjusted upon the agreement of
the Company and Parent in response to comments of Parent and its Representatives
provided to the Company prior to the Closing (the “Estimated Closing
Statement”). The Estimated Closing Balance Sheet and the Company’s good faith
estimate of Net Working Capital contained in the Estimated Closing Statement
will be prepared in accordance with the Accounting Principles. Following the
delivery of the Estimated Closing Balance Sheet and the Estimated Closing
Statement, the Company shall provide Parent and its Representatives reasonable
access to the work papers and other books and records of the Company for
purposes of assisting Parent and its Representatives in their review of the
Estimated Closing Balance Sheet and the Estimated Closing Statement. Prior to
Closing, the parties shall cooperate in good faith to answer any questions and
resolve any issues raised by Parent and its Representatives in connection with
their review of the Estimated Closing Balance Sheet and the Estimated Closing
Statement, but the foregoing shall not require any party to waive any of its
rights under this Agreement or the Ancillary Agreements.

(b) Estimated Closing Date Merger Consideration. The Total Merger Consideration
initially payable pursuant to the procedures set forth in Sections 3.03 and 3.04
(the “Estimated Closing Date Merger Consideration”) shall be calculated using
the estimated Closing Debt Amount, estimated Closing Cash Amount, estimated
Company Transaction Expenses and estimated Net Working Capital set forth on the
Estimated Closing Statement and shall be reduced by the Escrow Amount and the SR
Escrow Amount.

(c) Proposed Final Closing Balance Sheet and Proposed Final Closing Statement.
As promptly as possible and in any event within sixty (60) calendar days after
the Closing Date, the Company shall prepare or cause to be prepared, and will
provide to the Securityholders’ Representative, a consolidated balance sheet of
the Company as of the close of business on the day immediately preceding the
Closing Date (the “Proposed Final Closing Balance Sheet”), together with a
written statement setting forth in reasonable detail its proposed final
determination of the Closing Debt Amount, the Company Transaction Expenses and
Net Working Capital (the “Proposed Final Closing Statement”). The Proposed Final
Closing Balance Sheet and the determination of Net Working Capital reflected on
the Proposed Final Closing Statement will be prepared in accordance with the
Accounting Principles. The Securityholders’ Representative and its

 

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Representatives shall have reasonable access to the work papers and other books
and records of the Company for purposes of assisting the Securityholders’
Representative and its Representatives in their review of the Proposed Final
Closing Balance Sheet and the Proposed Final Closing Statement. The parties
shall cooperate in good faith to answer any questions and resolve any issues
raised by the Securityholders’ Representative and its Representatives in
connection with their review of the Proposed Final Closing Balance Sheet and the
Proposed Final Closing Statement, but the foregoing shall not require any party
to waive any of its rights under this Agreement or the Ancillary Agreements.

(d) Dispute Notice. The Proposed Final Closing Balance Sheet and the Proposed
Final Closing Statement (and the proposed final determinations of the Closing
Debt Amount, Closing Cash Amount, the Company Transaction Expenses and Net
Working Capital reflected thereon) will be final, conclusive and binding on the
parties hereto unless the Securityholders’ Representative provides a written
notice (a “Working Capital Dispute Notice”) to Parent no later than the
twentieth (20th) Business Day after the delivery to the Securityholders’
Representative of the Proposed Final Closing Balance Sheet and the Proposed
Final Closing Statement. The Securityholders’ Representative shall not be
entitled to issue a Working Capital Dispute Notice or otherwise dispute any item
set forth in the Proposed Final Balance Sheet or proposed Final Closing
Statement except on the grounds that such matter was not prepared on the basis
set forth in paragraph (c) above or contains mathematical errors. Any Working
Capital Dispute Notice must set forth in reasonable detail (i) any item on the
Proposed Final Closing Balance Sheet or the Proposed Final Closing Statement
which the Securityholders’ Representative believes has not been prepared in
accordance with this Agreement and the correct amount of such item and (ii) the
Securityholders’ Representative’s alternative calculation of the Closing Debt
Amount, Closing Cash Amount, the Company Transaction Expenses or Net Working
Capital, as the case may be. Any item or amount to which no dispute is raised in
the Working Capital Dispute Notice will be final, conclusive and binding on the
parties on such twentieth (20th) Business Day.

(e) Resolution of Disputes. Parent and the Securityholder’s Representative will
attempt to promptly resolve the matters raised in any Working Capital Dispute
Notice in good faith. Beginning ten (10) Business Days after delivery of any
Working Capital Dispute Notice pursuant to Section 3.05(d), either Parent or the
Securityholders’ Representative may provide written notice to the other that it
elects to submit the disputed items to Ernst & Young LLP’s Boston office (the
“Accounting Firm”). The Accounting Firm will promptly, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, review
only those unresolved items and amounts specifically set forth and objected to
in the Working Capital Dispute Notice and resolve the dispute with respect to
each such specific unresolved item and amount in accordance with this Agreement.
The Accounting Firm shall be instructed in writing by the Parent and the
Securityholders’ Representative that the Accounting Firm must accept the
Proposed Final Balance Sheet and Proposed Final Closing Statement except to the
extent that any item is not calculated in accordance with paragraph (c) above or
reflects mathematical errors. In any such case, a single partner of the

 

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Accounting Firm selected by such Accounting Firm in accordance with its normal
procedures and having expertise with respect to settlement of such disputes
shall act for the Accounting Firm in the determination proceeding, and the
Accounting Firm shall render a written decision as to each disputed matter,
including a statement in reasonable detail of the basis for its decision. In no
event shall the decision of the Accounting Firm (i) provide for a calculation of
Net Working Capital that is less than the calculation thereof shown in the
Proposed Final Closing Statement or greater than the Securityholders’
Representatives’ alternative calculation thereof shown in the Working Capital
Dispute Notice or (ii) provide for a determination of any item of Debt reflected
in the Closing Debt Amount or any Company Transaction Expense that is greater in
amount than the amount thereof shown in the Proposed Final Closing Statement or
less in amount than the Securityholders’ Representatives’ alternative
calculation thereof shown in the Working Capital Dispute Notice. The fees and
expenses of the Accounting Firm shall be borne equally by the Securityholders
and the Company. The decision of the Accounting Firm with respect to the
disputed items of the Proposed Final Closing Balance Sheet and the Proposed
Final Closing Statement submitted to it will be final, conclusive and binding on
the parties. As used herein, the Proposed Final Closing Balance Sheet and the
Proposed Final Closing Statement, as adjusted to reflect any changes agreed to
by the parties and any decision of the Accounting Firm, in each case, pursuant
to this Section 3.05, are referred to herein as the “Final Closing Balance
Sheet” and the “Final Closing Statement”, respectively. Each of the parties to
this Agreement agrees to use its commercially reasonable efforts to cooperate
with the Accounting Firm (including by executing a customary engagement letter
reasonably acceptable to it) and to cause the Accounting Firm to resolve any
such dispute as soon as practicable after the commencement of the Accounting
Firm’s engagement.

(f) Working Capital Adjustment. If any of the Net Working Capital, the Closing
Debt Amount or the Company Transaction Expenses (as finally determined pursuant
to this Section 3.05 and as set forth in the Final Closing Balance Sheet and the
Final Closing Statement) differs from the estimated amounts thereof set forth in
the Estimated Closing Statement, the Total Merger Consideration shall be
recalculated using such final figures in lieu of such estimated figures, and
(i) the Company shall pay to each former holder of Common Shares (other than
Dissenting Shares) and each former holder of Vested Options by wire transfer of
immediately available funds its Pro Rata Common/Option Payment Percentage of the
amount, if any, by which such re-calculated final Total Merger Consideration
exceeds the estimated Total Merger Consideration calculated on the Estimated
Closing Statement or (ii) the amount, if any, by which such estimated Total
Merger Consideration calculated on the Estimated Closing Statement exceeds such
re-calculated final Total Merger Consideration shall be paid to Parent from the
Escrow Amount.

(g) Payments. Any payment due pursuant to Section 3.05(f) shall be made within
five (5) calendar days after the final amount thereof has been determined in
accordance with this Section 3.05.

 

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Section 3.06. Withholding. The Company, Parent, the Paying Agent and the Escrow
Agent will be entitled to deduct and withhold from any amounts payable under
this Agreement any withholding Taxes or other amounts required under the Code or
any applicable Legal Requirement to be deducted and withheld. To the extent that
any such amounts are so deducted or withheld and paid over to the appropriate
Governmental Authority, such amounts will be treated for all purposes of this
Agreement as having been paid to the Person in respect of which such deduction
and withholding was made.

Section 3.07. Dissenting Shares.

(a) Notwithstanding anything in this Agreement to the contrary, Shares that are
issued and outstanding immediately prior to the Effective Time, and are held by
Shareholders that have not voted in favor of the Merger or consented thereto in
writing and are entitled to demand and have demanded properly in writing
appraisal for such Shares in accordance with Chapter 13 of the CGCL or any
successor provision (such shares, the “Dissenting Shares”), shall not be
converted into or represent the right to receive such Shareholder’s portion of
the Total Merger Consideration as described in Section 3.03, but shall, by
virtue of the Merger, be entitled to only such rights as are granted by Chapter
13 of the CGCL; provided that if any such Shareholder thereafter shall have
failed to perfect or shall have effectively withdrawn or lost such Shareholder’s
right to appraisal and payment under the CGCL, such Shareholder’s Shares shall
be deemed to have been converted at the Effective Time into the right to receive
such Shareholder’s portion of the Total Merger Consideration as described in,
and subject to the surrender and delivery requirements of Section 3.03.

(b) The Company shall give Parent (i) prompt notice of any written demands
received by the Company for appraisal of the Shares and withdrawals of such
demands and (ii) the opportunity to participate in all negotiations and
proceedings in respect of appraisal under the CGCL. The Company shall not,
except with the prior written consent of Parent, or as required by applicable
Legal Requirements, make any payment with respect to any demands for appraisal
or offer to settle or settle any such demand.

Section 3.08. Changes in Shares . If, between the date of this Agreement and the
Effective Time, the number of outstanding Shares shall have been changed into,
or exchanged for, a different number of shares or a different class of shares,
by reason of any share dividend, subdivision, reclassification,
recapitalization, share split (including a reverse share split), combination or
exchange of shares, the Per Common Share Initial Merger Consideration or Per
Preferred Share Initial Merger Consideration, as applicable, shall be
correspondingly adjusted to provide the Securityholders the same economic effect
as contemplated by this Agreement prior to such event.

Section 3.09. Further Assurances . If, at any time before or after the Effective
Time, the Company or Parent reasonably believes or is advised that any further
instruments, deeds, assignments or assurances are reasonably necessary or
desirable to consummate the Merger or to carry out the purpose and intent of
this Agreement, then the Company, Parent and/or the

 

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Surviving Corporation shall execute and deliver, or cause to be executed and
delivered, all such proper deeds, assignments, instruments and assurances and do
all other things reasonably necessary or desirable to consummate the Merger and
to carry out the purposes and intent of this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES REGARDING

THE COMPANY.

In order to induce Parent and Merger Sub to enter into and perform this
Agreement and to consummate the Contemplated Transactions, the Company hereby
represents and warrants to Parent and Merger Sub as follows as of the date of
this Agreement and as of the Closing Date:

Section 4.01. Organization.

(a) The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has full corporate power
and authority to lease and operate its Real Property and to carry on the
Business as it is now being conducted. The Company is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction in which it leases Real Property or conducts business and is
required to so qualify, except where the failure to be so qualified or licensed
would not individually or in the aggregate have a Material Adverse Effect. The
Company has delivered or made available to Parent accurate and complete copies
of the Organizational Documents of the Company.

(b) As of the date of this Agreement, Paragon Dynamics, Inc. (“PDI”) is the only
Subsidiary of the Company. PDI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has full
corporate power and authority to lease and operate its Real Property and to
carry on the Business as it is now being conducted. PDI is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction in which it leases Real Property or conducts business and is
required to so qualify, except where the failure to be so qualified or licensed
would not individually or in the aggregate have a Material Adverse Effect. The
Company has delivered or made available to Parent accurate and complete copies
of the Organizational Documents of PDI.

Section 4.02. Power and Authorization.

(a) Contemplated Transactions. The Company has all requisite power and authority
necessary for the execution, delivery and performance by it of this Agreement
and each Ancillary Agreement to which it is or will be a party. The execution,
delivery and performance by the Company of this Agreement and each Ancillary
Agreement to which it is or will be a party have been duly authorized by all
necessary corporate action on the part of the Company, including the requisite
vote of shareholders of the Company, subject only to the requirement that the
Company solicit comments from all shareholders pursuant to Section 603(b) of the
CGCL. This Agreement and each Ancillary Agreement to which the Company is, or
will be at

 

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Closing, a party (i) have been (or, in the case of Ancillary Agreements to be
entered into at Closing, will be when executed and delivered) duly executed and
delivered by the Company and (ii) is (or in the case of Ancillary Agreements to
be entered into at the Closing, will be when executed and delivered) a legal,
valid and binding obligation of the Company, Enforceable against the Company in
accordance with its terms.

(b) Conduct of Business. Each of the Company and its Subsidiaries has all
requisite corporate power and authority necessary to own, lease, operate and use
their respective Assets and carry on the Business.

Section 4.03. Authorization of Governmental Authorities. Except as disclosed in
Section 4.03 of the Company Disclosure Schedule, no action by (including any
authorization by or consent or approval of), or in respect of, or filing with,
any Governmental Authority is required by or on behalf of the Company or any of
its Subsidiaries or in respect of the Company or any of its Subsidiaries, the
Business or any Assets of the Company or its Subsidiaries for, or in connection
with, (a) the valid and lawful authorization, execution, delivery and
performance by the Company or its Subsidiaries of this Agreement or any
Ancillary Agreement to which it is, or will be at Closing, a party or (b) the
consummation of the Contemplated Transactions.

Section 4.04. Noncontravention. Except as disclosed in Section 4.04 of the
Company Disclosure Schedule, none of the authorization, execution, delivery or
performance by the Company of this Agreement or any Ancillary Agreement to which
it is, or will be at Closing, a party, nor the consummation of the Contemplated
Transactions, will:

(a) assuming the taking of each action by (including the obtaining of each
necessary authorization, consent or approval), or in respect of, and the making
of all necessary filings with, Governmental Authorities, in each case, as
disclosed in Section 4.03 of the Company Disclosure Schedule, conflict with or
result in a breach or violation of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, any
Legal Requirement applicable to the Company or any of its Subsidiaries, the
Business or any Assets of the Company or any of its Subsidiaries; or

(b) conflict with or result in a breach or violation of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
require any action by (including any authorization, consent or approval) or
notice to any Person, or require any offer to purchase or prepayment of any Debt
or Liability under, or result in the creation of any Encumbrance upon or
forfeiture of any of the rights, properties or assets of the Company or any of
its Subsidiaries under, any of the terms, conditions or provisions of (i) any
Permit applicable to or otherwise affecting the Company, any of its
Subsidiaries, the Business or any Assets of the Company or any of its
Subsidiaries, (ii) any Contractual Obligation to which the Company or any of its
Subsidiaries is a party or by which any of them is bound, or (iii) the
Organizational Documents of the Company or any of its Subsidiaries.

 

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Section 4.05. Capitalization of the Company.

(a) Authorized and Outstanding Equity Interests. The entire authorized capital
stock (or, where applicable, other Equity Interests) of the Company is as set
forth in Section 4.05(a) of the Company Disclosure Schedule. All of the
outstanding Equity Interests of the Company are held of record and, to the
Knowledge of the Company, are beneficially owned by the Persons in the
respective amounts set forth in Section 4.05(a) of the Company Disclosure
Schedule. Except as set forth in Schedule 4.05(a) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has issued or agreed
to issue Equity Interests and neither holds shares of its capital stock (or
other Equity Interests) in its treasury. The Company has delivered or made
available to Parent accurate and complete copies of the stock ledger (or
equivalent records) of the Company and each of its Subsidiaries, which records
reflect all issuances, transfers, repurchases and cancellations of shares of
capital stock (or other Equity Interests) of the Company and its Subsidiaries.
All of the outstanding shares of capital stock (or, where applicable, other
Equity Interests) of the Company and its Subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable. Neither the Company
nor any of its Subsidiaries has violated the 1933 Act, any state “blue sky” or
securities laws, any other similar Legal Requirement or any preemptive or other
similar rights of any Person in connection with the issuance, repurchase or
redemption of any of its Equity Interests.

(b) Encumbrances on Equity Interests, etc. The Company is the record and
beneficial owner of all of the Equity Interests of its Subsidiaries, reflected
in Section 4.05(b) of the Company Disclosure Schedule, and holds such Equity
Interests free and clear of all Encumbrances except as disclosed in
Section 4.05(b) of the Company Disclosure Schedule. Except as disclosed in
Section 4.05(b) of the Company Disclosure Schedule: (i) there are no preemptive
rights or other similar rights in respect of any Equity Interests in the Company
or its Subsidiaries, (ii) there are no Encumbrances on, or other Contractual
Obligations relating to, the ownership, transfer or voting of any Equity
Interests in the Company or any of its Subsidiaries, or otherwise affecting the
rights of any holder of the Equity Interests in the Company or any of its
Subsidiaries, (iii) except for the Contemplated Transactions, there is no
Contractual Obligation, or provision in the Organizational Documents of the
Company or any of its Subsidiaries which obligates the Company or any of its
Subsidiaries to purchase, redeem or otherwise acquire, or make any payment
(including any dividend or distribution) in respect of, any Equity Interest in
the Company or any of its Subsidiaries and (iv) there are no existing rights
with respect to registration under the 1933 Act of any Equity Interests in the
Company or any of its Subsidiaries.

Section 4.06. Financial Matters.

(a) Financial Statements. Section 4.06(a) of the Company Disclosure Schedule
contains copies of each of the following:

 

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(i) the audited consolidated balance sheets of the Company and its Subsidiaries
as of January 1, 2010 and December 31, 2010 and the related statements of income
and retained earnings and cash flows for the years then ended, accompanied by
the independent auditors’ report of May Hoffman McCann P.C., the Company’s
certified public accountants (the “Audited Financials”); and

(ii) the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of November 30, 2011 (the “Most Recent Balance Sheet” and the
date thereof, the “Most Recent Balance Sheet Date”), and the related unaudited
consolidated statements of income and cash flows of the Company and its
Subsidiaries for the eleven months then ended (collectively with the Audited
Financials, the “Financials”).

(b) Compliance with GAAP, etc. Except as disclosed in Section 4.06(b) of the
Company Disclosure Schedule, the Financials (including any notes thereto)
(i) were prepared in accordance with the books and records of the Company,
(ii) have been prepared in accordance with GAAP, consistently applied (except,
in the case of the Financials described in clause (a)(ii) above, that such
Financials do not include all footnotes and schedules that may be required by
GAAP and are subject to normal year-end adjustments, the effect of which will
not, individually or in the aggregate, be materially adverse) and (iii) fairly
present the consolidated financial position of the Company and its Subsidiaries
as of the respective dates thereof and the consolidated results of the
operations of the Company and its Subsidiaries and changes in financial position
for the respective periods covered thereby.

(c) Absence of Undisclosed Liabilities. Except as disclosed in Section 4.06(c)
of the Company Disclosure Schedule, the Company and its Subsidiaries do not have
any material Liabilities except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet and (ii) Liabilities incurred in the Ordinary Course
of Business since the Most Recent Balance Sheet Date (none of which results
from, arises out of, or relates to any breach or violation of, or default under,
a Contractual Obligation or Legal Requirement).

