Exhibit 10.100

 

 

 

ASSET PURCHASE AGREEMENT

 

AMONG

 

UTSTARCOM, INC.,

 

TELOS TECHNOLOGY, INC.,

 

TELOS TECHNOLOGY (CANADA), INC.,

 

TELOS TECHNOLOGY (BERMUDA) LTD. AND

 

TELOS ENGINEERING LIMITED

 

 

APRIL 21, 2004

 

 

 

 

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ASSET PURCHASE AGREEMENT

 

This ASSET PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of
April 21, 2004 (the “Agreement Date”) by and among UTStarcom, Inc., a Delaware
corporation (“Buyer”), TELOS Technology, Inc., a Delaware corporation (the
“Seller”), TELOS Technology (Canada), Inc., a company incorporated in British
Columbia, Canada (“TELOS Canada”), TELOS Technology (Bermuda) Ltd., an exempted
limited liability company organized under the laws of Bermuda (“TELOS Bermuda”),
TELOS Engineering Limited, a company incorporated under the laws of Hong Kong
(“TELOS Hong Kong”, and together with Seller, TELOS Canada and TELOS Bermuda,
the “Telos Sellers” and each such entity, individually, a “Telos Seller”).

 

RECITALS

 

A.                                   The parties intend that, subject to the
terms and conditions hereinafter set forth, Buyer or one or more direct or
indirect wholly-owned subsidiaries of Buyer shall purchase from the Telos
Sellers and each of the Telos Sellers shall sell, transfer and assign to Buyer
or such subsidiaries of Buyer, substantially all of the assets of the Telos
Sellers, and in connection therewith, Buyer has agreed to assume certain
specified liabilities of the Telos Sellers (the “Asset Purchase”), all pursuant
to the terms and conditions of this Agreement and Applicable Law (as defined in
Article 1). 

 

B.                                     The Board of Directors of Seller has
determined that the Asset Purchase is in the best interests of Seller and
Seller’s stockholders, has approved and declared advisable this Agreement and,
accordingly, has agreed to effect the Asset Purchase provided for herein upon
the terms and conditions of this Agreement.

 

C.                                     Concurrently with the execution and
delivery of this Agreement, and as a condition and inducement to Buyer’s
willingness to enter into this Agreement, those Seller Stockholders (as defined
in Article 1) that are listed on Exhibit A-1 are executing and delivering to
Buyer a Voting Agreement substantially in the form attached hereto as
Exhibit A-2 (the “Stockholder Agreement”).

 

D.                                    Prior to the Closing Date (as defined in
Article 1), certain employees of Telos Sellers will receive from Buyer an
Employment Offer Letter substantially in the form attached hereto as Exhibit B
(the “Employment Offer Letter”).

 

E.                                      Buyer and Seller desire to make certain
representations, warranties, covenants and agreements in connection with the
Asset Purchase and to prescribe various conditions to the Asset Purchase.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
covenants and conditions contained herein, the parties hereby agree as follows:

 

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ARTICLE 1
CERTAIN DEFINITIONS

 

As used in this Agreement, the following terms shall have the meanings set forth
below.  Unless indicated otherwise, all mathematical calculations contemplated
hereby shall be made to the fifth decimal place.

 

“Additional Indebtedness” means Indebtedness incurred after the date hereof
under Seller’s existing credit lines or with existing investors (or their
Affiliates) in an aggregate amount not to exceed $1,000,000.

 

“Affiliate” shall have the meaning set forth in Rule 405 of Regulation C
promulgated under the Securities Act.

 

“Applicable Law” means, collectively, all foreign, federal, state, local or
municipal laws, statutes, ordinances, regulations, and rules, and all orders,
writs, injunctions, awards, judgments and decrees applicable to Seller or any of
its assets, properties and business or its Subsidiaries or any of their assets,
properties and business (and any regulations promulgated thereunder).

 

“Assumed Liabilities” means (i) all Liabilities of any Telos Seller under, or
resulting from, any Assumed Contract (as defined in Article 2) (other than
Liabilities for damages as a result of any breach by any Telos Seller prior to
the Closing that is not disclosed in the Schedules hereto), (ii) all Liabilities
incurred in, relating to, or arising as a result of or in connection with, the
operation of the Purchased Assets (as defined in Article 2) and/or the Business
after the Closing, (iii) all Liabilities incurred in, relating to, or arising as
a result of or in connection with, the operation of the Purchased Assets and/or
the Business that are (or should be) accounted for as current liabilities under
GAAP as of the Closing, including accounts payable and accrued expenses, and
which are either (A) reflected on the Seller Balance Sheet or (B) incurred after
the date of the Seller Balance Sheet in the ordinary course of business, other
than Indebtedness, Transaction Expenses, Taxes and the Liabilities set forth in
Section 2.1(d)(i)-(vii), (iv) all Liabilities for Taxes and charges to be paid
by Buyer pursuant to Section 7.6, (v) all Liabilities that constitute warranty
obligations or service obligations relating to as a result of or in connection
with, the operation of the Purchased Assets and/or the Business sold by any
Telos Seller, (vi) all Liabilities of the Telos Sellers for accrued compensation
payable to Jack Mar and Ron McLeod, including accrued interest thereon;
(vii) all Liabilities relating to each Transferring Employee (as defined in
Section 6.10) arising from termination of their employment by any Telos Seller
pursuant to Section 6.10 (other than, subject to subparagraph (vi) above,
accrued compensation and accrued vacation of each Transferring Employee through
the date of such termination) or arising from termination of their employment by
Buyer or any of its Subsidiaries after the Closing (including any severance
obligations of any Telos Seller pursuant to employment or severance agreements
between such Telos Seller and a Transferring Employee arising as a result of
termination of such Transferring Employee by Buyer or its Subsidiaries after the
Closing), or as a result of any revocation of the offer of employment to any
Transferring Employee prior to Closing;  (viii) the accrued Liability of the
Telos Sellers to ComScape Telecommunications of Charleston, Inc. (“ComScape”)
pursuant to that certain Settlement Agreement and Mutual Release by and between
ComScape and Telos

 

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Engineering, Inc. dated March 17, 2004 and in respect of the 3Com Litigation;
(ix) all Liabilities representing or relating to deferred revenue of any Telos
Seller; and (x) all Liabilities of the Telos Sellers under the SVB Credit
Agreement.

 

“Balance Sheet Date” means December 31, 2003, the date of the Seller Balance
Sheet.

 

“Bill of Sale and Assumption Agreement” means a Bill of Sale and Assumption
Agreement in substantially the form attached hereto as Exhibit C.

 

“Business” means the business of Seller or any of its Subsidiaries as conducted
as of the date of this Agreement.

 

“Buyer Ancillary Agreements” means, collectively, each certificate to be
delivered on behalf of Buyer by an officer or officers of Buyer at the Closing
pursuant to Article 8 and each agreement or document (other than this Agreement)
that Buyer is to enter into as a party thereto pursuant to this Agreement.

 

“Closing” means the closing of the transactions to consummate the Asset
Purchase.

 

“Closing Balance Sheet” means a balance sheet as of the Closing Date reflecting
the Purchased Assets and the Assumed Liabilities, to the extent such Purchased
Assets and Assumed Liabilities are required by GAAP to be reflected on a balance
sheet, prepared in a manner consistent with the 2003 Audited Financial
Statements and with respect to which the independent auditors of Seller have
conducted a review in accordance with customary practice.

 

“Closing Date” means a time and date to be specified by the parties, which shall
be no later than the second business day after the satisfaction or waiver of the
conditions set forth in Article 8 and Article 9, or at such other time, date and
location as the parties hereto agree in writing.

 

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

 

“Contract” means any written or legally binding contract, agreement, instrument,
arrangement, commitment or undertaking (including leases, licenses, mortgages,
notes, guarantees, sublicenses, subcontracts and purchase orders).

 

“Current Assets” means the following line items of Seller Balance Sheet,
calculated on a basis consistent with past practice of Seller:  Cash &
Investments, Restricted Cash, Accounts Receivable, Prepaid & Advances and
Inventory.

 

“Current Liabilities” means the following line items of Seller Balance Sheet,
calculated on a basis consistent with past practices of Seller:  Trade Accounts
Payable, Accrued Liabilities, Comscape Contingency, Bank Line of Credit, Other
Accounts Payable, Salary & Related and Interest Payable.

 

“Delaware Law” means the General Corporation Law of the State of Delaware.

 

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“Documentation” means, collectively, programmers’ notes or logs, source code
annotations, user guides, manuals, instructions, software architecture designs,
layouts, any know-how, and any other designs, plans, drawings, documentation,
materials, supplier lists, software source code and object code, net lists,
photographs, development tools, blueprints, media, memoranda and records that
are primarily related to or otherwise necessary for the use and exploitation of
any products of Seller or its Subsidiaries used in the Business, whether in
tangible or intangible form, whether owned by Seller or its Subsidiaries or held
by Seller or its Subsidiaries under any licenses or sublicenses (or similar
grants of rights).

 

“Encumbrance” means, with respect to any asset, any mortgage, deed of trust,
lien, pledge, charge, security interest, title retention device, collateral
assignment, adverse claim, restriction or other encumbrance of any kind
(excluding, with respect to Seller IP Rights (as defined in Section 4.13(b)),
non-exclusive licenses of such Seller IP Rights) in respect of such asset
(including any restriction on the voting of any security, any restriction on the
transfer of any security or other asset, any restriction on the receipt of any
income derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate” means any entity which is a member of:  (A) a “controlled
group of corporations,” as defined in Section 414(b) of the Code; (B) a group of
entities under “common control,” as defined in Section 414(c) of the Code; or
(C) an  “affiliated service group,” as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes Seller.

 

“Escrow Agreement” means the escrow agreement relating to the Escrow Cash and
the Working Capital Adjustment Cash (as defined in Section 2.4), between the
Seller, Buyer and an escrow agent to be selected by mutual agreement of Seller
and Buyer prior to the Closing, in substantially the form attached hereto as
Exhibit D.

 

“Escrow Cash” means an amount of cash equal to ten percent (10%) of the Initial
Payment, together with the interest, earnings and income that accrues thereon.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Excluded Contracts” means (i) any Contract with stockholders of Seller in their
capacity as such or as lenders to any Telos Seller, including any shareholder
agreements, registration rights agreements, voting agreements, proxies,
warrants, note purchase agreements, promissory notes and share purchase
agreements, (ii) any agreements with lenders to any Telos Seller relating to (or
evidencing) any Indebtedness (other than the SVB Credit Agreement) or any
Additional Indebtedness, including any loan agreements and promissory notes, and
(iii) the Contracts set forth in Schedule 1A.

 

“GAAP” means United States generally accepted accounting principles applied on a
consistent basis.

 

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“Governmental Authority” means any court or tribunal, governmental or regulatory
body, administrative agency, commission or other governmental authority.

 

“Holdback Cash” means $2,500,000, together with the interest, earnings and
income that accrues thereon.

 

“Indebtedness” means the principal of, and accrued interest on (and other
amounts payable to lenders with respect to) any debt for money borrowed
(including Seller’s borrowings under bank loans, convertible notes, senior notes
and loans payable to officers, directors and other affiliates) other than the
principal of, and accrued interest on, or other amounts payable to Silicon
Valley Bank (“SVB”) with respect to, Seller’s indebtedness to SVB under the SVB
Credit Agreement.

 

“Intellectual Property” means, collectively, all worldwide industrial and
intellectual property rights, including patents, patent applications, patent
rights, trademarks, trademark registrations and applications therefor, trade
dress rights, trade names, service marks, service mark registrations and
applications therefor, Internet domain names, Internet and World Wide Web URLs
or addresses, copyrights, copyright registrations and applications therefor,
mask work rights, mask work registrations and applications therefor, franchises,
licenses, inventions, trade secrets and know-how.

 

“Knowledge” means, with respect to Seller or Buyer, the actual knowledge of a
particular fact, circumstance, event or other matter in question of the
executive officers and directors of the Seller or Buyer, as the case may be, as
of the date hereof and as of the Closing.

 

“Liabilities” means debts, liabilities, accounts payable and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured,
determined or determinable, known or unknown, including those arising under any
law, action or governmental order and those arising under any Contract.

 

“Material Adverse Change” and “Material Adverse Effect” when used in connection
with an entity means any change, event, circumstance, condition or effect that
is or is reasonably likely to be, individually or in the aggregate, materially
adverse to the condition (financial or otherwise), capitalization, properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of such entity and its subsidiaries, taken as a whole,
except to the extent that any such change, event, circumstance, condition or
effect primarily and directly results from:  (a) any change in conditions in the
United States, foreign or global economy or capital or financial markets
generally, including any change in interest or exchange rates, (b) any change in
conditions (including any change in general legal, regulatory, political,
economic or business conditions or any change in GAAP) in or otherwise generally
affecting the wireless communication industry or other industries in which such
entity or group of entities conducts business that does not have a materially
disproportionate effect on such entity and its subsidiaries taken as a whole,
(c) the announcement, pendency or consummation of this Agreement and the
transactions contemplated hereby, and (d) any act of terrorism or war (whether
or not threatened, pending or declared) in Nigeria, and any other act of
terrorism or war (whether or not threatened, pending or declared) that does not
have a materially disproportionate effect on such entity and its subsidiaries
taken as a whole.

 

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“Permitted Encumbrances” means:  (A) statutory liens for Taxes that are not yet
due and payable, for which reserves have been established in accordance with
GAAP; (B) statutory liens to secure obligations to landlords, lessors or renters
under leases or rental agreements; (C) deposits or pledges made in connection
with, or to secure payment of, workers’ compensation, unemployment insurance or
similar programs mandated by Applicable Law; and (D) statutory liens in favor of
carriers, warehousemen, mechanics and materialmen, to secure claims for labor,
materials or supplies and other like liens.

 

“Person” means any individual, corporation, company, limited liability company,
partnership, limited liability partnership, trust, estate, proprietorship, joint
venture, association, organization, entity or Governmental Authority.

 

“Post-Closing Tax Period” means any taxable period (or portion thereof)
beginning after the date of the Closing.

 

“Pre-Closing Tax Period” means any taxable period (or portion thereof) ending on
or prior to the date of the Closing.

 

“Property Taxes” means real and personal ad valorem property Taxes and any other
Taxes imposed on a periodic basis and measured by the value of any item.

 

“SEC” means the Securities and Exchange Commission.

 

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

 

“Seller Ancillary Agreements” means, collectively, each certificate to be
delivered on behalf of any Telos Seller by an officer or officers of such Telos
Seller at the Closing pursuant to Article 9 and each agreement (other than this
Agreement) that any Telos Seller is to enter into as a party thereto pursuant to
this Agreement.

 

“Seller Balance Sheet” means Seller’s unaudited balance sheet as of
December 31, 2003 included in the Seller Financial Statements.

 

“Seller Capital Stock” means the capital stock of Seller.

 

“Seller Common Stock” means the Common Stock, par value $0.001 per share, of
Seller.

 

“Seller Senior Convertible Notes” means senior secured promissory notes in the
aggregate principal amount of $4,850,000 exchangeable for shares of Series E
Stock pursuant to its terms.

 

“Seller Convertible Notes” means the Seller Senior Convertible Notes.

 

“Seller Financial Statements” means (A) Seller’s audited balance sheet dated
December 31, 2002 and balance sheet (which is unaudited as of the date hereof)
dated December 31, 2003 and (B) Seller’s audited statements of operations,
statements of cash flows and statements of changes in stockholders’ equity for
the year ended December 31, 2002, and

 

 

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statements of operations, statements of cash flows and statements of changes in
stockholders’ equity for the year ended December 31, 2003, and any notes to the
foregoing financial statements.

 

“Seller Option Plan” means the 1998 Equity Incentive Plan of Seller.

 

“Seller Optionholders” means the holders of Seller Options.

 

“Seller Options” means options to purchase shares of Seller Common Stock.

 

“Seller Product or Service” (and, with correlative meaning, “Seller Products or
Services”) means any product, system or service currently produced,
manufactured, marketed, licensed, sold, furnished or distributed by Seller or
any of its Subsidiaries, including all CDMA and GSM networks, systems and
products, and all bundled components thereof, and each product, system or
service currently under development by Seller (which products, systems or
services that are under development are in the nature of upgrades, enhancements
and new features and not new products); provided, that for purposes of
calculation of the Earnout (as defined in Section 3.1):

 

(i)                                     all components of the Seller Products or
Services (whether supplied by Seller or any of its Subsidiaries, or by Buyer or
any of its Affiliates, or by any third party), when sold as part of a CDMA or
GSM network, system or product or, in the case of sales by the Seller Product
Division, as replacement or additional components of a CDMA or GSM network,
system or product, shall be considered Seller Products or Services; and

 

(ii)                                  all CDMA or GSM networks, systems or
products sold by Buyer or any Affiliate of Buyer, that incorporate Seller
Technology, shall be considered as Seller Product or Services for purposes of
calculation of the Earnout.

 

“Seller Preferred Stock” means the Series A Stock, Series B Stock, Series C
Stock, Series D Stock and Series E Stock.

 

“Seller Securityholders” means the Seller Stockholders, Seller Optionholders and
holders of Seller Convertible Notes, collectively.

 

“Seller Stockholders” means the holders of shares of Seller Capital Stock.

 

“Seller Technology” means any technology, Software or Intellectual Property
developed by or owned by a Telos Seller.

 

“Seller Warrants” means Series B Warrants, Series C Warrants and Series E
Warrants.

 

“Series A Stock” means the Series A Convertible Preferred Stock, par value
$0.001 per share, of Seller.

 

“Series B Stock” means the Series B Convertible Preferred Stock, par value
$0.001 per share, of Seller.

 

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“Series B Warrants” means warrants to purchase shares of Series B Stock.

 

“Series C Stock” means the Series C Convertible Preferred Stock, par value
$0.001 per share, of Seller.

 

“Series C Warrants” means warrants to purchase shares of Series C Stock.

 

“Series D Stock” means the Series D Convertible Preferred Stock, par value
$0.001 per share, of Seller.

 

“Series E Stock” means the Series E Convertible Preferred Stock, par value
$0.001 per share, of Seller.

 

“Series E Warrants” means warrants to purchase shares of Series E Stock.

 

“Software” means any and all past and current versions of the software
(including all software programs, databases, objects, modules, routines,
algorithms and code, in both Source Code and object code form) that is: 
(A) embodied in or used by any product licensed or sold by a Telos Seller in
connection with the Business, (B) comprising part of any Seller Product or
Service, (C) used in the development or the utilization of the software
described in clauses (A) and (B) of this paragraph; and (D) all derivative works
of any of the software described in clauses (A) through (C) of this paragraph.

 

“Source Code” means the software programming code expressed in human readable
language including complete maintenance documentation, procedures, flow charts,
schematic diagrams and annotations which comprise the precoding detail design
specification, and all other material necessary by industry standards to allow a
reasonably skilled programmer or analyst to maintain and enhance the Software.

 

“Straddle Period” means any taxable period beginning on or prior to and ending
after the date of the Closing.

 

“Subsidiary” of an entity means a corporation or other business entity in which
such entity owns, directly or indirectly, at least a 50% interest or that is
otherwise, directly or indirectly, controlled by such entity.

 

“SVB Credit Agreement” means, collectively, that certain Loan and Security
Agreement by and among SVB, Seller and TELOS Bermuda, dated June 8, 2000, as
amended September 9, 2000 and those Loan Modification Agreements by and among
SVB, Seller and TELOS Bermuda, dated July 5, 2001, May 14, 2003 and December 2,
2003.

 

“Tax” (and, with correlative meaning, “Taxes”) means (A) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom duty or other tax, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
governmental entity responsible for the imposition of any such tax (domestic or
foreign), (B) any liability for the

 

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payment of any amounts of the type described in clause (A) of this sentence as a
result of being a member of an affiliated, consolidated, combined, unitary or
aggregate group for any taxable period, and (C) any liability for the payment of
any amounts of the type described in clause (A) or (B) of this sentence as a
result of being a transferee of or successor to any Person or as a result of any
express or implied obligation to indemnify any other Person.

 

“Tax Return” means any return, declaration, report, election, claim for refund
or information return or other statement or form filed or required to be filed
with any Governmental Authority relating to Taxes, including any schedule or
attachment thereto or any amendment thereof.

 

“Transaction Expenses” means all costs and expenses incurred by Seller or Buyer,
as applicable, in connection with the Asset Purchase and this Agreement and the
transactions contemplated hereby (including any fees and expenses of legal
counsel, financial advisors, investment bankers and accountants).

 

“3Com Litigation” means the default judgment of $125,525.85 plus costs and
interest rendered in 3Com Corp v. TELOS Technology (Canada), Inc. (Cal.
Sup.Ct.).

 

Other capitalized terms defined elsewhere in this Agreement and not defined in
this Article 1 shall have the meanings assigned to such terms in this Agreement.

 

ARTICLE 2
THE ASSET PURCHASE

 

2.1                                 Purchase and Sale.

 

(a)                                  Upon the terms and subject to the
conditions of this Agreement, Buyer agrees to purchase, or cause to be
purchased, from each Telos Seller and each Telos Seller agrees to sell,
transfer, convey, assign and deliver, or cause to be sold, transferred,
conveyed, assigned and delivered, to Buyer or a Person designated by Buyer at
Closing all of its right, title and interest in and to all of its respective
assets, properties and business of every kind and description, wherever located,
real, personal or mixed, tangible or intangible, free and clear of any
Encumbrances whatsoever (other than Permitted Encumbrances), other than any
Excluded Assets (as defined below), including, without limitation, the following
(collectively, the “Purchased Assets”):

 

(I)                                     ALL OF THE TANGIBLE ASSETS OF EACH TELOS
SELLER, INCLUDING:

 

(1)          ALL INVENTORY (CONSISTING OF RAW MATERIALS, WORK IN PROCESS AND
FINISHED GOODS);

 

(2)          ALL FURNITURE, FIXTURES, EQUIPMENT, FURNISHINGS, OFFICE SUPPLIES,
SERVERS, NETWORKING EQUIPMENT AND OTHER TANGIBLE PERSONAL PROPERTY; AND

 

(3)          ALL TANGIBLE EMBODIMENTS OF SOFTWARE, SPECIFICATIONS, SCHEMATICS,
DESIGNS, DRAWINGS, BLUE PRINTS, MODELS, SKETCHES, TECHNICAL MANUALS, OPERATING

 

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manuals, flow charts and related files for the Seller Product or Services owned
by or in possession of any Telos Seller.

 

(II)                                  ALL TRANSFERABLE LICENSES, PERMITS AND
AUTHORIZATIONS RELATING TO ANY GOVERNMENTAL AUTHORIZATION (INCLUDING ANY GENERAL
BUSINESS LICENSES TO CONDUCT BUSINESS IN A PARTICULAR JURISDICTION AND THE LIKE)
(THE “PERMITS”) (OR TO THE EXTENT SUCH PERMITS ARE NOT FREELY TRANSFERABLE BY
THE HOLDER THEREOF, ALL RIGHTS, TITLE AND INTEREST OF THE TELOS SELLERS IN SUCH
PERMITS TO THE FULL EXTENT SUCH RIGHT, TITLE OR INTEREST MAY BE TRANSFERRED),
AND ANY PENDING APPLICATIONS FOR ANY PERMITS, AND COPIES OF ALL REPORTS AND
CERTIFICATIONS RELATED TO THE PERMITS OR TO OTHER SIMILAR LICENSES, PERMITS AND
AUTHORIZATIONS THAT ARE NOT TRANSFERABLE;

 

(III)                               ALL CASH, CASH EQUIVALENTS, BANK ACCOUNTS,
SECURITIES AND INVESTMENTS;

 

(IV)                              THE SELLER-OWNED IP RIGHTS THAT ARE OWNED BY
EACH TELOS SELLER, COPIES AND TANGIBLE EMBODIMENTS THEREOF IN WHATEVER FORM OR
MEDIUM, ALL RIGHTS IN ANY OF THE FOREGOING PROVIDED BY INTERNATIONAL TREATIES OR
CONVENTIONS, AND ALL RIGHTS TO SUE AND RECOVER FOR DAMAGES FOR PAST, PRESENT AND
FUTURE INFRINGEMENT, DILUTION, MISAPPROPRIATION, VIOLATION, UNLAWFUL IMITATION
OR BREACH THEREOF;

 

(V)                                 ALL GOODWILL OF EACH TELOS SELLER;

 

(VI)                              ALL PREPAID EXPENSES, SECURITY DEPOSITS OR
ADVANCES PAID BY ANY TELOS SELLER;

 

(VII)                           TO THE EXTENT ASSIGNABLE, ALL RIGHTS OF EACH
TELOS SELLER UNDER ALL WARRANTIES, REPRESENTATIONS AND GUARANTEES MADE BY
SUPPLIERS, DISTRIBUTORS, MANUFACTURERS OR CONTRACTORS;

 

(VIII)                        ALL TRANSFERABLE RIGHTS OF EACH TELOS SELLER UNDER
ALL CONTRACTS TO WHICH SUCH TELOS SELLER IS A PARTY AND WHICH IS RELATED TO THE
BUSINESS AND/OR THE PURCHASED ASSETS, INCLUDING EACH LISTED ON
SCHEDULE 2.1(A)(VIII) INCLUDING ANY AMENDMENTS, SUPPLEMENTS AND MODIFICATIONS
THERETO BUT EXCLUDING THE EXCLUDED CONTRACTS (COLLECTIVELY, THE “ASSUMED
CONTRACTS”);

 

(IX)                                ALL ACCOUNTS RECEIVABLE OF THE TELOS SELLERS
AND RELATED DEPOSITS, SECURITY OR COLLATERAL THEREFOR, INCLUDING RECOVERABLE
CUSTOMER DEPOSITS;

 

(X)                                   ALL RIGHTS UNDER ANY PURCHASE ORDERS TO
PURCHASE ANY INVENTORY, OR TO SELL ANY SELLER PRODUCT OR SERVICE;

 

(XI)                                ALL MARKETING, SALES AND PROMOTIONAL
LITERATURE RELATING TO ANY SELLER PRODUCT OR SERVICE OWNED BY OR IN THE
POSSESSION OF ANY TELOS SELLER;

 

(XII)                             COPIES OF ALL BOOKS, RECORDS, FILES OR
CORRESPONDENCE, WHETHER IN HARD COPY OR COMPUTER FORMAT, RELATING IN ANY MANNER
TO THE BUSINESS IN THE POSSESSION OF ANY TELOS SELLER, INCLUDING (A) ENGINEERING
INFORMATION, MANUALS AND DATA, (B) (TO THE EXTENT PERMITTED BY APPLICABLE LAW)
PERSONNEL AND PAYROLL RECORDS OF THE EMPLOYEES OF EACH TELOS

 

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Seller, (C) all customer and vendor records, (D) all records of present and
former suppliers, (E) copies of any information relating to Taxes imposed on the
Purchased Assets, and (F) copies of all lists of leads, and the right to use all
of the foregoing in this paragraph (xii); provided, however, that Seller shall
retain the right to retain copies of, and use, the information contained in the
items in this paragraph (xii) solely for purposes of liquidating the Telos
Sellers and for Tax purposes;

 

(XIII)                          ALL RIGHTS, PRIVILEGES, CLAIMS, DEMANDS,
REFUNDS, INDEMNIFICATION AGREEMENTS IN FAVOR OF EACH TELOS SELLER WITH, AND
INDEMNIFICATION AND SIMILAR RIGHTS AGAINST, THIRD PARTIES;

 

(XIV)                         ALL INSURANCE PROCEEDS OR CLAIMS UNDER INSURANCE
POLICIES IN EFFECT AS OF THE DATE HEREOF ARISING OUT OF ANY CLAIMS MADE OR
DAMAGES TO ANY PURCHASED ASSETS ON OR AFTER THE DATE HEREOF; AND

 

(XV)                            ALL RIGHTS OR CLAIMS AGAINST FORMER EMPLOYEES OR
CONSULTANTS.

