Exhibit 10.50
STOCK PURCHASE AGREEMENT
AMONG
ULTRALIFE BATTERIES, INC.
AND
RESERVE POWER SYSTEMS, INC.
AND
WILLIAM MAHER AND EDWARD BELLAMY
OCTOBER 30, 2007

 

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TABLE OF CONTENTS

          Section   Page  
SECTION 1. DEFINITIONS
    1  
SECTION 2. PURCHASE AND SALE OF TARGET SHARES
    6  
(a) Basic Transaction
    6  
(b) Purchase Price; Payment
    6  
(c) Closing
    7  
(d) Deliveries at Closing
    7  
SECTION 3
    8  
(a) Sellers’ Representations and Warranties
    8  
(b) Buyer’s Representations and Warranties
    10  
SECTION 4
    11  
(a) Organization, Qualification, and Corporate Power
    12  
(b) Capitalization
    12  
(c) Non-contravention
    12  
(d) Brokers’ Fees
    12  
(e) Title to Assets
    13  
(f) Subsidiaries
    13  
(g) Financial Statements
    13  
(h) Events Subsequent to Most Recent Fiscal Year End
    13  
(i) Undisclosed Liabilities
    15  
(j) Legal Compliance
    15  
(k) Tax Matters
    15  
(l) Real Property
    17  
(m) Intellectual Property
    20  
(n) Tangible Assets
    23  
(o) Inventory
    23  
(p) Contracts
    23  
(q) Notes and Accounts Receivable
    24  
(r) Powers of Attorney
    25  
(s) Insurance
    25  
(t) Litigation
    25  
(u) Product Warranty
    26  
(v) Product Liability
    26  
(w) Employees
    26  
(x) Employee Benefits
    26  
(y) Guaranties
    27  
(z) Environmental, Health, and Safety Matters
    27  
(aa) Certain Business Relationships with Target
    28  
(bb) Customers and Suppliers
    28  
(cc) Disclosure
    28  
SECTION 5
    28  
(a) General
    28  
(b) Notices and Consents
    28  

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          Section   Page  
(c) Operation of Business
    29  
(d) Preservation of Business
    29  
(e) Full Access
    29  
(f) Notice of Developments
    29  
(g) Exclusivity
    29  
(h) [INTENTIONALLY OMITTED]
    29  
(i) Leases
    29  
(j) Tax Matters
    30  
(k) S Corporation Status
    30  
(l) Employee Benefits and Welfare Matters
    30  
SECTION 6
    30  
(a) General
    30  
(b) Litigation Support
    30  
(c) Transition
    31  
(d) Confidentiality
    31  
(e) Release of Target by Sellers
    31  
SECTION 7
    32  
(a) Conditions to Buyer’s Obligation
    32  
(b) Conditions to Sellers’ Obligation
    34  
SECTION 8
    35  
(a) Survival of Representations and Warranties
    35  
(b) Indemnification Provisions for Buyer’s Benefit
    35  
(c) Indemnification Provisions for Sellers’ Benefit
    36  
(d) Matters Involving Third Parties
    36  
(e) Determination of Adverse Consequences
    37  
(f) Setoff against Holdback Amounts; Priority
    37  
(g) Other Indemnification Provisions
    38  
SECTION 9
    38  
(a) Tax Indemnification
    38  
(b) Cooperation on Tax Matters
    39  
(c) Tax Sharing Agreements
    40  
(d) Certain Taxes and Fees
    40  
(e) Section 338(h)(10) Election
    40  
(f) Tax Adjustment
    41  
(g) Tax Refund
    41  
SECTION 10
    41  
(a) Termination of Agreement
    41  
(b) Effect of Termination
    42  
SECTION 11
    42  
(a) Press Releases and Public Announcements; Confidentiality
    42  
(b) No Third-Party Beneficiaries
    43  
(c) Entire Agreement
    43  
(d) Succession and Assignment
    43  
(e) Counterparts
    43  
(f) Headings
    43  
(g) Notices
    43  

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          Section   Page  
(h) Governing Law
    44  
(i) Amendments and Waivers
    44  
(j) Severability
    44  
(k) Expenses
    45  
(l) Construction
    45  
(m) Incorporation of Exhibits, Annexes, and Schedules
    45  
(n) Specific Performance
    45  
(o) Submission to Jurisdiction
    45  
(p) Tax Disclosure Authorization
    46  

Attachments to Stock Purchase Agreement

1.   Annex I: Exceptions to Seller’s Representations and Warranties   2.   Annex
II: Exceptions to Buyer’s Representations and Warranties   3.   Disclosure
Schedule for Target   4.   Exhibit A: Form of Registration Rights Agreement   5.
  Exhibit B: Financial Statements of Target   6.   Exhibit C: Form of
Post-Closing Agreement

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STOCK PURCHASE AGREEMENT
     This Stock Purchase Agreement (this “Agreement”) is entered into as of
October 30, 2007, by and among Ultralife Batteries, Inc., a Delaware corporation
(“Buyer”), Reserve Power Systems, Inc., a Florida corporation (“Target”), and
William Maher and Edward Bellamy (“Sellers”). Buyer, Target and Sellers are
referred to collectively herein as the “Parties.”
RECITALS
     A. Sellers own all of the outstanding capital stock of Target.
     B. This Agreement contemplates a transaction in which Buyer will purchase
from Sellers, and Sellers will sell to Buyer, all of the outstanding capital
stock of Target in return for certain consideration described below.
     NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
SECTION 1. DEFINITIONS
     “Adverse Consequences” means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, actual losses, expenses,
and fees, including court costs and attorneys’ fees and expenses.
     “Affiliate” means a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
     “Affiliated Group” means any affiliated group within the meaning of Code
Section 1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
     “Basis” means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
     “Buyer” has the meaning set forth in the preface above.
     “Closing” has the meaning set forth in Section 2(c) below.
     “Closing Date” has the meaning set forth in Section 2(c) below.
     “COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA
and Code Section 4980B and of any similar state law.
     “Code” means the Internal Revenue Code of 1986, as amended.

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     “Confidential Information” means any information concerning the businesses
and affairs of the Target, Seller or Buyer, as the context requires, that is not
already generally available to the public.
     “Disclosure Schedule” has the meaning set forth in Section 4 below.
     “Employee Benefit Plan” has the meaning set forth in Section 4(x) below.
     “Employee Pension Benefit Plan” has the meaning set forth in ERISA
Section 3(2).
     “Employee Welfare Benefit Plan” has the meaning set forth in ERISA
Section 3(1).
     “Employment Agreement” means the form of employment agreement attached as
Exhibit C to this Agreement.
     “Encumbrance Documents” has the meaning set forth in Section 4(l) below.
     “Environmental, Health, and Safety Requirements” shall mean all federal,
state, local, and foreign statutes, regulations, ordinances, and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations, and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances, or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise, or radiation, each as amended and as
now or hereafter in effect.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.
     “ERISA Affiliate” means any Person that is a member of a “controlled group
of corporations” with, or is under “common control” with, or is a member of the
same “affiliated service group” with Target, as defined in Section 414 of the
Code.
     “Estoppel Certificates” has the meaning set forth in Section 7(a) below.
     “Fiduciary” has the meaning set forth in ERISA Section 3(21).
     “Financial Statements” has the meaning set forth in Section 4(g) below.
     “GAAP” means United States generally accepted accounting principles as in
effect from time to time, consistently applied.
     “Holdback Amount” has the meaning set forth in Section (b)(ii) below.
     “Improvements” has the meaning set forth in Section 4(l) below.
     “Indemnified Party” has the meaning set forth in Section 8(d) below.

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     “Indemnifying Party” has the meaning set forth in Section 8(d) below.
     “Intellectual Property” means all of the following in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade
names, corporate names, Internet domain names, and rights in telephone numbers,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including source code, executable code, data,
databases, and related documentation), (g) all advertising and promotional
materials, (h) all other proprietary rights, and (i) all copies and tangible
embodiments thereof (in whatever form or medium).
     “Knowledge” means actual knowledge after reasonable investigation.
     “Lease Consents” has the meaning set forth in Section 7(a) below.
     “Leased Real Property” means all leasehold or subleasehold estates and
other rights to use or occupy any land, buildings, structures, improvements,
fixtures, or other interest in real property held by Target.
     “Leases” means all leases, subleases, licenses, concessions and other
agreements (written or oral), including all amendments, extensions, renewals,
guaranties, and other agreements with respect thereto, pursuant to which Target
holds any Leased Real Property, including the right to all security deposits and
other amounts and instruments deposited by or on behalf of Target thereunder.
     “Liability” means any liability or obligation of whatever kind or nature
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due), including any liability for Taxes.
     “Lien” means any mortgage, pledge, lien, encumbrance, charge, or other
security interest, other than (a) liens for Taxes not yet due and payable and
(b) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
     “Material Adverse Effect” or “Material Adverse Change” means any effect or
change that would be materially adverse to the business, assets, condition
(financial or otherwise), operating results, operations, or business prospects
of Target, taken as a whole, or on the ability of Seller to consummate timely
the transactions contemplated hereby (regardless of whether or not such

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adverse effect or change can be or has been cured at any time or whether Buyer
has knowledge of such effect or change on the date hereof).
     “Measuring Periods” means the following periods of time: (i) the period
commencing on the Closing Date and ending on December 31, 2007; (ii) the period
commencing on January 1, 2008 and ending on December 31, 2008; (iii) the period
commencing on January 1, 2009 and ending on December 31, 2009; and (iv) the
period commencing on January 1, 2010 and ending on December 31, 2010. Each of
such Measuring Periods may be referred to individually as a “Measuring Period.”
     “Most Recent Balance Sheet” means the balance sheet contained within the
Most Recent Financial Statements.
     “Most Recent Financial Statements” has the meaning set forth in Section
4(g) below.
     “Most Recent Fiscal Month End” has the meaning set forth in Section 4(g)
below.
     “Most Recent Fiscal Year End” has the meaning set forth in Section 4(g)
below.
     “Multiemployer Plan” has the meaning set forth in ERISA Section 3(37).
     “Non-Disturbance Agreements” has the meaning set forth in Section 7(a)
below.
     “Ordinary Course of Business” means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
     “Party” has the meaning set forth in the preface above.
     “Permitted Encumbrances” means with respect to each parcel of Real
Property: (a) real estate taxes, assessments and other governmental levies,
fees, or charges imposed with respect to such Real Property that are (i) not due
and payable as of the Closing Date or (ii) that are being contested in good
faith and for which appropriate reserves have been established in accordance
with GAAP; (b) mechanics’ liens and similar liens for labor, materials, or
supplies provided with respect to such Real Property incurred in the Ordinary
Course of Business for amounts that are (i) not due and payable as of the
Closing Date or (ii) being contested in good faith and for which appropriate
reserves have been established in accordance with GAAP; (c) zoning, building
codes and other land use laws regulating the use or occupancy of such Real
Property or the activities conducted thereon which are imposed by any
governmental authority having jurisdiction over such Real Property and are not
violated by the current use or occupancy of such Real Property or the operation
of Target’s business as currently conducted thereon; and (d) easements,
covenants, conditions, restrictions, and other similar matters of record
affecting title to such Real Property which do not or would not impair the use
or occupancy of such Real Property in the operation of Target’s business as
currently conducted thereon.
     “Person” means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, any other business entity, or a
governmental entity (or any department, agency, or political subdivision
thereof).