(d) Accounts Receivable. All accounts and notes receivable reflected on the Most
Recent Balance Sheet and all accounts and notes receivable arising subsequent to
the Most Recent Balance Sheet Date and prior to the Closing Date that will be
reflected in the Final Closing Balance Sheet, have arisen or will arise in the
Ordinary Course of Business of the Company and its Subsidiaries, represent or
will represent legal, valid, binding and Enforceable obligations owed to the
Company or one of its Subsidiaries and, subject only to consistently recorded
reserves for bad debts set forth on the Most Recent Balance Sheet or Final
Closing Balance Sheet have been, or will be, collected or are, or will be,
collectible in the aggregate recorded amounts thereof in accordance with their
terms and, to the Company’s Knowledge, will not be subject to any contests,
claims, counterclaims or setoffs.

 

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(e) Inventory. All inventory of the Company and its Subsidiaries is of a quality
usable and salable in the Ordinary Course of Business of the Company and its
Subsidiaries, except for obsolete items and items of below-standard quality, all
of which have been or will be, as applicable, written off or written down to net
realizable value in the Most Recent Balance Sheet and on the Final Closing
Balance Sheet. All inventories not written off have been priced at the lower of
cost or market on a first in, first out basis. The quantities of each item of
inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Company and
its Subsidiaries, except for items of excess inventory which have been or will
be, as applicable, written off or written down to reasonable quantities in the
Most Recent Balance Sheet and the Final Closing Balance Sheet.

(f) Banking Facilities. Section 4.06(f) of the Company Disclosure Schedule sets
forth an accurate and complete list as of the date of this Agreement of (i) each
bank, savings and loan or similar financial institution with which the Company
or any of its Subsidiaries has an account or safety deposit box or other similar
arrangement, and any numbers or other identifying codes of such accounts, safety
deposit boxes or such other arrangements maintained by the Company or its
Subsidiaries thereat, and (ii) the names of all Persons authorized to draw on
any such account or to have access to any such safety deposit box facility or
such other arrangement.

Section 4.07. Absence of Certain Developments. From December 31, 2010 through
the date of this Agreement, except as disclosed in Section 4.07 of the Company
Disclosure Schedule, (a) no event, change, fact, condition or circumstance has
occurred or arisen that has had, or would reasonably be expected to have, a
Material Adverse Effect, and (b) the Business has been conducted in all material
respects in the Ordinary Course of Business of the Company and its Subsidiaries
and (c) neither the Company nor any of its Subsidiaries has suffered any loss,
damage, destruction or eminent domain taking, whether or not covered by
insurance, with respect to any of its material Assets or the Business.

Section 4.08. Debt; Guarantees. Neither the Company nor its Subsidiaries has
Liabilities in respect of Debt except as set forth in Section 4.08 of the
Company Disclosure Schedule. For each item of Debt, Section 4.08 of the Company
Disclosure Schedule correctly sets forth the debtor, the Contractual Obligations
governing the Debt, the principal amount of the Debt as of the date of this
Agreement, the creditor, the maturity date, and the collateral, if any, securing
the Debt (and all Contractual Obligations governing all related Encumbrances).
Except as set forth in Section 4.08 of the Company Disclosure Schedule, neither
the Company nor its Subsidiaries has any Liability in respect of a Guarantee of
any Debt or other Liability of any other Person.

Section 4.09. Assets.

(a) Ownership of Assets. The Company and each of its Subsidiaries has good and
marketable title to, or, in the case of property held under a lease or other
Contractual Obligation, a sole and exclusive, Enforceable leasehold interest in,
or adequate rights to use, all of its properties, rights and assets, whether
real or personal and whether tangible or intangible, including all Assets
reflected in the Most Recent Balance Sheet or acquired after the Most Recent
Balance Sheet Date, except for such Assets that

 

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have been sold or otherwise disposed of since the Most Recent Balance Sheet Date
in the Ordinary Course of Business (collectively, the “Assets”). Except as
disclosed in Section 4.09(a) of the Company Disclosure Schedule, none of the
Assets is subject to any Encumbrance other than a Permitted Encumbrance.

(b) Sufficiency of Assets. The Assets comprise all of the assets, properties and
rights of every type and description, whether real or personal, tangible or
intangible, that are used in or necessary to the conduct of the Business and are
adequate to conduct the Business as currently being conducted by the Company and
its Subsidiaries.

(c) Condition of Tangible Assets. All of the material fixtures and other
material improvements to the Real Property included in the Assets (including any
Facilities) and all of the material tangible personal property other than
inventory included in the Assets (i) are in all material respects adequate and
suitable for their present uses, (ii) are in good working order, operating
condition and state of repair (ordinary wear and tear excepted), and (iii) have
been maintained in all material respects in accordance with normal industry
practice.

(d) Investments. Except as set forth in Section 4.09(d) of the Company
Disclosure Schedule, neither the Company nor its Subsidiaries (i) controls,
directly or indirectly, or owns any direct or indirect Equity Interest in any
Person that is not a Subsidiary of the Company or (ii) is subject to any
obligation to make any investment (in the form of a loan, capital contribution
or otherwise) in any Person.

Section 4.10. Real Property.

(a) Neither the Company nor any of its Subsidiaries owns, or has ever owned, any
real property. Section 4.10(a) of the Company Disclosure Schedule sets forth a
list of the addresses of all real property leased, subleased or licensed by, or
for which a right to use or occupy has been granted to, the Company or its
Subsidiaries (the “Real Property”). Section 4.10(a) of the Company Disclosure
Schedule also identifies with respect to each Real Property, each lease,
sublease, license or other Contractual Obligation under which such Real Property
is occupied or used including the date of and legal name of each of the parties
to such lease, sublease, license or other Contractual Obligation, and each
amendment, modification or supplement thereto (the “Real Property Leases”).

(b) Except as set forth in Section 4.10(b) of the Company Disclosure Schedule,
there are no written or oral leases, subleases, licenses, concessions, occupancy
agreements or other Contractual Obligations granting to any Person other than
the Company and its Subsidiaries the right of use or occupancy of any of the
Real Property and there is no Person other than the Company and its Subsidiaries
in possession of any of the Real Property. With respect to each Real Property
Lease that is a sublease, to the Company’s Knowledge, the representations and
warranties in this Section 4.10(b) and Sections 4.16(b) and 4.16(c) are true and
correct with respect to the underlying lease.

 

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(c) The Company has delivered or made available to Parent accurate and complete
copies of the Real Property Leases, in each case as amended or otherwise
modified and in effect, together with extension notices and other material
correspondence, lease summaries, notices or memoranda of lease, estoppel
certificates and subordination, non-disturbance and attornment agreements
related thereto.

(d) No eminent domain or condemnation Action is pending or, to the Company’s
Knowledge, threatened, that would preclude or materially impair the use of any
Real Property. To the Company’s Knowledge, the current use of the Real Property
by the Company and its Subsidiaries does not violate in any material respect any
restrictive covenant of record that affects any of the Real Property.

(e) Each Facility is supplied with utilities and other services necessary for
the operation of such Facility as the same is currently operated, all of which
utilities and other services are provided via public roads or via permanent,
irrevocable appurtenant easements benefiting the parcel of Real Property. Each
parcel of Real Property abuts on, and has direct vehicular access to, a public
road, or has access to a public road via a permanent, irrevocable appurtenant
easement benefiting the parcel of Real Property, in each case, to the extent
necessary for the conduct of the Business as currently conducted.

Section 4.11. Intellectual Property.

(a) Company IP. Except as disclosed in Section 4.11(a) of the Company Disclosure
Schedule, the Company or its Subsidiaries (i) exclusively own the entire right,
title and interest in and to all Owned Intellectual Property Rights free and
clear of all Encumbrances (other than Permitted Encumbrances), and (ii) has the
right to use all Licensed Intellectual Property Rights free and clear of all
Encumbrances (other than Permitted Encumbrances and the covenants, conditions
and restrictions under which such Licensed Intellectual Property is licensed).
Except, with respect to the Company Intellectual Property Rights licensed (A) to
the Company and/or its Subsidiaries under the Inbound IP Contracts identified in
Section 4.11(d) of the Company Disclosure Schedule, or (B) by the Company and/or
its Subsidiaries under the Outbound IP Contracts identified in Section 4.11(d)
of the Company Disclosure Schedule, in each case, to the extent provided in such
IP Contracts, none of the Company Intellectual Property Rights is in the
possession, custody, or control of any Person other than the Company or its
Subsidiaries.

(b) Infringement. Except as disclosed in Section 4.11(b) of the Company
Disclosure Schedule, (i) the conduct of the Business as currently conducted
and/or the manufacture, use, sale, offer for sale, promotion, marketing,
distribution, export or import of the Company Products has not infringed upon,
misappropriated, or otherwise violated any Intellectual Property Rights of any
Person and is not currently doing so in any manner, and (ii) neither the Company
nor its Subsidiaries has (A) received any charge, complaint, claim, demand, or
notice alleging interference, infringement, misappropriation, or other violation
of the Intellectual Property Rights of any Person (including any offers to
license or request or demand to refrain from using

 

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any Intellectual Property Rights of any Person in connection with the conduct of
the Business as currently conducted and/or the manufacture, use, sale, offer for
sale, promotion, marketing, distribution, export or import of the Company
Products), or (B) agreed to or has any Contractual Obligation to indemnify any
Person for or against any interference, infringement, misappropriation, or other
violation with respect to any Intellectual Property Rights, except as provided
in the Outbound IP Contracts. Except as disclosed in Section 4.11(b) of the
Company Disclosure Schedule, to the Company’s Knowledge, no Person has infringed
upon, misappropriated, or otherwise violated any Company Intellectual Property
Rights.

(c) Scheduled Intellectual Property Rights. Section 4.11(c) of the Company
Disclosure Schedule contains a complete and accurate list of all patents and
patent applications (whether pending or in the process of preparation),
registered trademarks, applications for trademark registration, registered
copyrights, applications for copyright registrations, and domain names owned by
or licensed to the Company and/or its Subsidiaries (collectively, the “Company
Registrations”). Section 4.11(c) of the Company Disclosure Schedule also
identifies (i) each unregistered trademark, service mark, trade name, brand
name, slogan or trade dress, (ii) each unregistered copyright, and (iii) a
general description of the trade secrets and Company Products, in each case that
is owned by or licensed to the Company and/or its Subsidiaries that, in each
case, is material to the Business as currently conducted. For purposes of this
Agreement, all items listed in Section 4.11(c) of the Company Disclosure
Schedule shall be called “Scheduled Intellectual Property Rights”.
Section 4.11(c) of the Company Disclosure Schedule specifically identifies those
items of Scheduled Intellectual Property Rights that are licensed to the Company
and/or its Subsidiaries, including the identification of the IP Contract
pursuant to which each such Intellectual Property Right is licensed. For each of
the Company Registrations, Section 4.11(c) of the Company Disclosure Schedule
includes the following information: (i) for each patent and patent application,
the title, patent number or application serial number, jurisdiction, filing
date, date issued (if applicable), inventors, owner of record, and present
status thereof; (ii) for each registered trademark and trademark application,
the trademark, application serial number or registration number, jurisdiction,
filing date, registration date (if applicable), class of goods or services
covered, description of goods or services, owner of record, and present status
thereof; (iii) for each domain name, the registration date, any renewal date,
owner of record, and name of the registrar; (iv) for each copyright registration
and copyright application, the title of the work, number and date of such
registration or application, owner of record, and jurisdiction; and (v) any
actions that must be taken within ninety (90) days after the date hereof for the
purposes of obtaining, maintaining, perfecting, preserving, or renewing any
Company Registrations, including the payment of any registration, maintenance,
or renewal fees or the filing of any responses to office actions, documents,
applications, or certificates. Each of the Company Registrations (other than
applications) that is owned by the Company and/or its Subsidiaries and, to the
Company’s Knowledge, each of the Company Registrations (other than applications)
that is licensed to the Company and/or its Subsidiaries is valid, subsisting,
and enforceable.

 

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(d) IP Contracts. Section 4.11(d) of the Company Disclosure Schedule identifies
under separate headings each Contractual Obligation, whether written or oral,
(i) under which the Company and/or its Subsidiaries uses or licenses Licensed
Intellectual Property Rights that any Person except the Company or its
Subsidiaries owns (other than licenses for generally available off-the-shelf
software) (the “Inbound IP Contracts”), (ii) under which the Company and/or its
Subsidiaries has granted any Person any right or interest in any Company
Intellectual Property Rights (the “Outbound IP Contracts”), and (iii) that
otherwise materially affects the Company’s and/or its Subsidiaries’ use of or
ownership rights in the Company Intellectual Property Rights (including
settlement agreements and covenants not to sue) (such Contractual Obligations,
together with the Inbound IP Contracts and Outbound IP Contracts, the “IP
Contracts”). Except as provided in the Inbound IP Contracts, or as otherwise
disclosed in Section 4.11(d) of the Company Disclosure Schedule, the Company
and/or its Subsidiaries do not, as of the Closing Date, owe any royalties or
other payments to any Person for the use of any Company Intellectual Property
Rights or the manufacture, use, sale, offer for sale, marketing, promotion
and/or distribution of any Company Products. The Company has delivered or made
available to Parent accurate and complete copies of each of the IP Contracts
(or, where an IP Contract is an oral agreement, an accurate and complete written
description of such IP Contract), in each case, as amended or otherwise modified
and in effect.

(e) Title to Company Intellectual Property Rights. Except as disclosed in
Section 4.11(e) of the Company Disclosure Schedule, with respect to (i) each
item of Owned Intellectual Property Rights, and (B) to the Company’s Knowledge,
each item of Licensed Intellectual Property Rights licensed to the Company
and/or its Subsidiaries, such item or right is not subject to any outstanding
Government Order specific to such Company Intellectual Property Rights, and no
Action (including any opposition, interference, or re-examination) is pending or
to the Company’s Knowledge, threatened, which challenges the legality, validity,
enforceability, use, or ownership of such right or item, other than routine
office actions of the U.S. Patent and Trademark Office pertaining to Company
Registrations.

(f) Sufficiency. The Company Intellectual Property Rights include all of the
Intellectual Property Rights necessary to or used in the conduct of the Business
including the development, manufacturing, sale and import of products, and there
are no other Intellectual Property Rights that are material to the conduct of
the Business.

(g) Confidentiality and Invention Assignments. The Company and its Subsidiaries
have maintained commercially reasonable practices to protect the confidentiality
of the Company’s and its Subsidiaries’ confidential information and trade
secrets and, except as disclosed in Section 4.11(g) of the Company Disclosure
Schedule, has required all current and former employees and other Persons with
access to the Company’s and its Subsidiaries’ confidential information and/or
trade secrets to execute Enforceable Contractual Obligations requiring them to
maintain the confidentiality of such information and/or trade secrets and use
such information and/or trade secrets only for the benefit of the Company and/or
its Subsidiaries. All current and former employees

 

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and contractors of the Company and its Subsidiaries who contributed to the
creation or development of the Company Products and/or the Company Intellectual
Property have executed Contractual Obligations that assign to the Company and
its Subsidiaries all of such Person’s Intellectual Property Rights in such
contribution.

(h) Open Source Software. Section 4.11(h) of the Company Disclosure
Schedule lists all Publicly Available Software contained in or used by the
Company and/or its Subsidiaries in the development of Company Products or any
product or service of the Company and/or its Subsidiaries and describes (i) the
applicable software name and version number, (ii) the licensor, (iii) the
license under which such code was obtained, (iv) whether (and if so, how) such
code was modified by or for the Company and/or its Subsidiaries, (v) whether
(and, if so, how) such code was distributed by or for the Company and/or its
Subsidiaries, and (vi) how such code is integrated with or interacts with any
other software. Except as disclosed in Section 4.11(h) of the Company Disclosure
Schedule, none of the Company Products constitute, contain, or are distributed
by the Company and/or its Subsidiaries together with Publicly Available
Software, and none of the Company Products are subject to any IP Contract or
other Contractual Obligation of any Publicly Available Software that would
require the Company and/or its Subsidiaries to divulge to any Person any source
code or trade secret that is part of the Company Products or to grant, or
purport to grant, to any Person, any rights or immunities under the Owned
Intellectual Property Rights or to any Licensed Intellectual Property Rights in
a manner which would exceed or violate the Company’s or its Subsidiaries’
license to such Licensed Intellectual Property Rights.

(i) Privacy and Data Security. The Company’s and/or its Subsidiaries’ use and
dissemination of any personally-identifiable information concerning individuals
is in compliance in all material respects with all applicable privacy policies,
terms of use, Legal Requirements, and Contractual Obligations applicable to the
Company and/or its Subsidiaries’ or to which the Company and/or its Subsidiaries
are bound. Except as described in Section 4.11(i) of the Company Disclosure
Schedule, the Company and its Subsidiaries maintain policies and procedures
regarding data security and privacy and maintain administrative, technical, and
physical safeguards that are commercially reasonable and, in any event, in
compliance in all material respects with all applicable Legal Requirements and
Contractual Obligations applicable to the Company and/or its Subsidiaries or to
which the Company and/or its Subsidiaries are bound. To the Company’s Knowledge,
there have been no security breaches relating to, or violations of any security
policy regarding, or any unauthorized access of, any data or information used by
the Company and/or its Subsidiaries. The Contemplated Transactions will not, as
of the Closing, violate in any material respect any privacy policy, terms of
use, Legal Requirements or Contractual Obligations relating to the use,
dissemination, or transfer of any data or information.

Section 4.12. Legal Compliance; Illegal Payments; Permits.

(a) Legal Compliance. Except as disclosed in Section 4.12(a) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is in any
material respect, in breach or violation of, or default under, its
Organizational Documents or any Legal Requirement.

 

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(b) Illegal Payments, Foreign Corrupt Practices Act etc. In the conduct of the
Business, neither the Company nor any of its Subsidiaries nor any of their
Representatives (insofar as it relates to their services on behalf of the
Company or its Subsidiaries), has (i) directly or indirectly, given, or agreed
to give, any illegal gift, contribution, payment or similar benefit to any
supplier, customer, governmental official or employee or other Person who was,
is or may be in a position to help or hinder the Company or any of its
Subsidiaries (or assist in connection with any actual or proposed transaction)
or made, or agreed to make, any illegal contribution, or reimbursed any illegal
political gift or contribution made by any other Person, to any candidate for
federal, state, local or foreign public office or (ii) established or maintained
any unrecorded fund or asset or made any false entries on any books or records
for any purpose. Without limiting the foregoing, the Company and each of its
Subsidiaries and, to the Company’s Knowledge, each of their Representatives, has
complied with and is in compliance with, and none of them has taken any action
that has violated or would reasonably be expected to result in a failure to
comply with or a violation of the Foreign Corrupt Practices Act of 1977, as
amended, and the rules and regulations thereunder, the OECD Convention on
Combating Bribery of Foreign Public Officials in International Transactions,
dated 21 November 1977, any other Legal Requirements that prohibit commercial
bribery, domestic corruption or money laundering, and the standards established
by the Financial Action Task Force on Money Laundering. The books and records of
the Company and the Subsidiaries have been and are maintained in compliance, in
all material respects, with the applicable requirements of the Foreign Corrupt
Practices Act of 1977, as amended, and the rules and regulations thereunder.

