Exhibit 2.1  AGREEMENT AND PLAN OF MERGER  dated as of  November 11, 2008  among  PANOMICS, INC.,  AFFYMETRIX, INC.,  PANDA ACQUISITION CORPORATION  and  ANDREW SCHWAB, as Equityholders Representative


INDEX TO EXHIBITS  Exhibit A
  
  Form of Escrow AgreementExhibit B
  
  Form of Voting
  AgreementExhibit C
  
  Form of Proprietary
  Invention AgreementExhibit D
  
  Form of Opinion of
  Morrison & Foerster LLP  INDEX TO ANNEXES  Annex A
  
  List of Persons executing
  Key Employee Employment AgreementsAnnex B
  
  List of directors,
  officers and Major Shareholders executing Voting AgreementsAnnex C
  
  List of Company
  Constructive Knowledge PersonsAnnex D
  
  List of Company Actual
  Knowledge PersonsAnnex E
  
  Amended and Restated
  Articles of Incorporation of the Surviving Corporation  i


TABLE OF CONTENT  PageARTICLE 1DEFINITIONSSection 1.01. Definitions
  2ARTICLE 2MERGER
  CONSIDERATION; THE MERGERSection 2.01. The Merger
  14Section 2.02. Effective Time
  14Section 2.03. Conversion of Shares
  15Section 2.04. Escrow
  15Section 2.05. Company Stock Options
  16Section 2.06. Company Warrants
  16Section 2.07. Purchase Price Adjustment Statement
  17Section 2.08. Closing Payment Schedule
  17Section 2.09. Withholding Rights
  18Section 2.10. Dissenting Shares
  19Section 2.11. Surrender and Payment
  19Section 2.12. Lost Certificates
  20Section 2.13. Adjustments
  21Section 2.14. Tax Treatment of Escrow Payment
  21ARTICLE 3THE
  SURVIVING CORPORATIONSection 3.01. Articles of Incorporation
  21Section 3.02. Bylaws
  21Section 3.03. Directors and Officers
  21ARTICLE 4REPRESENTATIONS
  AND WARRANTIES OF THE COMPANYSection 4.01. Corporate Existence and Power
  22Section 4.02. Corporate Authorization
  22Section 4.03. Governmental Authorization
  23Section 4.04. Non-Contravention
  23Section 4.05. Capitalization
  24Section 4.06. Subsidiaries
  26Section 4.07. Financial Statements
  26Section 4.08. Absence of Certain Changes
  27Section 4.09. No Undisclosed Liabilities
  29Section 4.10. Compliance with Laws and Court Orders
  29  ii


TABLE OF
CONTENT (continued)  PageSection 4.11. Agreements, Contracts and Commitments
  29Section 4.12. Litigation
  32Section 4.13. Finders Fees
  32Section 4.14. Tax Representations
  32Section 4.15. Employee Matters and Employment Benefit Plans
  34Section 4.16. Real and Personal Property; Absence of Liens and
  Encumbrances
  37Section 4.17. Products
  38Section 4.18. Intellectual Property
  38Section 4.19. Insurance Coverage
  40Section 4.20. Licenses and Permits
  41Section 4.21. Inventories
  41Section 4.22. Receivables
  41Section 4.23. Environmental Matters
  41Section 4.24. Certain Interests
  42Section 4.25. Customers; Suppliers
  43Section 4.26. Books and Records
  43ARTICLE 5REPRESENTATIONS
  AND WARRANTIES OF PARENTSection 5.01. Corporate Existence and Power
  44Section 5.02. Corporate Authorization
  44Section 5.03. Governmental Authorization
  44Section 5.04. Non-Contravention
  45Section 5.05. Sufficient Funds
  45ARTICLE 6COVENANTS
  OF THE COMPANYSection 6.01. Conduct of the Company
  45Section 6.02. Shareholder Approval; Information Statement
  49Section 6.03. Access to Information
  49Section 6.04. No Solicitation; Other Offers
  49Section 6.05. Key Employees; Other Benefit Matters
  50ARTICLE 7COVENANTS
  OF PARENTSection 7.01. Obligations of Merger Subsidiary
  52Section 7.02. Indemnification of Officers and Directors
  52ARTICLE 8COVENANTS
  OF PARENT AND THE COMPANYSection 8.01. Commercially Reasonable Efforts
  52  iii


TABLE OF
CONTENT (continued)  PageSection 8.02. Cooperation
  53Section 8.03. Public Announcements
  53Section 8.04. Further Assurances
  53Section 8.05. Notices of Certain Events
  54Section 8.06. Confidentiality
  54ARTICLE 9CONDITIONS
  TO THE MERGERSection 9.01. Conditions to the Obligations of Each Party
  55Section 9.02. Conditions to the Obligations of the Company
  55Section 9.03. Conditions to the Obligations of Parent and
  Merger Subsidiary
  56ARTICLE 10TAX
  MATTERSSection 10.01. Responsibility for Filing Tax Returns
  58Section 10.02. Amended Returns
  58Section 10.03. Transfer Taxes
  58ARTICLE 11SURVIVAL;
  INDEMNIFICATIONSection 11.01. Survival
  59Section 11.02. Indemnification
  59Section 11.03. Equityholders Representative
  61ARTICLE 12TERMINATIONSection 12.01. Termination
  63Section 12.02. Effect of Termination
  64ARTICLE 13MISCELLANEOUSSection 13.01. Notices
  64Section 13.02. Amendments; No Waivers
  66Section 13.03. Expenses
  66Section 13.04. Successors and Assigns
  66Section 13.05. Governing Law
  66Section 13.06. Jurisdiction
  66Section 13.07. WAIVER OF JURY TRIAL
  67Section 13.08. Counterparts; Effectiveness; Benefit
  67Section 13.09. Entire Agreement
  67  iv


