Exhibit 10.24
 
 
AGREEMENT AND PLAN OF MERGER
 
THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) dated February 12, 2008, is
entered into by and among Adtron Corporation, an Arizona corporation (the
“Company”), SMART Modular Technologies, Inc., a California corporation
(“Buyer”), Armor Acquisition Corporation, an Arizona corporation and a
wholly-owned subsidiary of Buyer (“Merger Sub”) and Alan Fitzgerald, as the
Equity Holders’ representative (the “Equity Holders’ Representative”).
 
Recitals
 
WHEREAS, upon the terms and subject to the conditions of this Agreement and in
accordance with Arizona Law, Buyer and the Company will enter into a business
combination transaction pursuant to which Merger Sub will merge with and into
the Company (the “Merger”).
 
WHEREAS, each of the respective Boards of Directors of the Company, Buyer and
Merger Sub (i) has determined that the Merger is fair to and in the best
interests of its respective shareholders and has approved this Agreement and the
other transactions contemplated hereby and (ii) has recommended the approval and
adoption of this Agreement by its respective shareholders in accordance with
applicable Law.
 
WHEREAS, concurrently with the execution and delivery of this Agreement, and as
a condition and inducement to Buyer’s and Merger Sub’s willingness to enter into
this Agreement, the Company has obtained the irrevocable approval and adoption
of this Agreement and the other transactions contemplated hereby by the
shareholders of the Company set forth on Annex I (the “Major Shareholders”)
pursuant to a written consent in the form of Exhibit B (the “Written Consent”)
signed by each Major Shareholder.
 
WHEREAS, prior to the consummation of the Merger, and as a condition and
inducement to Buyer’s and Merger Sub’s willingness to enter into this Agreement,
the employee of the Company listed on Annex II (the “Key Employee”) shall enter
into employment agreements, assignment of invention agreements and
non-competition and non-solicitation agreements in form satisfactory to Buyer
and the Key Employee (the “Key Employment Agreements”) with Buyer or an
Affiliate of Buyer, which agreements shall be effective as of the Effective
Time.
 
WHEREAS, the Company, Buyer and Merger Sub desire to make certain
representations, warranties, covenant, restrictions and other agreements in
connection with the Merger.
 
NOW, THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants, obligations and agreements contained herein, and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, do
hereby covenant and agree as follows:
 
ARTICLE 1
 
 
 
DEFINITIONS
 
1.1 Definitions.  Except as otherwise defined herein, capitalized terms shall
have the meanings given in Exhibit A.
 
ARTICLE 2
 
 
 
THE MERGER
 
2.1 The Closing; Effect of the Merger.
 
(a) The consummation of the transactions contemplated by this Agreement (the
“Closing,” such date, the “Closing Date”) will be held at a mutually agreeable
location on a date that is no later than three (3) Business Days after the
satisfaction or, to the extent permitted, waiver of the last of the conditions
to the Merger to be satisfied (excluding conditions that, by their terms, are
satisfied at the Closing, but subject to the satisfaction or waiver (to the
extent permitted hereunder) of such conditions).  Immediately following the
Closing, the parties hereto will cause a plan of merger (the “Plan of Merger”)
and articles of merger (the “Articles of Merger”) to be delivered for filing to
the Arizona Corporation Commission in accordance with Arizona Law.  The Merger
shall become effective at such time (the “Effective Time”) as the Plan of Merger
and the Articles of Merger are duly filed or at such other time specified in the
Articles of Merger.
 
 
 
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(b) At the Effective Time, Merger Sub shall be merged with and into the Company
in accordance with Arizona Law, whereupon the separate existence of Merger Sub
shall cease, and the Company shall be the surviving corporation (in such
capacity, the Company is sometimes referred to herein as the “Surviving
Corporation”).  From and after the Effective Time, the Surviving Corporation
shall possess all the rights, privileges, immunities and franchises, of a public
as well as a private nature, and be subject to all of the obligations,
liabilities, restrictions and disabilities of the Company and Merger Sub (the
“Constituent Corporations”); all property, real, personal and mixed, and all
accounts payable arising in the ordinary course of business and accrued expenses
due on whatever account, and all debts, liabilities and duties due to each of
the Constituent Corporations shall be taken and deemed to be transferred to and
vested in the Surviving Corporation without further act or deed as provided in
Section 10-1106 of Arizona Law; and the Surviving Corporation shall be
responsible and liable for all liabilities and obligations of each of the
Constituent Corporations, in each case in accordance with Arizona Law.
 
(c) At the Effective Time, (i) the articles of incorporation of the Company in
effect at the Effective Time shall be amended to read in its entirety in the
form of Annex III, and, as so amended, such articles of incorporation shall be
the articles of incorporation of the Surviving Corporation until thereafter
amended in accordance with its terms and Arizona Law; and (ii) the bylaws of
Merger Sub in effect immediately prior to the Effective Time shall be the bylaws
of the Surviving Corporation (other than any express references to the name of
Merger Sub in such bylaws, which shall be amended to refer to the Surviving
Corporation) until thereafter amended in accordance with Arizona Law.
 
(d) From and after the Effective Time, the directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold such office in accordance with the
provisions of Arizona Law and the articles of incorporation and bylaws of the
Surviving Corporation.
 
2.2 Effect of the Merger on Capital Stock.
 
(a) At the Effective Time, by virtue of the Merger and without any further
action on the part of any party or the holder of any of their respective
securities:
 
(i) except as otherwise provided in Section 2.2(a)(ii), each issued and
outstanding share of Company Stock (other than the Dissenting Shares) shall be
converted into the right to receive an amount of cash, without interest, equal
to the Per Share Merger Consideration;
 
(ii) each share of Company Stock held by the Company as treasury stock
immediately prior to the Effective Time shall be cancelled, and no consideration
shall be delivered in exchange therefor; and
 
(iii) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation with the same rights,
privileges, immunities and franchises as the shares so converted and shall
constitute the only issued and outstanding shares of capital stock of the
Surviving Corporation.
 
(b) Notwithstanding the foregoing, the parties acknowledge and agree that:
(i) the Indemnification Escrow Amount shall be deducted from the amount of the
Closing Consideration payable to the Equity Holders pursuant to Article 2, and
shall only be payable upon release from the Indemnification Escrow Account in
accordance with this Agreement and the Indemnification Escrow Agreement and to
the extent not reduced by indemnification payments pursuant to Article 8; and
(ii) the Holdback Amount shall be deducted from the amount of the Closing
Consideration payable to the Equity Holders pursuant to Article 2, and shall
only be payable after resolution of the Final Net Working Capital, in accordance
with Section 2.7.
 
2.3 Treatment of Stock Options.
 
(a) Vested Options.  At the Effective Time, each outstanding Stock Option that
is vested immediately prior to the Effective Time (the “Vested Options”) shall
be cancelled, and promptly following the Effective Time, Buyer shall pay, or
shall cause to be paid, to each holder of such Vested Options an amount in cash
(less any applicable withholding tax) determined by multiplying (i) the excess,
if any, of (A) the Per Share Closing Consideration over (B) the applicable per
share exercise price of such option by (ii) the number of shares of Common Stock
such holder could have purchased had such holder exercised such option in full
immediately prior to the Effective Time (with respect to each such holder, the
“Per Share Vested Option Consideration”). For purposes of the payment of the
Earnout Consideration in Section 2.9, a holder of Vested Options shall be
considered an “Equity Holder” only if such holder signs an Option Cancellation
Agreement in form satisfactory to Buyer and the Company (the “Option
Cancellation Agreements”) prior to the Closing Date.
 
 
 
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(b) Accelerated Options.  At the Effective Time, those outstanding Stock
Options, or a portion thereof, that were not vested immediately prior to the
Effective Time shall become vested as of the Effective Time in accordance with
the following schedule:
 
Percentage of Stock Option Acceleration
Length of Employment Service
50%
Less than 12 months
75%
12 months but less than 24 months
100%
24 months or more

 
At the Effective Time, each outstanding Stock Option shall be cancelled and,
with respect to each outstanding Stock Option that becomes vested pursuant to
the above schedule (the “Accelerated Options”), following the Effective Time,
Buyer shall pay, or shall cause to be paid, each holder of such Accelerated
Options an amount in cash (less any applicable withholding tax) determined by
multiplying (i) the excess, if any, of (A) the Per Share Closing Consideration
over (B) the applicable per share exercise price of such option by (ii) the
number of shares of Common Stock such holder could have purchased had such
holder exercised the accelerated portion of the option in full immediately prior
to the Effective Time (with respect to each such holder, the “Per Share
Accelerated Option Consideration”).  For purposes of the payment of the Earnout
in Section 2.9, a holder of Accelerated Options shall be considered a “Equity
Holder” only if such holder (x) signs an Option Acceleration and Cancellation
Agreement in form satisfactory to Buyer and the Company (the “Option
Acceleration and Cancellation Agreements”), and (y) does not voluntarily
terminate his or her employment with the Surviving Corporation or Buyer and is
not terminated for cause through and including the date the Earnout
Consideration (if any) is paid by the Buyer pursuant to Section 2.9.
 
2.4 Payment for Securities.
 
(a) Paying Agent.  Prior to the Effective Time, Buyer shall enter into an
agreement with an entity designated by Buyer and reasonably acceptable to the
Company to act as agent for the Equity Holders in connection with the Merger
(the “Paying Agent”) for the purposes of exchanging certificates representing
shares of Company Stock (the “Certificates”) and shares of Company Stock
represented by Vested Options and Accelerated Options, and to receive and
distribute the Closing Consideration that the Equity Holders shall become
entitled to receive pursuant to this Agreement.  On the Closing Date and prior
to the filing of the Plan of Merger and the Articles of Merger, Buyer shall
deposit, or cause to be deposited, with the Paying Agent, for the benefit of the
Equity Holders, for payment in accordance with this Agreement through the Paying
Agent, cash in an amount sufficient to permit payment of the aggregate Closing
Consideration (less the Indemnification Escrow Amount and the Holdback Amount)
(the “Payment Fund”).  If for any reason (including losses) the Payment Fund is
inadequate to pay the amounts to which the Equity Holders shall be entitled
under this Agreement, Buyer shall, or shall cause the Surviving Corporation to,
promptly deposit additional cash with the Paying Agent sufficient to make all
payments required under this Agreement, and Buyer and the Surviving Corporation
shall in any event be liable for payment thereof.  The Payment Fund shall not be
used for any other purpose.  The Surviving Corporation shall pay all charges and
expenses of the Paying Agent in connection with the exchange of Certificates and
Vested Options and Accelerated Options and distribution of the Closing
Consideration.
 
(b) Payment Procedures.
 
(i) As soon as practicable after the Effective Time, Buyer shall deliver or
cause the Paying Agent to deliver to each record holder, as of immediately prior
to the Effective Time, of a Certificate, as set forth in the Determination
Certificate, a customary letter of transmittal (“Letter of Transmittal”) (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Paying Agent, and which shall be in a customary form and agreed to by Buyer and
the Company prior to the Closing) and instructions for use in effecting the
surrender of the Certificates, for payment of such holder’s share of the Closing
Consideration in accordance with this Article 2.
 
(ii) Upon surrender to the Paying Agent of a Certificate, together with the
Letter of Transmittal, duly completed and validly executed in accordance with
the instructions thereto, and such other customary documents as may be
reasonably required by the Surviving Corporation or the Paying Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor the Per
Share Closing Consideration (less such Shareholder’s pro rata portion (in
accordance with their Percentage Ownership) of the Indemnification Escrow Amount
and the Holdback Amount) for each share formerly represented by such Certificate
and such Certificate shall then be cancelled.  No interest shall be paid or
accrued for the benefit of holders of the Certificates on the Closing
Consideration payable in respect of the Certificates.  Until surrendered as
contemplated by this Section 2.4(b)(ii) each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Closing Consideration as contemplated by this Article 2.
 
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(iii) Promptly after the Effective Time, the holder of each Vested Option shall
be entitled to receive in exchange therefor the Per Share Vested Option
Consideration (less such Stock Option Holder’s pro rata portion (in accordance
with their Percentage Ownership) of the Indemnification Escrow Amount and the
Holdback Amount and less any applicable withholding tax).  Each Vested Option
shall be deemed at any time after the Effective Time to represent for all
purposes only the right to receive Per Share Vested Option Consideration as
contemplated by this Article 2.
 
(iv) Promptly after the Effective Time, the holder of each Accelerated Option
shall be entitled to receive in exchange therefor the Per Share Accelerated
Option Consideration (less such Stock Option Holder’s pro rata portion (in
accordance with their Percentage Ownership) of the Indemnification Escrow Amount
and the Holdback Amount and less any applicable withholding tax).  Each
Accelerated Option shall be deemed at any time after the Effective Time to
represent for all purposes only the right to receive Per Share Accelerated
Option Consideration as contemplated by this Article 2.
 
(c) No Liability.  Neither Buyer nor any of its Affiliates shall be liable to
any Equity Holder for any amount paid to a public official pursuant to
applicable abandoned property, escheat or similar laws.
 
(d) Termination of Payment Fund.  Any portion of the Payment Fund made available
to the Paying Agent pursuant to this Section 2.4 that remains unclaimed by the
Equity Holders six (6) months after the Effective Time, shall be returned to
Buyer, upon demand, and any such Equity Holder has not exchanged shares of
Company Stock or Stock Options, as the case may be, in accordance with this
Section 2.4 prior to that time shall thereafter look only to Buyer for delivery
of the Closing Consideration, without any interest thereon.  Any amounts
remaining unclaimed by Equity Holders two (2) years after the Effective Time
shall be paid to the appropriate Governmental Authority pursuant to the
applicable abandoned property, escheat or similar Law.
 
(e) Withholding Rights.  Each of Buyer, the Paying Agent and the Surviving
Corporation shall be entitled to deduct and withhold from the consideration
otherwise payable to any Person pursuant to this Agreement such amounts as it is
required to deduct and withhold with respect to the making of such payment under
any provision of federal, state, local or foreign Tax law.  If Buyer, the Paying
Agent or the Surviving Corporation so withholds amounts, such amounts shall be
treated for all purposes of this Agreement as having been paid to the Person in
respect of which Buyer or the Surviving Corporation, as the case may be, made
such deduction and withholding.
 
(f) Lost Certificates.  If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if reasonably required by
the Surviving Corporation, the entry by such Person into an indemnification
agreement in form reasonably satisfactory to Buyer, or the posting by such
Person of a bond, in such reasonable amount as the Surviving Corporation may
direct, as indemnity against any claim that may be made against it with respect
to such Certificate, the Paying Agent will deliver, in exchange for such lost,
stolen or destroyed Certificate, the Merger Consideration due in respect of the
shares of Company Stock evidenced by such Certificate, as contemplated by this
Article 2.
 
2.5 Determination Certificate.  On the date that is two (2) Business Days prior
to the Effective Time (the “Determination Date”), the Equity Holders’
Representative shall deliver to Buyer and the Paying Agent a certificate in form
satisfactory to Buyer and the Equity Holders’ Representative (the “Determination
Certificate”) setting forth: (i) (A) the name and the wire transfer account
information and mailing address (or other delivery instructions reasonably
acceptable to Buyer and the Paying Agent) of each Equity Holder, (B) such Equity
Holder’s Percentage Ownership, and (C) the aggregate amount of Closing
Consideration payable to such Equity Holder in respect of all of the shares of
Company Stock, Vested Options and/or Accelerated Options owned by such Equity
Holder, together with the amounts to be withheld from the Closing Consideration
(x) pursuant to Section 2.4(e) and (y) representing each such Equity Holder’s
pro rata portion (in accordance with their Percentage Ownership) of the
Indemnification Escrow Amount and the Holdback Amount; (ii) the Debt Repayment
Amount; (iii) the Estimated Payroll Tax Amount; (iv) the Estimated Transaction
Expenses Amount; and (v) any supporting schedules and other documentation
reasonably requested by Buyer or the Paying Agent.  Buyer and the Paying Agent
may rely on the Determination Certificate for all distributions to the Equity
Holders pursuant to Article 2, and shall have no responsibility or liability
with respect thereto; provided that the distribution instructions of the Equity
Holders’ Representative set forth in the Determination Certificate are
followed.  From and after the Determination Date, there shall be no further
issuances of, or registration of transfers of, shares of Company Stock or Stock
Options.  If, after the Effective Time, Certificates or Stock Options are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for the Merger Consideration provided for, and in accordance with the procedures
set forth, in this Article 2.
 
 
 
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2.6 Indemnification Escrow.  At the Effective Time, Buyer shall withhold from
the Closing Consideration otherwise payable in connection with the Merger an
amount of cash equal to the Indemnification Escrow Amount.  Prior to or
simultaneously with the Effective Time, the Equity Holders’ Representative and
Buyer shall enter into the Indemnification Escrow Agreement with the Escrow
Agent in mutually acceptable form (the “Indemnification Escrow Agreement”).  On
the Closing Date and prior to the filing of the Plan of Merger and the Articles
of Merger, Buyer shall deposit the Indemnification Escrow Amount in the
Indemnification Escrow Account to be managed by the Escrow Agent pursuant to the
terms of the Indemnification Escrow Agreement.  Distributions of any cash from
the Indemnification Escrow Amount shall be governed by the terms and conditions
of this Agreement and the Indemnification Escrow Agreement (the cash in the
Indemnification Escrow Account at any given time, including all accrued
interest, being referred to as the “Escrowed Remainder”).  The Indemnification
Escrow Amount shall be withheld from each Equity Holder based on such Person’s
Percentage Ownership.  Upon the expiration of the Survival Period, the Escrowed
Remainder, less any claims pending under Article 8, shall be paid to the Equity
Holders in accordance with such Equity Holder’s Percentage Ownership of the
Escrowed Remainder.
 
2.7 Post-Closing Adjustment to Purchase Price.
 
(a) After the Effective Time, the Equity Holders’ Representative and Buyer shall
cooperate and provide each other access to their respective books, records and
employees (and those of the Surviving Corporation) as are reasonably requested
in connection with the matters addressed in this Section 2.7.  Within sixty (60)
days after the Closing Date, Buyer shall cause to be prepared and delivered to
the Equity Holders’ Representative a balance sheet of the Company as of the
close of business on the Closing Date (the “Closing Balance Sheet”), a
certificate based on such Closing Balance Sheet setting forth Buyer’s
calculation of the Closing Net Working Capital (the “Closing Net Working Capital
Notice”) and a certificate setting forth the Payroll Tax Amount and the
Transaction Expenses Amount, together with any supporting schedules and other
documentation in connection with such certificate reasonably requested from time
to time by the Equity Holders’ Representative.  The Closing Balance Sheet and
the calculation of the Closing Net Working Capital shall be prepared in
accordance with the principles set forth in Annex IV.
 
(b) If the Equity Holders’ Representative objects to Buyer’s determination of
Closing Net Working Capital, as set forth in the Closing Net Working Capital
Notice, then the Equity Holders’ Representative shall provide Buyer written
notice thereof, setting forth the Equity Holders’ Representative’s calculation
of such amount, along with reasonable supporting information and calculations,
within thirty (30) days after receiving the Closing Net Working Capital
Notice.  Any such notice of disagreement shall specify those items or amounts as
to which the Equity Holders’ Representative disagrees, and the Equity Holders’
Representative shall be deemed to have agreed with all other items and amounts
contained in the Closing Balance Sheet and the calculation of Closing Net
Working Capital delivered pursuant to Section 2.7(a).  If a notice of
disagreement shall be delivered pursuant to this Section 2.7(b), Buyer and the
Equity Holders’ Representative shall, during the twenty (20) days following such
delivery, use their commercially reasonable efforts to reach agreement on the
disputed items or amounts in order to determine, as may be required, the amount
of Closing Net Working Capital, which amount shall not be less than the amount
thereof shown in the Closing Net Working Capital Notice nor more than the amount
thereof shown in the Equity Holders’ Representative’s calculation delivered
pursuant to this Section 2.7(b).  If, after such twenty (20) day period, the
Equity Holders’ Representative and Buyer are unable to agree on the Closing Net
Working Capital, such parties shall refer such dispute to a firm of independent
public accountants (other than an independent accounting firm used by any of
Buyer or the Company within the past five (5) years) mutually acceptable to
Buyer and Equity Holders’ Representative (the “Independent Accountants”), which
firm shall, acting as an expert and not as an arbitrator, make a final and
binding determination of Closing Net Working Capital on a timely basis and shall
promptly notify the Equity Holders’ Representative and Buyer in writing of its
resolution.  Such final and binding determination of the Closing Net Working
Capital (the “Final Net Working Capital”) shall become final and binding in
accordance with the terms of this Agreement.  In making such calculation, the
Independent Accountants shall consider only those items or amounts in the
Closing Balance Sheet or Buyer’s calculation of Closing Net Working Capital as
to which the Equity Holders’ Representative has disagreed, and shall not have
the power to modify or amend any term or provision of this Agreement.  Buyer
shall pay all costs and expenses of such review and report if the difference
between Final Net Working Capital and Buyer’s calculation of Closing Net Working
Capital delivered pursuant to Section 2.7(a) is greater than the difference
between Final Net Working Capital and Equity Holders’ Representative’s
calculation of Closing Net Working Capital delivered pursuant to this Section
2.7(b); provided that in all other cases, such costs and expenses shall be
included in the Transaction Expenses Amount.  If the Equity Holders’
Representative does not object to Buyer’s determination of Closing Net Working
Capital within the time period and in the manner set forth in this Section
2.7(b), or if the Equity Holders’ Representative accepts Buyer’s determination
of Closing Net Working Capital in writing, then Buyer’s determination of Closing
Net Working Capital shall become the Final Net Working Capital and shall become
final and binding for all purposes hereunder.
 
 
 
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2.8 Holdback; Adjustment of Purchase Price.
 
(a) Holdback.  At the Effective Time, Buyer shall withhold from the Closing
Consideration otherwise payable in connection with the Merger an amount of cash
equal to the Holdback Amount.
 
(b) Definitions.  For purposes of this Agreement:
 
“Minimum Working Capital” means an amount equal to $1,216,829.
 
“Payroll Tax Excess” means, if the Payroll Tax Amount is less than the Estimated
Payroll Tax Amount, the amount of any such difference.
 
“Payroll Tax Shortfall” means, if the Payroll Tax Amount is greater than the
Payroll Tax Amount, the amount of any such excess.
 
“Transaction Expenses Excess” means, if the Transaction Expenses Amount is less
than the Estimated Transaction Expenses Amount, the amount of any such
difference.
 
“Transaction Expenses Shortfall” means, if the Transaction Expenses Amount is
greater than the Estimated Transaction Expenses Amount, the amount of any such
excess.
 
“Working Capital Excess” means, if the Final Net Working Capital is more than
10% greater than the Minimum Working Capital, amount of any such excess above
110% of the Minimum Working Capital.
 
“Working Capital Shortfall” means, if the Final Net Working Capital is more than
10% less than the Minimum Working Capital, amount of any such difference below
90% of the Minimum Working Capital.
 