(c) Permits. The Company and its Subsidiaries have been duly granted all
material Permits necessary for the conduct of the Business by it and the
ownership use and operation of its Assets. Section 4.12(c) of the Company
Disclosure Schedule describes each material Permit affecting, or relating to,
the Assets or the Business together with the Governmental Authority responsible
for issuing such Permit. Except as disclosed in Section 4.12(c) of the Company
Disclosure Schedule, (i) the Permits listed or required to be listed thereon are
valid and in full force and effect, (ii) neither the Company nor any of its
Subsidiaries is, in any material respect, in breach or violation of, or default
under, any such material Permit and (iii) to the Company’s Knowledge, no fact,
situation, circumstance, condition or other basis exists which, with notice or
lapse of time or both, would constitute a material breach, violation or default
under such Permit or give any Governmental Authority grounds to suspend, revoke
or terminate any such Permit.

Section 4.13. Tax Matters.

(a) The Company and its Subsidiaries have timely filed, or have caused to be
timely filed on their behalf, all Tax Returns required to be filed by them in
accordance with all Legal Requirements. All such Tax Returns are true, correct
and

 

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complete in all material respects. All Taxes owed by the Company and its
Subsidiaries (whether or not shown on any Tax Return) have been timely paid in
full. No claim has ever been made by a Governmental Authority in a jurisdiction
where the Company or its Subsidiaries do not file Tax Returns that the Company
or its Subsidiaries are or may be subject to taxation by that jurisdiction, and,
to the Company’s Knowledge, there is no basis for any such claim to be made.
There are no Encumbrances with respect to Taxes upon any Asset other than
Permitted Encumbrances for current Taxes not yet delinquent.

(b) The Company and its Subsidiaries have collected, deducted, withheld and
timely paid to the appropriate Governmental Authority all Taxes required to be
collected, deducted, withheld or paid to a Governmental Authority and the
Company and its Subsidiaries have complied with all reporting and recordkeeping
requirements in respect thereto.

(c) No Action relating to any Taxes of the Company or any of its Subsidiaries is
currently in progress. There is no pending, or to the Company’s Knowledge
threatened, claim or Action concerning any Tax Liability of the Company or its
Subsidiaries. The Company has delivered or made available to Parent accurate and
complete copies of all income Tax Returns and other material Tax Returns, and
all examination reports, and statements of deficiencies filed, assessed against,
or agreed to by the Company and its Subsidiaries since December 31, 2006.

(d) Neither the Company nor any of its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency, which waivers or extensions are currently in
effect. Except as described in Section 4.13(d) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has executed any power
of attorney with respect to any Tax, other than powers of attorney that are no
longer in force. No closing agreements, private letter rulings, technical advice
memoranda or similar agreements or rulings relating to Taxes have been entered
into or issued by any Governmental Authority with or in respect of the Company
or its Subsidiaries.

(e) The unpaid Taxes of the Company and its Subsidiaries (i) did not as of the
Most Recent Balance Sheet Date exceed the reserve for Taxes (excluding 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 (ii) will not, as of the Closing Date,
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Company in filing its Tax
Returns.

(f) Except as disclosed in Section 4.13(f) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries has made any payments, or is or
has been a party to any Contractual Obligation that could result in it making
payments, separately or in the aggregate, of any “excess parachute payment”
within the meaning of Code Section 280G (or any corresponding provisions of
state, local or foreign Tax law) or that were or would not be deductible under
Code Sections 162 or 404.

 

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(g) Except as described in Section 4.13(g) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries have ever been a member of an
“affiliated group” within the meaning of Code Section 1504(a) filing a
consolidated federal income Tax Return, other than an affiliated group the
common parent of which is the Company. Neither the Company nor any of its
Subsidiaries is a party to any Contractual Obligation relating to Tax sharing or
Tax allocation, other than commercial agreements the principal purpose of which
is unrelated to Taxes and which were entered into in the Ordinary Course of
Business. Neither the Company nor any of its Subsidiaries has Liability for the
Taxes of any Person (other than the Company or any of its Subsidiaries) under
Treasury Regulation 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise.

(h) Neither the Company nor any of its Subsidiaries has filed a consent under
Code Section 341(f).

(i) Except as described in Section 4.13(i) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries is or has been required to make
any adjustment pursuant to Code Section 481(a) (or any predecessor provision) or
any similar provision of state, local or foreign Tax law by reason of any change
in any accounting methods, and there is no application pending with any
Governmental Authority requesting permission for any changes in any of its
accounting methods for Tax purposes. To the Company’s Knowledge, no Governmental
Authority has proposed any such adjustment or change in accounting method of the
Company or its Subsidiaries.

(j) Neither the Company nor any of its Subsidiaries will be required to include
any amount in taxable income or exclude any item of deduction or loss from
taxable income for any taxable period (or portion thereof) ending after the
Closing Date as a result of (i) any “closing agreement” as described in Code
Section 7121 (or any corresponding or similar provision of state, local or
foreign Income Tax law) executed on or prior to the Closing Date, (ii) any
deferred intercompany gain or excess loss account described in Treasury
Regulations under Code Section 1502 (or any corresponding or similar provision
or administrative rule of federal, state, local or foreign income Tax law),
(iii) installment sale or open transaction disposition made on or prior to the
Closing Date, (iv) any prepaid amount received on or prior to the Closing Date,
or (v) a deferral of election made on or prior to the Closing Date with respect
to any cancellation of indebtedness income.

(k) Neither the Company nor any of its Subsidiaries has been either a
“distributing corporation” or a “controlled corporation” in a distribution in
which the parties to such distribution treated the distribution as one to which
Section 355 of the Code is applicable.

(l) Neither the Company nor any of its Subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the
Code.

 

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(m) Neither the Company nor any of its Subsidiaries has engaged in any
transaction that could give rise to (i) a reporting obligation under
Section 6111 of the Code or the regulations thereunder, (ii) a list maintenance
obligation under Section 6112 of the Code or the regulations thereunder, (iii) a
disclosure obligation of a “reportable transaction” under Section 6011 of the
Code and the regulations thereunder, or (iv) any similar obligation under any
predecessor or successor law or regulation or comparable provision of state or
local law.

Section 4.14. Employee Benefit Plans.

(a) Section 4.14(a) of the Company Disclosure Schedule lists all Employee Plans
which the Company and its Subsidiaries sponsor or maintain, or to which the
Company and its Subsidiaries contribute or are obligated to contribute, or in
respect of which the Company or its or any of its Subsidiaries has or may have
any Liability (including but not limited to by reason of being or having been
treated as a single employer with any other Person under Section 414 of the Code
or Section 4001(b) of ERISA (an “ERISA Affiliate”), or which benefits any
current or former employee, director, consultant or independent contractor of
the Company, its Subsidiaries, or the beneficiaries or dependents of any such
Person (each a “Company Plan”). With respect to each Company Plan, each of the
Company and its Subsidiaries has delivered or made available to Parent accurate
and complete copies of each of the following: (i) if the plan has been reduced
to writing, the plan document together with all amendments thereto, (ii) if the
plan has not been reduced to writing, a written summary of all material plan
terms, (iii) if applicable, any trust agreements, custodial agreements,
insurance policies or material contracts, material administrative agreements and
similar agreements, and investment management or investment advisory agreements,
(iv) any summary plan descriptions, employee handbooks or similar material
employee communications, (v) in the case of any plan that is intended to be
qualified under Code Section 401(a), the most recent determination letter from
the Internal Revenue Service (“IRS”) and any related material correspondence
with the IRS, and any pending request for determination with respect to the
plan’s qualification, (vi) in the case of any funding arrangement intended to
qualify as a VEBA under Code Section 501(c)(9), the IRS letter determining that
it so qualifies, (vii) in the case of any plan for which Forms 5500 are required
to be filed, the three most recently filed Forms 5500, with schedules attached,
(viii) any notices, letters or other correspondence from the IRS or the
Department of Labor relating to such Company Plan, and (ix) any written policies
or procedures used in and material to the administration of such Company Plan.

(b) Neither the Company nor any of its Subsidiaries, nor any ERISA Affiliate of
the Company or its Subsidiaries has ever maintained or contributed to or
incurred any Liability in respect of a plan subject to Title IV of ERISA or Code
Section 412, including any “multiemployer plan” as defined in Section 4001(a)(8)
of ERISA, and no condition exists that presents a material risk to the Company
of incurring a material liability under Title IV of ERISA or Section 412 or
Section 430 of the Code.

 

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(c) Each Company Plan that is intended to be qualified under Code Section 401(a)
is so qualified. Each Company Plan, including any associated trust or fund, has
been administered in all material respects in accordance with its terms and any
applicable collective bargaining agreements and with applicable Legal
Requirements, and, nothing has occurred with respect to any Company Plan that
has subjected or could reasonably be expected to subject the Company to a
penalty under Section 502 of ERISA or to an excise tax under the Code, or that
has subjected or could reasonably be expected to subject any participant in, or
beneficiary of, a Company Plan to a tax under Code Section 4973. Each Company
Plan that is a qualified defined contribution plan has been administered in all
material respects as, and is intended to be, an “ERISA section 404(c) Plan”
within the meaning of Department of Labor regulations section 2550.404c-1(b).

(d) All required contributions to, and premium payments on account of, each
Company Plan have been made on a timely basis, as applied through the Closing
Date. The fair market value of the assets of each Company Plan for which a
separate fund of assets is or is required to be maintained, as of the end of the
most recently ended plan year of that Plan, equals or exceeds the present value
of all benefits liabilities under that Plan. None of the assets of any Company
Plan include any capital stock or other securities issued by the Company or its
Subsidiaries or any ERISA Affiliate of the Company or any of its Subsidiaries.

(e) There is no pending or, to the Company’s Knowledge, threatened Action or
other legal proceeding relating to a Company Plan or any fiduciary or service
provider thereof, other than routine claims in the Ordinary Course of Business
for benefits provided for by the Company Plans, and to the Knowledge of the
Company there is no basis for any such Action or legal proceeding. No Company
Plan is or, within the last six years, has been the subject of an examination or
audit by a Governmental Authority, is the subject of an application or filing
under, or is a participant in, a government-sponsored amnesty, voluntary
compliance, self-correction or similar program.

(f) Except as required under Section 601 et seq. of ERISA or applicable state
insurance laws, no Company Plan provides benefits or coverage in the nature of
health, life or disability insurance following retirement or other termination
of employment.

(g) The exercise price of each Option is not less than the fair market value of
a share of Common Stock determined on the date of grant of such Option (and as
of any later modification thereof within the meaning of Section 409A of the
Code). Each “nonqualified deferred compensation plan” (as defined in Code
Section 409A(d)(1) and applicable regulations) with respect to any service
provider to the Company (i) complies and has been operated in compliance in all
material respects with the requirements of Code Section 409A and regulations
promulgated thereunder, or (ii) is exempt from compliance under the
“grandfather” provisions of IRS Notice 2005-1 and applicable regulations and has
not been “materially modified” (within the meaning of IRS Notice 2005-1 and
Treasury Regulations §1.409A-6(a)(4)) subsequent to October 3, 2004.

 

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(h) Neither the Company nor any of its Subsidiaries has undertaken to maintain
any Company Plan for any period of time, and each Company Plan and any related
contracts may be amended or terminated without penalty other than the payment of
benefits, fees or charges accrued or incurred through the date of termination.
No communication, report or disclosure has been made which, at the time made,
did not accurately reflect the material terms and operations of any Company
Plan. Neither the Company nor any of its Subsidiaries has announced its
intention, or undertaken (whether or not legally bound) to modify or terminate
any Company Plan or adopt any arrangement or program which, once established,
would come within the definition of Company Plan.

(i) With respect to each Company Plan that is subject to Legal Requirements of a
jurisdiction outside the United States, each such plan required to be registered
has been registered and is in good standing with applicable Governmental
Authorities, all contributions required to be made to or in connection with each
such plan have been made and each such plan has been established and
administered in accordance with its terms and all applicable Legal Requirements.

(j) Neither the Company nor any of its Subsidiaries has Liability, including
under any Company Plan, arising out of the treatment of any service provider as
a consultant or independent contractor and not as an employee, or vice-versa.

(k) The execution and delivery of this Agreement and the consummation of the
Contemplated Transactions will not, by itself or in combination with any other
event (regardless of whether that other event has or will occur), result in any
payment (whether of severance pay or otherwise) becoming due from or under any
Company Plan to any current or former director, officer, consultant or employee
of the Company or result in the vesting, acceleration of payment, or increases
in the amount of any benefit payable to or in respect of any such current or
former director, officer, consultant or employee.

Section 4.15. Environmental Matters. Except as set forth in Section 4.15 of the
Company Disclosure Schedule, (a) each of the Company and its Subsidiaries is,
and has been, in compliance in all material respects with all Environmental
Laws, (b) there has been no release or threatened release of any material amount
of any Hazardous Substance on, upon, into or from any site currently or
heretofore owned, leased or otherwise operated or used by the Company or any of
its Subsidiaries, (c) there have been no Hazardous Substances generated by the
Company or any of its Subsidiaries that have been disposed of or come to rest at
any site that has been included in any published U.S. federal, state or local
“superfund” site list or any other similar list of hazardous or toxic waste
sites published by any Governmental Authority in the United States, (d) there
are no underground storage tanks located on, no PCBs (polychlorinated biphenyls)
or PCB-containing equipment used or stored on, and no hazardous waste as defined
by the Resource Conservation and Recovery Act stored on, any site owned or
operated by the Company, except for the storage of hazardous waste in compliance
with Environmental Laws and (e) the Company has delivered or made available to
Parent accurate and complete copies of all material environmental records,
reports, notifications, certificates of need, permits, pending permit
applications, correspondence, engineering studies, and environmental studies or
assessments for the Company and any of its Subsidiaries, in each case as amended
and in effect.

 

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Section 4.16. Contracts.

(a) Contracts. Except as disclosed in the applicable subsection in Section 4.16
of the Company Disclosure Schedule (which is arranged in subsections numbered
(i) to (xiv) to correspond to the subsections of this Section 4.16(a)), neither
the Company nor any of its Subsidiaries is bound by or a party to:

(i) any Contractual Obligation (or group of related Contractual Obligations) for
the purchase, sale, construction, repair or maintenance of inventory, raw
materials, commodities, supplies, goods, products, equipment or other property,
or for the furnishing or receipt of services, in each case, the performance of
which will extend over a period of more than one year or which provides for (or
would be reasonably expected to involve) annual payments to or by the Company or
any of its Subsidiaries in excess of $100,000 or aggregate payments to or by the
Company or any of its Subsidiaries in excess of $250,000;

(ii) any Contractual Obligation relating to the acquisition or disposition by
the Company or any of its Subsidiaries of (A) any business (whether by merger,
consolidation or other business combination, sale of securities, sale of assets
or otherwise) or (B) any material Asset (other than in the Ordinary Course of
Business of the Company and its Subsidiaries);

(iii) any Contractual Obligation concerning or consisting of a partnership,
limited liability company, joint venture or similar agreement;

(iv) any Contractual Obligation under which the Company or any of its
Subsidiaries has permitted any Asset to become Encumbered (other than by a
Permitted Encumbrance);

(v) any Contractual Obligation (A) under which the Company or any of its
Subsidiaries has created, incurred, assumed or guaranteed any Debt or (B) under
which any other Person has guaranteed any Debt of the Company or any of its
Subsidiaries;

(vi) any Contractual Obligation containing covenants that in any way purport to
(A) restrict any business activity (including the solicitation, hiring or
engagement of any Person or the solicitation of any customer) of the Company or
any of its Subsidiaries or any Affiliate thereof or (B) limit the freedom of the
Company or any of its Subsidiaries or any Affiliate thereof to engage in any
line of business or compete with any Person;

(vii) any Contractual Obligation under which the Company or any of its
Subsidiaries is, or may become, obligated to incur any severance pay or
Compensation obligations that would become payable by reason of this Agreement
or the Contemplated Transactions;

 

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(viii) any Contractual Obligation under which the Company or any of its
Subsidiaries is, or may, have any Liability to any investment bank, broker,
financial advisor, finder or other similar Person (including an obligation to
pay any legal, accounting, brokerage, finder’s, or similar fees or expenses) in
connection with this Agreement or the Contemplated Transactions;

(ix) any Contractual Obligation providing for the employment or consultancy of
any Person on a full-time, part-time, consulting or other basis or otherwise
providing Compensation or other benefits to any officer, director, employee or
consultant (other than a Company Plan);

(x) any material agency, dealer, distributor, sales representative, marketing or
other similar Contractual Obligation;

(xi) any outstanding general or special powers of attorney executed by or on
behalf of the Company or any of its Subsidiaries;

(xii) any Contractual Obligation, other than Real Property Leases relating to
the lease or license of any Asset, including Company Products and Intellectual
Property Rights (and including all customer license and maintenance agreements)
that is not included in Section 4.11(d) of the Company Disclosure Schedule;

(xiii) any Contractual Obligation under which the Company or any of its
Subsidiaries has advanced or loaned an amount to any of its Affiliates or
employees other than in the Ordinary Course of Business; and

(xiv) any other Contractual Obligation between the Company and any of its
Subsidiaries, on the one hand, and any Securityholder (or Affiliate or Family
Member thereof), on the other hand, that will continue in effect after the
Closing.

The Company has delivered or made available to Parent accurate and complete
copies of each written Contractual Obligation listed in Section 4.16 of the
Company Disclosure Schedule, in each case, as amended or otherwise modified and
in effect. The Company has delivered or made available to Parent a written
summary setting forth all of the material terms and conditions of each oral
Contractual Obligation listed in Section 4.16 of the Company Disclosure
Schedule.

(b) Enforceability, etc. Each Contractual Obligation required to be disclosed in
Section 4.10(a) (Real Property), Section 4.11(d) (IP Contracts), Section 4.14
(Employee Benefit Plans), Section 4.16 (Contracts), Section 4.17 (Government
Contracts) Section 4.19 (Customers or Suppliers) or Section 4.22 (Insurance) of
the Company Disclosure Schedule (each, a “Material Company Contract”) is
Enforceable against the Company and, to the Knowledge of the Company, each other
party to such Contractual Obligation, and is in full force and effect, and,
subject to obtaining any necessary consents disclosed in Sections 4.03 and 4.04
of the Company Disclosure Schedule, will continue to be so Enforceable and in
full force and effect on identical terms following the consummation of the
Contemplated Transactions.

 

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(c) Breach, etc. Neither the Company nor any of its Subsidiaries, nor, to the
Company’s Knowledge, any other party to any Material Company Contract is in
material breach or violation of, or default under, or has repudiated any
material provision of, any Material Company Contract.

Section 4.17. Government Contracts.

(a) Except as described in Section 4.17(a) of the Company Disclosure Schedule,
neither the United States Government nor any prime contractor, subcontractor or
other Person has notified the Company or any of its Subsidiaries in writing
(which written notification is still outstanding and has not been canceled,
withdrawn or resolved) that the Company or any of its Subsidiaries have in any
material respect breached or violated any Legal Requirement, certification,
representation, clause, provision or requirement pertaining to a Government
Contract or Government Subcontract, and all material facts set forth or
acknowledged by any such representations or certifications submitted by or on
behalf of the Company in connection with a Government Contract or Government
Subcontract were current, accurate and complete in all material respects on the
date of submission.