TABLE OF
CONTENT (continued)  PageSection 13.10. Captions
  67Section 13.11. Severability
  67Section 13.12. Specific Performance
  68  v


AGREEMENT AND PLAN OF MERGER  AGREEMENT AND PLAN OF MERGER
(the Agreement) dated as of
November 11, 2008, by and among Panomics, Inc., a California
corporation (the Company),
Affymetrix, Inc., a Delaware corporation (Parent), Panda Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Parent (Merger Subsidiary), and Andrew Schwab, as
equityholders representative (Equityholders
Representative).  WHEREAS, upon the terms and
subject to the conditions of this Agreement and in accordance with California
Law, Parent and the Company will enter into a business combination transaction
pursuant to which Merger Subsidiary will merge with and into the Company (the Merger) and the Company will survive as a
wholly owned subsidiary of Parent.  WHEREAS, the Board of
Directors of the Company (i) has determined that the Merger is fair to,
and in the best interests of, the Company and its shareholders and has approved
and adopted this Agreement and the transactions contemplated by this Agreement
and (ii) has unanimously recommended the approval and adoption of this
Agreement by the shareholders of the Company in accordance with California Law.  WHEREAS, pursuant to the
Merger, among other things, each of the issued and outstanding shares of
capital stock of the Company shall be converted into the right to receive
consideration as set forth in Article 2 hereof.  WHEREAS, concurrently with
the execution of this Agreement, and as a condition and inducement to Parents
and Merger Subsidiarys willingness to enter into this Agreement, each of the
individuals listed on Annex A hereto (the Key Employees) has entered into an employment agreement with
the Surviving Corporation (each, a Key
Employee Employment Agreement).  WHEREAS, concurrently with
the execution of this Agreement, and as a condition and inducement to Parents
and Merger Subsidiarys willingness to enter into this Agreement, each of the
directors, officers and Major Shareholders of the Company listed on Annex B
hereto has entered into a Voting Agreement in the form attached hereto as Exhibit B
(each, a Voting Agreement).  WHEREAS, the Company, on the
one hand, and Parent and Merger Subsidiary, on the other hand, desire to make
certain representations, warranties, covenants and other agreements in
connection with the Merger.  NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, Parent, Merger Subsidiary
and the Company hereby agree as follows:


ARTICLE 1 DEFINITIONS  Section 1.01. 
Definitions.(a) 
The following terms, as used herein, have the following meanings:  Affiliate means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person.  Aggregate Option Exercise Price means the aggregate of the
exercise prices paid, deemed paid or payable with respect to (i) all
shares of Company Series Z Preferred Stock outstanding immediately prior
to the Effective Time and (ii) all unexpired and unexercised in-the-money
Company Stock Options outstanding immediately prior to the Effective Time.  Applicable Law means, with respect to any Person, any
federal, state or local law (statutory, common or otherwise), constitution,
treaty, convention, ordinance, code, rule, regulation, order, injunction,
judgment, decree, ruling or other similar requirement enacted, adopted,
promulgated or applied by a Governmental Authority that is binding upon or
applicable to such Person, as amended unless expressly specified otherwise.  As-Converted means, with respect to the Company Common Stock,
all outstanding shares of Company Common Stock and all shares of Company Common
Stock issuable in respect of Company Preferred Stock (including shares issuable
as a result of multiple or successive conversions of Company Preferred Stock),
without adjustment for any amounts that may be payable in connection with the
conversion of Company Preferred Stock.  Business
Day means a day
other than Saturday, Sunday or any day on which commercial banks in San
Francisco, California are authorized or required by law to close.  California Law means the General Corporation Law of the State
of California.  CERCLA means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and any rules or
regulations promulgated thereunder.  Closing Cash means an amount equal to the sum of
(i) Actual Cash as of the earlier of (A) the Effective Time and
(B) 11:59 P.M. (California time) on December 31, 2008, plus (ii) an amount equal to the
aggregate exercise prices of all unexpired and unexercised in-the-money Company
Stock Options outstanding immediately prior to the Effective Time plus (iii) an amount equal to the
aggregate exercise prices of all unexpired and unexercised Company Warrants
outstanding immediately prior to the Effective Time.  Notwithstanding the foregoing, in no event
shall Closing Cash be deemed reduced by (i) cash bonuses not to exceed
$200,000 in the aggregate to certain employees as set forth on
Schedule 6.01(k)(iv), or (ii) that certain license fee in an amount
not to exceed  2