(c) Buyer shall, within five (5) Business Days after Final Net Working Capital
is determined pursuant to this Section 2.8, deliver to the Paying Agent an
amount in cash equal to the Holdback Amount, (x) less the sum of (i) any Working
Capital Shortfall, plus (ii) any Payroll Tax Shortfall, and plus (iii) any
Transaction Expenses Shortfall, and (y) plus the sum of (i) any Working Capital
Excess, plus (ii) any Payroll Tax Excess, and plus (iii) any Transaction
Expenses Excess, which aggregate amount shall then be distributed by the Paying
Agent to the Equity Holders in proportion to each such Equity Holder’s
Percentage Ownership.  In the event that the sum of the amounts referred to in
clause (x) above minus the sum of the amounts amount referred to in clause (y)
above is greater than the Holdback Amount, Buyer shall be entitled to recover
the amount of such difference by making a claim against the Indemnification
Escrow Account.  In the event that the aggregate amount delivered to the Paying
Agent pursuant to this Section 2.8(c) is less or greater than the Holdback
Amount, such difference shall be treated as an adjustment to the Closing
Consideration.
 
(d) Any amounts not paid when required pursuant to this Section 2.8 shall bear
interest from the required date of payment to the date of actual payment at a
rate that is 2 percentage points (2%) per annum in excess of the prime rate of
interest announced publicly by The Wall Street Journal from time to time as the
base rate.
 
2.9 Earnout
 
(a) Definitions.  For purposes of this Agreement:
 
“Net Revenues” means an amount equal to revenues, as calculated in accordance
with GAAP and Buyer’s revenue recognition policies as consistently applied,
generated in connection with the sale of (i) the Surviving Corporation’s
products by the Surviving Corporation’s or Buyer’s sales force to the Surviving
Corporation’s Customers or Buyer’s customers, and (ii) the Buyer’s flash-based
products by the Surviving Corporation’s or the Buyer’s sales force to the
Surviving Corporation’s Customers.
 
“Gross Profit” means an amount equal to Net Revenues less cost of revenues, as
calculated in accordance with GAAP and Buyer’s revenue recognition policies as
consistently applied, generated by and expended, respectively, in connection
with the sale of (i) the Surviving Corporation’s products by the Surviving
Corporation’s or Buyer’s sales force to the Surviving Corporation’s Customers or
Buyer’s customers, and (ii) the Buyer’s flash-based products by the Surviving
Corporation’s or the Buyer’s sales force to the Surviving Corporation’s
Customers.
 
“EBIT” means earnings before interest and taxes, as calculated in accordance
with GAAP and Buyer’s revenue recognition policies as consistently applied,
generated by and expended, respectively, in connection with the sale of (i) the
Surviving Corporation’s products by the Surviving Corporation’s or Buyer’s sales
force to the Surviving Corporation’s Customers or Buyer’s customers, (ii) the
Buyer’s flash-based products by the Surviving Corporation’s or the Buyer’s sales
force to the Surviving Corporation’s Customers, and (iii) all Buyer’s products
(other than those described in clause (ii) above) by the Surviving Corporation’s
or Buyer’s sales force to the Surviving Corporation’s Customers.
 
 
 
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“Surviving Corporation’s Customers” means customers to whom the Company has sold
products prior to the Closing Date and any other customers from whom an RFQ or
other sales inquiry documentation is first received by the Company’s or the
Surviving Corporation’s sales force.
 
(b) Earnout Consideration.  In addition to the Closing Consideration, Buyer
will, in the event of achievement of the applicable targets set forth in this
Section 2.9, pay, or cause to be paid, to the Equity Holders the amounts
determined in accordance with this Section 2.9(a), up to $15,000,000 in the
aggregate (collectively, the “Earnout Consideration”) as follows:
 
(i) if the Net Revenues and Gross Profit recognized during calendar year 2008
(the “Earnout Period”) equals or exceeds $16,000,000 and $6,400,000,
respectively, an amount equal to $10,000,000 x [Gross Profit – $6,400,000] /
[$12,200,000 - $6,400,000] (e.g., if Gross Profit = $12,000,000, then
$10,000,000 x [$12,000,000 – $6,400,000] / [$12,200,000 - $6,400,000] =
$9,655,172.41), but in no event shall the amount payable under this section
exceed $10,000,000;
 
(ii) if the Net Revenues and EBIT recognized during the Earnout Period equals or
exceeds $16,000,000 and $2,200,000, respectively, an amount equal to $3,500,000
x [EBIT – $2,200,000] / [$4,200,000 - $2,200,000] (e.g., if EBIT = $4,000,000,
then $3,500,000 x [$4,000,000 – $2,200,000] / [$4,200,000 - $2,200,000] =
$3,150,000), but in no event shall the amount payable under this section exceed
$3,500,000; and
 
(iii) if the Surviving Corporation achieves the integration goals to be mutually
agreed upon by Buyer and the Equity Holders’ Representative after the date
hereof, which agreement shall not be unreasonably withheld; provided that the
determination of any satisfaction of such goals shall be made by Buyer in its
sole discretion, an amount up to $1,500,000.
 
(c) Adjustments to Earnout. The calculation of the Earnout Consideration will be
subject to the following adjustments :
 
(i) exclusion of any additional depreciation, amortization or other expense
resulting from the write-up of any asset and any amortization of goodwill or
other intangibles relating to the transactions contemplated by this Agreement,
including for any federal or state income tax purposes;
 
(ii) exclusion of all transaction costs of Buyer with respect to or arising out
of consummation of the transaction contemplated by this Agreement (including,
without limitation, all costs and expenses of arbitrators, accountants, the
Paying Agent, legal counsel and financial advisors of Buyer);
 
(iii) exclusion of all losses in respect of which any Buyer Indemnitee has been
actually paid pursuant to a claim for indemnification against the Equity Holders
pursuant to Section 8.1;
 
(iv) exclusion of charges against earnings or resulting from significant changes
in accounting principles that are not required by GAAP; and
 
(v) exclusion of any retention bonuses or other incentive arrangements, in each
case, implemented by Buyer at or after the Effective Time.
 
(d) Earnout Protection Provisions.  During the Earnout Period unless otherwise
approved in writing by Equity Holders’ Representative, Buyer agrees to:
 
(i) use reasonable commercial efforts to cause the Surviving Corporation to
operate consistent with past practices, provided such practices are reasonable
and customary in the Surviving Corporation’s industry, and in accordance with
the operating budget(s) prepared by the Surviving Corporation and approved in
writing by Buyer (the “Earnout Budget”);
 
(ii) leave with the Surviving Corporation at least an amount of working capital
necessary operate in the ordinary course and in accordance with the Earnout
Budget;
 
(iii) provide such marketing, research and other information resources,
personnel and facilities as the Surviving Corporation may reasonably request to
support the Surviving Corporation’s budgeted growth, so long as such requests
are consistent with the Earnout Budget;
 
(iv) use commercially reasonable efforts to cause the Surviving Corporation to
preserve its relationships with respect to customers, suppliers, contractors,
employees and others having business dealings with the Surviving Corporation;
 
 
 
7

 
(v) not increase the level of the Surviving Corporation’s general and
administrative expenses due to any “home office” or other similar corporate
overhead charge imposed by Buyer (in excess of similar expenses previously paid
or incurred by the Surviving Corporation);
 
(vi) use reasonable commercial efforts to maintain the Surviving Corporation as
a separate entity and not combine, consolidate or merge it, or liquidate it, or,
except in the ordinary course of business, sell or otherwise dispose of its
assets; and
 
(vii) maintain a system for tracking the Net Revenues, Gross Profits and EBIT
for purposes of the calculation of the Earnout Consideration.  
 
(e) Disputes and Payments.
 
(i) No later than sixty (60) days after the end of the Earnout Period, Buyer
shall deliver to the Equity Holders’ Representative a statement setting forth
Buyer’s good faith calculation of the Net Revenues, Gross Profits, EBIT and the
proposed Earnout Consideration (the “Proposed Earnout Statement”);
 
(ii) After receipt of the Proposed Earnout Statement, the Equity Holders’
Representative may request, and Buyer will provide to the Equity Holders’
Representative and its accountants and other representatives, upon reasonable
notice, reasonable access during normal business hours to, or copies of, as the
Equity Holders’ Representative or such accountants and other representatives
shall reasonably request, the information (including the books and records of
the Surviving Company), data, and work papers used in connection with the
calculation of Net Revenues, Gross Profits, EBIT and the Earnout Consideration
and the preparation of the Proposed Earnout Statement, and will make its and the
Surviving Corporation’s personnel and accountants reasonably available to the
Equity Holders’ Representative and its accountants and other representatives to
discuss any such information, data, or work papers.
 
(iii) The Equity Holders’ Representative shall have sixty (60) days from the
date that the Equity Holders’ Representative receives the Proposed Earnout
Statement (the “Earnout Dispute Period”) to notify Buyer, in writing, as to
whether the Equity Holders’ Representative (i) agrees with the Proposed Earnout
Statement or (ii) disagrees with such calculations, identifying with reasonable
detail the items with which the Equity Holders’ Representative disagrees (an
“Earnout Dispute Notice”).
 
(iv) If the Equity Holders’ Representative fails to deliver an Earnout Dispute
Notice to Buyer during the Earnout Dispute Period, the Proposed Earnout
Statement and the Earnout Consideration shall be deemed to be final and correct
and shall be binding upon each of the parties hereto.
 
(v) If the Equity Holders’ Representative delivers an Earnout Dispute Notice to
Buyer during the Earnout Dispute Period, Buyer and the Equity Holders’
Representative shall, for a period of twenty (20) days from the date the Earnout
Dispute Notice is delivered to Buyer (the “Earnout Resolution Period”), use
their respective good faith efforts to amicably resolve the items in
dispute.  Any items so resolved by them shall be deemed to be final and correct
as so resolved and shall be binding upon each of the parties hereto.
 
(vi) If Buyer and the Equity Holders’ Representative are unable to resolve all
of the items in dispute during the Earnout Resolution Period, then either the
Equity Holders’ Representative or Buyer may refer the items remaining in dispute
(the “Remaining Earnout Disputes”) to the Independent Accountants.  Such
referral shall be made in writing to the Independent Accountants, copies of
which shall concurrently be delivered to the non-referring party hereto.  The
referring party shall furnish the Independent Accountants, at the time of such
referral, with copies of the Proposed Earnout Statement and the Earnout Dispute
Notice.  The parties shall also furnish the Independent Accountants with such
other information and documents as the Independent Accountants may reasonably
request in order for them to resolve the Remaining Earnout Disputes.  The
parties hereto shall also, within ten (10) days of the date the Remaining
Earnout Disputes are referred to the Independent Accountants, provide the
Independent Accountants with a written notice (an “Earnout Position Statement”)
describing in reasonable detail their respective positions on the Remaining
Earnout Disputes (copies of which shall concurrently be delivered to the other
party hereto).  If any party fails to timely deliver its Earnout Position
Statement to the Independent Accountants, the Independent Accountants shall
resolve the Remaining Earnout Disputes solely upon the basis of the information
otherwise provided to them.  The Independent Accountants shall resolve all
Remaining Earnout Disputes in a written determination to be delivered to each of
the parties hereto within thirty (30) days after such matter is referred to
them.  The decision of the Independent Accountants as to the Remaining Earnout
Disputes shall be final and binding upon the parties hereto (except to correct
manifest clerical or mathematical errors) and shall not be subject to judicial
review.  The fees and disbursements of the Independent Accountants shall be
apportioned between Buyer and the Equity Holders based on the total dollar value
of disputed exceptions resolved in favor of each such party, with each such
party bearing such percentage of the fees and disbursements of the Independent
Accountants as the aggregate disputed exceptions resolved against that party
bears to the total dollar value of all disputed exceptions considered by the
Independent Accountants.
 
 
 
8

 
(vii) Within three (3) Business Days following the date on which the Earnout
Consideration is finally determined pursuant to this Agreement (whether through
failure of the Equity Holders’ Representative to timely deliver an Earnout
Dispute Notice, agreement of the parties, or final determination of any
Remaining Earnout Disputes by the Independent Accountants), Buyer shall pay, or
cause to be paid, to the Equity Holders the Earnout Consideration in proportion
to each such Equity Holder’s Percentage Ownership.
 
2.10 Dissenting Shares.  Notwithstanding Section 2.2, any shares of Company
Stock outstanding immediately prior to the Effective Time and held by a
Shareholder immediately prior to the Effective Time who has not voted in favor
of adoption of this Agreement or consented thereto in writing and who has
demanded appraisal for such shares in accordance with Arizona Law and who has
not failed to perfect, withdrawn or otherwise lost the right to appraisal under
Arizona Law (collectively, the “Dissenting Shares”) shall not be converted into
a right to receive the Merger Consideration.  If, after the Effective Time, any
holder of Dissenting Shares fails to perfect, withdraws or loses the right to
appraisal, such shares shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration.  The Company
shall give Buyer prompt notice of any demands received by the Company prior to
the Closing Date for appraisal of shares of Company Stock, and Buyer shall have
the right to participate in all negotiations and proceedings with respect to
such demands.  Except with the prior written consent of Buyer, the Company shall
not make any payment with respect to, or offer to settle or settle, any such
demands.  Notwithstanding the foregoing, Dissenting Share Payments paid or
incurred prior to the Closing Date are referred to herein as “Pre-Closing
Dissenting Share Payments” and shall be deducted from the Merger
Consideration.  Dissenting Share Payments paid or incurred after the Closing
Date are referred to herein as “Post-Closing Dissenting Share Payments” which
Buyer shall be entitled to recover under the terms of Article 8.
 
ARTICLE 3
 
 
 
REPRESENTATIONS AND WARRANTIES
 
3.1 Representations and Warranties of the Company.  The Company hereby
represents and warrants to Buyer that, subject to Section 11.19, except as set
forth in the Company Disclosure Schedule:
 
(a) Organization, Existence and Good Standing.  The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Arizona.  The Company is duly qualified as a foreign corporation, and
is in good standing, under the laws of all jurisdictions where the nature of its
business or the nature or location of its assets requires such qualification and
where the failure to so qualify would, individually or in the aggregate, have a
Material Adverse Effect.
 
(b) Consents.  No notice to, or consent, authorization, order or approval of, or
filing or registration with, any Governmental Authority or other Person
(including any approvals of the U.S. Government, including, without limitation,
the Department of Defense, the Air Force and the National Aeronautics and Space
Administration, or any other agencies, departments or instrumentalities thereof)
is required by the Company in connection with the consummation by the Company of
the transactions contemplated by this Agreement or any other document,
certificate or instrument to be executed by the Company pursuant to or in
connection with this Agreement (collectively, the “Company Documents”).
 
(c) Power and Authority.  The Company has all necessary power and authority to
carry on its business as such business is now being conducted.
 
(d) Authorization.
 
(i) The execution, delivery and performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated have been duly
authorized by all necessary corporate action on the part of the Company.  This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except to the extent that enforcement may
be affected by Laws relating to bankruptcy, reorganization, insolvency and
creditors’ rights and by the availability of injunctive relief, specific
performance and other equitable remedies.  Each Company Document to be executed
by the Company, when executed and delivered by the Company, will constitute the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that enforcement may
be affected by Laws relating to bankruptcy, reorganization, insolvency and
creditors’ rights and by the availability of injunctive relief, specific
performance and other equitable remedies.
 
 
 
9

 
(ii) At a meeting duly called and held, or by unanimous written consent, the
Company’s Board of Directors has unanimously (A) determined that the Merger is
fair to and in the best interests of the shareholders of the Company,
(B) approved and adopted this Agreement and the transactions contemplated
hereby, and (C) resolved to recommend approval and adoption of this Agreement by
the shareholders of the Company.
 
(iii) The affirmative vote of the holders of a majority of the outstanding
shares of Company Stock or the unanimous written consent of all of the
outstanding shares of Company Stock is the only vote or written consent of the
holders of any of the Company’s capital stock necessary in connection with the
adoption of this Agreement and the consummation of the Merger (the “Shareholder
Approval”).
 
(iv) The Written Consents delivered concurrently with the execution of this
Agreement constitute the valid and effective approval and adoption of this
Agreement and the other transactions contemplated hereby by the Major
Shareholders.  The Written Consents are and will be as of the Closing in full
force and effect.
 
(e) Conflicts Under Organizational Documents or Laws.  Neither the execution and
delivery of this Agreement, the Company Documents, nor the consummation of the
transactions contemplated hereby or thereby, will conflict with or result in a
breach of (i) any of the terms, conditions or provisions of the articles of
incorporation and bylaws of the Company or any resolution adopted by the
Company’s Board of Directors or any committee thereof, or (ii) any applicable
statute, law (statutory, common or otherwise), ordinance, rule, regulation,
mandate, order, writ, injunction, judgment, decree, ruling, charge, or other
requirement of, or any agreement with, any Governmental Authority (each, a
“Law”).
 
(f) Conflicts Under Contracts.  Neither the Company nor any of its Subsidiaries
is party to, or bound by, any unexpired, undischarged or unsatisfied contract
under the terms of which either the execution and delivery of this Agreement or
the Company Documents, or the consummation by the Company of the transactions
contemplated hereby or thereby, will, with or without notice or lapse of time or
both, be a breach, default or an event of acceleration, or cause any other
change of any right or obligation or the loss of any benefit to which the
Company or any of its Subsidiaries is entitled under any provision of any
agreement or other instrument binding upon the Company or any of its
Subsidiaries or any license, franchise, permit, certificate, approval or other
similar authorization affecting, or relating in any way to, the assets or
business of the Company or any of its Subsidiaries, will require any consent
thereunder, will be grounds for termination, modification or cancellation
thereof, or will result in the creation or imposition of any Lien on any asset
of the Company or any of its Subsidiaries.
 
(g) Equity Interests.  The Company does not hold or beneficially own and has
never held or beneficially owned any direct or indirect equity interest (whether
it be common or preferred stock or any comparable ownership interest in any
Person that is not a corporation), or any subscriptions, options, warrants,
rights, calls, convertible securities or other agreements or commitments for any
such equity interest, in any Person.
 
(h) Organizational Documents.  True and complete copies of the articles of
incorporation and bylaws of the Company, in each case, as amended and currently
in full force and effect, all material stock records, and the corporate minute
books of the Company have been made available to Buyer prior to the date
hereof.  The Company is not in violation of any of the provisions of its
articles of incorporation or bylaws.  The minutes of the Company made available
to counsel for Buyer contain complete and accurate records of all actions taken,
and summaries of all meetings held, by the shareholders of the Company, the
board of directors of the Company (and any committees thereof) since January 1,
2002 until the date hereof.
 
(i) Capitalization.
 
(i) The authorized capital stock of the Company consists of (a) 10,000,000
shares of Class A Common Stock, (b) 2,000,000 shares of Class B Common Stock,
non-voting, and (c) 1,000,000 shares of Preferred Voting Stock.  As of the date
hereof, there are issued and outstanding 3,786,250 shares of Class A Common
Stock, no shares of Class B Common Stock, and no shares of Company preferred
stock.  Section 3.1(i)(i) of the Company Disclosure Schedule sets forth each
holder of shares of Company Stock as of the date hereof, and the number of
shares of each class of Company Stock held thereby.  All of the issued and
outstanding shares of Company Stock have been validly issued, are fully paid and
nonassessable.
 
10

(ii) The Company has reserved 2,000,000 shares of Class B Common Stock
and 2,000,000 shares of Class A Common Stock for issuance to employees,
directors and consultants pursuant to the Company’s stock option plans, of which
163,750 shares of Class A Common Stock and 0 shares of Class B Common Stock are
outstanding pursuant to option exercises through the date hereof, 1,409,249
shares of Class A Common Stock and 901,225 shares of Class B Common Stock shares
are subject to outstanding unexercised options as of the date hereof and 427,001
shares of Class A Common Stock and 1,098,775 shares of Class B Common Stock
remain available for future grant as of the date hereof.  Section 3.1(i)(ii) of
the Company Disclosure Schedule sets forth, as of the date hereof, the holders
of all of the outstanding Stock Options and the number of Stock Options held by
each such holder, the vesting schedule for each such Stock Option, whether such
Stock Option is an “incentive stock option,” within the meaning of Section 422
of the Code, or a nonqualified stock option and the exercise price for each such
Stock Option.  All Stock Options may, by their terms, be treated in accordance
with Article 2.
 
(iii) Section 3.1(i)(ii) of the Company Disclosure Schedule sets forth, the
Percentage Ownership of each Equity Holder.
 
(iv) Except as set forth in this Section 3.1(i) and Section 3.1(i) of the
Company Disclosure Schedule, there are no other shares of capital stock or other
securities of the Company authorized or outstanding, and there are no
outstanding subscriptions, options, warrants, rights (including preemptive
rights), calls, convertible securities, restricted shares, restricted share
units, stock appreciation rights, performance shares, contingent value rights,
“phantom” stock or similar securities or rights that are derivative of or
provide economic benefits based, directly or indirectly, on the value or price
of, any capital stock or other voting securities or ownership interests in the
Company or other agreements or commitments of any character, relating to the
issued or unissued capital stock or other securities of the Company obligating
the Company to issue any securities of any kind.  There are no outstanding
obligations of the Company to repurchase, redeem or otherwise acquire any shares
of capital stock or other securities of the Company.  There are no voting
trusts, proxies or other similar agreements or understandings with respect to
the voting of any shares of capital stock or other securities of the
Company.  There are no declared or accrued unpaid dividends with respect to any
shares of capital stock or other securities of the Company.
 
(j) Financial Statements.  Section 3.1(j) of the Company Disclosure Schedule
contains true and complete copies of the Financial Statements.  The Financial
Statements present fairly in conformity with GAAP applied on a consistent basis
(except that the Financial Statements do not include footnotes), the financial
position of the Company as of the dates thereof and the consolidated results of
operations and cash flows of the Company for the periods covered thereby.  The
Company maintains accurate books and records reflecting its assets and
liabilities in all material respects and maintains proper and adequate internal
accounting controls which provide reasonable assurance that (i) transactions are
executed with management’s authorization and (ii) transactions are recorded as
necessary to permit preparation of the financial statements of the Company
(including the Financial Statements) in conformity with GAAP.
 
(k) Title to Assets.  The Company has good title to, or in the case of leased
assets, a valid leasehold interest in, its assets, free and clear of any Liens,
except for Permitted Liens.  The foregoing shall not apply to Intellectual
Property (which is dealt with exclusively in Section 3.1(x)) or Leased Real
Estate (which is dealt with exclusively in Section 3.1(w)).
 
(l) Taxes.
 
(i) Each of the Company and its Subsidiaries has timely filed all Returns
required to be filed on or before the date hereof, and has timely paid, withheld
and remitted all Taxes shown thereon as owing.  As of the time of filing, the
Returns were true and complete.  No extension of time within which to file any
Return has been requested by the Company or any of its Subsidiaries or granted.
 
(ii) With respect to all amounts in respect of Taxes imposed upon the Company or
any of its Subsidiaries or for which the Company or any of its Subsidiaries is
liable to any Taxing Authority for all taxable periods or portions of periods
ending on or before the Closing Date, all applicable Tax laws have been complied
with and all amounts required to be paid by the Company or any of its
Subsidiaries to any such Taxing Authority have been timely paid, withheld and
remitted.
 