(b) Except as set forth in Section 4.17(b) of the Company Disclosure Schedule:

(i) (A) each of the Company’s and its Subsidiaries’ Government Contracts and
Government Subcontracts were legally awarded and (B) no Government Contract is
the subject of bid or award protest proceedings as of the date of this
Agreement;

(ii) neither the Company nor any of its Subsidiaries has received any written
notice of termination for convenience, notice of termination for default, notice
of breach, cure notice or show cause notice pertaining to a Government Contract
or Government Subcontract, and no event, condition or omission has occurred or
exists that would constitute grounds for such action;

(iii) no cost incurred by the Company or any of its Subsidiaries pertaining to a
Government Contract or Government Subcontract has been questioned or challenged,
is the subject of any audit or investigation or has been disallowed by any
Governmental Authority in an amount that individually exceeds $10,000 or in the
aggregate exceeds $25,000;

(iv) other than in the Ordinary Course of Business, neither the Company nor any
of its Subsidiaries has undergone, and is not currently undergoing, any internal
or external audit, review, inspection, investigation, survey or examination of
records (collectively “Audits”) relating to any of its Government Contracts,
Government Subcontracts, or bids, and no Audit has resulted in any disallowance
of costs in a material amount or adverse finding with respect to any alleged
unlawful conduct, misstatement or omission arising under or relating to any
Government Contract, Government Subcontract, or bid;

 

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(v) from January 1, 2007 through the date of this Agreement, neither the Company
nor any of its Subsidiaries has had any adverse or negative past performance
evaluation or rating relating to a Government Contract or Government
Subcontract;

(vi) no Government Contract or Government Subcontract was awarded based upon the
Company or its Subsidiaries qualifying as a Small Business Concern, HUBZone
Small Business Concern, Veteran-Owned Small Business Concern, 8(a) Business
Development Concern or other preferential status as afforded by the FAR, small
business administration (“SBA”) regulations, other regulations or statutes;

(vii) no reasonable basis exists to give rise to a claim for fraud (as such
concept is defined under the state or federal laws of the United States) in
connection with any Government Contract or Government Subcontract or bid under
the United States or a state civil or criminal False Claims Acts, the United
States Procurement Integrity Act, the Truth in Negotiations Act, or other laws
adopted by any Governmental Authority;

(viii) neither the Company nor any of its Subsidiaries has made any mandatory
disclosure under FAR 52.203­13 or any voluntary disclosure to any Governmental
Authority with respect to any alleged. unlawful conduct, misstatement or
omission arising under or relating to any Government Contract or Government
Subcontract, and to the Knowledge of the Company there are no facts that would
require mandatory disclosure under FAR 52.203-13;

(ix) there are no agreements or arrangements to which the Company or any of its
Subsidiaries is a party under which any Governmental Authority acquires rights
with respect to any Company Products or Owned Intellectual Property Rights
except “limited rights” with respect to technical data or “restricted rights”
with respect to software as contemplated by the provisions of Federal
Acquisition Regulations (“FAR”) 48 C.F.R. 12.212, 2.101, and 227.7202-1 through
227.7202-4 (June 1995), 252.227-7013(a)(14) (Limited Rights), and
252.227-7014(a)(15) (Restricted Rights) of the Department of Defense (“DoD”) FAR
Supplement and its successors, or the equivalent thereof under foreign
applicable law, nor has any Governmental Authority acquired any rights outside
of any such agreements, arrangements or subcontract as the result of providing
any funding relating to the development of any Company Intellectual Property
Rights; and the Company has complied with all applicable requirements for each
subject invention (as defined in FAR section 52.227-11) such that the Company or
one of its Subsidiaries exclusively owns the entire right, title and interest in
and to each such subject invention free and clear of all Encumbrances; and

 

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(x) there are no facts, involving the Company or any of its Subsidiaries that
could reasonably be expected to result in an “Organizational Conflict of
Interest” as defined in the FAR. The Company and its Subsidiaries are unaware of
any such Organizational Conflict of Interest that could reasonably be expected
to result from the execution and delivery of this Agreement and completion of
the Contemplated Transactions.

(c) Except as set forth in Section 4.17(c) of the Company Disclosure Schedule,
from January 1, 2007 through the date of this Agreement, none of the Company,
its Subsidiaries, and, to the Knowledge of the Company, none of their directors,
officers or employees, is or has been under administrative, civil or criminal
investigation or indictment by any Governmental Authority, or any audit or
investigation by the Company or its Subsidiaries, with respect to any alleged
act or omission arising under or relating to any Government Contract or
Government Subcontract.

(d) All invoices submitted under each Government Contract were accurate and
complete, in all material respects, as of their submission date.

(e) From January 1, 2007 through the date of this Agreement, none of the Company
or its Subsidiaries or any of their directors or officers has been debarred or
suspended or proposed for debarment or suspension, or has been the subject of a
finding of non-responsibility, and, to the Knowledge of the Company, no such
debarment or suspension is threatened in writing, in each case, from
participation in the award of any Government Contract or Government Subcontract.
To the Knowledge of the Company there are no circumstances that would likely
become a basis for the suspension or debarment of the Company or any of its
Subsidiaries, or any of their officers, or employees, from bidding on or being
awarded Government Contracts or Government Subcontracts.

(f) Section 4.17(f) of the Company Disclosure Schedule sets forth all of the
facility clearances held by the Company or any of its Subsidiaries. The Company
and its Subsidiaries possess all of the facility and personnel security
clearances reasonably necessary to conduct the Business. The Company and its
Subsidiaries are in compliance with all applicable national security obligations
and security measures required by the Company’s and its Subsidiaries’ Government
Contracts, Government Subcontracts or applicable Legal Requirements including,
but not limited to, compliance with the National Industrial Security Operating
Manual (DoD 5220.22-M, as amended), and, to the Knowledge of the Company, there
are no facts or circumstances that would, or would reasonably be expected to,
result in the suspension or termination of any Government security clearances or
that would reasonably be expected to render the Company or its Subsidiaries
ineligible for such security clearances in the future.

(g) Section 4.17(g) of the Company Disclosure Schedule sets forth a complete and
correct list of each officer, employee or consultant of the Company or any of
its Subsidiaries who currently holds or maintains or has otherwise been granted
a security clearance by any Governmental Authority (each, a “Security Clearance
Holder”) and the type, level or classification of each such security clearance.
During the last three years, there has not been, and, to the Company’s
Knowledge, there are no facts that could

 

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reasonably be expected to give rise to, any revocation, suspension or failure to
renew any security clearance of the Company, any of its Subsidiaries, any site
or facility operated by the Company or any of its Subsidiaries or, to the
Company’s Knowledge, any Security Clearance Holder.

(h) No Governmental Authority has revoked, suspended or failed to renew any
security clearance held or maintained by or otherwise granted to the Company,
nor has any Governmental Authority threatened to revoke, suspend or fail to
renew any security clearance held or maintained by or otherwise granted to the
Company any of its Subsidiaries or any site or facility operated by the Company
or any of its Subsidiaries.

(i) Except as set forth in Section 4.17(i) of the Company Disclosure
Schedule there are no outstanding claims against the Company or its
Subsidiaries, either by a Governmental Authority or by any prime contractor,
subcontractor, vendor or other third party arising under or relating to any
Government Contract, Government Subcontract, bid or teaming agreement to which
the Company or its Subsidiaries is a party.

(j) Unless prohibited by a Legal Requirement, and only to the extent allowed by
Legal Requirement, the Company has disclosed or made available to Parent all
material information relating to the nature and scope of its or any of its
Subsidiaries’ material Classified Government Contracts and has provided Parent
with access to complete and accurate copies of all contracts, statements of work
and other documentation related thereto.

(k) There are no actual or to the Company’s Knowledge threatened prohibitions on
the Company or any of its Subsidiaries to do business with, directly or
indirectly, any Governmental Authority.

Section 4.18. Related Party Transactions. Except for the matters disclosed in
Section 4.18 of the Company Disclosure Schedule, no Securityholder or Affiliate
of any Securityholder and no officer or director or holder of more then 5% of
any outstanding class of capital stock of the Company (or equivalent) of the
Company or any of its Subsidiaries (or, to the Company’s Knowledge, any Family
Member of any such Person who is an individual or any entity in which any such
Person or any such Family Member thereof owns a material interest): (a) has any
material interest in any material Asset owned or leased by the Company or any of
its Subsidiaries or used in connection with the Business or (b) has engaged in
any material transaction, arrangement or understanding with the Company or any
of its Subsidiaries since January 1, 2009 (other than payments made to, and
other Compensation provided to, such officers and directors in the Ordinary
Course of Business of the Company and its Subsidiaries).

Section 4.19. Customers and Suppliers. Section 4.19 of the Company Disclosure
Schedule sets forth a complete and accurate list of (a) the ten (10) largest
customers of the Company and its Subsidiaries (measured by aggregate billings)
during the eleven (11) month period ended on the Most Recent Balance Sheet Date,
indicating the existing Contractual Obligations with each such customer by
product or service provided and (b) the ten (10) largest

 

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suppliers of materials, products or services to the Company and its Subsidiaries
(measured by the aggregate amount purchased by the Company) during the eleven
(11) month period ended on the Most Recent Balance Sheet Date, indicating the
Contractual Obligations for continued supply from each such supplier. Except as
disclosed in Section 4.19 of the Company Disclosure Schedule, none of such
customers or suppliers has cancelled, terminated or otherwise materially altered
(including any material reduction in the rate or amount of sales or purchases or
material increase in the prices charged or paid, as the case may be) or notified
the Company or its Subsidiaries of any intention to do any of the foregoing or
otherwise threatened in writing to cancel, terminate or materially alter
(including any material reduction in the rate or amount of sales or purchases or
material increase in the prices charged or paid as the case may be) its
relationship with the Company or its Subsidiaries.

Section 4.20. Labor Matters. Except as disclosed in Section 4.20 of the Company
Disclosure Schedule, there are no labor troubles (including any work slowdown,
lockout, stoppage, picketing or strike) pending, or to the Company’s Knowledge,
threatened between the Company or any of its Subsidiaries, on the one hand, and
their employees, on the other hand, and there have been no such troubles since
January 1, 2010. Except as disclosed in Section 4.20 of the Company Disclosure
Schedule, (a) no employee of the Company or any of its Subsidiaries is
represented by a labor union, (b) neither the Company nor any of its
Subsidiaries is a party to, or otherwise subject to, any collective bargaining
agreement or other labor union contract, (c) no petition has been filed or, to
the Company’s Knowledge, any proceedings instituted by an employee or group of
employees of the Company or any of its Subsidiaries with any labor relations
board seeking recognition of a bargaining representative, (d) to the Company’s
Knowledge, there is no organizational effort currently being made or threatened
by, or on behalf of, any labor union to organize employees of the Company or any
of its Subsidiaries, and (e) no demand for recognition of employees of the
Company or any of its Subsidiaries has been made by, or on behalf of, any labor
union. No executive officer’s or other Key Employee’s employment with the
Company or any of its Subsidiaries has been terminated for any reason nor has
any such officer or Key Employee notified the Company or any of its Subsidiaries
of his or her intention to resign or retire since January 1, 2010.

Section 4.21. Litigation; Governmental Orders.

(a) Litigation. Except as disclosed in Section 4.21(a) of the Company Disclosure
Schedule as of the date of this Agreement, there is no Action to which the
Company or any of its Subsidiaries is a party (either as plaintiff or defendant)
or to which their Assets are or may be subject that is pending, or to the
Company’s Knowledge, threatened, nor, to the Company’s Knowledge, is there any
basis for any of the foregoing. Except as disclosed in Section 4.21(a) of the
Company Disclosure Schedule, there is no Action which the Company or any of its
Subsidiaries currently intend to initiate.

(b) Governmental Orders. Except as disclosed in Section 4.21(b) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries has
received any written Government Order or any written notice of any Government
Order that is applicable to the Company or any of its Subsidiaries or their
Assets or the Business.

 

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Section 4.22. Insurance. Section 4.22 of the Company Disclosure Schedule sets
forth an accurate and complete list of all insurance policies by which the
Company or any of its Subsidiaries, or any of their Assets, employees, officers
or directors (or equivalent) or the Business have been insured since January 1,
2010 (the “Liability Policies”) and, with respect to such Liability Policies
under which the Company or any Subsidiary, or any of their Assets, employees,
officers or directors (or equivalent) or the Business are currently insured (the
“Current Liability Policies”), their respective expiration dates. The list
includes for each Liability Policy the type of policy, form of coverage, policy
number and name of insurer. The Company has delivered or made available to
Parent accurate and complete copies of all Liability Policies, in each case, as
amended or otherwise modified and in effect. Section 4.22 of the Company
Disclosure Schedule describes any self-insurance arrangements affecting the
Company or any Subsidiary. The Company and its Subsidiaries maintain and have
since January 1, 2005 maintained with financially sound and reputable insurers
insurance with respect to its Assets, employees, officers and directors (or
equivalent) and the Business, in such amounts and against such losses and risks
as is required under the terms of any applicable Real Property Leases or other
Contractual Obligations. Except as disclosed in Section 4.22 of the Company
Disclosure Schedule, since January 1, 2005 no insurer (a) has questioned, denied
or disputed coverage of any claim pending under any Liability Policy or (b) has
threatened to cancel any Liability Policy. Except as disclosed in Section 4.22
of the Company Disclosure Schedule, to the Company’s Knowledge, no insurer plans
to materially increase the premiums for, or materially alter the coverage under,
any Current Liability Policy. Except as disclosed in Section 4.22 of the Company
Disclosure Schedule, the Company and its Subsidiaries will after the Closing
continue to have coverage under all of the Liability Policies with respect to
events occurring prior to the Closing.

Section 4.23. Books and Records. The minute books and stock record books of the
Company and its Subsidiaries are complete and correct and have been maintained
in accordance with sound business practices and the stock record books of the
Company and its Subsidiaries and the minute books of the Company and its
Subsidiaries for the last three (3) years have been made available to Parent.
The minute books of the Company and its Subsidiaries contain accurate and
complete records of all meetings, and actions taken by written consent of, the
stockholders, the Company Board and the Board of Directors of any of its
Subsidiaries and any of their respective committees, respectively, and no
meeting, or action taken by written consent, of any such stockholders, board of
directors or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Company.

Section 4.24. No Brokers. Neither the Company nor its Subsidiaries has Liability
of any kind to, or is subject to any claim of, any broker, finder or agent in
connection with the Contemplated Transactions other than fees and expenses
payable or reimbursable to Pagemill Partners, pursuant to Contractual
Obligations that have been disclosed to Parent.

 

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

OF PARENT AND MERGER SUB.

In order to induce the Company to enter into and perform this Agreement and to
consummate the Contemplated Transactions, each of Parent and Merger Sub, jointly
and severally, represents and warrants to the Company that as of the date of
this Agreement and as of the Closing Date:

Section 5.01. Organization.

(a) Parent is a corporation duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted.

(b) Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Merger Sub was organized for
the purpose of engaging in the Contemplated Transactions, and has conducted no
other business.

Section 5.02. Power and Authorization. Each of Parent and Merger Sub has all
requisite power and authority necessary for the execution, delivery and
performance by it of its obligations under this Agreement and each Ancillary
Agreement to which it is or will be a party. The execution, delivery and
performance by each of Parent and Merger Sub of this Agreement and each
Ancillary Agreement to which it is or will be a party and the consummation of
the Contemplated Transactions by each of Parent and Merger Sub are within the
power and authority of Parent and/or Merger Sub, as the case may be, and have
been duly authorized by all necessary corporate action on the part of Parent and
Merger Sub. This Agreement and each Ancillary Agreement to which Parent and/or
Merger Sub is, or will be at Closing, a party (a) have been (or, in the case of
Ancillary Agreements to be entered into at the Closing, will be when executed
and delivered) duly executed and delivered by Parent and/or Merger Sub, as the
case may be, and (b) is (or in the case of Ancillary Agreements to be entered
into at the Closing, will be when executed and delivered) a legal, valid and
binding obligation of Parent and/or Merger Sub, as the case may be, Enforceable
against Parent and/or Merger Sub in accordance with its terms.

Section 5.03. Authorization of Governmental Authorities. Except as disclosed in
Section 5.03 of the Parent Disclosure Schedule, no action by (including any
authorization, consent or approval of), or in respect of, or filing with, any
Governmental Authority is required for, or in connection with, the valid and
lawful (a) authorization, execution, delivery and performance by Parent or
Merger Sub of this Agreement and each Ancillary Agreement to which either of
them is, or will be at Closing, a party or (b) consummation of the Contemplated
Transactions by Parent and Merger Sub.

 

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Section 5.04. Noncontravention. Except as disclosed in Section 5.04 of Parent
Disclosure Schedule, none of the authorization, execution, delivery and
performance by either Parent or the Merger Sub of this Agreement or any
Ancillary Agreement to which either of them is, or will be at Closing, a party
nor the consummation of the Contemplated Transactions will:

(a) assuming the taking of any action by (including the obtaining of each
necessary authorization, consent or approval) or in respect of, and the making
of all filings with, Governmental Authorities, in each case, as disclosed in
Section 5.03 of the Parent Disclosure Schedule, violate any provision of any
Legal Requirement applicable to Parent or Merger Sub; or

(b) conflict with or result in a breach or violation of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
require any action by (including any authorization, consent or approval) or
notice to any Person under, any of the terms, conditions or provisions of
(i) any Governmental Order applicable to or otherwise affecting Parent or Merger
Sub or any of their respective assets or properties, (ii) any material
Contractual Obligation of Parent or Merger Sub, or (iii) the Organizational
Documents of the Parent or Merger Sub.

Section 5.05. No Brokers. Neither Parent nor Merger Sub has Liability of any
kind to any broker, finder or agent with respect to the Contemplated
Transactions for which any of the Securityholders could be liable.

Section 5.06. Merger Sub Capitalization. The authorized capital stock of Merger
Sub consists of 1,000 shares of Merger Sub Common Stock, all of which is issued
and outstanding and is owned, of record and beneficially, by Parent, as Merger
Sub’s sole stockholder. All of the outstanding shares of Merger Sub Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, and not subject to or issued in violation of any preemptive
rights, any purchase option, call option, right of first refusal, subscription
right or any similar right.

Section 5.07. Litigation. There is no Action pending or as to which Parent has
received any written notice of assertion, which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay any of the Contemplated
Transactions.

Section 5.08. Financing. Parent has or will have sufficient cash and/or
available borrowing capacity to pay the Total Merger Consideration and to make
all other payments of fees and expenses in connection with the negotiation and
Closing of the Contemplated Transactions.

ARTICLE VI

COVENANTS OF THE PARTIES.