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     “Plan Amount” has the meaning set forth in Section 2(b)(ii) below.
     “Post Closing Agreement” means the form of confidentiality,
non-solicitation, non-compete and non-disparagement agreement attached as
Exhibit C to this Agreement.
     “Prohibited Transaction” has the meaning set forth in ERISA Section 406 and
Code Section 4975.
     “Purchase Price” has the meaning set forth in Section 2(b) below.
     “Real Property” has the meaning set forth in Section 4(l) below.
     “Real Property Laws” has the meaning set forth in Section 4(l) below.
     “Registrable Securities” means those Ultralife Shares issued to Sellers
pursuant to Section 2(b)(i).
     “Registration Rights Agreement” means the form of Registration Rights
Agreement attached as Exhibit A to this Agreement.
     “Reportable Event” has the meaning set forth in ERISA Section 4043.
     “Sales” means revenues from sales of lead-acid batteries and associated
hardware, determined in accordance with GAAP, that are achieved by Target in the
ordinary course of business.
     “Securities Act” means the Securities Act of 1933, as amended.
     “Securities Exchange Act” means the Securities Exchange Act of 1934, as
amended.
     “Sellers” has the meaning set forth in the preface above.
     “Subsidiary” means, with respect to any Person, any corporation, limited
liability company, partnership, association, or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers, or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association, or other business entity (other
than a corporation), a majority of partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof
and for this purpose, a Person or Persons own a majority ownership interest in
such a business entity (other than a corporation) if such Person or Persons
shall be allocated a majority of such business entity’s gains or losses or shall
be or control any managing director or general partner of such business entity
(other than a corporation). The term “Subsidiary” shall include all Subsidiaries
of such Subsidiary.
     “Target” has the meaning set forth in the preface above.

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     “Target Share” means any share of the common stock, par value $0.01 per
share, of Target.
     “Tax” or “Taxes” means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not and including any
obligations to indemnify or otherwise assume or succeed to the Tax liability of
any other Person.
     “Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
     “Third Party Claim” has the meaning set forth in Section 8(d) below.
     “Treasury Regulations” means the Treasury Regulations promulgated under the
Code.
     “Ultralife Shares” means shares of common stock, par value $0.10 per share,
of Ultralife Batteries, Inc.
SECTION 2. PURCHASE AND SALE OF TARGET SHARES
     (a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, Buyer agrees to purchase from Sellers, and Sellers agree to sell to
Buyer, all of their Target Shares for the consideration specified below in this
Section 2.
     (b) Purchase Price; Payment. The aggregate consideration for the Target
Shares shall consist of (i) a percentage payment calculated as a percentage of
Target’s Sales, as described in sub-section (ii) below; and (ii) a grant of
Ultralife Shares as described in subsection (i) below (together, the “Purchase
Price”). On the terms and subject to the conditions set forth herein, Buyer
shall pay the Purchase Price to Sellers as follows:
          (i) At Closing, Buyer shall deliver to each Seller a certificate
representing 50,000 Ultralife Shares.
          (ii) Following the Closing, if Target achieves certain Sales targets
during the Measuring Periods, then Buyer shall deliver payments to Sellers as
follows (the “Holdback Amount”):
          (A) Buyer shall deliver the Holdback Amount to Sellers, calculated at
the rate of 5% of Target’s Sales, up to the operating plan amount set by Buyer
in consultation with Sellers (“Plan Amount”) for the remainder of the calendar
year following the Closing and for each of the subsequent three calendar years.

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          (B) Buyer shall deliver the Holdback Amount to Sellers, calculated at
the rate of 10% of the amount by which Target’s Sales exceed the Plan Amount for
any of the following calendar years: 2008, 2009 and 2010.
          (C) The following illustrates how the Holdback Amounts are earned. If
the Plan Amount is set at $5,000,000 for calendar year 2008 and Sales for 2008
are $6,000,000, the Holdback Amount for 2008 would be calculated on 5% of
$5,000,000, plus 10% on $1,000,000 for a total of $350,000.
          (D) Any payments of Holdback Amounts due from Buyer to Sellers
hereunder shall be made by wire transfer of immediately available funds to such
account or accounts as designated by Sellers within 60 days of the conclusion of
the applicable Measuring Period, so long as no Seller has violated any terms of
this Agreement or the Post-Closing Agreement. Buyer shall distribute any
Holdback Amounts paid pursuant to this Section equally to each Seller.
          (E) The following items shall be excluded from Sales for the purpose
of calculating the Holdback Amount pursuant to this Section: (i) Sales made to
Buyer or its Subsidiaries unless Buyer or any Buyer Subsidiary resells the
products underlying such Sales to Target customers in which event the Sales by
Buyer or any Buyer Subsidiary shall be included in Sales for purposes of
calculating the Holdback Amount pursuant to this Section but shall not be
included in sales for Stationary Power Systems, Inc. (“SPS”) for purposes of
Section 2(b) of that certain Stock Purchase Agreement dated of even date
herewith with respect to Buyer’s acquisition of SPS, and (ii) any Sale where the
gross margin of such Sale is under 15% unless the average gross margin for all
RPS Sales for that year equals or exceeds the lesser of the gross margin set
forth in the applicable operating plan or 25%, unless otherwise agreed to by
Buyer in its sole discretion.
     (c) Closing. The closing of the transactions contemplated by this Agreement
(the “Closing”) shall take place at the offices of Harter Secrest & Emery LLP,
in Rochester, New York, commencing at 10:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as Buyer and Sellers may mutually
determine (the “Closing Date”); provided, however, that the Closing Date shall
be no later than November 30, 2007.
     (d) Deliveries at Closing. At the Closing, (i) Sellers will deliver to
Buyer the various certificates, instruments, and documents referred to in
Section 7(a) below, (ii) Buyer will deliver to Sellers the various certificates,
instruments, and documents referred to in Section 7(b) below, (iii) Sellers will
deliver to Buyer stock certificates representing all of their Target Shares,
endorsed in blank or accompanied by duly executed assignment documents, and
(iv) Buyer will deliver to Sellers the consideration specified in Section 2(b)
above.

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SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES
     (a) Sellers’ Representations and Warranties. Each Seller represents and
warrants to Buyer, severally and not jointly, that the statements contained in
this Section 3(a) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to himself, except as set forth in
Annex I attached hereto.
          (i) Authorization of Transaction. Seller has full power and authority
to execute and deliver this Agreement and to perform his obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of Seller,
enforceable in accordance with its terms and conditions. Seller need not give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement. The execution, delivery, and
performance of this Agreement and all other agreements contemplated hereby have
been duly authorized by Seller.
          (ii) Non-contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Seller is subject, (B) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which Seller is a party or by which he is bound or to
which any of his assets is subject, or (C) result in the imposition or creation
of a Lien upon or with respect to the Target Shares.
          (iii) Brokers’ Fees. Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
          (iv) Target Shares. Seller holds of record and owns beneficially the
number of Target Shares set forth next to his name in Section 4(b) of the
Disclosure Schedule, which constitute all of the issued and outstanding Target
Shares, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes, Liens,
options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands. Seller is not a party to any option, warrant, purchase right, or
other contract or commitment that could require Seller to sell, transfer, or
otherwise dispose of any capital stock of Target (other than this Agreement).
Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of Target.
          (v) Investment Representations for Ultralife Shares. Seller
acknowledges that any Ultralife Shares acquired by Seller pursuant to this
Agreement shall be acquired by Seller for his own account, for investment
purposes only, and not with a view to or for distributing or reselling such
securities or any part thereof or interest therein. Seller, either alone or
together with his representatives, has such knowledge, sophistication and
experience in business and

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financial matters so as to be capable of evaluating the merits and risks of any
investment by him in Ultralife Shares, and has so evaluated the merits and risks
of any such investment to his satisfaction. As of the Closing Date, Seller shall
be able to bear the economic risk of an investment in the Ultralife Shares
offered pursuant to this Agreement and shall be able to afford a complete loss
of any such investment. Seller acknowledges that at the time Seller was offered
the Ultralife Shares pursuant to this Agreement, Seller was and, at the date
hereof, Seller is, and at the Closing Date Seller will be, an “accredited
investor” as defined in Rule 501 under the Securities Act. Seller acknowledges
that he has been afforded: (A) the opportunity to ask such questions as he has
deemed necessary of, and to receive answers from, representatives of Buyer
concerning the terms and conditions of the offer and sale of any Ultralife
Shares offered pursuant to this Agreement, and the merits and risks of investing
in such securities; (B) access to information about Buyer and Buyer’s financial
condition, results of operations, business, properties, management and prospects
sufficient to enable Seller to evaluate his investment; and (C) the opportunity
to obtain such additional information that Buyer possesses or can acquire
without unreasonable effort or expense that is reasonably necessary to permit
Seller to make an informed investment decision with respect to any Ultralife
Shares to be acquired by Seller pursuant to this Agreement. Seller understands
and acknowledges that any Ultralife Shares acquired by Seller pursuant to this
Agreement were offered and acquired by him without registration under the
Securities Act in a private transaction pursuant to the exemption from
registration under Section 5 of the Securities Act provided by Section 4(2) of
the Securities Act and that such securities are and shall be “restricted
securities” as defined in Rule 144 under the Securities Act and thus such
securities shall not be freely transferable by Seller. Seller understands and
acknowledges that except as set forth in Section 3(a)(vi) below, Buyer is not
providing Seller with any registration rights in connection with any Ultralife
Shares offered pursuant to this Agreement. Seller understands and acknowledges
that Buyer shall rely on the accuracy and truthfulness of Seller’s
representations herein in order to avail of the exemption from registration
under Section 5 of the Securities Act provided by Section 4(2) of the Securities
Act.
          (vi) Registration Rights. Buyer hereby grants Sellers piggyback
registration rights as they relate to any future Registration Statement and
covenants to include, to the extent legally permissible and subject to any
limitations imposed by the underwriter or placement agent, if applicable,
Registrable Securities in such Registration Statement. If at any time prior to
the removal of restrictive legends pursuant to Rule 144(k)(a), Buyer proposes to
register shares of Common Stock under the Securities Act other than on Forms
S-8, S-4 or any successor forms in connection with a public offering of such
shares for cash (a “Proposed Registration”) and (b) a Registration Statement
covering the resale of all of the Registrable Securities has not been effective
and available for sale thereof by Sellers, Buyer shall at such time promptly
give Sellers written notice of such Proposed Registration. Buyer shall use its
best efforts to cause such Registration Statement to cover the resale of the
Registrable Securities, which have not otherwise been registered or covered
under a current effective Registration Statement, which Registration Statement
shall state that in accordance with Rule 416 promulgated under the Securities
Act, such Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon stock splits,
stock dividends or similar transactions. The Seller and the Buyer shall enter
into a separate Registration Rights Agreement, in substantially the form
attached hereto as Exhibit A, consistent with the provisions of this