11

(iii) No issues have been raised and no claim, audit, action, suit, proceeding
or investigation is currently pending or Threatened by any Taxing Authority in
connection with any Tax or Tax Asset.  All deficiencies asserted or assessments
made as a result of any examinations of Returns previously filed by the Company
or any of its Subsidiaries have been paid, or are reflected as a liability in
the Financial Statements, or are being contested and an adequate reserve
therefor has been established and reflected as a liability in the Financial
Statements.  The charges, accruals and reserves for Taxes with respect to the
Company or any of its Subsidiaries reflected on the books of the Company
(excluding any provision for deferred income taxes reflecting either differences
between the treatment of items for accounting and income tax purposes or
carryforwards) are adequate to cover Tax liabilities accruing through the end of
the last period for which the Company ordinarily records items on its
books.  Since the end of the last period for which the Company ordinarily
records items on its books, neither the Company nor any of its Subsidiaries has
engaged in any transaction, or taken any other action, other than in the
ordinary course of business.  All information set forth in the Financial
Statements (including the notes thereto) relating to Tax matters is true and
complete.  No adjustment that would increase the Tax liability, or reduce any
Tax Asset, of the Company or any of its Subsidiaries has been made, proposed or
threatened by a Taxing Authority during any audit of a Pre-Closing Tax Period
which could reasonably be expected to be made, proposed or threatened in an
audit of any subsequent Pre-Closing Tax Period or Post-Closing Tax
Period.  There are no requests for rulings or determinations in respect of any
Tax or Tax Asset pending between the Company or any of its Subsidiaries and any
Taxing Authority.
 
(iv) Neither the Company nor any of its Subsidiaries has waived any statute of
limitations in respect of Returns or agreed to any extension of time with
respect to Tax assessment or deficiency and neither the Company nor any of its
Subsidiaries is delinquent in the payment of any Tax.  All Returns filed with
respect to Tax years of the Company or any of its Subsidiaries through the Tax
year ended December 31, 2003 (in respect of federal corporate income tax) and
the Tax year ended December 31, 2002 (in respect of Arizona corporate income
tax) have been examined and closed or are Returns with respect to which the
applicable period for assessment under applicable law, after giving effect to
extensions or waivers, has expired.  No adjustment that would increase the Tax
liability, or reduce any Tax Asset, of the Company or any of its Subsidiaries
has been made, proposed or threatened by a Taxing Authority during any audit of
a Pre-Closing Tax Period which could reasonably be expected to be made, proposed
or threatened in an audit of any subsequent Pre-Closing Tax Period or
Post-Closing Tax Period.  During the two-year period ending on the date hereof,
none of the Company, nor any Affiliate of the Company has made or changed any
tax election, changed any annual tax accounting period, or adopted or changed
any method of tax accounting (to the extent that any such action may materially
affect the Company or any of its Subsidiaries), nor has it, to the extent it may
affect or relate to the Company or any of its Subsidiaries, filed any amended
Return, entered into any closing agreement, settled any Tax claim or assessment,
or surrendered any right to claim a Tax refund, offset or other reduction in Tax
liability.
 
(v) None of the Returns have been audited and no Returns currently are the
subject of audit.  The Company has delivered to Buyer correct and complete
copies of all federal Income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by Company or any of its Subsidiaries
since January 1, 2005.
 
(vi) Neither the Company nor any of its Subsidiaries is party to or bound by any
tax indemnity, tax sharing or tax allocation agreement that would provide for
the allocation, apportionment, sharing or assignment of any Tax liability or
benefit, or the transfer or assignment of income, revenues, receipts, or gains
for the purpose of determining any person’s Tax liability.  Neither the Company
nor any of its Subsidiaries has been a member of an affiliated, consolidated,
combined or unitary group.  Neither the Company nor any of its Subsidiaries has
entered into any agreement or arrangement with any Taxing Authority with regard
to the Tax liability of the Company or any of its Subsidiaries affecting any Tax
period for which the applicable statute of limitations, after giving effect to
extensions or waivers, has not expired.
 
(vii) No jurisdiction where the Company or any of its Subsidiaries does not
currently file Returns has asserted that the Company or any of its Subsidiaries
is or may be liable for Tax in such jurisdiction.
 
 
 
12

 
(viii) Neither the Company nor any of its Subsidiaries is a party to any
understanding or arrangement described in Section 6662(d)(2)(C)(ii) of the Code,
or in a “reportable transaction” within the meaning of Treasury Regulations
Section 1.6011-4.  During the two-year period ending on the date hereof, neither
the Company nor any of its Subsidiaries was a distributing corporation or a
controlled corporation in a transaction intended to be governed by Section 355
of the Code.  Neither the Company nor any of its Subsidiaries has participated
in or cooperated with an international boycott within the meaning of Section 999
of the Code and has not been requested to do so in connection with any
transaction or proposed transaction.
 
(ix) Neither the Company nor any of its Subsidiaries will be required to include
any adjustment in taxable income for any Post Closing Tax Period under Section
481(c) of the Code (or any similar provision of the Tax laws of any
jurisdiction) as a result of a change in method of accounting for a Pre Closing
Tax Period.  No Tax Asset of the Company or any of its Subsidiaries is currently
subject to a limitation under Section 382 or Section 383 of the Code.  Neither
the Company nor any of its Subsidiaries will be required to include for a
Post-Closing Tax Period taxable income attributable to income economically
realized in a Pre-Closing Tax Period, including any income that would be
includible in a Post-Closing Tax Period as a result of the installment method or
the look-back method (as defined in Section 460(b) of the Code).
 
(x) Neither the Company nor any of its Subsidiaries owns an interest in real
property in any jurisdiction in which a Tax is imposed, or the value of the
interest is reassessed, on the transfer of an interest in real property and
which treats the transfer of an interest in an entity that owns an interest in
real property as a transfer of the interest in real property.
 
(xi) Except as set forth on Section 3.1(l)(xi) of the Company Disclosure
Schedule, no election has been made under Treasury Regulations Section
301.7701-3 or any similar provision of Tax law to treat the Company or any
Affiliate of the Company as an association, corporation or partnership.  The
Company is not disregarded as an entity for Tax purposes.
 
(xii) Notwithstanding anything in this Agreement to the contrary, the Company
makes no representation or warranty hereunder with respect to any deferred Tax
Asset.
 
(m) Conduct of Business.  Since the Financial Statements Date, the business of
the Company and any of its Subsidiaries has been conducted in the ordinary
course consistent with past practices and, except as set forth in Section 3.1(m)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has:
 
(i) created, incurred, assumed or suffered to exist any indebtedness for
borrowed money or guarantees thereof, other than trade payables incurred in the
ordinary course of business;
 
(ii) incurred any capital expenditures or any obligations or liabilities in
respect thereof, except for those contemplated by the capital expenditure budget
for the Company that is attached to Section 3.1(m)(ii) of the Disclosure
Schedule (the “Capex Budget”) including those purchased in advance of when they
were budgeted to be purchased;
 
(iii) created or incurred any Lien on any material asset;
 
(iv) sold, leased or transferred any of its property, except (1) for sales of
its inventory and transfers of cash in payment of the Company’s liabilities, all
in the usual and ordinary course of business, and (2) as otherwise permitted by
this Agreement;
 
(v) waived any material right other than in the ordinary course of business;
 
(vi) made any loan, advance or capital contributions to or investment in any
Person, except for reasonable advances to employees and consultants for travel
and business expenses in the ordinary course of business consistent with past
practices;
 
(vii) paid or delayed payment of accounts payable, or collected or delayed
collection of accounts receivable, in each case other than in the ordinary
course of business consistent with past practices;
 
(viii) changed any method of accounting or accounting principles or practice,
except for any such change required by reason of a concurrent change in GAAP;
 
(ix) made any material change in pricing set or charged to its customers or in
pricing set or charged by its vendors;
 
 
 
13

 
(x) (A) granted or increased any severance or termination pay to (or amendment
to any existing arrangement with) any current or former director, officer,
employee or independent contractor of the Company or any of its Subsidiaries,
(B) increased any benefits payable under any existing severance or termination
pay policies or employment agreements, (C) entered into any employment, deferred
compensation, severance, retention, change in control, tax gross-up, special
bonus, stay bonus or other similar agreement or arrangement (or amendment of any
such existing agreement) with any current or former director, officer, employee
or independent contractor of the Company or any of its Subsidiaries, (D)
established, adopted or amended (except as required by Applicable Law) any
collective bargaining, bonus, profit-sharing, thrift, pension, retirement,
deferred compensation, compensation, stock option, restricted stock or other
benefit plan or arrangement covering any current or former director, officer,
employee or independent contractor of the Company or any of its Subsidiaries,
(E) increased any compensation, bonus or other benefits payable to any current
or former director, officer, employee or independent contractor of the Company
or any of its Subsidiaries, (F) granted any stock option, restricted stock or
any other stock-based award to any current or former director, officer, employee
or independent contractor of the Company or any of its Subsidiaries, (G)
accelerated and/or cashed out any outstanding Stock Option, or (H) engaged in
hiring or termination practices that are not in the ordinary course of business
consistent with past practices;
 
(xi) settled, or offered or proposed to settle, any material litigation,
investigation, arbitration, proceeding or other claim involving or against the
Company or any of its Subsidiaries;
 
(xii) entered into any transaction or made any commitment with any Affiliate of
the Company, other than the payment of employee compensation or expense
reimbursements in the ordinary course of business consistent with past
practices;
 
(xiii) entered into any agreement to do any of the things described in the
preceding clauses (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement); or
 
(xiv) otherwise suffered any Material Adverse Effect.
 
(n) No Undisclosed Material Liabilities.  There are no liabilities or
obligations of the Company or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances that could
reasonably be expected to result in such a liability or obligation, other than
(i) liabilities or obligations disclosed and provided for in the Balance Sheet,
(ii) liabilities or obligations incurred in the ordinary course of business
consistent with past practices since the Financial Statements Date that,
individually or in the aggregate, are not material to the Company or any of its
Subsidiaries, and (iii) liabilities directly incurred under the terms of this
Agreement.
 
(o) Contracts.  Section 3.1(o) of the Company Disclosure Schedule contains a
list of the following material undischarged, unexpired or unsatisfied written
agreements to which the Company or any of its Subsidiaries is a party:
 
(i) agreements for the employment of any employee;
 
(ii) consulting agreements providing for annual cash compensation thereunder in
excess of $25,000;
 
(iii) collective bargaining agreements;
 
(iv) leases or subleases, whether as lessee or sublessee, lessor or sublessor,
of personal property, where the lease or sublease provides for an annual rent in
excess of $25,000 which cannot be cancelled by the Company without payment or
penalty upon notice of sixty (60) days or less;
 
(v) agreements for the purchase or license of materials, supplies, goods,
services, equipment or other tangible or intangible assets expressly providing
for (or which would reasonably be expected to result in) either annual payments
by the Company or any of its Subsidiaries of $25,000 or more or aggregate
payments by the Company or any of its Subsidiaries of $50,000 or more;
 
(vi) sales, rental, distribution or other similar agreements providing for the
sale, rental or distribution by the Company or any of its Subsidiaries of
materials, supplies, goods, services, equipment or other tangible or intangible
assets expressly providing for (or which would reasonably be expected to result
in) either annual payments to the Company or any of its Subsidiaries of $25,000
or more or aggregate payments to the Company or any of its Subsidiaries of
$50,000 or more;
 
 
 
14

 
(vii) agreements restricting in any manner the right of the Company or any of
its Subsidiaries to compete with any other Person or in any line of business or
in any area, restricting the Company’s right to sell to or purchase from any
other Person, or restricting the right of any other Person to compete with the
Company or any of its Subsidiaries;
 
(viii) agreements containing a “most favored nation” or similar provision or
providing for minimum purchase or sale obligations;
 
(ix) agreements between the Company or any of its Subsidiaries and any of its
Affiliates;
 
(x) agreements of alliance, agency, representation, distribution, marketing or
franchise which cannot be cancelled by the Company without payment or penalty
upon notice of sixty (60) days or less;
 
(xi) loan or credit agreements, pledge agreements, promissory notes, security
agreements, mortgages, debentures, indentures, letters of credit and guaranties;
 
(xii) surety or indemnification agreements;
 
(xiii) consulting, services, development or collaboration agreements or other
agreements for development of products, technologies and/or services for the
Company or any of its Subsidiaries;
 
(xiv) partnership agreements and joint venture agreements;
 
(xv) agreements, contracts or commitments relating to the acquisition or
disposition of any business (whether by merger, sale of stock, sale of assets or
otherwise);
 
(xvi) agreements relating to indebtedness for borrowed money or the deferred
purchase price of property (in either case, whether incurred, assumed,
guaranteed or secured by any asset);
 
(xvii) agreements (including any prime contract, subcontract, teaming agreement
or arrangement, joint venture, basic ordering agreement, letter contract,
purchase order, delivery order, change order or other arrangement of any kind in
writing) (A) between the Company or any of its Subsidiaries and (x)any
Governmental Authority (acting on its own behalf or on behalf of another country
or international organization), (y) any prime contractor to any Governmental
Authority or (z) any subcontractor with respect to any contract described in
clauses (x) or (y) above, (B) financed by any Governmental Authority, or
(C) subject to the rules and regulations of any Governmental Authority
concerning procurement;
 
(xviii) agreements or plans, including, without limitation, any stock option
plan, stock appreciation rights plan or stock purchase plan, Company securities
or debt instruments, or any undertaking, promise or other obligation, written or
oral, of the Company to issue any securities, the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
 
(xix) any shareholders agreement or similar agreement with or among any
shareholders of the Company, including any agreement that provides for
preemptive rights or imposes any limitation or restriction on Company Stock,
including any restriction on the right of a shareholder to vote, sell or
otherwise dispose of such Company Stock; and
 
(xx) any other agreements that provide for the receipt or expenditure of more
than $50,000 on an annual basis, except agreements for the purchase or sale of
goods or rendering of services in the ordinary course of business and leases or
subleases of real property (which are dealt with exclusively in Section 3.1(w)).
 
Each of the agreements, contracts, plans, leases, arrangements or commitments
disclosed in Section 3.1(o) of the Disclosure Schedule, or required to be
disclosed pursuant to this Section 3.1(o) or which would have been required to
be so disclosed had it been in existence as of the date of this Agreement (each,
a “Contract”) is a valid and binding agreement of the Company, is in full force
and effect and is enforceable against the Company and, to the Knowledge of the
Company, the other parties thereto, except as enforceability may be affected by
Laws relating to bankruptcy, reorganization, insolvency and creditors’ rights
and by the availability of injunctive relief, specific performance and other
equitable remedies.  With respect to each Contract, there exists no (x) default
or event of default by the Company or any of its Subsidiaries or, to the
Knowledge of the Company, any other party thereto, or (y) event, occurrence or
condition that, with the giving of notice or the lapse of time, would give rise
to a default or event of default by the Company or any of its Subsidiaries or,
to the Knowledge of the Company, and other party thereto.  No Person is
renegotiating, or has a right (absent any default or breach of a Contract)
pursuant to the terms of any Contract to renegotiate, any material amount paid
or payable to the Company or any of its Subsidiaries under any Contract or any
other material term or provision of any Contract.  Neither the Company n or any
of its Subsidiaries has received any written or verbal indication of an
intention to terminate any Contract by any of the parties thereto.  True and
complete copies of each such Contract has been available to Buyer prior to the
date hereof.
 
15

(p) Permits.  The Company possesses all material Permits (other than
Environmental Permits) that are required in order for the Company or any of its
Subsidiaries to conduct its business as presently conducted.  All such Permits
are in full force and effect, the Company is in compliance with and no condition
exists that with notice or lapse of time or both would constitute a default
under, all such Permits, and none of such Permits will be terminated or impaired
or become terminable, in whole or in part, as a result of the transactions
contemplated hereby.
 
(q) Employee Benefit Plans.
 
(i) Section 3.1(q)(i) of the Disclosure Schedule contains a correct and complete
list identifying each Benefit Plan which is sponsored, maintained, administered,
contributed to by the Company or any Affiliate thereof and covers any current of
former employee, director or independent contractor of the Company or any of its
Subsidiaries or with respect to which the Company or any of its Subsidiaries has
any liability.  Copies of each Benefit Plan and any amendments thereto have been
made available to Buyer prior to the date hereof, and copies of, to the extent
applicable, any related trust or funding agreements or insurance policies,
amendments thereto, prospectuses or summary plan descriptions relating thereto
and the most recent annual report (Form 5500 including, if applicable, Schedule
B thereto) and tax return (Form 990) prepared in connection therewith have been
made available to Buyer prior to the date hereof.
 
(ii) Neither the Company nor any of its Affiliates nor any predecessor thereof
does now, or did prior to the date hereof, sponsor, maintain or contribute to
any plan subject to Title IV of ERISA.
 
(iii) Neither the Company nor any of its Affiliates contributes to any
multiemployer plans within the meaning of Section 4001(a)(3) of ERISA.
 
(iv) No transaction prohibited by Section 406 of ERISA or Section 4975 of the
Code has occurred with respect to any employee benefit plan or arrangement which
is covered by Title I of ERISA, which transaction has or will cause the Company
or any of its Subsidiaries to incur any material liability under ERISA, the Code
or otherwise, excluding transactions effected pursuant to and in compliance with
a statutory or administrative exemption.
 
(v) No events have occurred with respect to any Benefit Plan that could result
in payment or assessment of any material excise Taxes.
 
(vi) Each Benefit Plan that is intended to be qualified under Section 401(a) of
the Code either has received a favorable determination letter from the IRS or is
entitled to rely on a favorable opinion letter issued to the prototype sponsor
by the IRS and has been so qualified during the period since its adoption, and
no event has occurred since the date of such determination that would materially
adversely affect such qualification.  Each trust created under any such Benefit
Plan is exempt from tax under Section 501(a) of the Code and has been so exempt
since its creation.  Copies of the most recent determination letter of the
Internal Revenue Service relating to each such Benefit Plan have been made
available to Buyer.  Each Benefit Plan has been maintained in material
compliance with its terms and with the requirements prescribed by all applicable
law, including ERISA and the Code, and there is no action, suit, investigation,
audit or proceeding pending against or involving or, to the Knowledge of the
Company, threatened against or involving, any Benefit Plan before any court or
arbitrator or any state, federal or local governmental body, agency or official
other than routine claims for benefits.
 
(vii) Neither the Company nor any of its Subsidiaries has any current or
projected liability in respect of post-employment or post-retirement health or
medical or life insurance benefits for retired, former or current officers or
employees of the Company or any of its Subsidiaries, except as required to avoid
excise tax under Section 4980B of the Code.
 
(viii) All contributions and payments accrued under each Benefit Plan,
determined in accordance with prior funding and accrual practices, as adjusted
to include proportional accruals for the period ending as of the date hereof,
have been discharged and paid on or prior to the date hereof except to the
extent reflected as a liability on the Balance Sheet.
 
(ix) No Benefit Plan exists that, as a result of the transactions contemplated
by this Agreement (whether alone or in connection with other events), could
result in the payment to any current or former employee, director or independent
contractor of the Company or any of its Subsidiaries of any money or other
property or could result in the acceleration or provision of any other rights or
benefits to any current or former employee, director or independent contractor
of the Company or any of its Subsidiaries.
 
(x) No payment, right or benefit as a result of the transactions contemplated by
this Agreement (whether alone or in connection with other events) would
constitute a “parachute payment” within the meaning of Section 280G of the Code.
 
 
 
16

 
(xi) Each Benefit Plan which is a nonqualified deferred compensation plan,
within the meaning of Section 409A of the Code, maintained by the Company on or
after January 1, 2005, has been operated in good faith compliance with the
requirements of Section 409A of the Code (or an available exemption
therefrom).  Since January 1, 2005, no stock options have been granted by the
Company or any of its Subsidiaries with an exercise price of less than the fair
market value of the underlying stock as of the date such option was granted.
 
(r) Employees.  Section 3.1(r) of the Disclosure Schedule sets forth a true and
complete list of all employees of the Company or any of its Subsidiaries (the
“Employees”) together with their respective positions, locations, annual
salaries, bonuses and other compensation information.  To the Company’s
Knowledge, none of the Employees has indicated that he or she intends to resign
or retire as a result of or in connection with the transactions contemplated by
this Agreement.  No Employee is represented by any union, works council or other
labor organization or is covered under any union, collective bargaining or
similar labor agreement.  There are no labor negotiations in process with any
labor union relating to the Employees and, to the Knowledge of the Company,
there are no efforts in process by any labor union to organize any of the
Employees.  There is currently no labor strike, slowdown or stoppage relating to
any of the Employees pending or, to the Knowledge of the Company.  There is no
unfair labor practice complaint pending or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries before the National
Labor Relations Board or similar, non-U.S., state or local body.  Each of the
Company and any of its Subsidiaries has complied in all material respects with
all applicable Laws relating to labor and employment, including without
limitation those relating to wages, hours, collective bargaining, unemployment
compensation, worker’s compensation, equal employment opportunity, age and
disability discrimination, immigration control, employee classification,
information privacy and security, payment and withholding of taxes, and
continuation coverage with respect to group health plans.
 
(s) Litigation and Claims.  There is no litigation, claim, proceeding, suit or
investigation by or before any Governmental Authority or arbitrator pending or,
to the Knowledge of the Company, Threatened against the Company or any of its
Subsidiaries with respect to or affecting the operations, business, properties
or assets of the Company or any of its Subsidiaries, or directors, officers or
representatives (in their capacity as such) of the Company or any of its
Subsidiaries or with respect to the consummation of the transactions
contemplated hereby.
 
(t) Decrees, Orders or Awards.  Neither the Company nor any of its Subsidiaries
is a party to, or bound by, any decree, order, judgment or award of any
Governmental Authority with respect to or affecting the Company’s operations,
business, properties or assets.
 
(u) Compliance with Laws.  Except for Environmental Laws (which are exclusively
provided for in Section 3.1(u)), neither the Company nor any of its Subsidiaries
is in material violation of, or materially delinquent with respect to, and to
the Knowledge of the Company, is not under investigation with respect to and has
not been threatened to be charged with or given notice of any violation of, any
Law to which the Company or any of its Subsidiaries, or their respective
operations, business or assets are subject including 21 C.F.R. 820.
 
(v) Environmental Matters.
 
(i) Each of the Company and any of its Subsidiaries has been and is in
compliance with all applicable Environmental Laws and Environmental Permits.
 
(ii) Each of the Company and any of its Subsidiaries possesses all Environmental
Permits which are required for the operation of its business; such Environmental
Permits are valid and in full force and effect and will not be terminated or
impaired or become terminable, in whole or in part, as a result of the
transactions contemplated hereby.
 
(iii) No notice, notification, demand, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty has
been assessed and no investigation, action, claim, suit, proceeding or review is
pending, or to the Company’s Knowledge, threatened by any Governmental Authority
or other Person with respect to any matters relating to the Company or any of
its Subsidiaries and relating to or arising out of any Environmental Law or
Hazardous Substance.
 