$300,000 paid or payable by
the Company on or prior to December 31, 2008 pursuant to that certain
agreement set forth on Schedule 1.01(a)(i) hereto.  Closing Date Payment means an amount equal to the excess of
(i) the Merger Consideration over
(ii) the Escrow Amount.  Code means the Internal Revenue Code of 1986, as amended.  Company Balance Sheet means the balance sheet of the Company
as of September 30, 2008 and the footnotes thereto.  Company Balance Sheet Date means September 30, 2008.  Company Common Stock means the shares of Common Stock, no par
value per share, of the Company.  Company  Convertible
Securities means all outstanding (i) shares of Company
Preferred Stock, (ii) options (including, without limitation, Company
Stock Options), warrants (including, without limitation, Company Warrants),
stock appreciation rights, convertible promissory notes or other securities
convertible into, or exercisable or exchangeable for shares of Company Common
Stock and/or Company Preferred Stock and (iii) other conversion or
exchange rights or other rights or agreements to purchase, redeem, repurchase
or otherwise acquire any equity or equity-linked security of the Company.  Company Intellectual Property means all Intellectual Property
that is owned by the Company or any of its Subsidiaries.  Company Investor Preferred Stock means the Company
Series A-1 Preferred Stock, the Company Series B1-1 Preferred Stock,
the Company Series B2-1 Preferred Stock, Company Series C-1 Preferred
Stock and the Company Series C-2 Preferred Stock.  Company Preferred Stock means the Company Investor Preferred
Stock and the Company Series Z Preferred Stock.  Company Series A-1 Preferred Stock means the shares of
Series A-1 Preferred Stock, no par value per share, of the Company.  Company Series B1-1 Preferred Stock means the shares of
Series B1-1 Preferred Stock, no par value per share, of the Company.  Company Series B2-1 Preferred Stock means the shares of
Series B2-1 Preferred Stock, no par value per share, of the Company.  Company Series C-1 Preferred Stock means the shares of
Series C-1 Preferred Stock, no par value per share, of the Company.  3


Company Series C-2 Preferred Stock means the shares of
Series C-2 Preferred Stock, no par value per share, of the Company.  Company Series Z Preferred Stock means the shares of
Series Z Preferred Stock, no par value per share, of the Company.  Company Stock means the Company Common Stock and the Company
Preferred Stock.  Company Stock Option means each unexpired and unexercised
option in respect of Company Series Z Preferred Stock under the Company
Stock Option Plan.  Company Stock Option Plan means the 2004 Series Z
Preferred Stock Incentive Plan of the Company.  Company Warrants means all outstanding warrants or other
rights (including commitments to grant warrants or other rights, but excluding
Company Stock Options) to purchase or otherwise acquire Company Stock, whether
or not vested, held by any Person.  Environmental Law means any applicable federal, state, local,
regional or foreign law (including, without limitation, common law), judicial
decision, regulation, rule, judgment, order, decree, injunction, permit or
governmental requirement or any agreement with any Person, relating to
(i) the environment or (ii) the generation, use, handling, treatment,
storage, release, transportation, manufacture, processing, transfer, recycling,
reclamation, investigation, removal, remediation, distribution or disposal (or
arranging for the disposal) of, or exposure to, or human health and safety as it
relates to, pollutants, contaminants, wastes or chemicals or any toxic,
radioactive, ignitable, corrosive, reactive or otherwise hazardous substances,
wastes or materials.  Environmental  Permit
means any permit, license, franchise, certificate, approval or other similar
authorization of a Governmental Authority relating to any Environmental Law and
relating in any way to the business of the Company or any of its Subsidiaries
as currently conducted.  ERISA means the Employee Retirement Income Security Act of
1974.  ERISA Affiliate of any entity means any other entity that,
together with such entity, would be treated as a single employer under
Section 414 of the Code.  Escrow Allocated Portion means:  (a)as to each share of Company Series A-1
Preferred Stock, an amount in cash, without interest, equal to the product of
(i) the Investor Preferred Escrow Allocated Portion Per Share and (ii) the Series A-1
Conversion Multiplier;  4


(b)as to each share of Company Series B1-1
Preferred Stock, an amount in cash, without interest, equal to the product of
(i) the Investor Preferred Escrow Allocated Portion Per Share and (ii) the Series B1-1
Conversion Multiplier;  (c)as to each share of Company Series B2-1
Preferred Stock, an amount in cash, without interest, equal to the product of
(i) the Investor Preferred Escrow Allocated Portion Per Share and (ii) the Series B2-1
Conversion Multiplier;  (d)as to each share of Company Series C-1
Preferred Stock, an amount in cash, without interest, equal to the product of
(i) the Investor Preferred Escrow Allocated Portion Per Share and (ii) the Series C-1
Conversion Multiplier;  (e)as to each share of Company Series C-2
Preferred Stock, an amount in cash, without interest, equal to the product of
(i) the Investor Preferred Escrow Allocated Portion Per Share and (ii) the Series C-2
Conversion Multiplier; and  (f)as to each share of Company Series Z
Preferred Stock, an amount in cash, without interest, equal to the Series Z
Preferred Escrow Allocated Portion Per Share.  Escrow Amount means 10% of the Merger Consideration.  Escrow Release means the aggregate amount (if any)
distributed by the Escrow Agent from the Escrow Account in respect of the
Shareholders, the holders of Company Stock Options and the holders of Company
Warrants pursuant to the terms of the Escrow Agreement.  Fully Diluted means, with respect to any class or series of
Company Stock, all outstanding shares and all shares issuable in respect of all
stock appreciation rights, options (including the Company Stock Options) and
warrants (including the Company Warrants) for shares of such class or series of
Company Stock.  Governmental Authority means any transnational, domestic or
foreign federal, state or local governmental authority, department, court,
tribunal, arbitrator, agency, commission, regulator or official, including any
political subdivision thereof.  Guarantee by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness, (ii) to reimburse a bank for amounts drawn
under a letter of credit for the purpose of paying such Indebtedness or
(iii) entered into for the purpose of assuring in any other manner the
holder of such Indebtedness of the payment thereof or to protect such holder
against loss in respect thereof (in whole or in part).  Hazardous Substances means any pollutant, contaminant, waste
or chemical or any toxic, radioactive, ignitable, corrosive, reactive or
otherwise hazardous substance,  5