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Section 3(a)(vi), which Registration Rights Agreement shall contain customary
representations and warranties and provisions regarding indemnification and
contribution.
     (b) Buyer’s Representations and Warranties. Buyer represents and warrants
to Sellers that the statements contained in this Section 3(b) are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(b)), except
as set forth in Annex II attached hereto.
          (i) Organization of Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
          (ii) Authorization of Transaction. Buyer has full power and authority
(including full corporate or other entity power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of Buyer, enforceable in
accordance with its terms and conditions. Buyer need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement. The execution, delivery, and performance of this
Agreement and all other agreements contemplated hereby have been duly authorized
by Buyer.
          (iii) Non-contravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Buyer is subject or any provision of its
charter, bylaws, or other governing documents or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Buyer is a party or by which it is bound or to which any of
its assets is subject.
          (iv) Brokers’ Fees. Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could become
liable or obligated.
          (v) Investment. Buyer is not acquiring the Target Shares with a view
to or for sale in connection with any distribution thereof within the meaning of
the Securities Act.
          (vi) Access to Information. Buyer has such knowledge of the business
and financial affairs of the Target and possesses a sufficient degree of
sophistication, knowledge and experience in financial and business matters such
that Buyer is capable of evaluating the information provided to Buyer by Sellers
and Target about Target’s business, including Target’s assets and liabilities,
and the economic risks of acquiring the Target Shares. Buyer acknowledges and
agrees that Target and Sellers make no further representations or warranties to
Buyer regarding the Target or the Target Shares, other than as set forth in this
Agreement. Specifically, Buyer acknowledges and agrees, that Target and Sellers
give no assurances, representations or warranties as to the continued viability
of the Target as a going concern or otherwise or its future profitability after
Buyer’s purchase.

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          (vii) Litigation; Judgments. There are no pending or threatened,
suits, actions, grievances or proceedings against or relating to Buyer, the
business or any property or asset of the business of Buyer that individually or
in the aggregate could reasonably be expected to have a Material Adverse Effect
on Buyer’s ability to consummate the transactions contemplated by this
Agreement. There is no unsatisfied or outstanding judgment, decree, injunction,
rule or order of any governmental entity or arbitrator which (i) could
reasonably be expected to have a Material Adverse Effect on Buyer or the
business of Buyer or (ii) seeks to enjoin or prohibit the consummation of the
transactions contemplated by this Agreement.
          (viii) Ultralife Shares. The Ultralife Shares, when issued pursuant to
Section 2(b)(i), will be duly authorized, validly issued, fully paid and non
assessable shares of common stock of Buyer. Upon delivery of such shares,
Sellers will receive good and unencumbered title to such shares, free and clear
of all liens, restrictions, charges, encumbrances and other security interests
of any kind or nature whatsoever, except for any restrictions existing under
applicable securities laws and the restrictions imposed by this Agreement.
          (ix) Reports and Financial Statements. As of their respective dates,
the periodic reports (the “Reports”) filed by Buyer with the Securities and
Exchange Commission (the “Commission”) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) complied or will comply in all material
respects with the then applicable published rules and regulations of the
Commission with respect thereto (including, without limitation, rules related to
the financial statements included therein) at the date of their issuance and did
not or will not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Buyer has filed all reports and filings with the SEC required
pursuant to the Securities Act or 1933 or the Exchange Act on a timely basis.
Each such report or filing is true, correct and complete in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES
     Sellers jointly and severally represent and warrant to Buyer that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 4), except as set forth in the disclosure
schedule delivered by Sellers to Buyer on the date hereof and initialed by the
Parties (the “Disclosure Schedule”). Nothing in the Disclosure Schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the

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existence of the document or other item itself). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 4.
     (a) Organization, Qualification, and Corporate Power. Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Florida. Target is duly authorized to conduct business and
is in good standing under the laws of each jurisdiction where such qualification
is required. Target has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and in which it presently proposes to engage and to own and use the
properties owned and used by it. Section 4(a) of the Disclosure Schedule lists
the directors and officers of Target. Sellers have delivered to Buyer correct
and complete copies of the charter and bylaws of Target (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of Target are correct and
complete. Target is not in default under or in violation of any provision of its
charter or bylaws.
     (b) Capitalization. The entire authorized capital stock of Target consists
of                     Target Shares, of which                      Target
Shares are issued and outstanding and no Target Shares are held in treasury. All
of the issued and outstanding Target Shares have been duly authorized, are
validly issued, fully paid, and non-assessable, and are held of record by the
respective Seller as set forth in Section 4(b) of the Disclosure Schedule. There
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to Target. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
Target.
     (c) Non-contravention. Except as set forth on Section 4(c) of the
Disclosure Schedule, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Target is subject or any provision of the charter or
bylaws of Target or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Target is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Lien upon any of its assets). Target
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
     (d) Brokers’ Fees. Target has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.

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     (e) Title to Assets. Except as set forth on Section 4(e) of the Disclosure
Schedule, Target has good and marketable title to, or a valid leasehold interest
in, the properties and assets used by Target, located on its premises, or shown
on the Most Recent Balance Sheet or acquired after the date thereof, free and
clear of all Liens, except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet.
     (f) Subsidiaries. Target has no Subsidiaries.
     (g) Financial Statements. Attached hereto as Exhibit B are the following
financial statements (collectively the “Financial Statements”): (i) an audited
balance sheet and statements of income, changes in stockholders’ equity, and
cash flow as of and for the fiscal year ended December 31, 2006 (the “Most
Recent Fiscal Year End”) for Target; and (ii) an unaudited balance sheet and
statements of income, changes in stockholders’ equity, and cash flow (the “Most
Recent Financial Statements”) as of and for the six months ended June 30, 2007
(the “Most Recent Fiscal Month End”) for Target. The Financial Statements have
been prepared from Target’s books and records, are true, correct and complete in
all material respects, are consistent with Target’s books and records applied on
a consistent basis throughout the periods covered thereby, present fairly the
financial condition of Target as of such dates and the results of operations of
Target for such periods, are correct and complete, and are consistent with the
books and records of Target (which books and records are correct and complete).
     (h) Events Subsequent to Most Recent Fiscal Year End. Except as set forth
on Section 4(h) of the Disclosure Schedule, since the Most Recent Fiscal Year
End, there has not been any Material Adverse Change. Without limiting the
generality of the foregoing, since that date:
          (i) Target has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
          (ii) Target has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
either involving more than $10,000 or outside the Ordinary Course of Business;
          (iii) no party (including Target) has accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than $10,000
to which Target is a party or by which Target is bound;
          (iv) Target has not imposed any Liens upon any of its assets, tangible
or intangible;
          (v) Except as set forth on Section 4(h)(v) of the Disclosure Schedule,
Target has not made any capital expenditure (or series of related capital
expenditures) either involving more than $10,000 or outside the Ordinary Course
of Business;
          (vi) Target has not made any capital investment in, any loan to, or
any acquisition of the securities or assets of, any other Person (or series of
related capital

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investments, loans, and acquisitions) either involving more than $10,000 or
outside the Ordinary Course of Business;
          (vii) Except as set forth on Section 4(h)(vii) of the Disclosure
Schedule, Target has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for borrowed money or
capitalized lease obligation either involving more than $5,000 singly or $10,000
in the aggregate;
          (viii) Target has not delayed or postponed the payment of accounts
payable and other Liabilities outside the Ordinary Course of Business;
          (ix) Target has not cancelled, compromised, waived, or released any
right or claim (or series of related rights and claims) either involving more
than $10,000 or outside the Ordinary Course of Business;
          (x) Target has not transferred, assigned, or granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
          (xi) there has been no change made or authorized in the charter or
bylaws of Target;
          (xii) Except as set forth on Section 4(h)(xii) of the Disclosure
Schedule, Target has not issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to purchase or
obtain (including upon conversion, exchange, or exercise) any of its capital
stock;
          (xiii) Target has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
          (xiv) Target has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property;
          (xv) Target has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
          (xvi) Target has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
          (xvii) Target has not granted any increase in the base compensation of
any of its directors, officers, and employees outside the Ordinary Course of
Business;
          (xviii) Target has not adopted, amended, modified, or terminated any
bonus, profit sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan);

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          (xix) Target has not made any other change in employment terms for any
of its directors, officers, and employees outside the Ordinary Course of
Business;
          (xx) Target has not made or pledged to make any charitable or other
capital contribution outside the Ordinary Course of Business;
          (xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving Target;
          (xxii) Target has not discharged a material Liability or Lien outside
the Ordinary Course of Business;
          (xxiii) Target has not made any loans or advances of money;
          (xxiv) Target has not disclosed any Confidential Information; and
          (xxv) Target has not committed to any of the foregoing.
     (i) Undisclosed Liabilities. Target has no Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (ii) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
     (j) Legal Compliance. Target and its predecessors and Affiliates, if any,
have complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder
and including the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq.) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply except where the failure to comply would not have a
Material Adverse Effect..
     (k) Tax Matters.
          (i) Target (and any predecessor of Target) has been a validly electing
S corporation within the meaning of Code Section 1361 and Section 1362 at all
times during its existence and Target will be an S corporation up to and
including the Closing Date.
          (ii) Target has no potential liability for any Tax under Code
Section 1374. Target has not, in the past 10 years, (A) acquired assets from
another corporation in a transaction in which Target’s Tax basis for the
acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the
transferor or (B) acquired the stock of any corporation that is a qualified
subchapter S subsidiary.
          (iii) Target has filed all Tax Returns that it was required to file
under applicable laws and regulations. All such Tax Returns were correct and
complete in all respects

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and have been prepared in substantial compliance with all applicable laws and
regulations. All Taxes due and owing by Target (whether or not shown on any Tax
Return) have been paid. Target currently is not the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where Target does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no Liens for Taxes
(other than Taxes not yet due and payable) upon any of the assets of Target.
          (iv) Target has withheld and paid all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
          (v) No Seller or director or officer (or employee responsible for Tax
matters) of Target expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. No foreign, federal, state, or
local tax audits or administrative or judicial Tax proceedings are pending or
being conducted with respect to Target. Target has not received from any
foreign, federal, state, or local taxing authority (including jurisdictions
where Target has not filed Tax Returns) any (i) notice indicating an intent to
open an audit or other review, (ii) request for information related to Tax
matters, or (iii) notice of deficiency or proposed adjustment for any amount of
Tax proposed, asserted, or assessed by any taxing authority against Target;
Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to Target for taxable periods ended on or after
December 31, 2003, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. Sellers
have delivered to Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by Target filed or received since December 31, 2003.
          (vi) Target has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
          (vii) Target is not a party to any agreement, contract, arrangement or
plan that has resulted or would result, separately or in the aggregate, in the
payment of (i) any “excess parachute payment” within the meaning of Code
Section 280G (or any corresponding provision of state, local or foreign Tax law)
and (ii) any amount that will not be fully deductible as a result of Code 162(m)
(or any corresponding provision of state, local or foreign Tax law). Target has
not been a United States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified in Code
Section 897(c)(1)(A)(ii). Target has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section 6662. Target is not a
party to or bound by any Tax allocation or sharing agreement. Target (A) has not
been a member of an Affiliated Group filing a consolidated federal income Tax
Return (other than a group the common parent of which was Target) or (B) has no
Liability for the Taxes of any Person (other than Target) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
          (viii) The unpaid Taxes of Target (A) did not, as of the Most Recent
Fiscal Month End, exceed the reserve for Tax Liability (rather than any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of