(iv) There are no liabilities or obligations of or relating to the Company or
any of its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, arising under or relating to
any Environmental Law or Hazardous Substance, and there are no facts,
conditions, situations or set of circumstances which could reasonably be
expected to result in or be the basis for any such liability or obligation.
 
(v) No polychlorinated biphenyls, radioactive material, lead, asbestos or
asbestos containing material, incinerator, sump, surface impoundment, lagoon,
landfill, septic, wastewater treatment or other disposal system or underground
storage tank (active or inactive) is or has been present at, on or under any
property now or previously owned, leased or operated by the Company or any of
its Subsidiaries.
 
17

(vi) No Hazardous Substance has been Released at, on or under any property now
or previously owned, leased or operated by the Company or any of its
Subsidiaries.
 
 
(vii) No property now or previously owned, leased or operated by the Company or
any of its Subsidiaries or any property to which the Company or any of its
Subsidiaries has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substances is listed or, to the Company’s
Knowledge, proposed for listing, on the National Priorities List promulgated
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar federal,
state or foreign list of sites requiring investigation or clean up.
 
(viii) There has been no environmental investigation, study, audit, test, review
or other analysis conducted of which the Company has Knowledge in relation to
the current or prior business of the Company or any of its Subsidiaries or any
property or facility now or previously owned, leased or operated by the Company
or any of its Subsidiaries which has not been delivered to Buyer at least 10
days prior to the date hereof.
 
(ix) The consummation of the transactions contemplated in this Agreement shall
not trigger any requirement for any action, consent or approval, registration,
remedial action, or filing under any Environmental Law or Environmental Permit.
 
(x) For purposes of this Section, the terms “Company” and “Subsidiaries” shall
include any entity which is, in whole or in part, a predecessor of the Company
or any of its Subsidiaries.
 
(w) Leased Real Estate.
 
(i) Neither the Company nor any of its Subsidiaries owns any real property.
 
(ii) Section 3.1(w)(ii) of the Disclosure Schedule contains a list of all street
addresses of the Leased Real Estate, which list is true and complete in all
material respects.
 
(iii) All Leased Real Estate is leased to the Company pursuant to written
leases, complete copies of which have been previously delivered to Buyer, and
all of which are enforceable against the Company and, to the Knowledge of the
Company, the other parties thereto, except as enforceability may be affected by
Laws relating to bankruptcy, reorganization, insolvency and creditors’ rights
and by the availability of injunctive relief, specific performance and other
equitable remedies.  With respect to each such lease, there exists no (i)
default or event of default by the Company or any of its Subsidiaries or, to the
Knowledge of the Company, any other party thereto, or (ii) event, occurrence or
condition that, with the giving of notice or the lapse of time, would give rise
to a default or event of default by the Company or any of its Subsidiaries or,
to the Knowledge of the Company, and other party thereto.  The Disclosure
Schedule sets forth a description of any consent or approval required of any
counterparty under the terms of any such lease for the consummation of the
transactions contemplated by this Agreement.  To the Knowledge of the Company,
the Leased Real Estate is not subject to any leases, subleases or tenancies of
any kind, except for the Company’s leases.  The Leased Real Estate constitutes
all real property and improvements used in the conduct of its business.
 
(iv) There are no developments affecting any Leased Real Estate pending or, to
the Knowledge of the Company threatened, which might materially detract from the
value, materially interfere with any present or intended use of any such
property or assets.  Such real property, and its continued use, occupancy and
operation as currently used, occupied and operated, does not constitute a
nonconforming use under all applicable building, zoning, subdivision and other
land use and similar Law.  The plants, buildings, structures and equipment owned
by the Company or any of its Subsidiaries have no material defects, are in good
operating condition and repair and have been reasonably maintained consistent
with standards generally followed in the industry (giving due account to the age
and length of use of same, ordinary wear and tear excepted), are adequate and
suitable for their present and intended uses and, in the case of plants,
buildings and other structures (including the roofs thereof), are structurally
sound.  None of the structures on any such owned or leased real property
encroaches upon real property of another Person, and no structure of any other
Person substantially encroaches upon any of such owned or leased real property.
 
 
 
18

 
(x) Intellectual Property.
 
(i) For purposes of this Agreement, “Intellectual Property” means (A) patents
and all proprietary rights associated therewith, (B) trademarks, service marks,
trade names, trade dress, domain names, brand names, certification marks,
corporate names and other indications of origin, together with all goodwill
related to the foregoing, (C) copyrights and designs and all rights associated
therewith and the underlying works of authorship, (D) all inventions, processes,
formulae, methods, schematics, drawings, blue prints, technology, Software,
discoveries, ideas and improvements, (E) all registrations of any of the
foregoing and all applications therefor, where the same are registerable and (F)
know-how, trade secrets, other proprietary or confidential information and
materials, in whatever form or format; and “Company Intellectual Property” means
all Intellectual Property that is owned or exclusively licensed by the Company
or any of its Subsidiaries, and includes without limitation all of the Company
Registered Intellectual Property (as defined below).  The Company is the sole
and exclusive owner of the Company Intellectual Property, free and clear of any
Lien.
 
(ii) Section 3.1(x)(ii) of the Disclosure Schedule sets forth a list of all U.S.
and foreign copyright registrations, copyright applications, patents and patent
applications, trademark and service mark registrations, Internet domain name
registrations, trademark and service mark applications owned by or exclusively
licensed to the Company or any of its Subsidiaries (collectively, the “Company
Registered Intellectual Property”).  All applications for Company Registered
Intellectual Property have been properly made and filed, all registrations for
Company Registered Intellectual Property are properly registered, and all
annuity, maintenance, renewal and other fees relating to any Company Registered
Intellectual Property are current.  Effective written assignments constituting
an unbroken, complete chain-of-title from the original owner(s) to the Company
have been obtained with respect to all of the Company Registered Intellectual
Property and have been duly recorded with the appropriate governmental
authorities.  None of the Company Intellectual Property has been adjudged
invalid or unenforceable in whole or part, and, to the Knowledge of the Company,
all such Company Intellectual Property is valid and enforceable.
 
(iii) To the Knowledge of the Company, the Company owns, licenses, sublicenses
or otherwise possesses legally enforceable rights to use all Intellectual
Property necessary to conduct the business of the Company or any of its
Subsidiaries as currently conducted (the “Necessary Intellectual
Property”).  The execution and delivery of this Agreement by the Company and the
consummation of the transactions contemplated hereby herein will not alter,
encumber, impair or extinguish any Necessary Intellectual Property or any of the
rights of the Company or any of its Subsidiaries therein, other than with
respect to commercially available off-the-shelf software generally available on
non-discriminatory pricing terms.  There is no claim, action, suit,
investigation or proceeding, pending or, to the Knowledge of the Company,
Threatened by or before any Governmental Authority (i) challenging or seeking to
deny or restrict the rights of the Company in any Necessary Intellectual
Property, or (ii) alleging that any services provided, processes used or
products manufactured, used, imported, exported or sold by or for the Company or
any of its Subsidiaries infringes, violates, injures or otherwise
misappropriates any Intellectual Property right of any third party.  Neither the
Company nor any of its Subsidiaries has received from any third party an offer
to license any Intellectual Property rights of such third party.
 
(iv) Section 3.1(x)(iv) of the Disclosure Schedule sets forth, in all material
respects, a complete and accurate list of all Intellectual Property
Licenses.  All Intellectual Property Licenses are in full force and effect, and
the Company and any of its Subsidiaries has in all material respects performed
its obligations under each Intellectual Property License.
 
(v) To the Knowledge of the Company, no Person has infringed, injured,
misappropriated or otherwise violated any Company Intellectual Property.
 
(vi) The Company has taken reasonable steps in accordance with normal industry
practice to maintain the confidentiality of all Company Intellectual Property
that has a value to the Company or any of its Subsidiaries that is contingent
upon such Company Intellectual Property remaining confidential.
 
(vii) Section 3.1(x)(vii) of the Disclosure Schedule contains, to the Knowledge
of the Company, a complete and accurate list of all Open Source Software
included in any product sold, licensed, or otherwise transferred by or for the
Company or any of its Subsidiaries.  For purposes of this Agreement, “Open
Source Software” means any Software that requires, as a condition of
distribution of such Software or of any derivative thereof, that such Software
or derivative be disclosed or distributed in source code form and/or be licensed
for the purpose of making derivative works.  By way of example, Open Source
Software includes all Software that is licensed or distributed under any of the
following or similar licenses: the GNU General Public License (GPL) or Lesser
General Public License (LGPL), the Artistic License, the Mozilla Public License
(MPL), the Common Public License, the Sun Community Source License (SCSL), and
the Sun Industry Standards Source License (SISSL).
 
 
 
19

 
(viii) To the Knowledge of the Company, there are no defects in any of the
Proprietary Software that would prevent such Proprietary Software from
performing in accordance with its user specifications, and there are no viruses,
worms, Trojan horses or similar programs in any of the Proprietary Software.
 
(ix) No party other than the Company possesses any current or contingent rights
to any material source code that is part of the Proprietary Software.
 
(y) Products.  Each of the products produced or sold by the Company or any of
its Subsidiaries is, and at all times up to and including the sale thereof has
been, (i) in compliance in all material respects with all applicable Laws and
(ii) fit for the ordinary purposes for which it is intended to be used and
conforms in all material respects to any promises or affirmations of fact made
on the container or label for such product or in connection with its
sale.  There is no design defect with respect to any of such products and each
of such products contains adequate warnings, presented in a reasonably prominent
manner, in accordance with applicable Laws, and current industry practice with
respect to its contents and use.
 
(z) Inventory.  The inventory of the Company or any of its Subsidiaries, net of
applicable reserves, (i) was acquired or produced by the Company or any of its
Subsidiaries in the ordinary course of business, (ii) is in the physical
possession of the Company or any of its Subsidiaries or in transit to or from a
customer or supplier, (iii) has not been pledged as collateral or otherwise
subjected to any Lien, and (iv) is not held on consignment.  The inventory of
the Company set forth in the Balance Sheet was properly stated therein at the
lesser of cost or fair market value determined in accordance with GAAP
consistently maintained and applied by the Company.  Since the Financial
Statements Date, the inventory of the Company has been maintained in the
ordinary course of business.  All of the inventory recorded on the Balance Sheet
consists of, and all inventory of the Company or any of its Subsidiaries on the
Closing Date will consist of, items of a quality usable or saleable in the
normal course of business consistent with past practices and is and will be in
quantities sufficient for the normal operation of the business of the Company or
any of its Subsidiaries in accordance with past practice.
 
(aa) Accounts Receivable.  All of the accounts receivable of the Company or any
of its Subsidiaries (i) represent amounts receivable, net of applicable
reserves, for products delivered or services rendered and (ii) have arisen from
bona fide transactions in the ordinary course of business.  All of the accounts
receivable of the Company reflected on the Balance Sheet are, and all accounts
and notes receivable arising from or otherwise relating to the business of the
Company as of the Closing Date will be, valid, genuine and fully collectible in
the aggregate amount thereof, subject to normal and customary trade discounts,
less any reserves for doubtful accounts recorded on the Balance Sheet.  All
accounts, notes receivable and other receivables arising out of or relating to
such businesses of the Company as of the Financial Statements Date have been
included in the Balance Sheet.
 
(bb) Brokers.  Except for Houlihan Lokey Howard & Zukin, a copy of whose
engagement agreement (and all indemnification and other agreements related to
such engagement) has been made available to Buyer prior to the date hereof, none
of the Company nor any of its Affiliates has engaged or otherwise dealt with any
broker, finder or other Person in connection with this Agreement or the
transactions contemplated hereby that will result in or has resulted in Buyer
becoming liable for any commission, fee, or similar payment for arranging the
transactions contemplated hereby or introducing the parties to each
other.  Section 3.1(bb) of the Disclosure Schedule sets forth the Company’s good
faith estimate of the Transaction Expenses Amount.
 
(cc) Bank Accounts; Letters of Credit; Powers of Attorney.  Section 3.1(cc) of
the Disclosure Schedule lists (i) all bank accounts, lock boxes and safe deposit
boxes relating to the business and operations of the Company or any of its
Subsidiaries (including the name of the bank or other institution where such
account or box is located and the name of each authorized signatory thereto),
(ii) all outstanding letters of credit issued by financial institutions for the
account of the Company or any of its Subsidiaries, and (iii) the name and
address of each person who has a power of attorney to act on behalf of the
Company or any of its Subsidiaries.  The Company has heretofore delivered to
Buyer true, correct and complete copies of each letter of credit and each power
of attorney described in Section 3.1(cc) of the Disclosure Schedule.
 
20

(dd) U.S. Government Contracts.
 
(i) For purposes of this Agreement, “Bid” means any written offer by the Company
or any of its Subsidiaries that if accepted would lead to a Government Contract,
“U.S. Government” means the United States Government and any agencies,
instrumentalities and departments thereof (including, without limitation, the
Department of Defense, the National Aeronautics and Space Administration or any
other agencies, departments or instrumentalities thereof) and “U.S. Government
Contract” means any prime contract, subcontract, teaming agreement or
arrangement, joint venture, basic ordering agreement, letter contract, purchase
order, delivery order, change order or other arrangement of any kind in writing
either:  (A.) between the Company or any of its Subsidiaries and (a) the U.S.
Government (acting on its own behalf or on behalf of another country or
international organization), (b) any prime contractor of the U.S. Government, or
(c) any subcontractor with respect to any contract described in clauses (a) or
(b) above; or (B.) financed by the U.S. Government and subject to the rules and
regulations of the U.S. Government concerning procurement, federal assistance
instrument or Other Transaction.
 
(ii) The Company and any of its Subsidiaries has complied with all applicable
requirements of the U.S. Government Cost Accounting Standards, the Federal Truth
in Negotiations Act, the Buy American Act, the Trade Agreements Act, and any
other U.S. laws, rules, regulations or orders applicable to any U.S. Government
Contract or Bid.
 
(iii) (A) There are no audits of any U.S. Government Contracts being conducted
by the U.S. Government, a prime contractor or any other party to any U.S.
Government Contract, other than those conducted in the ordinary course of
business, (B) except to the extent finally resolved (and any liability relating
thereto has been paid or reflected on the Balance Sheet), neither the Company
nor any of its Subsidiaries has with respect to any U.S. Government Contract
received any written (1) cure notice or show cause notice (as defined in the
Federal Acquisition Regulation Part 49, ¶49.607 (a) and (b)) pursuant to
applicable contract default provisions or notice of default, (2) contract
termination, whether for default, convenience, cancellation or lack of funding
or other reasons, (3) final decision or unilateral modification assessing a
price reduction, penalty or claim for damages or other remedy, (4) claim based
on assertions of defective pricing or violations of government cost accounting
standards or cost principles, (5) request for an equitable adjustment of, or
claim by any customer, subcontractor or supplier of the Company or any of its
Subsidiaries, (6) disallowance, written questioning or other written challenge
of any material direct or indirect costs, or (7) notice of any investigation or
enforcement proceeding of a criminal, civil or administrative nature by any
investigative or enforcement agency of any government (including any qui tam
action brought under the Civil False Claims Act alleging any irregularity,
misstatement or omission), and (C) to the Knowledge of the Company, no amount of
money due to the Company or any of its Subsidiaries with respect to any U.S.
Government Contract has been withheld or set off nor has any claim been made to
withhold or set off money and the Company and any of its Subsidiaries is
entitled to all progress payments received with respect thereto.
 
(iv) (A) Neither the Company nor any of its Subsidiaries, nor to the Knowledge
of the Company any of the principals of the Company or any of its Subsidiaries
(as defined in the Federal Acquisition Regulation Part 52, ¶52.209-5), is
suspended or debarred from doing business with or obtaining export licenses or
approvals from any agency of the U.S. Government or is the subject of a finding
of non-responsibility or ineligibility for U.S. Government contracting.  (B) To
the Knowledge of the Company, neither the Company nor any of its Subsidiaries
nor any of their representatives is, or during the past three years has been,
under administrative, civil or criminal investigation, indictment or information
by the U.S. Government with respect to any alleged irregularity, misstatement or
omission arising under or relating to any U.S. Government Contract or Bid.  (C)
During the past year, neither the Company nor any of its Subsidiaries has
conducted or initiated any internal investigation or made a voluntary disclosure
to the U.S. Government with respect to any alleged irregularity, misstatement or
omission arising under or relating to a U.S. Government Contract or Bid.
 
(v) There are no (A) claims pending or, to the Knowledge of the Company,
Threatened against the Company or any of its Subsidiaries by the U.S. Government
or by any prime contractor, subcontractor, vendor or other Person arising under
or relating to any U.S. Government Contract or (B) material disputes before any
court or administrative agency between the Company or any of its Subsidiaries
and the U.S. Government under the Contract Disputes Act or any other statute or
regulation or between the Company or any of its Subsidiaries and any prime
contractor, subcontractor or vendor arising under or relating to any U.S.
Government Contract.
 
21

(vi) Neither the Company nor any of its Subsidiaries has received from the U.S.
Government or any prime contractor or subcontractor from a U.S. Government any
special, preferential or advantageous treatment in the award of a Government
Contract, or in any other manner, including as a “small business concern,”
“small disadvantaged business” (or “minority-owned business”), “women-owned”
concern, or any other socially and economically disadvantaged classification, as
defined in the Small Business Act (15 U.S.C. Sec. 631, et. seq.), the Federal
Property and Administrative Services Act (41 U.S.C. Sec. 252), section 7102 of
the Federal Acquisition Streamlining Act of 1994 (Public Law 103-355), 10 U.S.C.
Sec 2323, Executive Order 12138, May 18, 1979, or regulations implementing these
requirements, including the Federal Acquisition Regulations.
 
(vii) Neither the Company nor any of its Subsidiaries, nor to the Knowledge of
the Company any of the principals of the Company or any of its Subsidiaries, has
received an unfavorable past performance rating on any U.S. Government Contract.
 
(ee) Insurance Coverage.  The Company has furnished to Buyer a list of, and
furnished or made available prior to the date hereof true and complete copies
of, all insurance policies and fidelity bonds relating to the assets, business,
operations, employees, officers or directors of the Company or any of its
Subsidiaries.  There is no claim by the Company or any of its Subsidiaries under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds or in respect of which
such underwriters have reserved their rights.  All premiums payable under all
such policies and bonds have been timely paid and the Company and its
Subsidiaries have otherwise complied in all material respects with the terms and
conditions of all such policies and bonds.  Such policies of insurance and bonds
(or other policies and bonds providing substantially similar insurance coverage)
are in full force and effect.  Such policies and bonds are of the type and in
amounts customarily carried by Persons conducting businesses similar to those of
the Company.  To the Knowledge of the Company, no termination, premium increase,
or material alteration, has been threatened with respect to any of such policies
or bonds.  The Surviving Corporation shall after the Effective Time continue to
have coverage under such policies and bonds with respect to events occurring
prior to the Effective Time.
 
(ff) Affiliate Transactions.  No shareholder, director or officer of the Company
or any of its Subsidiaries, and, to the Knowledge of the Company, no Affiliate
or “associate” (or member of any of the “immediate families”) (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of the 1934 Act) of any
director or officer of the Company or any of its Subsidiaries, of any
shareholder who has nominated or designated a director of the Company or any of
its Subsidiaries, or of any other shareholder (but only to the extent arising in
connection with such shareholder’s equity investment in the Company), (i) is, or
has in the past two years been, involved, directly or indirectly, in any
material business arrangement or other material relationship with the Company or
any of its Subsidiaries (whether written or oral) (other than relationships
arising out of such Person’s capacity as a security holder, director, officer or
employee of the Company), (ii) directly or indirectly owns, or otherwise has any
right, title or interest in, to or under, any material property or right,
tangible or intangible, that is used by the Company or any of its Subsidiaries,
or (iii) is, or has in the past two years been, engaged, directly or indirectly,
in the conduct of the business of the Company or any of its Subsidiaries (other
than in such Person’s capacity as a security holder, director, officer or
employee of the Company).
 
(gg) No Indebtedness.  Except as set forth in Section 3.1(gg) of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has any
Indebtedness.  Section 3.1(gg) of the Disclosure Schedule sets forth the lender
or party owed, the outstanding principal, any accrued and unpaid interest, any
other amounts (including any fees, penalties or other amounts) payable with
respect to all Indebtedness of the Company or any of its Subsidiaries, including
as a result of the Merger and the other transactions contemplated
hereby.  Section 3.1(gg) sets forth the Company’s good faith estimate of the
aggregate amount of Indebtedness of the Company or any of its Subsidiaries as of
the Effective Time.
 
3.2 Representations and Warranties of Buyer and Merger Sub.  Each of Buyer and
Merger represents and warrants to the Company that, subject to Section 11.19,
except as set forth in the Buyer and Merger Sub Disclosure Schedule:
 
(a) Organization, Existence and Good Standing.  Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California.  Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Arizona.  Each of Buyer and Merger
Sub is duly qualified as a foreign corporation, and is in good standing, under
the laws of all jurisdictions where the nature of its business or the nature or
location of its assets requires such qualification and where the failure to so
qualify would, individually or in the aggregate, have a Material Adverse Effect.
 
(b) Consents.  No notice to, or consent, authorization, order or approval of, or
filing or registration with, any Governmental Authority or other Person is
required by the Buyer or Merger Sub in connection with the consummation by Buyer
and Merger Sub of the transactions contemplated by this Agreement or any other
document, certificate or instrument to be executed by Buyer or Merger Sub
pursuant to or in connection with this Agreement (collectively, the “Buyer
Documents”).
 
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(c) Power and Authority.  Each of the Buyer and Merger Sub has all necessary
power and authority to carry on its business as such business is now being
conducted.
 
(d) Authorization.
 
(i) The execution, delivery and performance by each of Buyer and Merger Sub of
this Agreement and the consummation by each of Buyer and Merger Sub of the
transactions contemplated have been duly authorized by all necessary corporate
action on the part of each of Buyer and Merger Sub.  This Agreement has been
duly executed and delivered by each of Buyer and Merger Sub and constitutes the
legal, valid and binding obligation of each of Buyer and Merger Sub enforceable
against each of Buyer and Merger Sub in accordance with its terms, except to the
extent that enforcement may be affected by Laws relating to bankruptcy,
reorganization, insolvency and creditors’ rights and by the availability of
injunctive relief, specific performance and other equitable remedies.  Each
Buyer Document to be executed by Buyer and/or Merger Sub, when executed and
delivered by Buyer and/or Merger Sub, will constitute the legal, valid and
binding obligation of each of Buyer and Merger Sub, enforceable against each of
Buyer and Merger Sub in accordance with its terms, except to the extent that
enforcement may be affected by Laws relating to bankruptcy, reorganization,
insolvency and creditors’ rights and by the availability of injunctive relief,
specific performance and other equitable remedies
 
(ii) Prior to the Effective Time, at a meeting duly called and held, or by
unanimous written consent, (A) Merger Sub’s Board of Directors shall have
unanimously determined that the Merger is fair to and in the best interests of
the shareholder of Merger Sub, (B) Merger Sub’s Board of Directors shall have
approved and adopted this Agreement and the transactions contemplated hereby,
and (C) Merger Sub’s Board of Directors shall have resolved to recommend
approval and adoption of this Agreement by the shareholder of Merger Sub.
 