Section 6.01. Conduct of the Business of the Company and its Subsidiaries.
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement and the Effective Time, the Company
will (except to the extent that Parent shall otherwise consent in writing), and
will cause each of its Subsidiaries to, carry on its business in

 

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the usual and ordinary course in substantially the same manner as heretofore
conducted, pay its Debts and Taxes when due, pay or perform other obligations
when due, and use its commercially reasonable efforts consistent with past
practice and policies to preserve intact its present business organization, keep
available the services of its present officers and Key Employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it. Without limiting the foregoing and
except as expressly contemplated by this Agreement, the Company shall not, and
shall cause its Subsidiaries to not, without the prior written consent of
Parent:

(a) authorize or effect any amendment to or change any of its Organizational
Documents;

(b) (i) make any payments or enter into any commitment or transaction,
(ii) waive or release any right or claim, (iii) fail to pay, or delay in paying,
accounts payable when due, (iv) accelerate the payment of any accounts
receivable, or (v) change any cash management practices, in each case outside of
the Ordinary Course of Business or inconsistent with prior practice;

(c) create any Subsidiary of the Company;

(d) issue, grant, deliver or sell, or authorize or propose the issuance, grant,
delivery or sale of, or purchase or propose the purchase of, any Equity Interest
with respect to the Company or any Subsidiary;

(e) re-price or amend the terms of any Equity Interest or the terms of any
agreement with respect to an Equity Interest, including accelerating the vesting
thereof, except as contemplated by Section 3.04(a);

(f) acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any Person or division thereof, or otherwise acquire or agree to
acquire outside of the ordinary course of business consistent with prior
practice any assets in any amount;

(g) modify or amend any material Contractual Obligation, Government Contract or
Government Subcontract;

(h) initiate, cancel, compromise, settle, waive or release any Action;

(i) make any changes to its financial accounting principles or practices, other
than as may be required by GAAP;

(j) (i) hire or engage any employees, consultants or contractors, or encourage
any employees, consultants or contractors to resign from the Company or any of
its Subsidiaries, or promote any employees or change the employment status or
titles of any employees, except for the hiring or promotion of employees or
engagements of consultants or contractors in the Ordinary Course of Business at
compensation rates comparable to other employees, consultants or contractors at
similar levels; (ii) adopt,

 

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enter into, materially amend or terminate any Company Plan, or (iii) grant any
increase in the wages, salary, bonus or other compensation, remuneration or
benefits of any employee of the Company or its Subsidiaries;

(k) fail to use commercially reasonable efforts to keep in full force all
insurance policies described in Section 4.22;

(l) enter into any agreement that contains any provision relating to the “change
of control” of the Company or any of its Subsidiaries or that would trigger a
Change of Control Payment;

(m) take any action that would have been a breach of or would reasonably be
expected to cause a breach of any of the provisions of Section 4.07 (Absence of
Certain Developments) had such action occurred after December 31, 2010 and prior
to the date of this Agreement (without regard to disclosures in the Company
Disclosure Schedule);

(n) incur any Debt, draw down or borrow any amounts under any existing
agreements with respect to Debt, guarantee any Debt of any Person, issue or sell
any Debt securities of the Company or any of its Subsidiaries or purchase or
guarantee any Debt securities of others, except for advances to employees for
travel and business expenses in the Ordinary Course of Business and consistent
with prior practice;

(o) make any payment of, or in respect of, any Tax to any Person or any
Governmental Authority, except to the extent that the Company reasonably
believes in good faith such payment is in respect of a Tax that is due and
payable or has been properly estimated in accordance with applicable Legal
Requirement as applied in a manner consistent with the prior practice of the
Company and its Subsidiaries;

(p) make or change any material Tax election, change an annual accounting
period, adopt or change any accounting method with respect to Taxes, file any
amended Tax Return, enter into any closing agreement, settle or compromise any
proceeding with respect to any Tax claim or assessment relating to the Company
or any of its Subsidiaries, 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 the Company or any of its Subsidiaries, or
file any material Tax Return, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or filing would have the effect of
increasing the Tax liability of the Company or any of its Subsidiaries for any
period ending after the Closing Date or decreasing any Tax attribute of the
Company or any of its Subsidiaries existing on the Closing Date;

(q) make any Distribution; or

(r) take, or agree in writing or otherwise to take, any of the actions described
in 6.01(a) through (q) above, or any other action that would prevent the Company
from performing or cause the Company not to perform its obligations hereunder.

 

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Section 6.02. Access to Information. The Company shall provide Parent and its
Representatives reasonable and prompt access during normal business hours during
the period prior to the Effective Time to (a) all of the properties, facilities,
books, agreements, records, customers and employees of the Company and its
Subsidiaries and (b) all other information concerning the business, finances,
properties, products, services, ongoing disputes, litigation, technology and
personnel of the Company and its Subsidiaries as Parent may request. The Company
will provide Parent and its Representatives copies of internal financial
statements promptly upon request. No information or knowledge obtained in any
investigation pursuant to this Section 6.02 or otherwise shall affect or be
deemed to modify or qualify any representation or warranty of the Company or the
conditions to the obligations of the parties to consummate the Merger or the
other Contemplated Transactions.

Section 6.03. Commercially Reasonable Efforts; Notices and Consents. Subject to
the terms and conditions of this Agreement, each of the parties hereto shall use
its commercially reasonable efforts to take or cause to be taken all actions, to
file or cause to be filed all documents, to give or cause to be given all
notices to Governmental Authorities or other Persons, to obtain or cause to be
obtained all authorizations, consents, waivers, approvals, permits or orders
from Governmental Authorities or other Persons, and to do or cause to be done
all other things necessary, proper or advisable, in order to consummate and make
effective the Contemplated Transactions (including satisfaction, but not waiver,
of the closing conditions set forth in Articles VII and VIII) and to allow the
Business to be operated following the Closing in the same manner as it is
operated prior to the Closing.

Section 6.04. Expenses. Each party will pay its own respective financial
advisory, legal, accounting and other expenses incurred by it or for its benefit
in connection with the preparation and execution of this Agreement and the
Ancillary Agreements, the compliance herewith and therewith and the Contemplated
Transactions; provided, that in the event that the Merger is consummated, such
expenses incurred by the Company will be borne by the Securityholders as
contemplated by Section 3.02.

Section 6.05. Notification of Certain Matters. The Company shall give prompt
written notice to Parent of: (a) the occurrence or non-occurrence of any event
that is likely to cause any of its representations or warranties contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time; (b) any failure to comply with or satisfy in any material
respect any of the covenants, conditions or agreements to be complied with or
satisfied by it hereunder; and (c) any event, condition, fact or circumstance
that would reasonably be expected to make any of the conditions set forth in
Article VII required to be satisfied by it incapable of being satisfied in a
timely manner; provided, however, that the delivery of any notice pursuant to
this Section 6.05 shall not limit or otherwise affect any remedies available to
the party receiving such notice.

Section 6.06. Publicity. Prior to the Effective Time, no public announcement or
disclosure (including any general announcement to employees, customers or
suppliers) will be made by any party with respect to the subject matter of this
Agreement or the Contemplated Transactions without the prior written consent of
Parent, Merger Sub, the Company and the Securityholders’ Representative;
provided, that the provisions of this Section 6.06 shall not

 

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prohibit (a) any disclosure required by any applicable Legal Requirements (in
which case the disclosing party will provide the other parties with the
opportunity to review and comment in advance of any proposed press releases) or
(b) any disclosure made in connection with the enforcement of any right or
remedy relating to this Agreement or any Ancillary Agreement or the Contemplated
Transactions.

Section 6.07. Conditions to the Contemplated Transactions; Further Assurances.

(a) Each of the parties to this Agreement shall use its commercially reasonable
efforts to: (a) fulfill and cause to be fulfilled the conditions to Closing to
be satisfied by it under this Agreement; (b) comply promptly with all Legal
Requirements which may be imposed on such party with respect to the Contemplated
Transactions and will promptly cooperate with and furnish information to any
other party hereto in connection with any such requirements imposed upon such
other party in connection with the Contemplated Transactions; (c) obtain and
make (and will cooperate with the other parties in obtaining or making) any
consent, authorization, order or approval of, or any registration, declaration,
or filing with, or an exemption by, any Governmental Authority, or other third
party, required to be obtained or made by such party in connection with the
Contemplated Transactions or the taking of any action contemplated thereby or by
this Agreement or any Ancillary Agreement; and (d) at the request of another
party hereto, execute and deliver such other instruments and do and perform such
other acts and things as may be reasonably necessary or desirable for effecting
completely the consummation of the Merger and the other Contemplated
Transactions.

(b) From and after the Closing Date, upon the request of either the
Securityholders’ Representative or the Company, each of the parties hereto shall
do, execute, acknowledge and deliver all such further acts, assurances, deeds,
assignments, transfers, conveyances and other instruments and papers as may be
reasonably required or appropriate to carry out the Contemplated Transactions.
No party shall take any action that is designed or intended to have the effect
of discouraging any lessor, licensor, supplier, distributor or customer of the
Company or other Person with whom the Company has a relationship from
maintaining the same relationship with the Company after the Closing as it
maintained prior to the Closing.

Section 6.08. Certain Employment and Employee Benefits Matters.

(a) Each Person who was an employee of the Company or any Subsidiary immediately
prior to the Effective Time, shall be, at the Effective Time, an at-will
employee of the Surviving Corporation or such Subsidiary, as applicable, to the
extent permitted by applicable law (a “Continuing Employee”); provided that each
employee employed in the United States shall provide proof of the right to work
in the United States.

(b) Until the first anniversary of the Closing, each Continuing Employee shall,
while employed by the Surviving Corporation or the applicable Subsidiary, either
(i) be eligible to receive salary and benefits (such as medical benefits,

 

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bonus opportunities and 401(k) plan participation) that are substantially
comparable in the aggregate to those provided to the Continuing Employees as of
the date of this Agreement or (ii) be eligible to receive salary and benefits
that are comparable in the aggregate to those provided to employees of Parent
with comparable duties.

(c) With respect to each benefit plan, program, practice, policy or arrangement
maintained by Parent, if Parent allows any Continuing Employee to participate in
any such benefit plan, program, procedure, policy or arrangement, Parent shall
take commercially reasonable action to provide that each Continuing Employee
shall be given credit, for the purpose of any service requirements for
participation eligibility, vesting and vacation accrual for his or her period of
continuous coverage under comparable benefit plans, programs, practices,
policies and arrangements of the Company or its Subsidiaries prior to the
Effective Time; provided, however, that Continuing Employees shall not be
credited for service with the Company or any Subsidiary for purposes of benefit
accruals under any ERISA retirement plan of Parent or its Subsidiaries. Parent
shall take commercially reasonable action to provide that no Continuing
Employee, or any of his or her eligible dependents, who, at the Effective Time,
are participating in a Company group health plan shall be excluded from Parent’s
group plan, or limited in coverage thereunder, by reason of any waiting period
restriction or pre-existing condition limitation. Parent shall take commercially
reasonable action to provide that each Continuing Employee shall receive credit
for any deductibles that such individual has paid or has been charged with under
any Company group health plan during the calendar year in effect at the
Effective Time to the extent consistent with the applicable policies of the
insurance carrier or other provider.

(d) Except as otherwise provided herein, Parent is under no obligation to hire
or retain any employee, independent contractor or consultant, or provide any
employee, independent contractor or consultant with any particular benefits, or
make any payments or provide any benefits to those employees, independent
contractors or consultants whom Parent chooses not to employ or subsequently
terminates, except as otherwise required by applicable law.

(e) Parent hereby acknowledges the Company’s obligations under the Company’s
Executive Retention and Severance Plan (the “Severance Plan”), a copy of which
has been furnished or made available to Parent. The Company confirms that Kevin
Carnino and Thomas O’Hara are the only participants in the Severance Plan. In
accordance with the provisions of the Severance Plan, Parent confirms that it
will cause the Surviving Corporation to perform its Contractual Obligations
under the Severance Plan, except to the extent that such Contractual Obligations
are waived by such participants.

(f) Notwithstanding anything herein to the contrary in this Agreement, except as
provided in Section 6.08(e), nothing in this Section 6.08 shall create any third
party beneficiary right in any Person, and no provision in this Agreement shall
create any right to employment or continued employment or to a particular term
or condition of employment with the Parent, or any of their respective
Affiliates (including, following

 

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the Closing, the Surviving Corporation or any of its Subsidiaries). Nothing in
this Section 6.08 or any other provision of this Agreement (i) shall be
construed to establish, amend, or modify any benefit or compensation plan or
program, agreement, or (ii) shall limit the ability of Parent or any of its
Affiliates (including, following the Closing, the Surviving Corporation) to
amend, modify or terminate any benefit plan, program or agreement at any time
assumed, established, sponsored or maintained by any of them.

Section 6.09. Directors’ and Officers’ Indemnification and Insurance.

(a) Subject to the provisions of Section 9.05, for a period of six (6) years
after the Closing Date, in the event of any threatened or actual Action, whether
civil, criminal or administrative, in which any person who is now, or has been
at any time prior to the Closing, a director or officer of the Company (the
“Indemnified Parties”) is, or is threatened to be, made a party thereto based in
whole or in part on (i) the fact that such person is or was a director or
officer of the Company or (ii) this Agreement or any of the Contemplated
Transactions hereby, whether in any case asserted or arising before, on or after
the Closing, the Company shall indemnify and hold harmless such person from and
against such Action to the full extent required under, and subject to the terms
and conditions of, the Company’s Articles of Incorporation as in effect on the
date hereof.

(b) Prior to the Closing Date, the Company shall purchase an extended reporting
period endorsement under the Company’s existing directors’ and officers’
liability insurance coverage for the Company’s directors and officers in a form
acceptable to the Securityholders’ Representative that shall provide such
directors and officers with coverage for six (6) years following the Closing
Date of not less than the existing coverage and have other terms not materially
less favorable to the insured persons than the directors’ and officers’
liability insurance coverage presently maintained by the Company. The cost of
such coverage shall be a Company Transaction Expense.

(c) The provisions of this Section 6.09 are intended to be for the benefit of,
and enforceable by, each Indemnified Party and such Indemnified Party’s estate,
administrators, executors, heirs and representatives, and nothing herein shall
affect any indemnification rights that any such person may have under the
Company’s Organizational Documents, any contract or applicable law.

(d) The obligations of Parent, Merger Sub, the Company and the Surviving
Corporation under this Section 6.09 shall continue in full force and effect for
a period commencing as of the Closing and ending as of the sixth anniversary of
the Closing Date; provided, that all rights to indemnification in respect of any
matter for which indemnification under this Section 6.09 has been asserted or
made within such period shall continue until the final disposition of such
matter.

(e) In the event that all or substantially all of the business or assets of the
Surviving Corporation are sold, whether by merger, consolidation, sale of assets
or securities or otherwise, in one transaction or a series of transactions, then
Parent and the

 

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Surviving Corporation shall, in each such case, take action to ensure that
either (i) the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section 6.09, or (ii) the Surviving Corporation
remains responsible for the obligations set forth in this Section 6.09. The
provisions of this Section 6.09 shall apply to all of the successors and assigns
of the Surviving Corporation.

Section 6.10. Merger Sub and Surviving Corporation. Parent shall take all
actions necessary to (a) cause Merger Sub and the Surviving Corporation to
perform promptly their respective obligations under this Agreement (including to
cause Merger Sub to consummate the Merger on the terms and conditions set forth
in this Agreement) and (b) ensure that, prior to the Effective Time, Merger Sub
shall not conduct any business, make any investments or incur or guaranty any
Indebtedness, other than consummating the Merger pursuant to this Agreement.

Section 6.11. Section 280G Approval. If the Company or any of its Subsidiaries
is obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments, that will not be
deductible under Section 280G of the Code if the stockholder approval
requirements of Section 280G(b)(5)(B) of the Code are not satisfied, then the
Company shall use its commercially reasonable efforts to obtain the Shareholder
Approval (defined in Section 10.10 below) after the date hereof and in any event
prior to the Effective Time.

Section 6.12. Shareholder Merger Approval.

(a) Pursuant to Section 603(b) of the CGCL, no later than December 23, 2011, the
Company shall transmit to all of the Shareholders a solicitation of their
approval and adoption of this Agreement and the Contemplated Transactions by
written consent as provided by the CGCL and the Company’s Organizational
Documents. Such submission, and any proxy or consent in connection therewith,
shall specify that adoption of this Agreement shall constitute approval by the
Shareholders of: (i) the escrow and indemnification obligations of the
Securityholders set forth in Articles III, IX and X hereof and the deposit of
the Escrow Amount and SR Escrow Amount with the Escrow Agent and (ii) the
appointment of the Securityholders’ Representative, with the rights and
responsibilities set forth in this Agreement.

(b) Any materials to be submitted to the Shareholders in connection with the
solicitation of their approval of the Contemplated Transactions and this
Agreement shall be subject to review and reasonable approval by Parent and shall
include information regarding the Company, the terms of the Merger, this
Agreement and the Ancillary Agreements, and the recommendation of the Company
Board to adopt and approve this Agreement, the Escrow Agreement and the other
Contemplated Transactions, and approve the Merger, and a statement that the
Company Board has unanimously determined that the terms of the Merger and this
Agreement are fair to and in the best interests of the Company and the
Shareholders.

 

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(c) The Company shall use its commercially reasonable efforts to obtain the
approval or consent of as many of its Shareholders as possible as promptly as
practicable following the date hereof.

ARTICLE VII

CONDITIONS TO THE OBLIGATIONS

OF PARENT AND MERGER SUB AT THE CLOSING.

The obligations of Parent and Merger Sub to consummate the Contemplated
Transactions is subject to the fulfillment, or, to the extent permitted by law,
waiver by Parent of each of the following conditions:

Section 7.01. Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall have been true and correct (in
the case of representations and warranties qualified as to materiality) or true
and correct in all material respects (in the case of other representations and
warranties) on and as of the date of this Agreement and shall be so true and
correct on and as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.

Section 7.02. Agreements and Covenants. The Company shall have performed or
complied in all material respects with all covenants and obligations of this
Agreement required to be performed or complied with by it on or prior to the
Closing Date.

Section 7.03. Delivery of Closing Certificates. The Company shall have delivered
to the Buyer the following:

(a) Officer’s Certificate. A certificate, dated as of the Closing Date, signed
by the Chief Executive Officer or the Chief Financial Officer of the Company,
that each of the conditions set forth in Sections 7.01, 7.02 and 7.10 has been
satisfied in all respects.

(b) Secretary’s Certificate. A certificate, dated as of the Closing Date, signed
by the Secretary of the Company certifying as to (i) the names and incumbency of
each of the officers of the Company executing this Agreement or any Ancillary
Agreement, (ii) the Organizational Documents of the Company, (iii) all
resolutions adopted by the Board of Directors and Shareholders of the Company in
connection with this Agreement and the Contemplated Transactions, and (iv) such
other matters as reasonably requested by counsel for Parent;

(c) FIRPTA Certificate. A certificate in the form of Exhibit E, dated as of the
Closing Date, signed by the Chief Financial Officer of the Company; and

(d) Good Standing Certificates. Certificates of good standing with respect to
the Company issued by the relevant Governmental Authorities of the Company’s
jurisdiction of organization, as of a recent date.

 

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Section 7.04. Qualifications. No provision of any applicable Legal Requirement
and no Government Order will prohibit the consummation of any of the
Contemplated Transactions.

Section 7.05. Absence of Litigation. No Action will be pending, and no Action
will be threatened, by any Governmental Authority which seeks a Government
Order, nor will there be any Government Order in effect, (a) which would prevent
consummation of any of the Contemplated Transactions, (b) which would result in
any of the Contemplated Transactions being rescinded following consummation,
(c) which would limit or otherwise adversely affect the right of Parent (or any
Affiliate thereof) to own the shares of the Surviving Corporation (including the
right to vote such shares), to control the Company, or to operate all or any
portion of the Business or Assets or any portion of the business or assets of
Parent or any of its Affiliates or (d) which would compel Parent or any of its
Affiliates to dispose of all or any portion of either the Business or Assets or
the business or assets of Parent or any of its Affiliates.

Section 7.06. Consents, etc. All actions by (including any authorization,
consent or approval) or in respect of (including notice to), or filings with,
any Governmental Authority or other Person that are required to consummate the
Contemplated Transactions, as disclosed in Section 7.06 of the Company
Disclosure Schedule or as otherwise reasonably requested by Parent, will have
been obtained or made, in a manner reasonably satisfactory in form and substance
to Parent, and no such authorization, consent or approval will have been
revoked.

Section 7.07. Proceedings and Documents. All corporate and other proceedings in
connection with the Contemplated Transactions and all documents incident thereto
will be reasonably satisfactory in form and substance to Parent and its counsel,
and they will have received all such counterpart original and other copies of
such documents as they may reasonably request.

Section 7.08. Ancillary Agreements. Each of the Ancillary Agreements will have
been executed and delivered to the Parent and Merger Sub by each of the other
parties thereto.

Section 7.09. Resignations. The Parent will have received the resignations,
effective as of the Closing, of each of the officers and directors of the
Company and PDI listed in the applicable section of Annex IV.