 

(b)                                 Excluded Assets.  The following assets and
properties of the Telos Sellers (the “Excluded Assets”) shall be excluded from
the Purchased Assets:

 

(I)                                     ANY RIGHTS RELATED TO, AND ANY RIGHTS OR
CLAIMS AGAINST ANY THIRD PARTY RELATED TO, ANY EXCLUDED LIABILITY (INCLUDING ANY
RIGHTS OR CLAIMS THAT MAY BE ASSERTED AS A DEFENSE TO, OR COUNTERCLAIM OR OFFSET
AGAINST, ANY EXCLUDED LIABILITY);

 

(II)                                  ANY AMOUNTS PAYABLE TO, OR CLAIMS OR
CAUSES OF ACTION OF, ANY OF THE TELOS SELLERS IN RESPECT OF TAXES, INCLUDING
DUTY DRAWBACKS, TAX CREDITS AND TAXES REFUNDABLE TO ANY TELOS SELLER IN RESPECT
OF TRANSACTIONS COMPLETED PRIOR TO THE CLOSING OR IN RESPECT OF ANY PERIOD OR
PORTION THEREOF ENDING ON OR PRIOR TO THE CLOSING;

 

(III)                               ANY REFUNDS DUE FROM, OR PAYMENTS DUE ON,
CLAIMS WITH INSURERS IN RESPECT OF LOSSES, LIABILITIES OR DAMAGES ARISING PRIOR
TO THE DATE HEREOF AND FOR WHICH A CLAIM HAS BEEN MADE WITH THE INSURER PRIOR TO
THE DATE HEREOF;

 

(IV)                              ALL BOOKS, DOCUMENTS, RECORDS AND FILES
PREPARED IN CONNECTION WITH OR RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT;

 

(V)                                 ALL INCOME TAX RETURNS AND FINANCIAL
STATEMENTS OF TELOS SELLERS, AND ALL MINUTE BOOKS, STOCK RECORD BOOKS AND OTHER
CORPORATE RECORDS OF TELOS SELLERS;

 

(VI)                              ANY CAPITAL STOCK OF ANY SUBSIDIARIES OF ANY
TELOS SELLER;

 

(VII)                           THE EXCLUDED CONTRACTS;

 

(VIII)                        ANY RIGHTS OR CLAIMS WITH RESPECT TO INTERCOMPANY
DEBT OR LIABILITIES BETWEEN OR AMONG THE TELOS SELLERS; AND

 

(IX)                                THOSE ASSETS LISTED ON SCHEDULE 2.1(B).

 

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(c)                                  Assumption of Liabilities.  Subject to the
terms and conditions of this Agreement, upon the Closing, Buyer will assume, and
promptly pay, perform and discharge when due, the Assumed Liabilities, including
payment and discharge of those Assumed Liabilities listed on Schedule 2.1(c)
upon the Closing.

 

(d)                                 Excluded Liabilities.  Notwithstanding any
provision in this Agreement, or any schedule or exhibit hereto and regardless of
any disclosure to Buyer, the Telos Sellers shall retain, and shall promptly pay,
perform and discharge when due, and Buyer shall not assume or have any
responsibility for (i) except as set forth in subparagraphs (vi) and (vii) of
the definition of “Assumed Liabilities” in Article 1 hereof, any Liabilities of
any Telos Seller that may have accrued prior to Closing with respect to
directors, officers, employees or consultants of such Telos Seller (including,
without limitation, in respect of accrued vacation and accrued compensation)
and, except as set forth in Section 6.10, any Liabilities of any Telos Seller
that may accrue on or after the Closing with respect to any such person who is
not a Transferring Employee (as defined in Section 6.10) as of the Closing,
(ii) any Liabilities of any Telos Seller for Taxes, (iii) any Liabilities of any
Telos Seller for contingent payments to interWAVE Communications International,
Limited pursuant to the Technology Licensing Agreement by and between interWAVE
Communications International Ltd., interWAVE Advanced Communications, Inc. and
Seller on October 10, 2002; (iv) any Liabilities of any Telos Seller pursuant to
any claims, judgments or arbitration awards against such Telos Seller with
respect to any tort, breach of contract (other than warranties with respect to
Seller Products or Services and which are Assumed Liabilities) or violation of
law prior to the Closing by such Telos Seller (other than with respect to
Comscape or the 3Com Litigation), (v) all Liabilities relating to or arising out
of the Excluded Assets or the Excluded Contracts, (vi) all Liabilities of Seller
arising under the Management Incentive Plan–M&A of Seller and all Liabilities of
Seller arising under the Technical Personnel Retention Bonus Program of Seller;
(vii) all Liabilities relating to or arising out of the matters listed on
Schedule 2.1(d) or (viii) any other Liabilities of any Telos Seller other than
the Assumed Liabilities (such Liabilities of the Telos Sellers other than the
Assumed Liabilities, the “Excluded Liabilities”).

 

(e)                                  Conveyance of Assets.  The sale,
conveyance, assignment, transfer and delivery of the Purchased Assets, and
assumption by Buyer of the Assumed Liabilities, will be effected by execution
and delivery by each Telos Seller and Buyer (or one or more Subsidiaries of
Buyer designated by Buyer), as applicable, at the Closing of (i) a duly executed
Bill of Sale and Assumption Agreement in the attached hereto as Exhibit C,
(ii) instruments of assignment assigning each Telos Seller’s interest in and to
the Seller-Owned IP Rights owned by it, including all registered Intellectual
Property and pending applications with respect thereto pursuant to the form of
Assignment of Patent Rights attached hereto as Exhibit E (the “Patent
Assignment”) and the form of Assignment of Trademarks attached hereto as
Exhibit G (the “Trademark and Domain Name Assignments”), (iii)  such other good
and sufficient instruments of sale, conveyance, transfer and assignment  as the
parties shall reasonably agree as necessary to vest in Buyer (or Buyer’s
designee) good and valid title to the Purchased Assets free and clear of all
Encumbrances, except for Permitted Encumbrances (collectively, the “Other
Instruments”).

 

(f)                                    Non-Assignable Assets.  Notwithstanding
anything contained herein to the contrary, this Agreement shall not require the
assignment or sublicense of any of the Contracts or

 

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Permits where such assignment would constitute a breach thereof but which would
otherwise be included in the Purchased Assets (the “Non-Assignable Assets”). 
Each Telos Seller shall, prior to and after the Closing Date, use its reasonable
best efforts, and Buyer shall cooperate in all reasonable respects with such
Telos Seller, to obtain all consents and waivers necessary to convey and assign
(or sublicense, in the case of Contracts consisting of licenses) any
Non-Assignable Assets to the Buyer; provided, however, that neither any Telos
Seller nor Buyer shall be required to make any material payments to any third
parties to obtain any such consents.  If any such Non-Assignable Assets are not
able to be assigned or transferred (whether because a consent in respect of any
Non-Assignable Assets could not be obtained or otherwise), (i) the relevant
Telos Seller holding such Non-Assignable Asset shall use its commercially
reasonable efforts (without the expenditure, in the aggregate, of material
personnel resources or any out-of-pocket payments to third parties) to provide
or cause to be provided to Buyer, to the extent permitted by Applicable Law, the
benefits of any such Non-Assignable Asset and shall cooperate with Buyer in any
reasonable arrangement designed to provide Buyer the material benefits intended
to be assigned under such Non-Assignable Asset, including enforcement at the
cost and for the account of Buyer of any and all rights of such Telos Seller
against the other party thereto arising out of the breach or cancellation
thereof by such other party or otherwise; (ii) each Telos Seller shall (to the
extent Buyer has undertaken and performed the responsibilities thereunder)
promptly pay or cause to be paid to Buyer all monies received by such Telos
Seller with respect to any such Non-Assignable Asset; and (iii) (to the extent
that Buyer has been provided the benefit of such Non-Assignable Asset) the Buyer
shall perform and discharge on behalf of the applicable Telos Seller, and defend
and indemnify such Telos Seller against, and hold harmless such Telos Seller
from, all of such Telos Seller’s Liabilities, if any, with respect to such
Non-Assignable Asset subject to and in accordance with the provisions thereof. 
Except as set forth in Article 9, the failure by any Telos Seller to assign at
Closing any Contract or Permit shall not relieve any of the parties hereto from
its respective obligations to consummate the transactions contemplated by this
Agreement; provided however that any Non-Assignable Assets that are not assigned
to Buyer within a reasonable period of time after the Closing and with respect
to which the material benefits of such Non-Assignable Asset have not been
provided to Buyer shall be deemed Excluded Assets and all Liabilities relating
to or arising in connection with such Excluded Assets shall be deemed Excluded
Liabilities (except to the extent that such Liability constitutes an Assumed
Liability that has previously been taken into account in the working capital
adjustment contemplated by Section 2.8 hereof, in which event such Liability
shall remain an Assumed Liability to be discharged by Buyer).

 

2.2                                 Purchase Price.

 

(a)                                  Purchase Price.  The aggregate purchase
price for the Purchased Assets shall be cash in the amount of twenty-nine
million United States dollars (US$29,000,000) (the “Purchase Price”), subject to
the holdback of certain amounts as provided in Section 2.2(b) and Section 2.3
plus the right to receive the Earnout (as defined in Section 3.1) as set forth
in Article 3, in each case, as further modified by Section 2.4, Section 11.4 and
Section 11.10.

 

(b)                                 Initial Payment.  On the terms and subject
to the conditions set forth in this Agreement, Buyer shall, at the Closing, pay
cash in the aggregate amount equal to twenty-nine million United Sates dollars
(US$29,000,000) (the “Initial Payment”) less the Escrow Cash and the Holdback
Cash by wire transfer of immediately available funds to (i)

 

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creditors of the Telos Sellers on behalf of the Telos Sellers as set forth in
Schedule 2.2(b) and (ii) the remainder to the Telos Sellers in such proportions
as directed by Seller in writing delivered to Buyer no less than three days
prior to the Closing Date to a bank account or bank accounts designated by
Seller in writing prior to the Closing. 

 

(c)                                  Allocation of Purchase Price.  After the
Closing, Buyer and Seller shall, in good faith, use reasonable best efforts to
allocate the sum of the Purchase Price and the Assumed Liabilities among the
Purchased Assets in accordance with the principles of Section 1060 of the Code
and the Treasury Regulations thereunder (the “Purchase Price Allocation”) and
cooperate in the preparation of IRS Form 8594 (the “Asset Acquisition
Statement”) in accordance with the Purchase Price Allocation for timely filing
with their respective federal income Tax Returns.  Any subsequent adjustments to
the sum of the Purchase Price and Assumed Liabilities shall be reflected in the
Purchase Price Allocation in a manner consistent with Section 1060 of the Code
and the applicable Treasury Regulations.  If Buyer and Seller shall have agreed
on a Purchase Price Allocation and an Asset Acquisition Statement, then Buyer
and Seller shall file the Asset Acquisition Statement in the form so agreed with
the IRS and neither Buyer nor Seller shall take a position that is inconsistent
with the Purchase Price Allocation in any filings, declarations or reports with
the IRS and such parties hereby agree to make consistent use of such allocation
for all Tax purposes, provided that, if Buyer and Seller cannot agree to a
Purchase Price Allocation, each party may report a Purchase Price Allocation
that, in its sole discretion, is consistent with Section 1060 of the Code and
the Regulations thereunder.

 

(d)                                 Application of Proceeds.  Seller shall cause
the Telos Sellers to use the proceeds received by the Telos Sellers pursuant to
Section 2.2(b) to be used, on or after the Closing Date, the payments and
distributions as set forth in Schedule 2.2(d).  Seller shall cause the Telos
Sellers to use the proceeds received by the Telos Sellers from the Escrow Cash,
the Working Capital Adjustment Cash and the Earnout to make the payments and
distributions set forth in Schedule 2.2(d) in the event the payments pursuant to
Section 2.2(b) were not sufficient to satisfy all obligations set forth on
Schedule 2.2(d).

 

(e)                                  Withholding.  The Buyer may deduct from the
Purchase Price (including any payment of Escrow Cash or Earnout payment) any
amount which is required to be withheld and deducted under the Code (or other
applicable Tax law).  Any amount so withheld and deducted shall be remitted by
the Buyer to the appropriate Governmental Authority on a timely basis.  The
Buyer shall provide to the Seller, on a timely basis, evidence that any such
amount has in fact been remitted to the appropriate Governmental Authority.

 

2.3                                 Escrow.  At the Closing, Buyer shall
withhold the Escrow Cash from the cash payable pursuant to Section 2.2(b) to the
Telos Sellers (in an allocation to be provided in writing by Seller to Buyer
prior to Closing) and deposit the Escrow Cash in an account (the “Escrow
Account”) with an escrow agent (the “Escrow Agent”), in each case as set forth
in the Escrow Agreement, to be held and administered according to the Escrow
Agreement.  The Escrow Agent will hold and distribute the Escrow Cash in
accordance with the terms and conditions of the Escrow Agreement.  The costs and
expenses relating to the Escrow Agent will be borne solely by Buyer.  For Tax
reporting and withholding purposes, all investment income earned upon the Escrow
Cash shall be allocated as provided in the Escrow Agreement.

 

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2.4                                 Working Capital Adjustment Cash.  At the
Closing, Buyer shall withhold the Holdback Cash from the cash payable pursuant
to Section 2.2(b) to the Telos Sellers and deposit the Holdback Cash plus an
additional two million five hundred thousand United States dollars
(US $2,500,000) (such sum, the “Working Capital Adjustment Cash”) in the Escrow
Account with the Escrow Agent, to be held and administered according to the
Escrow Agreement.  The Escrow Agent will hold and distribute the Working Capital
Adjustment Cash in accordance with the terms and conditions of the Escrow
Agreement.  For Tax reporting and withholding purposes, all investment income
earned upon the Working Capital Adjustment Cash shall be allocated as provided
in the Escrow Agreement.

 

2.5                                 The Closing.  Subject to termination of this
Agreement as provided in Article 10, the closing of the transactions to
consummate the Asset Purchase (the “Closing”) will take place at the offices of
Fenwick & West LLP, 801 California Street, Mountain View, California at
10:00 a.m., Pacific Time as soon as practicable, and in any event within two
business days, after all of the conditions to Closing set forth in Article 8 and
Article 9 (other than those conditions that, by their nature, can only be
satisfied at the Closing) have been satisfied and/or waived in accordance with
this Agreement, or at such other place, time or date as Buyer and Seller may
mutually agree (the “Closing Date”).

 

2.6                                 Delivery of Purchased Assets.  At the
Closing, each Telos Seller shall deliver the Purchased Assets to be transferred
by such Telos Seller hereunder to Buyer (or one or more subsidiaries of Buyer
designated by Buyer) at such Telos Seller’s principal place of business or at
such other location and times and by such other means as are agreed by the
parties.  Each Telos Seller agrees to deliver and Buyer agrees to accept
delivery of the Purchased Assets in any manner reasonably acceptable to the
parties which would legally minimize the incurrence of transfer, and sales and
use Taxes, including the delivery of any Software solely in electronic form.

 

2.7                                 Post-Closing Arrangements.  Except as set
forth in any other agreement between the parties hereto, at the Closing all data
processing, accounting, insurance, banking, personnel, legal, communications and
other products and services provided to the Business by Telos Sellers or any of
its Affiliates, including any agreements or understandings (written or oral)
with respect thereto, will terminate without any further action or liability on
the part of the parties thereto.

 

2.8                                 Post-Closing Purchase Price Adjustment.

 

(a)                                  On the tenth (10th) business day following
the completion and acceptance by each party hereto, in accordance with this
Section 2.8, of a Final Statement (as defined below) of the Working Capital of
the Business (as defined below) as of the close of business on the Closing Date:

 

(I)                                     IF THE WORKING CAPITAL OF THE BUSINESS
IS LESS THAN $0 AS OF THE CLOSING, THEN BUYER AND SELLER SHALL INSTRUCT ESCROW
AGENT TO PAY TO THE SELLER (OR SUCH OTHER TELOS SELLER AS SELLER MAY DESIGNATE)
CASH IN THE AMOUNT OF (A) THE HOLDBACK CASH LESS (B) THE AMOUNT BY WHICH THE
WORKING CAPITAL OF THE BUSINESS IS LESS THAN $0; OR

 

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(II)                                  IF THE WORKING CAPITAL OF THE BUSINESS IS
EQUAL TO OR GREATER THAN $0 AS OF THE CLOSING, THEN BUYER AND SELLER SHALL
INSTRUCT ESCROW AGENT TO PAY TO THE SELLER (OR SUCH OTHER TELOS SELLER AS SELLER
MAY DESIGNATE) CASH IN AN AMOUNT EQUAL TO THE SUM OF (A) THE HOLDBACK CASH PLUS
(B) THE AMOUNT BY WHICH THE WORKING CAPITAL OF THE BUSINESS IS MORE THAN $0,
WHICH SUM SHALL NOT EXCEED THE TOTAL AMOUNT OF THE WORKING CAPITAL ADJUSTMENT
CASH.

 

Any portion of the Working Capital Adjustment Cash not required to be
distributed to the Telos Sellers pursuant to this Section 2.8 shall be returned
to Buyer and Buyer and Seller shall instruct Escrow Agent to return such funds.

 

(b)                                 The Final Statement shall be prepared by
Seller in the following manner:

 

(I)                                     WITHIN THIRTY (30) DAYS AFTER THE
CLOSING DATE, SELLER SHALL DELIVER TO BUYER THE FINAL STATEMENT, FAIRLY AND
ACCURATELY PRESENTING THE WORKING CAPITAL OF THE BUSINESS AS OF THE CLOSE OF
BUSINESS ON THE CLOSING DATE.  THE FINAL STATEMENT SHALL BE ACCOMPANIED BY A
REPORT SETTING FORTH A CALCULATION, IN REASONABLE DETAIL, OF THE WORKING CAPITAL
OF THE BUSINESS, AS REFLECTED IN THE FINAL STATEMENT, SETTING FORTH THE VALUE,
DETERMINED IN ACCORDANCE WITH GAAP, OF EACH CURRENT ASSET AND CURRENT LIABILITY
(AS SUCH TERMS ARE MODIFIED BY SECTION 2.8(B)(IV));

 

(II)                                  FOLLOWING THE CLOSING, EACH PARTY SHALL
GIVE THE OTHER PARTY HERETO AND ANY INDEPENDENT AUDITORS AND AUTHORIZED
REPRESENTATIVES OF SUCH OTHER PARTY FULL ACCESS AT ALL REASONABLE TIMES TO THE
PROPERTIES, BOOKS, RECORDS AND PERSONNEL OF THE BUSINESS IN THEIR POSSESSION,
CUSTODY OR CONTROL RELATING TO PERIODS PRIOR TO THE CLOSING DATE FOR PURPOSES OF
PREPARING, REVIEWING AND RESOLVING ANY DISPUTES CONCERNING THE FINAL STATEMENT. 
WITHIN FORTY-FIVE (45) DAYS FOLLOWING THE DELIVERY TO BUYER OF THE FINAL
STATEMENT, BUYER SHALL NOTIFY SELLER OF ANY DISPUTE OF ANY ITEM CONTAINED IN THE
FINAL STATEMENT, WHICH NOTICE SHALL SET FORTH IN REASONABLE DETAIL THE BASIS FOR
SUCH DISPUTE (WHICH MAY BE BASED ON THE FAILURE OF ANY ASSET OR LIABILITY TO BE
VALUED ACCURATELY OR IN ACCORDANCE WITH GAAP OR THE OMISSION OF ANY ASSET, OR
INCLUSION OF ANY LIABILITY, THAT BUYER IN GOOD FAITH BELIEVES SHOULD BE INCLUDED
OR OMITTED IN ACCORDANCE WITH GAAP).  IF BUYER FAILS TO NOTIFY SELLER OF ANY
SUCH DISPUTE WITHIN SUCH FORTY-FIVE (45) DAY PERIOD, THE FINAL STATEMENT SHALL
BE DEEMED TO BE ACCEPTED BY BUYER.  IN THE EVENT THAT BUYER SHALL SO NOTIFY
SELLER OF ANY DISPUTE, BUYER AND SELLER SHALL COOPERATE IN GOOD FAITH TO RESOLVE
SUCH DISPUTE AS PROMPTLY AS POSSIBLE; AND

 

(III)                               IF BUYER AND SELLER ARE UNABLE TO RESOLVE
ANY SUCH DISPUTE WITHIN THIRTY (30) DAYS OF BUYER’S DELIVERY OF SUCH NOTICE (THE
“RESOLUTION PERIOD”), THEN ALL AMOUNTS REMAINING IN DISPUTE SHALL BE SUBMITTED
TO A “BIG FOUR” INDEPENDENT ACCOUNTING FIRM (THE “INDEPENDENT ACCOUNTING FIRM”)
SELECTED BY SELLER AND BUYER WITHIN TEN (10) DAYS AFTER THE EXPIRATION OF THE
RESOLUTION PERIOD.  IF SELLER AND BUYER ARE UNABLE TO AGREE ON THE INDEPENDENT
ACCOUNTING FIRM, THEN BUYER AND SELLER SHALL EACH HAVE THE RIGHT TO REQUEST THE
AMERICAN ARBITRATION ASSOCIATION TO APPOINT THE INDEPENDENT ACCOUNTING FIRM,
WHICH SHALL BE A FIRM THAT HAS NOT HAD A MATERIAL RELATIONSHIP WITH TELOS
SELLERS OR BUYER AND/OR ITS AFFILIATES WITHIN THE PAST TWO (2) YEAR PERIOD PRIOR
TO THE CLOSING.  EACH PARTY AGREES TO EXECUTE, IF REQUESTED BY THE INDEPENDENT
ACCOUNTING FIRM, AN ENGAGEMENT LETTER CONTAINING CUSTOMARY TERMS.  ALL FEES AND
EXPENSES RELATING TO THE WORK, IF ANY, TO BE PERFORMED BY THE INDEPENDENT
ACCOUNTING FIRM SHALL BE BORNE EQUALLY BY SELLER AND BUYER.  THE INDEPENDENT
ACCOUNTING FIRM

 

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shall act as an arbitrator to determine only those issues still in dispute and
shall be limited to those adjustments, if any, that need be made to the Final
Statement to comply with GAAP and the standards referred to in this Agreement. 
The Independent Accounting Firm’s determination shall be requested to be made
within thirty (30) days of its selection, shall be set forth in a written
statement delivered to Seller and Buyer and shall be final, binding and
conclusive.  The Final Statement, as may be modified by the resolution of any
disputes by Buyer and Telos Sellers or by the Independent Accounting Firm, as
applicable, shall be the “Final Statement.”

 

(IV)                              THE TERM “WORKING CAPITAL OF THE BUSINESS”
MEANS THE VALUE OF CURRENT ASSETS LESS THE VALUE OF CURRENT LIABILITIES;
PROVIDED, THAT, FOR PURPOSES OF THE CALCULATION OF WORKING CAPITAL OF THE
BUSINESS (A) INTEREST NOT RELATED TO THE SVB CREDIT AGREEMENT OR ACCRUED SALARY
OF JACK MAR AND RON MCLEOD SHALL BE EXCLUDED FROM INTEREST PAYABLE, (B) THE
EFFECT OF THE PAYMENT OR ACCRUAL OF TRANSACTION EXPENSES SHALL BE EXCLUDED FROM
THE VALUE OF EACH LINE ITEM AFFECTED THEREBY, (C) THE VALUE OF THE CASH AND
INVESTMENTS LINE ITEM SHALL BE INCREASED BY THE AMOUNT OF THE OUT-OF-POCKET
COST, UP TO A MAXIMUM OF $120,000 TO SELLER OF THE DIRECTORS’ AND OFFICERS’
LIABILITY INSURANCE PURCHASED IN ACCORDANCE WITH SECTION 7.5 AND (D) THE VALUE
OF ANY CURRENT LIABILITY OR PORTION THEREOF THAT IS DEEMED AN EXCLUDED LIABILITY
PURSUANT TO SECTION 2.1(F) SHALL BE EXCLUDED FROM CURRENT LIABILITIES.

 

(V)                                 THE AMOUNTS, IF ANY, REFERRED TO IN
SECTION 2.8(A) SHALL BE DELIVERED BY THE ESCROW AGENT BY WIRE TRANSFER TO THE
TELOS SELLERS AND/OR BUYER, AS APPLICABLE, IN IMMEDIATELY AVAILABLE FUNDS TO AN
ACCOUNT OR ACCOUNTS AS DESIGNATED IN WRITING BY SELLER AND/OR BUYER AS
APPLICABLE.

 

ARTICLE 3
EARNOUT

 

3.1                                 Earnout.  Earnout.  On the forty fifth
(45th) calendar day (or next business day if such calendar day is not a business
day) (“Earnout Distribution Date”) after June 30, 2005, Buyer shall pay to
Seller (or such other Tiger Sellers as Seller may designate) an amount in cash
(the “Earnout”) equal to $2.00 for each $1.00 of revenue recognized by Buyer or
any of its Affiliates or Subsidiaries, as determined in accordance with GAAP
and, to the extent consistent therewith, Buyer’s revenue recognition policies
applied to similar products and services, from the sale, license or provision of
Seller Products or Services in excess of ten million dollars ($10,000,000)
during the period beginning on the Closing Date and ending June 30, 2005 (the
“Earnout Period”); provided that no Earnout payment shall be due or payable if
the recognized revenue from the sale, license or provision of Seller Products or
Services during the Earnout Period is less than ten million
dollars ($10,000,000); and provided, further, that in no event shall the Earnout
exceed nineteen million United States dollars (US$19,000,000).  Solely for
purposes of determining the amount of recognized revenues for the purpose of
determining the Earnout and not for GAAP reporting purposes, Buyer will be
deemed to have recognized additional revenue, in an amount not to exceed
US$250,000, equal to the amount of cash received by Buyer following the Closing
Date relating to Seller Products or Services shipped prior to the Closing Date
and with respect to which neither Seller nor Buyer recognized revenue (in
accordance with their respective revenue recognition policies).  The following
shall be specifically excluded from the calculation of recognized revenue from
the sale, license or provision of Seller Product or Services for the purposes of
calculating the Earnout:

 

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(a) intercompany sales (sales to entities controlled by Buyer) and (b) all
recognized revenue attributable to the sale, license or provision of Buyer
product or services, other than the Seller Products or Services.  With respect
to any Seller Product or Service recalled prior to June 30, 2005, such
recognized revenue shall be calculated net of any costs, and reductions in
recognized revenue, or reversals of recognized revenue resulting from such
recall; provided that the foregoing shall not apply to components returned by
customers in the ordinary course of business for repair or replacement pursuant
to the warranty provided to such customers.  For the purpose of calculation of
the Earnout, recognized revenues with respect to the sale, license or provision
of Seller Products or Services shall be calculated on the basis of the
accounting policies in effect at Buyer at the time of the recognition of the
revenue to the extent consistent with GAAP.

 

3.2                                 Books and Records; Audit or Review by
Seller.  During the period that the Earnout is being determined, Buyer shall
maintain books and records, internal controls and accounting systems reasonably
sufficient for the purpose of determining the sale, license or provision of
Seller Products or Services, the revenue earned or accrued with respect thereto,
and making all other determinations necessary for the determination of the
Earnout.  During the Earnout Period, Seller, or a duly appointed representative
of the stockholders of Seller (the “Representative”), may conduct a single audit
or review of the consolidated books of Buyer, its Affiliates and its
Subsidiaries in which the information regarding revenue attributable to sales,
licensing or provision of Seller Product or Services is recorded, and Buyer’s
records supporting its entries in those books, provided that such audit or
review shall be performed during normal business hours and at the place where
those books and records are normally kept, provided that following receipt of
the Earnout Notice (as defined in Section 3.4) until the final and binding
determination of the Earnout Amount in accordance with Section 3.4, Seller, or
the Representative, and its respective advisers and agents shall be given all
such access as they may reasonably require to such books and records during
Buyer’s normal business hours, and access to any personnel or representatives of
Buyer and any of its Affiliates or Subsidiaries, as they may reasonably require
for the purposes of resolving any disputes regarding the determination of
revenues during the Earnout Period and/or the calculation of the Earnout. 
Seller, or the Representative, as applicable, shall bear all costs incurred by
it in connection with any such audit or review unless such audit or review
reveals a deficiency in the amount of the Earnout payable to the Tiger Sellers
set out in the Earnout Notice of greater than five (5%) percent as agreed by
Seller, or the Representative, as applicable, and Buyer in the resolution of any
dispute pursuant to Section 3.4(b), in which event Buyer shall pay for the costs
of such audit or review, and provided further that, in the event any dispute is
referred to arbitration pursuant to Section 3.4(b) and Seller, or the
Representative, as applicable, is the prevailing party in such arbitration, the
costs recoverable by Seller, or the Representative, as applicable, from Buyer
shall include such audit or review costs.

 

3.3                                 Buyer Sales Support.  Buyer hereby covenants
to act in good faith throughout the Earnout Period and thereafter for the
purposes of determining the Earnout Payment and to use its commercially
reasonable efforts to sell, license and provide Seller Products or Services
during the Earnout Period consistent with the long-term business plan of Buyer
in a manner that is intended to generate GAAP reportable recognized revenues
during the Earnout Period of up to $19,500,000, provided that Buyer shall have
full freedom and flexibility with respect to decisions made in a commercially
reasonable manner concerning marketing and development of Seller

 

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Products or Services applying those standards generally employed by Buyer when
making similar decisions with respect to other product and service lines of
Buyer.  In particular, during the Earnout Period:

 

(i)                                     Buyer shall use commercially reasonable
efforts to cause the division or business unit of Buyer primarily responsible
for the operation of the Purchased Assets (the “Seller Product Division”), or
any successor thereto, to continue to manufacture, sell and provide post sales
support for each of the Seller Products or Services, as such Seller Products or
Services may be modified from time to time;

 

(ii)                                  Buyer shall not adopt a sales commission
structure for Seller Products or Services that disincentivises the sale of
Seller Products or Services relative to Buyer products or services by the
Buyer’s sales employees; and

 

(iii)                               Buyer shall commit working capital,
marketing, research and development and other information resources, personnel
and facilities of Buyer or any of its Affiliates or Subsidiaries to the Seller
Product Division to support the sale, licensing and provision of Seller Products
or Services on at least the same basis as such resources are provided to other
divisions, business units or product lines within the Buyer group.