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the Most Recent Balance Sheet (rather than in any notes thereto) and (B) do not
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of Target in filing their Tax
Returns. Since the date of the Most Recent Balance Sheet, Target has not
incurred any liability for Taxes arising from extraordinary gains or losses, as
that term is used in GAAP, outside the Ordinary Course of Business consistent
with past custom and practice.
          (ix) Target will not be required to include any item of income in, or
exclude any item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of any: (A) change in
method of accounting for a taxable period ending on or prior to the Closing
Date; (B) “closing agreement” as described in Code Section 7121 (or any
corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (C) intercompany transactions or any
excess loss account described in Treasury Regulations under Code Section 1502
(or any corresponding or similar provision of state, local or foreign income Tax
law); (D) installment sale or open transaction disposition made on or prior to
the Closing Date; or (E) prepaid amount received on or prior to the Closing
Date.
          (x) Target has not distributed stock of another Person, or has had its
stock distributed by another Person, in a transaction that was purported or
intended to be governed in whole or in part by Code Section 355 or Section 361.
          (xi) Target has not, since October 3, 2004, (A) granted to any person
an interest in a nonqualified deferred compensation plan (as defined in Code
Section 409A) which interest has been or, upon the lapse of a substantial risk
of forfeiture with respect to such interest, will be subject to the Tax imposed
by Code Section 409A, or (B) modified the terms of any nonqualified deferred
compensation plan in a manner that could cause an interest previously granted
under such plan to become subject to the Tax imposed by Code Section 409A. No
person has a right to be indemnified by Target for any Tax imposed by Code
Section 409A.
     (l) Real Property.
          (i) Except as set forth on Section 4(l)(i) of the Disclosure Schedule,
Target does not own any Real Property.
          (ii) Section 4(l)(ii) of the Disclosure Schedule sets forth the
address of each parcel of Leased Real Property, and a true and complete list of
all Leases for each such Leased Real Property (including the date and name of
the parties to such Lease document). Target has delivered to Buyer a true and
complete copy of each such Lease document, and in the case of any oral Lease, a
written summary of the material terms of such Lease. Except as set forth in
Section 4(l)(ii) of the Disclosure Schedule, with respect to each of the Leases:
          (A) such Lease is legal, valid, binding, enforceable and in full force
and effect;
          (B) the transaction contemplated by this Agreement does not require
the consent of any other party to such Lease (except for those Leases for which
Lease Consents (as hereinafter defined) are obtained), will not result in a
breach of or default

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under such Lease, and will not otherwise cause such Lease to cease to be legal,
valid, binding, enforceable and in full force and effect on identical terms
following the Closing;
          (C) Target’s possession and quiet enjoyment of the Leased Real
Property under such Lease has not been disturbed and there are no disputes with
respect to such Lease;
          (D) neither Target nor any other party to the Lease is in breach or
default under such Lease, and no event has occurred or circumstance exists
which, with the delivery of notice, the passage of time or both, would
constitute such a breach or default, or permit the termination, modification or
acceleration of rent under such Lease;
          (E) no security deposit or portion thereof deposited with respect to
such Lease has been applied in respect of a breach or default under such Lease
which has not been redeposited in full;
          (F) Target neither owes or will owe in the future any brokerage
commissions or finder’s fees with respect to such Lease;
          (G) the other party to such Lease is not an Affiliate of, and
otherwise does not have any economic interest in, Target;
          (H) Target has not subleased, licensed or otherwise granted any Person
the right to use or occupy such Leased Real Property or any portion thereof;
          (I) Target has not collaterally assigned or granted any other Lien in
such Lease or any interest therein; and
          (J) there are no Liens on the estate or interest created by such
Lease.
          (iii) The Leased Real Property identified in Section 4(l)(ii) of the
Disclosure Schedule (collectively, the “Real Property”), comprises all of the
real property used or intended to be used in, or otherwise related to, Target’s
business; and Target is not a party to any agreement or option to purchase any
real property or interest therein.
          (iv) All buildings, structures, fixtures, building systems and
equipment, and all components thereof, including the roof, foundation,
load-bearing walls and other structural elements thereof, heating, ventilation,
air conditioning, mechanical, electrical, plumbing and other building systems,
environmental control, remediation and abatement systems, sewer, storm and waste
water systems, irrigation and other water distribution systems, parking
facilities, fire protection, security and surveillance systems, and
telecommunications, computer, wiring and cable installations, included in the
Real Property (the “Improvements”) are in good condition and repair and
sufficient for the operation of Target’s business. There are no structural
deficiencies or latent defects affecting any of the Improvements and there are
no facts or conditions affecting any of the Improvements which would,
individually or in the aggregate, interfere in any respect with the use or
occupancy of the Improvements or any portion thereof in the operation of
Target’s business as currently conducted thereon.

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          (v) There is no condemnation, expropriation or other proceeding in
eminent domain, pending or threatened, affecting any parcel of Real Property or
any portion thereof or interest therein. There is no injunction, decree, order,
writ or judgment outstanding, nor any claims, litigation, administrative actions
or similar proceedings, pending or threatened, relating to the ownership, lease,
use or occupancy of the Real Property or any portion thereof, or the operation
of Target’s business as currently conducted thereon.
          (vi) The Real Property is in compliance with all applicable building,
zoning, subdivision, health and safety and other land use laws, including the
Americans with Disabilities Act of 1990, as amended, and all insurance
requirements affecting the Real Property (collectively, the “Real Property
Laws”), and the current use and occupancy of the Real Property and operation of
Target’s business thereon does not violate any Real Property Laws. Target has
not received any notice of violation of any Real Property Law and there is no
basis for the issuance of any such notice or the taking of any action for such
violation. There is no pending or anticipated change in any Real Property Law
that will materially impair the ownership, lease, use or occupancy of any Real
Property or any portion thereof in the continued operation of Target’s business
as currently conducted thereon.
          (vii) Each parcel of Real Property has direct vehicular and pedestrian
access to a public street adjoining the Real Property, or has vehicular and
pedestrian access to a public street via an insurable, permanent, irrevocable
and appurtenant easement benefiting such parcel of Real Property, and such
access is not dependent on any land or other real property interest which is not
included in the Real Property. None of the Improvements or any portion thereof
is dependent for its access, use or operation on any land, building, improvement
or other real property interest which is not included in the Real Property.
          (viii) All water, oil, gas, electrical, steam, compressed air,
telecommunications, sewer, storm and waste water systems and other utility
services or systems for the Real Property have been installed and are
operational and sufficient for the operation of Target’s business as currently
conducted thereon. Each such utility service enters the Real Property from an
adjoining public street or valid private easement in favor of the supplier of
such utility service or appurtenant to such Real Property, and is not dependent
for its access, use or operation on any land, building, improvement or other
real property interest which is not included in the Real Property.
          (ix) All certificates of occupancy, permits, licenses, franchises,
approvals and authorizations (collectively, the “Real Property Permits”) of all
governmental authorities, boards of fire underwriters, associations or any other
entity having jurisdiction over the Real Property which are required or
appropriate to use or occupy the Real Property or operate Target’s business as
currently conducted thereon, have been issued and are in full force and effect.
Section 4(l)(ix) of the Disclosure Schedule lists all material Real Property
Permits held by Target with respect to each parcel of Real Property. Target has
delivered to Buyer a true and complete copy of all Real Property Permits. Target
has not received any notice from any governmental authority or other entity
having jurisdiction over the Real Property threatening a suspension, revocation,
modification or cancellation of any Real Property Permit and there is no basis
for the issuance of any such notice or the taking of any such action. The Real
Property Permits are transferable to Buyer without the consent or approval of
the issuing governmental authority or entity, no

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disclosure, filing or other action by Target is required in connection with such
transfer, and Buyer shall not be required to assume any additional liabilities
or obligations under the Real Property Permits as a result of such transfer.
          (x) The classification of each parcel of Real Property under
applicable zoning laws, ordinances and regulations permits the use and occupancy
of such parcel and the operation of Target’s business as currently conducted
thereon, and permits the Improvements located thereon as currently constructed,
used and occupied. There are sufficient parking spaces, loading docks and other
facilities at such parcel to comply with such zoning laws, ordinances and
regulations. Target’s use or occupancy of the Real Property or any portion
thereof or the operation of Target’s business as currently conducted thereon is
not dependent on a “permitted non-conforming use” or “permitted non-conforming
structure” or similar variance, exemption or approval from any governmental
authority.
          (xi) The current use and occupancy of the Real Property and the
operation of Target’s business as currently conducted thereon does not violate
any easement, covenant, condition, restriction or similar provision in any
instrument of record or other unrecorded agreement affecting such Real Property
(the “Encumbrance Documents”). Neither Sellers nor Target has received any
notice of violation of any Encumbrance Documents, and there is no basis for the
issuance of any such notice or the taking of any action for such violation.
          (xii) None of the Improvements encroach on any land which is not
included in the Real Property or on any easement affecting such Real Property,
or violate any building lines or set-back lines, and there are no encroachments
onto any of the Real Property, or any portion thereof, which encroachment would
interfere with the use or occupancy of such Real Property or the continued
operation of Target’s business as currently conducted thereon.
          (xiii) Each parcel of Real Property is a separate lot for real estate
tax and assessment purposes, and no other real property is included in such tax
parcel. There are no Taxes, assessments, fees, charges or similar costs or
expenses imposed by any governmental authority, association or other entity
having jurisdiction over the Real Property (collectively, the “Real Estate
Impositions”) with respect to any Real Property or portion thereof which are
delinquent. There is no pending or threatened increase or special assessment or
reassessment of any Real Estate Impositions for such parcel.
          (xiv) None of the Real Property or any portion thereof is located in a
flood hazard area (as defined by the Federal Emergency Management Agency).
     (m) Intellectual Property.
          (i) Target owns and possesses or has the right to use pursuant to a
valid and enforceable, written license, sublicense, agreement, or permission all
Intellectual Property necessary or desirable for the operation of the businesses
of Target as presently conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by Target immediately prior to the
Closing hereunder will be owned or available for use by Target on identical
terms and conditions immediately subsequent to the Closing hereunder. Target has