Section 7.10. No Material Adverse Change. Since the Most Recent Balance Sheet
Date, there will not have occurred or arisen any events, changes, facts,
conditions or circumstances, nor will there exist any events, changes, facts,
conditions or circumstances, which individually or in the aggregate have
resulted in or would reasonably be expected to result in a Material Adverse
Effect.

Section 7.11. Payoff Letters and Lien Releases, etc. The Company will have
obtained and delivered to the Parent customary payoff letters and lien release
documentation reasonably satisfactory to the Parent and its counsel and lenders
relating to the repayment of all Debt to be repaid at the Closing and the
termination of all Encumbrances on any Assets securing any such Debt.

 

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Section 7.12. DLA Opinion. DLA Piper shall have delivered a written opinion in
the form of Exhibit F hereto.

Section 7.13. Non-Competition Agreements. Each of the persons named on Annex III
hereto shall have executed and delivered to the Parent a non-competition
agreement on the form of Exhibit G-1 or Exhibit G-2, hereto (the
“Non-Competition Agreements”), as applicable, and the Non-Competition Agreements
shall be in full force and effect.

Section 7.14. Principal Shareholders Agreements. Each of the Principal
Shareholders will have entered into an agreement in the form of Exhibit H hereto
(the “Principal Shareholders Agreements”) and the Principal Shareholders
Agreements shall be in full force and effect.

ARTICLE VIII

CONDITIONS TO THE COMPANY’S

OBLIGATIONS AT THE CLOSING.

The obligations of the Company to consummate the Contemplated Transactions is
subject to the fulfillment, or, to the extent permitted by law, waiver by the
Company of each of the following conditions:

Section 8.01. Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall have been true and
correct (in the case of representations and warranties qualified as to
materiality) or true and correct in all material respects (in the case of other
representations and warranties) on and as of the date of this Agreement and
shall be so true and correct on and as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.

Section 8.02. Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all covenants and
obligations of this Agreement required to be performed or complied with by them
on or prior to the Closing Date.

Section 8.03. Officers Certificate. Parent shall have delivered to the Company
an officer’s certificate confirming that each of the conditions set forth in
Section 8.01 and Section 8.02 have been satisfied in all respects.

Section 8.04. Qualifications. No provision of any applicable Legal Requirement
and no Government Order will prohibit the consummation of any of the
Contemplated Transactions.

Section 8.05. Absence of Litigation. No Action will be pending, and no Action
will be threatened, by any Governmental Authority which seeks a Governmental
Order, nor will there be any Governmental Order in effect, (a) which would
prevent consummation of any of the Contemplated Transactions or (b) which would
result in any of the Contemplated Transactions being rescinded following
consummation.

Section 8.06. Ancillary Agreements. Each of the Ancillary Agreements to which
the Company is party will have been executed and delivered to the Company by
each of the other parties thereto (other than the Company, any Securityholders
and the Securityholders’ Representative).

 

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ARTICLE IX

INDEMNIFICATION.

Section 9.01. Indemnification by the Securityholders.

(a) Indemnification. Subject to the limitations set forth in this Article IX,
from and after the Effective Date, each Securityholder shall severally, and not
jointly, in accordance with their respective Pro Rata Escrow Percentages (or in
the case of subclause (iii) below, severally and solely as to itself and in the
case of Tax Claims not covered by the Escrow Amount, as provided in paragraph
(b) below) indemnify and hold harmless Parent and its Affiliates (including,
following the Closing, the Company and its Subsidiaries), and the
Representatives, Affiliates, successors and assigns of each of the foregoing
Persons (each, a “Parent Indemnified Person”), from, against and in respect of
any and all Actions, Liabilities, Government Orders, Encumbrances, losses,
damages, bonds, dues, assessments, fines, penalties, Taxes, fees, costs
(including costs of investigation, defense and enforcement of this Agreement),
expenses or amounts paid in settlement (in each case, including reasonable
attorneys’ and experts’ fees and expenses, but excluding internal personnel
costs related thereto), whether or not involving a Third Party Claim
(collectively, “Losses”), incurred or suffered by the Parent Indemnified Persons
or any of them as a result of, arising out of or relating to, directly or
indirectly:

(i) any fraud or intentional misrepresentation on the part of the Company (or
any Affiliate or Representative thereof) or any breach of, or inaccuracy in, any
representation, warranty or statement made by or on behalf of the Company in
this Agreement or in any Schedule or certificate delivered by or on behalf of
the Company pursuant to this Agreement (in each case, assuming that all
qualifications contained in this Agreement and each such Schedule or certificate
as to materiality, the phrase “substantial compliance”, the words “material” and
“materially” and all similar phrases and words were deleted therefrom);

(ii) any breach or violation of any covenant or agreement of the Company in this
Agreement to the extent required to be performed or complied with by the Company
at or prior to the Closing in or pursuant to this Agreement and any other
obligation set forth in this Agreement described as an obligation of the
Securityholders;

(iii) with respect to any Securityholder, any breach by such Securityholder of
any representation, warranty or covenant in any Ancillary Agreement to which it
is a party;

(iv) any of the matters identified in Section 9.01(a)(iv) of the Company
Disclosure Schedule (collectively, the “Specified Indemnity Matters”), but only
with respect to Losses that exceed any specific reserve for the applicable
Specified Indemnity Matter set forth as a current liability on the Final Closing
Balance Sheet and Final Closing Statement (as finally determined pursuant to
Section 3.05); or

 

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(v) any Company Transaction Expenses, to the extent not paid by the Company
prior to the close of business on the Business Day preceding the Closing Date
and prior to calculation of the Net Working Capital, and not reflected as a
current liability on the Final Closing Balance Sheet and Final Closing Statement
(as finally determined pursuant to Section 3.05).

(b) Monetary Limitations. The Securityholders will have no obligation to
indemnify the Parent Indemnified Persons pursuant to Section 9.01(a)(i) in
respect of Losses arising from the breach of, or inaccuracy in, any
representation, warranty or statement described therein unless and until the
aggregate amount of all such Losses incurred or suffered by the Parent
Indemnified Persons exceeds $300,000 (at which point the Securityholders will
indemnify the Parent Indemnified Persons for all such Losses incurred or
suffered pursuant to Section 9.1(a)(i) in excess of $300,000), and the
Securityholders’ aggregate liability in respect of claims for indemnification
pursuant to Sections 9.01(a)(i), 9.01(a)(ii), 9.01(a)(iv) and Section 9.01(a)(v)
will be limited to the Escrow Amount as provided in Section 9.05(b); provided,
that:

(i) The foregoing limitations will not apply to claims for indemnification
pursuant to Section 9.01(a)(i) in respect of breaches of, or inaccuracies in,
the representations and warranties set forth in Sections 4.01 (Organization),
4.02 (Power and Authorization), 4.04(b)(iii) (Noncontravention), 4.05
(Capitalization of Company), and 4.24 (No Brokers);

(ii) Claims for indemnification under Section 9.1(a)(ii), Section 9.01(a)(iv)
and Section 9.01(a)(v) will not be subject to the $300,000 deductible referred
to above but will be subject to the overall limitation set forth in
Section 9.05(b); and

(iii) The foregoing limitations will not apply to claims based upon fraud or
intentional misrepresentation.

Claims for indemnification pursuant to Section 9.01(a)(i) in respect of any
breaches of Section 4.13 (Tax Matters) and claims for indemnification under
Article X (collectively, “Tax Claims”) and claims for indemnification pursuant
to any provision of Section 9.01(a)(iii) are not subject to the monetary
limitations set forth in this Section 9.01(b).

In addition to the limitations provided in Section 9.05(b), the aggregate
liability of any Securityholder in respect of claims for indemnification
pursuant to Section 9.01(a) shall not exceed the total Merger Consideration
and/or Option Payments received by such Securityholder; provided, that the
foregoing limitation will not apply to claims based upon fraud or intentional
misrepresentation and will not apply to any claim against such Securityholder
pursuant to Section 9.01(a)(iii).

Notwithstanding anything to the contrary contained herein, other than with
respect to claims based on the fraud or intentional misrepresentation of such
Securityholder or a claim against such Securityholder pursuant to
Section 9.01(a)(iii) and Tax Claims, no Securityholder shall be liable for more
than its Pro Rata Escrow Percentage of any Loss subject to indemnification under

 

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Section 9.01(a). With respect to any Tax Claims not fully covered by the Escrow
Amount, each Securityholder will be liable for its Pro Rata Proceeds Percentage
of such Tax Claims not fully covered by the Escrow Amount.

(c) Notwithstanding any other provision of this Agreement, the determination of
the Taxes with respect to indemnification pursuant to this Article IX will be
calculated without taking into account any deductions described in Section 10.05
below.

Section 9.02. Indemnification by the Parent.

(a) Indemnification. Subject to the limitations set forth in this Article IX,
from and after the Closing, Parent shall indemnify and hold harmless each of the
Securityholders and each of their respective Affiliates, and the
Representatives, Affiliates, successors and assigns of each of the foregoing
Persons (each, a “Securityholder Indemnified Person”), from, against and in
respect of any and all Losses incurred or suffered by the Securityholder
Indemnified Persons or any of them as a result of, arising out of or relating
to, directly or indirectly:

(i) any fraud or intentional misrepresentation on the part of Parent (or any
Affiliate or Representative thereof) or any breach of, or inaccuracy in, any
representation, warranty or statement made by or on behalf of Parent in this
Agreement or in any Schedule or certificate delivered by or on behalf of Parent
pursuant to this Agreement (in each case, assuming that all qualifications
contained in this Agreement and each such Schedule or certificate as to
materiality, including each qualifying reference to the phrase “substantial
compliance”, the words “material” and “materially” and all similar phrases and
words were deleted therefrom); or

(ii) any breach or violation of any covenant or agreement of Parent (including
under this Article IX) or any covenant or agreement of the Company to the extent
required to be performed or complied with by the Company after the Closing, in
either case in or pursuant to this Agreement.

(b) Monetary Limitations. Parent will have no obligation to indemnify the
Securityholder Indemnified Persons pursuant to Section 9.02(a)(i) in respect of
Losses arising from the breach of, or inaccuracy in, any representation,
warranty or statement described therein unless and until the aggregate amount of
all such Losses incurred or suffered by the Securityholder Indemnified Persons
exceeds $300,000 (at which point the Parent will indemnify the Securityholder
Indemnified Persons for all such Losses incurred or suffered pursuant to
Section 9.2(a)(i) in excess of $300,000), and the Parent’s liability in respect
of claims for indemnification pursuant to Section 9.02(a)(i) will not exceed an
amount equal to the Escrow Amount; provided, that the foregoing limitations will
not apply to (a) claims for indemnification pursuant to Section 9.02(a)(i) in
respect of breaches of, or inaccuracies in, the representations and warranties
set forth in Sections 5.01 (Organization), 5.02 (Power and Authorization),
5.04(b)(iii) (Noncontravention) and 5.05 (No Brokers) or (b) claims based upon
fraud or intentional misrepresentation. Claims for indemnification pursuant to
any other provision of Section 9.02(a) are not subject to the limitations set
forth in this Section 9.02(b).

 

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In addition to the limitations provided in this Section 9.02(b), Parent’s
aggregate liability in respect to claims for indemnification pursuant to
Section 9.02(a) shall not exceed the Total Merger Consideration; provided that
the foregoing limitation will not apply to claims based upon fraud or
intentional misrepresentation.

Section 9.03. Time for Claims; Notice of Claims.

(a) Time for Claims. No claim may be made or suit instituted seeking
indemnification pursuant to Section 9.01(a)(i) or 9.02(a)(i) for any breach of,
or inaccuracy in, any representation, warranty or statement or pursuant to
Section 9.01(a)(iv) (with notice deemed to have been given as provided in
paragraph (c) below) unless a written notice is provided to the Indemnifying
Party:

(i) at any time, in the case of any breach of, or inaccuracy in, the
representations and warranties set forth in Sections 4.01 (Organization),
4.02 (Power and Authorization), 4.04(b)(iii) (Noncontravention),
4.05 (Capitalization of the Company), 5.01 (Organization), 5.02 (Power and
Authorization), 5.04(b)(iii) (Noncontravention) or 5.05 (No Brokers);

(ii) at any time, in the case of any claim or suit based upon fraud or
intentional misrepresentation;

(iii) at any time prior to the 60th day after expiration of the applicable Tax
statute of limitations, in the case of any breach of, or inaccuracy in, the
representations and warranties set forth in Section 4.13 (Tax Matters); and

(iv) at any time prior to the second anniversary of the Closing Date (for
example, if the Closing Date is December 27, 2011 the expiration date will be
December 27, 2013), in the case of any breach of, or inaccuracy in, any other
representation, warranty or statement in this Agreement or in any Schedule or
certificate delivered pursuant to this Agreement.

Claims for indemnification under Article X (Tax Matters) may not be asserted
after the 60th day after expiration of the applicable Tax statute of
limitations, Claims for indemnification pursuant to any other provision of
Sections 9.01(a) or 9.02(a) or are not subject to the limitations set forth in
this Section 9.03.

(b) Written Notice of Indemnification Claims. In the event that any Indemnified
Person wishes to make a claim for indemnification under this Article IX, the
Indemnified Person shall give written notice of such claim to each Indemnifying
Party (with all notices to the Securityholders being given to the
Securityholders’ Representative within the applicable time limitations contained
in Section 9.03(a)). Any such notice shall describe the breach or inaccuracy and
other material facts and circumstances upon which such claim is based and the
estimated amount of Losses involved, in each case, in

 

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reasonable detail in light of the facts then known to the Indemnified Person;
provided, that no defect in the information contained in such notice from the
Indemnified Person to any Indemnifying Party will relieve such Indemnifying
Party from any obligation under this Article IX, except to the extent such
failure to include information actually and materially prejudices such
Indemnifying Party.

(c) With respect to the Specified Indemnity Matters, the Parent Indemnified
Parties will not be required to provide any notice pursuant to this Section 9.03
in order to trigger the indemnification obligations of the Securityholders
pursuant to Section 9.01(a)(iv), and for purposes of the fifteen (15) days
period referred to in Section 9.04(b) below (if applicable), shall be deemed to
have provided such written notice as of the Closing Date.

Section 9.04. Third Party Claims.

(a) Notice of Third Party Claims. Promptly after receipt by an Indemnified
Person of written notice of the assertion of a claim by any Person who is not a
party to this Agreement (a “Third Party Claim”) that may give rise to an
Indemnity Claim against an Indemnifying Party under this Article IX, the
Indemnified Person shall give written notice thereof to the Indemnifying Party;
provided, that no delay on the part of the Indemnified Person in notifying the
Indemnifying Party will relieve the Indemnifying Party from any obligation under
this Article IX, except to the extent such delay actually and materially
prejudices the Indemnifying Party. In connection with each such claim, the
Indemnified Person shall cooperate with the reasonable requests of the
Indemnifying Party and make available to the Indemnifying Party all information
and personnel under its control as reasonably requested by the Indemnifying
Party and relevant to the defense of such Third Party Claim.

(b) Assumption of Defense, etc. The Indemnifying Party will be entitled to
participate in the defense of any Third Party Claim that is the subject of a
notice given by or on behalf of any Indemnified Person pursuant to
Section 9.04(a), subject to paragraph (f) below. In addition, the Indemnifying
Party will have the right to assume control of the defense of the Indemnified
Person against the Third Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Person so long as (i) the Indemnifying Party
gives written notice that they or it will defend the Third Party Claim to the
Indemnified Person within fifteen (15) days after the Indemnified Person has
given notice of the Third Party Claim under Section 9.04(a) stating that the
Indemnifying Party will, and thereby covenants to, indemnify, defend and hold
harmless the Indemnified Person from and against the entirety of any and all
Losses the Indemnified Person may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim (subject to
any applicable monetary limitations specified in Section 9.01 or 9.02), (ii) the
Indemnifying Party provides the Indemnified Person with evidence reasonably
acceptable to the Indemnified Person that the Indemnifying Party will have
adequate financial resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder, (iii) the Third Party Claim involves
only money damages and does not seek an injunction or other equitable relief
against the

 

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Indemnified Person, (iv) the Indemnified Person has not been advised by counsel
that an actual or potential conflict exists between the Indemnified Person and
the Indemnifying Party in connection with the defense of the Third Party Claim,
(v) the Third Party Claim does not relate to or otherwise arise in connection
with Taxes or any criminal or regulatory enforcement Action, (vi) settlement of,
an adverse judgment with respect to, or conduct of the defense of the Third
Party Claim by the Indemnifying Party is not, in the good faith judgment of the
Indemnified Person, likely to be adverse to the Indemnified Person’s reputation
or continuing business interests (including its relationships with current or
potential customers, suppliers or other parties material to the conduct of its
business) and (vii) the Indemnifying Party conducts the defense of the Third
Party Claim actively and diligently. The Indemnified Person may retain separate
co-counsel at its sole cost and expense and participate in the defense of the
Third Party Claim; provided, that the fees and expenses of separate counsel
retained by the Indemnified Person that are incurred prior to the Indemnifying
Party’s assumption of control of the defense of the Third Party Claim will
constitute Losses of the Indemnified Person for purposes of this Article IX.

(c) Limitations on Indemnifying Party Control. The Indemnifying Party will not
consent to the entry of any judgment or enter into any compromise or settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Person unless such judgment, compromise or settlement (i) provides
for the payment by the Indemnifying Party of money as sole relief for the
claimant, (ii) results in the full and general release of all Indemnified Person
from all liabilities arising or relating to, or in connection with, the Third
Party Claim and (iii) involves no finding or admission of any violation of Legal
Requirements or the rights of any Person and no effect on any other claims that
may be made against the Indemnified Person.

(d) Indemnified Person’s Control. If the Indemnifying Party does not deliver the
notice contemplated by clause (i) of Section 9.04(b), or the evidence
contemplated by clause (ii) of Section 9.04(b) or is not otherwise entitled
under Section 9.04(b) to assume the defense of a Third Party Claim, within
fifteen (15) days after the Indemnified Person has given notice of the Third
Party Claim pursuant to Section 9.04(a), or otherwise at any time fails to
conduct the defense of the Third Party Claim actively and diligently, the
Indemnified Person may defend, and may consent to the entry of any judgment or
enter into any compromise or settlement with respect to, the Third Party Claim
in any manner it may deem appropriate (and the Indemnified Person need not
consult with, or obtain any consent from, the Indemnifying Party in connection
therewith). If such notice and evidence is given on a timely basis and the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently but any of the other conditions in Section 9.04(b) is or becomes
unsatisfied, the Indemnified Person may defend, and may consent to the entry of
any judgment or enter into any compromise or settlement with respect to, the
Third Party Claim; provided, that the Indemnifying Party will not be bound by
the entry of any such judgment consented to, or any such compromise or
settlement effected, without its prior written consent (which consent will not
be unreasonably withheld, conditioned or delayed). In the event that the
Indemnified Person conducts the defense of the Third Party Claim pursuant to
this Section 9.04(d), the

 

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Indemnifying Party will (i) advance the Indemnified Person promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys’ fees and expenses) and (ii) remain responsible for any and
all other Losses that the Indemnified Person may incur or 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 Article IX.

(e) Consent to Jurisdiction Regarding Third Party Claim. The Parent and the
Securityholders’ Representative each hereby consents to the non-exclusive
jurisdiction of any court in which any Third Party Claim may be brought against
any Indemnified Person for purposes of any claim which such Indemnified Person
may have against any such Indemnifying Party pursuant to this Agreement in
connection with such Third Party Claim, and in furtherance thereof, the
provisions of Section 12.09 are incorporated herein by reference, mutatis
mutandis.