 

3.4                                 Buyer shall use commercially reasonable
efforts to preserve the relationships of the Business with respect to customers,
suppliers, licensors, licensees, and distributors, employees and others having
business dealings with any Tiger Seller as of the Closing Date.

 

3.5                                 Earnout Distributions.

 

(a)                                  Earnout Notice.  Subject to the terms of
this Article 3, within thirty (30) calendar days following the end of the
Earnout Period, Buyer shall deliver to Seller (1) a memorandum (the “Earnout
Notice”) (A) stating the dollar value of the cash to be paid pursuant to the
Earnout, if any, and (B) specifying in reasonable detail Buyer’s calculation of
such dollar value, and (C) attaching documentation demonstrating the basis for
such calculation, and (2) payment of such amount of cash with respect to the
Earnout.

 

(b)                                 Seller Objection.  Seller shall, within
thirty (30) calendar days after delivery of the Earnout Notice, deliver to Buyer
in writing any objection thereto.  Any such objection shall be in reasonable
detail and include the specific component or components of Buyer’s Earnout
calculation in dispute.  To the extent not specifically and expressly disputed
in a timely manner, Buyer’s Earnout calculation shall be conclusive and binding
on Seller absent manifest error.  If Seller objects in writing to Buyer’s
Earnout calculation prior to the expiration of such thirty (30) calendar day
period, Buyer and Seller shall use their reasonable best efforts to resolve such
dispute as promptly as possible.  If Buyer and Seller are unable to resolve any
such dispute within thirty (30) business days of Seller’s delivery of such
written objection, then all amounts remaining in dispute shall be submitted to
binding arbitration in accordance with the terms and provisions of
Section 11.8(c).

 

3.6                                 Earnout as Asset Purchase Consideration. 
Any Earnout payable to Seller pursuant to this Article 3 will not constitute
compensation for services but rather will constitute part of the consideration
for the Purchased Assets acquired by Buyer in the Asset Purchase.

 

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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER

 

Subject to the exceptions set forth in the disclosure letter of Seller addressed
to Buyer, dated as of the Agreement Date and delivered to Buyer concurrently
with the parties’ execution of this Agreement (the “Seller Disclosure Letter”),
Seller represents and warrants to Buyer as set forth below in this Article 4. 
The Seller Disclosure Letter shall be arranged in separate parts corresponding
to the numbered and lettered sections contained in this Agreement, and the
information disclosed in any numbered or lettered part shall be deemed to relate
to and to qualify the particular provision set forth in the corresponding
numbered or lettered section in this Agreement, as applicable, and all other
provisions of this Agreement to which the relevance of such information is
reasonably apparent from the text of such disclosure.

 

4.1                                 Organization and Good Standing.  Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has continuously been in good standing under the
laws of the State of Delaware at all times since its inception.  Each of
Seller’s Subsidiaries is a corporation duly organized, validly existing and,
where the concept is applicable, in good standing, under the laws of the
jurisdiction of its incorporation.  Telos Sellers have the corporate power and
authority to own, operate and lease its properties and to carry on the
Business.  Each Telos Seller is duly qualified or licensed to do business, and
is in good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary (each such jurisdiction being listed on
Schedule 4.1 of the Seller Disclosure Letter).  Seller has delivered or made
available to Buyer’s legal counsel true and complete copies of the currently
effective Certificate of Incorporation and Bylaws of Seller and the equivalent
charter documents of each of its Subsidiaries, each as amended to date.  Neither
Seller nor any of its Subsidiaries is in violation of its Articles of
Association or Memorandum of Association or Certificate of Incorporation or
Bylaws, as applicable, each as amended to date.

 

4.2                                 Subsidiaries.  Schedule 4.2(b) of the Seller
Disclosure Letter lists each of Seller’s Subsidiaries as of the date hereof,
each of which is wholly-owned, directly or indirectly, by Seller.  Except as set
forth in Schedule 4.2(b) of the Seller Disclosure Letter, neither Seller nor any
of its Subsidiaries directly or indirectly owns any equity or similar interest
in or any interest convertible, exchangeable or exercisable for, any equity or
similar interest in, any Person.

 

4.3                                 Power, Authorization and Validity.

 

(a)                                  Power and Authority.  Subject to approval
of the Asset Purchase and the adoption of this Agreement by (i) holders of a
majority of the outstanding shares of Seller Common Stock and Seller Preferred
Stock (voting together as a single voting class on an as-converted to Seller
Common Stock basis), (ii) holders of a majority of the outstanding shares of
Series B Stock (voting as a separate voting class), (iii) holders of at least
seventy-five percent of the outstanding shares of Series C Stock (voting as a
separate voting class), (iv) holders of a majority of the outstanding shares of
Series D Stock (voting as a separate voting class), (v) holders of at least
two-thirds of the outstanding shares of Series E Stock (voting as a separate
voting class), (vi) holders of Seller Senior Convertible Notes representing at
least two-thirds of the aggregate principal amount of all outstanding Seller
Senior Convertible Notes, (collectively,

 

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the “Seller Stockholder Approval”), and subject to obtaining the corporate
approvals of each other Telos Seller described in Schedule 4.3(a) of the Seller
Disclosure Letter all of which have been obtained as of the date hereof, each
Telos Seller has all requisite corporate power and authority to enter into,
execute, deliver and perform its obligations under this Agreement and each of
the Seller Ancillary Agreements and to consummate the Asset Purchase.  The Asset
Purchase and the execution, delivery and performance by each Telos Seller of
this Agreement, each of the Seller Ancillary Agreements to which such Telos
Seller is a party and all other agreements, transactions and actions
contemplated to be entered into hereby or thereby by such Telos Seller, have
been duly and validly approved and authorized by such Telos Seller’s Board of
Directors by unanimous vote or written consent of the entire membership of such
Telos Seller’s Board of Directors.  Seller and the Seller Stockholders listed on
Exhibit A-1 have executed and delivered to Buyer the Voting Agreement under
which such Seller Stockholders have delivered a written consent under which such
Seller Stockholders have voted their shares of Seller Stock in favor of the
Asset Purchase and the execution, delivery and performance by the Telos Sellers
of this Agreement, each of the Seller Ancillary Agreements and all other
agreements, transactions and actions contemplated hereby or thereby, which votes
are sufficient to obtain the Seller Stockholder Approval.

 

(b)                                 No Consents.  No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority, or any other Person, governmental or otherwise, is necessary or
required to be made or obtained by any Telos Seller to enable such Telos Seller
to lawfully execute and deliver, enter into, and perform its obligations under
this Agreement and each of the Seller Ancillary Agreements to which it is a
party or to consummate the Asset Purchase, except for the Seller Stockholder
Approval.

 

(c)                                  Enforceability.  This Agreement has been
duly executed and delivered by each Telos Seller.  This Agreement and each of
the Seller Ancillary Agreements are, or when executed by each Telos Seller, as
applicable, shall be, valid and binding obligations of such Telos Seller,
enforceable against such Telos Seller in accordance with their respective terms,
subject to the effect of (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to rights
of creditors generally and (ii) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies.

 

4.4                                 Capitalization of Seller.

 

(a)                                  The authorized capital stock of Seller
consists solely of 150,000,000 shares of Seller Common Stock and 112,700,000
shares of Seller Preferred Stock consisting of 1,200,000 shares designated as
Series A Stock, 4,500,000 shares designated as Series B Stock, 7,000,000 shares
designated as Series C Stock, 30,000,000 shares designated as Series D Stock and
70,000,000 shares designated as Series E Stock.  A total of 9,171,307 shares of
Seller Common Stock; 1,200,000 shares of Series A Stock, 3,520,061 shares of
Series B Stock, 5,342,771 shares of Series C Stock, 19,352,802 shares of
Series D Stock and no shares of Series E Stock are issued and outstanding as of
the date hereof.  Each share of Seller Preferred Stock is convertible into one
share of Seller Common Stock.  Schedule 4.4(a) of the Seller Disclosure Letter
sets forth, for issued and outstanding shares of Seller Capital Stock (i) the
name of each Seller Stockholder and (ii) the numbers and kind of shares of
Seller Capital Stock held by each Seller Stockholder.  No shares of Seller
Capital Stock are issued or outstanding as

 

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 of the date hereof that are not set forth on Schedule 4.4(a) of Seller
Disclosure Letter.  Seller holds no treasury shares.  All issued and outstanding
shares of Seller Capital Stock have been duly authorized and validly issued and
are fully paid and nonassessable.

 

(b)                                 Application of Proceeds.  The application of
the proceeds received by each Telos Seller set forth in Schedule 2.2(d) does not
conflict with any provision of the Certificate of Incorporation or Bylaws of
Seller, each as currently in effect, or the rights of any holders of Seller
Capital Stock or securities, notes or other instruments convertible into or
exchangeable for Seller Capital Stock.

 

(c)                                  No Appraisal Rights.  No holder of Seller
Capital Stock has, or after the Closing Date will have, any dissenter’s or
appraisal rights under Applicable Law with respect to the transactions
contemplated by this Agreement.

 

4.5                                 No Conflict.  Except as set forth in
Schedule 4.5 of the Seller Disclosure Letter, neither the execution and delivery
of this Agreement or any of the Seller Ancillary Agreements by each Telos
Seller, as applicable, nor the consummation of the Asset Purchase or any other
transaction contemplated hereby or thereby, shall conflict with, or (with or
without notice or lapse of time, or both) result in a termination, breach,
impairment or violation of, or constitute a default under, or require any
consent under, or give to others any rights of termination, amendment or
acceleration under:  (a) any provision of the Certificate of Incorporation or
Bylaws of Seller, in the case of Seller or the charter documents of such Telos
Seller, in the case of any other Telos Seller, each as currently in effect;
(b) in any material respect any Applicable Law applicable to such Telos Seller
or any of the Purchased Assets being transferred by such Telos Seller hereunder;
or (c) any Seller Material Contract (as defined in Section 4.11) or any
shareholder agreements or voting agreements with respect to Seller Capital Stock
to which the Seller is a party, except, in the case of clause (c) where such
conflict, termination, breach, impairment, violation, default, failure to obtain
consent, or rights of termination, amendment or acceleration, would not have a
material adverse effect on the Purchased Assets.

 

4.6                                 Litigation.  Except as set forth in
Schedule 4.6 of the Seller Disclosure Letter, there is no action, suit,
arbitration, mediation, proceeding, claim or investigation pending against
Seller or its Subsidiaries (or, to Seller’s knowledge, against any officer,
director or employee of Seller or its Subsidiaries in their capacity as such or
relating to their employment, services or relationship with Seller or its
Subsidiaries) before any Governmental Authority, arbitrator or mediator, other
than complaints which may have been filed with a Governmental Authority but not
yet served on Seller or its Subsidiaries, nor, to the knowledge of Seller, has
any such action, suit, arbitration, mediation, proceeding, claim or
investigation been threatened or filed with a Governmental Authority but not yet
served on Seller or its Subsidiaries.  Except as set forth in Schedule 4.6 of
the Seller Disclosure Letter, there is no judgment, decree, injunction, rule or
order of any Governmental Authority, arbitrator or mediator outstanding against
Seller or its Subsidiaries.  Except as set forth in Schedule 4.6 of the Seller
Disclosure Letter, neither Seller nor any Subsidiary has any action, suit,
arbitration, mediation, proceeding, claim or investigation pending against any
Governmental Authority or other Person.

 

4.7                                 Taxes.  Except as set forth in Schedule 4.7
of the Seller Disclosure Schedule, each Telos Seller (a) has properly completed
and timely filed all foreign, federal, state, local and

 

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municipal Tax Returns required to be filed by it, (b) has timely paid all
material amounts of Taxes required to be paid by such Seller, (c) has
established an adequate accrual or reserve in accordance with GAAP for the
payment of all material amounts of Taxes payable in respect of the periods or
portions thereof prior to the Balance Sheet Date (which accrual or reserve as of
the Balance Sheet Date is fully reflected on the Seller Balance Sheet), (d) has
made all necessary material estimated Tax payments, and (e) has no Liability for
material amounts of Taxes in excess of the amount so paid or accruals or
reserves so established except for Taxes subsequent to the Balance Sheet Date
incurred in the ordinary course of business.  Each Telos Seller has not been a
member of a consolidated, combined, unitary or aggregate group for Tax purposes
(other than the group for which Seller is currently the common parent).  All Tax
Returns in respect of which material amounts of Taxes are shown to be payable
are true, correct and complete in all material respects, and Seller has provided
Buyer with copies of such Tax Returns.  Neither Seller nor any of its
Subsidiaries is delinquent in the payment of any material Tax or in the filing
of any Tax Returns, and no deficiencies for any Tax have been threatened,
claimed, proposed or assessed against Seller or any of its Subsidiaries or any
of its respective officers, employees or agents in their capacity as such. 
Neither Seller nor any of its Subsidiaries has received any written notification
from the Internal Revenue Service or any other taxing agency or Governmental
Authority regarding any material issues that (a) are currently pending before
the Internal Revenue Service or any other taxing agency or Governmental
Authority (including any sales or use taxing agency) regarding Seller or its
Subsidiaries, or (b) have been raised by the Internal Revenue Service or other
taxing agency or Governmental Authority and not yet finally resolved.  No Tax
Return of Seller or its Subsidiaries is under audit by the Internal Revenue
Service or any other taxing agency or Governmental Authority and any such past
audits (if any) have been completed and fully resolved to the satisfaction of
the applicable taxing agency or Governmental Authority conducting such audit and
all Taxes determined by such audit to be due from Seller or its Subsidiaries
have been paid in full to the applicable taxing agencies or Governmental
Authorities.  No Tax liens are currently in effect against any of the Purchased
Assets other than liens that arise by operation of law for Taxes not yet due and
payable, for which reserves have been established in accordance with GAAP. 
There is not in effect any waiver by Seller or its Subsidiaries of any statute
of limitations with respect to any Taxes nor has Seller agreed to any extension
of time for filing any Tax Return that has not been filed.  Each Telos Seller
has complied (and until the Closing Date will comply) with all Applicable Law
relating to the payment and withholding of Taxes (including withholding of Taxes
pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or similar provisions
under any foreign law), has, within the time and in the manner prescribed by
law, withheld from employee wages and paid over to the proper taxing agencies
and Governmental Authorities all amounts required to be so withheld and paid
over under all Applicable Law (including Federal Insurance Contribution Act,
Medicare, Federal Unemployment Tax Act and relevant state income and employment
Tax withholding laws), including federal and state income Taxes, and has timely
filed all withholding Tax Returns.

 

4.8                                 Seller Financial Statements; Undisclosed
Liability.

 

(a)                                  Seller Financial Statements. 
Schedule 4.8(a) of the Seller Disclosure Letter includes the Seller Financial
Statements.  The Seller Financial Statements:  (i) derived from and are in
accordance with the books and records of Seller; (ii) fairly present the
consolidated financial condition of Seller at the dates therein indicated and
the consolidated

 

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results of operations and cash flows of Seller for the periods therein specified
(subject, in the case of unaudited interim period financial statements, to
normal recurring year-end audit adjustments), and (iii) have been prepared in
accordance with GAAP applied on a basis consistent with prior periods (except
that any Seller Financial Statements that are unaudited do not have notes
thereto and are subject to normal recurring year-end audit adjustments).  All
reserves established by Seller that are set forth in or reflected in the Seller
Balance Sheet have been established in accordance with GAAP.  The 2003 Audited
Financial Statements (as defined in Section 6.13):  (i) will be derived from and
will be in accordance with the books and records of Seller; (ii) will fairly
present the consolidated financial condition of Seller at the dates therein
indicated and the consolidated results of operations and cash flows of Seller
for the periods therein specified and (iii) will be prepared in accordance with
GAAP applied on a basis consistent with prior periods.

 

(b)                                 Undisclosed Liabilities.  Except as set
forth in Schedule 4.8(b) of the Seller Disclosure Letter, no Telos Seller has
any Liability, except for those (i) shown on the Seller Balance Sheet, (ii) that
were incurred after the Balance Sheet Date in the ordinary course of such Telos
Seller’s business consistent with its past practices and which have not had and
would not reasonably be expected to have a Material Adverse Effect on Seller,
(iii) that are not required to be set forth in the Seller Balance Sheet under
GAAP, or (iv) as otherwise disclosed herein or on the Seller Disclosure Letter
or the Seller Financial Statements.

 

(c)                                  Accounts Receivable.  All accounts
receivable of the Telos Sellers included in the Purchased Assets are, to the
Seller’s knowledge, valid receivables subject to no setoffs, and are, to the
Seller’s knowledge, current and collectible subject in each case only to the
reserve for bad debts set forth on the face of the Seller Balance Sheet as such
reserve may be adjusted with respect to operation of the Business and
transactions entered into through the Closing Date in accordance with past
practice of the Telos Sellers.

 

(d)                                 Inventories.  The inventories of the Telos
Sellers are in good and merchantable condition in all material respects, are
suitable and usable for the purposes for which they are intended and are in a
condition such that they can be sold in the ordinary course of the business of
the Telos Sellers consistent with past practice.  Each Telos Seller has good and
marketable title to its inventories, if any, free and clear of all Encumbrances
other than Permitted Encumbrances.

 

(e)                                  Competition.  Seller hereby represents and
warrants that (i) Seller does not have (1) annual net sales of $10 million or
more as stated on Seller’s last regularly prepared annual statement of income
and expense or (2) total assets of $10 million or more as stated on the last
regularly prepared balance sheet of Seller; (ii) the annual statement and
balance sheet referenced in this paragraph include the annual net sales and
total assets of all entities included within the Seller; and (iii) such annual
statement and balance sheet have been prepared consistent with past practice
(including without limitation, with respect to accounting principles) of Seller
and have been prepared within 15 months prior to the date of execution of this
agreement.

 

4.9                                 Title to Properties.  Except as set forth in
Schedule 4.9(i) of the Seller Disclosure Letter, Telos Sellers have good and
marketable title to all of the Purchased Assets, free and clear of all
Encumbrances, other than Permitted Encumbrances.  Except as set forth in
Schedule 4.9(i)

 

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of the Seller Disclosure Letter, the Telos Sellers have the complete and
unrestricted corporate power and unqualified right to sell, transfer, convey,
assign and deliver the Purchased Assets to the Buyer without monetary penalty. 
Except as set forth in Schedule 4.9(i) of the Seller Disclosure Letter,
following the consummation of the transactions contemplated by this Agreement
and the execution of the instruments of transfer contemplated by this Agreement,
the Buyer will acquire good and marketable title to all of the Purchased Assets,
free and clear of all Encumbrances, other than Permitted Encumbrances, and
without incurring any monetary penalty.  Notwithstanding the foregoing in this
Section 4.9, the representations and warranties of this Section 4.9 do not
extend to Encumbrances arising out of or relating to any Intellectual Property,
or rights related thereto, which Intellectual Property and related rights shall
instead be governed by the representations and warranties of Seller set forth in
Section 4.13 below.  All properties used in the operations of the Business are
reflected on the Seller Balance Sheet to the extent required under GAAP to be so
reflected.  All Purchased Assets consisting of machinery, vehicles, equipment
and other tangible personal property are in good condition and repair, normal
wear and tear excepted.  Schedule 4.9(ii) of the Seller Disclosure Letter lists
all real property leased by the Seller and its Subsidiaries.  Seller or one of
its Subsidiaries is in peaceful and undisturbed possession of each such parcel
of leased real property and there are no contractual or legal restrictions that
preclude or restrict the ability to use such leased real property for the
purposes for which it is currently being used.  All leases of real or personal
property to which Seller or any of its Subsidiaries is a party are, to Seller’s
knowledge, in full force and effect.  To Seller’s knowledge, neither Seller nor
any of its Subsidiaries is in violation of any zoning, building, safety or
environmental ordinance, regulation or requirement or other law or regulation
applicable to the operation of the Purchased Assets, nor has Seller received any
written notice of violation of law with which it or any of its Subsidiaries has
not complied.  Neither Seller nor any of its Subsidiaries owns any real
property.  Schedule 4.9(iii) of the Seller Disclosure Letter sets forth all
tangible Purchased Assets owned or leased by Seller or its Subsidiaries with an
individual value of $50,000 or greater.  To Seller’s knowledge, Telos Sellers
have access, on commercially reasonable terms, to all products and services
reasonably necessary to carry on the Business.  The Purchased Assets and the
Excluded Assets constitute all of the assets and properties used by Seller in
the conduct of the Business.

 

4.10                           Absence of Certain Changes.  Except as set forth
in Schedule 4.10 of the Seller Disclosure Letter, since the Balance Sheet Date,
Seller has operated its business in the ordinary course consistent with its past
practices, and since such date there has not been with respect to Seller
(together with its Subsidiaries) any:

 

(a)                                  Material Adverse Change;

 

(b)                                 amendment or change in Seller’s Certificate
of Incorporation or Bylaws or the organizational documents of any other Telos
Seller;

 

(c)                                  incurrence, creation or assumption of
(i) any Encumbrance on any of its material assets or properties (other than
Permitted Encumbrances), (ii) any material Liability or any indebtedness for
borrowed money (other than the issuance of Seller Convertible Notes), or
(iii) any Liability as a guarantor or surety with respect to the obligations of
others;

 

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(d)                                 payment or discharge of any Encumbrance on
any of its material assets or properties, or payment or discharge of any of its
material Liabilities (other than the issuance of Seller Convertible Notes), in
each case that was not either shown on the Seller Balance Sheet or incurred in
the ordinary course of its business after the Balance Sheet Date in an amount
not in excess of $75,000 for any single Liability to a particular creditor;

 

(e)                                  purchase, license, sale, grant, assignment
or other disposition or transfer, or any agreement or other arrangement for the
purchase, license, sale, assignment or other disposition or transfer, of any of
its material assets (including Seller IP Rights (as defined in Section 4.13(a))
and other intangible assets), properties or goodwill other than the sale or
nonexclusive license of its products to its customers in the ordinary course of
its business consistent with its past practices;

 

(f)                                    damage, destruction or loss of any
material property or material asset, whether or not covered by insurance, having
a Material Adverse Effect;

 

(g)                                 declaration, setting aside or payment of any
dividend on, or the making of any other distribution in respect of, its capital
stock, or any split, combination or recapitalization of its capital stock or any
direct or indirect redemption, purchase or other acquisition of any of its
capital stock or any change in any rights, preferences, privileges or
restrictions of any of its outstanding securities (other than repurchases of
stock in accordance with the Seller Option Plan or applicable Contracts in
connection with the termination of service of employees or other service
providers or as contemplated herein);

 

(h)                                 change or increase in the compensation
payable or to become payable to any of its officers or employees, or in any
bonus, pension, severance, retention, insurance or other benefit payment or
arrangement (including stock awards, stock option grants, stock appreciation
rights or stock option grants) made to or with any of such officers or employees
(other than increases in the base salaries that do not exceed 20% of such base
salaries);

 

(i)                                     change with respect to its management,
supervisory or other key personnel, or any labor dispute or claim of unfair
labor practices;

 

(j)                                     entering into, amendment of,
relinquishment, termination or nonrenewal by it of any material Contract, other
than in the ordinary course of its business consistent with its past practices,
or any default by it under any such material Contract;

 

(k)                                  entering into by it of any transaction,
contract, agreement, arrangement, commitment or undertaking that by its terms
requires or contemplates a current and/or future financial commitment, expense
(inclusive of overhead expense) or obligation on its part that involves in
excess of $75,000 or that is not entered into in the ordinary course of its
business consistent with its past practices;

 

(l)                                     except for the letter of intent between
Buyer and Seller and dated as of April 6, 2004 relating to the transactions
contemplated by this Agreement, making or entering into any Contract with
respect to any acquisition, sale or transfer of any Purchased Asset or any stock
of any Telos Seller;

 

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(m)                               announcement of or any entry into any Contract
to do any of the things described in the preceding clauses (a) through (m)
(other than agreements with Buyer and its representatives regarding the
transactions contemplated by this Agreement).

 

4.11                           Contracts, Agreements, Arrangements, Commitments
and Undertakings.  Schedules 4.11(a)-(k) of the Seller Disclosure Letter set
forth a list of each of the following Contracts to which Seller or any of its
Subsidiaries is a party or to which Seller or any of its assets or properties is
bound and that is currently in effect (each a “Seller Material Contract”):

 

(a)                                  any Contract providing for payments
(whether fixed, contingent or otherwise) by or to it in an aggregate amount of
$50,000 or more in 2004 or any year thereafter;

 

(b)                                 any Contract for or relating to the
employment by it of any director, officer, employee or consultant, or any other
type of Contract with any of its directors, officers, employees or consultants
that is not terminable by it within 60 days without cost or other Liability
other than severance in accordance with Seller’s severance policies as set forth
in Schedule 4.11(b);

 

(c)                                  any indenture, mortgage, trust deed,
promissory note, loan agreement, security agreement, guarantee or other Contract
for or with respect to the borrowing of money, a line of credit, any currency
exchange, commodities or other hedging arrangement, or a leasing transaction of
a type required to be capitalized in accordance with Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board;

 

(d)                                 any lease or other Contract under which it
is lessee of or holds or operates any material items of tangible personal
property or real property owned by any third party;

 

(e)                                  any Contract with a Significant Customer
(as defined in Section 4.23(a)) or Significant Supplier (as defined in
Section 4.23(b));

 

(f)                                    any Contract for the future purchase,
sale, license, provision or manufacture of products, materials, supplies,
equipment or services requiring payment to or from it in an amount in excess of
$50,000;

 

(g)                                 any material dealer, distributor, OEM
(original equipment manufacturer), VAR (value added reseller), sales
representative or similar Contract under which any third party is authorized to
sell, sublicense, lease, distribute, market or take orders for any of its
products, services or technology;

 

(h)                                 any Contract that restricts it from engaging
in the Business; from participating or competing in any line of business or
market; from freely setting prices for its products, services or technologies
(including most favored customer pricing provisions) or from engaging in the
Business in any market or geographic area;

 

(i)                                     any Seller IP Rights Agreement (as
defined in Section 4.13(b));

 

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(j)                                     any material Contract in which any of
its officers or directors, or any stockholders of Seller, or any member of their
immediate families, is directly or indirectly interested; or

 

(k)                                  any Contract with a Governmental Authority
or any Governmental Permit (as defined in Section 4.14(b)).

 

A true and complete copy of each agreement or document required by these
subsections (a)-(k) of this Section 4.11 to be listed on Schedule 4.11 of the
Seller Disclosure Letter has been delivered or made available to Buyer’s legal
counsel.  All Seller Material Contracts are in written form.

 

4.12                           No Default; No Restrictions.

 

(a)                                  (i) Each Seller Material Contract is a
legal, valid and binding agreement in accordance with its respective terms;
(ii) except as set forth in Schedule 4.12(a)(ii) of the Seller Disclosure
Letter, no Telos Seller has received any claim of material default under or
cancellation of any Seller Material Contract and no Telos Seller is in breach or
violation of, or default under, any Seller Material Contract in any material
respect; (iii) to the Seller’s knowledge, as of the date of this Agreement, no
other party is in breach or violation of, or default under, any Seller Material
Contract in any material respect; and (iv) neither the execution of this
Agreement nor the consummation of any transactions contemplated by this
Agreement shall constitute a default under, give rise to cancellation rights
under, or otherwise materially adversely affect any of the rights of the Telos
Sellers under any Seller Material Contract.

 

(b)                                 Except as listed in Schedule 4.11(h) of the
Seller Disclosure Letter, neither Seller nor any of its Subsidiaries is a party
to, and no material Purchased Asset is bound or affected by, any judgment,
injunction, order, decree, Contract (noncompete or otherwise) that restricts or
prohibits, or purports to restrict or prohibit, Seller or, following the
Closing, Buyer, from freely engaging in the Business or from competing anywhere
in the world (including any judgments, injunctions, orders, decrees, Contracts
restricting the geographic area in which Seller or its Subsidiaries may sell,
license, market, distribute or support any products or technology or provide
services or restricting the markets, customers or industries that Seller or its
Subsidiaries may address in operating the Business or restricting the prices
that Seller or its Subsidiaries may charge for its products, technology or
services (including most favored customer pricing provisions)).

 

4.13                           Intellectual Property.

 

(a)                                  Except as set forth in Schedule 4.13(a) of
the Seller Disclosure Letter, to Seller’s knowledge, Seller or one of its
Subsidiaries (i) owns and has independently developed or (ii) has the valid
right or license to use, possess, develop, sell, license, copy, distribute,
market, advertise and/or dispose of all Intellectual Property used in the
conduct of the Business in the same manner as such Intellectual Property is used
in the Business as of Closing (such Intellectual Property being hereinafter
collectively referred to as the “Seller IP Rights”).  Other than rights related
to third party patents, trademarks, service marks and applications therefor, the
Seller IP Rights include all of the Intellectual Property used in the conduct of
the business as of the

 

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Closing, and to the Seller’s knowledge, there is no other Intellectual Property
(including rights related to third party patents, trademarks, service marks and
applications therefor) necessary for such conduct of the Business as of the
Closing.  As used in this Agreement, “Seller-Owned IP Rights” means Seller IP
Rights that are owned or exclusively licensed to Seller; and “Seller-Licensed IP
Rights” means Seller IP Rights that are not Seller-Owned IP Rights and are
licensed to Seller by a third party on a non-exclusive basis.