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taken all necessary and desirable action to maintain and protect each item of
Intellectual Property that Target owns or uses.
          (ii) Target has not interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of third
parties, and none of Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of Target has ever received
any charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Target
must license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any Seller and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, no
third party has interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of Target.
          (iii) Section 4(m)(iii) of the Disclosure Schedule identifies each
patent or registration that has been issued to Target with respect to any of its
Intellectual Property, identifies each pending patent application or application
for registration which Target has made with respect to any of its Intellectual
Property, and identifies each license, sublicense, agreement, or other
permission which Target has granted to any third party with respect to any of
its Intellectual Property (together with any exceptions). Sellers have delivered
to Buyer correct and complete copies of all such patents, registrations,
applications, licenses, sublicenses, agreements, and permissions (as amended to
date). Section 4(m)(iii) of the Disclosure Schedule also identifies each
material unregistered trademark, service mark, trade name, corporate name or
Internet domain name, computer software item (other than commercially available
off-the-shelf software purchased or licensed for less than a total cost of
$1,000 in the aggregate) and each material unregistered copyright used by Target
in connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section 4(m)(iii) of the
Disclosure Schedule:
          (A) Target owns and possesses all right, title, and interest in and to
the item, free and clear of any Lien, license, or other restriction or
limitation regarding use or disclosure;
          (B) the item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
          (C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any Seller and
the directors and officers (and employees with responsibility for Intellectual
Property matters) of Target, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item, and there are no
grounds for the same;
          (D) Target has never agreed to indemnify any Person for or against any
interference, infringement, misappropriation, or other conflict with respect to
the item; and
          (E) no loss or expiration of the item is threatened, pending, or
reasonably foreseeable, except for patents expiring at the end of their
statutory terms (and

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

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

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          (vi) any agreement with any Seller and any of Sellers’ Affiliates
(other than Target);
          (vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers, and employees;
          (viii) any collective bargaining agreement;
          (ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $10,000 or providing severance benefits;
          (x) any agreement under which it has advanced or loaned any amount to
any of its directors, officers, and employees outside the Ordinary Course of
Business;
          (xi) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect;
          (xii) any agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
          (xiii) any agreement under which Target has advanced or loaned any
other Person any amounts; or
          (xiv) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
Sellers have delivered to Buyer a correct and complete copy of each written
agreement (as amended to date) listed in Section 4(p) of the Disclosure Schedule
and a written summary setting forth the terms and conditions of each oral
agreement referred to in Section 4(p) of the Disclosure Schedule. With respect
to each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (C) no party
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination, modification,
or acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement.
     (q) Notes and Accounts Receivable. All notes and accounts receivable of
Target are reflected properly on their books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
Target. All accounts receivable collected by Buyer shall be applied on a first
in, first out basis. Buyer shall continue Target’s customary collection
practices following Closing and shall provide Sellers with all normal and
customary information relating to the accounts receivable that were in

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existence on the Closing Date, including all normal aging reports, following the
Closing. Any accounts receivable determined by Buyer to be uncollectible shall
be reassigned to Sellers, subject, however, to Buyer’s indemnification rights
hereunder.
     (r) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of Target.
     (s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers’ compensation coverage and
bond and surety arrangements) to which Target has been a party, a named insured,
or otherwise the beneficiary of coverage at any time within the past 10 years:
          (i) the name, address, and telephone number of the agent;
          (ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
          (iii) the policy number and the period of coverage;
          (iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a description
of how deductibles and ceilings are calculated and operate) of coverage; and
          (v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transaction contemplated
hereby; (C) neither Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. Target has been covered during the past 10 years by
insurance in scope and amount customary and reasonable for the businesses in
which they have engaged during the aforementioned period. Section 4(s) of the
Disclosure Schedule describes any self-insurance arrangements affecting Target.
     (t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each
instance in which Target (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of any
Seller and the directors and officers (and employees with responsibility for
litigation matters) of Target, is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 4(t) of the Disclosure
Schedule could result in any Material Adverse Change. None of Seller and the
directors and officers (and employees with responsibility for litigation
matters) of

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Target has any reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against Target or that
there is any Basis for the foregoing.
     (u) Product Warranty. Each product manufactured, sold, leased, or delivered
by Target has been in conformity with all applicable contractual commitments and
all express and implied warranties, and Target has no Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product warranty claims
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Target. Section 4(u) of the
Disclosure Schedule includes copies of the standard terms and conditions of sale
or lease for Target (containing applicable guaranty, warranty, and indemnity
provisions). No product manufactured, sold, leased, or delivered by Target is
subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease set forth in Section 4(u) of the
Disclosure Schedule.
     (v) Product Liability. Target has no Liability (and there is no Basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by Target.
     (w) Employees. Except as set forth on Section 4(w) of the Disclosure
Schedule, to the Knowledge of Sellers and the directors and officers (and
employees with responsibility for employment matters) of Target, no executive,
key employee, or group of employees has any plans to terminate employment with
Target. Target is not a party to or bound by any collective bargaining
agreement, nor has Target experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes. Target has not
committed any unfair labor practice. None of Sellers and the directors and
officers (and employees with responsibility for employment matters) of Target
has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Target.
     (x) Employee Benefits. Target does not have any employee benefit plans and
collective bargaining, employment or severance agreements or other similar
arrangements which Target, or any ERISA Affiliate, has ever sponsored,
maintained, or to which contributions are made or have ever been made, or for
which obligations have been incurred, for the benefit of employees or former
employees of Target or an ERISA Affiliate, including, without limitation,
(1) any “employee benefit plan” (within the meaning of Section 3(3) of ERISA),
(2) any profit-sharing, deferred compensation, bonus, stock option, stock
purchase, pension, retainer, consulting, retirement, severance, welfare or
incentive plan, agreement or arrangement, (3) any plan, agreement or arrangement
providing for “fringe benefits” or perquisites to employees, officers, directors
or agents, including but not limited to benefits relating to automobiles, clubs,
vacation, child care, parenting, sabbatical, sick leave, tuition reimbursement,
medical, dental, hospitalization, life insurance, disability insurance and other
types of insurance, and (4) any employment agreement. The plans, agreements and
arrangements described in this Section 4(x) are referred to herein as “Employee
Benefit Plans.”

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     (y) Guaranties. Target is not a guarantor or otherwise is liable for any
Liability or obligation (including indebtedness) of any other Person.
     (z) Environmental, Health, and Safety Matters.
          (i) Target and its predecessors and Affiliates have complied and are
in compliance with all Environmental, Health, and Safety Requirements.
          (ii) Without limiting the generality of the foregoing, Target and its
Affiliates have obtained and complied with, and are in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of their
facilities and the operation of their business; a list of all such permits,
licenses and other authorizations is set forth on Section 4(z) of the Disclosure
Schedule.
          (iii) Neither Target nor, to its Knowledge, its predecessors or
Affiliates has received any written or oral notice, report or other information
regarding any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any Liabilities or potential Liabilities, including any
investigatory, remedial or corrective obligations, relating to any of them or
its facilities arising under Environmental, Health, and Safety Requirements.
          (iv) To knowledge of Target, none of the following exists at any
property or facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
          (v) Neither Target nor, to its Knowledge, its predecessors or
Affiliates have treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to Liabilities,
including any Liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (“CERCLA”), the Solid Waste Disposal Act, as amended (“SWDA”)
or any other Environmental, Health, and Safety Requirements.
          (vi) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called “transaction-triggered” or
“responsible property transfer” Environmental, Health, and Safety Requirements.
          (vii) Neither Target nor, to its Knowledge, its predecessors or
Affiliates has, either expressly or by operation of law, assumed or undertaken
any Liability, including without limitation any obligation for corrective or
remedial action, of any other Person relating to Environmental, Health, and
Safety Requirements.
          (viii) No facts, events or conditions relating to the past or present
facilities, properties or operations of Target or, to its Knowledge, its
predecessors or Affiliates will

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prevent, hinder or limit continued compliance with Environmental, Health, and
Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements, or give
rise to any other Liabilities pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
     (aa) Certain Business Relationships with Target. None of Sellers, their
Affiliates, Sellers’ directors, officers, employees and stockholders and
Target’s directors, officers, employees, and stockholders has been involved in
any business arrangement or relationship with Target within the past 12 months,
and none of Sellers, their Affiliates, Sellers’ directors, officers, employees
and stockholders and Target’s directors, officers, employees, and stockholders
owns any asset, tangible or intangible, which is used in the business of Target.
     (bb) Customers and Suppliers.
          (i) Section 4(bb) of the Disclosure Schedule lists the 10 largest
customers of Target for each of the two most recent fiscal years and sets forth
opposite the name of each such customer the percentage of consolidated net sales
attributable to such customer. Section 4(bb) of the Disclosure Schedule also
lists any additional current customers that Target anticipates shall be among
the 10 largest customers for the current fiscal year.
          (ii) Since the date of the Most Recent Balance Sheet, no supplier of
Target has indicated that it shall stop, or decrease the rate of, supplying
materials, products or services to Target, and no customer listed on
Section 4(bb) of the Disclosure Schedule has indicated that it shall stop, or
decrease the rate of, buying materials, products or services from Target.
     (cc) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
SECTION 5. PRE-CLOSING COVENANTS
     The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
     (a) General. Each of the Parties will use his or its best efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the Closing conditions set forth in
Section 7 below).
     (b) Notices and Consents. Sellers will cause Target to give any notices to
third parties, and will cause Target to use its best efforts to obtain any third
party consents referred to in Section 4(c) above, the Lease Consents, and the
items set forth on Section 5(b) of the Disclosure Schedule. Each of the Parties
will (and Sellers will cause Target to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and

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approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(a)(ii), Section 3(b)(ii), and Section 4(c)
above.
     (c) Operation of Business. Sellers will not cause or permit Target to
engage in any practice, take any action, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of the
foregoing, Sellers will not cause or permit Target to (i) declare, set aside, or
pay any dividend or make any distribution whatsoever with respect to its capital
stock (whether in cash or in kind) or redeem, purchase, or otherwise acquire any
of its capital stock except distributions to Sellers in an amount approved by
Buyer calculated to cover Sellers’ income tax liability resulting from the
Sellers’ allocable shares of Target’s earnings through the Closing Date, or
(ii) otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 4(h) above.
     (d) Preservation of Business. Sellers will cause Target to keep its
business and properties substantially intact, including its present operations,
physical facilities, working conditions, insurance policies, and relationships
with lessors, licensors, suppliers, customers, and employees.
     (e) Full Access. Sellers will permit, and Sellers will cause Target to
permit, representatives of Buyer (including legal counsel and accountants) to
have full access at all reasonable times, and in a manner so as not to interfere
with the normal business operations of Target, to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to Target.
     (f) Notice of Developments. Sellers will give prompt written notice to
Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in Section 3
above. No disclosure by any Party pursuant to this Section 5(f), however, shall
be deemed to amend or supplement Annex I, Annex II, or the Disclosure Schedule
or to prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
     (g) Exclusivity. Sellers will not (and Sellers will not cause or permit
Target to) (i) solicit, initiate, or encourage the submission of any proposal or
offer from any Person relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets, of Target
(including any acquisition structured as a merger, consolidation, or share
exchange) or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. Neither Seller will vote his Target Shares in favor of any such
acquisition. Sellers will notify Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
     (h) [INTENTIONALLY OMITTED]
     (i) Leases. Except to the extent necessary to satisfy the Closing
conditions set forth in Section 7 below, Sellers will not cause or permit any of
Target’s Leases to be amended, modified, extended, renewed or terminated, nor
shall Target enter into any new lease, sublease,