(iii) The Merger Sub written consent of its shareholder delivered concurrently
with the execution of this Agreement by Merger Sub shall constitute the valid
and effective approval and adoption of this Agreement and the other transactions
contemplated hereby by the shareholder of Merger Sub.  Such Merger Sub written
consent will be as of the Closing in full force and effect.
 
(e) Conflicts Under Organizational Documents or Laws.  Neither the execution and
delivery of this Agreement, the Buyer Documents, nor the consummation of the
transactions contemplated hereby or thereby, will conflict with or result in a
breach of (i) any of the terms, conditions or provisions of the articles of
incorporation and bylaws of either Buyer or Merger Sub or any resolution adopted
by either of Buyer’s or Merger Sub’s Board of Directors or any committee
thereof, or (ii) any applicable Law.
 
(f) Conflicts Under Contracts.  Neither Buyer nor Merger Sub is a party to, or
bound by, any unexpired, undischarged or unsatisfied written or oral contract,
agreement, indenture, mortgage, debenture, note, lease or other instrument under
the terms of which either the execution and delivery of this Agreement or the
Buyer Documents, or the consummation by each of Buyer or Merger Sub of the
transactions contemplated hereby or thereby, will be a breach, default or an
event of acceleration, will require any consent thereunder or will be grounds
for termination, modification or cancellation, or whereby timely performance by
each of Buyer or Merger Sub according to the terms of this Agreement or the
Buyer Documents may be prohibited, prevented or delayed.
 
(g) Litigation.  There is no claim, action, suit, proceeding, arbitration,
investigation, hearing or notice of hearing, pending or, to the knowledge of
Buyer or Merger Sub, Threatened by or before any Governmental Authority
involving or in any way related to Buyer, Merger Sub, or either party’s
Affiliates and related to this Agreement or the consummation of the transactions
contemplated hereby, nor, to the knowledge of Buyer or Merger Sub, are there any
facts that would give rise to any such claim, action, suit, proceeding,
arbitration, investigation or hearing.
 
(h) Brokers.  None of Buyer, Merger Sub, or either party’s Affiliates has
engaged or otherwise dealt with any broker, finder or other Person in connection
with this Agreement or the transactions contemplated hereby that will result in
or has resulted in any party becoming liable for any commission, fee or similar
payment for arranging the transactions contemplated hereby or introducing the
parties to each other.
 
(i) Financing.  Buyer has either (i) sufficient cash and available credit
facilities, or (ii) sufficient cash and firm commitments for credit facilities
and/or equity contributions, in either case, in an aggregate amount sufficient
to pay on a timely basis all of the consideration payable to the Equity Holders
as required by this Agreement, and to make all other necessary payments in
connection with the transactions contemplated under this Agreement, and to pay
all related fees and expenses.  Buyer has no reason to believe that any
financing and/or equity contribution, if any, needed by Buyer in connection with
the transactions contemplated under this Agreement will not be consummated.
 
 
 
23

 
(j) Solvency.  Immediately after giving effect to the purchase and sale of the
Shares hereunder, Buyer will not (i) be insolvent (either because the sum of its
debts is greater than the fair value of its assets, or because the fair value of
its assets is less than the amount required to pay its existing, probable and
contingent liabilities), (ii) have insufficient capital with which to engage in
its business, or (iii) have incurred debts beyond its ability to pay as they
become due.  No transfer of property will be made by Buyer and no obligation
incurred by Buyer in connection with the transactions contemplated by this
Agreement with the intent to hinder, delay or defraud either present or future
creditors of Buyer.
 
(k) Independent Investigation.  Buyer has conducted an independent investigation
of the Company and its business operations, assets, liabilities, results of
operations, condition (including, operating, environmental and financial
condition) and prospects in making its determination as to the propriety of the
transactions contemplated by this Agreement and is satisfied with the results
thereof.  In entering into this Agreement, Buyer has relied solely on the
results of its investigation and on the representations and warranties of the
Company expressly contained in Section 3.1.
 
(l) Investment.  Buyer is acquiring the shares of Company Stock hereunder for
its own account for investment and without the intent of distributing, granting
a participation in, or reselling such Company Stock or any part thereof in any
transaction or series of transactions that would constitute a “distribution”
within the meaning of the Securities Act.  Buyer understands that the shares of
Company Stock have not been registered under the Securities Act or any state
securities laws, and thus the Shares are “restricted securities” under
applicable United States federal and state securities laws and Buyer must hold
such shares indefinitely unless they are properly registered and qualified, or
an exemption therefrom is available.
 
3.3 Limitation on Warranties.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
THE COMPANY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION,
WARRANTY, COVENANT, AGREEMENT, OR STATEMENT MADE OR INFORMATION COMMUNICATED
(ORALLY OR IN WRITING) TO BUYER (INCLUDING ANY OPINION, INFORMATION, OR ADVICE
WHICH MAY HAVE BEEN PROVIDED TO BUYER OR ANY OF ITS AFFILIATES BY ANY TRUSTEE,
DIRECTOR, OFFICER, EMPLOYEE, ACCOUNTING FIRM, LEGAL COUNSEL, OR OTHER AGENT,
CONSULTANT, OR REPRESENTATIVE OF THE COMPANY).  ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY
EXCLUDED.  ANY AND ALL PRIOR REPRESENTATIONS AND WARRANTIES MADE BY ANY PARTY OR
ITS REPRESENTATIVES, WHETHER VERBALLY OR IN WRITING, ARE DEEMED TO HAVE BEEN
MERGED INTO THIS AGREEMENT, IT BEING INTENDED THAT NO SUCH PRIOR REPRESENTATIONS
OR WARRANTIES SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS AGREEMENT.
 
ARTICLE 4
 
 
 
COVENANTS OF THE PARTIES
 
4.1 Conduct of the Company.  From the date hereof until the Effective Time, the
Company shall, and shall cause any of its Subsidiaries to, conduct its business
in the ordinary course consistent with past practice and use its reasonable best
efforts to (i) preserve intact its present business organization, (ii) maintain
in effect all of its foreign, federal, state and local licenses, permits,
consents, franchises, approvals and authorizations, (iii) keep available the
services of its directors, officers and key Employees, (iv) maintain
satisfactory relationships with its distributors, lenders, suppliers,
consultants, customers and others having material business relationships with
it, (v) manage its working capital (including the timing of collection of
accounts receivable and of the payment of accounts payable and the management of
inventory) in the ordinary course of business consistent with past practice, and
(vi) continue to make capital expenditures consistent with the Capex
Budget.  Without limiting the generality of the foregoing and except as
expressly contemplated by this Agreement, from the date hereof until the
Effective Time, without the prior written consent of Buyer (which shall be
granted in Buyer’s reasonable discretion), the Company shall not, and shall
cause any of its Subsidiaries not to:
 
(a) adopt any change to its articles of incorporation or bylaws;
 
(b) (i) issue, deliver or sell, or authorize the issuance, delivery or sale of,
any securities, except in connection with the exercise of any Stock Option
granted prior to the date hereof, or (ii) amend any term of any security (in
each case, whether by merger, consolidation or otherwise);
 
(c) split, combine or reclassify any shares of capital stock or other securities
of the Company or any of its Subsidiaries or declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of the capital stock or other securities of the
Company or any of its Subsidiaries, or redeem, repurchase or otherwise acquire
or offer to redeem, repurchase, or otherwise acquire any securities of the
Company or any of its Subsidiaries;
 
24

(d) create, incur or assume any Indebtedness;
 
(e) create or incur any Lien on any material asset, other than a Permitted Lien;
 
(f) incur any capital expenditures or any obligations or liabilities in respect
thereof, except for those contemplated by the Capex Budget;
 
(g) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets), directly or indirectly, any assets, securities,
properties, interests or businesses, other than supplies in the ordinary course
of business of the Company in a manner that is consistent with past practice;
 
(h) sell, lease, license or otherwise transfer of any assets, securities or
property, in each case, except (i) pursuant to contracts or commitments existing
as of the date of this Agreement which have been disclosed to Buyer in
accordance with the terms of this Agreement and (ii) sales of products in the
ordinary course of business consistent with past practice;
 
(i) make any loan, advance or capital contribution to or investment in any
Person, except in the ordinary course of business consistent with past practice;
 
(j) pay or delay payment of accounts payable, or collected or delayed collection
of accounts receivable, in each case other than in the ordinary course of
business consistent with past practices;
 
(k) change the Company’s methods of accounting, except as required by concurrent
changes in GAAP, as agreed to by its independent public accountants;
 
(l) (i) enter into any agreement or arrangement that limits or otherwise
restricts in any material respect the Company or any of its Affiliates or any
successor thereto or that could, after the Closing Date, limit or restrict in
any material respect the Company, Buyer or any of their respective Affiliates,
from engaging or competing in any line of business, in any location or with any
Person or (ii) enter into, amend or modify in any material respect or terminate
any Contract or otherwise waive, release or assign any material rights, claims
or benefits of the Company or any of its Subsidiaries;
 
(m) (i) grant or increase any severance or termination pay to (or amend any
existing arrangement with) any director, officer or employee of the Company or
any of its Subsidiaries, (ii) increase benefits payable under any existing
severance or termination pay policies or employment agreements, (iii) enter into
any employment, deferred compensation, severance, retention, change in control,
tax gross-up, special bonus, stay bonus or other similar agreement (or amend any
such existing agreement) with any director, officer or employee of the Company
or any of its Subsidiaries, (iv) establish, adopt or amend (except as required
by applicable Law or Governmental Authority) any collective bargaining, bonus,
profit-sharing, thrift, pension, retirement, deferred compensation,
compensation, stock option, restricted stock or other benefit plan or
arrangement covering any director, officer or employee of the Company or any of
its Subsidiaries, (v) increase compensation, bonus or other benefits payable to
any director, officer or employee of the Company or any of its Subsidiaries,
(vi) accelerate and/or cash-out any outstanding Stock Option, or (vii) engage in
hiring or termination practices that are not in the ordinary course of business
consistent with past practices;
 
(n) settle, or offer or propose to settle, (i) any litigation, investigation,
arbitration, proceeding or other claim involving or against the Company or any
of its Subsidiaries, or (ii) any litigation, arbitration, proceeding or dispute
that relates to the transactions contemplated hereby;
 
(o) make or change any Tax election, change any annual Tax accounting period,
adopt or change any method of Tax accounting, file any amended Return, enter
into any closing agreement, settle any Tax claim or assessment, surrender any
right to claim a Tax refund, offset or other reduction in Tax liability, consent
to any extension or waiver of the limitations period applicable to any Tax claim
or assessment or take or omit to take any other action, if any such action or
omission would have the effect of increasing the Tax liability or reducing any
Tax Asset of the Company or any of its Subsidiaries, Buyer or any Affiliate of
Buyer;
 
(p) shorten or lengthen the customary payment terms or other terms of any
contracts with customers or suppliers;
 
(q) enter into any transaction or commitment with any Affiliate, other than the
payment of employee compensation or expense reimbursements in the ordinary
course of business consistent with past practices;
 
 
 
25

 
(r) transfer or license to any Person or entity or otherwise extend, amend or
modify in any material respect any Intellectual Property Rights of the Company;
 
(s) merge or consolidate with any other Person;
 
(t) enter into any lease, contract or agreement with regard to real property
other than (i) renewals of existing leases on a month-to-month basis on terms
similar to such existing leases and (ii) new month-to-month leases for sales
offices entered into in the ordinary course consistent with past practices;
 
(u) permit any insurance policy naming it as a beneficiary or a loss payee to be
cancelled or terminated unless such insurance policy is replaced with a
substantially equivalent policy;
 
(v) take any action that would make any representation and warranty of the
Company hereunder inaccurate in any material respect at, or as of any time prior
to, the Effective Time or knowingly fail to take any action necessary to prevent
any such representation or warranty from being inaccurate in any material
respect at any such time; or
 
(w) enter into or amend any contract, agreement, commitment or arrangement that,
if fully performed, would not be permitted under this Section 4.1, or otherwise
agree or commit to do any of the things described in the preceding clauses (a)
through (v).
 
4.2 Shareholder Approvals.  As promptly as practicable, and in any event within
ten (10) calendar days, after the date hereof, the Company shall obtain the
Shareholder Approval pursuant to obtaining the Written Consent signed by each of
the shareholders of the Company, provided that if all such Written Consents
shall not have been obtained within five (5) calendar days after the date
hereof, a meeting of the shareholders of the Company shall be duly called and
held as soon as practicable for such purpose, or, in either case, pursuant to
and in strict accordance with the applicable provisions of Arizona Law and the
articles of incorporation and bylaws of the Company.  Concurrently with the
execution and delivery of this Agreement by Merger Sub, Merger Sub shall obtain
shareholder approval in respect of the Merger pursuant to a written consent of
its shareholder signed by the Merger Sub’s shareholder, pursuant to and in
strict accordance with the applicable provisions of Arizona Law and the articles
of incorporation and bylaws of Merger Sub.
 
4.3 Access to Information.  Subject to any applicable confidentiality agreements
with third parties, the Company will, and will cause any of its Subsidiaries to,
(i) give to Buyer’s officers, employees, agents, attorneys, consultants,
accountants and lenders reasonable access during normal business hours to all of
the properties, books, contracts, documents, insurance policies, records and
personnel of or with respect to the Company or any of its Subsidiaries,
(ii) furnish to Buyer and such Persons as Buyer shall designate to the Company
such financial and operating data and other information as Buyer or such Persons
may at any time and from time to time reasonably request, and (iii) instruct the
Employees, counsel and financial advisors of the Company to cooperate with Buyer
in its investigation of the Company or any of its Subsidiaries.  No
investigation by Buyer or other information received by Buyer shall operate as a
waiver or otherwise affect any representation, warranty or agreement given or
made by the Company hereunder.
 
4.4 Commercially Reasonable Efforts.  Subject to the terms and conditions of
this Agreement, each of the parties hereto shall use all commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable Law to
consummate the transactions contemplated hereby as soon as practicable,
including all commercially reasonable efforts in connection with (i) preparing
and filing as promptly as practicable with any Governmental Authority or other
third party all documentation to effect all necessary filings, notices,
petitions, statements, registrations, submissions of information, applications
and other documents, (ii) obtaining and maintaining all approvals, consents,
registrations, permits, authorizations and other confirmations required to be
obtained from any Governmental Authority or other third party that are
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, and (iii) encourage the Retained Employees to agree to be
employed by Buyer after the Closing.
 
 
 
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4.5 Notices of Certain Events.  From the date hereof until the Effective Time,
upon the Knowledge of the Company, the knowledge of Buyer or the knowledge of
Merger Sub, as the case may be, each such party shall promptly give the other
parties written notice of the existence or occurrence of (i) any notice or other
communication from any Person alleging that the consent of such Person is or may
be required in connection with the transactions contemplated by this Agreement,
or that any compensation or other benefit is due to be paid to such Person on
the basis of any of the transactions contemplated by this Agreement, other than
payments expressly provided for herein, (ii) any notice or other communication
from any Governmental Authority in connection with the transactions contemplated
by this Agreement, (iii) any actions, suits, claims, investigations or
proceedings commenced or, to its respective Knowledge or knowledge threatened
against, relating to or involving or otherwise affecting the Company that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to clauses (l), (q), (s), (u), (v), (x) or (dd) of Section
3.1 or Section 3.2(g) or that relate to the consummation of the transactions
contemplated by this Agreement, (iv) any inaccuracy of any representation or
warranty contained in this Agreement and that would reasonably be expected to
cause the conditions set forth in Sections 5.1, 5.2, and/or 5.3, as the case may
be, not to be satisfied, (v) any failure of any party to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder any condition, or (vi) any condition which might reasonably be
expected to prevent the timely consummation of the transactions contemplated
hereby.
 
4.6 280G Matters.  The Company shall use commercially reasonable efforts to
promptly submit to the shareholders of the Company for approval (in a manner
reasonably satisfactory to Buyer), by such number of shareholders of the Company
as is required by the terms of Section 280G(b)(5)(B) of the Code, any payments
and/or benefits that may separately or in the aggregate, constitute “parachute
payments” pursuant to Section 280G of the Code (“Section 280G Payments”) (if
any) (which determination shall be made by the Company and shall be subject to
review and approval by Buyer), such that such payments and benefits shall not be
deemed to be Section 280G Payments, and prior to the Effective Time the Company
shall deliver to Buyer evidence reasonably satisfactory to Buyer that (A) a vote
of the shareholders of the Company was solicited in conformance with Section
280G and the regulations promulgated thereunder and the requisite shareholder
approval was obtained with respect to any payments and/or benefits that were
subject to the shareholder vote (the “280G Shareholder Approval”), or (B) that
the 280G Shareholder Approval was not obtained and as a consequence, that such
payments and/or benefits shall not be made or provided to the extent they would
cause any amounts to constitute Section 280G Payments, pursuant to the waivers
of those payments and/or benefits, which were executed by the affected
individuals prior to the Shareholder vote.
 
4.7 Option Agreements.  Prior to the Closing, the Company shall use all
commercially reasonable efforts to obtain Option Cancellation Agreements from
the holders of Vested Options and Option Acceleration and Cancellation
Agreements from the holders of Accelerated Options.
 
4.8 Payout Letters; Release of Liens.
 
(a) Immediately after the Effective Time, Buyer shall pay the portion of the
Debt Repayment Amount owed to Silicon Valley Bank in exchange for a pay out
letter executed by Silicon Valley Bank in form satisfactory to Buyer (the
“Payout Letter”) and termination of all liens on the assets of the Company,
including the appropriate UCC filing (the “Lien Terminations”).
 
(b) Prior to the Closing, the Company shall use all commercially reasonable
efforts to obtain the Payout Letters and the Lien Terminations at the Effective
Time.
 
4.9 Formation of Merger Sub.  As soon as practicable after the declaration of
the incorporation of Merger Sub by the Arizona Corporation Commission, Buyer
shall cause Merger Sub to execute a joinder to this Agreement in form
satisfactory to the Company.
 
4.10 Small Business Certifications.  As soon as practicable after the date
hereof and prior to the Closing, the Company shall provided Buyer with a list of
all certifications it has made with the U.S. Government with respect to any of
the arrangements described in Section 3.1(dd)(vi).
 
 
 
ARTICLE 5
 
 
 
CONDITIONS TO CLOSING
 
5.1 Conditions to the Company’s Obligations.  The obligation of the Company to
consummate the Merger is subject to the fulfillment of all of the following
conditions as of the Closing:
 
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(a) The representations and warranties of Buyer and Merger Sub in Section 3.2
(as modified by the Buyer and Merger Sub Disclosure Schedule) and any
certificate or other writing delivered by Buyer or Merger Sub pursuant hereto
(i) that are qualified by materiality or Material Adverse Effect shall be true
and correct at and as of the Closing as if made at and as of such time (other
than such representations and warranties that are made as of a specified date,
which representations and warranties shall be true and correct as of such date)
and (ii) that are not qualified by materiality or Material Adverse Effect shall
be true and correct in all material respects at and as of the Closing as if made
at and as of such time (other than such representations and warranties that are
made as of a specified date, which representations and warranties shall be true
and correct in all material respects as of such date).
 
(b) All obligations of Buyer and Merger Sub to be performed hereunder through,
and including as part of, the Closing shall have been performed and complied
with in all material respects.
 
(c) The Company shall have received all Closing deliverables of Buyer pursuant
to Article 6.
 
5.2 Conditions to Buyer’s and Merger Sub’s Obligations.  The obligation of Buyer
and Merger Sub to close the transactions contemplated hereby is subject to the
fulfillment of all of the following conditions as of the Closing:
 
(a) The representations and warranties of the Company in Section 3.1 (other than
under clauses (i) and (gg) of Section 3.1) (as modified by the Company
Disclosure Schedule) and any certificate or other writing delivered by the
Company pursuant hereto (i) that are qualified by materiality or Material
Adverse Effect shall be true and correct at and as of the Closing as if made at
and as of such time (other than such representations and warranties that are
made as of a specified date, which representations and warranties shall be true
and correct as of such date) and (ii) that are not qualified by materiality or
Material Adverse Effect shall be true and correct in all material respects at
and as of the Closing as if made at and as of such time (other than such
representations and warranties that are made as of a specified date, which
representations and warranties shall be true and correct in all material
respects as of such date), (ii) the representations and warranties set forth in
clauses (i) and (gg) of Section 3.1 (as modified by the Company Disclosure
Schedule) shall be true and correct in all respects at and as of the Closing, as
if made at and as of such time (other than such representations and warranties
that are made as of a specified date, which representations and warranties shall
be true and correct as of such date).
 
(b) All obligations of the Company to be performed hereunder through, and
including as part of, the Closing shall have been performed and complied with in
all material respects.
 
(c) The Company shall have obtained all of the consents, authorizations,
approvals, waivers and exemptions contemplated under Section 3.1(b), and no such
consent, authorization, approval, waiver or exemption shall have been
revoked.  Buyer shall have obtained all of the consents, authorizations,
approvals, waivers and exemptions contemplated under Section 3.2(b), and no such
consent, authorization, approval, waiver or exemption shall have been revoked
 
(d) There shall not have occurred and be continuing as of, or otherwise arisen
before, the Closing any event, occurrence, revelation or development of a state
of circumstances or facts which, individually or in the aggregate, has had or
would reasonably be expected to have a Material Adverse Effect.
 
(e) The holders of no greater than five percent (5%) of the outstanding shares
of Company Stock shall have perfected appraisal, dissenters’ or similar rights
under applicable Law with respect to any of the transactions contemplated by
this Agreement.
 
(f) The Key Employee shall be employed by the Company and the Key Employment
Agreements shall have been executed and shall be in full force and effect.
 
(g) At least 90% of the Retained Employees shall have accepted offers of
employment from Buyer, and such acceptances shall be in full force and effect.
 
(h) The Buyer shall have received all Closing deliverables of the Company
pursuant to Article 6.
 
5.3 Condition to Each Party’s Obligations.  The respective obligations of the
Company, Buyer and Merger Sub to consummate the Merger is subject to the
fulfillment of the following conditions as of the Closing:
 
(a) The Shareholder Approval shall have been obtained and shall be in full force
and effect in accordance with Arizona Law.
 
 
 
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(b) No lawsuit, proceeding or investigation shall have been commenced by any
Person on any grounds to restrain, enjoin or hinder the consummation of the
transactions contemplated hereby, and no Law shall have been enacted or issued
which prohibits the consummation of the transactions contemplated hereby.
 
(c) The Escrow Agent shall have executed the Indemnification Escrow Agreement,
and such agreement shall be in full force and effect.
 