 

(b)                                 Except as set forth in Schedule 4.13(b) of
the Seller Disclosure Letter, neither the execution, delivery and performance of
this Agreement or the Seller Ancillary Agreements nor the consummation of the
Asset Purchase and the other transactions contemplated by this Agreement and/or
by the Seller Ancillary Agreements shall, in accordance with their terms: 
(i) constitute a material breach of or default under any instrument, license or
other Contract governing any Seller IP Right (collectively, the “Seller IP
Rights Agreements”); (ii) cause the forfeiture or termination of, or give rise
to a right of forfeiture or termination of, any Seller IP Right; or
(iii) pursuant to the terms of any Assumed Contract, materially impair the right
of Seller or, following the Closing, of Buyer to use, possess, sell or license
any Seller IP Right or portion thereof.  Except as set forth in Schedule 4.13(b)
of the Seller Disclosure Letter, there are no royalties, honoraria, fees or
other payments payable by Seller in excess of $10,000 to any particular third
person (other than salaries payable to employees and independent contractors not
contingent on or related to use of their work product) under any Seller IP
Rights Agreements as a result of the ownership, use, possession, license-in,
sale, marketing, advertising or disposition of any Seller IP Rights by Seller
and none shall become payable as a result of the consummation of the
transactions contemplated by this Agreement.  Except as set forth in
Schedule 4.13(b) of the Seller Disclosure Letter, after the Closing, all
Seller-Owned IP Rights will be fully transferable, alienable or licensable by
Buyer without restriction and without payment of any kind to any third party.

 

(c)                                  Schedule 4.13(c)-1 of the Seller Disclosure
Letter sets forth a list (by name and version number) of each of the Seller
Products or Services.  Except as set forth in Schedule 4.13(c)-2 of the Seller
Disclosure Letter, to the knowledge of Seller, neither the operation of the
Business nor the use, development, manufacture, marketing, license, sale,
furnishing or intended use of any Seller Product or Service within the scope of
the Business (i) violates any Assumed Contract or (ii) infringes,
misappropriates or otherwise violates any Intellectual Property right of any
other party.  Except as set forth in Schedule 4.13(c)-3 of the Seller Disclosure
Letter, there is no pending (other than complaints that may have been filed with
a Governmental Authority, have not yet been served on Seller or its Subsidiaries
and with respect to which Seller and its Subsidiaries have no knowledge), or to
the knowledge of Seller, threatened claim or litigation brought against Seller
or its Subsidiaries (i) contesting the validity, ownership or right of Seller or
its Subsidiaries to exercise any Seller IP Right; (ii) asserting that any Seller
IP Right, or the use, sale, license or disposition thereof in the Business,
conflicts with, misappropriates, infringes or otherwise violates, or shall
conflict with, or misappropriate, infringe or otherwise violate, the
Intellectual Property rights of any other party, and neither Seller nor any of
its Subsidiaries has received any written notice from any third party alleging
any of the foregoing or offering a license under any such third party patents. 
Except as set forth in Schedule 4.13(c)-4 of the Seller Disclosure Letter,
neither Seller nor any of its Subsidiaries is subject to any pending proceeding
or outstanding order, contract or stipulation restricting in any manner the use,
distribution, transfer, or licensing by Seller or its Subsidiaries of any

 

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 Seller-Owned IP Rights or any Seller Product or Service or any Seller-Licensed
IP Rights or that may affect the validity, use or enforceability of any such
Seller-Owned IP Rights, or restricting the conduct of the Business in order to
accommodate Intellectual Property rights of a third party.

 

(d)                                 Except as set forth in Schedule 4.13(d) of
the Seller Disclosure Letter, to the knowledge of Seller, no current or former
employee, consultant or independent contractor of Seller or its Subsidiaries: 
(i) is in material violation of any term or covenant of any employment contract,
patent disclosure agreement, invention assignment agreement, nondisclosure
agreement, noncompetition agreement or any other Contract with any other party
by virtue of such employee’s, consultant’s or independent contractor’s being
employed by, or performing services for, Seller or using trade secrets or
proprietary information of others without permission; or (ii) has developed any
technology, software or other copyrightable, patentable or otherwise proprietary
work for Seller or its Subsidiaries that is subject to any Contract under which
such employee, consultant or independent contractor has assigned or otherwise
granted to any third party any rights (including Intellectual Property) in or to
such technology, software or other copyrightable, patentable or otherwise
proprietary work.  To Seller’s knowledge, neither the employment of any employee
of Seller or its Subsidiaries, nor the use by Seller or its Subsidiaries of the
services of any consultant or independent contractor subjects Telos Sellers to
any Liability to any third party for improperly soliciting such employee,
consultant or independent contractor to work for Seller or such Subsidiary,
whether such Liability is based on contractual or other legal obligations to
such third party.

 

(e)                                  Telos Sellers have taken all reasonable
steps consistent with industry practices to protect, preserve and maintain the
secrecy and confidentiality of the Seller IP Rights and to preserve and maintain
all trade secrets in the Seller IP Rights.  Except as set forth in
Schedule 4.13(e)-1 of the Seller Disclosure Letter, all current and former
officers, employees, consultants and independent contractors of Telos Sellers
having access to proprietary information of Seller or its Subsidiaries, its
customers or business partners have executed and delivered to Seller an
agreement regarding the protection of such proprietary information (in the case
of proprietary information of Seller’s customers and business partners, to the
extent required by such customers and business partners); and copies of all such
agreements have been delivered to Buyer’s legal counsel.  Except as set forth in
Schedule 4.13(e)-1 of the Seller Disclosure Letter, Seller has secured valid
written assignments from all of Seller’s and its Subsidiaries’ current and
former consultants, independent contractors and employees who were involved in,
or who materially contributed to, the creation or development of any
Seller-Owned IP Rights, of the rights to such contributions that may be owned by
such persons or that Seller or its Subsidiaries does not already own by
operation of law.  No current or former employee, officer, director, consultant
or independent contractor of Seller or its Subsidiaries has any right, license,
claim or interest whatsoever in or with respect to any Seller-Owned IP Rights. 
Except as set forth in Schedule 4.13(e)-2 of the Seller Disclosure Letter, to
the extent that any technology, software or Intellectual Property developed or
otherwise owned by a third party is incorporated into, integrated or bundled by
Seller or its Subsidiaries with any of the Seller Products or Services (“Third
Party Product Technology”), Seller has a valid, written agreement with such
third party with respect thereto pursuant to which Seller either (i) has
obtained complete, unencumbered and unrestricted ownership of, and is the
exclusive owner of, or (ii) has obtained perpetual, irrevocable, non terminable
licenses (sufficient for the conduct of the Business) to, all such third party’s
Intellectual Property in such Third Party Product Technology.

 

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Schedule 4.13(e)-3 of the Seller Disclosure Letter sets forth a list and
description of all Third Party Product Technology.

 

(f)                                    Schedule 4.13(f) of the Seller Disclosure
Letter contains a true and complete list of (i) all Seller-Owned IP Rights in
the form of worldwide registrations made by or on behalf of any Telos Seller of
any patents, copyrights, mask works, trademarks, service marks, Internet domain
names or Internet or World Wide Web URLs or addresses with any Governmental
Authority or quasi-governmental authority, including Internet domain name
registries, (ii) all Seller-Owned IP Rights in the form of applications,
registrations, filings and other formal written governmental actions made or
taken pursuant to Applicable Law by any Telos Seller to secure, perfect or
protect its interest in the Seller IP Rights, including all patent applications,
copyright applications, mask work applications and applications for registration
of trademarks and service marks, and where applicable the jurisdiction in which
each of the items of the Seller IP Rights has been applied for, filed, issued or
registered, and (iii) all inter parties proceedings or actions before any court
or tribunal (including the United States Patent and Trademark Office) or
equivalent authority anywhere else in the world) related to any of the
Seller-Owned IP Rights that are owned by Seller.  One of the Telos Sellers is
the record owner of each registered patent, trademark, service mark, Internet
domain name, Internet or World Wide Web URL or address, copyright and mask work
right held by Seller or its Subsidiaries and such registrations are subsisting
and, to the Seller’s knowledge, are valid and enforceable.

 

(g)                                 Telos Sellers exclusively own all right,
title and interest in and to all Seller-Owned IP Rights free and clear of all
Encumbrances and licenses (other than licenses and rights listed in
Schedule 4.13(g)-1 of the Seller Disclosure Letter and Permitted Encumbrances). 
The right, license and interest of Seller or its Subsidiaries in and to all
Seller-Licensed IP Rights are free and clear of all Encumbrances and licenses
(except as set forth in the applicable terms and conditions of the agreements
under which the corresponding Seller-Licensed IP Rights were licensed to Seller
or its Subsidiaries and such other than licenses and rights listed in
Schedule 4.13(g)-2 of the Seller Disclosure Letter and Permitted Encumbrances).

 

(h)                                 Schedule 4.13(h)-1 of the Seller Disclosure
Letter contains a true and complete list of all licenses, sublicenses and other
Contracts as to which Seller or its Subsidiaries is a party and pursuant to
which any Person is authorized to use any Seller-Owned IP Rights. 
Schedule 4.13(h)-2 of the Seller Disclosure Letter contains a true and complete
list of all licenses, sublicenses and other Contracts as to which Seller or its
Subsidiaries is a party and pursuant to which Seller or its Subsidiaries is
authorized to use the Seller-Licensed IP Rights (other than licenses of software
generally available to the public at a per copy license fee of less than $1,000
per copy).

 

(i)                                     Neither Seller nor any other party
acting on its behalf has disclosed or delivered to any party, or permitted the
disclosure or delivery to any escrow agent or other party of, any Seller Source
Code (as defined below).  No event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time, or both) shall
result in the disclosure or delivery by Seller or any other party acting on its
behalf to any party of any Seller Source Code.  Schedule 4.13(i) of the Seller
Disclosure Letter identifies each Contract pursuant to which Seller has
deposited, or is or may be required to deposit, with an escrow agent or other
party, any Seller Source Code and further describes whether the execution of
this Agreement or

 

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the consummation of the Asset Purchase or any of the other transactions
contemplated by this Agreement, in and of itself, would result in the release
from escrow of any Seller Source Code.  As used in this Section 4.13(i), “Seller
Source Code” means, collectively, any human readable software source code, or
any material portion or aspect of the software source code, that constitutes
Seller-Owned IP Rights.

 

(j)                                     Except as set forth in
Schedule 4.13(j)-1 of the Seller Disclosure Letter, to Seller’s knowledge, there
is no unauthorized use, disclosure, infringement or misappropriation of any
Seller-Owned IP Rights by any third party, including any current or former
employee of Seller or its Subsidiaries.  Except as set forth in
Schedule 4.13(j)-2 of the Seller Disclosure Letter, neither Seller nor its
Subsidiaries has agreed to indemnify any person for any infringement,
misappropriation, dilution, conflict with or other violation of any Intellectual
Property of any third party with respect to any Seller Product or Service that
has been sold, licensed to third parties, leased to third parties, supplied,
marketed, distributed or provided by Seller or its Subsidiaries (other than
pursuant to its standard customer agreement, the form of which is included in
Schedule 4.13(j)-2 of the Seller Disclosure Letter).

 

(k)                                  Except as set forth in Schedule 4.13(k) of
the Seller Disclosure Letter, all software developed by Seller or its
Subsidiaries and licensed by Seller or its Subsidiaries to customers and all
Seller Products or Services provided by or through Seller or its Subsidiaries to
customers on or prior to the Closing Date conform in all material respects to
applicable contractual commitments, express and implied warranties (to the
extent not expressly disclaimed in Contracts with such customers), product
specifications and product Documentation and to any representations provided to
customers, and neither Seller nor any of its Subsidiaries has any material
Liability for replacement or repair thereof or other damages in connection
therewith in excess of any reserves therefor reflected on the Seller Balance
Sheet.  Seller has not had any of its products returned by a purchaser thereof
except for normal warranty returns consistent with past history and those
returns that would not result in a reversal of any material revenue by Seller.

 

(l)                                     Except as set forth in Schedule 4.13(l)
of the Seller Disclosure Letter, no government funding, facilities of a
university, college, other educational institution or research center, was used
in the development of the Seller Products or Services, computer software
programs or applications owned by Seller.  To Seller’s knowledge, no current or
former employee, consultant or independent contractor of Seller or its
Subsidiaries who was involved in, or who contributed to, the creation or
development of any Seller-Owned IP Rights has performed services for the
government, for a university, college or other educational institution or for a
research center during a period of time during which such employee, consultant
or independent contractor was also performing services for Seller or its
Subsidiaries.

 

(m)                               Except as set forth in Schedule 4.13(m) of the
Seller Disclosure Letter, no software developed by Seller or its Subsidiaries or
covered by any Seller-Owned IP Right that is owned by Seller has been
distributed in whole or in part or developed with or used with any Public
Software by Seller or its Subsidiaries in a manner that would require such
software to be disclosed or distributed in source code form or made available at
no charge.  As used in this Section 4.13(m), “Public Software” means any
software that (i) contains, or is derived in any manner (in whole or in part)
from, any software that is distributed as free software, open source

 

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software (e.g., Linux) or (ii) requires as a condition of its use, modification
or distribution that it be disclosed or distributed in source code form or made
available at no charge.  Public Software includes without limitation software
licensed under the GNU’s General Public License (GPL) or Lesser/Library GPL, the
Mozilla Public License, the Netscape Public License, the Sun Community Source
License, the Sun Industry Standards License, the BSD License, and the Apache
License.

 

4.14                           Compliance with Laws.

 

(a)                                  Each Telos Seller has complied, and is now
and at the Closing Date shall be in compliance, in all material respects with
all Applicable Law.

 

(b)                                 Each Telos Seller hold all material permits,
licenses and approvals from, and has made all material filings with, government
(and quasi-governmental) agencies and authorities, that are necessary and/or
legally required to be held by it to conduct the Business without any violation
of Applicable Law (“Governmental Permits”), the lack of which would have a
Material Adverse Effect.  Neither Seller nor any of its Subsidiaries has
received any written notice from any Governmental Authority regarding (i) any
violation of law or any Governmental Permit or any failure to comply with any
term or requirement of any Governmental Permit or (ii) any revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Permit.

 

(c)                                  Neither Seller nor, to Seller’s knowledge,
any Subsidiary, director, officer or employee of Seller has, for or on behalf of
Seller, (i) used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
payment in violation of Applicable Law.

 

4.15                           Certain Transactions and Agreements.  Except as
set forth in Schedule 4.15 of the Seller Disclosure Letter, to the knowledge of
Seller, none of the officers, directors or employees of Seller nor any member of
their immediate families has any direct ownership interest in any firm or
corporation that competes with, or does business with, or has any contractual
arrangement with, Seller or any of its Subsidiaries (except with respect to any
interest in less than 1% of the stock of any corporation whose stock is publicly
traded).  Except as set forth in Schedule 4.15 of the Seller Disclosure Letter,
none of said officers, directors, employees or stockholders or any member of
their immediate families, is a party to, or otherwise directly or indirectly
interested in, any Contract with Seller or any Subsidiary, except for normal
compensation for services as an officer, director or employee thereof that have
been disclosed to Buyer.  None of said officers, directors, employees,
stockholders or immediate family members has any interest in any property, real
or personal, tangible or intangible (including any Seller IP Rights or any other
Intellectual Property), that is used in, or that pertains to, the Business,
except for the rights of a stockholder under Applicable Law.

 

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4.16                           Employees, ERISA and Other Compliance.

 

(a)                                  Each Telos Seller is in compliance in all
material respects with all Applicable Law and Contracts relating to employment,
employment practices, immigration, wages, hours, and terms and conditions of
employment, including employee compensation matters.  A complete list of all
employees, officers and consultants of Telos Sellers and their current title
and/or job description, compensation has been delivered to Buyer and its
counsel.  All employees of Telos Sellers are legally permitted to be employed by
Seller in the jurisdiction in which such employee is employed in their current
job capacities for the maximum period allowed under Applicable Law.  Except as
set forth in Schedule 4.16(a)-2 of the Seller Disclosure Letter, neither Seller
nor any of its Subsidiaries has any employment or consulting Contracts currently
in effect that are not terminable within 60 days without penalty (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).

 

(b)                                 No Telos Seller (i) is now, or has ever
been, subject to a union organizing effort, (ii) is subject to any collective
bargaining agreement with respect to any of its employees, and (iii) is subject
to any other Contract with any trade or labor union, employees’ association or
similar organization, and (iv) has current labor disputes with any trade or
labor union, employees’ association or similar organization.  Telos Sellers have
good labor relations, and Seller has no knowledge of any facts indicating that
the consummation of the Asset Purchase or any of the other transactions
contemplated hereby shall have a material adverse effect on such labor
relations.

 

(c)                                  No Telos Seller (or ERISA Affiliate
thereof) maintains or contributes to, or has ever maintained or contributed to,
any “pension plan” within the meaning of Section 3(2) of ERISA or any retiree
welfare plan.

 

(d)

 

(i)                                     Schedule 4.16(d) of the Seller
Disclosure Letter lists each material employment, consulting, severance or other
similar Contract, each “employee welfare benefit plan” as defined in
Section 3(1) of ERISA and each plan or arrangement (written or oral) providing
for insurance coverage, workers’ benefits, vacation benefits, severance
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors that is entered into, maintained or
contributed to by any Telos Seller or any ERISA Affiliate and covers any
employee of Seller or its Subsidiaries.  Such Contracts, plans and arrangements
as are described in this Section 4.16(d) are hereinafter collectively referred
to as “Seller Benefit Arrangements.”

 

(ii)                                  Each Seller Benefit Arrangement has been
maintained in compliance in all material respects with its terms and with the
requirements prescribed by any and all Applicable Law that is applicable to such
Seller Benefit Arrangement.

 

(iii)                               Seller has delivered to Buyer and its legal
counsel a complete and correct copy of each Seller Benefit Arrangement.

 

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(IV)                              SELLER HAS TIMELY FILED AND DELIVERED OR MADE
AVAILABLE TO BUYER AND ITS LEGAL COUNSEL ALL MATERIAL WRITTEN COMMUNICATIONS
WITHIN THE LAST YEAR WITH PARTICIPANTS, THE INTERNAL REVENUE SERVICE, THE U.S.
DEPARTMENT OF LABOR OR ANY OTHER GOVERNMENTAL AUTHORITY, ADMINISTRATORS,
TRUSTEES, BENEFICIARIES AND ALTERNATE PAYEES RELATING TO ANY SELLER BENEFIT
ARRANGEMENT.

 

(V)                                 NO SUIT, ADMINISTRATIVE PROCEEDING, ACTION
OR OTHER LITIGATION HAS BEEN BROUGHT, OR TO THE KNOWLEDGE OF SELLER, IS
THREATENED IN WRITING AGAINST OR WITH RESPECT TO ANY SELLER BENEFIT ARRANGEMENT,
INCLUDING ANY AUDIT OR INQUIRY BY THE INTERNAL REVENUE SERVICE OR THE U.S.
DEPARTMENT OF LABOR.

 

(VI)                              ALL MATERIAL CONTRIBUTIONS DUE FROM SELLER OR
ITS SUBSIDIARIES WITH RESPECT TO ANY OF THE SELLER BENEFIT ARRANGEMENTS HAVE
BEEN MADE OR HAVE BEEN ACCRUED ON SELLER’S FINANCIAL STATEMENTS (INCLUDING THE
SELLER FINANCIAL STATEMENTS), AND NO FURTHER CONTRIBUTIONS SHALL BE DUE OR SHALL
HAVE ACCRUED THEREUNDER AS OF THE CLOSING DATE (OTHER THAN CONTRIBUTIONS ACCRUED
IN THE ORDINARY COURSE OF BUSINESS, CONSISTENT WITH PAST PRACTICES, AFTER THE
BALANCE SHEET DATE AS A RESULT OF THE OPERATIONS OF SELLER AFTER THE BALANCE
SHEET DATE).

 

(E)                                  EACH SELLER BENEFIT ARRANGEMENT, TO THE
EXTENT APPLICABLE, IS IN COMPLIANCE, IN ALL MATERIAL RESPECTS, WITH THE
CONTINUATION COVERAGE REQUIREMENTS OF SECTION 4980B OF THE CODE, SECTIONS 601
THROUGH 608 OF ERISA, AS APPLICABLE, THE AMERICANS WITH DISABILITIES ACT OF
1990, AS AMENDED, AND THE REGULATIONS THEREUNDER, THE HEALTH INSURANCE
PORTABILITY AND ACCOUNTABILITY ACT OF 1996, AS AMENDED, THE WOMEN’S HEALTH AND
CANCER RIGHTS ACT OF 1998, AND THE FAMILY MEDICAL LEAVE ACT OF 1993, AS AMENDED,
AND THE REGULATIONS THEREUNDER, AS SUCH REQUIREMENTS AFFECT SELLER AND ITS
EMPLOYEES.

 

(F)                                    EXCEPT AS SET FORTH SCHEDULE 4.16(F) OF
THE SELLER DISCLOSURE LETTER, NO BENEFIT PAYABLE OR THAT MAY BECOME PAYABLE BY
THE SELLER PURSUANT TO ANY SELLER BENEFIT ARRANGEMENT OR AS A RESULT OF, IN
CONNECTION WITH OR ARISING UNDER THIS AGREEMENT SHALL CONSTITUTE A ”PARACHUTE
PAYMENT” (AS DEFINED IN SECTION 280G(B)(2) OF THE CODE) THAT IS SUBJECT TO THE
IMPOSITION OF AN EXCISE TAX UNDER SECTION 4999 OF THE CODE OR THAT WOULD NOT BE
DEDUCTIBLE BY REASON OF SECTION 280G OF THE CODE.  UNLESS OTHERWISE INDICATED IN
SCHEDULE 4.16(F) OF THE SELLER DISCLOSURE LETTER (AND EXCEPT FOR ANY
ACCELERATION OR CHANGE CONTEMPLATED BY THIS AGREEMENT), SELLER IS NOT A PARTY TO
ANY:  (I) CONTRACT WITH ANY “DISQUALIFIED INDIVIDUAL” (AS DEFINED IN
SECTION 280G(C) OF THE CODE) (A) THE BENEFITS OF WHICH ARE CONTINGENT, OR THE
TERMS OF WHICH ARE MATERIALLY ALTERED, UPON THE OCCURRENCE OF A TRANSACTION
INVOLVING SELLER IN THE NATURE OF THE ASSET PURCHASE OR ANY OF THE OTHER
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY SELLER ANCILLARY AGREEMENT,
(B) PROVIDING ANY TERM OF EMPLOYMENT OR COMPENSATION GUARANTEE, OR (C) PROVIDING
SEVERANCE BENEFITS OR OTHER BENEFITS AFTER THE TERMINATION OF EMPLOYMENT OF SUCH
EMPLOYEE REGARDLESS OF THE REASON FOR SUCH TERMINATION OF EMPLOYMENT; OR
(II) CONTRACT OR PLAN, INCLUDING ANY STOCK OPTION PLAN, STOCK APPRECIATION
RIGHTS PLAN OR STOCK PURCHASE PLAN, ANY OF THE BENEFITS OF WHICH SHALL BE
INCREASED, OR THE VESTING OF BENEFITS OF WHICH SHALL BE ACCELERATED, BY THE
OCCURRENCE OF THE ASSET PURCHASE OR ANY OF THE OTHER TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT, OR ANY EVENT SUBSEQUENT TO THE ASSET PURCHASE SUCH AS THE
TERMINATION OF EMPLOYMENT OF ANY PERSON, OR THE VALUE OF ANY OF THE BENEFITS OF
WHICH SHALL BE CALCULATED ON THE BASIS OF ANY OF THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT.

 

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(G)                                 EACH COMPENSATION AND BENEFIT PLAN THAT HAS
BEEN ESTABLISHED OR MAINTAINED, OR THAT IS REQUIRED TO BE MAINTAINED OR
CONTRIBUTED TO BY THE LAW OR APPLICABLE CUSTOM OR RULE OF THE RELEVANT
JURISDICTION, OUTSIDE OF THE UNITED STATES BY SELLER OR ANY OF ITS SUBSIDIARIES
(EACH SUCH PLAN, A “FOREIGN PLAN”) IS LISTED IN SCHEDULE 4.16(G)-1 OF THE SELLER
DISCLOSURE LETTER.  EXCEPT AS SET FORTH IN SCHEDULE 4.16(G)-2 OF THE SELLER
DISCLOSURE LETTER, AS REGARDS EACH FOREIGN PLAN, (I) SUCH FOREIGN PLAN IS IN
COMPLIANCE IN ALL MATERIAL RESPECTS WITH THE PROVISIONS OF THE LAWS OF EACH
JURISDICTION IN WHICH SUCH FOREIGN PLAN IS MAINTAINED, TO THE EXTENT THOSE LAWS
ARE APPLICABLE TO SUCH FOREIGN PLAN, (II) ALL CONTRIBUTIONS TO, AND MATERIAL
PAYMENTS FROM, SUCH FOREIGN PLAN THAT MAY HAVE BEEN REQUIRED TO BE MADE IN
ACCORDANCE WITH THE TERMS OF SUCH FOREIGN PLAN, AND, WHEN APPLICABLE, THE LAW OF
THE JURISDICTION IN WHICH SUCH FOREIGN PLAN IS MAINTAINED, HAVE BEEN TIMELY MADE
OR SHALL BE MADE BY THE CLOSING DATE, AND ALL SUCH CONTRIBUTIONS TO SUCH FOREIGN
PLAN, AND ALL PAYMENTS UNDER SUCH FOREIGN PLAN, FOR ANY PERIOD ENDING BEFORE THE
CLOSING DATE THAT ARE NOT YET, BUT WILL BE, REQUIRED TO BE MADE, ARE INCLUDED AS
AN ACCRUED LIABILITY ON THE SELLER BALANCE SHEET, (III) SELLER AND EACH ERISA
AFFILIATE HAS MATERIALLY COMPLIED WITH ALL APPLICABLE REPORTING AND NOTICE
REQUIREMENTS, AND SUCH FOREIGN PLAN HAS OBTAINED FROM THE GOVERNMENTAL ENTITY
HAVING JURISDICTION WITH RESPECT TO SUCH FOREIGN PLAN ANY REQUIRED
DETERMINATIONS, IF ANY, THAT SUCH FOREIGN PLAN IS IN COMPLIANCE WITH THE LAWS OF
THE RELEVANT JURISDICTION IF SUCH DETERMINATIONS ARE REQUIRED IN ORDER TO GIVE
EFFECT TO SUCH FOREIGN PLAN, (IV) SUCH FOREIGN PLAN HAS BEEN ADMINISTERED IN ALL
MATERIAL RESPECTS AT ALL TIMES IN ACCORDANCE WITH ITS TERMS AND APPLICABLE LAW
AND REGULATIONS, (V) TO THE KNOWLEDGE OF SELLER, THERE ARE NO PENDING
INVESTIGATIONS BY ANY GOVERNMENTAL BODY INVOLVING SUCH FOREIGN PLAN, AND NO
PENDING CLAIMS (EXCEPT FOR CLAIMS FOR BENEFITS PAYABLE IN THE NORMAL OPERATION
OF SUCH FOREIGN PLAN), SUITS OR PROCEEDINGS AGAINST SUCH FOREIGN PLAN OR
ASSERTING ANY RIGHTS OR CLAIMS TO BENEFITS UNDER SUCH FOREIGN PLAN, (VI) THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT WILL NOT BY
ITSELF CREATE OR OTHERWISE RESULT IN ANY LIABILITY WITH RESPECT TO SUCH FOREIGN
PLAN OTHER THAN THE TRIGGERING OF PAYMENT TO PARTICIPANTS, AND (VII) EXCEPT AS
REQUIRED BY APPLICABLE LAWS, NO CONDITION EXISTS THAT WOULD PREVENT SELLER FROM
TERMINATING OR AMENDING ANY FOREIGN PLAN AT ANY TIME FOR ANY REASON IN
ACCORDANCE WITH THE TERMS OF EACH SUCH FOREIGN PLAN (OTHER THAN NORMAL AND
REASONABLE EXPENSES TYPICALLY INCURRED IN A TERMINATION EVENT).

 

4.17                           CORPORATE DOCUMENTS.  SELLER HAS DELIVERED OR
MADE AVAILABLE TO BUYER’S LEGAL COUNSEL FOR EXAMINATION:  (A) COPIES OF THE
CERTIFICATE OF INCORPORATION AND BYLAWS OR MEMORANDUM OF ASSOCIATION OR ARTICLES
OF ASSOCIATION, AS APPLICABLE, EACH AS CURRENTLY IN EFFECT, OF EACH OF THE TELOS
SELLERS; AND (B) THE MINUTE BOOKS CONTAINING ALL RECORDS OF ALL PROCEEDINGS,
CONSENTS, ACTIONS AND MEETINGS OF THE BOARD OF DIRECTORS AND ANY COMMITTEES
THEREOF AND STOCKHOLDERS OF EACH OF THE TELOS SELLERS.  SCHEDULE 4.17 OF THE
SELLER DISCLOSURE LETTER SETS FORTH A TRUE, CORRECT AND COMPLETE LIST OF THE
NAMES AND ADDRESSES OF EACH PERSON WHO, AS OF THE DATE HEREOF, MAY REASONABLY BE
DEEMED TO BE AN AFFILIATE OF SELLER.