waste or material, including
petroleum, its derivatives, by-products and other hydrocarbons, toxic mold,
infectious waste, biomedical waste and any substance, waste or material
regulated under any Environmental Law.  HSR Act means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.  Indebtedness of any Person means, without duplication,
(a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all Indebtedness of others secured by a Lien on property
owned or acquired by such Person, whether or not the Indebtedness secured
thereby has been assumed, and (d) all Guarantees by such Person of
Indebtedness of others.  The Indebtedness
of any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Persons ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.  For the avoidance of doubt, the Indebtedness
of the Company shall not include obligations of the Company under that certain
agreement set forth on Schedule 1.01(a)(ii) hereto.  Initial Allocated Portion means  (a)as to each share of Company Series A-1
Preferred Stock, an amount in cash, without interest, equal to the sum of
(i) the Series A-1 Liquidation Preference Per Share and (ii) the Series A-1 Initial
Participation Amount Per Share;  (b)as to each share of Company Series B1-1
Preferred Stock, an amount in cash, without interest, equal to the sum of
(i) the Series B1-1 Liquidation Preference Per Share and (ii) the Series B1-1 Initial
Participation Amount Per Share;  (c)as to each share of Company Series B2-1
Preferred Stock, an amount in cash, without interest, equal to the sum of
(i) the Series B2-1 Liquidation Preference Per Share and (ii) the Series B2-1 Initial
Participation Amount Per Share;  (d)as to each share of Company Series C-1
Preferred Stock, an amount in cash, without interest, equal to the sum of
(i) the Series C-1 Liquidation Preference Per Share and (ii) the Series C-1 Initial
Participation Amount Per Share;  (e)as to each share of Company Series C-2
Preferred Stock, an amount in cash, without interest, equal to the sum of
(i) the Series C-2 Liquidation Preference Per Share and (ii) the Series C-2 Initial
Participation Amount Per Share; and  (f)as to each share of Company Series Z
Preferred Stock, an amount in cash, without interest, equal to the
Series Z Preferred Initial Allocated Portion Per Share.  Intellectual Property means (i) patents and all proprietary
rights associated therewith, (ii) trademarks, service marks, trade names,
trade dress, domain names, brand  6


names, certification marks,
and other similar indications of origin, together with all goodwill symbolized
by and related to the foregoing, (iii) copyrights and copyrightable
designs and all proprietary rights associated therewith, (iv) all
proprietary inventions, trade secrets, processes, formulae, methods,
schematics, drawings, blue prints, technology, know-how, computer software
programs and applications, discoveries and improvements, (v) all
registrations of any of the foregoing and all applications therefor and
(vi) other proprietary information and materials.  Investor Preferred Escrow Allocated Portion means the amount
equal to the excess of (i) the Escrow Release over (ii) the Series Z Preferred Escrow Allocated
Portion.  Investor Preferred Escrow Allocated Portion Per Share means
the amount obtained by dividing (i) the Investor Preferred Escrow
Allocated Portion by
(ii) the aggregate number of shares of Company Common Stock issuable upon
conversion of the Company Investor Preferred Stock outstanding immediately
prior to the Effective Time, calculated on a Fully Diluted basis.  Investor Preferred Initial Participation Amount means the
amount equal to the excess of (i) the Closing Date Payment over (ii) the sum of (A) the
Total Investor Preferred Liquidation Preference and (B) the Series Z Preferred Initial Allocated
Portion.  Investor Preferred Initial Participation Amount Per Share
means the amount obtained by dividing (i) the Investor Preferred Initial
Participation Amount by
(ii) the aggregate number of shares of Company Common Stock issuable upon
conversion of the Company Investor Preferred Stock outstanding immediately
prior to the Effective Time, calculated on a Fully Diluted basis.  Knowledge of the Company, or the Companys Knowledge means (i) the knowledge of any
of the Persons set forth on Annex C, after reasonable inquiry, and
(ii) the actual knowledge of any of the Persons set forth on Annex D.  Lien means, with respect to any property or asset, any
mortgage, lien, pledge, charge, security interest, encumbrance or other adverse
claim of any kind in respect of such property or asset.  For purposes of this Agreement, a Person
shall be deemed to own subject to a Lien any property or asset that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.  Major Shareholder means a beneficial holder of Company Stock
listed on Annex B hereto.  Material Adverse Effect means, with respect to any Person,
any change or effect that is, or is reasonably likely to be, materially adverse
to the condition (financial or otherwise), business (including the continued
operation thereof in accordance with past practice), assets or results of
operations of such Person and its Subsidiaries, taken as a whole, provided, however, that in no event shall
any of the following, in and of  7