ARTICLE 6
 
 
 
CLOSING
 
6.1 Form of Documents.  At the Closing, the parties shall deliver the documents,
and shall perform the acts, set forth in this Article 6.  All documents which
the Company shall deliver shall be in form and substance reasonably satisfactory
to Buyer and Buyer’s counsel.  All documents which Buyer and Merger Sub shall
deliver shall be in form and substance reasonably satisfactory to the Company
and its counsel.
 
6.2 Buyer’s and Merger Sub’s Deliveries.  Subject to the fulfillment or waiver
of the conditions set forth in Section 5.2, Buyer and/or Merger Sub shall
deliver to the Equity Holders’ Representative all of the following:
 
(a) A certificate of good standing of Merger Sub issued not earlier than ten
(10) days prior to the Closing Date by the Arizona Corporation Commission;
 
(b) A certificate of each of Buyer’s and Merger Sub’s secretary certifying as
true and correct the following: (i) the incumbency and specimen signature of
each officer of Buyer and Merger Sub executing this Agreement and any Buyer
Document; (ii) a copy of each of Buyer’s and Merger Sub’s articles of
incorporation and bylaws; and (iii) a copy of the resolutions of Buyer’s Board
of Directors (or any committee thereof) and Merger Sub’s Board of Directors and
shareholders authorizing the execution, delivery and performance of this
Agreement and the Buyer Documents and the transactions contemplated hereby and
thereby;
 
(c) A closing certificate executed by an authorized officer of Buyer and Merger
Sub on behalf of Buyer and Merger Sub, pursuant to which Buyer and Merger Sub
certifies to the Company that: (i) the conditions set forth in Sections 5.1 and
5.3 shall have been satisfied (or, if any such condition shall not have been
satisfied, specifying the circumstances of such failure to be satisfied and
Buyer’s waiver of such condition); and (ii) all documents to be executed and
delivered by Buyer and Merger Sub at the Closing have been executed by duly
authorized officers of Buyer and Merger Sub;
 
(d) An original counterpart of the Indemnification Escrow Agreement executed by
a duly authorized officer of Buyer;
 
(e) Original counterparts to that certain form of Assignment of Inventions
Agreement (the “Assignment of Inventions Agreement”) with each of the Retained
Employees executed by a duly authorized officer of Buyer;
 
(f) Original counterparts of each other Buyer Document to be delivered at
Closing executed by a duly authorized officer of Buyer and/or Merger Sub; and
 
(g) Without limiting the foregoing, all other documents reasonably requested
from Buyer by the Company to consummate the transactions contemplated hereby.
 
6.3 Company Deliveries.  Subject to the fulfillment or waiver of the conditions
set forth in Section 5.1, the Company shall deliver to Buyer all of the
following:
 
(a) The minute books and stock records of the Company and any of its
Subsidiaries;
 
(b) A certified copy of the Company’s articles of incorporation issued by the
Arizona Corporation Commission;
 
(c) A certificate of good standing of the Company issued not earlier than ten
(10) days prior to the Closing Date by the Arizona Corporation Commission;
 
29

(d) A certificate of the secretary of the Company certifying as true and correct
a copy of the Company’s bylaws;
 
(e) A certificate of the secretary of the Company certifying as true and correct
the following:  (i) the incumbency and specimen signature of each officer of the
Company executing this Agreement or any Company Document; (ii) a copy of the
resolutions of the Company’s Board of Directors authorizing the execution,
delivery and performance of this Agreement and the Company Documents and the
transactions contemplated hereby and thereby; (iii) the receipt of the
Shareholder Approval as of the Closing, all in form and substance reasonably
satisfactory to Buyer;
 
(f) A closing certificate duly executed by the chief executive officer and the
chief financial officer of the Company, pursuant to which the Company certifies
to Buyer that: (i) the conditions set forth in Sections 5.2 and 5.3 shall have
been satisfied (or, if any such condition shall not have been satisfied,
specifying the circumstances of such failure to be satisfied and the Company’s
express waiver of such condition); and (ii) all documents to be executed and
delivered by the Company at the Closing have been duly authorized and executed;
 
(g) An opinion of legal counsel to the Company.
 
(h) Evidence reasonably satisfactory to Buyer that the Company has obtained all
of the consents, authorizations, approvals, waivers and exemptions contemplated
under  Section 3.1(b);
 
(i) An original counterpart of the Indemnification Escrow Agreement duly
executed by the Equity Holders’ Representative;
 
(j) Original counterparts to the Payout Letter and the Lien Terminations;
 
(k) Original counterparts to the Option Cancellation Agreement executed by the
Company and each holder of Vested Options and original counterparts to the
Option Acceleration and Cancellation Agreement executed by the Company and each
holder of Accelerated Options;
 
(l) Original counterparts to the Assignment of Inventions Agreement executed by
each of the Retained Employees;
 
(m) Original counterparts of each other Company Document to be delivered at
Closing duly executed by the Company;
 
(n) Written resignation from each of the officers and directors of the Company
or any of its Subsidiaries effective as of the Closing Date;
 
(o) A certification dated not more than thirty (30) days prior to the Effective
Time and signed by the Company to the effect that the Company is not, nor has it
been within five years of the date of the certification, a “United States real
property holding corporation” as defined in Section 897 of the Code; and
 
(p) Without limiting the foregoing, all other documents reasonably requested
from the Company by Buyer to consummate the transactions contemplated hereby.
 
ARTICLE 7
 
 
 
POST-CLOSING AGREEMENTS
 
7.1 Post Closing Agreements.  From and after the Effective Time, the parties
shall have the respective rights and obligations which are set forth in the
remainder of this Article 7.
 
7.2 Employees.
 
(a) Prior to the Closing Date, the Company shall afford Buyer reasonable access
to the Employees to allow Buyer to interview such Employees.  Prior to the
Closing Date, Buyer shall make offers of employment to each of the Employees,
except those listed on Annex V (the “Retained Employees”).
 
30

(b) As of the Closing, Buyer shall cause the Retained Employees to be covered by
compensation and benefit plans that provide compensation and benefits that are
at least comparable, in the aggregate, to the compensation and benefits provided
to the Retained Employees as of the date immediately preceding the Closing and
disclosed to Buyer in writing prior to the date hereof; provided that on and
after the Closing each Retained Employee shall be entitled to the same vacation
benefits as provided to such Employee as of the date immediately preceding the
Closing and disclosed to Buyer in writing prior to the date hereof.  Buyer’s
obligations pursuant to this Section 7.2(b) shall continue for a period of not
less than one (1) year following the Closing, except that Buyer’s obligations
with respect to vacation benefits for any Retained Employee shall continue so
long as such Retained Employee is employed by Buyer.  Nothing herein shall
change the at-will nature of employment of the Retained Employees after the
Effective Time or create any third-party beneficiary rights.
 
(c) With respect to service and seniority, Buyer will recognize the service and
seniority of each of the Retained Employees as recognized by the Company for
purposes of the determination of eligibility, vesting (other than under equity
plans), and the extent of service or seniority-related welfare benefits such as
vacation and sick pay benefits.  Buyer will waive all waiting periods for
participation in Buyer’s benefit plans.
 
(d) With respect to any group health plan or program of Buyer or Buyer’s
Affiliates in which any Retained Employee becomes eligible to participate, Buyer
shall use commercially reasonable efforts to ensure that such  Retained
Employees shall (i) receive credit for any deductibles, co-pays or other
out-of-pocket expenses paid under the corresponding group health plan or program
of the Company, and (ii) not be subject to any waiting periods or pre-existing
condition limitations to the extent that such pre-existing condition limitation
did not apply to such Retained Employee under the corresponding group health
plan or program of the Company or its  Affiliates.  Retained Employees shall be
permitted to rollover any account balances they may have under the Company’s
401(k) plan sponsored by Buyer or Buyer’s Affiliates.
 
7.3 Third Party Claims.  The parties shall cooperate with each other with
respect to the defense of any Third Party Claims subsequent to the Closing which
are not subject to the indemnification provisions contained in Article 8;
provided that the party requesting cooperation shall reimburse the other party
for the other party’s reasonable out-of-pocket costs and expenses of furnishing
such cooperation.
 
7.4 Further Assurances.  At and after the Effective Time, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of the Company or either Merger Sub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or either Merger Sub, any other actions and things
to vest, perfect or confirm of record or otherwise in the Surviving Corporation
any and all right, title and interest in, to and under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
 
ARTICLE 8
 
 
 
INDEMNIFICATION
 
8.1 Indemnification Obligations of the Equity Holders.  Subject to the
provisions of this Article 8 and except as otherwise provided herein, each
Equity Holder shall severally, but not jointly, in accordance with such Equity
Holder’s Percentage Ownership, indemnify, save and keep each Buyer Indemnitee
harmless from and against all Damages sustained or incurred by any Buyer
Indemnitee, as a result of, or arising out of, only the following:
 
(a) any inaccuracy in or breach of any representation and warranty made by the
Company in Section 3.1 (exclusive of a breach under Sections 3.1(l) and
3.1(x)(iii)) (as modified by the Company Disclosure Schedule) (without giving
effect to any qualification or exception relating to materiality or Material
Adverse Effect or any similar qualification or standard contained therein in
determining the amount of any Damages) or in any certificate or other writing
delivered pursuant hereto or in connection herewith (each, a “Company Warranty
Breach”);
 
(b) any breach by the Company of, or failure by the Company to comply with, any
of the covenants or obligations under this Agreement to be performed by the
Company;
 
(c) any (i) Tax of the Company related to a Pre-Closing Tax Period, (ii) Tax of
the Company resulting from a breach of the provisions of Section 3.1(l), (iii)
Tax resulting from the application of Section 280G of the Code to any payment
made pursuant to this Agreement or to any payment made as a result of, or in
connection with, any transaction contemplated by this Agreement, (iv) any
transfer and other similar Taxes incurred in connection with the transactions
contemplated hereby, and (v) liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and attorneys’ fees and
expenses), losses, damages, assessments, settlements or judgments arising out of
or incident to the imposition, assessment or assertion of any Tax described in
(i), (ii), (iii) or (iv), (the sum of (i)-(v) being referred to herein as a “Tax
Loss”);
 
31

(d) the amount or portion of any Pre-Closing Dissenting Share Payments, the
Payroll Tax Amount or the Transaction Expenses Amount not deducted from the
Closing Consideration or the Holdback Amount pursuant to Section 2.8, and any
Post-Closing Dissenting Share Payments; or
 
(e) any inaccuracy in or breach of any representation and warranty made by the
Company in Section 3.1(x)(iii) (without giving effect to (i) any qualification
or exception relating to Knowledge of the Company or made pursuant to any
disclosure set forth on the Company Disclosure Schedule, or (ii) any materiality
or Material Adverse Effect or any similar qualification or standard or any
exceptions); provided that the Buyer Indemnitees shall only be entitled to
indemnification pursuant to this Section 8.1(e) in connection with any pending
or overtly threatened litigation by the Person set forth in Section 8.1(e) of
the Company Disclosure Schedule or any of its Affiliates in the event that
infringement of specific patents by the Company or any of its Subsidiaries is
alleged or asserted by any such Person; provided further that the Equity
Holders’ shall not be required to indemnify the Buyer Indemnitees with respect
to such claims by any such Persons to the extent of any Damages that are
attributable to sales of the Surviving Corporation’s products after the Closing
Date.
 
8.2 Indemnification Obligations of Buyer.  Subject to the provisions of this
Article 8 and except as otherwise provided herein, Buyer shall indemnify, save
and keep each Equity Indemnitee harmless against and from all Damages sustained
or incurred by any Equity Indemnitee, as a result of, or arising out of, the
following:
 
(a) any inaccuracy in or breach of any representation and warranty made by Buyer
or Merger Sub in Section 3.2 (as modified by the Buyer and Merger Sub Disclosure
Schedule) (without giving effect to any qualification or exception relating to
materiality or Material Adverse Effect or any similar qualification or standard
contained therein in determining the amount of any Damages) or in any
certificate or other writing delivered pursuant hereto or in connection herewith
(each, a “Buyer Warranty Breach”); or
 
(b) any breach by Buyer or Merger Sub of, or failure by Buyer or Merger Sub to
comply with, any of the covenants or obligations under this Agreement to be
performed by Buyer or Merger Sub.
 
8.3 Duration of Certain Indemnification Obligations.
 
(a) Claims for indemnification under Section 8.1 may be asserted within the
following time periods:
 
(i) claims (A) arising out of or in connection with any Company Warranty Breach
(exclusive of any claims under Sections 3.1(d)(Authorization),
3.1(i)(Capitalization), 3.1(b)(b)(Brokers) or 3.1(gg)(Indebtedness) or, for the
avoidance of any doubt, any claims described in Section 8.3(a)(ii) to the extent
any such claim may arise out of or in connection with any Company Warranty
Breach), or (B) made pursuant to Section 8.1(e), may be asserted until the date
that is fifteen (15) months after the Closing Date (the “Survival Period”);
 
(ii) claims arising out of or in connection with any inaccuracy in or breach of
any representation and warranty made by the Company under Section 3.1(l) or any
other Tax Loss may be asserted until the close of business on the 45th day after
the expiration of the applicable statute of limitations with respect to such
matter, including any waiver, mitigation or extension thereof (or if such date
is not a Business Day, the next Business Day); and
 
(iii) all other claims may be asserted until the expiration of the applicable
statute of limitations.
 
(b) Claims for indemnification under Section 8.2 may only be asserted within the
following time periods:
 
(i) claims arising out of in connection with any Buyer Warranty Breach may be
asserted until the expiration of the Survival Period; and
 
(ii) all other claims may be asserted until the expiration of the applicable
statute of limitations.
 
(c) Notwithstanding the foregoing Sections 8.3(a) and (b), any breach of
representation, warranty, covenant or agreement in respect of which indemnity
may be sought under this Agreement shall survive the time at which it would
otherwise terminate pursuant to the preceding sentences, if notice of the
inaccuracy or breach thereof giving rise to such right of indemnity shall have
been given to the party against whom such indemnity may be sought prior to such
time in accordance with the terms of this Article 8.
 
8.4 Amount Limitations.
 
(a) Notwithstanding any other provision hereof, the obligations of each Equity
Holder pursuant to Section 8.1 are subject to the following limitations:
 
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(i) with respect to indemnification by the Equity Holders for any Company
Warranty Breach (exclusive of indemnification with respect to Sections
3.1(d)(Authorization), 3.1(i)(Capitalization), 3.1(bb)(Brokers) or
3.1(gg)(Indebtedness), or, for the avoidance of any doubt, any claims described
in Section 8.1(c) to the extent any such claim may arise out of or in connection
with any Company Warranty Breach, or in cases of fraud or willful
misrepresentation (the “Specified Exceptions”)), the Buyer Indemnitees shall not
be entitled to recover Damages unless and until the total amount of Damages
asserted against the Equity Holders exceeds the Indemnification Basket; provided
that if the total amount of such Damages exceeds such amount, then any
Indemnified Party that has suffered or incurred any Damages shall be indemnified
and held harmless for all such Damages, and not only those Damages that exceed
such amount;
 
(ii) with respect to indemnification by the Equity Holders for any Company
Warranty Breach (exclusive of the Specified Exceptions) or pursuant to Section
8.1(e), the Buyer Indemnitees sole source of recourse shall be the Escrowed
Remainder; provided that the aggregate amount of Damages recoverable by the
Buyer Indemnitees pursuant to Section 8.1(a) shall not exceed 50% of the
Indemnification Escrow Amount (plus all income earned thereon in the
Indemnification Escrow Account);
 
(iii) with respect to indemnification by the Equity Holders pursuant to Section
8.1(e), the Buyer Indemnitees sole source of recourse shall be the Escrowed
Remainder; provided that the aggregate amount of Damages recoverable by the
Buyer Indemnitees pursuant to Section 8.1(e) shall not exceed 50% of the
Indemnification Escrow Amount (plus all income earned thereon in the
Indemnification Escrow Account); and
 
(iv) the liability of each Equity Holder for Damages with respect to any
indemnification claim of Buyer Indemnitees under Section 8.1 shall not exceed
such Equity Holder’s Individual Portion.
 
(b) Notwithstanding any other provision hereof, the obligations of Buyer
pursuant to Section 8.2 are subject to the following limitations:
 
(i) with respect to indemnification by Buyer for any Buyer Warranty Breach, the
Equity Indemnitees shall not be entitled to recover Damages unless and until the
total amount of Damages asserted against Buyer exceeds the Indemnification
Basket; provided that if the total amount of such Damages exceeds such amount,
then any Indemnified Party that has suffered or incurred any Damages shall be
indemnified and held harmless for all such Damages, and not only those Damages
that exceed such amount; and
 
(ii) the aggregate amount of Damages recoverable by the Equity Indemnitees
pursuant to Section 8.2 shall not exceed an amount equal to $15,000,000.
 
8.5 Further Limitations on the Indemnification Obligations of the Equity
Holders.
 
(a) Buyer Indemnitees shall not be entitled to recover Damages under Section 8.1
unless and until a claim has been asserted by written notice (a “Claim Notice”),
specifying the details of the alleged misrepresentation or breach of
representation, warranty, covenant or obligation or other basis for
indemnification with reasonable particularity, the Sections of this Agreement
alleged to have been breached, a good faith estimate of the Damages claimed, and
all the relevant facts, delivered to the Equity Holders’ Representative on or
prior to the expiration of the Survival Period.
 
(b) Buyer Indemnitees shall not be entitled to recover under Section 8.1:
 
(i) for consequential Damages of any kind, including Damages consisting of
business interruption or lost profits (regardless of the characterization
thereof), or Damages for diminution of value of the Company; provided that, for
the avoidance of doubt, Buyer Indemnitees shall be entitled to recover exemplary
or punitive Damages arising pursuant to any Third Party Claim;
 
(ii) with respect to the failure to obtain any consent, or to satisfy any
conditions imposed incident to the giving of any consent listed in the Company
Disclosure Schedule and required in connection with, or as a consequence of, the
transactions contemplated by this Agreement; or
 
(iii) to the extent the matter in question, taken together with all similar
matters, does not exceed the amount of any specific reserves with respect to
such matters which are reflected in the Financial Statements.
 
(c) The amount of any recovery by Buyer Indemnitees pursuant to Section 8.1
shall be net of any foreign, federal, state and/or local income tax benefits
actually realized by Buyer Indemnitees as a result of the state of facts which
entitled Buyer Indemnitees to recover from the Equity Holders pursuant to
Section 8.1.
 
(d) The amount of any recovery by Buyer Indemnitees pursuant to Section 8.1
shall be net of any amounts actually recovered under any insurance policy or
under any indemnification or other reimbursement obligation of a third party.
 
 
 
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(e) Buyer Indemnitees shall have the duty to take all reasonably necessary steps
to mitigate any Damages that are, or may be, sustained or incurred by any Buyer
Indemnitee, including recovering all Damages from insurers so as to reduce the
amount of any Damages hereunder.
 
(f) Any Damages otherwise recoverable by Buyer Indemnitees under Section 8.1
shall be first satisfied from funds held in the Indemnification Escrow Account
in accordance with the terms of the Indemnification Escrow Agreement.  As more
fully set forth in the Indemnification Escrow Agreement, the Indemnification
Escrow Account shall be in existence as of the Closing and shall terminate upon
the later of the expiration of the Survival Period and the determination of all
matters made in any Claim Notices, such that all funds remaining therein shall
be distributed to the Equity Holders’ Representative and shall no longer be
available to Buyer Indemnitees, all in accordance with the terms of the
Indemnification Escrow Agreement.
 
(g) The Equity Holders shall not have any right of contribution from the
Surviving Corporation or Buyer with respect to any Damages claimed by a Buyer
Indemnitee.
 
8.6 Right of Set-Off.  If (a) the Escrowed Remainder has been exhausted, or the
escrow pursuant to the Indemnification Escrow Agreement has terminated in
accordance with its terms; and (b) any Buyer Indemnitee has made a claim or
claims for Damages in accordance with the terms of this Article 8 for an amount
or amounts in aggregate in excess of the balance of the Escrowed Remainder
available at such time (“Excess Damages”), Buyer shall have the right to set-off
against the Earnout Consideration (such amounts, the “Earnout Set-Off Amounts”)
for any amount of Excess Damages determined to be due and owing to such Buyer
Indemnitee in the proportion of the Percentage Ownership of each Equity Holder;
provided, however, that, for the avoidance of doubt, Buyer shall not have the
right to set-off against the Earnout Consideration under this Section 8.6 with
respect to indemnification by the Equity Holders for any Company Warranty Breach
(exclusive of any Specified Exception) or pursuant to Section 8.1(e), it being
understood and agreed to by the parties that the Buyer Indemnitees’ sole source
recourse with respect to such indemnification claims shall be the Escrowed
Remainder; provided, further, that the liability of each Equity Holder for
Damages with respect to any indemnification claim of Buyer Indemnitees under
this Section 8.6 shall not exceed such Equity Holder’s Individual Portion.  In
order to be eligible to set-off against the Earnout Consideration pursuant to
this Section 8.6, Buyer must first notify the Equity Holders’ Representative in
writing, the Equity Holders’ Representative shall have the right to object to
such set-off claims in writing within thirty (30) days, and if the Equity
Holders’ Representative so objects the parties shall negotiate in good faith for
thirty (30) days, and if the parties are unable to reach agreement, the
resolution of conflicts shall be in accordance with the procedures set forth in
this Agreement or the Set-Off Escrow Agreement; provided, further that Buyer
shall withhold an amount equal to all unresolved Earnout Set-Off Amounts (the
“Unresolved Earnout Set-Off Amount”) from the Earnout Consideration which is
otherwise due and payable pursuant to Section 2.9.  Simultaneously with the
payment of the Earnout Consideration to the Equity Holders, Buyer, the Equity
Holders’ Representative and the Indemnification Escrow Agent shall enter into an
escrow agreement in mutually acceptable form (the “Set-Off Escrow Agreement”),
Buyer shall deposit the Unresolved Earnout Set-Off Amount in an escrow account
pursuant to the Set-Off Escrow Agreement, and such amount shall be disbursed to
Buyer or the Equity Holders, in whole or in part, in accordance with the terms
of the Set-Off Escrow Agreement upon resolution of each claim for Excess Damages
in accordance with the provisions of this Agreement and the Set-Off Escrow
Agreement.
 
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8.7 Third Party Claims.
 