 

4.18                           NO BROKERS.  EXCEPT FOR FEES PAYABLE TO DRESDNER
KLEINWORT WASSERSTEIN, INC. SOLELY BY SELLER, AS SET FORTH IN THE ENGAGEMENT
LETTER BETWEEN SELLER AND DRESDNER KLEINWORT WASSERSTEIN, INC., DATED NOVEMBER
7, 2003, NEITHER SELLER NOR ANY AFFILIATE OF SELLER IS OBLIGATED FOR THE PAYMENT
OF ANY FEES OR EXPENSES OF ANY INVESTMENT BANKER, BROKER, FINDER OR SIMILAR
PARTY IN CONNECTION WITH THE ORIGIN, NEGOTIATION OR EXECUTION OF THIS AGREEMENT
OR IN CONNECTION WITH THE ASSET PURCHASE OR ANY OTHER TRANSACTION CONTEMPLATED
BY THIS AGREEMENT.

 

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4.19                           BOOKS AND RECORDS.  THE BOOKS, RECORDS AND
ACCOUNTS OF SELLER (I) ARE IN ALL MATERIAL RESPECTS TRUE AND CORRECT, (II) ARE
STATED IN REASONABLE DETAIL AND ACCURATELY AND FAIRLY REFLECT THE TRANSACTIONS
AND DISPOSITIONS OF THE ASSETS AND PROPERTIES OF SELLER, AND (III) ACCURATELY
AND FAIRLY REFLECT THE BASIS FOR THE SELLER FINANCIAL STATEMENTS AND 2003
AUDITED FINANCIAL STATEMENTS.

 

4.20                           INSURANCE.  SELLER MAINTAINS THE POLICIES OF
INSURANCE AND BONDS SET FORTH IN SCHEDULE 4.20 OF THE SELLER DISCLOSURE LETTER,
INCLUDING ALL LEGALLY REQUIRED WORKERS’ COMPENSATION INSURANCE AND ERRORS AND
OMISSIONS, CASUALTY, FIRE AND GENERAL LIABILITY INSURANCE.  THERE IS NO MATERIAL
CLAIM PENDING UNDER ANY OF SUCH POLICIES OR BONDS AS TO WHICH COVERAGE HAS BEEN
QUESTIONED, DENIED OR DISPUTED BY THE UNDERWRITERS OF SUCH POLICIES OR BONDS. 
SELLER HAS DELIVERED TO BUYER CORRECT AND COMPLETE COPIES OF ALL SUCH POLICIES
OF INSURANCE AND BONDS ISSUED AT THE REQUEST OR FOR THE BENEFIT OF SELLER OR ITS
SUBSIDIARIES.

 

4.21                           ENVIRONMENTAL MATTERS.

 

(A)                                  (1)  EACH TELOS SELLER, (II) TO THE
KNOWLEDGE OF SELLER, THE REAL PROPERTY LEASED BY SELLER AND ITS SUBSIDIARIES AS
SET FORTH IN SCHEDULE 4.9 OF THE SELLER DISCLOSURE LETTER (THE “LEASED
PROPERTY”), AND (III) ALL OPERATIONS ON THE REAL PROPERTY LEASED BY SELLER AND
ITS SUBSIDIARIES ARE IN COMPLIANCE, IN ALL MATERIAL RESPECTS, WITH ALL
ENVIRONMENTAL LAWS (AS DEFINED BELOW), WHICH COMPLIANCE INCLUDES THE POSSESSION
BY SELLER OF ALL PERMITS AND OTHER GOVERNMENTAL AUTHORIZATIONS REQUIRED UNDER
ENVIRONMENTAL LAWS (THE “ENVIRONMENTAL PERMITS”) AND COMPLIANCE WITH THE TERMS
AND CONDITIONS THEREOF.  EACH ENVIRONMENTAL PERMIT IS VALID, SUBSISTING AND IN
GOOD STANDING AND NO PROCEEDING IS PENDING OR THREATENED AND NO GROUNDS EXIST TO
REVOKE OR LIMIT ANY ENVIRONMENTAL PERMIT.  SELLER HAS NOT RECEIVED ANY WRITTEN
NOTICE, WHETHER FROM A GOVERNMENTAL AUTHORITY, CITIZENS GROUPS, EMPLOYEE OR
OTHERWISE, THAT ALLEGES THAT SELLER OR ANY OF ITS SUBSIDIARIES IS NOT IN
COMPLIANCE WITH ANY ENVIRONMENTAL LAW.  TO THE KNOWLEDGE OF SELLER, NO CURRENT
OR PRIOR OWNER OF ANY PROPERTY LEASED OR POSSESSED BY SELLER OR ANY OF ITS
SUBSIDIARIES HAS RECEIVED ANY NOTICE, WHETHER FROM A GOVERNMENTAL AUTHORITY,
CITIZENS GROUP, EMPLOYEE OR OTHERWISE, THAT ALLEGES THAT SUCH CURRENT OR PRIOR
OWNER OR SELLER IS NOT IN COMPLIANCE WITH ANY ENVIRONMENTAL LAW.  ALL
ENVIRONMENTAL PERMITS HELD BY SELLER ARE IDENTIFIED IN SCHEDULE 4.21 OF THE
SELLER DISCLOSURE LETTER.  TO THE KNOWLEDGE OF SELLER, NO BUILDING, STRUCTURE OR
IMPROVEMENT LOCATED ON THE LEASED PROPERTY IS INSULATED WITH UREA FORMALDEHYDE
INSULATION, AND NONE OF SUCH BUILDINGS OR STRUCTURES CONTAIN ASBESTOS OR
POLYCHLORINATED BIPHENYLS (PBCS).  TO THE KNOWLEDGE OF SELLER, NO UNDERGROUND
STORAGE TANKS ARE OR HAVE BEEN LOCATED ON THE LEASED PROPERTY.  NONE OF THE
TELOS SELLERS HAVE CAUSED ANY SPILL, DISCHARGE, OR RELEASE OF ANY MATERIALS OF
ENVIRONMENTAL CONCERN ON, IN OR IN THE VICINITY OF THE LEASED PROPERTY.  THE
TELOS SELLERS HAVE DELIVERED TO BUYER ALL ENVIRONMENTAL AUDITS, EVALUATIONS,
ASSESSMENTS, STUDIES OR TESTS RELATING TO THE BUSINESS, THE PURCHASED ASSETS OR
THE LEASED PROPERTY WHICH ARE WITHIN THE POSSESSION OR CONTROL OF THE TELOS
SELLERS.

 

(B)                                 FOR PURPOSES OF THIS SECTION 4.21:  (I)
“ENVIRONMENTAL LAW” MEANS ANY FEDERAL, STATE, PROVINCIAL OR LOCAL STATUTE, LAW,
REGULATION OR OTHER LEGAL REQUIREMENT RELATING TO POLLUTION OR PROTECTION OF
HUMAN HEALTH OR THE ENVIRONMENT (INCLUDING AMBIENT AIR, SURFACE WATER, GROUND
WATER, LAND SURFACE OR SUBSURFACE STRATA), INCLUDING ANY LAW OR REGULATION
RELATING TO EMISSIONS, DISCHARGES, RELEASES OR THREATENED RELEASES OF MATERIALS
OF ENVIRONMENTAL CONCERN OR OTHERWISE RELATING TO THE MANUFACTURE, PROCESSING,
DISTRIBUTION, USE, TREATMENT, STORAGE, DISPOSAL,

 

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TRANSPORT OR HANDLING OF MATERIALS OF ENVIRONMENTAL CONCERN OR RELATING TO THE
REGULATION OF CONTAMINATED SITES; AND (II) “MATERIALS OF ENVIRONMENTAL CONCERN”
INCLUDE CHEMICALS, POLLUTANTS, CONTAMINANTS, WASTES, TOXIC SUBSTANCES, PETROLEUM
AND PETROLEUM PRODUCTS AND ANY OTHER SUBSTANCE THAT IS CURRENTLY REGULATED BY AN
ENVIRONMENTAL LAW OR THAT IS OTHERWISE A DANGER TO HEALTH, REPRODUCTION OR THE
ENVIRONMENT.

 

4.22                           BOARD ACTIONS.  SELLER’S BOARD OF DIRECTORS
(A) HAS DETERMINED THAT THE ASSET PURCHASE IS ADVISABLE AND IN THE BEST
INTERESTS OF THE SELLER STOCKHOLDERS AND IS ON TERMS THAT ARE FAIR TO THE SELLER
STOCKHOLDERS, AND HAS DETERMINED TO RECOMMEND THE ASSET PURCHASE TO THE SELLER
STOCKHOLDERS, (B) RESOLVED TO RECOMMEND THIS AGREEMENT AND THE ASSET PURCHASE TO
ITS SHAREHOLDERS AND HOLDERS OF SELLER CONVERTIBLE NOTES FOR APPROVAL AND
ADOPTION AND (C) SHALL SUBMIT THE ASSET PURCHASE, THIS AGREEMENT, EACH OF THE
SELLER ANCILLARY AGREEMENTS AND ALL OTHER AGREEMENTS, TRANSACTIONS AND ACTIONS
CONTEMPLATED HEREBY AND THEREBY, TO THE EXTENT THAT THE APPROVAL OF THE SELLER
STOCKHOLDERS AND HOLDERS OF SELLER CONVERTIBLE NOTES IS REQUIRED THEREOF UNDER
APPLICABLE LAW OR THE SELLER’S CERTIFICATE OF INCORPORATION OR BYLAWS, EACH AS
CURRENTLY IN EFFECT, TO THE VOTE AND APPROVAL OF THE SELLER STOCKHOLDERS AND
HOLDERS OF SELLER CONVERTIBLE NOTES.

 

4.23                           CUSTOMERS AND SUPPLIERS.

 

(A)                                  NEITHER SELLER NOR ANY OF ITS SUBSIDIARIES
HAS ANY OUTSTANDING DISPUTE CONCERNING ITS GOODS AND/OR SERVICES WITH ANY
CUSTOMER WHO, IN THE YEAR ENDED DECEMBER 31, 2003 WAS ONE OF THE 10 LARGEST
SOURCES OF REVENUE FOR SELLER, BASED ON AMOUNTS PAID OR PAYABLE (EACH, A
“SIGNIFICANT CUSTOMER”).  EACH SIGNIFICANT CUSTOMER IS LISTED ON
SCHEDULE 4.23(A) OF THE SELLER DISCLOSURE LETTER.  NEITHER SELLER NOR ANY OF ITS
SUBSIDIARIES HAS RECEIVED ANY NOTICE FROM ANY SIGNIFICANT CUSTOMER THAT ANY
SIGNIFICANT CUSTOMER WILL NOT CONTINUE AS A CUSTOMER OF THE BUSINESS AFTER THE
CLOSING OR THAT ANY SUCH CUSTOMER INTENDS TO TERMINATE OR MATERIALLY MODIFY
EXISTING CONTRACTS WITH SELLER OR SUBSTANTIALLY REDUCE ITS PURCHASE OR USE OF
SELLER PRODUCTS OR SERVICES.  SELLER HAS NOT HAD ANY OF ITS PRODUCTS RETURNED BY
A PURCHASER THEREOF EXCEPT FOR NORMAL WARRANTY RETURNS CONSISTENT WITH PAST
PRACTICE.

 

(B)                                 NEITHER SELLER NOR ANY OF ITS SUBSIDIARIES
HAS ANY OUTSTANDING DISPUTE CONCERNING GOODS AND/OR SERVICES PROVIDED BY ANY
SUPPLIER WHO, IN THE YEAR ENDED DECEMBER 31, 2003 WAS ONE OF THE 10 LARGEST
SUPPLIERS OF GOODS AND/OR SERVICES TO SELLER, BASED ON AMOUNTS PAID OR PAYABLE
(EACH, A “SIGNIFICANT SUPPLIER”).  EACH SIGNIFICANT SUPPLIER IS LISTED ON
SCHEDULE 4.23(B) OF THE SELLER DISCLOSURE LETTER.  NEITHER SELLER NOR ANY OF ITS
SUBSIDIARIES HAS RECEIVED ANY NOTICE OF TERMINATION OR INTERRUPTION OF ANY
EXISTING CONTRACTS WITH ANY SIGNIFICANT SUPPLIER.

 

4.24                           PRODUCT WARRANTY.  EXCEPT AS SET FORTH IN
SCHEDULE 4.24 OF THE SELLER DISCLOSURE LETTER, THE TELOS SELLERS HAVE NO
LIABILITY FOR REPLACEMENT OR MODIFICATION OF THE SELLER PRODUCTS OR SERVICES
LICENSED, SOLD, LEASED, AND DELIVERED IN CONNECTION WITH THE BUSINESS (OTHER
THAN PURSUANT TO CUSTOMER AGREEMENTS ENTERED INTO IN THE ORDINARY COURSE OF
BUSINESS).

 

4.25                           SOLVENCY.  EACH TELOS SELLER WILL BE SOLVENT AS
OF IMMEDIATELY FOLLOWING THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT (ASSUMING RECEIPT BY SUCH TELOS SELLER OF SUCH TELOS SELLER’S
PORTION OF THE PURCHASE PRICE DUE AND PAYABLE TO SUCH TELOS

 

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SELLER UPON THE CLOSING BY BUYER AND THE ASSUMPTION OF THE ASSUMED LIABILITIES
BY BUYER).  “SOLVENT” MEANS (A) THE FAIR VALUE OF THE PROPERTY OF SUCH TELOS
SELLER IS GREATER THAN THE TOTAL AMOUNT OF LIABILITIES, INCLUDING CONTINGENT
LIABILITIES, OF SUCH TELOS SELLER THAT ARE KNOWN TO THE BOARD OF DIRECTORS OF
SELLER AS OF THE DATE HEREOF (SUCH CONTINGENT LIABILITIES BEING COMPUTED AS THE
AMOUNT THAT, IN LIGHT OF ALL THE FACTS AND CIRCUMSTANCES EXISTING AT THE TIME,
REPRESENTS THE AMOUNT THAT CAN BE REASONABLY BE EXPECTED TO BECOME AN ACTUAL OR
MATURED LIABILITY); (B) THE PRESENT FAIR SALEABLE VALUE OF THE ASSETS OF SUCH
TELOS SELLER IS NOT LESS THAN THE AMOUNT THAT WILL BE REQUIRED TO PAY THE
PROBABLE LIABILITY OF SUCH TELOS SELLER ON SUCH TELOS SELLER’S DEBTS THAT ARE
KNOWN TO THE BOARD OF DIRECTORS OF SELLER AS OF THE DATE HEREOF AS THEY BECOME
ABSOLUTE AND MATURED; AND (C) SUCH TELOS SELLER DOES NOT INTEND TO, AND DOES NOT
BELIEVE THAT IT WILL, INCUR DEBTS OR LIABILITIES BEYOND SUCH TELOS SELLER’S
ABILITY TO PAY AS SUCH DEBTS AND LIABILITIES MATURE.

 

4.26                           REPRESENTATIONS COMPLETE.  NONE OF THE
REPRESENTATIONS OR WARRANTIES MADE BY SELLER (AS MODIFIED BY THE SELLER
DISCLOSURE LETTER), NOR ANY STATEMENT MADE IN ANY SCHEDULE OR CERTIFICATE
FURNISHED BY SELLER PURSUANT TO THIS AGREEMENT, TAKEN AS A WHOLE, CONTAINS OR
WILL CONTAIN AT THE CLOSING DATE, ANY UNTRUE STATEMENT OF A MATERIAL FACT, OR
OMITS OR WILL OMIT AT THE CLOSING DATE TO STATE ANY MATERIAL FACT NECESSARY IN
ORDER TO MAKE THE STATEMENTS CONTAINED HEREIN OR THEREIN, IN THE LIGHT OF THE
CIRCUMSTANCES UNDER WHICH MADE, NOT MISLEADING.

 

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER

 

Subject to the exceptions set forth in the disclosure letter of the Buyer
addressed to Seller, dated as of the Agreement Date and delivered to Seller
concurrently with the parties’ execution of this Agreement (the “Buyer
Disclosure Letter” (if any)), Buyer represents and warrants to Seller as
follows:

 

5.1                                 ORGANIZATION AND GOOD STANDING.  BUYER IS A
CORPORATION DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS
OF THE STATE OF DELAWARE AND HAS THE CORPORATE POWER AND AUTHORITY TO OWN,
OPERATE AND LEASE ITS PROPERTIES AND TO CARRY ON ITS BUSINESS AS NOW CONDUCTED
AND AS PRESENTLY PROPOSED TO BE CONDUCTED.  BUYER IS DULY QUALIFIED OR LICENSED
TO DO BUSINESS, AND IS IN GOOD STANDING, IN EACH JURISDICTION WHERE THE
CHARACTER OF THE PROPERTIES OWNED, LEASED OR OPERATED BY IT OR THE NATURE OF ITS
ACTIVITIES MAKES SUCH QUALIFICATION OR LICENSING NECESSARY, EXCEPT WHERE THE
FAILURE TO BE SO QUALIFIED OR LICENSED WOULD NOT INDIVIDUALLY OR IN THE
AGGREGATE HAVE A MATERIAL ADVERSE EFFECT ON THE BUYER.

 

5.2                                 POWER, AUTHORIZATION AND VALIDITY.

 

(A)                                  POWER AND AUTHORITY.  BUYER HAS ALL
REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO, EXECUTE, DELIVER AND
PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT AND EACH OF THE BUYER ANCILLARY
AGREEMENTS AND TO CONSUMMATE THE ASSET PURCHASE.  THE EXECUTION, DELIVERY AND
PERFORMANCE BY BUYER OF THIS AGREEMENT, EACH OF THE BUYER ANCILLARY AGREEMENTS
AND ALL OTHER AGREEMENTS, TRANSACTIONS AND ACTIONS CONTEMPLATED HEREBY OR
THEREBY HAVE BEEN DULY AND VALIDLY APPROVED AND AUTHORIZED BY ALL NECESSARY
CORPORATE ACTION ON THE PART OF BUYER.  THE BOARD OF DIRECTORS OF BUYER HAS
APPROVED THIS AGREEMENT AND THE ASSET PURCHASE AND DETERMINED THAT THIS
AGREEMENT AND THE ASSET PURCHASE ARE FAIR AND IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF BUYER.

 

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(B)                                 NO CONSENTS.  NO CONSENT, APPROVAL, ORDER OR
AUTHORIZATION OF, OR REGISTRATION, DECLARATION OR FILING WITH, ANY GOVERNMENTAL
AUTHORITY, OR ANY OTHER PERSON, GOVERNMENTAL OR OTHERWISE, IS NECESSARY OR
REQUIRED TO BE MADE OR OBTAINED BY BUYER TO ENABLE BUYER TO LAWFULLY EXECUTE AND
DELIVER, ENTER INTO, AND PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT, EACH OF
THE BUYER ANCILLARY AGREEMENTS OR TO CONSUMMATE THE ASSET PURCHASE (AS
APPLICABLE).

 

(C)                                  ENFORCEABILITY.  THIS AGREEMENT HAS BEEN
DULY EXECUTED AND DELIVERED BY BUYER.  THIS AGREEMENT AND EACH OF THE BUYER
ANCILLARY AGREEMENTS ARE, OR WHEN EXECUTED BY BUYER SHALL BE, VALID AND BINDING
OBLIGATIONS OF BUYER, ENFORCEABLE AGAINST BUYER IN ACCORDANCE WITH THEIR
RESPECTIVE TERMS, SUBJECT TO THE EFFECT OF (I) APPLICABLE BANKRUPTCY,
INSOLVENCY, REORGANIZATION, MORATORIUM OR OTHER SIMILAR LAWS NOW OR HEREAFTER IN
EFFECT RELATING TO RIGHTS OF CREDITORS GENERALLY AND (II) RULES OF LAW AND
EQUITY GOVERNING SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND OTHER EQUITABLE
REMEDIES.  NO CONSENT, VOTE OR APPROVAL OF THE STOCKHOLDERS OF BUYER IS
NECESSARY OR REQUIRED TO BE OBTAINED BY BUYER TO ENABLE BUYER TO LAWFULLY
EXECUTE AND DELIVER, ENTER INTO, AND PERFORM ITS OBLIGATIONS UNDER THIS
AGREEMENT AND EACH OF THE BUYER ANCILLARY AGREEMENTS, OR TO CONSUMMATE THE ASSET
PURCHASE.

 

5.3                                 SUFFICIENT FUNDS.  BUYER HAS, AND WILL HAVE
AVAILABLE TO IT UPON THE CONSUMMATION OF THE ASSET PURCHASE, WITHOUT ANY NEED
FOR OUTSIDE FINANCING, SUFFICIENT FUNDS TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED HEREBY, INCLUDING PAYMENT IN FULL OF THE INITIAL PAYMENT AND THE
EARNOUT.

 

5.4                                 NO CONFLICT.  NEITHER THE EXECUTION AND
DELIVERY OF THIS AGREEMENT OR ANY OF THE BUYER ANCILLARY AGREEMENTS NOR THE
CONSUMMATION OF THE ASSET PURCHASE OR ANY OTHER TRANSACTION CONTEMPLATED HEREBY
OR THEREBY, SHALL CONFLICT WITH, OR (WITH OR WITHOUT NOTICE OR LAPSE OF TIME, OR
BOTH) RESULT IN A TERMINATION, BREACH, IMPAIRMENT OR VIOLATION OF, OR CONSTITUTE
A DEFAULT UNDER, OR REQUIRE ANY CONSENT UNDER, OR GIVE TO OTHERS ANY RIGHTS OF
TERMINATION, AMENDMENT OR ACCELERATION UNDER:  (A) ANY PROVISION OF THE
CERTIFICATE OF INCORPORATION OR BYLAWS OF BUYER, EACH AS CURRENTLY IN EFFECT;
(B) IN ANY MATERIAL RESPECT, ANY APPLICABLE LAW APPLICABLE TO BUYER OR ANY OF
ITS MATERIAL ASSETS OR PROPERTIES; OR (C) ANY CONTRACT TO WHICH BUYER IS A PARTY
OR BY WHICH BUYER OR ANY OF ITS MATERIAL ASSETS OR PROPERTIES ARE BOUND, EXCEPT
IN THE CASE OF CLAUSE (C) WHERE SUCH CONFLICT, TERMINATION, BREACH, IMPAIRMENT,
VIOLATION, DEFAULT, FAILURE TO OBTAIN CONSENT, OR RIGHTS OF TERMINATION,
AMENDMENT OR ACCELERATION, WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON BUYER.

 

5.5                                 NO BROKERS.  EXCEPT FOR FEES PAYABLE TO
THOMAS WEISEL PARTNERS SOLELY BY BUYER, NEITHER BUYER NOR ANY AFFILIATE OF BUYER
IS OBLIGATED FOR THE PAYMENT OF ANY FEES OR EXPENSES OF ANY INVESTMENT BANKER,
BROKER, FINDER OR SIMILAR PARTY IN CONNECTION WITH THE ORIGIN, NEGOTIATION OR
EXECUTION OF THIS AGREEMENT OR IN CONNECTION WITH THE ASSET PURCHASE OR ANY
OTHER TRANSACTION CONTEMPLATED BY THIS AGREEMENT.

 

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ARTICLE 6
SELLER COVENANTS

 

During the time period from the Agreement Date until the earlier to occur of
(a) the Closing or (b) the termination of this Agreement in accordance with the
provisions of Article 10, Seller covenants and agrees with Buyer as follows:

 

6.1                                 ADVICE OF CHANGES.  SELLER SHALL PROMPTLY
ADVISE BUYER IN WRITING OF (A) ANY EVENT OCCURRING SUBSEQUENT TO THE AGREEMENT
DATE THAT WOULD RENDER ANY REPRESENTATION OR WARRANTY OF SELLER CONTAINED IN
ARTICLE 4 UNTRUE OR INACCURATE SUCH THAT THE CONDITION SET FORTH IN SECTION 9.1
WOULD NOT BE SATISFIED, (B) ANY BREACH OF ANY COVENANT OR OBLIGATION OF SELLER
PURSUANT TO THIS AGREEMENT OR ANY SELLER ANCILLARY AGREEMENT SUCH THAT THE
CONDITION SET FORTH IN SECTION 9.2 WOULD NOT BE SATISFIED OR (C) ANY MATERIAL
ADVERSE CHANGE IN SELLER.

 

6.2                                 MAINTENANCE OF BUSINESS.  SELLER SHALL USE
COMMERCIALLY REASONABLE EFFORTS TO CARRY ON AND PRESERVE THE BUSINESS AND ITS
RELATIONSHIPS WITH CUSTOMERS, ADVERTISERS, SUPPLIERS, EMPLOYEES AND OTHERS WITH
WHOM SELLER HAS CONTRACTUAL OR BUSINESS RELATIONS IN SUBSTANTIALLY THE SAME
MANNER AS IT HAS PRIOR TO THE AGREEMENT DATE CONSISTENT WITH ITS PAST
PRACTICES.  IF SELLER BECOMES AWARE OF A MATERIAL DETERIORATION IN THE
RELATIONSHIP WITH ANY KEY CUSTOMER, KEY ADVERTISER, KEY SUPPLIER OR KEY
EMPLOYEE, IT SHALL PROMPTLY BRING SUCH INFORMATION TO BUYER’S ATTENTION IN
WRITING AND, IF REQUESTED BY BUYER, SHALL EXERT REASONABLE COMMERCIAL EFFORTS TO
PROMPTLY RESTORE THE RELATIONSHIP.  AT BUYER’S REQUEST SUCH COOPERATION MAY
INCLUDE JOINT CUSTOMER CALLS AND COOPERATION IN SETTING SALES, MARKETING AND
MANUFACTURING STRATEGIES.