themselves, be deemed to
constitute a Material Adverse Effect: (i) any changes resulting from or
arising out of general economic conditions in the United States or any other
jurisdictions in which such Person and its Subsidiaries conducts business
(including any changes arising out of acts of terrorism or weather conditions)
to the extent such changes do not disproportionately affect such Person,
(ii) any changes resulting from or arising out of conditions in the life
science research industry to the extent such changes do not disproportionately
affect such Person and its Subsidiaries, (iii) any changes resulting from
changes in law or regulation, or (iv) any loss of customers or employees,
delay or cancellation of customer orders or disruption in supplier, partner or
similar relationships arising from the execution, announcement or pendency of
this Agreement or the Merger.  Merger Consideration means the sum of (i) $73,000,000.00
and (ii) the Purchase Price Adjustment.  Net Cash means (i) Closing Cash less (ii) Indebtedness (it being
understood that Net Cash may be a positive or negative number).  1933 Act means the Securities Act of 1933, as
amended.  1934 Act means the Securities Exchange Act of 1934, as
amended.  officer of any Person means any executive officer of such
Person.  Participation Amount means the amount equal to the excess of
(i) the sum of (A) the Closing Date Payment and (B) the Escrow Release over (ii) the Total Investor
Preferred Liquidation Preference.  Person means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.  Post-Closing Tax Period means any Tax period beginning after
the Closing Date; and, with respect to a Tax period that begins on or before
the Closing Date and ends thereafter, the portion of such Tax period beginning
after the Closing Date.  Pre-Closing Tax Period means any Tax period ending on or
before the Closing Date; and, with respect to a Tax period that begins on or
before the Closing Date and ends thereafter, the portion of such Tax period
ending on the Closing Date.  Purchase Price Adjustment means (i) Net Cash less (ii) Transaction Expenses (it
being understood that the Purchase Price Adjustment may be a positive or a
negative number).  Related Agreements means the Escrow Agreement, each Key
Employee Employment Agreement and each Voting Agreement.  Representative means, with respect to any party, its
Affiliates and its and their respective directors, officers, Affiliates,
employees, partners, agents or advisors  8


(including, without
limitation, attorneys, accountants, consultants and investment bankers).  Series A-1 Conversion Multiplier means the amount
obtained by dividing (i) 6.00 by
(ii) 1.010499.  Series A-1 Initial Participation Amount Per Share means
an amount equal to the product of (i) the Investor Preferred Initial
Participation Amount Per Share and
(ii) the Series A-1 Conversion Multiplier.  Series A-1 Liquidation Preference Per Share means an
amount per share of Company Series A-1 Preferred Stock equal to $6.00.  Series B1-1 Conversion Multiplier means the amount
obtained by dividing (i) 6.90 by
(ii) 1.087920.  Series B1-1 Initial Participation Amount Per Share means
an amount equal to the product of (i) the Investor Preferred Initial
Participation Amount Per Share and
(ii) the Series B1-1 Conversion Multiplier.  Series B1-1 Liquidation Preference Per Share means an
amount per share of Company Series B1-1 Preferred Stock equal to $6.90.  Series B2-1 Conversion Multiplier means the amount
obtained by dividing (i) 7.504 by
(ii) 1.139884.  Series B2-1 Initial Participation Amount Per Share means
an amount equal to the product of (i) the Investor Preferred Initial
Participation Amount Per Share and
(ii) the Series B2-1 Conversion Multiplier.  Series B2-1 Liquidation Preference Per Share means an
amount per share of Company Series B2-1 Preferred Stock equal to $7.504.  Series C-1 Conversion Multiplier means the amount
obtained by dividing (i) 0.5967 by
(ii) 0.498075.  Series C-1 Initial Participation Amount Per Share means
an amount equal to the product of (i) the Investor Preferred Initial
Participation Amount Per Share and
(ii) the Series C-1 Conversion Multiplier.  Series C-1 Liquidation Preference Per Share means an
amount per share of Company Series C-1 Preferred Stock equal to $0.5967.  Series C-2 Conversion Multiplier means the amount
obtained by dividing (i) 0.5967 by
(ii) 0.498075.  9