(a) Notice and Acceptance.  Forthwith following the receipt of notice of a Third
Party Claim, the party receiving the notice of the Third Party Claim shall
promptly notify the other party of its existence setting forth with reasonable
specificity the facts and circumstances of which such party has received notice,
and if the party giving such notice is an Indemnified Party, specifying the
basis hereunder upon which the Indemnified Party’s claim for indemnification is
asserted.  The Indemnified Party shall tender the defense of a Third Party Claim
to the Indemnifying Party.  If the defense of a Third Party Claim is so tendered
and within thirty (30) days thereafter such tender is accepted by the
Indemnifying Party, then, except as herein provided, the Indemnified Party shall
not, and the Indemnifying Party shall, have the right to contest, defend and
litigate such Third Party Claim; provided that prior to assuming control of such
defense, the Indemnifying Party must acknowledge that it would have an
indemnification obligation for any Damages resulting from such Third Party Claim
as provided under this Article 8; and provided, further that the Indemnifying
Party shall not be entitled to assume or maintain control of the defense of any
Third Party Claim if (i) the Third Party Claim relates to or arises in
connection with any criminal proceeding, action, indictment, allegation or
investigation, (ii) the Indemnified Party reasonably believes an adverse
determination with respect to the Third Party Claim would be detrimental to the
Indemnified Party’s reputation or future business prospects, (iii) the Third
Party Claim seeks an injunction or equitable relief against the Indemnified
Party, or (iv) the specified damages of such Third Party Claim exceeds an amount
equal to the Escrowed Remainder less the sum of (A)  the amount subject to any
other Claims outstanding with respect to such Indemnification Escrow Amount plus
(B) the reasonably anticipated expenses for litigation of such Claim.  The
Indemnifying Party shall conduct any such defense in good faith, with
appropriate diligence and in the best interest of the Indemnified Party.  The
Indemnified Party shall have the right to be represented by counsel at its own
expense in any such contest, defense, litigation or settlement conducted by the
Indemnifying Party in accordance with this Article 8; provided that the
Indemnified Party shall be entitled to reimbursement therefor if the
Indemnifying Party shall lose its right to contest, defend and litigate the
Third Party Claim as herein provided.
 
(b) Settlement.  If the Indemnifying Party shall assume the control of the
defense of any Third Party Claim in accordance with the provisions of this
Section 8.7, the Indemnifying Party shall obtain the prior written consent of
the Indemnified Party before entering into any settlement of such Third Party
Claim if the settlement does not expressly unconditionally release the
Indemnified Party from all liabilities and obligations with respect to such
Third Party Claim or the settlement imposes injunctive or other equitable relief
against, or any other adverse effect on, the Indemnified Party.
 
(c) Indemnified Party’s Rights.  The Indemnifying Party shall lose its right to
contest, defend and litigate the Third Party Claim if it shall fail to
diligently contest the Third Party Claim.  If an Indemnified Party is entitled
to indemnification against a Third Party Claim, and the Indemnifying Party is
not entitled or fails to accept a tender of, or assume, the defense of a Third
Party Claim pursuant to this Section 8.7, or if, in accordance with the
foregoing, the Indemnifying Party shall lose its right to contest, defend and
litigate such a Third Party Claim, the Indemnified Party shall have the right,
without prejudice to its right of indemnification hereunder, in its discretion
exercised in good faith and upon the advice of counsel, to contest, defend and
litigate such Third Party Claim, and may settle such Third Party Claim, either
before or after the initiation of litigation, at such time and upon such terms
as the Indemnified Party deems fair and reasonable; provided that at least ten
(10) days prior to any such settlement, written notice of its intention to
settle is given to the Indemnifying Party.  If, pursuant to this Section 8.7,
the Indemnified Party so contests, defends, litigates or settles a Third Party
Claim for which it is entitled to indemnification hereunder, the Indemnified
Party shall be reimbursed by the Indemnifying Party for the reasonable
attorneys’ fees and other expenses of contesting, defending, litigating and/or
settling the Third Party Claim which are incurred from time to time, forthwith
following the presentation to the Indemnifying Party of itemized bills for said
attorneys’ fees and other expenses.
 
(d) Tax Loss Claims.  With respect to any Third Party Claim that is reasonably
expected to give rise to a Tax Loss, Buyer shall notify the Equity Holders’
Representative of the existence of such Third Party Claim and set forth with
reasonable specificity the facts and circumstances of which such party has
received notice.  Promptly thereafter, Equity Holders’ Representative may elect
on behalf of the Equity Holders for the Equity Holders to participate in (but
not control) the defense thereof and to employ counsel, at their own expense,
separate from the counsel employed by Buyer.  If Equity Holders’ Representative
does not elect to have Equity Holders assume such defense, Buyer may pay,
compromise or contest the Tax at issue.  Whether or not Equity Holders’
Representative choose to have Equity Holders defend or prosecute any claim, all
of the parties hereto shall cooperate in the defense or prosecution thereof.
 
35

8.8 Indemnification Exclusive Remedy.  The parties acknowledge and agree that,
from and after the Closing, the sole and exclusive remedy for any actual or
alleged breach or inaccuracy of any representation or warranty in this
Agreement, or in any Company Document or Buyer Document, or of any covenant or
agreement to be performed hereunder, or under any Company Document or Buyer
Document, shall be indemnification in accordance with this Article 8.  In
furtherance of the foregoing, except in the case of fraud, the parties hereby
waive, to the fullest extent permitted by applicable Law, any and all other
rights, claims, and causes of action (including rights of contributions, if any)
that may be based upon, arise out of, or relate to this Agreement, any Company
Document or any Buyer Document, or the negotiation, execution, or performance
hereof or thereof (including any tort or breach of contract claim or cause of
action based upon, arising out of, or related to any representation or warranty
made herein or therein), known or unknown, foreseen or unforeseen, which exist
or may arise in the future, that they may have against the other arising under
or based upon any Law, common law, or otherwise.
 
8.9 Straddle Period Taxes.  For purposes of this Agreement, in the case of any
Taxes that are imposed on a periodic basis and are payable for a Tax period that
includes (but does not end on) the Closing Date, the portion of such Tax related
to the portion of such Tax period ending on and including the Closing Date shall
(a) in the case of any Taxes (other than those set forth in Section 8.9(b)
below) be deemed to be the amount of such Tax for the entire Tax period
multiplied by a fraction the numerator of which is the number of days in the Tax
period ending on and including the Closing Date and the denominator of which is
the number of days in the entire Tax period; and (b) in the case of any Tax
based upon or related to income, and any gross receipts, sales, capital,
franchise or use Tax, be deemed equal to the amount which would be payable if
the relevant Tax period ended on and included the Closing Date.  All
determinations necessary to give effect to the allocation set forth in the
foregoing clause (a) shall be made in a manner consistent with prior practice of
the Company.
 
8.10 Purchase Price Adjustment.  Any amount paid by the Equity Holders or Buyer
under Article 8 will be treated as an adjustment to the Merger Consideration.
 
ARTICLE 9
 
 
 
TERMINATION
 
9.1 General.  The parties shall have the rights and remedies with respect to the
termination and/or enforcement of this Agreement which are set forth in this
Article 9.
 
9.2 Right to Terminate.  Anything to the contrary herein notwithstanding, this
Agreement and the transactions contemplated hereby may be terminated at any time
prior to the Effective Time (notwithstanding the receipt of the Shareholder
Approval):
 
(a) by the mutual written consent of Buyer and the Company;
 
(b) by written notice given in accordance with Section 11.2, by either Buyer or
the Company, if:
 
(i) the Closing shall not have occurred by 11:59 p.m. on March 14, 2008 (the
“Target Closing Date”); provided, however, the right to terminate this Agreement
under this Section 9.2(b) shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or
resulted in the failure of the Closing to occur; or
 
(ii) there shall be any applicable Law or ruling of any Governmental Authority
that (A) makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or (B) enjoins the Company or Buyer from consummating the
transactions contemplated hereby and such enjoinment shall have become final and
nonappealable;
 
(c) by Buyer, if there has been a breach or violation of any of the
representations and warranties or covenants on the part of the Company or the
Equity Holders’ Representative contained in this Agreement that would cause any
condition set forth in Section 5.1 or 5.3 not to be satisfied, and such
condition has not been waived by Buyer in writing and has not been cured by the
Company within five (5) days of written notice thereof; provided that if such
breach or violation cannot reasonably be cured within such five (5) day period
but can be reasonably cured prior to the Target Closing Date and the Company is
diligently proceeding to cure, and continues to diligently proceed to cure such
breach or violation, this Agreement may not be terminated pursuant to this
Section 9.2(c);
 
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(d) by the Company, if there has been a breach or violation by Buyer and/or
Merger Sub of any of such Person’s respective representations and warranties or
covenants contained in this Agreement that would cause any condition set forth
in Section 5.2 or 5.3 not to be satisfied, and such condition has not been
waived by the Company in writing and has not been cured by Buyer and/or Merger
Sub within five (5) days of written notice thereof; provided that if such breach
or violation cannot reasonably be cured within such five (5) day period but can
be reasonably cured prior to the Target Closing Date and Buyer and/or Merger Sub
is diligently proceeding to cure, and continues to diligently proceed to cure
such breach or violation, this Agreement may not be terminated pursuant to this
Section 9.2(d);
 
(e) by Buyer if any of the conditions to the obligations of Buyer and Merger Sub
set forth in Sections 5.2 or 5.3 shall have become incapable of fulfillment by
the Target Closing Date and shall not have been waived by Buyer in writing;
provided, however, that Buyer shall not be entitled to terminate this Agreement
pursuant to this Section 9.2(e) if Buyer is in breach in any material respect of
its representations and warranties or covenants contained in this Agreement; or
 
(f) by the Company if any of the conditions to the obligation of the Company set
forth in Sections 5.1 or 5.3 shall have become incapable of fulfillment and
shall not have been waived by the Company in writing; provided, however, that
the Company shall not be entitled to terminate this Agreement pursuant to this
Section 9.2(f) if Company is in breach in any material respect of its
representations and warranties or covenants contained in this Agreement.
 
9.3 Certain Effects of Termination.  In the event of the termination of this
Agreement by either the Company or Buyer as provided in Section 9.2:  (a) each
party, if so requested by the other party, will return promptly every document
furnished to it by the other party (or any division, associate or Affiliate of
such other party) in connection with the transactions contemplated hereby,
whether so obtained before or after the execution of this Agreement, and any
copies thereof (except for copies of documents publicly available) which may
have been made, and will use reasonable efforts to cause its representatives and
any representatives of financial institutions and investors and others to whom
such documents were furnished promptly to return such documents and any copies
thereof any of them may have made; and (b) any applicable confidentiality
agreement between the parties shall remain in effect.  This Section 9.3 and
Article 11 shall survive any termination of this Agreement.
 
9.4 Remedies.  Notwithstanding any termination right granted in Section 9.2, in
the event of the non-fulfillment of any condition to a party’s closing
obligations, in the alternative, such party may elect to do one of the
following: (a) proceed to close despite the non-fulfillment of such closing
condition, it being understood that consummation of the Closing shall be deemed
a waiver of a breach of any representation, warranty or covenant and of such
party’s rights and remedies with respect thereto to the extent that such party
shall have actual knowledge of such breach and the Closing shall nonetheless
occur; (b) decline to close, terminate this Agreement as provided in Section
9.2, and thereafter seek damages to the extent permitted in Section 9.5; or
(c) seek specific performance of the obligations of the other party.  Each party
hereby agrees that in the event of any material breach by such party of this
Agreement, the remedies available to the other party at law would be inadequate
and that such party’s obligations under this Agreement may be specifically
enforced.
 
9.5 Right to Damages.  If this Agreement is terminated pursuant to Section 9.2,
neither party hereto shall have any right whatsoever to assert a claim against
the other party, and all rights and obligations of the parties hereunder shall
terminate without any liability of any party to any other party, unless the
circumstances giving rise to such termination were caused by the other party’s
willful failure to comply with a covenant or agreement set forth herein, in
which event termination shall not be deemed or construed as limiting or denying
any equitable right or remedy of said party.
 
ARTICLE 10
 
 
 
EQUITY HOLDERS’ REPRESENTATIVE
 
10.1 Equity Holders’ Representative.  Effective upon the Effective Time,
pursuant to the Written Consent, the Option Cancellation Agreement, and the
Option Acceleration and Cancellation Agreement, and without any further act of
any of the Equity Holders, the Equity Holders’ Representative shall be hereby
appointed as the representative of the Equity Holders and as the
attorney-in-fact and agent for and on behalf of each Equity Holder solely with
respect to those matters set forth in this Agreement, including, but not limited
to:
 
(a) executing and delivering, on behalf of each Equity Holder, and accepting
delivery of, on behalf of such Equity Holder, such documents as may be deemed
appropriate by the Equity Holders’ Representative to consummate this Agreement;
 
(b) endorsing and delivering on behalf of each Shareholder, Certificates in
exchange for the Merger Consideration;
 
37

(c) endorsing and delivering on behalf of each Stock Option Holder, Stock
Options in exchange for the Merger Consideration;
 
(d) (i) disputing or refraining from disputing, on behalf of each Equity Holder,
any claim made by a Buyer Indemnitee under Article 8; (ii) negotiating and
compromising, on behalf of each Equity Holder, any dispute that may arise
hereunder, and exercising or refraining from exercising any remedies available
under Article 8; and (iii) executing, on behalf of each Equity Holder, any
settlement agreement, release or other document with respect to such dispute or
remedy;
 
(e) giving and receiving, on behalf of each Equity Holder, all notices required
to be given hereunder with respect to such Equity Holders;
 
(f) amending this Agreement or any of the Company Documents to be delivered to
Buyer and/or Merger Sub by each Equity Holder pursuant to this Agreement; and
 
(g) taking all other actions contemplated to be taken by or on behalf of Equity
Holders in this Agreement.
 
10.2 Mutual Acceptance.  By the Equity Holders’ Representative’s execution of
this Agreement, the Equity Holders’ Representative accepts the appointment as
the Equity Holders’ Representative hereunder and agrees to be bound by the terms
and conditions of this Agreement.  By the Equity Holders’ Representative’s
execution of this Agreement, each Equity Holder agrees that:
 
(a) all actions, decisions and instructions of the Equity Holders’
Representative shall be conclusive and binding upon all of the Equity Holders;
 
(b) the provisions of this Section are independent and severable, are
irrevocable and coupled with an interest and shall be enforceable
notwithstanding any rights or remedies that any Equity Holder may have in
connection with the transactions contemplated by this Agreement; and
 
(c) the provisions of this Section shall be binding upon the executors, heirs,
legal representatives and successors of each Equity Holder.
 
10.3 Powers.  The Equity Holders’ Representative shall have such powers and
authority as are necessary to carry out the functions assigned Equity Holders’
Representative under this Agreement; provided, however, the Equity Holders’
Representative shall have no obligation to act on behalf of Shareholders except
as expressly provided herein.
 
10.4 Vacancy.  In the event the Equity Holders’ Representative becomes unable to
perform the Equity Holders’ Representative’s responsibilities hereunder or
resigns from such position, Equity Holders representing greater than 50% of the
aggregate Percentage Ownership shall select another representative to fill such
vacancy and such substituted representative shall be deemed to be the Equity
Holders’ Representative for all purposes of this Agreement upon his acceptance
thereof in writing.
 
10.5 Removal.  Equity Holders representing greater than 50% of the aggregate
Percentage Ownership shall have the right, exercisable from time to time upon
written notice delivered to the Equity Holders’ Representative and Buyer: (a) to
remove the Equity Holders’ Representative, with or without cause and (b) to
appoint another Person to fill a vacancy caused by the resignation or removal of
the Equity Holders’ Representative.
 
10.6 No Compensation; Reimbursement.  The Equity Holders’ Representative shall
not be entitled to any fee, commission or other compensation for the performance
of services hereunder, but shall be entitled to be reimbursed by Equity Holders
for all expenses reasonable incurred in the performance of such Equity Holders’
Representative’s duties, including, without limitation, attorneys and
accountants fees and expenses.
 
10.7 Liability.  In exercising or failing to exercise the powers or duties
conferred upon the Equity Holders’ Representative hereunder, the Equity Holders’
Representative shall incur no responsibility or liability whatsoever to any
Equity Holder by reason of any error in judgment or other act or omission
performed or omitted, except for any act or failure to act which constitutes
fraud, gross negligence or willful misconduct.
 
 
 
38

 
10.8 Indemnification.  Each Equity Holder shall indemnify the Equity Holders’
Representative, based upon each such Person’s Percentage Ownership, against all
damages (including reasonable attorneys’, accountants’ and other experts’ or
consultant’s fees) of any nature whatsoever (including any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened or any claims whatsoever), arising out
of or in connection with any claim, investigation, challenge, action or
proceeding or in connection with any appeal thereof, relating to the acts or
omissions of the Equity Holders’ Representative; provided, however, the
foregoing indemnification shall not apply in the event of any action or
proceeding which finally adjudicates the Equity Holders’ Representative liable
for fraud, gross negligence or willful misconduct.  In the event of any
indemnification under this Section, upon written notice from the Equity Holders’
Representative to Equity Holders as to the existence of a deficiency toward the
payment of any such indemnification amount, each Equity Holder shall promptly
deliver to the Equity Holders’ Representative full payment of such Person’s
Percentage Ownership of the amount of such deficiency.
 
10.9 Survival.  All of the indemnities, immunities and powers granted to the
Equity Holders’ Representative under this Agreement shall survive the Effective
Time and/or any termination of this Agreement.
 
10.10 Reliance.  Buyer, the Surviving Corporation and the Equity Holders shall
have the right to rely conclusively upon all actions taken or omitted to be
taken by the Equity Holders’ Representative pursuant to this Agreement.
 
ARTICLE 11
 
 
 
MISCELLANEOUS
 
11.1 Publicity.  Except as otherwise required by applicable Law, press releases
and other publicity concerning the transactions contemplated hereby shall be
made only with the prior agreement of the Company and Buyer (and in any event,
the parties shall use all reasonable efforts to consult and agree with each
other with respect to the content of any such required press release or other
publicity).
 
11.2 Notices.  All notices required or permitted to be given hereunder shall be
in writing and may be delivered by hand, by facsimile, by nationally recognized
private courier, or by United States mail.  Notices delivered by mail shall be
deemed given three (3) Business Days after being deposited in the United States
mail, postage prepaid, registered or certified mail, return receipt
requested.  Notices delivered by hand, by facsimile, or by nationally recognized
private courier shall be deemed given on the first Business Day following
receipt; provided, however, that a notice delivered by facsimile shall only be
effective if such notice is also delivered by hand, or deposited in the United
States mail, postage prepaid, registered or certified mail, within two (2)
Business Days after its delivery by facsimile.  All notices shall be addressed
as follows:
 
If to the Company or the Equity Holders’ Representative:
 
Alan Fitzgerald
501 E. Park Avenue
Gilbert, Arizona 85234
 
with a copy to (which copy shall not constitute notice):
 
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004
Attn: Terry Roman, Esq.
Fax:  (602) 382-6070
 
If to Buyer:
 
SMART Modular Technologies, Inc.
4211 Starboard Dr.
Fremont California 94538
Attn: Iain MacKenzie
Fax:  (510) 360-8500
 
39

with a copy to (which copy shall not constitute notice):
 
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California  94025
Attn:  Alan F. Denenberg
Fax:  (650) 752-2111
 
or to such other addresses as may be designated by notice given in accordance
with the provisions hereof.
 
11.3 Expenses; Transfer Taxes.  Except as otherwise provided herein, each party
hereto shall bear all fees and expenses incurred by such party in connection
with, relating to or arising out of the negotiation, preparation, execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, including financial advisors’, attorneys’,
accountants’ and other professional fees and expenses.
 
11.4 Entire Agreement.  This Agreement, the Buyer Documents and the Company
Documents constitute the entire agreement between the parties with respect to
the subject matter hereof, shall supersede any other prior or contemporaneous
agreements between the parties relating to the subject matter hereof, and shall
be binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, successors and permitted assigns.  Each Annex,
Exhibit and Schedule hereto, the Company Disclosure Schedule, and the Buyer and
Merger Sub Disclosure Schedule shall be considered incorporated into this
Agreement.
 
11.5 Disclosures and Projections.  Except as expressly set forth in Sections 3.1
and 3.3, the Company makes no express or implied warranty of any kind
whatsoever, including any representation or warranty as to the securities or the
property of the Company, the relationship of the Company with its respective
customers and suppliers, or the future profitability or future earnings
performance of the Company.  Buyer acknowledges that any estimates, forecasts,
or projections furnished or made available to it concerning the Company
(including the contents of the Project Armour executive summary and Business
Overview (October 2007) circulated by its advisors, Houlihan Lokey Howard &
Zukin) or its properties, business or assets have not been prepared in
accordance with GAAP or standards applicable under the Securities Act, and such
estimates are based upon numerous assumptions, and are subject to material risks
and uncertainties and are hereby disclaimed by the Company.  Buyer acknowledges
that actual results may vary, perhaps materially.
 
11.6 Non-Waiver.  The failure in any one or more instances of a party to insist
upon performance of any of the terms, covenants or conditions of this Agreement,
to exercise any right or privilege in this Agreement conferred, or the waiver by
said party of any breach of any of the terms, covenants or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred.  No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.
 
11.7 Counterparts.  This Agreement may be executed in multiple counterparts and
by facsimile or other electronic transmission, each of which shall be deemed to
be an original, and all such counterparts shall constitute but one instrument.
 
11.8 Severability.  Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable Law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable Law, such invalidity,
illegality or unenforceability shall not affect any other provision and such
provision or portion thereof shall be struck from the remainder of this
Agreement, which shall remain in full force and effect.  This Agreement shall be
reformed, construed and enforced so as to best give effect to the intent of the
parties under this Agreement.
 
11.9 Applicable Law.  This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal Laws of the State of Arizona applicable to contracts
made in that state, without giving effect to any choice of law or conflict of
law provision or rule that would cause the application of the Laws of any
jurisdiction other than the State of Arizona.
 
11.10 Binding Effect; Benefit.  This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their successors and permitted
assigns.  Nothing in this Agreement, express or implied, shall confer on any
Person other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, including third party beneficiary rights.
 
11.11 Successors and Assigns.  The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto; except that Buyer may transfer or assign its
rights and obligations under this Agreement, in whole or from time to time in
part, to (i) one or more of its Affiliates at any time and (ii) after the
Effective Time, to any Person; provided that no such transfer or assignment
shall relieve Buyer of its obligations hereunder or enlarge, alter or change any
obligation of any other party hereto or due to Buyer.
 
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11.12 Rule of Construction.  The parties acknowledge and agree that each has
negotiated and reviewed the terms of this Agreement, assisted by such legal and
tax counsel as they desired, and has contributed to its revisions.  The parties
further agree that the rule of construction that any ambiguities are resolved
against the drafting party will be subordinated to the principle that the terms
and provisions of this Agreement will be construed fairly as to all parties and
not in favor of or against any party.
 
11.13 Governmental Reporting.  Anything to the contrary in this Agreement
notwithstanding, nothing in this Agreement shall be construed to mean that a
party hereto or other Person must make or file, or cooperate in the making or
filing of, any return or report to any Governmental Authority in any manner that
such Person or such party reasonably believes or reasonably is advised is not in
accordance with Law.
 
11.14 Waiver of Trial by Jury.  Each of the parties hereto waives the right to a
jury trial in connection with any lawsuit, action or proceeding seeking
enforcement of such party’s rights under this Agreement.
 
11.15 Consent to Jurisdiction.  The parties each agree to the non-exclusive
jurisdiction of any state or Federal court within the State of Arizona with
respect to any claim or cause of action arising under or relating to this
Agreement, and waive personal service of any and all process upon it, and
consent that all services of process be made by registered or certified mail,
return receipt requested, directed to it at its address as set forth in Section
11.2, and service so made shall be deemed to be completed when received.  The
parties each waive any objection based on forum non conveniens and waive any
objection to venue of any action instituted hereunder.  Nothing in this
paragraph shall affect the right of the parties to serve legal process in any
other manner permitted by law.
 