 

6.3                                 CONDUCT OF BUSINESS.  SELLER SHALL CONTINUE
TO CONDUCT BUSINESS AND MAINTAIN ITS BUSINESS RELATIONSHIPS IN THE ORDINARY AND
USUAL COURSE CONSISTENT WITH ITS PAST PRACTICES AND, EXCEPT AS SET FORTH IN
SCHEDULE 6.3 OF THE SELLER DISCLOSURE LETTER, SELLER SHALL NOT, WITHOUT BUYER’S
PRIOR WRITTEN CONSENT, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD OR
DELAYED:

 

(A)                                  EXCEPT FOR ANY ADDITIONAL INDEBTEDNESS,
INCUR ANY INDEBTEDNESS FOR BORROWED MONEY OR GUARANTEE ANY SUCH INDEBTEDNESS OF
ANOTHER PERSON OR ISSUE OR SELL ANY DEBT SECURITIES OR GUARANTEE ANY DEBT
SECURITIES OF ANOTHER PERSON;

 

(B)                                 (I) LEND ANY MONEY, OTHER THAN REASONABLE
AND NORMAL ADVANCES TO EMPLOYEES FOR BONA FIDE EXPENSES THAT ARE INCURRED IN THE
ORDINARY COURSE OF BUSINESS CONSISTENT WITH ITS PAST PRACTICES, (II) MAKE ANY
INVESTMENTS IN OR CAPITAL CONTRIBUTIONS TO, ANY PERSON, (III) FORGIVE OR
DISCHARGE IN WHOLE OR IN PART ANY OUTSTANDING LOANS OR ADVANCES, OR (IV) PREPAY
ANY INDEBTEDNESS;

 

(C)                                  ENTER INTO ANY SELLER MATERIAL CONTRACT (OR
ANY AGREEMENT WHICH WOULD BE A SELLER MATERIAL CONTRACT IF IN EFFECT ON THE DATE
HEREOF), VIOLATE, TERMINATE, AMEND OR OTHERWISE MODIFY OR WAIVE ANY OF THE
MATERIAL TERMS OF ANY SELLER MATERIAL CONTRACT, OR ENTER INTO ANY MATERIAL
TRANSACTION OR TAKE ANY OTHER ACTION NOT IN THE ORDINARY COURSE OF BUSINESS
CONSISTENT WITH ITS PAST PRACTICES;

 

(D)                                 PLACE OR ALLOW THE CREATION OF ANY
ENCUMBRANCE (OTHER THAN A PERMITTED ENCUMBRANCE) ON ANY OF THE PURCHASED ASSETS;

 

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(E)                                  ENTER INTO ANY CONTRACT INVOLVING IN EXCESS
OF $50,000 FOR THE PURCHASE, SALE OR LEASE OF ANY ASSETS OR PROPERTY (WHETHER
REAL OR PERSONAL, TANGIBLE OR INTANGIBLE), EXCEPT IN THE ORDINARY COURSE OF
BUSINESS;

 

(F)                                    EXCEPT AS REQUIRED HEREIN, (I) PAY OR
GRANT ANY BONUS, INCREASED SALARY, SEVERANCE, TERMINATION OR SPECIAL
REMUNERATION TO ANY OFFICER, DIRECTOR, EMPLOYEE OR CONSULTANT (EXCEPT PURSUANT
TO THE MANAGEMENT INCENTIVE PLAN—M&A OR ANY CONTRACTS DISCLOSED IN WRITING TO
BUYER PRIOR TO THE AGREEMENT DATE AND LISTED ON SCHEDULE 6.3 OF THE SELLER
DISCLOSURE LETTER), (II) AMEND OR ENTER INTO ANY EMPLOYMENT OR CONSULTING
CONTRACT WITH ANY SUCH PERSON, OR (III) ADOPT, AMEND, ESTABLISH OR ENTER INTO
ANY EMPLOYEE OR COMPENSATION BENEFIT PLAN, TRUST, FUND, POLICY OR ARRANGEMENT,
INCLUDING ANY STOCK PURCHASE, STOCK ISSUANCE OR STOCK OPTION PLAN, COLLECTIVE
BARGAINING, BONUS, PROFIT SHARING, THRIFT, PENSION, RETIREMENT, DEFERRED
COMPENSATION, TERMINATION OR SEVERANCE PLAN OR AMEND ANY COMPENSATION, BENEFIT,
ENTITLEMENT, GRANT OR AWARD PROVIDED OR MADE UNDER ANY SUCH PLAN (EXCEPT IN EACH
CASE AS REQUIRED UNDER ERISA OR SIMILAR FOREIGN LAWS, OR AS NECESSARY TO
MAINTAIN THE QUALIFIED STATUS OF SUCH PLAN UNDER THE CODE);

 

(G)                                 CHANGE ANY OF ITS ACCOUNTING METHODS EXCEPT
AS REQUIRED BY APPLICABLE LAW;

 

(H)                                 DECLARE, SET ASIDE OR PAY ANY CASH OR STOCK
DIVIDEND OR OTHER DISTRIBUTION (WHETHER IN CASH, STOCK OR PROPERTY) IN RESPECT
OF ITS CAPITAL STOCK, OR REDEEM, REPURCHASE OR OTHERWISE ACQUIRE ANY OF ITS
CAPITAL STOCK OR OTHER SECURITIES (EXCEPT FOR THE REPURCHASE OF STOCK FROM ITS
EMPLOYEES, DIRECTORS, CONSULTANTS OR CONTRACTORS IN CONNECTION WITH THE
TERMINATION OF THEIR SERVICES AT THE ORIGINAL PURCHASE PRICE OF SUCH STOCK), OR
PAY OR DISTRIBUTE ANY CASH OR PROPERTY TO ANY OF ITS STOCKHOLDERS OR
SECURITYHOLDERS OR MAKE ANY OTHER CASH PAYMENT TO ANY OF ITS STOCKHOLDERS OR
SECURITYHOLDERS;

 

(I)                                     EXCEPT FOR ANY ADDITIONAL INDEBTEDNESS,
ISSUE, SELL, CREATE OR AUTHORIZE ANY SHARES OF ITS CAPITAL STOCK OF ANY CLASS OR
SERIES OR ANY OTHER OF ITS SECURITIES, OR ISSUE, GRANT OR CREATE ANY WARRANTS,
OBLIGATIONS, SUBSCRIPTIONS, OPTIONS, CONVERTIBLE SECURITIES, OR OTHER
COMMITMENTS TO ISSUE SHARES OF ITS CAPITAL STOCK OR ANY SECURITIES THAT ARE
POTENTIALLY EXCHANGEABLE FOR, OR CONVERTIBLE INTO, SHARES OF ITS CAPITAL STOCK,
OTHER THAN THE ISSUANCE OF SHARES OF SELLER COMMON STOCK PURSUANT TO THE
EXERCISE OF SELLER OPTIONS OUTSTANDING ON THE AGREEMENT DATE AND THE ISSUANCE OF
SHARES OF SELLER PREFERRED STOCK PURSUANT TO THE EXERCISE OF SELLER WARRANTS
OUTSTANDING ON THE AGREEMENT DATE, THE CONVERSION OF SELLER SENIOR CONVERTIBLE
NOTES OR UPON CONVERSION OF THE SELLER PREFERRED STOCK;

 

(J)                                     AMEND SELLER’S CERTIFICATE OF
INCORPORATION OR BYLAWS OR THE EQUIVALENT CHARTER DOCUMENTS OF THE OTHER TELOS
SELLERS;

 

(K)                                  SELL OR LICENSE ANY OF ITS TECHNOLOGY,
SOFTWARE OR INTELLECTUAL PROPERTY (INCLUDING WITHOUT LIMITATION TO CUSTOMERS OR
POTENTIAL CUSTOMERS) OTHER THAN LICENSES IN THE ORDINARY COURSE OF BUSINESS, OR
ACQUIRE ANY TECHNOLOGY, SOFTWARE OR INTELLECTUAL PROPERTY (OR ANY LICENSE
THERETO) FROM ANY THIRD PARTY (OTHER THAN LICENSES OF SOFTWARE GENERALLY
AVAILABLE TO THE PUBLIC) OTHER THAN IN THE ORDINARY COURSE OF BUSINESS OR ENTER
INTO ANY AGREEMENTS RELATING TO THE DEVELOPMENT OF TECHNOLOGY, SOFTWARE OR
INTELLECTUAL PROPERTY;

 

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(L)                                     (I) INITIATE ANY LITIGATION, ACTION,
SUIT, PROCEEDING, CLAIM OR ARBITRATION (OTHER THAN FOR THE ROUTINE COLLECTION OF
BILLS) OR (II) EXCEPT FOR THOSE MATTERS SET FORTH ON SCHEDULE 6.3, SETTLE OR
AGREE TO SETTLE ANY LITIGATION, ACTION, SUIT, PROCEEDING, CLAIM OR ARBITRATION
(EXCEPT WHERE THE AMOUNT IN CONTROVERSY DOES NOT EXCEED $50,000 AND DOES NOT
INVOLVE INJUNCTIVE OR OTHER EQUITABLE RELIEF);

 

(M)                               (I) EXCEPT FOR THOSE MATTERS SET FORTH ON
SCHEDULE 6.3 OF THE SELLER DISCLOSURE LETTER, PAY, DISCHARGE OR SATISFY, IN AN
AMOUNT IN EXCESS OF $50,000 IN ANY ONE CASE OR $250,000 IN THE AGGREGATE, ANY
LIABILITY ARISING OTHERWISE THAN IN THE ORDINARY COURSE OF BUSINESS, OTHER THAN
THE PAYMENT, DISCHARGE OR SATISFACTION OF LIABILITIES REFLECTED OR RESERVED
AGAINST IN THE SELLER BALANCE SHEET, OR (II) MAKE ANY CAPITAL EXPENDITURES,
CAPITAL ADDITIONS OR CAPITAL IMPROVEMENTS EXCEPT IN THE ORDINARY COURSE OF
BUSINESS CONSISTENT WITH ITS PAST PRACTICES;

 

(N)                                 AMEND OR MODIFY ANY PRODUCT OR SERVICE
WARRANTIES IN EFFECT AS OF THE DATE HEREOF IN ANY MATERIAL MANNER THAT IS
ADVERSE TO THE TELOS SELLERS.

 

(O)                                 ENTER INTO ANY EXCLUSIVE LICENSE,
DISTRIBUTION, MARKETING OR SALES AGREEMENT;

 

(P)                                 ENTER INTO ANY COMMITMENT TO ANY PERSON TO
(I) DEVELOP SOFTWARE WITHOUT CHARGE OR (II) INCORPORATE ANY MATERIAL SOFTWARE OF
SUCH PERSON INTO ANY OF THE PRODUCTS OF THE TELOS SELLERS;

 

(Q)                                 PERMIT ANY SELLER-OWNED IP RIGHTS TO LAPSE
OR TO BE ABANDONED, DEDICATED, OR DISCLAIMED, FAIL TO PERFORM OR MAKE ANY
APPLICABLE FILINGS, RECORDINGS OR OTHER SIMILAR ACTIONS OR FILINGS, OR FAIL TO
PAY ALL REQUIRED FEES AND TAXES REQUIRED OR ADVISABLE TO MAINTAIN AND PROTECT
ITS INTEREST IN ALL SELLER-OWNED IP RIGHTS;

 

(R)                                    (I) AGREE TO DO ANY OF THE THINGS
DESCRIBED IN THE PRECEDING CLAUSES (A)-(Q), (II) TAKE OR AGREE TO TAKE ANY
ACTION WHICH WOULD MAKE ANY OF SELLER’S REPRESENTATIONS OR WARRANTIES CONTAINED
IN THIS AGREEMENT MATERIALLY UNTRUE OR INCORRECT, OR (III) TAKE OR AGREE TO TAKE
ANY ACTION WHICH WOULD PREVENT SELLER FROM PERFORMING OR CAUSE SELLER NOT TO
PERFORM ONE OR MORE COVENANTS REQUIRED HEREUNDER TO BE PERFORMED BY SELLER.

 

6.4                                 REGULATORY APPROVALS.  SELLER SHALL PROMPTLY
EXECUTE AND FILE, OR JOIN IN THE EXECUTION AND FILING OF, ANY APPLICATION,
NOTIFICATION OR OTHER DOCUMENT THAT MAY BE NECESSARY IN ORDER TO OBTAIN THE
AUTHORIZATION, APPROVAL OR CONSENT OF ANY GOVERNMENTAL AUTHORITY, WHETHER
FEDERAL, STATE, LOCAL OR FOREIGN, WHICH MAY BE REASONABLY REQUIRED, OR WHICH
BUYER MAY REASONABLY REQUEST, IN CONNECTION WITH THE CONSUMMATION OF THE ASSET
PURCHASE AND THE OTHER TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY SELLER
ANCILLARY AGREEMENT.  SELLER SHALL USE DILIGENT EFFORTS TO OBTAIN, AND TO
COOPERATE WITH BUYER TO PROMPTLY OBTAIN, ALL SUCH AUTHORIZATIONS, APPROVALS AND
CONSENTS AND SHALL PAY ANY ASSOCIATED FILING FEES PAYABLE BY SELLER WITH RESPECT
TO SUCH AUTHORIZATIONS, APPROVALS AND CONSENTS.  SELLER SHALL PROMPTLY INFORM
BUYER OF ANY MATERIAL COMMUNICATION BETWEEN SELLER AND ANY GOVERNMENTAL
AUTHORITY REGARDING ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.  IF SELLER OR
ANY AFFILIATE OF SELLER RECEIVES ANY FORMAL OR INFORMAL REQUEST FOR SUPPLEMENTAL
INFORMATION OR DOCUMENTARY MATERIAL FROM ANY GOVERNMENTAL AUTHORITY WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED HEREBY, THEN SELLER SHALL MAKE, OR CAUSE

 

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TO BE MADE, AS SOON AS REASONABLY PRACTICABLE, A RESPONSE IN COMPLIANCE WITH
SUCH REQUEST.  THE PARTIES WAIVE COMPLIANCE BY THE OTHER PARTIES HERETO WITH ANY
APPLICABLE CALIFORNIA BULK SALES LAW.

 

6.5                                 NECESSARY CONSENTS.  SELLER SHALL USE
COMMERCIALLY REASONABLE EFFORTS TO PROMPTLY OBTAIN SUCH MATERIAL WRITTEN
CONSENTS AND AUTHORIZATIONS OF THIRD PARTIES, GIVE NOTICES TO THIRD PARTIES AND
TAKE SUCH OTHER ACTIONS AS MAY BE NECESSARY OR APPROPRIATE IN ORDER TO EFFECT
THE CONSUMMATION OF THE ASSET PURCHASE AND THE OTHER TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT, TO ENABLE BUYER TO CARRY ON THE BUSINESS IMMEDIATELY AFTER
THE CLOSING IN ALL MATERIAL RESPECTS AND TO KEEP IN EFFECT AND AVOID THE BREACH,
VIOLATION OF, TERMINATION OF, OR ADVERSE CHANGE TO ANY SELLER MATERIAL CONTRACT
TO WHICH SELLER IS A PARTY OR IS BOUND OR BY WHICH ANY OF ITS ASSETS OR
PROPERTIES IS BOUND, ALL AS IDENTIFIED ON SCHEDULE 6.5 OF THE SELLER DISCLOSURE
LETTER HERETO.

 

6.6                                 LITIGATION.  SELLER SHALL NOTIFY BUYER IN
WRITING PROMPTLY AFTER LEARNING OF ANY CLAIM, ACTION, SUIT, ARBITRATION,
MEDIATION, PROCEEDING OR INVESTIGATION BY OR BEFORE ANY COURT, ARBITRATOR OR
ARBITRATION PANEL, BOARD OR GOVERNMENTAL AGENCY, INITIATED BY OR AGAINST IT, OR
KNOWN BY SELLER TO BE THREATENED AGAINST SELLER OR ANY OF ITS SUBSIDIARIES,
OFFICERS, DIRECTORS, EMPLOYEES OR STOCKHOLDERS IN THEIR CAPACITY AS SUCH.

 

6.7                                 NO SOLICITATION; ACQUISITION PROPOSALS.

 

(A)                                  NO SOLICITATION GENERALLY.  FROM AND AFTER
THE DATE OF THIS AGREEMENT UNTIL THE CLOSING OR TERMINATION OF THIS AGREEMENT
PURSUANT TO ARTICLE 10, TELOS SELLERS WILL NOT, NOR WILL THEY AUTHORIZE OR
PERMIT ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AFFILIATES OR EMPLOYEES OR
ANY INVESTMENT BANKER, ATTORNEY OR OTHER ADVISOR OR REPRESENTATIVE RETAINED BY
ANY OF THEM (ALL OF THE FOREGOING COLLECTIVELY BEING THE “SELLER
REPRESENTATIVES”) TO, DIRECTLY OR INDIRECTLY, (I) SOLICIT, INITIATE, SEEK,
ENTERTAIN, ENCOURAGE, FACILITATE, SUPPORT OR INDUCE THE MAKING, SUBMISSION OR
ANNOUNCEMENT OF ANY INQUIRY, EXPRESSION OF INTEREST, PROPOSAL OR OFFER THAT
CONSTITUTES, OR COULD REASONABLY BE EXPECTED TO LEAD TO, AN ACQUISITION PROPOSAL
(AS HEREINAFTER DEFINED), (II) ENTER INTO, PARTICIPATE IN, MAINTAIN OR CONTINUE
ANY COMMUNICATIONS (EXCEPT SOLELY TO PROVIDE WRITTEN NOTICE AS TO THE EXISTENCE
OF THESE PROVISIONS) OR NEGOTIATIONS REGARDING, OR DELIVER OR MAKE AVAILABLE TO
ANY PERSON ANY NON-PUBLIC INFORMATION WITH RESPECT TO, OR TAKE ANY OTHER ACTION
REGARDING, ANY INQUIRY, EXPRESSION OF INTEREST, PROPOSAL OR OFFER THAT
CONSTITUTES, OR COULD REASONABLY BE EXPECTED TO LEAD TO, AN ACQUISITION
PROPOSAL, (III) AGREE TO, ACCEPT, APPROVE, ENDORSE OR RECOMMEND ANY ACQUISITION
PROPOSAL, (IV) ENTER INTO ANY LETTER OF INTENT OR ANY OTHER CONTRACT
CONTEMPLATING OR OTHERWISE RELATING TO ANY ACQUISITION PROPOSAL, (V) SUBMIT ANY
ACQUISITION PROPOSAL TO THE VOTE OF ANY SECURITY HOLDERS OF SELLER OR ANY
SUBSIDIARY, (VI) WITHHOLD, WITHDRAW OR MODIFY, IN A MANNER ADVERSE TO BUYER, THE
APPROVAL OF SELLER BOARD OF THIS AGREEMENT AND/OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY, OR (VII) TAKE ANY ACTION OR POSITION THAT IS INCONSISTENT
WITH, OR WITHDRAW OR MODIFY, IN A MANNER ADVERSE TO BUYER, ANY DETERMINATION OR
RECOMMENDATION REFERRED TO IN SECTION 6.11(B).  IF ANY SELLER REPRESENTATIVE,
WHETHER IN HIS OR HER CAPACITY AS SUCH OR IN ANY OTHER CAPACITY, TAKES ANY
ACTION THAT SELLER IS OBLIGATED PURSUANT TO THIS SECTION 6.7 TO CAUSE SUCH
SELLER REPRESENTATIVE NOT TO TAKE, THEN SELLER SHALL BE DEEMED FOR ALL PURPOSES
OF THIS AGREEMENT TO HAVE BREACHED THIS SECTION 6.7.

 

“Acquisition Proposal” shall mean, with respect to Seller, any agreement, offer,
proposal or indication of interest (other than this Agreement, the Asset
Purchase or any other

 

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offer, proposal or indication of interest by Buyer), or any public announcement
of intention to enter into any such agreement or of any offer, proposal or
indication of interest, relating to, or involving: (A) any sale, exchange,
transfer, purchase or other acquisition or disposition of more than a 20%
interest in the total outstanding voting securities of Seller or any Telos
Seller or any tender offer or exchange offer that if consummated would result in
any Person or group beneficially owning 20% or more of the total outstanding
voting securities of Seller or any Telos Seller or any merger, consolidation,
business combination or similar transaction involving Seller or any of its
Subsidiaries; (B) any sale, lease (other than in the ordinary course of
business), mortgage, pledge, exchange, transfer, license (other than in the
ordinary course of business), acquisition, or disposition of substantially all
of the assets of Telos Sellers in any single transaction or series of related
transactions; (C) any liquidation or dissolution of Seller or any of its
Subsidiaries; or (D) any other transaction the consummation of which would
reasonably be expected to materially impede, interfere with, prevent or
materially delay the Asset Purchase.

 

(B)                                 NOTICE.  SELLER SHALL PROMPTLY (AND IN ANY
EVENT WITHIN TWO (2) CALENDAR DAYS) ADVISE, ORALLY AND IN WRITING, BUYER OF
(I) AN ACQUISITION PROPOSAL, (II) ANY INQUIRY, EXPRESSION OF INTEREST, PROPOSAL,
OR OFFER THAT CONSTITUTES, OR COULD REASONABLY BE EXPECTED TO LEAD TO, AN
ACQUISITION PROPOSAL, OR (III) ANY REQUEST FOR NON-PUBLIC INFORMATION WHICH
COULD REASONABLY BE EXPECTED TO LEAD TO AN ACQUISITION PROPOSAL AS WELL AS, IN
THE EVENT OF ANY OF (I)-(III) ABOVE, (1) THE MATERIAL TERMS AND CONDITIONS OF
SUCH ACQUISITION PROPOSAL, INQUIRY, EXPRESSION OF INTEREST, PROPOSAL, OFFER,
NOTICE OR REQUEST, AND (2) THE IDENTITY OF THE PERSON OR GROUP MAKING ANY SUCH
ACQUISITION PROPOSAL, INQUIRY, EXPRESSION OF INTEREST, PROPOSAL, OFFER, NOTICE
OR REQUEST.  SELLER WILL (X) KEEP BUYER INFORMED AS PROMPTLY AS PRACTICABLE OF
THE STATUS AND DETAILS (INCLUDING ANY AMENDMENTS, MODIFICATIONS OR PROPOSED
AMENDMENTS OR MODIFICATIONS) OF ANY SUCH ACQUISITION PROPOSAL, INQUIRY,
EXPRESSION OF INTEREST, PROPOSAL, OFFER, NOTICE OR REQUEST AND (Y) PROVIDE TO
BUYER AS PROMPTLY AS PRACTICABLE A COPY OF ALL WRITTEN AND OTHER MATERIALS AND
INFORMATION PROVIDED TO SELLER IN CONNECTION WITH ANY SUCH ACQUISITION PROPOSAL,
INQUIRY, EXPRESSION OF INTEREST, PROPOSAL, OFFER, NOTICE OR REQUEST.  SELLER
SHALL PROVIDE BUYER WITH AT LEAST TWENTY-FOUR HOURS’ PRIOR NOTICE OF ANY MEETING
OF THE SELLER BOARD AT WHICH THE SELLER BOARD IS REASONABLY EXPECTED TO CONSIDER
ANY ACQUISITION PROPOSAL TO DETERMINE WHETHER SUCH ACQUISITION PROPOSAL IS A
SUPERIOR OFFER.

 

6.8                                 ACCESS TO INFORMATION.  SELLER, UPON
REASONABLE NOTICE, SHALL ALLOW BUYER AND ITS AGENTS AND ADVISORS ACCESS DURING
SELLER’S BUSINESS HOURS TO THE FILES, BOOKS, RECORDS, TECHNOLOGY, CONTRACTS,
PERSONNEL AND OFFICES OF TELOS SELLERS, INCLUDING ANY AND ALL INFORMATION
RELATING TO SELLER’S TAXES, CONTRACTS, LIABILITIES, FINANCIAL CONDITION AND
REAL, PERSONAL AND INTANGIBLE PROPERTY, SUBJECT TO THE TERMS OF THE
NONDISCLOSURE LETTER AGREEMENT BETWEEN SELLER AND BUYER DATED FEBRUARY 6, 2004
(THE “MUTUAL NDA”) AND PROVIDED THAT SUCH ACCESS SHALL NOT UNDULY DISRUPT
SELLER’S NORMAL BUSINESS ACTIVITIES.  SELLER SHALL USE ITS COMMERCIALLY
REASONABLE EFFORTS TO CAUSE ITS ACCOUNTANTS TO COOPERATE WITH BUYER AND BUYER’S
AGENTS AND ADVISORS (PROVIDED THAT, PRIOR TO ANY DISCLOSURE TO SUCH AGENTS OR
ADVISORS, SUCH AGENTS OR ADVISORS ARE BOUND BY THE TERMS OF A CONFIDENTIALITY
AGREEMENT WITH SUBSTANTIALLY SIMILAR RESTRICTIONS AS INCLUDED IN THE MUTUAL NDA
TO RESTRICT THE USE AND DISCLOSURE OF SELLER’S CONFIDENTIAL INFORMATION) IN
MAKING AVAILABLE ALL FINANCIAL INFORMATION REASONABLY REQUESTED BY BUYER AND ITS
AGENTS AND ADVISORS, INCLUDING THE RIGHT TO EXAMINE ALL WORKING PAPERS
PERTAINING TO ALL FINANCIAL STATEMENTS PREPARED OR AUDITED BY SUCH ACCOUNTANTS.

 

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6.9                                 SATISFACTION OF CONDITIONS PRECEDENT. 
SELLER SHALL USE ITS REASONABLE BEST EFFORTS TO SATISFY OR CAUSE TO BE SATISFIED
ALL THE CONDITIONS PRECEDENT SET FORTH IN ARTICLE 9, AND SELLER SHALL USE ITS
REASONABLE BEST EFFORTS TO CAUSE THE ASSET PURCHASE AND THE OTHER TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT TO BE CONSUMMATED IN ACCORDANCE WITH THE TERMS OF
THIS AGREEMENT.

 

6.10                           SELLER EMPLOYEES.  WITHIN SEVEN DAYS OF THE DATE
HEREOF, BUYER SHALL DELIVER TO SELLER A LIST OF THE EMPLOYEES OF THE BUSINESS TO
WHICH BUYER WISHES TO OFFER EMPLOYMENT (WHICH LIST SHALL INCLUDE AT LEAST 70% OF
THE AGGREGATE NUMBER OF EMPLOYEES AND CONSULTANTS OF THE TELOS SELLERS AS OF THE
DATE HEREOF, AND BUYER (OR A SUBSIDIARY THEREOF) SHALL OFFER EMPLOYMENT, SUBJECT
TO COMPLETION OF THE CLOSING AND EFFECTIVE ON THE CLOSING DATE, ON TERMS
SUBSTANTIALLY EQUIVALENT TO (OR BETTER THAN) THOSE IN EFFECT PRIOR TO CLOSING
(OTHER THAN WITH RESPECT TO LOCATION OF EMPLOYMENT FOR EMPLOYEES EMPLOYED
OUTSIDE OF CANADA), TO EACH SUCH EMPLOYEE (EACH, AN “EMPLOYEE OFFEREE”).  IN
ADDITION TO ANY ASSUMED LIABILITIES ASSUMED BY BUYER WITH RESPECT TO TRANSFERRED
EMPLOYEES, BUYER SHALL ALSO ASSUME AND PAY AS AN ASSUMED LIABILITY ALL COSTS
ASSOCIATED WITH THE TERMINATION BY SELLER OF THE EMPLOYMENT OF THAT NUMBER OF
TELOS SELLER EMPLOYEES THAT IS EQUAL TO THE NUMBER BY WHICH THE NUMBER OF
EMPLOYEE OFFEREES IS LESS THAN 70% OF THE AGGREGATE NUMBER OF EMPLOYEES AND
CONSULTANTS OF THE TELOS SELLERS AS OF THE DATE HEREOF, IN WHICH EVENT THE
OBLIGATIONS OF BUYER TO COVER SUCH TERMINATION COSTS UNDER THIS SECTION 6.10 ON
THE ONE HAND AND THE OBLIGATIONS OF THE TELOS SELLERS TO PAY TERMINATION COSTS
WITH RESPECT TO EMPLOYEES UNDER SECTION 2.1(D) ON THE OTHER HAND SHALL BE
ALLOCATED, AS TO WHICH PARTY HAS RESPONSIBILITY FOR THE TERMINATION COSTS
PAYABLE WITH RESPECT TO EACH SUCH INDIVIDUAL TERMINATED EMPLOYEE, ON AN
EQUITABLE BASIS TO BE AGREED IN GOOD FAITH BY THE PARTIES.  THE TELOS SELLERS
SHALL TERMINATE, SUBJECT TO COMPLETION OF THE CLOSING AND EFFECTIVE ON THE
CLOSING DATE, THE EMPLOYMENT OF ANY EMPLOYEE OFFEREE WHO DOES NOT ACCEPT SUCH
OFFER PRIOR TO THE CLOSING DATE.  BUYER (OR A SUBSIDIARY THEREOF) SHALL ON OR
PRIOR TO THE CLOSING AGAIN OFFER EMPLOYMENT TO EACH SUCH EMPLOYEE OFFEREE WHO
DID NOT ACCEPT SUCH OFFER, PROVIDED THAT SUCH EMPLOYEE OFFEREE IS LISTED ON A
CERTIFICATE OF SELLER DELIVERED TO BUYER NO MORE THAN 3 DAYS PRIOR TO THE
CLOSING, EFFECTIVE IMMEDIATELY, ON TERMS SUBSTANTIALLY EQUIVALENT TO (OR BETTER
THAN) THOSE IN EFFECT PRIOR TO THE CLOSING.  PRIOR TO OR PROMPTLY AFTER
TERMINATION OR RESIGNATION OF EACH EMPLOYEE OFFEREE WHO ACCEPTS ANY SUCH OFFER
OF EMPLOYMENT (EACH, A “TRANSFERRING EMPLOYEE”), THE TELOS SELLER THAT EMPLOYED
SUCH TRANSFERRING EMPLOYEE SHALL PAY TO SUCH TRANSFERRING EMPLOYEE ALL ACCRUED
AND UNPAID SALARY AND OTHER COMPENSATION (INCLUDING ACCRUED AND UNPAID VACATION
PAY BUT EXCLUDING ANY SEVERANCE OR TERMINATION PAYMENTS) TO WHICH SUCH
TRANSFERRING EMPLOYEE MAY BE ENTITLED UNDER APPLICABLE LAW OR CONTRACT (OTHER
THAN ACCRUED AND UNPAID SALARY PAYABLE TO JACK MAR AND RON MCLEOD WHICH SHALL BE
AN ASSUMED LIABILITY TO BE DISCHARGED BY BUYER UPON THE CLOSING). THE TELOS
SELLERS SHALL USE THEIR BEST EFFORTS TO ASSIST, AND SHALL COOPERATE WITH AND NOT
INTERFERE WITH, BUYER (AND THE APPLICABLE SUBSIDIARIES THEREOF) IN CONNECTION
WITH THE RECRUITMENT AND HIRING OF EMPLOYEES OF THE BUSINESS, PURSUANT TO THIS
SECTION 6.10 OR OTHERWISE.