(f) Specified Indemnity Matter. With respect to all Third Party Claims related
to the first Specified Indemnity Matter listed under Section 9.01(a)(iv) of the
Company Disclosure Schedule, the Securityholders, as the Indemnifying Parties,
will not have the right to control the defense and settlement of such Third
Party Claims and the Parent will have the right to control the defense and
settlement of such Third Party Claims subject to the terms and conditions set
forth in paragraph (d) above (but the first sentence of Section 9.04(d) shall
not apply).

Section 9.05. Indemnity Escrow.

(a) For as long as there are remaining funds out of the Escrow Amount, any and
all amounts payable by the Securityholders as Indemnifying Party to a Parent
Indemnified Person will be retained by Parent first out of such escrow funds,
pursuant to the terms and conditions of the Escrow Agreement, and, subject to
the next sentence, thereafter paid in cash directly by the Securityholders as
herein provided in accordance with payment instructions provided by Parent.

(b) Notwithstanding anything in this Agreement to the contrary, the sole
recourse of the Parent Indemnified Persons under this Article IX shall be to the
escrow funds held with respect to the Escrow Amount, except for:

(i) claims under Section 9.01(a)(i) arising under Sections 4.01 (Organization),
4.02 (Power and Authorization), 4.04(b)(iii) (Noncontravention), 4.05
(Capitalization of Company), 4.13 (Tax Matters) and 4.24 (No Brokers);

(ii) claims under Section 9.01(a)(iii);

(iii) claims under Article X; and

(iv) claims based on fraud or intentional misrepresentation.

 

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(c) As provided in the Escrow Agreement, the SR Escrow Amount may be used by the
Securityholders’ Representative, at its sole discretion, to fund its costs and
expenses incurred after the Closing Date.

Section 9.06. Knowledge and Investigation. The right of any Parent Indemnified
Person or Securityholder Indemnified Person to indemnification pursuant to this
Article IX will not be affected by any investigation conducted or knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing, with respect to the
accuracy of any representation or warranty, or performance of or compliance with
any covenant or agreement, referred to in Sections 9.01 and 9.02. The waiver of
any condition contained in this Agreement or in any Ancillary Agreement based on
the breach of any such representation or warranty, or on the performance of or
compliance with any such covenant or agreement, will not affect the right of any
Parent Indemnified Person or Securityholder Indemnified Person to
indemnification pursuant to this Article IX based on such representation,
warranty, covenant or agreement.

Section 9.07. Remedies Cumulative. The rights of each Parent Indemnified Person
and Securityholder Indemnified Person under this Article IX are cumulative, and
each Parent Indemnified Person and Securityholder Indemnified Person will have
the right in any particular circumstance, in its sole discretion, to enforce any
provision of this Article IX without regard to the availability of a remedy
under any other provision of this Article IX.

Section 9.08. Sole Remedy. The parties agree that in addition to rights to
specific performance pursuant to Section 12.10, indemnification pursuant to
Article IX and Article X constitutes the sole and exclusive remedy available
after the Closing to the Parent Indemnified Persons with respect to any Losses
pursuant to Section 9.01 or Section 9.02, and breach or non-fulfillment of any
representation, warranty, agreement, covenant, condition or any other obligation
contained in this Agreement.

Section 9.09. Merger Consideration Adjustment. The parties agree that any
indemnification payment made pursuant to this Agreement shall be treated as an
adjustment to the Total Merger Consideration for Tax purposes, unless otherwise
required by applicable law.

Section 9.10. Insurance. Notwithstanding anything contained in this Agreement to
the contrary, but subject to the next sentence, no party shall be entitled to
recover an amount pursuant to this Article IX, to the extent that such party or
any of its Affiliates has already recovered such amount (calculated net of the
costs incurred to collect such amount) from an insurance company. Nothing in
this Section 9.10 or otherwise in this Agreement is intended to require any
party to pursue claims against any insurer or to waive or modify the subrogation
or similar rights of any insurer of any Person.

 

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ARTICLE X

TAX MATTERS.

Section 10.01. Tax Indemnification. From and after the Closing Date, each
Securityholder shall severally, and not jointly, in accordance with their
respective Pro Rata Escrow Percentages (or based on their respective Pro Rata
Proceeds Percentages with respect to Tax Claims not fully covered by the Escrow
Amount, as provided in Section 9.01(b)) indemnify and hold harmless each Buyer
Indemnified Person from, against and in respect of any and all Losses that
constitute or that result from, arise out of or relate to, directly or
indirectly (a) Taxes (or the non-payment thereof) of the Company and its
Subsidiaries for all Pre-Closing Tax Periods, (b) all Taxes of any member of an
affiliated, consolidated, combined or unitary group of which the Company or any
of its Subsidiaries 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 Legal Requirement, (c) any and all Taxes incurred by the Company
directly related to the distribution of proceeds for the Contemplated
Transactions, and (d) any and all Taxes of any Person imposed on the Company or
any of its Subsidiaries as a transferee or successor, pursuant to a Contractual
Obligation, or otherwise. Any indemnification made pursuant to this
Section 10.01 shall be made in accordance with the provisions of Section 9.05.
Notwithstanding any other provision of this Agreement, the determination of the
Taxes with respect to this Section 10.01 will be calculated without taking into
account any deductions described in Section 10.05 below.

Section 10.02. Tax Return Preparation.

(a) Securityholders’ Representative shall cause to be prepared (and Parent shall
cause to be subsequently filed) in a timely manner all Tax Returns related to
Pre-Closing Tax Periods (other than Tax Returns for a Straddle Period) which are
required to be filed by the Company and its Subsidiaries, to the extent such Tax
Returns are due after the Closing Date. For the avoidance of doubt,
Securityholders’ Representative shall be entitled to use funds from the SR
Escrow Amount to engage any third party service providers to assist with such
Tax Return preparation in its sole discretion. Securityholders’ Representative
shall provide the Parent with a copy of each such Tax Return at least thirty
(30) days prior to the due date for filing of such Tax Return (including any
extensions thereof) and Parent shall have the right to review and comment on
such Tax Return for a period of twenty (20) days after receipt thereof or, if
required to be filed within thirty (30) days after the Closing Date,
Securityholders’ Representative shall provide Parent with a copy of each such
Tax Return as soon as possible following the Closing Date and sufficiently in
advance of filing so Parent shall have a reasonable opportunity to review and
comment on such Tax Return, and Securityholders’ Representative shall make such
changes to such Tax Returns as are reasonably requested by Parent. With respect
to any such Tax Return filed after the Closing Date that relates to any
Pre-Closing Tax Period and upon the request of the Securityholders’
Representative, the Escrow Agent shall make a distribution from the Escrow
Amount to the Parent three (3) days prior to the filing of such Tax Returns the
amount of the aggregate Tax liabilities due, if any, with respect to such
Pre-Closing Tax Periods; provided, however, that for purposes of determining the
Tax liability due with

 

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respect to such Tax Return for purposes of calculating the Securityholders’
indemnification obligations, the determination of the Tax liability for any such
Pre-Closing Tax Period will be calculated and determined excluding any
deductions described in Section 10.05 below. The amounts actually due on the Tax
Return (after giving effect to any deductions described in Section 10.5 below)
shall promptly be paid by Parent to the appropriate Governmental Authority.
Parent shall (a) use commercially reasonable efforts to enter into or amend the
Company’s engagements with third party service providers assisting with such Tax
Returns to assign and delegate authority to the Securityholders’ Representative,
subject to the limitations set forth in this Section 10.02(a), as necessary for
the Securityholders’ Representative to manage and direct such third party
service providers with respect to the preparation of such Tax Returns, or (b) in
the event that third party service providers will not agree to such assignment
and delegation, then otherwise use commercially reasonable efforts to ensure
that the Securityholders’ Representative shall have access to and the ability to
direct (even if indirectly through Parent or the Company) the Company’s third
party service providers in a manner reasonably sufficient to permit the
Securityholders’ Representative to fulfill its obligations under this
Section 10.02(a). Notwithstanding the foregoing, the Company shall retain the
sole and exclusive authority and all obligations with respect to the filing of
any such Tax Returns.

(b) For any Straddle Period of the Company or any of its Subsidiaries, Parent
shall timely prepare or cause to be prepared, and file or cause to be filed, all
Tax Returns required to be filed and shall pay all Taxes due with respect to
such Tax Returns; provided, however, that (3) days prior to the filing of such
Tax Returns the Escrow Agent shall distribute from the Escrow Amount the
Securityholders’ allocable share of the aggregate Tax liabilities due with
respect to such Tax Returns; provided, further, that for purposes of determining
the Tax liability due with respect to such Tax Return for purposes of
calculating the Securityholders’ indemnification obligations, the Tax liability
for any such Straddle Period will be calculated excluding any deductions
described in Section 10.05 below. Parent shall permit the Securityholders’
Representative to review and comment on each such Tax Return described in the
preceding sentence prior to the filing thereof, and Parent shall make such
changes to such Tax Returns as are reasonably requested by the Securityholders’
Representative.

(c) If the filing of an amended Tax Return relating to a Pre-Closing Tax Period,
the carryback of an item to a Pre-Closing Tax Period, or any election made with
retroactive effect could give rise to an indemnifiable obligation under this
Agreement, Parent will not allow such amendment of a Tax Return relating to a
Pre-Closing Tax Period, the carryback of an item to a Pre-Closing Tax Period, or
the making of such election with retroactive effect without the prior written
approval of the Shareholders’ Representative, which approval shall not be
unreasonably withheld, delayed or conditioned.

(d) With respect to any Tax Returns prepared pursuant to Section 10.2(a) or (b),
if the parties disagree on whether a requested change is reasonable, the
Securityholders’ Representative and Parent shall use their best efforts to
resolve the

 

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dispute, and any resolution by them as to any disputed item shall be final,
binding and conclusive as to the filing of such Tax Return. If Parent and the
Securityholders’ Representative are unable to resolve all remaining disputes
related to such Tax Returns, then Parent and the Securityholders’ Representative
shall submit the items remaining in dispute to a Return Arbiter for resolution
and any resolution by it as to any disputed item shall be final, binding and
conclusive as to the filing of such Tax Return. The fees and expenses of the
Return Arbiter shall be borne one half by the Securityholders (in the aggregate)
and one-half by Parent.

Section 10.03. Computation of Taxes for Straddle Periods. For purposes of
computing Taxes of the Company and its Subsidiaries for Straddle Periods:

(a) the amount of any Taxes of the Company including franchise taxes or Taxes
based upon or measured by net income, receipts or gain for the portion of a
Straddle Period tending on the Closing Date will be determined based on an
interim closing of the books of the Company as of the close of business on the
Closing Date (and for such purpose, the Taxable period of any partnership or
other pass-through entity in which the Company holds a beneficial interest will
be deemed to terminate at such time);

(b) the amount of Taxes, other than franchise Taxes or Taxes of the Company
based upon or measured by net income, receipts or gain, for the portion of a
Straddle Period ending on the Closing Date will be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction, the numerator
of which is the number of days in the Taxable period ending on the Closing Date
and the denominator of which is the number of days in such Straddle Period;

Section 10.04. Section 338(g). Parent will not make an election pursuant to
Section 338(g) of the Code with respect to the Contemplated Transactions.

Section 10.05. Allocation of Certain Expenses.

(a) Any Company Transaction Expenses, to the extent not required to be
capitalized and included in Parent’s tax basis of the Company stock and to the
extent otherwise permitted by applicable Legal Requirements, including the that
requirements for accrual of the liability under Treasury Regulation
Section 1.446-1(c)(1)(ii)(and any corresponding state or local provision) have
been satisfied as of the end of the day on the Closing Date, shall be claimed as
deductions for the Pre-Closing Tax Period ending on the Closing Date; and

(b) To the extent permitted by applicable Legal Requirements, including that the
requirements for accrual of the liability under Treasury Regulation
Section 1.446-1(c)(1)(ii)(and any corresponding state or local provision) have
been satisfied as of the end of the day on the Closing Date, any income tax
deductions attributable to payments due at Closing to holders of Vested Options
shall be claimed as deductions for the Pre-Closing Tax Period ending on the
Closing Date.

 

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Section 10.06. Tax Sharing Agreements. All Tax sharing agreements (excluding,
for avoidance of doubt, any commercial contracts entered into in the Ordinary
Course of Business with lenders, vendors, customers or landlords which provide
for indemnification with respect to Taxes) and all powers of attorney relating
to Tax matters with respect to or involving the Company and its Subsidiaries
will be terminated prior to the Closing and, after the Closing, the Company and
its Subsidiaries will not be bound thereby or have any Liability thereunder.

Section 10.07. Certain Taxes and Fees. Parent shall cause the Company to pay
50%, and the Securityholders shall pay 50%, of all transfer, documentary, sales,
use, stamp, registration and other such Taxes, and any conveyance fees or
recording charges incurred in connection with the Contemplated Transactions and
Parent shall cause the Company to file all necessary Tax Returns and other
documentation with respect to all such Taxes, fees and charges and, if required
by applicable Legal Requirements.

Section 10.08. Cooperation on Tax Matters. Parent, the Company and the
Securityholders’ Representative will cooperate fully, as and to the extent
reasonably requested by any of Parent, the Company or the Securityholders’
Representative, in connection with any Tax matters relating to the Company
(including by the provision of reasonably relevant records or information and
providing access to, and the reasonable assistance of, Parent’s and the
Surviving Corporation’s employees and representatives in connection with the
Securityholders’ Representative’s responsibilities under Section 10.02(a)). The
party requesting such cooperation will pay (or, in the case of requests by the
Securityholders’ Representative, the Securityholders shall pay) the reasonable
out-of-pocket expenses of the other parties.

Section 10.09. Control.

(a) Each of Parent and the Securityholders’ Representative shall promptly notify
the other in writing upon receipt of a written notice of any issues in any
pending or threatened Tax audits or assessments with respect to Taxes for any
Pre-Closing Tax Periods (“Tax Contest Claims”); provided, however, that no
failure or delay to provide notice of a Tax Contest Claim shall reduce or
otherwise affect the obligations of the parties hereunder except to the extent
the defense of such Tax Contest Claim is actually and materially prejudiced
thereby.

(b) Parent shall cause appropriate powers of attorney to be executed to allow
the Securityholders’ Representative to control, and the Securityholders’
Representative shall control, the conduct of any Tax Contest Claim, other than a
Tax Contest Claim related to a Straddle Period, at the sole cost and expense of
the Securityholders; provided, however, that (i) the Securityholders’
Representative must first consult, in good faith with Parent before taking any
action with respect to the conduct of such Tax Contest Claim and shall keep
Parent and the Company informed regarding the progress and substantive aspects
of any such Tax Contest Claim, including providing Parent and the Company with
all written materials relating to such Tax Contest Claim received from the
relevant taxing authority and all written materials submitted to such taxing
authority by the Securityholders’ Representative, (ii) Parent shall be entitled
to participate in any such Tax Contest Claim at its own cost and expense,
including

 

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having an opportunity to comment on any written materials prepared in connection
with any such Tax Contest Claim and attending any conferences relating to any
such Tax Contest Claim and (iii) the Securityholders’ Representative shall not
compromise or settle any such Tax Contest Claim without obtaining Parent’s prior
written consent, which consent shall not be unreasonably withheld, conditioned,
or delayed.

(c) Parent or the Company shall control the conduct of any issues in any Tax
Contest Claim in respect of Taxes for Straddle Periods; provided, however, that
to the extent such Taxes are allocated pursuant to Sections 10.03 or 10.05 to
the portion of the Straddle Period ending on the Closing Date (i) Parent must
first consult, in good faith with the Securityholders’ Representative before
taking any action with respect to the conduct of such Tax Contest Claim
and Parent and the Company shall keep the Securityholders’ Representative
informed regarding the progress and substantive aspects of any such Tax Contest
Claim, including providing the Securityholders’ Representative with all written
materials relating to such Tax Contest Claim received from the relevant taxing
authority and all written materials submitted to such taxing authority by Parent
or the Company, (ii) the Securityholders’ Representative shall be entitled to
participate in any such Tax Contest Claim at the cost and expense of the
Securityholders, including having an opportunity to comment on any written
materials prepared in connection with any such Tax Contest Claim and to attend
any conferences relating to any such Tax Contest Claim and (iii) the Company and
Parent (to the extent it has any authority to compromise or settle Tax Contest
Claims) shall not compromise or settle any such Tax Contest Claim without
obtaining the Securityholders’ Representative’s prior written consent, which
consent shall not be unreasonably withheld, conditioned, or delayed.

(d) In the event of any conflict between the provisions of this Section 10.09
and any other Section of this Agreement, this Section 10.09 shall control.

Section 10.10. Section 280G Vote Solicitation. If the Company or any of its
Subsidiaries is obligated to make any payments, or is subject to a Contractual
Obligation that under certain circumstances could obligate it to make any
payments, that will not be deductible under Section 280G of the Code if the
Shareholder approval requirements of Code Section 280G(b)(5)(B) are not
satisfied, then the Company shall, as promptly as practicable after the date of
this Agreement and in any event prior to the Effective Time, submit to the
Shareholders for approval (the “Shareholder Approval”), in accordance with the
terms of Section 280G(b)(5)(B) of the Code and regulations promulgated
thereunder (the “Shareholder Approval Rules”), any payments and/or benefits that
Parent and the Company mutually determine may separately or in the aggregate,
constitute “parachute payments” (within the meaning of Section 280G of the Code
and the regulations promulgated thereunder), in an effort to ensure that such
that such payments and benefits shall not be deemed to be “parachute payments”
under Section 280G of the Code. Any submission for Shareholder Approval shall be
subject to Parent’s prior review and approval, which shall not be unreasonably
withheld or delayed. Prior to the Effective Time the Company shall deliver to
Parent evidence satisfactory to Parent that the foregoing Shareholder Approval
was solicited in conformance with the Shareholder Approval Rules and that either
(A) the requisite Shareholder Approval was obtained with respect to any payments
and/or benefits that were subject to the Shareholder vote, or (B) such approval
was not obtained and as a

 

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consequence, such “parachute payments” shall not be made or provided, pursuant
to the waivers of those payments and/or benefits which were executed by the
affected individuals prior to the solicitation of the stockholder approval.

Section 10.11. Tax Treatment of Escrow. Parent and the Securityholders’
Representative agree:

(a) to treat the escrow funds attributable to amounts withheld from the
Company’s Shareholders pursuant to Section 3.03(b) as a “contingent-at-closing
escrow” as defined in Section 1.468B-8(b) of the proposed Treasury Regulations,
with all items of taxable income or gain realized on such escrowed funds
reported as taxable income or gain of the Parent; and

(b) to the extent permitted by applicable Legal Requirements, to treat the
escrow funds attributable to amounts withheld from the Shareholders under the
Company Stock Plans pursuant to Section 3.04 as not received or constructively
received by such holders until distributed, if at all, from the escrow, with the
understanding that the Escrow Agent shall pay to the Company, or its designee,
for the benefit of any employee and former employee holders of Equity Interests,
to be paid by the Company, or its designee, to such employee and former employee
holders of Equity Interests that are entitled to receive a distribution, with
the payments made pursuant to customary payroll payment procedures and with
payments subject to all applicable income, employment and other tax withholding.