11.16 Amendments.  This Agreement shall not be modified or amended except
pursuant to an instrument in writing executed and delivered on behalf of each of
the parties hereto.
 
11.17 Headings.  The headings contained in this Agreement are for convenience of
reference only and shall not affect the meaning or interpretation of this
Agreement.
 
11.18 Interpretive Matters.  The headings used in this Agreement have been
inserted for convenience and do not constitute provisions to be construed or
interpreted in connection with this Agreement.  Unless the context of this
Agreement otherwise requires, (a) words of any gender will be deemed to include
each other gender; (b) words using the singular or plural number also will
include the plural or singular number, respectively; (c) the terms “hereof”,
“herein”, “hereby” and derivative or similar words will refer to this entire
Agreement; and (d) the terms “includes” and “including” shall mean “includes
without limitation” and “including without limitation,”
respectively.  References to any Person include the successors and permitted
assigns of that Person.  References from or through any date mean, unless
otherwise specified, from and including or through and including, respectively.
 
11.19 Disclosure Schedule References.  The parties hereto agree that any
reference in a particular Section of the Company Disclosure Schedule or the
Buyer and Merger Sub Disclosure Schedule shall only be deemed to be an exception
to (or, as applicable, a disclosure for purposes of) (i) the representations and
warranties (or covenants, as applicable) of the relevant party that are
contained in the corresponding Section of this Agreement and (ii) any other
representations and warranties of such party that is contained in this
Agreement, but only if the relevance of that reference as an exception to (or a
disclosure for purposes of) such representations and warranties would be readily
apparent to a reasonable Person who has read that reference and such
representations and warranties.
 
 
 
[Remainder of page intentionally left blank.  Signature page follows.]
 

 
 
41

 
 
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan of Merger
effective as of the date first above written.

ADTRON CORPORATION
By:
       
Name:
   
Title:
           
SMART MODULAR TECHNOLOGIES, INC.
By:
       
Name:
   
Title:
           
ARMOR ACQUISITION CORPORATION
By:
       
Name:
   
Title:
           
ALAN FITZGERALD,
as Equity Holders’ Representative

 
 
42

 

Exhibit A
 
1.1           Definitions.  For purposes of this Agreement, the following terms
have the meanings set forth below.
 
“Affiliate” with respect to any Person means any other Person who directly or
indirectly Controls, is Controlled by, or is under common Control with such
Person including, in the case of any Person who is an individual, his or her
spouse, any of his or her descendants (natural or adopted) or ancestors, and any
of their spouses.
 
“Agreement” means this Agreement and Plan of Merger, including all Exhibits and
Schedules hereto, as the same may be amended, modified or supplemented from time
to time in accordance herewith.
 
“Arizona Law” means the Arizona Business Corporation Act (A.R.S. 10-001 et seq.)
and applicable case law.
 
“assets” of any Person means all assets and properties of every kind, nature,
character and description (whether real, personal or mixed, whether tangible or
intangible, and wherever situated), including the related goodwill, which assets
and properties are operated, owned or leased by such Person.
 
“Balance Sheet” means the unaudited balance sheet of the Company as of the
Financial Statements Date.
 
“Benefit Plan” means each Plan, Multiemployer Plan, Welfare Plan and Other
Benefit Plan.
 
“Business Day” means a day, other than a Saturday, Sunday or other day on which
commercial banks in Phoenix, Arizona or New York, New York are authorized or
required by Law to close.
 
“Buyer” has the meaning set forth in the Introductory Paragraph.
 
“Buyer and Merger Sub Disclosure Schedule” means the schedules delivered by
Buyer concurrently herewith and identified by the parties as the Buyer and
Merger Sub Disclosure Schedule.
 
“Buyer Documents” has the meaning set forth in Section 3.2(b).
 
“Buyer Indemnitees” means Buyer and its Affiliates (including, after the
Effective Time, the Surviving Corporation) and their respective directors,
managers, officers, members, shareholders and partners, and the term “Buyer
Indemnitee” means any one of the foregoing Buyer Indemnitees.
 
“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and any rules or regulations promulgated
thereunder.
 
“Closing Consideration” means an amount equal to $20,000,000, minus (ii) the
Estimated Payroll Tax Amount, minus (iii) the Estimated Transaction Expense
Amount, and minus (iv) the Pre-Closing Dissenting Share Payments.
 
“Closing Net Working Capital” means the Net Working Capital of the Company as
shown on the Closing Balance Sheet, as determined by Buyer in accordance with
Section 2.7.
 
“Closing Net Working Capital Notice” has the meaning set forth in Section
2.7(a).
 
“Code” means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
 
“Company” has the meaning set forth in the Introductory Paragraph.
 
“Company Disclosure Schedule” means the schedules delivered by the Company
concurrently herewith and identified by the parties as the Company Disclosure
Schedule.
 
“Company Documents” has the meaning set forth in Section 3.1(b).
 
“Company Stock” means the Class A Common Stock, $0.1 par value per share, of the
Company and the Class B Common Stock, non-voting, $0.1 par value per share, of
the Company.
 
“Contracts” has the meaning set forth in Section 3.1(o).
 
“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through ownership of securities, by contract or otherwise.
 
“Damages” means all money judgments, payment obligations, Taxes, assessments,
levies, losses, damages, costs, fines, penalties and reasonable attorneys’ fees
and expenses incurred in investigating or defending a Third Party Claim,
including Tax Losses, or in connection with a claim solely between the parties
hereto to enforce the provisions hereof.
 
 
 
43
 
“Debt Repayment Amount” means the sum of all amounts payable in full
satisfaction of all Indebtedness of the Company as of the Closing Date.
 
“Dissenting Share Payments” means (i) any payments made by or on behalf of the
Company or Buyer in respect of any Dissenting Shares in excess of the
consideration that otherwise would have been payable in respect of such shares
in accordance with this Agreement and (ii) any other costs or expenses incurred
by the Company or Buyer (including attorneys’ fees, costs and expenses in
connection with any action or proceeding or in connection with any
investigation) in respect of any Dissenting Shares.
 
“Dissenting Shares” has the meaning set forth in Section 2.10.
 
“Earnout Consideration” has the meaning set forth in Section 2.9(b).
 
“Employees” has the meaning set forth in Section 3.1(r).
 
“Environmental Laws” means all federal, state, local or foreign statutes, laws
(including common law) or regulations treaty, judicial decision, regulation,
rule, judgment, order, decree, injunction, permit or governmental restriction or
requirement or any agreement with any Governmental Authority or other Third
Party, relating to human health and safety or the environment, including laws
and regulations relating to Releases or Threatened Releases of Hazardous
Substances, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.
 
“Environmental Permits” means all permits, licenses, registrations, franchises,
certificates, approvals and other similar authorizations of Governmental
Authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the business, properties or assets of the Company or any
of its Subsidiaries as currently conducted.
 
“Equity Holders” means the Shareholders and Stock Option Holders.
 
“Equity Indemnitees” means the Equity Holders, and their respective directors,
managers, officers, members, shareholders, partners, successors and assigns, and
the term “Equity Indemnitee” means any one of the foregoing Equity Indemnitees.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder.
 
“ERISA Affiliate” of any entity means any other entity that, together with such
entity, would be treated as a single employer under Section 414 of the Code.
 
“Escrow Agent” means the escrow agent mutually agreed to by Buyer and Equity
Holders’ Representative who will maintain the Indemnification Escrow Account
under the Indemnification Escrow Agreement.
 
“Estimated Payroll Tax Amount” means the Payroll Tax Amount, as estimated in
good faith by the Company, as set forth on the Determination Certificate.
 
“Estimated Transaction Expense Amount” means the Transaction Expense Amount, as
estimated in good faith by the Company, as set forth on the Determination
Certificate.
 
“Final Net Working Capital” means the Net Working Capital of the Company as of
the Closing Date as finally determined in accordance with Section 2.7.
 
“Financial Statements” means the Company’s audited balance sheet, pro-forma
statement of income and retained earnings, pro-forma statement of cash flows,
and the notes thereto as of and for the twelve (12) month period ended December
31, 2007.
 
“Financial Statement Date” means December 31, 2007.
 
“GAAP” means those accounting principles generally accepted in the United
States.
 
“Governmental Authority” means any instrumentality, subdivision, court,
administrative agency, commission, official or other authority of the United
States or any other country or any state, county, province, municipality,
locality or other government or political subdivision thereof, any
quasi-governmental or private body exercising any regulatory, taxing or other
governmental or quasi-governmental authority, or any arbitrator.
 
 
 
44

 
“Hazardous Substances” means any pollutant, contaminant, waste or chemical or
any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous
substance, waste or material, or any substance, waste or material having any
constituent elements displaying any of the foregoing characteristics, including,
without limitation, petroleum, its derivatives, by products and other
hydrocarbons, and any substance, waste or material regulated under any
environmental law, including without limitation (i) any “hazardous waste” as
defined in the Resource Conservation and Recovery Act of 1976 (42
U.S.C.  Sections 6901 et seq.), as amended through the Closing Date, and
regulations promulgated thereunder; and (ii) any “hazardous substance” as
defined in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (42 U.S.C.  Sections 9601 et seq.), as amended through the Closing
Date, and regulations promulgated thereunder.
 
“Holdback Amount” means $250,000.
 
“Indebtedness” means, collectively, any (i) indebtedness for borrowed money,
(ii) indebtedness evidenced by any bond, debenture, note, mortgage, indenture or
other debt instrument or debt security, (iii) amounts owing as deferred purchase
price for the purchase of any property (other than trade payables and other
current liabilities arising in the ordinary course of business) or (iv)
guarantees with respect to any indebtedness or obligation of a type described in
clauses (i) through (iii) above of any other Person, other than in each of
clause (i) through (iv) any intercompany indebtedness.
 
“Indemnification Basket” means an amount equal to $250,000.
 
“Indemnification Escrow Account” means the account established with and
maintained by the Escrow Agent pursuant to the Indemnification Escrow Agreement.
 
“Indemnification Escrow Amount” means $4,000,000.
 
“Indemnified Party” means, with respect to a particular matter, a Person who is
entitled to indemnification from another party hereto pursuant to Article 8.
 
“Indemnifying Party” means, with respect to a particular matter, a party hereto
who is required to provide indemnification under Article 8 to another Person.
 
“Individual Portion” means, with respect to any Equity Holder, an amount equal
to the product of such Equity Holder’s Percentage Ownership multiplied by the
aggregate amount of Damages for which the Equity Holders are liable pursuant to
Section 8.1.
 
“Intellectual Property” has the meaning in Section 3.1(x).
 
“Intellectual Property Licenses” means all agreements between the Company and
any Person, other than agreements for commercial off-the-shelf software
available on non-discriminatory pricing terms, pursuant to which (i) the Company
grants any current or contingent right to use, or a covenant not to be sued
under, any Intellectual Property right or (ii) the Company obtains the right to
use, or a covenant not to be sued under, any Intellectual Property right.
 
“IRS” means the Internal Revenue Service.
 
“Knowledge” of any Person that is not an individual means the knowledge of such
Person’s officers after reasonable inquiry and, in respect of the Company, of
each of Alan Fitzgerald, Bob Benkendorf, and Gloria Zemela after reasonable
inquiry.
 
“Law” has the meaning set forth in Section 3.1(e).
 
“Leased Real Estate” means all real property leased or subleased by the Company.
 
“Liabilities” means any obligation or liability of the Company or any of its
Subsidiaries of any nature whatsoever (direct or indirect, matured or unmatured,
absolute, accrued, contingent or otherwise) which would be required by GAAP to
be provided or reserved against on a balance sheet.
 
“Liens” means all judgments, pledges, rights of first refusal or first offer,
mortgages, indentures, claims, liens, security interests and other encumbrances
of every kind and nature.
 
45

“Material Adverse Effect” means any change or effect (or series of related
changes or effects) which in the aggregate has or is reasonably likely to have a
material adverse effect upon the business, assets, liabilities, results of
operations or financial condition of the Company and any of its Subsidiaries,
taken as a whole; provided that the foregoing shall not include any change or
effect resulting from (i) United States or global business or economic
conditions or conditions in the industry in which the Company is engaged in
business which do not disproportionately affect the Company, (ii) changes in any
Law after the date hereof, (iii) U.S. or international political or social
conditions, including military conflicts or acts of terrorism anywhere in the
world and including any pandemics, (iv) the general public awareness of the
transactions contemplated in this Agreement or the execution of this Agreement
or announcement thereof (including any changes in the relationship between the
Company and any of its customers or suppliers), (v) any change in GAAP after the
date hereof, or (vi) any adverse change in or effect on the business of the
Company that is cured before the earlier to occur of (A) the Closing Date and
(B) the date on which this Agreement is terminated pursuant to
 
Article 9.
 
“Merger Consideration” shall mean the Closing Consideration, plus the Earnout
Consideration (if any).
 
“Net Working Capital” means the net working capital of the Company calculated
(i) in accordance with the formula and methodology set forth on Annex IV, and
(ii) in any event, in accordance with GAAP, except as set forth on Annex IV.
 
“Other Benefit Plan” means any bonus, deferred compensation, stock purchase,
stock option, restricted stock, stock appreciation rights, phantom stock rights,
severance, salary continuation, vacation, sick leave or other employee plan,
agreement or arrangement other than a Plan, Multiemployer Plan and Welfare Plan.
 
“Payroll Tax Amount” means all Medicare (or similar state tax) contributions
resulting from the exercise, repurchase or cash-out of any Stock Options, in
each case including payments pursuant to Section 2.3.
 
“Per Share Closing Consideration” means the quotient obtained by dividing (i)
the Closing Consideration by (ii) the total number of outstanding shares of
Company Stock plus the total number of shares represented by all Accelerated
Options and Vested Options, in each case, as of immediately prior to the
Effective Time (excluding any shares of Company Stock cancelled pursuant to
Section 2.2(a)(ii) and Dissenting Shares).
 
“Per Share Merger Consideration” means the quotient obtained by dividing (i) the
Merger Consideration by (ii) the total number of outstanding shares of Company
Stock plus the total number of shares represented by all Accelerated Options and
Vested Options, in each case, as of immediately prior to the Effective Time
(excluding any shares of Company Stock cancelled pursuant to Section 2.2(a)(ii)
and Dissenting Shares).
 
“Per Share Accelerated Option Consideration” has the meaning given in Section
2.3(b).
 
“Per Share Vested Option Consideration” has the meaning given in Section 2.3(a).
 
“Percentage Ownership” means, with respect to each Shareholder or Stock Option
Holder, as the case may be, the percentage equal to the quotient obtained by
dividing (i) either (A) the number of shares of Company Stock held by such
Shareholder, as of immediately prior to the Effective Time, and/or (B) the
number of shares of Common Stock such Stock Option Holder of could have
purchased had such holder exercised such Accelerated Options and/or Vested
Options in full immediately prior to the Effective Time, by (ii) the total
number of outstanding shares of Company Stock, plus the total number of shares
represented by all outstanding Accelerated Options and Vested Options, in each
case, as of immediately prior to the Effective Time (excluding any shares of
Company Stock cancelled pursuant to Section 2.2(a)(ii) and Dissenting Shares).
 
“PBGC” means the Pension Benefit Guaranty Corporation.
 
“Permits” means all licenses, franchises, permits, certificates, consents,
registrations, authorizations or approvals of any Governmental Authority, other
than Environmental Permits.
 
“Permitted Liens” means all (i) statutory Liens for Taxes not yet due; (ii)
statutory Liens of landlords, carriers, warehousemen, mechanics and materialmen
incurred in the ordinary course of business for sums not yet due; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social security
or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, performance and return of money bonds and similar
obligations; (iv) Liens consisting of zoning or planning restrictions or
regulations, easements, Permits, restrictive covenants, encroachments and other
restrictions or limitations on the use of the Company’s assets, or
irregularities in title which, individually do not in the aggregate materially
detract from the value or use of the Company’s assets; and (v) Liens securing
Indebtedness reflected on the Financial Statements.
 
“Person” means any individual, corporation, partnership, limited liability
company, joint venture, association, bank, trust company, trust or other entity,
or any governmental entity, agency or political subdivision.
 
 
 
46

 
“Plan” means any employee pension benefit plan as defined in Section 3(2) of
ERISA.
 
“Post Closing Tax Period” means any Tax period beginning after the Closing Date;
and, with respect to a Tax period that begins on or before the Closing Date and
ends thereafter, the portion of such Tax period beginning after the Closing
Date.
 
“Pre-Closing Tax Period” means any Tax period ending on or before the Closing
Date; and, with respect to a Tax period that begins on or before the Closing
Date and ends thereafter, the portion of such Tax period ending on the Closing
Date.
 
“Proprietary Software” means Software which is owned by or exclusively licensed
to the Company or any of its Subsidiaries.
 
“Release” means any release, spill, emission, emptying, leaking, injection,
deposit, disposal, dumping, discharge, dispersal, leaching, pumping, pouring, or
migration into the atmosphere, soil, surface water, groundwater or property.
 
“Restrictions” means, except as set forth in the Company’s articles of
incorporation and bylaws, all of the following with respect to the Shares:
options, proxies, voting trusts, voting agreements, shareholder agreements,
preemptive rights, and transfer and other similar restrictions (other than those
imposed by applicable Law).
 
“Retained Employees” has the meaning set forth in Section 7.2(a).
 
“Returns” means all Tax returns, statements, reports, elections, declarations,
disclosures, schedules and forms (including estimated tax or information returns
and reports) filed or required to be filed with any Taxing Authority with
respect to any Pre Closing Tax Period by or on behalf of the Company.
 
“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
 
“Shareholders” means holders of shares of Company Stock at the Effective Time.
 
“Shares” means all of the issued and outstanding capital stock of the Company to
be purchased by Buyer hereunder, representing 100% of the issued and outstanding
shares of the Company.
 
“Software” means (i) all computer programs (including any and all software
implementation of algorithms, models and methodologies whether in source code or
object code), databases and computations (including any and all data and
collections of data), and all documentation, including user manuals and training
materials, relating to any of the foregoing; and (ii) the content and
information contained in any web site.
 
“Stock Option” means each unexpired and unexercised option in respect of any
shares of capital stock of the Company.
 
“Stock Option Holder” means a holder of Accelerated Options or Vested Options.
 
“Subsidiary” means, with respect to any Person, any entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at any
time directly or indirectly owned by such Person.
 
“Tax” or “Taxes” means any (a) federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or withholding, or other tax, charge,
levy, assessment, or fee of any kind whatsoever, whether computed on a separate
or consolidated, unitary or combined basis or in any other manner, imposed by
any Governmental Authority (a “Taxing Authority”) including any interest,
penalties, additions to tax, or additional amounts in respect of the foregoing;
(b) liability for the payment of any amounts of the type described in clause (a)
arising as a result of being (or ceasing to be) before the Closing Date a member
of any affiliated, consolidated, combined or unitary group (or being included
(or required to be included) in any Return relating thereto); and (c) liability
for the payment of any amounts of the type described in clause (a) or (b) as a
result of any express or implied obligation, by contract or pursuant to Law, to
indemnify or otherwise assume or succeed to the liability of any other person.
 
“Tax Asset” means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction or any other credit or tax
attribute that could be carried forward or back to reduce Taxes (including
without limitation deductions and credits related to alternative minimum Taxes).
 
“Third Party Claim” means any action, lawsuit, proceeding, investigation, or
like matter which is asserted or Threatened by a Person other than the parties
hereto, their successors and permitted assigns, against any Indemnified Party or
to which any Indemnified Party is subject.
 
 
 
47

 
“Threatened” – A matter or action shall be deemed to have been “Threatened” for
purposes of this Agreement if any demand or statement has been made that would
lead a reasonable Person to conclude that such matter or action is reasonably
likely to be asserted, commenced, taken or otherwise pursued.
 
“Transaction Expense Amount” means the sum of all amounts payable with respect
to the fees and expenses of, the Company’s financial advisors, bankers, legal
counsel, auditors, accountants and consultants in connection with the
negotiation, execution and consummation of this Agreement and the transactions
contemplated hereby; provided that, when calculating the Transaction Expense
Amount, an amount equal to $15,000 shall be deducted from the aggregate fees and
expenses of the Company’s legal counsel.
 
“Welfare Plan” means any employee welfare benefit plan as defined in Section
3(1) of ERISA.
 
 
 
48

 

ANNEX I
 
MAJOR SHAREHOLDERS
 

   
Shareholder
Number of Shares of Class A Common Stock
 
Percentage Ownership of Class A Common Stock
 
 
Alan Fitzgerald
2,700,000
71.31%
 
Sheila Fitzgerald
300,000
7.92%
 
Robert Benkendorf
300,000
7.92%
 
Gloria Zemla
45,000
1.19%
 

 
49

 

ANNEX II
 
KEY EMPLOYEE
 
Alan Fitzgerald

 
50

 

ANNEX III
 
Form of Amended and Restated Articles of IncoRporation

 
51

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

 
ANNEX IV
 
NET WORKING CAPITAL
 
•
“Net Working Capital” means the excess of Current Assets over Current
Liabilities, excluding the effect (including the Tax effect) of any act, event
or transaction after the Closing not in the ordinary course of business of the
Company.

 
•
“Current Assets” means the current assets (consisting of cash and cash
equivalents, accounts receivable (net of allowances), inventory (net of
reserves), prepaid expenses and income tax receivables) of the Company.

 
•
“Current Liabilities” means the current liabilities (consisting of accounts
payable, accrued expenses, the amount set forth in the Payout Letter as fully
discharging the Company’s line of credit with Silicon Valley Bank, and the
current portion of the Citicorp Vendor Finance, Inc. capital lease) of the
Company.

 
•
“Closing Net Working Capital” means the Net Working Capital of the Company as
shown on the Closing Balance Sheet, as determined by Buyer in accordance with
this Annex IV and Section 2.7.

 
•
The Closing Balance Sheet shall (x) fairly present the financial position of the
Company as at the close of business on the Closing Date in accordance with GAAP
applied on a consistent basis, (y) include line items substantially consistent
with those in the Balance Sheet, and (z) be prepared in accordance with
accounting policies and practices consistent with those used in the preparation
of the Balance Sheet, but in all instances in accordance with GAAP.

 
•
If in connection with the preparation of the Closing Balance Sheet or the
calculation of Closing Net Working Capital, any errors or omissions are
discovered with respect to any item that affects the value of current assets
over current liabilities of the Company as shown on the Balance Sheet, then the
Balance Sheet, Closing Balance Sheet, and Minimum Working Capital shall be
appropriately adjusted to correct for the effect of such errors or omissions so
that the Closing Balance Sheet reflects only the passage of time with respect to
any such item.  All of the adjustments to be made in the preceding sentence
shall be made in accordance with GAAP applied on a consistent basis.

 
•
An indicative form of Closing Balance Sheet is attached hereto as Appendix 1.

 

2077310.6
 
52