 

6.11                           APPROVAL OF THE SELLER STOCKHOLDERS.  EACH TELOS
SELLER HAS TAKEN ALL ACTION NECESSARY IN ACCORDANCE WITH, AS APPLICABLE, THIS
AGREEMENT, THE SELLER CONVERTIBLE NOTES, APPLICABLE LAW, AND THE ORGANIZATIONAL
DOCUMENTS OF SUCH TELOS SELLER TO OBTAIN THE WRITTEN CONSENT OF THE SELLER,
TELOS HONG KONG AND THE SELLER STOCKHOLDERS AND HOLDERS OF THE SELLER
CONVERTIBLE NOTES APPROVING THE ASSET PURCHASE AND ADOPTING THIS AGREEMENT (THE
WRITTEN CONSENT OF THE SELLER STOCKHOLDERS AND THE HOLDERS OF THE SELLER
CONVERTIBLE NOTES BEING,

 

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THE “SELLER STOCKHOLDERS CONSENT”) AS OF THE DATE HEREOF.  WITHIN TEN BUSINESS
DAYS AFTER THE DATE OF THIS AGREEMENT, THE SELLER SHALL DISTRIBUTE TO ITS
STOCKHOLDERS, AFTER PRIOR APPROVAL BY BUYER, WHICH APPROVAL SHALL NOT BE
UNREASONABLY WITHHELD OR DELAYED, AN INFORMATION STATEMENT (TOGETHER WITH ANY
AMENDMENTS THEREOF OR SUPPLEMENTS THERETO, THE “INFORMATION STATEMENT”) TO
PROVIDE NOTICE TO SUCH STOCKHOLDERS OF THE ACTION TAKEN BY WRITTEN CONSENT IN
LIEU OF A MEETING TO APPROVE THIS AGREEMENT AND THE TRANSACTION CONTEMPLATED
HEREBY, AS REQUIRED BY SECTION 228(E) OF THE DELAWARE GENERAL CORPORATION LAW. 
THE SELLER REPRESENTS AND WARRANTS TO BUYER THAT THE INFORMATION STATEMENT WILL
NOT, AT THE TIME IT IS FIRST MAILED TO THE SELLER’S STOCKHOLDERS, CONTAIN ANY
UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT REQUIRED
TO BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING; PROVIDED,
HOWEVER, THAT THE SELLER MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO ANY
INFORMATION CONTAINED IN THE INFORMATION STATEMENT FURNISHED TO THE SELLER BY
BUYER OR ANY OF ITS AFFILIATES.  NO AMENDMENT OR SUPPLEMENT TO THE INFORMATION
STATEMENT WILL BE MADE BY THE SELLER WITHOUT THE APPROVAL OF BUYER, WHICH SHALL
NOT BE UNREASONABLY WITHHELD OR DELAYED.

 

6.12                           NOTICES TO SELLER SECURITYHOLDERS AND EMPLOYEES.

 

(A)                                  SELLER SHALL TIMELY PROVIDE TO HOLDERS OF
SELLER CAPITAL STOCK AND SELLER OPTIONS ALL ADVANCE NOTICES REQUIRED TO BE GIVEN
TO SUCH HOLDERS IN CONNECTION WITH THIS AGREEMENT, THE ASSET PURCHASE AND THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT UNDER THE SELLER OPTION PLAN OR
OTHER APPLICABLE CONTRACTS.

 

(B)                                 SELLER SHALL GIVE ALL NOTICES AND OTHER
INFORMATION REQUIRED TO BE GIVEN TO THE EMPLOYEES OF SELLER AND ANY APPLICABLE
GOVERNMENTAL AUTHORITY UNDER THE CODE, THE WORKER ADJUSTMENT AND RETRAINING
NOTIFICATION ACT OF 1988, IF APPLICABLE AND OTHER APPLICABLE LAW IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR OTHER APPLICABLE
CONTRACTS.

 

6.13                           AUDITED FINANCIAL STATEMENTS.  AS SOON AS
PRACTICABLE, SELLER AGREES TO FURNISH OR CAUSE TO BE FURNISHED TO BUYER THE
AUDITED BALANCE SHEET OF SELLER AS OF DECEMBER 31, 2003, AND THE RELATED AUDITED
STATEMENTS OF OPERATIONS, STATEMENTS OF CASH FLOWS AND STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY FOR THE YEAR ENDED DECEMBER 31, 2003, AND ANY NOTES TO THE
FOREGOING FINANCIAL STATEMENTS (THE “2003 AUDITED FINANCIAL STATEMENTS”).

 

6.14                           CLOSING BALANCE SHEET.  BY THE LATER OF MAY 31ST,
2004 AND TWO WEEKS FROM CLOSING, SELLER SHALL DELIVER TO BUYER THE CLOSING
BALANCE SHEET.  IN CONNECTION WITH THE PREPARATION OF THE CLOSING BALANCE SHEET
BUYER SHALL PROVIDE SELLER AND SELLER’S INDEPENDENT AUDITORS AND AUTHORIZED
REPRESENTATIVES FULL ACCESS AT ALL REASONABLE TIMES TO THE PROPERTIES, BOOKS,
RECORDS AND PERSONNEL OF THE BUSINESS IN THEIR POSSESSION, CUSTODY OR CONTROL
RELATING TO PERIODS PRIOR TO THE CLOSING DATE FOR PURPOSES OF PREPARING THE
CLOSING BALANCE SHEET.  BUYER SHALL PAY ALL REASONABLE COSTS AND EXPENSES OF
SELLER’S INDEPENDENT AUDITORS INCURRED IN CONNECTION WITH THE PREPARATION AND
REVIEW OF THE CLOSING BALANCE SHEET.  BUYER SHALL PAY THE REASONABLE COSTS AND
EXPENSES INCURRED BY SELLER TO RETAIN MR. TIM LAW, OR A SIMILARLY QUALIFIED
PERSON, FOR A PERIOD OF NO MORE THAN 30 DAYS FOLLOWING THE CLOSING TO PREPARE
THE CLOSING BALANCE SHEET.

 

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ARTICLE 7
BUYER COVENANTS

 

During the time period from the Agreement Date until the earlier to occur of
(a) the Closing or (b) the termination of this Agreement in accordance with the
provisions of Article 10, Buyer covenants and agrees with Seller as follows:

 

7.1                                 ADVICE OF CHANGES.  BUYER SHALL PROMPTLY
ADVISE SELLER IN WRITING OF (A) ANY EVENT OCCURRING SUBSEQUENT TO THE AGREEMENT
DATE THAT WOULD RENDER ANY REPRESENTATION OR WARRANTY OF BUYER CONTAINED IN
ARTICLE 5 UNTRUE OR INACCURATE SUCH THAT THE CONDITION SET FORTH IN SECTION 8.1
WOULD NOT BE SATISFIED OR (B) ANY BREACH OF ANY COVENANT OR OBLIGATION OF BUYER
PURSUANT TO THIS AGREEMENT OR ANY BUYER ANCILLARY AGREEMENT SUCH THAT THE
CONDITION SET FORTH IN SECTION 8.2 WOULD NOT BE SATISFIED.

 

7.2                                 REGULATORY APPROVALS.  BUYER SHALL PROMPTLY
EXECUTE AND FILE, OR JOIN IN THE EXECUTION AND FILING OF, ANY APPLICATION,
NOTIFICATION OR OTHER DOCUMENT THAT MAY BE NECESSARY IN ORDER TO OBTAIN THE
AUTHORIZATION, APPROVAL OR CONSENT OF ANY GOVERNMENTAL AUTHORITY, WHETHER
FOREIGN, FEDERAL, STATE, LOCAL OR MUNICIPAL, WHICH MAY BE REASONABLY REQUIRED IN
CONNECTION WITH THE CONSUMMATION OF THE ASSET PURCHASE AND THE OTHER
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, ANY BUYER ANCILLARY AGREEMENT. 
BUYER SHALL USE DILIGENT EFFORTS TO OBTAIN ALL SUCH AUTHORIZATIONS, APPROVALS
AND CONSENTS AND SHALL PAY ANY ASSOCIATED FILING FEES PAYABLE BY BUYER WITH
RESPECT TO SUCH AUTHORIZATIONS, APPROVALS AND CONSENTS.  BUYER SHALL PROMPTLY
INFORM SELLER OF ANY MATERIAL COMMUNICATION BETWEEN BUYER AND ANY GOVERNMENTAL
AUTHORITY REGARDING ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.  IF BUYER OR
ANY AFFILIATE OF BUYER RECEIVES ANY FORMAL OR INFORMAL REQUEST FOR SUPPLEMENTAL
INFORMATION OR DOCUMENTARY MATERIAL FROM ANY GOVERNMENTAL AUTHORITY WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED HEREBY, THEN BUYER SHALL MAKE, OR CAUSE TO BE
MADE, AS SOON AS REASONABLY PRACTICABLE, A RESPONSE IN COMPLIANCE WITH SUCH
REQUEST.

 

7.3                                 SATISFACTION OF CONDITIONS PRECEDENT.  BUYER
SHALL USE ITS REASONABLE BEST EFFORTS TO SATISFY OR CAUSE TO BE SATISFIED ALL OF
THE CONDITIONS PRECEDENT THAT ARE SET FORTH IN ARTICLE 9, AND BUYER SHALL USE
ITS REASONABLE BEST EFFORTS TO CAUSE THE ASSET PURCHASE AND THE OTHER
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT TO BE CONSUMMATED IN ACCORDANCE WITH
THE TERMS OF THIS AGREEMENT.

 

7.4                                 BUYER PLANS.  AS PROMPTLY AS REASONABLY
PRACTICABLE AFTER THE CLOSING, BUYER SHALL, OR SHALL CAUSE ITS SUBSIDIARIES TO,
ENROLL ALL TRANSFERRING EMPLOYEES IN BUYER’S EMPLOYEE BENEFIT PLANS (THE “BUYER
PLANS”) SUBJECT TO SATISFACTION OF ELIGIBILITY STANDARDS THAT ARE APPLICABLE TO
SIMILARLY SITUATED EMPLOYEES OF BUYER ON SUBSTANTIALLY SIMILAR TERMS APPLICABLE
TO EMPLOYEES OF BUYER WHO ARE SIMILARLY SITUATED BASED ON LEVELS OF
RESPONSIBILITY.  BUYER SHALL RECOGNIZE THE PRIOR SERVICE WITH SELLER OR ITS
SUBSIDIARIES, AS APPLICABLE, OF EACH OF THE TRANSFERRING EMPLOYEES IN CONNECTION
WITH EACH OF THE BUYER PLANS FOR PURPOSES OF ELIGIBILITY AND LEVELS OF BENEFITS
(OTHER THAN LEVELS OF BENEFITS UNDER ANY “PENSION PLAN” WITHIN THE MEANING OF
SECTION 3(2) OF ERISA OR ANY RETIREE WELFARE PLAN).  NOTWITHSTANDING ANYTHING IN
THIS SECTION 7.4 TO THE CONTRARY, THIS SECTION 7.4 SHALL NOT OPERATE TO
DUPLICATE ANY BENEFIT PROVIDED TO ANY TRANSFERRING EMPLOYEE OR TO FUND ANY SUCH
BENEFIT.

 

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7.5                                 DIRECTORS AND OFFICERS INSURANCE.  ON OR
PRIOR TO THE CLOSING DATE, SELLER SHALL PROCURE, AT ITS EXPENSE, A DIRECTORS’
AND OFFICERS’ LIABILITY INSURANCE POLICY IN RESPECT OF ACTS OR OMISSIONS
OCCURRING ON OR PRIOR TO THE CLOSING DATE COVERING PERSONS WHO ARE CURRENTLY
COVERED BY SELLER’S DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE POLICY IN
EFFECT ON THE DATE HEREOF.  SUCH POLICY SHALL BE FOR A PERIOD OF NO MORE THAN
SIX YEARS FROM THE CLOSING DATE AND SHALL INCLUDE COVERAGE IN THE AMOUNT OF
$5,000,000 WITH THE USUAL AND CUSTOMARY SCOPE OF COVERAGE.

 

7.6                                 TRANSACTION TAXES.  BUYER SHALL BE
RESPONSIBLE FOR ANY AND ALL EXCISE, VALUE ADDED, REGISTRATION, STAMP, PROPERTY,
DOCUMENTARY, TRANSFER, SALES, USE AND SIMILAR TAXES, LEVIES, CHARGES AND FEES
(INCLUDING ALL REAL ESTATE TRANSFER TAXES) INCURRED, OR THAT MAY BE PAYABLE TO
ANY TAXING AUTHORITY, IN CONNECTION WITH, THE TRANSACTIONS (INCLUDING WITHOUT
LIMITATION THE SALE, TRANSFER, AND DELIVERY OF THE PURCHASED ASSETS)
CONTEMPLATED BY THIS AGREEMENT PROVIDED THAT TO THE EXTENT PERMITTED BY
APPLICABLE LAW, BUYER AND SELLER SHALL COOPERATE WITH EACH OTHER TO OBTAIN
EXEMPTIONS FROM SUCH TAXES OR TO OTHERWISE LEGALLY MINIMIZE SUCH TAXES.  BUYER
SHALL TIMELY FILE ALL TAX RETURNS RELATING TO SUCH TAXES THAT ARE REQUIRED TO BE
FILED AFTER THE CLOSING DATE.  NOTWITHSTANDING THE FOREGOING, EACH PARTY SHALL
BE RESPONSIBLE FOR ITS OWN INCOME, CAPITAL GAIN OR OTHER SIMILAR TAXES DUE IN
CONNECTION WITH THE TRANSACTIONS (INCLUDING WITHOUT LIMITATION THE SALE,
TRANSFER, AND DELIVERY OF THE PURCHASED ASSETS) CONTEMPLATED BY THIS AGREEMENT.

 

7.7                                 PRORATION OF PROPERTY TAXES.  ALL PROPERTY
TAXES LEVIED WITH RESPECT TO THE PURCHASED ASSETS FOR ANY STRADDLE PERIOD,
WHETHER IMPOSED OR ASSESSED IN THE PRE-CLOSING TAX PERIOD OR POST-CLOSING TAX
PERIOD, SHALL BE PRORATED BETWEEN THE APPLICABLE TELOS SELLER AND THE PURCHASER
AS OF 12:01 A.M. ON THE DATE OF THE CLOSING.  IF ANY TAXES SUBJECT TO PRORATION
ARE PAID BY PURCHASER, ON THE ONE HAND, OR A TELOS SELLER, ON THE OTHER HAND,
THE PROPORTIONATE AMOUNT OF SUCH TAXES PAID (OR IN THE EVENT A REFUND OF ANY
PORTION OF SUCH TAXES PREVIOUSLY PAID IS RECEIVED, SUCH REFUND) SHALL BE PAID
PROMPTLY BY (OR TO) THE OTHER AFTER THE PAYMENT OF SUCH TAXES (OR PROMPTLY
FOLLOWING THE RECEIPT OF ANY SUCH REFUND).

 

ARTICLE 8
CONDITIONS TO OBLIGATIONS OF TELOS SELLERS

 

The obligations of the Telos Sellers to consummate the Asset Purchase and take
the other actions required to be taken by the Telos Sellers at the Closing are
subject to the fulfillment or satisfaction as of the Closing, of each of the
following conditions (it being understood that (a) any one or more of the
following conditions may be waived by Seller in a writing signed on behalf of
Seller and (b) by proceeding with the Closing, Seller shall be deemed to have
waived any of such conditions that remain unfulfilled or unsatisfied):

 

8.1                                 ACCURACY OF REPRESENTATIONS AND WARRANTIES. 
THE REPRESENTATIONS AND WARRANTIES OF BUYER SET FORTH IN ARTICLE 5 SHALL BE TRUE
AND CORRECT ON AND AS OF THE CLOSING WITH THE SAME FORCE AND EFFECT AS IF THEY
HAD BEEN MADE ON THE CLOSING DATE (EXCEPT FOR ANY SUCH REPRESENTATIONS OR
WARRANTIES SHALL BE TRUE AND CORRECT, AND SUCH REPRESENTATIONS AND WARRANTIES
SHALL BE TRUE AND CORRECT ON AND AS OF SUCH SPECIFIED DATE OR DATES) EXCEPT TO
THE EXTENT THE FAILURE OF SUCH REPRESENTATIONS AND WARRANTIES TO BE SO TRUE AND
CORRECT DOES NOT HAVE A MATERIAL ADVERSE EFFECT ON BUYER, AND AT THE CLOSING
SELLER SHALL HAVE RECEIVED A CERTIFICATE TO SUCH EFFECT EXECUTED BY AN OFFICER
OF BUYER.

 

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8.2                                 COVENANTS.  BUYER SHALL HAVE PERFORMED AND
COMPLIED IN ALL MATERIAL RESPECTS WITH ALL OF ITS COVENANTS CONTAINED IN
ARTICLE 6 AND ARTICLE 7 ON OR BEFORE THE CLOSING (TO THE EXTENT THAT SUCH
COVENANTS REQUIRE PERFORMANCE BY BUYER ON OR BEFORE THE CLOSING), AND AT THE
CLOSING SELLER SHALL HAVE RECEIVED A CERTIFICATE TO SUCH EFFECT EXECUTED BY AN
OFFICER OF BUYER.

 

8.3                                 COMPLIANCE WITH LAW; NO LEGAL RESTRAINTS; NO
LITIGATION.  THERE SHALL NOT BE ISSUED, ENACTED OR ADOPTED ANY ORDER, DECREE,
TEMPORARY, PRELIMINARY OR PERMANENT INJUNCTION, LEGISLATIVE ENACTMENT, STATUTE,
REGULATION, ACTION OR PROCEEDING, OR ANY JUDGMENT OR RULING BY ANY GOVERNMENTAL
AUTHORITY THAT PROHIBITS OR RENDERS ILLEGAL OR IMPOSES LIMITATIONS ON THE ASSET
PURCHASE OR ANY OTHER MATERIAL TRANSACTION CONTEMPLATED BY THIS AGREEMENT.

 

8.4                                 GOVERNMENT CONSENTS.  THERE SHALL HAVE BEEN
OBTAINED AT OR PRIOR TO THE CLOSING DATE SUCH PERMITS OR AUTHORIZATIONS, AND
THERE SHALL HAVE BEEN TAKEN ALL SUCH OTHER ACTIONS BY ANY GOVERNMENTAL AUTHORITY
OR OTHER REGULATORY AUTHORITY HAVING JURISDICTION OVER THE PARTIES AND THE
ACTIONS HEREIN PROPOSED TO BE TAKEN, AS MAY BE REQUIRED TO LAWFULLY CONSUMMATE
THE ASSET PURCHASE.

 

8.5                                 SECRETARY CERTIFICATES.  SELLER SHALL HAVE
RECEIVED CERTIFICATES EXECUTED BY THE SECRETARY OR ASSISTANT SECRETARY OF BUYER
CERTIFYING:

 

(A)                                  THE RESOLUTIONS DULY ADOPTED BY THE BOARD
OF DIRECTORS OF BUYER AUTHORIZING THE EXECUTION OF THIS AGREEMENT AND THE
EXECUTION, PERFORMANCE AND DELIVERY OF ALL AGREEMENTS, DOCUMENTS AND
TRANSACTIONS CONTEMPLATED HEREBY; AND

 

(B)                                 THE INCUMBENCY OF THE OFFICERS OF EACH
ENTITY EXECUTING THIS AGREEMENT AND ALL AGREEMENTS AND DOCUMENTS CONTEMPLATED
HEREBY.

 

8.6                                 OPINION OF BUYER’S LEGAL COUNSEL.  SELLER
SHALL HAVE RECEIVED FROM SHEARMAN & STERLING LLP, LEGAL COUNSEL TO THE BUYER, AN
OPINION OPINING TO THE MATTERS SET FORTH IN EXHIBIT H.

 

8.7                                 BUYER GOOD STANDING CERTIFICATES.  SELLER
SHALL HAVE RECEIVED CERTIFICATES FROM THE DELAWARE SECRETARY OF STATE CERTIFYING
THAT BUYER IS IN GOOD STANDING IN SUCH JURISDICTION.

 

8.8                                 SELLER STOCKHOLDER APPROVALS.  THE ASSET
PURCHASE AND THIS AGREEMENT SHALL HAVE BEEN DULY AND VALIDLY APPROVED AND
ADOPTED, AS REQUIRED BY APPLICABLE LAW AND SELLER’S CERTIFICATE OF INCORPORATION
AND BYLAWS, EACH AS IN EFFECT ON THE DATE OF SUCH APPROVAL AND ADOPTION, BY THE
REQUISITE VOTE OR WRITTEN CONSENT OF THE SELLER STOCKHOLDERS AND BY THE
REQUISITE WRITTEN CONSENT OF HOLDERS OF THE SELLER CONVERTIBLE NOTES.

 

8.9                                 BILL OF SALE AND ASSUMPTION AGREEMENT. 
BUYER SHALL HAVE EXECUTED AND DELIVERED COUNTERPARTS OF THE BILL OF SALE AND
ASSUMPTION AGREEMENT.

 

8.10                           INTELLECTUAL PROPERTY ASSIGNMENTS.  SELLER SHALL
HAVE RECEIVED FROM BUYER:  (I)  THE TRADEMARK AND DOMAIN NAME ASSIGNMENTS,
EXECUTED ON BUYER’S BEHALF BY AN AUTHORIZED OFFICER OF BUYER WITH HIS OR HER
EXECUTION NOTARIZED, IN A FORM ACCEPTABLE FOR RECORDING WITH THE UNITED STATES
PATENT AND TRADEMARK OFFICE OR APPLICABLE DOMAIN NAME REGISTRAR, AND ANY FOREIGN
OFFICES, AS APPLICABLE; (II) THE PATENT ASSIGNMENTS, EXECUTED ON BUYER’S BEHALF
BY AN AUTHORIZED OFFICER OF BUYER WITH HIS OR HER EXECUTION NOTARIZED, IN A FORM
ACCEPTABLE FOR RECORDING WITH THE UNITED

 

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States Patent and Trademark Office, and any foreign offices, as applicable; and
(iii) the Other Instruments.

 

8.11                           Buyer Ancillary Agreements.  Buyer shall have
executed and delivered counterparts of each of the Ancillary Agreements not
referenced above to which Buyer is a signatory and provided all deliverables and
performed all obligations required to be completed by Buyer prior to or at the
Closing under all of the Buyer Ancillary Agreements.

 

8.12                           Initial Payment.  Buyer shall have paid the
portion of the Initial Payment payable at the Closing in the manner contemplated
by Section 2.2(b) (provided that, in accordance with Sections 2.3 and 2.4, the
Escrow Cash and Holdback Cash will not be delivered to the Telos Sellers at the
Closing but will instead be delivered as provided and subject to the terms of
Article 2.3 and Section 2.8, respectively).

 

8.13                           Escrow Cash and Working Capital Adjustment Cash. 
Buyer shall have deposited the Escrow Cash and Working Capital Adjustment Cash
in the Escrow Account with the Escrow Agent in the manner contemplated by
Sections 2.3 and 2.4.

 

8.14                           Employment Matters.  The Buyer shall have
executed and delivered an employment agreement with Mr. Jack Mar, acceptable to
Mr. Mar, which shall not have been revoked.

 

ARTICLE 9
CONDITIONS TO OBLIGATIONS OF BUYER

 

Buyer’s obligations to consummate the Asset Purchase and take the other actions
required to be taken by them at the Closing are subject to the fulfillment or
satisfaction, as of the Closing, of each of the following conditions (it being
understood that (a) any one or more of the following conditions may be waived by
Buyer in a writing signed by Buyer and (b) by proceeding with the Closing, Buyer
shall be deemed to have waived any of such conditions that remains unfulfilled
or unsatisfied):

 

9.1                                 Accuracy of Representations and Warranties. 
Subject to the Seller Disclosure Letter, the representations and warranties of
Seller set forth in Article 4 shall be true and correct on and as of the Closing
with the same force and effect as if they had been made on the Closing Date
(except for any such representations or warranties that by their terms speak
only as of a specific date or dates, in which case such representations and
warranties shall be true and correct on and as of such specified date or dates)
except to the extent the failure of any such representations and warranties to
be so true and correct does not have a Material Adverse Effect on Seller, and at
the Closing Buyer shall have received a certificate to such effect executed by
Seller’s President or Chief Executive Officer.

 

9.2                                 Covenants.  Seller shall have performed and
complied in all material respects with all of its covenants contained in
Article 6 at or before the Closing (to the extent that such covenants require
performance by Seller at or before the Closing), and at the Closing Buyer shall
have received a certificate to such effect executed by Seller’s President or
Chief Executive Officer.

 

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9.3                                 No Material Adverse Change.  There shall not
have been any Material Adverse Change in Seller occurring between the date of
this Agreement and the Closing and at the Closing Buyer shall have received a
certificate to such effect executed by Seller’s President or Chief Executive
Officer.

 

9.4                                 Compliance with Law; No Legal Restraints; No
Litigation.  There shall not be issued, enacted or adopted, or threatened in
writing by any Governmental Authority, any order, decree, temporary, preliminary
or permanent injunction, legislative enactment, statute, regulation, action,
proceeding, or any judgment or ruling by any Governmental Authority that
prohibits or renders illegal or imposes limitations on the Asset Purchase or any
other material transaction contemplated by this Agreement.  No litigation or
proceeding shall be threatened or pending for the purpose or with the probable
effect of enjoining or preventing the consummation of any of the transactions
contemplated by this Agreement.

 

9.5                                 Government Consents.  There shall have been
obtained at or prior to the Closing Date such permits or authorizations, and
there shall have been taken all such other actions by any Governmental Authority
or other regulatory authority having jurisdiction over the parties and the
actions herein proposed to be taken, as may be required to consummate the Asset
Purchase, including requirements under applicable federal and state securities
laws.

 

9.6                                 Secretary Certificates.  Buyer shall have
received certificates executed by the Secretary or Assistant Secretary of Seller
certifying:

 

(a)                                  the resolutions duly adopted by the Board
of Directors of Seller and by the stockholders of Seller authorizing the
execution of this Agreement and the execution, performance and delivery of all
agreements, documents and transactions contemplated hereby; and

 

(b)                                 the incumbency of the officers of each
entity executing this Agreement and all agreements and documents contemplated
hereby.

 

9.7                                 Opinion of Seller’s Legal Counsel.  Buyer
shall have received from Fenwick & West LLP, U. S. legal counsel to Seller, an
opinion opining to the matters set forth in Exhibit I-1, from McCarthy Tetrault
LLP, Canadian legal counsel to Seller, an opinion opining as to the matters set
forth in Exhibit I-2 and from Conyers, Dill & Pearman, Bermuda legal counsel to
Seller, an opinion opining as to the matters set forth in Exhibit I-3.

 

9.8                                 Consents.  Buyer shall have received duly
executed copies of those third party consents, approvals, assignments, notices,
waivers, authorizations or other certificates set forth in Schedule 9.8 attached
hereto.

 

9.9                                 Seller Stockholder Approvals.  The Asset
Purchase and this Agreement shall have been duly and validly approved and
adopted, as required by Applicable Law and Seller’s Certificate of Incorporation
and Bylaws, each as in effect on the date of such approval and adoption, by the
requisite vote or written consent of the Seller Stockholders and by the
requisite written consent of holders of the Seller Convertible Notes.

 

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9.10                           Bill of Sale and Assumption Agreement.  Each
Telos Seller shall have executed and delivered counterparts of the Bill of Sale
and Assumption Agreement.

 

9.11                           Intellectual Property Assignments.  Buyer shall
have received from Telos Sellers:  (i)  the Trademark and Domain Name
Assignments, executed on Telos Sellers’ behalf by an authorized officer of each
Telos Seller with his or her execution notarized, in a form acceptable for
recording with the United States Patent and Trademark Office or applicable
domain name registrar; (ii) the Patent Assignments, executed on Telos Sellers’
behalf by an authorized officer of each Telos Seller with his or her execution
notarized, in a form acceptable for recording with the United States Patent and
Trademark Office and (iii)  the Other Instruments.

 

9.12                           Seller Ancillary Agreements.  Telos Sellers shall
have executed and delivered counterparts of each of the Ancillary Agreements not
referenced above to which a Telos Seller is a signatory and provided all
deliverables and performed all obligations required to be completed by a Telos
Seller prior to or at the Closing under all of the Seller Ancillary Agreements.

 

9.13                           Employment Matters.  Jack Mar and 60% of the
Employee Offerees (not including Mr. Mar or any Employee Offerees located
outside of Canada who are required to relocate as part of the terms of the offer
of employment) shall have accepted the offer of employment with Buyer (or a
Subsidiary thereof), which acceptance shall not have been revoked.

 

9.14                           Seller Good Standing Certificates.  Buyer shall
have received a certificate from the Delaware and California Secretaries of
State (with respect to Seller), the province of British Columbia (with respect
to TELOS Engineering Ltd.), and Bermuda (with respect to TELOS Engineering
(Bermuda) Ltd.) certifying that such entity is in good standing and that all
applicable Taxes and fees of Seller through and including the Closing Date have
been paid (to the extent that such concepts are applicable in such
jurisdictions).

 

9.15                           FIRPTA Certificate.  Buyer shall have received
certification from Seller of non-foreign status, in accordance with Treasury
Regulations under Sections 1445 and 894 of the Code.

 

9.16                           Release of Encumbrances.  All Encumbrances on the
Purchased Assets arising from or in connection with the Seller Senior
Convertible Notes shall have been irrevocably released.

 

ARTICLE 10
TERMINATION OF AGREEMENT

 

10.1                           Termination by Mutual Consent.  This Agreement
may be terminated at any time prior to the Closing by the mutual written consent
of Buyer and Seller.

 

10.2                           UNILATERAL TERMINATION.

 

(a)                                  Either Buyer or Seller, by giving written
notice to the other, may terminate this Agreement if a court of competent
jurisdiction or other Governmental Authority shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having

 

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the effect of permanently restraining, enjoining or otherwise prohibiting the
Asset Purchase or any other material transaction contemplated by this Agreement.