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license or other agreement for the use or occupancy of any real property,
without the prior written consent of Buyer.
     (j) Tax Matters. Without the prior written consent of Buyer, Target shall
not make or change any election, change an annual accounting period, adopt or
change any accounting method, file any amended Tax Return, enter into any
closing agreement, settle any Tax claim or assessment relating to Target,
surrender any right to claim a refund of Taxes, consent to any extension or
waiver of the limitation period applicable to any Tax claim or assessment
relating to Target, or take any other similar action relating to the filing of
any Tax Return or the payment of any Tax, if such election, adoption, change,
amendment, agreement, settlement, surrender, consent or other action would have
the effect of increasing the Tax liability of Target for any period ending after
the Closing Date or decreasing any Tax attribute of Target existing on the
Closing Date.
     (k) S Corporation Status. Target and Sellers shall not revoke Target’s
election to be taxed as an S corporation within the meaning of Code Section 1361
and Section 1362. Target and Sellers shall not take or allow any action, other
than the sale of Target’s stock pursuant to this Agreement, which would result
in the termination of Target’s status as a validly electing S corporation within
the meaning of Code Section 1361 and Section 1362.
     (l) Employee Benefits and Welfare Matters. [INTENTIONALLY OMITTED]
SECTION 6. POST-CLOSING COVENANTS
     The Parties agree as follows with respect to the period following the
Closing.
     (a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
Sellers acknowledge and agree that from and after the Closing Buyer will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to Target.
     (b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving Target, each of the other Parties will cooperate with him or it and
his or its counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 8 below).

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     (c) Transition. Sellers will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of Target from maintaining the same
business relationships with Target after the Closing as it maintained with
Target prior to the Closing. Sellers shall refer all customer inquiries relating
to the businesses of Target to Buyer from and after the Closing.
     (d) Confidentiality. Each of the parties hereto will treat and hold as such
all of the Confidential Information of the other parties, refrain from using any
of the Confidential Information except in connection with this Agreement, and
deliver promptly to such other party or destroy, at the request and option of
disclosing party, all tangible embodiments (and all copies) of the Confidential
Information which are in his, her, or its possession. In the event that any
party is requested or required pursuant to written or oral question or request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process to disclose any Confidential
Information, such party will notify the disclosing party promptly of the request
or requirement so that the disclosing party may seek an appropriate protective
order or waive compliance with the provisions of this Section 6(d). If, in the
absence of a protective order or the receipt of a waiver hereunder, any of
receiving parties is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or party in a proceeding therein or
else stand liable for contempt, such party may disclose the Confidential
Information to the tribunal or such person involved in such action; provided,
however, that the disclosing party shall use his, her, or its best efforts to
obtain, at the reasonable request of the disclosing party, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the disclosing party shall
designate. The foregoing provisions shall not apply to any Confidential
Information that is generally available to the public immediately prior to the
time of disclosure unless such Confidential Information is so available due to
the actions of a Party, nor shall the foregoing provisions apply to Buyer to the
extent Buyer is required to disclose such information in order to comply with
its disclosure obligations as a publicly-traded company under applicable federal
securities laws and stock exchange rules and listing standards.
     (e) Release of Target by Sellers. Effective at and (only) upon Closing,
Sellers (the “Releasing Party”) hereby irrevocably and unconditionally releases
and forever discharges the Target and its respective successors and assigns (the
“Released Parties”) from any and all claims, charges, complaints, causes of
action, damages, agreements and liabilities of any kind or nature whatsoever,
including any claim by Sellers against the Target for indemnification or for
advances with respect to actions or omissions (or claims or allegations thereof)
of Sellers prior to the Closing in their capacities as shareholders, officers,
directors or employees of the Target (“Released Claims”), whether known or
unknown and whether at law or in equity, arising from conduct occurring on or
prior to the Closing Date, including without limitation any Released Claims
relating to or arising out of any Seller’s ownership of securities of Target;
provided that (i) nothing contained herein shall release Released Parties from
any of their post-Closing obligations and liabilities to Releasing Party created
under this Agreement or constitute a waiver of any claims that Releasing Party
may bring or have for indemnification by the Released Parties under Section 8,
and (ii) this release shall only relate to those claims arising from conduct or
omissions occurring on or before the Closing.

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SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE
     (a) Conditions to Buyer’s Obligation. Buyer’s obligation to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
          (i) the representations and warranties set forth in Section 3(a) and
Section 4 above shall be true and correct in all material respects at and as of
the Closing Date, except to the extent that such representations and warranties
are qualified by terms such as “material” and “Material Adverse Effect,” in
which case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;
          (ii) Sellers shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing, except to the
extent that such covenants are qualified by terms such as “material” and
“Material Adverse Effect,” in which case Sellers shall have performed and
complied with all of such covenants in all respects through the Closing;
          (iii) Target shall have procured all of the third party consents
specified in Section 5(b) above;
          (iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) affect adversely the right of Buyer to
own the Target Shares and to control Target, or (D) affect adversely the right
of Target to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
          (v) Sellers shall have delivered to Buyer a certificate to the effect
that each of the conditions specified above in Section 7(a)(i)-(iv) is satisfied
in all respects;
          (vi) the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Section 3(a)(ii), Section 3(b)(ii), and Section 4(c) above;
          (vii) Buyer shall have received the resignations, effective as of the
Closing, of each director and officer of Target other than those whom Buyer
shall have specified in writing at least five business days prior to the
Closing;
          (viii) Buyer shall have obtained on terms and conditions satisfactory
to it any debt or equity financing it needs in order to consummate the
transactions contemplated hereby and fund the working capital requirements of
Target after the Closing;
          (ix) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other

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documents required to effect the transactions contemplated hereby shall be
satisfactory in form and substance to Buyer;
          (x) Target shall have obtained and delivered to Buyer a written
consent for the assignment of each of the Leases, and, if requested by Buyer’s
lender, a waiver of landlord liens, collateral assignment of lease or leasehold
mortgage from the landlord or other party whose consent thereto is required
under such Lease (the “Lease Consents”), in form and substance satisfactory to
Buyer and Buyer’s lender;
          (xi) [INTENTIONALLY OMITTED]
          (xii) [INTENTIONALLY OMITTED]
          (xiii) no damage or destruction or other change has occurred with
respect to any of the Real Property or any portion thereof that, individually or
in the aggregate, would materially impair the use or occupancy of the Real
Property or the operation of Target’s business as currently conducted thereon;
          (xiv) [INTENTIONALLY OMITTED]
          (xv) Sellers shall have delivered to Buyer copies of the certificate
of incorporation of Target certified on or soon before the Closing Date by the
Secretary of State (or comparable officer) of the jurisdiction of Target’s
incorporation;
          (xvi) Sellers shall have delivered to Buyer copies of the certificate
of good standing of Target issued on or soon before the Closing Date by the
Secretary of State (or comparable officer) of the jurisdiction of Target’s
organization and of each jurisdiction in which Target is qualified to do
business;
          (xvii) Sellers shall have delivered to Buyer a certificate of the
secretary or an assistant secretary of Target, dated the Closing Date, in form
and substance reasonably satisfactory to Buyer, as to (i) no amendments to the
Certificate of Incorporation of Target since the date specified in clause
(xv) above; (ii) the bylaws of Target; and (iii) any resolutions of the board of
directors of Target relating to this Agreement and the transactions contemplated
hereby;
          (xviii) Sellers shall have entered into a confidentiality,
non-solicitation, non-compete and non-disparagement agreement (“Post-Closing
Agreement”) with Target on terms satisfactory to Buyer, and such agreement shall
be in full force and effect as of the Closing.
          (xix) Any amounts owed by Target to Sellers shall have been paid in
full and, at the request of Buyer, Sellers shall deliver to Target a release to
such effect in form and substance satisfactory to Buyer.
          (xx) Buyer shall have obtained the approval of its lenders of this
Agreement and the transactions contemplated thereby and there shall be no
payment default under Buyer’s loan agreements with its lenders unless waived by
Buyer’s lenders;

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          (xxi) Buyer shall have obtained the approval of its board of directors
of this Agreement and the transactions contemplated thereby;
          (xxii) Target and Sellers shall have delivered to Buyer signed copies
of the applicable forms and attachments thereto required in connection with the
Section 338(h)(10) Election pursuant to Section 9(f) below;
          (xxiii) Buyer shall have received from Bonadio and Company, LLP
audited Financial Statements of Target for the year ended December 31, 2006;
          (xxiv) Sellers and Buyer shall have entered into the Registration
Rights Agreement; and
          (xxv) Buyer’s acquisition of Stationary Power Services, Inc. shall
have been completed as of the Closing Date.
Buyer may waive any condition specified in this Section 7(a) if it executes a
writing so stating at or prior to the Closing.
     (b) Conditions to Sellers’ Obligation. The obligation of Sellers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
          (i) the representations and warranties set forth in Section 3(b) above
shall be true and correct in all material respects at and as of the Closing
Date, except to the extent that such representations and warranties are
qualified by terms such as “material” and “Material Adverse Effect,” in which
case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;
          (ii) Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing, except to the extent
that such covenants are qualified by terms such as “material” and “Material
Adverse Effect,” in which case Buyer shall have performed and complied with all
of such covenants in all respects through the Closing;
          (iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
          (iv) Buyer shall have delivered to Sellers a certificate to the effect
that each of the conditions specified above in Section 7(b)(i)-(iii) is
satisfied in all respects;