ARTICLE XI

TERMINATION

Section 11.01. Termination of Agreement. This Agreement may be terminated at any
time prior to the Closing Date as follows:

(a) by mutual written consent of Parent and the Company;

(b) by either the Company or Parent if the Closing shall not have occurred on or
before March 31, 2012 (the “Outside Date”) by delivering written notice to the
other party no earlier than five Business Days following the Outside Date;
provided, however, that the right to terminate this Agreement under this
Section 11.01(b) shall not be available to the Company or Parent if the
Company’s or Parent’s, respectively, material breach of any representation,
warranty or covenant in this Agreement shall have been the primary cause of, or
primarily resulted in, the failure of the Closing to occur on or prior to such
date;

(c) by the Company if (i) there exists a breach of any representation or
warranty of either Parent or Merger Sub contained in this Agreement such that
the condition set forth in Section 8.01 would not be satisfied, or (ii) either
Parent or Merger Sub shall have breached any of the covenants or agreements
contained in this Agreement to be performed by it such that the condition set
forth in Section 8.02 would not be satisfied and, in the case of clauses (i) or
(ii), such breach has not been cured (or is incapable of being cured) by Parent
and Merger Sub within 30 days following its receipt of notice from the Company
of such breach;

 

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(d) by Parent if (i) there exists a breach of any representation or warranty of
the Company contained in this Agreement such that the condition set forth in
Section 7.01 would not be satisfied, or (ii) the Company shall have breached any
of the covenants or agreements contained in this Agreement to be performed by
the Company such that the condition set forth in Section 7.02 would not be
satisfied and, in the case of clauses (i) or (ii) such breach has not been cured
(or is incapable of being cured) by the Company within 30 days following its
receipt of notice from Parent of such breach; or

(e) by either Parent or the Company, if any Legal Requirement shall have been
enacted or promulgated by any Governmental Authority or otherwise be in effect
permanently enjoining or otherwise prohibiting or preventing the consummation of
the transactions contemplated by this Agreement, and such Legal Requirement
shall have become final and non-appealable; provided, however, that the right to
terminate this Agreement under this Section 11.01(e) shall not be available to
any party whose material breach of any representation, warranty or covenant
under this Agreement has been the primary cause of, or primarily resulted in,
such Legal Requirement to have become applicable, and provided, further, that
the party seeking to terminate this Agreement under this Section 11.01(e) shall
have used its best efforts to cause the application of any such Legal
Requirement to be vacated or lifted or to ameliorate the effects thereof.

Section 11.02. Effect of Termination. In the event of termination of this
Agreement by a party hereto pursuant to and in accordance with Section 11.1
hereof, written notice thereof shall promptly be given by the terminating party
to the other party hereto in accordance with Section 12.01 (Notices), and this
Agreement shall thereupon terminate and become void and have no force or effect,
and the transactions contemplated hereby shall be abandoned without further
action by the parties hereto, except that the provisions of Section 6.04,
Article XII and the Confidentiality Agreement shall survive the termination of
this Agreement; provided, however, that no party shall be relieved or released
from any liabilities or damages (which the parties hereby acknowledge and agree
shall not be limited to reimbursement of expenses or out-of-pocket costs)
arising out of fraud or any breach of such party’s obligations under this
Agreement.

ARTICLE XII

MISCELLANEOUS.

Section 12.01. Notices. Any notice, request, demand, claim or other
communication required or permitted to be delivered, given or otherwise provided
under this Agreement must be in writing and must be delivered personally,
delivered by nationally recognized overnight courier service, sent by certified
or registered mail, postage prepaid, or (if a facsimile number is provided
below) sent by facsimile (subject to electronic confirmation of good facsimile
transmission). Any such notice, request, demand, claim or other communication
shall be deemed to have been delivered and given (a) when delivered, if
delivered personally, (b) the Business Day after it is deposited with such
nationally recognized overnight courier service, if sent for overnight delivery
by a nationally recognized overnight courier service, (c) the day of sending, if

 

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sent by facsimile prior to 5:00 p.m. (Eastern time) on any Business Day or the
next succeeding Business Day if sent by facsimile after 5:00 p.m. (Eastern time)
on any Business Day or on any day other than a Business Day or (d) five Business
Days after the date of mailing, if mailed by certified or registered mail,
postage prepaid, in each case, to the following address or, if applicable,
facsimile number, or to such other address or addresses or facsimile number or
numbers as such party may subsequently designate to the other parties by notice
given hereunder:

If to the Company (prior to the Closing), to:

KOR Electronics

10855 Business Center Drive

Cypress, CA 90630

Telephone number: (714) 898-8200

Facsimile number: (714) 226-1241

Attention: Kevin Carnino

with a copy (which shall not constitute notice) to:

DLA Piper LLP (US)

2000 University Avenue

East Palo Alto, CA 94301-2215

Telephone number: (650) 833-2243

Facsimile number: (650) 687-1200

Attention: Dennis C. Sullivan

If to the Parent (or to the Surviving Corporation after the Closing), to:

201 Riverneck Road

Chelmsford, MA 01824

Telephone number: (978) 967-1788

Facsimile number: (978) 256-0013

Attention: Gerald M. Haines II

with a copy (which shall not constitute notice) to:

Bingham McCutchen LLP

One Federal Street

Boston, MA 02110-1726

Telephone number: (617) 951-8852

Facsimile number: (617) 428-6419

Attention: John R. Utzschneider

 

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If to the Securityholders’ Representative, to:

Shareholder Representative Services LLC

601 Montgomery Street

Suite 2020

San Francisco, CA 94111

Attention: Managing Director

Email: deals@shareholderrep.com

Telephone number: (415) 367-9400

Facsimile number: (415) 962-4147

with a copy (which shall not constitute notice) to:

DLA Piper LLP

2000 University Avenue

East Palo Alto, CA 94301-2215

Telephone number: (650) 833-2243

Facsimile number: (650) 687-1200

Attention: Dennis C. Sullivan

Each of the parties to this Agreement may specify a different address or
addresses or facsimile number or facsimile numbers by giving notice in
accordance with this Section 12.01 to each of the other parties hereto.

Section 12.02. Succession and Assignment; No Third-Party Beneficiaries. Subject
to the immediately following sentence, this Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, each of which such successors and permitted assigns will be
deemed to be a party hereto for all purposes hereof. No party may assign,
delegate or otherwise transfer either this Agreement or any of its rights,
interests or obligations hereunder without the prior written approval of the
other parties (with the Securityholders’ Representative acting for all of the
Securityholders), and any attempt to do so will be null and void ab initio;
provided, that (a) the Parent may assign this Agreement and any or all of its
rights and interests hereunder to one or more of its Affiliates or designate one
or more of its Affiliates to perform its obligations hereunder, in each case, so
long as the Parent is not relieved of any liability or obligations hereunder,
(b) the Parent may assign this Agreement and any or all of its rights and
interest hereunder to any purchaser of all or substantially all its assets or
designate such purchaser to perform its obligations hereunder and (c) any of the
Parent Indemnified Persons may collaterally assign any or all of its rights and
obligations hereunder to any provider of debt financing to it or any of its
Affiliates. Except as expressly provided herein, this Agreement is for the sole
benefit of the parties hereto and their successors and permitted assignees and
nothing herein expressed or implied will give or be construed to give any
Person, other than the parties hereto and such successors and permitted
assignees, any other right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement. For the avoidance of doubt, it is hereby
acknowledged and agreed by the parties hereto that an Indemnified Person that is
not party hereto is intended to be an express third party beneficiary of this
Agreement.

Section 12.03. Amendments and Waivers. No amendment or waiver of any provision
of this Agreement will be valid and binding unless it is in writing and signed,
in the case of an amendment, by Parent, the Company and the Securityholders’
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waiver, against whom the waiver is to be effective. No waiver by any party of
any breach or violation of, default under or inaccuracy in any representation,
warranty or covenant hereunder, whether intentional or not, will be deemed to
extend to any prior or subsequent breach or violation of, default under, or
inaccuracy in, any such representation, warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence. No delay or omission on the part of any party in exercising any
right, power or remedy under this Agreement will operate as a waiver thereof.

Section 12.04. Provisions Concerning the Securityholders’ Representative.

(a) Appointment. Upon the effectiveness of the Merger, each Securityholder shall
be deemed to have irrevocably appointed Shareholder Representative Services LLC
as the sole and exclusive agent, proxy and attorney-in-fact for each
Securityholder for and on behalf of each such Securityholder, for all purposes
of this Agreement, the Ancillary Agreements and the Contemplated Transactions,
with full and exclusive power and authority to act on such Securityholder’s
behalf (the “Securityholders’ Representative”). The appointment of the
Securityholders’ Representative hereunder is coupled with an interest, shall be
irrevocable and shall not be affected by the death, incapacity, insolvency,
bankruptcy, illness or other inability to act of any Securityholder. Without
limiting the generality of the foregoing, the Securityholder’ Representative is
hereby authorized, on behalf of the Securityholders, to:

(i) in connection with the Closing, execute and receive all documents,
instruments, certificates, statements and agreements on behalf of and in the
name of each Securityholder necessary to effectuate the Closing and consummate
the Contemplated Transactions;

(ii) receive and give all notices and service of process, make all filings,
enter into all Contractual Obligations, make all decisions, bring, prosecute,
defend, settle, compromise or otherwise resolve all claims, disputes and
Actions, authorize payments in respect of any such claims, disputes or Actions,
and take all other actions, in each case, with respect to the matters set forth
in Section 3.05, Article IX or Article X or any other Actions directly or
indirectly arising out of or relating to this Agreement or the Contemplated
Transactions;

(iii) receive and give all notices, make all decisions and take all other
actions on behalf of the Securityholders in connection with the Escrow Amount
and SR Escrow Amount and the escrow funds, including giving any instructions or
authorizations to the Escrow Agent to pay from such escrow funds any amounts
owed by the Securityholders pursuant to this Agreement or otherwise in
connection with the Contemplated Transactions;

(iv) execute and deliver, should it elect to do so in its good faith discretion,
on behalf of the Securityholders, any amendment to, or waiver of, any term or
provision of this Agreement, or any consent, acknowledgment or release relating
to this Agreement; and

 

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(v) take all other actions permitted or required to be taken by or on behalf of
the Securityholders under this Agreement and exercise any and all rights that
the Securityholders or the Securityholders’ Representative are permitted or
required to do or exercise under this Agreement.

(b) Liability. The Securityholders’ Representative shall not be held liable by
any of the Securityholders for actions or omissions in exercising or failing to
exercise all or any of the power and authority of the Securityholders’
Representative pursuant to this Agreement, except in the case of the
Securityholders’ Representative’s gross negligence, bad faith or willful
misconduct. The Securityholders’ Representative shall be entitled to rely on the
advice of counsel, public accountants or other independent experts that it
reasonably determines to be experienced in the matter at issue, and will not be
liable to any Securityholder for any action taken or omitted to be taken in good
faith based on such advice. The Securityholders will jointly and severally
indemnify (in accordance with their Pro Rata Escrow Percentages) the
Securityholders’ Representative from any Losses arising out of its serving as
the Securityholders’ Representative hereunder as such Losses are incurred or
suffered, except for Losses finally adjudicated to have been primarily caused by
the Securityholders’ Representative’s gross negligence, bad faith or willful
misconduct. If not paid directly to the Securityholders’ Representative by the
Securityholders, any such Losses may be recovered by the Securityholders’
Representative from (i) the funds in the SR Escrow Amount and (ii) the amounts
of the Escrow Amount otherwise distributable to the Securityholders pursuant to
the terms hereof and the Escrow Agreement at the time of distribution in
accordance with written instructions delivered by the Securityholders’
Representative to the Escrow Agent; provided, that while this paragraph
(b) allows the Securityholders’ Representative to be paid from the SR Escrow
Amount and the Escrow Amount, this does not relieve the Securityholders form
their obligation to promptly pay such Losses as such Losses are suffered or
incurred, nor does it prevent the Securityholders’ Representative from seeking
any remedies available to it at law or otherwise. The Securityholders’
Representative will be entitled to withdraw funds from the SR Escrow Amount to
fund its expenses, as provided in the Escrow Agreement. The Securityholders’
Representative is serving in its capacity as such solely for purposes of
administrative convenience, and is not personally liable in such capacity for
any of the obligations of the Securityholders hereunder, and the Parent agrees
that it will not look to the personal assets of the Securityholders’
Representative, acting in such capacity, for the satisfaction of any obligations
to be performed by the Securityholders hereunder.

(c) Reliance on Appointment; Successor Securityholders’ Representative. The
Parent and the other Parent Indemnified Persons may rely on the appointment and
authority of the Securityholders’ Representative granted pursuant to this
Section 12.04 until receipt of written notice of the resignation of the
Securityholders’ Representative or the appointment of a successor
Securityholders’ Representative made in accordance with this Section 12.04. In
so doing, the Parent and the other Parent Indemnified Persons may rely on any
and all actions taken by and decisions of the Securityholders’ Representative
under this Agreement notwithstanding any dispute or disagreement among any of
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with respect to any such action or decision without any Liability to, or
obligation to inquire of, any Securityholder, the Securityholders’
Representative or any other Person. Any decision, act, consent or instruction of
the Securityholders’ Representative shall constitute a decision of all the
Securityholders and shall be final and binding upon each of the Securityholders.
At any time after the Closing, with or without cause, by a written instrument
that is signed in writing by holders of at least a majority-in-interest of the
Securityholders (determined by reference to their respective Pro Rata Escrow
Percentages) and delivered to Parent, the Securityholders may remove and
designate a successor Securityholders’ Representative; provided, that such
successor Securityholders’ Representative must be reasonably acceptable to
Parent. If the Securityholders’ Representative shall at any time resign or
otherwise cease to function in its capacity as such for any reason whatsoever,
and no successor that is reasonably acceptable to Parent is appointed by such
holders of a majority-in-interest of the Securityholders within ten (10)
Business Days, then Parent shall have the right to appoint another
Securityholder to act as the replacement Securityholders’ Representative who
shall serve as described in this Agreement and, under such circumstances, the
Parent and the other Parent Indemnified Persons shall be entitled to rely on any
and all actions taken and decisions made by such replacement Securityholders’
Representative.

Section 12.05. Entire Agreement. This Agreement, together with the other
Ancillary Agreements and any documents, instruments and certificates explicitly
referred to herein, constitutes the entire agreement among the parties hereto
with respect to the subject matter hereof and supersedes any and all prior
discussions, negotiations, proposals, undertakings, understandings and
agreements, whether written or oral, with respect thereto. There are no
restrictions, promises, warranties, covenants, or undertakings, other than those
expressly provided for herein and therein.

Section 12.06. Counterparts; Facsimile Signature. This Agreement may be executed
in any number of counterparts, each of which will be deemed an original, but all
of which together will constitute but one and the same instrument. This
Agreement will become effective when duly executed and delivered by each party
hereto. Counterpart signature pages to this Agreement may be delivered by
facsimile or electronic delivery (i.e., by email of a PDF signature page) and
each such counterpart signature page will constitute an original for all
purposes.

Section 12.07. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction will 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. In the event that any provision hereof
would, under applicable Legal Requirements, be invalid or unenforceable in any
respect, each party hereto intends that such provision will be construed by
modifying or limiting it so as to be valid and enforceable to the maximum extent
compatible with, and possible under, applicable Legal Requirements.

 

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Section 12.08. Governing Law. This Agreement, the rights of the parties
hereunder and all Actions arising in whole or in part under or in connection
herewith, will be governed by and construed and enforced in accordance with the
domestic substantive laws of The Commonwealth of Massachusetts, without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the laws of any other jurisdiction, except to extent the CGCL
applies to the Merger.

Section 12.09. Jurisdiction; Venue; Service of Process.

(a) Jurisdiction. Subject to the provisions of Sections 3.05 and 9.04(e), each
of the parties to this Agreement, by its execution hereof, (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court located in The Commonwealth of Massachusetts, or if such Action may not be
brought in federal court, the state courts of The Commonwealth of Massachusetts
located in the City of Boston for the purpose of any Action among any of the
parties relating to or arising in whole or in part under or in connection with
this Agreement, any Ancillary Agreement or the Contemplated Transactions,
(ii) hereby waives to the extent not prohibited by applicable Legal
Requirements, and agrees not to assert, by way of motion, as a defense or
otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such Action brought in one of the
above-named courts should be dismissed on grounds of forum non conveniens,
should be transferred or removed to any court other than one of the above-named
courts, or should be stayed by reason of the pendency of some other Action in
any other court other than one of the above-named courts or that this Agreement,
any Ancillary Agreement or the subject matter hereof or thereof may not be
enforced in or by such court and (iii) hereby agrees not to commence any such
Action other than before one of the above-named courts. Notwithstanding the
previous sentence a party may commence any Action in a court other than the
above-named courts solely for the purpose of enforcing an order or judgment
issued by one of the above-named courts.

(b) Venue. Each of the parties to this Agreement agrees that for any Action
among any of the parties relating to or arising in whole or in part under or in
connection with this Agreement, any Ancillary Agreement or the Contemplated
Transactions, such party shall bring such Action only in the City of Boston.
Notwithstanding the previous sentence a party may commence any Action in a court
other than the above-named courts solely for the purpose of enforcing an order
or judgment issued by one of the above-named courts. Each party hereto further
waives any claim and will not assert that venue should properly lie in any other
location within the selected jurisdiction.

(c) Service of Process. Each of the parties to this Agreement hereby
(i) consents to service of process in any Action among any of the parties hereto
relating to or arising in whole or in part under or in connection with this
Agreement, any Ancillary Agreement or the Contemplated Transactions in any
manner permitted by Massachusetts law, (ii) agrees that service of process made
in accordance with clause (i) or made by registered or certified mail, return
receipt requested, at its address specified pursuant to Section 12.01, will
constitute good and valid service of process in any such Action and

 

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(iii) waives and agrees not to assert (by way of motion, as a defense, or
otherwise) in any such Action any claim that service of process made in
accordance with clause (i) or (ii) does not constitute good and valid service of
process.

Section 12.10. Specific Performance. Each of the parties acknowledges and agrees
that the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached or violated. Accordingly, each of the parties
agrees that, without posting a bond or other undertaking, the other parties will
be entitled to an injunction or injunctions to prevent breaches or violations of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any Action instituted in any court of the
United States or any state thereof having jurisdiction over the parties and the
matter in addition to any other remedy to which it may be entitled, at law or in
equity. Each party further agrees that, in the event of any action for specific
performance in respect of such breach or violation, it will not assert that the
defense that a remedy at law would be adequate.

Section 12.11. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL
NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS
AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS,
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS
PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND
BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RESPECTIVE
RIGHTS TO TRIAL BY JURY IN ANY ACTION WHATSOEVER BETWEEN OR AMONG THEM RELATING
TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OF THE CONTEMPLATED
TRANSACTIONS AND THAT SUCH ACTIONS WILL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 

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IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as of
the date first above written.

 

PARENT:     MERCURY COMPUTER SYSTEMS, INC.     By:  

/s/    Mark Aslett                                                 

      Name: Mark Aslett       Title:   President and Chief Executive Officer

 

MERGER SUB:     KING MERGER INC.     By:  

/s/    Mark Aslett                                                 

      Name: Mark Aslett       Title:   President

[Signature Page to Merger Agreement]

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THE COMPANY:     KOR ELECTRONICS     By:  

/s/    Kevin Carnino                                                 

      Name: Kevin Carnino       Title:   President and Chief Executive Officer

[Signature Page to Merger Agreement]

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SECURITYHOLDERS’ REPRESENTATIVE:    

SHAREHOLDER REPRESENTATIVE

SERVICES LLC, solely in its capacity as the Securityholders’ Representative

    By:  

/s/    Paul Koenig                                         

      Name: Paul Koenig       Title:   Managing Director

[Signature Page to Merger Agreement]