 

(b)                                 Either Buyer or Seller, by giving written
notice to the other, may terminate this Agreement if the Asset Purchase shall
not have been consummated by midnight Pacific Time on June 30, 2004, which date
may be extended by the mutual written consent of the parties hereto.

 

(c)                                  Either Buyer or Seller may terminate this
Agreement at any time prior to the Closing if (a) the other has committed a
breach of (i) any of its representations and warranties under Article 4 or
Article 5, as applicable, in any material respect or (ii) any of its covenants
under Article 6 or Article 7, as applicable, materially adversely affecting (or
materially delaying) the consummation of the transactions contemplated hereby
and has not cured such breach within twenty business days after the party
seeking to terminate this Agreement has given the other party written notice of
the material breach and its intention to terminate this Agreement pursuant to
this Section 10.2(c) (provided, however, that no such cure period shall be
available or applicable to any such breach which by its nature cannot be cured)
and (b) if not cured on or prior to the Closing Date, such breach would result
in the failure of any of the conditions set forth in Article 9 or Article 8, as
applicable, to be fulfilled or satisfied; provided, however, that the right to
terminate this Agreement under this Section 10.2(c) shall not be available to a
party if the party is at that time in material breach of this Agreement.

 

10.3                           Effect of Termination.  In the event of
termination of this Agreement as provided in Section 10.2, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of Buyer or Seller or their respective officers, directors, stockholders or
affiliates; provided, however, that the provisions of this Section 10.3 (Effect
of Termination) and Article 12 (Miscellaneous) shall remain in full force and
effect and survive any termination of this Agreement.

 

ARTICLE 11
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES; CONTINUING COVENANTS

 

11.1                           Survival.  If the Asset Purchase is consummated,
the representations, warranties, covenants and agreements of Seller and Buyer
contained in this Agreement and the other agreements, certificates and documents
contemplated hereby shall survive the Closing and remain in full force and
effect, regardless of any investigation or disclosure made by or on behalf of
any of the parties to this Agreement, until June 30, 2005 (the “Expiration
Date”) provided further, that, such expiration shall not affect the rights of
any Buyer Indemnified Person or Seller Indemnified Person, as applicable, under
this Article 11 to seek recovery of Damages (as defined in Section 11.2) arising
out of any fraud by Seller or Buyer, as applicable, until the expiration of the
applicable statute of limitations with respect to any such claim.  If written
notice of a claim of breach of representation and warranty has been given prior
to the expiration of the applicable representation and warranty by a party
hereto to another party hereto, then the relevant representation and warranty
shall survive as to such claim until such claim has been finally resolved in
accordance with this Article 11.

 

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11.2                       Agreement of Telos Sellers to Indemnify.  Subject to
the limitations set forth in this Article 11, from and after the Closing, each
Telos Seller shall, jointly and severally, indemnify and hold harmless Buyer and
its officers, directors, agents, representatives, stockholders and employees,
and each person, if any, who controls or may control Buyer within the meaning of
the Securities Act or the Exchange Act (each hereinafter referred to
individually as a “Buyer Indemnified Person” and collectively as the “Buyer
Indemnified Persons”) from and against any and all actual losses, costs,
damages, liabilities and expenses (including reasonable attorneys’ fees, other
professionals’ and experts’ fees, costs of investigation and court costs),
calculated net of any recoveries under existing insurance policies (net of any
applicable collection costs and reserves, deductibles, premium adjustments and
retrospectively rated premiums) and net of the amount of any indemnity and
contribution received from third parties (hereinafter collectively referred to
as “Damages”), arising from claims, demands, assertions of liability, or actual
or threatened actions, suits or proceedings (whether civil, criminal,
administrative or investigative) directly or indirectly arising out of,
resulting from or in connection with:  (i) any actual failure of any
representation or warranty made by Seller in this Agreement or in the Seller
Disclosure Letter to be true and correct as of the Closing Date (as though such
representation or warranty were made as of the Closing Date, except in the case
of representations and warranties which by their terms speak only as of a
specific date or dates, in which case such representations and warranties shall
have actually failed to be true and correct as of such specified date or dates);
(ii) any actual breach of or default in connection with any of the covenants or
agreements made by Seller in this Agreement or in the Seller Disclosure Letter;
(iii) Seller’s failure to pay, perform or discharge, when due, any Excluded
Liability; and (iv) any Transaction Expenses of Telos Sellers; in each case
which becomes known to the relevant Buyer Indemnified Person during the period
of survival of the representations, warranties, covenants and agreements and for
which Buyer delivers timely written notice to Seller in accordance with
Sections 11.5 and 11.7 prior to the Expiration Date; provided, however, that,
notwithstanding anything herein to the contrary, the Buyer Indemnified Persons
shall not have any right to indemnification under this Article 11 with respect
to any Damages arising out of, resulting from or in connection with any of the
matters described in clauses (i) through (iv) above to the extent that Buyer has
previously been compensated for such Damages pursuant to the retention by Buyer
of an amount of the Working Capital Adjustment Cash pursuant to Section 2.8.

 

11.3                           Agreement of Buyer to Indemnify.  From and after
the Closing, Buyer shall indemnify and hold harmless Seller, each of its
Subsidiaries and the respective officers, directors, agents, representatives,
stockholders and employees of Telos Sellers, and each person, if any, who
controls or may control Seller within the meaning of the Securities Act or the
Exchange Act (each hereinafter referred to individually as a “Seller Indemnified
Person” and collectively as “Seller Indemnified Persons”) from and against any
and all Damages arising from claims, demands, assertions of liability, or actual
or threatened actions, suits or proceedings (whether civil, criminal,
administrative or investigative) directly or indirectly arising out of,
resulting from or in connection with:  (i) any actual failure of any
representation or warranty made by Buyer in this Agreement to be true and
correct as of the date of this Agreement and as of the Closing Date (as though
such representation or warranty were made as of the Closing Date, except in the
case of representations and warranties which by their terms speak only as of a
specific date or dates), (ii) any actual breach of or default in connection with
any of the covenants or agreements made by Buyer in this Agreement, including
the Earnout, (iii) Buyer’s failure to pay, perform or discharge, when due, any
Assumed Liability; (iv) any Liability arising out of the use or operation

 

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of the Purchased Assets or the conduct of the Business by Buyer and its
Affiliates after the Closing Date; and (v) any Transaction Expenses of Buyer and
its Subsidiaries;  in each case which becomes known to a Seller Indemnified
Person during the period of survival of the representations, warranties,
covenants and agreements and for which a Seller Indemnified Person delivers a
written notice to Buyer in accordance with Sections 11.5 and 11.7 prior to the
Expiration Date.

 

11.4                           Remedies and Limitations.

 

(a)                                  Escrow Cash.  If the Asset Purchase is
consummated, recovery from the Escrow Cash, and the Earnout (solely as
contemplated by Section 11.4(b) below), shall be the sole and exclusive remedy
of the Buyer Indemnified Persons under this Agreement with respect to the
matters listed in  clauses (i) and (ii) of Section 11.2, except in the case of
fraud by a Telos Seller.

 

(b)                                 Earnout.  In the case of Damages arising out
of or resulting from (i) fraud by a Telos Seller, or (ii) after Buyer has
exhausted or made bona fide indemnification claims upon all the Escrow Cash
(after taking into account all other claims for indemnification from the Escrow
Cash made by Buyer), Buyer shall have the right to set-off any Damages for which
the Buyer Indemnified Persons are entitled to be indemnified pursuant to this
Article 11 against the amount of any earned but unpaid Earnout.

 

(c)                                  Basket.  Notwithstanding anything contained
herein to the contrary, no Buyer Indemnified Person may receive any recovery in
respect of any claim for indemnification that is made pursuant to clauses (i)
and (ii) of Section 11.2, and that does not involve fraud by a Telos Seller
unless and until Damages in an aggregate amount greater than US$350,000.00
(the “Basket”) have been incurred, paid or properly accrued, following which the
Buyer Indemnified Persons may make claims for indemnification for those Damages
included in the amount of the Basket as well as any and all amounts in excess of
the amount of the Basket.

 

(d)                                 Buyer shall, and shall cause each other
Buyer Indemnified Person to use all commercially reasonable efforts to mitigate
any Damages which any Buyer Indemnified Person may suffer in consequence of any
matter giving rise to a claim for indemnification hereunder.  Seller shall, and
shall cause each other Seller Indemnified Person to, use all commercially
reasonable efforts to mitigate any Damages which any Seller Indemnified Person
may suffer in consequence of any matter giving rise to a claim for
indemnification hereunder.

 

(e)                                  Buyer shall not be entitled to recover
Damages in respect of any claim, or otherwise obtain reimbursement or
restitution of Damages, more than once with respect to any claim hereunder.

 

(f)                                    From and after the Closing, except with
respects to claims based on fraud or for non-cash equitable remedies, the
remedies provided in this Article 11 shall be exclusive as to any claims by a
party under this Agreement or under any other agreement, certificate and
document contemplated hereby or arising out of the transactions provided for
herein and therein and shall preclude assertion by any party of any other rights
or the seeking of any other remedies against another party.

 

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(g)                                 If any person entitled to indemnification
hereunder is entitled to recover from any person other than the indemnifying
party hereunder, including under any applicable insurance policy but excluding
from any Taxing authority as a result of a reduction of such indemnified
person’s Tax liability, any amount that relates to a matter giving rise to a
claim for indemnification under Section 11.2 or 11.3, as applicable, such
indemnified person will take all commercially reasonable steps to recover such
amount from such third party prior to pursuing such claim against the party
providing indemnification hereunder.  If such indemnified person recovers any
such amount from such third party, the amount of Damages recoverable under
Section 11.2 or 11.3, as applicable, shall be reduced by the amount of such
recovery.

 

11.5                           Notice of Claim.  As used herein, the
term “Claim” means a claim for indemnification for Damages under this
Article 11.  An indemnified party may give notice of a Claim under this
Agreement (a “Notice of Claim”) to the Seller, in the case of an Buyer
Indemnified Person, and to Buyer, in the case of a Seller Indemnified Person,
promptly after such indemnified party becomes aware of the existence of any
potential claim for indemnification under this Article 11, arising from or
relating to:

 

(a)                                  Any matter specified in Section 11.2 or
Section 11.3, as applicable; or

 

(b)                                 the assertion, whether orally or in writing,
against such indemnified party of a claim, demand, suit, action, arbitration,
investigation, inquiry or proceeding brought by a third party against such
indemnified party (in each such case, a “Third-Party Claim”) that is based on,
arises out of or relates to any matter specified in Section 11.2, or
Section 11.3, as applicable.

 

The period during which claims may be initiated (the “Claims Period”) by the
Buyer Indemnified Persons for indemnification either from the Escrow Cash and/or
the Earnout with respect to the matters set forth in Section 11.2, or by the
Seller Indemnified Persons for indemnification from Buyer with respect to the
matters set forth in Section 11.3, shall commence at the Closing and terminate
on the Expiration Date, provided that the Claims Period for indemnification from
and against Damages arising out of, resulting from or in connection with fraud
by any Telos Seller or the Buyer shall commence on the Closing and terminate
upon the expiration of the applicable statute of limitations.  Notwithstanding
anything contained herein to the contrary, any bona fide Claims for Damages
specified in any Notice of Claim delivered in accordance herewith prior to
expiration of the applicable Claims Period with respect to facts and
circumstances existing prior to expiration of the applicable Claims Period shall
remain outstanding until such Claims for Damages have been resolved or
satisfied, notwithstanding the expiration of such Claims Period.  Until the
expiration of the applicable Claims Period, no delay on the part of an
indemnified party in giving a Notice of Claim shall relieve the indemnifying
party from any of its obligations under this Article 11 unless (and then only to
the extent that) the indemnifying party is materially prejudiced thereby.

 

11.6                           Defense of Third-Party Claims.

 

(a)                                  The indemnified party shall determine and
conduct the defense of any Third-Party Claim, and the costs and expenses
incurred by the indemnified party in connection with such defense or settlement
(including reasonable attorneys’ fees, other professionals’ and

 

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experts’ fees and court or arbitration costs) shall be included in the Damages
for which the indemnified party may seek indemnification pursuant to a Claim
made by any indemnified party hereunder to the extent and subject to the limits
provided in this Article 11.

 

(b)                                 The indemnifying party shall have the right
to receive copies of all pleadings, notices and communications with respect to
the Third-Party Claim and may participate in, but not to determine or conduct,
any defense of the Third-Party Claim with respect to the Third-Party Claim.

 

(c)                                  No settlement of any such Third-Party Claim
with any third party claimant shall be made and no such settlement shall be
determinative of the existence of or amount of indemnifiable Damages relating to
such matter, except with the prior written consent of the Seller, in the case of
any Third-Party Claim for which any Buyer Indemnified Person is seeking
indemnification, or the Buyer, in the case of any Third-Party Claim for which
any Seller Indemnified Person is seeking indemnification.

 

11.7                           Contents of Notice of Claim.  Each Notice of
Claim given pursuant to Section 11.5 shall contain the following information:

 

(a)                                  that the indemnified party has directly or
indirectly incurred, paid or properly accrued (in accordance with GAAP) or, in
good faith, believes it shall have to directly or indirectly incur, pay or
accrue (in accordance with GAAP), Damages in an aggregate stated amount arising
from such Claim (which amount may be the amount of damages claimed by a third
party in an action brought against any indemnified party based on alleged facts,
which if true, would give rise to liability for Damages under this Article 11);
and

 

(b)                                 a brief description, in reasonable detail
(to the extent reasonably available), of the facts, circumstances or events
giving rise to the alleged Damages based on the indemnified party’s good faith
belief thereof, including the identity and address of any third-party claimant
(to the extent reasonably available) and copies of any formal demand or
complaint, the amount of Damages, the date each such item was incurred, paid or
properly accrued, or the basis for such anticipated liability, and the specific
nature of the breach to which such item is related.

 

11.8                           Resolution of Notice of Claim.  Each Notice of
Claim given shall be resolved as follows:

 

(a)                                  Uncontested Claims.  If, within twenty (20)
business days after a Notice of Claim is received, the indemnifying party does
not contest such Notice of Claim in writing as provided in Section 11.8(b), the
indemnifying party shall be conclusively deemed to have consented to the
recovery by the indemnified party of all Damages that arise with respect to the
claim described in the Notice of Claim in accordance with this Article 11,
including the forfeiture of Escrow Cash and, without further notice, to have
stipulated to the entry of a final judgment for Damages against the indemnifying
party for such amount in any court having jurisdiction over the matter where
venue is proper.

 

(b)                                 Contested Claims.  If the indemnifying party
gives the other party written notice contesting all or any portion of a Notice
of Claim within the twenty (20) business day

 

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period specified in Section 11.8(a) (a “Contested Claim”) then such Contested
Claim shall be resolved by either (i) a written settlement agreement executed by
the Telos Sellers and Buyer or (ii) in the absence of such a written settlement
agreement within thirty (30) business days following receipt of the written
notice, by binding arbitration between the Telos Sellers and Buyer in accordance
with the terms and provisions of Section 11.8(c).

 

(c)                                  Arbitration.  If the Buyer and the Telos
Sellers are unable to resolve a Contested Claim by negotiation, each of Buyer
and the Telos Sellers agree that any Contested Claim will be submitted to
mandatory, final and binding arbitration before J.A.M.S./ENDISPUTE or its
successor (“J.A.M.S.”), pursuant to the United States Arbitration Act, 9 U.S.C.,
Section 1 et seq. and that any such arbitration will be conducted in Santa Clara
County, California.  Either Buyer or Seller may commence the arbitration process
called for by this Agreement by filing a written demand for arbitration with
J.A.M.S. and giving a copy of such demand to each of the other parties to this
Agreement.  The arbitration will be conducted in accordance with the provisions
of J.A.M.S’ Streamlined Arbitration Rules and Procedures in effect at the time
of filing of the demand for arbitration, subject to the provisions of this
Section 11.8.3.  The parties will cooperate with J.A.M.S. and with each other in
promptly selecting an arbitrator from J.A.M.S.’ panel of neutrals, and in
scheduling the arbitration proceedings in order to fulfill the provisions,
purposes and intent of this Agreement.  The parties covenant that they will
participate in the arbitration in good faith, and that they will share in its
costs in accordance with subparagraph (i) below.  The provisions of this
Section 11.8.3 may be enforced by any court of competent jurisdiction, and the
party seeking enforcement will be entitled to an award of all costs, fees and
expenses, including attorneys’ fees, to be paid by the party against whom
enforcement is ordered.  Judgment upon the award rendered by the arbitrator may
be entered in any court having competent jurisdiction.

 

(i)                                     Payment of Costs.  Buyer on the one
hand, and/or Seller, on the other hand, will bear the expense of deposits and
advances required by the arbitrator in equal proportions, but either party may
advance such amounts, subject to recovery as an addition or offset to any
award.  The arbitrator shall determine the party who is the prevailing party and
the party who is the non-prevailing party.  The non-prevailing party shall pay
all reasonable costs, fees and expenses related to the arbitration, including
reasonable fees and expenses of attorneys, accountants and other professionals
incurred by the prevailing party, the fees of each arbitrator and the
administrative fee of the arbitration proceedings.  If such an award would
result in manifest injustice, however, the arbitrator may apportion such costs,
fees and expenses between the parties in such a manner as the arbitrator deems
just and equitable.

 

(ii)                                  Burden of Proof.  Except as may be
otherwise expressly provided herein, for any Contested Claim submitted to
arbitration, the burden of proof will be as it would be if the claim were
litigated in a judicial proceeding governed by California law exclusively.

 

(iii)                               Award.  Upon the conclusion of any
arbitration proceedings hereunder, the arbitrator will render findings of fact
and conclusions of law and a final written arbitration award setting forth the
basis and reasons for any decision reached (the “Final Award”) and will deliver
such documents to Seller and Buyer, together with a signed copy of the Final
Award.  The Final Award will constitute a conclusive determination of all issues
in question, binding upon Seller and Buyer, and will include an affirmative
statement to such effect.

 

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(iv)                              Timing.  Seller, Buyer and the arbitrator will
conclude each arbitration pursuant to this Section 11.8 as promptly as possible
for the Contested Claim being arbitrated.

 

(v)                                 Terms of Arbitration.  The arbitrator chosen
in accordance with these provisions will not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Agreement.

 

11.9                           Exclusive Remedy.  Following the Closing, except
as specifically otherwise provided in this Agreement, arbitration conducted in
accordance with this Agreement will be the sole and exclusive means of
resolution of any Contested Claim made pursuant to this Article 11.

 

11.10                     Tax Consequences of Indemnification Payments.  All
payments (if any) made to a Buyer Indemnified Person or to a Seller Indemnified
Person pursuant to any indemnification obligations under this Article 11 will be
treated as adjustments to the purchase price for tax purposes and such agreed
treatment will govern for purposes of this Agreement, unless otherwise required
by Applicable Law.

 

ARTICLE 12
MISCELLANEOUS

 

12.1                           Governing Law.  The internal laws of the State of
California, applicable to agreements between California residents and entered
into and to be performed within California, shall govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.  The parties hereto hereby
irrevocably submit to the exclusive jurisdiction of the courts of the State of
California and the Federal courts of the United States of America located within
the County of Santa Clara in the State of California solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby and thereby (including resolution of disputes under
Section 11.8(c)), and hereby waive, and agree not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement hereof or
thereof, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement or any such document may
not be enforced in or by such courts, and the parties hereto irrevocably agree
that all claims with respect to such action or proceeding shall be heard and
determined in such a California State or Federal court.  The parties hereby
consent to and grant any such court jurisdiction over the person of such parties
and over the subject matter of such dispute and agree that mailing of process or
other papers in connection with any such action or proceeding in the manner
provided in Section 12.9 or in such other manner as may be permitted by
Applicable Law, shall be valid and sufficient service thereof.  With respect to
any particular action, suit or proceeding, venue shall lie solely in Santa Clara
County, California.

 

12.2                           Assignment; Binding Upon Successors and Assigns. 
The Buyer’s obligations hereunder may not be assigned or delegated by the Buyer
in any manner whatsoever, whether directly or by operation of law or otherwise,
except in connection with any acquisition by a third party of the Buyer (through
a merger or otherwise) or substantially all of the Buyer’s assets in

 

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which case Buyer shall cause such third party to specifically assume all of
Buyers obligations hereunder; and provided further that Buyer may assign any of
its rights, but not any of its obligations hereunder, to one or more direct or
indirect wholly owned subsidiaries of Buyer without the consent of the Seller. 
Except as set forth in the preceding sentence, no party hereto may assign any of
its rights or obligations hereunder without the prior written consent of the
other parties hereto.  This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns as set forth herein.  Any assignment in violation of this provision
shall be void.

 

12.3                           Severability.  If any provision of this
Agreement, or the application thereof, shall for any reason and to any extent be
invalid or unenforceable, then the remainder of this Agreement and the
application of such provision to other persons or circumstances shall be
interpreted so as reasonably to effect the intent of the parties hereto.  The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that shall achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision.

 

12.4                           Counterparts.  This Agreement may be executed in
any number of counterparts, each of which shall be an original as regards any
party whose signature appears thereon and all of which together shall constitute
one and the same instrument.  This Agreement shall become binding when one or
more counterparts hereof, individually or taken together, shall bear the
signatures of all parties reflected hereon as signatories.

 

12.5                           Other Remedies.  Except as otherwise expressly
provided herein, any and all remedies herein expressly conferred upon a party
hereunder shall be deemed cumulative with and not exclusive of any other remedy
conferred hereby or by law on such party, and the exercise of any one remedy
shall not preclude the exercise of any other.  The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached.  It is accordingly agreed that the parties shall be entitled
to seek an injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions hereof in any court of the
United States or any State having jurisdiction.

 

12.6                           Amendments and Waivers.  Any term or provision of
this Agreement may be amended, and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by a writing signed by the party to be
bound thereby.  The waiver by a party of any breach hereof or default in the
performance hereof shall not be deemed to constitute a waiver of any other
default or any succeeding breach or default.  This Agreement may be amended by
the parties hereto as provided in this Section 12.6 at any time before or after
adoption of this Agreement by the Seller Stockholders, but, after such adoption,
no amendment shall be made which by Applicable Law requires the further approval
of the Seller Stockholders without obtaining such further approval.  At any time
prior to the Closing, each of Seller and Buyer, by action taken by its Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties made to it contained herein
or in any document delivered pursuant hereto, and (c) waive compliance with any
of the agreements or conditions for its benefit contained herein.

 

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No such waiver or extension shall be effective unless signed in writing by the
party against whom such waiver or extension is asserted.  The failure of any
party to enforce any of the provisions hereof shall not be construed to be a
waiver of the right of such party thereafter to enforce such provisions.

 

12.7                           Expenses.  Each party shall bear its respective
Transaction Expenses.

 

12.8                           Attorneys’ Fees.  Should suit be brought to
enforce or interpret any part of this Agreement, the prevailing party shall be
entitled to recover, as an element of the costs of suit and not as damages,
reasonable attorneys’ fees to be fixed by the court (including costs, expenses
and fees on any appeal).  The prevailing party shall be entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment.

 

12.9                           Notices.  All notices and other communications
required or permitted under this Agreement shall be in writing and shall be
either hand delivered in person, sent by facsimile, sent by certified or
registered first-class mail, postage pre-paid, or sent by nationally recognized
express courier service.  Such notices and other communications shall be
effective upon receipt if hand delivered or sent by facsimile, three (3) days
after mailing if sent by mail, and one (1) day after dispatch if sent by express
courier, to the following addresses, or such other addresses as any party may
notify the other parties in accordance with this Section 12.9:

 

If to Buyer:

 

UTStarcom, Inc.
1275 Harbor Bay Parkway, Suite 100
Alameda, CA 94502
Attention:  Legal Department
Facsimile No.: 510-864-8800
Telephone No.:  510-864-8802

 

with a copy to:
Shearman & Sterling LLP
1080 Marsh Road
Menlo Park, CA 94025
Attention:  Carmen Chang, Esq.
Facsimile No.: (650) 838-3699
Telephone No.: (650) 838-3612

 

If to the Telos Sellers:

 

4600 Jacombs Road
Richmond, BC VCV 3B1
Canada
Attention:  President
Facsimile No.: (604) 303-8557
Telephone No.: (604) 303-2316

 

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with a copy to:

 

Fenwick & West LLP
Embarcadero Center West
275 Battery Street
San Francisco, CA 94111
Attention:                      David Michaels, Esq.
Lynda M. Twomey, Esq.
Facsimile No.: (415) 281-1350
Telephone No.: (415) 875-2300

 

12.10                     Interpretation; Rules of Construction.  When a
reference is made in this Agreement to Exhibits, such reference shall be to an
Exhibit to this Agreement unless otherwise indicated.  When a reference is made
in this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated.  When reference is made in this Agreement
to Schedules, such reference shall be to a Schedule to this Agreement.  When a
reference is made in this Agreement to Articles, such reference shall be to an
Article of this Agreement unless otherwise indicated.  Capitalized terms used in
the Exhibits and Schedules and not otherwise defined therein, shall have the
meaning ascribed in this Agreement.  The words “include”, “includes” and
“including” when used herein shall be deemed in each case to be followed by the
words “without limitation”.  The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.  Reference to the Subsidiaries of an entity
shall be deemed to include all direct and indirect Subsidiaries of such entity. 
The signatories hereto agree that they have been represented by legal counsel
during the negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document shall be construed against
the party drafting such agreement or document.

 

12.11                     No Joint Venture.  Nothing contained in this Agreement
shall be deemed or construed as creating a joint venture or partnership between
any of the parties hereto.  No party is by virtue of this Agreement authorized
as an agent, employee or legal representative of any other party.  No party
shall have the power to control the activities and operations of any other and
their status is, and at all times shall continue to be, that of independent
contractors with respect to each other.  No party shall have any power or
authority to bind or commit any other party.  No party shall hold itself out as
having any authority or relationship in contravention of this Section 12.11.

 

12.12                     Further Assurances.  Each party agrees to cooperate
fully with the other parties and to execute such further instruments, documents
and agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.

 

12.13                     Third Party Beneficiary Rights.  No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, employee, affiliate, stockholder, partner or any party hereto or any
other Person unless specifically provided otherwise herein and, except as so
provided, all

 

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provisions hereof shall be personal solely between the parties to this
Agreement; except that Article 11 is intended to benefit the Persons set forth
herein.

 

12.14                     Public Announcement.  Prior to the publication of a
mutually agreed press release or the inclusion of mutually agreed disclosure in
a press release issued by Buyer, neither party shall make any public
announcement relating to this Agreement or the transactions contemplated hereby
(except as may be required by law or to obtain necessary third party consents or
to its Board of Directors or its advisors) and Seller shall use its reasonable
efforts to prevent any trading in shares of securities issued by Buyer by its
officers, directors, employees, stockholders and agents prior to the Closing.

 

12.15                     Confidentiality.  Seller and Buyer each confirm that
they have entered into the Mutual NDA and that they are each bound by, and shall
abide by, the provisions of such Mutual NDA; provided, however, that Buyer shall
not be bound by such Mutual NDA after the Closing.  If this Agreement is
terminated, the Mutual NDA shall remain in full force and effect, and all copies
of documents containing confidential information of a disclosing party shall be
returned by the receiving party to the disclosing party or be destroyed, as
provided in the Mutual NDA.

 

12.16                     Entire Agreement.  This Agreement, the exhibits and
schedules hereto, Seller Ancillary Agreements, the Buyer Ancillary Agreements
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto other than the Mutual
NDA.  The express terms hereof control and supersede any course of performance
or usage of the trade inconsistent with any of the terms hereof.

 

12.17                     Waiver of Jury Trial.  EACH OF BUYER AND EACH TELOS
SELLER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF BUYER AND THE
TELOS SELLERS IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT
HEREOF.

 

[SIGNATURE PAGE NEXT]

 

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

 

UTSTARCOM, INC.

TELOS TECHNOLOGY, INC.

 

 

 

 

By:

/s/ Michael J. Sophie

 

 

By:

/s/ Jack Mar

 

 

 

 

Name:  Michael J. Sophie

Name:

 

Jack Mar

 

 

 

 

Title:  Chief Financial Officer and SVP Finance

Title:

 

 

 

 

 

 

TELOS TECHNOLOGY (BERMUDA)
LTD.

 

 

 

 

By:

/s/ Jack Mar

 

 

 

 

 

Name:

 

Jack Mar

 

 

 

 

 

Title:

 

 

 

 

 

 

TELOS TECHNOLOGY (CANADA),
INC.

 

 

 

 

By:

/s/ Jack Mar

 

 

 

 

 

Name:

 

Jack Mar

 

 

 

 

 

Title:

 

 

 

 

 

 

TELOS ENGINEERING LIMITED

 

 

 

 

 

By:

/s/ Jack Mar

 

 

 

 

 

Name:

 

Jack Mar

 

 

 

 

 

Title:

 

 

 

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