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          (v) the Parties shall have received all authorizations, consents, and
approvals of governments and governmental agencies referred to in
Section 3(a)(ii), Section 3(b)(ii), and Section 4(c) above;
          (vi) all actions to be taken by Buyer in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Sellers; and
          (vii) Buyer and Sellers shall have entered into the Registration
Rights Agreement.
Sellers may waive any condition specified in this Section 7(b) if it executes a
writing so stating at or prior to closing.
SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT
     (a) Survival of Representations and Warranties.
          (i) All of the representations and warranties of the Parties contained
in Section 3 of this Agreement shall survive the Closing hereunder (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty or covenant at the time of Closing) and continue in full force and
effect forever thereafter (subject to any applicable statutes of limitations).
          (ii) Except for those representations and warranties of the Parties
contained in Sections 4(a)-(f) (inclusive), (j), (k) and (z) of this Agreement,
all of the representations and warranties of the Parties contained in Section 4
of this Agreement, shall survive the Closing hereunder (even if the damaged
Party knew or had reason to know of any misrepresentation or breach of warranty
or covenant at the time of Closing) and continue in full force and effect for a
period of two years from the Closing Date. This provision shall not extinguish
claims that are made within two years of the Closing Date but that remain
unresolved on or after the date that is two years after the Closing Date.
          (iii) All of the representations and warranties of the Parties
contained in Sections 4(a)-(f) (inclusive), (j), (k) and (z) of this Agreement
shall survive the Closing hereunder (even if the damaged Party knew or had
reason to know of any misrepresentation or breach of warranty or covenant at the
time of Closing) and continue in full force and effect until the expiration of
any applicable statutes of limitations (after giving effect to any extensions or
waivers) plus 60 days.
     (b) Indemnification Provisions for Buyer’s Benefit.
          (i) In the event Sellers breach (or in the event any third party
alleges facts that, if true, would mean Sellers have breached) any of their
representations, warranties, and covenants contained herein (other than the
covenants in Section 2(a) above and the representations and warranties in
Section 3(a) above) and, provided that Buyer makes a written

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claim for indemnification against Sellers pursuant to Section 11(g) below within
the survival period (if there is an applicable survival period pursuant to
Section 8(a) above), then Sellers shall be obligated to indemnify Buyer from and
against the entirety of any Adverse Consequences Buyer may suffer (including any
Adverse Consequences Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused
by the breach (or the alleged breach).
          (ii) In the event any Seller breaches (or in the event any third party
alleges facts that, if true, would mean any Seller breached) any of his
covenants in Section 2(a) above or any of his representations and warranties in
Section 3(a) above, and provided that Buyer makes a written claim for
indemnification against such Seller pursuant to Section 11(g) below within the
survival period (if there is an applicable survival period pursuant to Section
8(a) above), then such Seller shall indemnify Buyer from and against the
entirety of any Adverse Consequences Buyer may suffer (including any Adverse
Consequences Buyer may suffer after the end of any applicable survival period)
resulting from arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
          (iii) Sellers shall indemnify Buyer from and against the entirety of
any Adverse Consequences Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any occurrence or circumstance
related to Target or its business that first arose, in whole or in part, on or
before the Closing Date.
          (iv) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL THE AGGREGATE LIABILITY OF ANY SELLER TO BUYER UNDER THIS SECTION
8(B) EXCEED THE PURCHASE PRICE.
     (c) Indemnification Provisions for Sellers’ Benefit.
     (i) In the event Buyer breaches (or in the event any third party alleges
facts that, if true, would mean Buyer has breached) any of its representations,
warranties, and covenants contained herein and, provided that any Seller makes a
written claim for indemnification against Buyer pursuant to Section 11(g) below
within such survival period (if there is an applicable survival period pursuant
to Section 8(a) above), then Buyer shall indemnify the Seller(s) from and
against the entirety of any Adverse Consequences suffered (including any Adverse
Consequences suffered after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
     (ii) Buyer shall indemnify Sellers from and against the entirety of any
Adverse Consequences Sellers may suffer resulting from, arising out of, relating
to, in the nature of, or caused by any occurrence or circumstance related to
Target or its business that first arose, in whole or in part, after the Closing
Date.
     (d) Matters Involving Third Parties.
          (i) If any third party shall notify any Party (the “Indemnified
Party”) with respect to any matter (a “Third Party Claim”) which may give rise
to a claim for indemnification against any other Party (the “Indemnifying
Party”) under this Section 8, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that

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no delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is prejudiced.
          (ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests or the reputation of the Indemnified Party, and
(E) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
          (iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
          (iv) In the event any of the conditions in Section 8(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys’ fees and expenses), and (C) the Indemnifying Parties will
remain responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 8.
     (e) Determination of Adverse Consequences. All indemnification payments
under this Section 8 and Section 9(a) shall be deemed adjustments to the
Purchase Price.
     (f) Setoff against Holdback Amounts; Priority. Any indemnification to which
Buyer is entitled under this Agreement as a result of any Adverse Consequences
Buyer may suffer may, at Buyer’s election, be satisfied by Buyer setting off
such indemnification amounts

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against any Holdback Amount due Seller’s hereunder, and Buyer shall seek to
satisfy such indemnification amounts against such Holdback Amounts due to
Sellers prior to and before seeking to satisfy such indemnification amounts
against other assets of the Sellers. The exercise by Buyer of such right of
setoff shall not preclude Buyer from pursuing other remedies available to Buyer
against Sellers.
     (g) Other Indemnification Provisions. Buyer and Sellers acknowledge and
agree that the foregoing indemnification provisions in this Section 8 shall be
the exclusive remedy of Buyer and Sellers with respect to Target, Sellers, and
the transactions contemplated by this Agreement. The party entitled to
indemnification hereunder shall take all reasonable steps to mitigate all
damages, upon and after becoming aware of any event that could reasonably be
expected to give rise to any such losses that are indemnifiable hereunder. No
party shall be entitled to indemnification to the extent of any insurance, or
any tax deduction or benefit actually realized, refund or credit, or any other
benefits actually realized resulting from or which may be claimed as a result of
the facts and circumstances relating to any indemnifiable claim. If any damages
are covered by insurance, the party seeking indemnity hereunder shall use all
reasonable efforts to recover the amount of such losses from the insurer of such
insurance, which such recovery shall reduce the amount of such losses to be
indemnified. To the extent either party discharges any claims for
indemnification hereunder, that party shall be segregated to all rights of the
other parties against third parties. Each Seller hereby agrees that he will not
make any claim for indemnification against Target by reason of the fact that he
was a director, officer, employee, or agent of any such entity or was serving at
the request of any such entity as a partner, trustee, director, officer,
employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by Buyer against Sellers
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant
to this Agreement, applicable law, or otherwise).
SECTION 9. TAX MATTERS
     The following provisions shall govern the allocation of responsibility as
between Buyer and Sellers for certain tax matters following the Closing Date:
     (a) Tax Indemnification. Sellers shall indemnify Target, Buyer, and each
Buyer Affiliate and hold them harmless from and against without duplication, any
loss, claim, liability, expense, or other damage attributable to (i) all Taxes
(or the non-payment thereof) of Target for all Taxable periods ending on or
before the Closing Date and the portion through the end of the Closing Date for
any Taxable period that includes (but does not end on) the Closing Date
(“Pre-Closing Tax Period”), (ii) all Taxes of any member of an affiliated,
consolidated, combined or unitary group of which Target (or any predecessor of
Target) is or was a member on or prior to the Closing Date, including pursuant
to Treasury Regulation Section 1.1502-6 or any analogous or similar state,
local, or foreign law or regulation, and (iii) any and all Taxes of any person
(other than Target) imposed on Target as a transferee or successor, by contract
or pursuant to any law, rule, or regulation, which Taxes relate to an event or
transaction occurring before the Closing.

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          (i) Responsibility for Filing Tax Returns. Buyer acknowledges that the
Target will no longer be eligible for S corporation status after the Closing
Date. Accordingly, a final Form 1120S for the Target will be required to be
prepared for the period January 1, 2007 through the end of the Closing Date.
Such income tax return will be provided by the Sellers allocating income and
expenses to this period according to the closing of the books method, in
accordance with Section 1377(a)(2) of the Code. At their expense, Sellers shall
prepare or caused to be prepared and file or caused to be filed all Tax Returns
for Target for periods ending on or before the Closing Date. Sellers shall
permit Buyer to review and comment on each such Tax Return described in the
preceding sentence prior to filing. Buyer shall have the right to contest the
contents of all such Tax Returns, and any conflict between Sellers, on the one
hand, and Buyer, on the other, with respect thereto shall be resolved by
submitting the disagreement to BDO Seidman LLP (“Auditor”) for computation,
verification or resolution in accordance with the provisions of this Agreement.
Buyer and Sellers shall make readily available to the Auditor all relevant books
and records (including work papers of a party’s independent public accountants)
as the Auditor reasonably requests. The Auditor’s computation or verification of
the Tax Returns or resolution of such disputed item or items thereof (as the
case may be), which Buyer and Sellers will instruct the Auditor to deliver to
them within 30 days after submission to the Auditor, will be final and binding
upon the parties for all purposes relating to this Section 9, and the Auditor’
fees and expenses therefor will be borne by the non-prevailing party or, in the
event that each party prevails on some of the issues in dispute, will be shared
proportionately, as determined by the Auditor.
     (b) Cooperation on Tax Matters.
          (i) Buyer, Target, and Sellers shall cooperate fully, as and to the
extent reasonably requested by the other Party, in connection with the filing of
Tax Returns pursuant to Section 9(c) and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other Party’s request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Target and Sellers agree (A) to retain all books and records with respect to Tax
matters pertinent to Target relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Sellers, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any taxing authority, and (B) to give the other Party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other Party so requests, Target or Sellers, as the case may
be, shall allow the other Party to take possession of such books and records.
          (ii) Buyer and Sellers further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
          (iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to report
pursuant to Code Section 6043 and all Treasury Regulations promulgated
thereunder.

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          (iv) Buyer shall not without the prior written consent of Sellers
file, or cause to be filed, any amended Tax Return or claim for Tax Refund, with
respect to the Target for pre-Closing Tax Period, to the extent any such filing
may adversely affect the liability of the Sellers, unless advised in writing
that such filing is required by law.
     (c) Tax Sharing Agreements. All Tax sharing agreements or similar
agreements with respect to or involving Target shall be terminated as of the
Closing Date and, after the Closing Date, Target shall not be bound thereby or
have any liability thereunder.
     (d) Certain Taxes and Fees. All transfer, documentary, sales, use, stamp,
registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and interest) incurred in
connection with consummation of the transactions contemplated by this Agreement
shall be paid by Sellers when due, and Sellers will, at their own expense, file
all necessary Tax Returns and other documentation with respect to all such
Taxes, fees and charges, and, if required by applicable law, Buyer will, and
will cause its Affiliates to, join in the execution of any such Tax Returns and
other documentation.
     (e) Section 338(h)(10) Election.
          (i) At Buyer’s request, Target and Sellers shall join with Buyer in
making an election under Sections 338(h)(10) of the Code and the Treasury
Regulations, including Treasury Regulation Section 1.338(h)(10)-1T(c)(1), and
any corresponding or similar elections under state, local or foreign Tax Law
(collectively, a “Section 338(h)(10) Election”) with respect to the purchase and
sale of the Target Shares. In such case, Target and Sellers shall include any
income, gain, loss, deduction, or other Tax item resulting from the
Section 338(h)(10) Election on their Tax Returns to the extent required by
applicable law.
          (ii) Buyer shall be responsible for the preparation and filing of all
forms and documents required in connection with the Section 338(h)(10) Election.
Seller shall execute and deliver to Buyer such documents or forms as are
reasonably requested and are required by any law, rule or regulation to complete
properly the Section 338(h)(10) Election no later than 60 days after the
Closing. For the purposes of executing the Section 338 Election, on or prior to
the Closing Date, Sellers and Buyer will execute two copies of the applicable
Internal Revenue Service form and all attachments required to be filed therewith
pursuant to applicable Treasury Regulations.
          (iii) Buyer, not less than 30 days prior to the date the forms
required under Section 338(h)(10) of the Code are required to be filed, will
provide Sellers with a valuation statement reflecting, as of the Closing Date,
the fair market values of all of the assets and the liabilities and obligations
of the Target. Buyer and Sellers will file, and will cause their Affiliates to
file, all Tax Returns and statements, forms and schedules in connection
therewith in a manner consistent with such valuation and will take no position
contrary thereto unless required to do so by applicable Tax laws.
          (iv) To the extent permitted by state and local law, the principles
and procedures of this section will also apply with respect to
Section 338(h)(10) Election or equivalent or comparable provision under state or
local law. Sellers will make any election