Series C-2 Initial Participation Amount Per Share means
an amount equal to the product of (i) the Investor Preferred Initial
Participation Amount Per Share and
(ii) the Series C-2 Conversion Multiplier.  Series C-2 Liquidation Preference Per Share means an amount
per share of Company Series A-1 Preferred Stock equal to $0.5967.  Series Z Preferred Escrow Allocated Portion means the
greater of (i) the Series Z Preferred Net Allocated Portion and (ii) the Series Z Preferred
Net Participation Amount.  Series Z Preferred Escrow Allocated Portion Per Share
means the amount obtained by dividing (i) the Series Z Preferred
Escrow Allocated Portion by
(ii) the aggregate number of shares of the Company Series Z Preferred
Stock outstanding immediately prior to the Effective Time, calculated on a
Fully Diluted basis.  Series Z Preferred Initial Allocated Portion means the
amount equal to the sum of (i) the product of (A) 0.05 and (B) the Closing Date Payment and (ii) the Aggregate Option
Exercise Price.  Series Z Preferred Initial Allocated Portion Per Share
means the amount obtained by dividing (i) the Series Z Preferred
Initial Allocated Portion by
(ii) the aggregate number of shares of the Company Series Z Preferred
Stock outstanding immediately prior to the Effective Time, calculated on a
Fully Diluted basis.  Series Z Preferred Minimum Net Proceeds means the sum of
(i) the product of (A) 0.05 and
(B) the sum of (1) the Closing Date Payment and (2) the Escrow Release and (ii) the Aggregate Option
Exercise Price.  Series Z Preferred Net Allocated Portion means the
excess of (i) the Series Z Preferred Minimum Net Proceeds over (ii) the Series Z Preferred
Initial Allocated Portion.  Series Z Preferred Net Participation Amount means the
excess (if any) of (i) the Series Z Preferred Participation Amount over (ii) the Series Z Preferred
Initial Allocated Portion.  Series Z Preferred Participation Amount means the amount
obtained by multiplying (i) the Participation Amount by (ii) a fraction, the numerator of
which is (A) the sum of (1) the aggregate number of shares of Company
Common Stock outstanding immediately prior to the Effective Time and (2) the aggregate number of
shares of Company Common Stock issuable upon conversion of the outstanding
Series Z Preferred Stock immediately prior to the Effective Time,
calculated on a Fully Diluted basis, and the denominator of which is
(B) the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time, calculated on an As-Converted, Fully
Diluted basis.  10


Shareholders means the holders of the Company Stock.  Subsidiary means, with respect to any Person, any entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at any time directly or indirectly owned by such Person.  Tax means (i) any tax, or similar governmental fee,
assessment or charge of any kind whatsoever (including, but not limited to,
withholding on amounts paid to or by any Person), together with any interest,
penalty, addition to tax or additional amount imposed by any Governmental
Authority responsible for the imposition of any such tax (domestic or foreign)
(a Taxing Authority), and any
liability for any of the foregoing as transferee, (ii) in the case of the
Company or any Subsidiary of the Company, liability for the payment of any
amount of the type described in clause (i) as a result of being or having
been before the Effective Time a member of an affiliated, consolidated,
combined or unitary group, or a party to any agreement or arrangement, as a
result of which liability of the Company or any of its Subsidiaries to a Taxing
Authority is determined or taken into account with reference to the activities
of any other Person, and (iii) liability of the Company or any Subsidiary
of the Company for the payment of any amount as a result of being party to any
Tax Sharing Agreement or with respect to the payment of any amount imposed on
any Person of the type described in (i) or (ii) as a result of any
existing express or implied agreement or arrangement (including, but not
limited to, an indemnification agreement or arrangement).  Tax Asset means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
credit or tax attribute that could be carried forward or back to reduce Taxes
(including without limitation deductions and credits related to alternative
minimum Taxes).  Tax Return means any Tax return, statement, report, election,
declaration, disclosure, schedule or form (including any estimated Tax or
information return or report) required to be filed with any Taxing Authority.  Tax Sharing Agreements means all existing agreements or
arrangements (whether or not written) binding the Company or any Subsidiary of
the Company that provide for the allocation, apportionment, sharing or
assignment of any Tax liability or benefit, or the transfer or assignment of
income, revenues, receipts, or gains for the purpose of determining any
Persons Tax liability (excluding any indemnification agreement or arrangement
pertaining to the sale or lease of assets or subsidiaries).  Third Party means any Person as defined in this Agreement or
in Section 13(d) of the 1934 Act, other than Parent or any of its
Affiliates.  Total Investor Preferred Liquidation Preference means the
amount equal to the sum of (i) the Total Series A-1 Liquidation
Preference, plus (ii) the
Total Series B1-1 Liquidation Preference, plus
(iii) the Total Series B2-1 Liquidation Preference, plus (iv)  11