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similar to a Section 338(h)(10) Election which is optional under any state or
local law, and will cooperate and join in any election made by Target, Buyer or
its Affiliates to effect such an election so as to treat the transaction as a
sale of assets for state and local income Tax purposes.
     (f) Tax Adjustment. If Buyer makes a Section 338(h)(10) Election, and if
such Section 338(h)(10) Election causes Sellers’ after-Tax net proceeds from the
sale of Target’s stock to be less than the after-Tax net proceeds that Sellers
would have received had the Section 338(h)(10) Election not been made, taking
into account all appropriate state, federal and local Tax implications (the
“Section 338(h)(10) Election Liability”), then Buyer shall pay to Sellers, in
cash, an aggregate amount determined pursuant to the following scale (the “Tax
Adjustment”):
          (i) If the aggregate amount of the Section 338(h)(10) Election
Liability is less than or equal to $25,000, then Buyer shall pay Sellers the
aggregate amount of the Section 338(h)(10) Election Liability.
The amount of the Tax Adjustment shall be paid to each eligible Seller prior to
the date that any Tax return is required to be filed in which the
Section 338(h)(10) Election would have an impact on a Seller’s Tax liability. If
a Tax impact would occur in multiple years, only the amount necessary to pay a
Tax Adjustment for each year shall be paid in that year. In order to be entitled
to a Tax Adjustment each Seller shall provide Buyer with a schedule, not later
than 30 days before the due date of the Tax return with respect to which the Tax
Adjustment is requested, computing the amount of the Tax Adjustment. The Tax
Adjustment shall reflect the actual calculation of each Seller’s tax and shall
not be based on assumed or hypothetical Tax rates. Buyer shall have the right to
contest the calculation of any requested Tax Adjustment, and any conflict with
respect to the calculation of a Tax Adjustment shall be resolved in accordance
with the provisions of Section 9(a)(ii).
     (g) Tax Refund. Any Tax Refund pertaining to the pre-Closing Period
(reduced by any Taxes imposed on the Target as a result of such refund) shall be
for the account of, and paid over to the Seller.
SECTION 10. TERMINATION
     (a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
          (i) Buyer and Sellers may terminate this Agreement by mutual written
consent at any time prior to the Closing;
          (ii) Buyer may terminate this Agreement by giving written notice to
Sellers on or before the 25th day following the date of this Agreement if Buyer
is not satisfied with the results of its continuing business, legal,
environmental, and accounting due diligence regarding Target;
          (iii) Buyer may terminate this Agreement by giving written notice to
Sellers at any time prior to the Closing (A) in the event any Seller has
breached any material

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representation, warranty, or covenant contained in this Agreement in any
material respect, Buyer has notified the Seller of the breach, and the breach
has continued without cure for a period of 10 days after the notice of breach or
(B) if the Closing shall not have occurred on or before November 30, 2007, by
reason of the failure of any condition precedent under Section 7(a) hereof
(unless the failure results primarily from Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
          (iv) Sellers may terminate this Agreement by giving written notice to
Buyer at any time prior to the Closing (A) in the event Buyer has breached any
material representation, warranty, or covenant contained in this Agreement in
any material respect, Sellers have notified Buyer of the breach, and the breach
has continued without cure for a period of 10 days after the notice of breach or
(B) if the Closing shall not have occurred on or before November 30, 2007, by
reason of the failure of any condition precedent under Section 7(b) hereof
(unless the failure results primarily from Sellers breaching any representation,
warranty, or covenant contained in this Agreement).
     (b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).
SECTION 11. MISCELLANEOUS
     (a) Press Releases and Public Announcements; Confidentiality.
          (i) No Party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the prior
written approval of Buyer and Sellers; provided, however, that any Party may
make any public disclosure it believes in good faith is required by applicable
law or any listing or trading agreement concerning its publicly-traded
securities (in which case the disclosing Party will use its reasonable best
efforts to advise the other Parties prior to making the disclosure).
          (ii) Each of the parties hereto will treat and hold as such all of the
Confidential Information of the other parties, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to such other party or destroy, at the request and option of disclosing
party, all tangible embodiments (and all copies) of the Confidential Information
which are in his, her, or its possession. In the event that any party is
requested or required pursuant to written or oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process to disclose any Confidential
Information, such party will notify the disclosing party promptly of the request
or requirement so that the disclosing party may seek an appropriate protective
order or waive compliance with the provisions of this Section 11(a)(ii). If, in
the absence of a protective order or the receipt of a waiver hereunder, any of
receiving parties is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or party in a proceeding therein or
else stand liable for contempt, such party may disclose the Confidential
Information to the tribunal or such person involved in such action; provided,

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however, that the disclosing party shall use his, her, or its best efforts to
obtain, at the reasonable request of the disclosing party, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the disclosing party shall
designate. The foregoing provisions shall not apply to any Confidential
Information that is generally available to the public immediately prior to the
time of disclosure unless such Confidential Information is so available due to
the actions of a Party, nor shall the foregoing provisions apply to Buyer to the
extent Buyer is required to disclose such information in order to comply with
its disclosure obligations as a publicly-traded company under applicable federal
securities laws and stock exchange rules and listing standards.
     (b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
     (c) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof, including, but not limited to that certain letter of intent and term
sheet dated as of June 4, 2007, as amended or extended, which letter of intent
and term sheet are hereby terminated.
     (d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his,
her, or its rights, interests, or obligations hereunder without the prior
written approval of Buyer and Sellers; provided, however, that Buyer may
(i) assign any or all of its rights and interests hereunder to one or more of
its Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
     (e) Counterparts. This Agreement may be executed in one or more
counterparts (including by means of facsimile), each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
     (f) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
     (g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given (i) when delivered
personally to the recipient, (ii) one business day after being sent to the
recipient by reputable overnight courier service (charges prepaid), (iii) one
business day after being sent to the recipient by facsimile transmission or
electronic mail, or (iv) four business days after being mailed to the recipient
by certified or registered mail, return receipt requested and postage prepaid,
and addressed to the intended recipient as set forth below:

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  If to Buyer:   Ultralife Batteries, Inc.
 
      2000 Technology Parkway
 
      Newark, NY 14513
 
      Attention: General Counsel
 
      Facsimile: (315) 331-7048
 
       
 
  With a copy to:   Harter Secrest & Emery LLP
 
      1600 Bausch & Lomb Place
 
      Rochester, NY 14604
 
      Attention: Jeffrey H. Bowen
 
      Facsimile: (585) 232-2152
 
       
 
  If to Sellers:   William Maher
 
      525 Tallahassee Drive
 
      St. Petersburg, FL 33702
 
      Facsimile:
 
       
 
      Edward Bellamy
 
      4902 113th Avenue North
 
      Clearwater, FL 33760
 
       
 
  With a copy to:   Johnson, Pope, Bokor, Ruppel & Burns, LLP
 
      911 Chestnut Street
 
      Clearwater, FL 33756
 
      Attention: Michael G. Little
 
      Facsimile: 727-462-0365

Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
     (h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
     (i) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by Buyer and
Sellers. No waiver by any Party of any provision of this Agreement or any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be valid unless the same shall be in writing and
signed by the Party making such waiver nor shall such waiver be deemed to extend
to any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such default, misrepresentation, or breach of warranty or
covenant.
     (j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of

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the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction.
     (k) Expenses. Each of Buyer, Sellers and Target will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby; provided, however,
that Sellers shall also bear the costs and expenses of Target (including all of
their legal fees and expenses) in connection with this Agreement and the
transactions contemplated hereby in the event that the transactions contemplated
by this Agreement are consummated.
     (l) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word “including” shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
     (m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
     (n) Specific Performance. Each Party acknowledges and agrees that the other
Parties would be damaged irreparably in the event any provision of this
Agreement is not performed in accordance with its specific terms or otherwise is
breached, so that a Party shall be entitled to injunctive relief to prevent
breaches of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in addition to any other remedy to which such Party
may be entitled, at law or in equity. In particular, the Parties acknowledge
that the business of Target is unique and recognize and affirm that in the event
Sellers breach this Agreement, money damages would be inadequate and Buyer would
have no adequate remedy at law, so that Buyer shall have the right, in addition
to any other rights and remedies existing in its favor, to enforce its rights
and the other Parties’ obligations hereunder not only by action for damages but
also by action for specific performance, injunctive, and/or other equitable
relief.
     (o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court having jurisdiction in Wayne County,
New York, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each Party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of

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any other Party with respect thereto. Each Party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or at equity.
     (p) Tax Disclosure Authorization. Notwithstanding anything herein to the
contrary, the Parties (and each Affiliate and Person acting on behalf of any
Party) agree that each Party (and each employee, representative, and other agent
of such Party) may disclose to any and all Persons, without limitation of any
kind, the transaction’s tax treatment and tax structure (as such terms are used
in Code Sections 6011 and 6112 and regulations thereunder) contemplated by this
agreement and all materials of any kind (including opinions or other tax
analyses) provided to such Party or such Person relating to such tax treatment
and tax structure, except to the extent necessary to comply with any applicable
federal or state securities laws; provided, however, that such disclosure may
not be made until the earlier of date of (A) public announcement of discussions
relating to the transaction, (B) public announcement of the transaction, or (C)
execution of an agreement to enter into the transaction. This authorization is
not intended to permit disclosure of any other information including (without
limitation) (A) any portion of any materials to the extent not related to the
transaction’s tax treatment or tax structure, (B) the identities of participants
or potential participants, (C) the existence or status of any negotiations,
(D) any pricing or financial information (except to the extent such pricing or
financial information is related to the transaction’s tax treatment or tax
structure), or (E) any other term or detail not relevant to the transaction’s
tax treatment or the tax structure.

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

            BUYER:

Ultralife Batteries, Inc.
      /s/ John D. Kavazanjian       John D. Kavazanjian      Chief Executive
Officer        SELLERS:
      /s/ William Maher       William Maher, Individually                    /s/
Edward Bellamy       Edward Bellamy, Individually              TARGET:

Reserve Power Systems, Inc.
      /s/ William Maher       William Maher      President     

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