the Total Series C-1
Liquidation Preference plus
(v) the Total Series C-2 Liquidation Preference.  Total Series A-1 Liquidation Preference means the
product of (i) the number of shares of Company Series A-1 Preferred
Stock outstanding immediately prior to the Effective Time and (ii) the Series A-1
Liquidation Preference Per Share.  Total Series B1-1 Liquidation Preference means the
product of (i) the number of shares of Company Series B1-1 Preferred
Stock outstanding immediately prior to the Effective Time, calculated on a
Fully Diluted basis, and
(ii) the Series B1-1 Liquidation Preference Per Share.  Total Series B2-1 Liquidation Preference means the
product of (i) the number of shares of Company Series B2-1 Preferred
Stock outstanding immediately prior to the Effective Time, calculated on a
Fully Diluted basis, and
(ii) the Series B2-1 Liquidation Preference Per Share.  Total Series C-1 Liquidation Preference means the
product of (i) the number of shares of Company Series C-1 Preferred
Stock outstanding immediately prior to the Effective Time, calculated on a
Fully Diluted basis, and
(ii) the Series C-1 Liquidation Preference Per Share.  Total Series C-2 Liquidation Preference means the
product of (i) the number of shares of Company Series C-2 Preferred
Stock outstanding immediately prior to the Effective Time, calculated on a
Fully Diluted basis, and
(ii) the Series C-2 Liquidation Preference Per Share.  Transaction Expenses means the aggregate amount of all unpaid
out-of-pocket expenses incurred by or on behalf of or otherwise payable by the
Company or any of its Subsidiaries in connection with the negotiation and
performance of this Agreement and the transactions contemplated hereby,
including the Merger, which shall be deemed to include, without limitation, the
following (i) fifty percent (50%) of any Transfer Taxes, (ii) any
amounts that are or may become payable pursuant to the agreements set forth on
Schedules 6.01(k)(v) and 6.05(c), (iii) any accrued vacation pay that
is or becomes payable to an employee of the Company at or before
11:59 P.M. (California time) on December 31, 2008, (iv) any
amounts that are or may become payable to the Payment Agent for services
rendered and expenses incurred in connection with the administration by the
Payment Agent of the exchange of the Certificates for the Merger Consideration,
but only to the extent that such amounts do not exceed an aggregate amount of
$16,000, and (v) any employer-related Taxes arising as a result of the
payments to the holders of Company Stock Options contemplated by
Section 2.05, but only to the extent such employer-related Taxes exceed in
the aggregate either (A) $24,000, if the Effective Time occurs at or
before 11:59 P.M. (California time) on December 31, 2008, or
(B) $57,000, if the Effective Time occurs at or after 12:00 A.M.
(California time) on January 1, 2009.  12


Transfer Taxes mean all transfer, documentary, sales, use,
stamp, registration, value added and other such Taxes (including any penalties
and interest) incurred in connection with transactions contemplated by this
Agreement.  Any reference in this
Agreement to a statute shall be to such statute, as amended from time to time,
and to the rules and regulations promulgated thereunder.  (b)Each of the following terms is defined in the
Section set forth opposite such term:  Term
  
  SectionActual Cash
  
  4.07(b)Agreement
  
  RecitalsAllocated Portion
  
  2.03(a)Breach
  
  11.02(a)Certificates
  
  2.11(a)Closing
  
  2.02Closing Date
  
  2.02Closing Date Optionholder
  
  2.08(a)(i)Closing Date Shareholder
  
  2.08(a)(i)Closing Date Warrantholder
  
  2.08(a)(i)Closing Payment Schedule
  
  2.08(a)Company
  
  RecitalsCompany Disclosure Schedule
  
  Article 4Company Shareholder Approval
  
  4.02(a)Company Registered Intellectual Property
  
  4.18(c)Company Securities
  
  4.05(g)Competing Transaction
  
  6.04Confidentiality Agreement
  
  6.03Damages
  
  11.02(a)Deductible Amount
  
  11.02(b)Effective Time
  
  2.02Employee Plans
  
  4.15(a)End Date
  
  12.01(b)(i)Equipment
  
  4.16(c)Equityholders Representative
  
  RecitalsEquityholders Representatives Expenses
  
  11.03(c)Escrow Account
  
  2.04Escrow Agent
  
  2.04Escrow Agreement
  
  2.04Escrow Fund
  
  2.04GAAP
  
  4.07(a)Indemnified Parties
  
  11.02(a)Indemnifying Party
  
  11.02(c)Indemnitors
  
  11.02(a)Information Statement
  
  6.02Key Employee Employment Agreement
  
  Recitals  13


Term
  
  SectionKey Employees
  
  RecitalsLetter of Transmittal
  
  2.11(a)Material Contract
  
  4.11(b)Merger
  
  RecitalsMerger Subsidiary
  
  RecitalsMinimum Claim Amount
  
  11.02(b)Multiemployer Plan
  
  4.15(c)Necessary Intellectual Property
  
  4.18(a)Off-the-Shelf Software
  
  4.18(a)Parent
  
  RecitalsParent Plans
  
  6.05(e)Payment Agent
  
  2.11(a)Permits
  
  4.20Purchase Price Adjustment Statement
  
  2.07(a)Schedule
  
  Article 4Specified Representations
  
  11.01Subsidiary Securities
  
  4.06(b)Surviving Corporation
  
  2.01(a)Third Party Interests
  
  4.06(c)Voting Agreement
  
  RecitalsWARN Act
  
  4.15(n)  ARTICLE 2 MERGER CONSIDERATION; THE MERGER  Section 2.01.  The
Merger.(a) At the
Effective Time, and subject to and upon the terms and conditions of this
Agreement, Merger Subsidiary shall be merged with and into the Company in
accordance with California Law, whereupon the separate existence of Merger
Subsidiary shall cease, and the Company shall be the surviving corporation (the
Surviving Corporation).  (b)From and after the Effective Time, the Merger
shall have the effect set forth under California Law, and without limiting the
foregoing, from and after the Merger, the Surviving Corporation shall succeed
without transfer to all rights and properties of the Company and Merger
Subsidiary, and shall be subject to the debts and liabilities of the Company
and Merger Subsidiary as if the Surviving Corporation had incurred such debts
and liabilities, all as provided under California Law.  Section 2.02.  Effective
Time.Unless this Agreement
is earlier terminated pursuant to Section 12.01, the closing of the
transactions contemplated by this Agreement (the Closing) will take place as promptly as practicable, but no
later than two (2) Business Days, following the satisfaction or, to the
extent permitted hereunder, waiver of the conditions set forth in
Article 9 (other than conditions that by their nature are to be  14


satisfied at the Closing,
but subject to the satisfaction or waiver of such conditions), at the offices
of Davis Polk & Wardwell, 1600 El Camino Real, Menlo Park, California,
unless another place or date is agreed to by Parent and the Company.  The date upon which the Closing occurs is
herein referred to as the Closing Date.  On the Closing Date, the parties hereto shall
file an agreement of merger in customary form with the Secretary of State of
the State of California and make all other filings or recordings required by
Applicable Law in connection with the Merger. 
The Merger shall become effective at such time (the Effective Time) as the agreement of merger
is duly filed with the Secretary of State of the State of California or at such
later time as may be specified in the agreement of merger.  Section 2.03.  Conversion
of Shares.At the Effective
Time, by virtue of the Merger and without any action on the part of Parent,
Merger Subsidiary, the Company or the Shareholders:  (a)Except as otherwise provided in
Section 2.03(b), Section 2.03(c) and Section 2.10,
(i) each share of Company Preferred Stock shall automatically be canceled
and retired and shall cease to exist, and shall thereafter represent only the
right to receive, in cash, without interest, (A) payment of an amount
equal to its Initial Allocated Portion and (B) payment of its Escrow
Allocated Portion (if any) upon release of the Escrow Fund (or any portion
thereof) from the Escrow Account pursuant to the terms of the Escrow Agreement,
and (ii) each share of Company Common Stock outstanding immediately prior
to the Effective Time shall be canceled and retired and shall cease to exist,
and no payment shall be made with respect thereto.  (The amount payable with respect to each
share of Company Stock pursuant to this Section 2.03(a) referred to
herein as its Allocated Portion.)  (b)Each share of Company Stock held by the
Company as treasury stock or owned by Parent immediately prior to the Effective
Time shall be canceled, and no payment shall be made with respect thereto.  (c)Each share of Company Stock held by any
Subsidiary of either the Company or Parent shall be converted into such number
of shares of stock of the Surviving Corporation such that each such Subsidiary
owns the same percentage of the outstanding capital stock of the Surviving
Corporation immediately following the Effective Time as such Subsidiary owned
in the Company immediately prior to the Effective Time.  (d)Each share of common stock of Merger
Subsidiary outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock of the Surviving
Corporation with the same rights, powers and privileges as the shares so
converted and, together with the stock of the Surviving Corporation described
in Section 2.03(c) above, shall constitute the only outstanding
shares of capital stock of the Surviving Corporation.  Section 2.04.  Escrow.At the Effective Time, Parent
shall withhold from the Merger Consideration otherwise payable in connection
with the Merger to the  15


Shareholders, the holders of
Company Stock Options and the holders of Company Warrants an aggregate amount
of cash equal to the Escrow Amount. 
Prior to or at the Effective Time, the Equityholders Representative and
Parent shall enter into an escrow agreement (the Escrow Agreement) with U.S. Bank National Association (the Escrow Agent) in the form of Exhibit B
hereto.  Pursuant to the terms of the
Escrow Agreement, at the Effective Time, Parent shall deposit the Escrow Amount
into an escrow account (the Escrow Account),
which account is to be managed by the Escrow Agent.  Distributions of cash shall be governed by
the terms and conditions of this Agreement and the Escrow Agreement (the cash
in the Escrow Account, including all accrued interest, being referred to as the
Escrow Fund).  The Escrow Amount shall be security for the
indemnity provided for in Article 11 hereof and shall be disbursed in
accordance with the terms thereof. 
Notwithstanding the foregoing or anything to the contrary contained
herein, any distribution to the Shareholders, the holders of Company Stock
Options and the holders of Company Warrants shall be reduced by expenses,
including the Equityholders Representatives Expenses, incurred in connection
with such distribution.  Section 2.05.  Company
Stock Options.At the
Effective Time, by virtue of the Merger and without any action on the part of
Parent, Merger Subsidiary, the Company or the holders of Company Stock Options,
each Company Stock Option outstanding immediately prior to the Effective Time
shall become fully vested and shall be canceled and extinguished, and each
holder thereof shall cease to have any rights with respect thereto, other than
the right to receive, in cash, without interest, (i) payment from the
Surviving Corporation (which Parent shall cause Surviving Corporation to pay)
promptly following the Effective Time of an amount equal to the excess of
(A) the Series Z Preferred Initial Allocated Portion Per Share over (B) the exercise price required
to be paid to acquire the corresponding share of Company Series Z
Preferred Stock and (ii) payment of an amount equal to the Series Z
Preferred Escrow Allocated Portion Per Share (if any) upon release of the Escrow
Amount (or any portion thereof) from the Escrow Account.  Notwithstanding anything to the contrary
herein, any amounts that would otherwise be disbursed from the Escrow Account
to a Closing Date Optionholder, in its capacity as such, shall be disbursed from
the Escrow Account to the Surviving Corporation.  Promptly after receiving such amounts, the
Surviving Corporation shall disburse such amounts, net of any applicable
withholding taxes, to the applicable Closing Date Optionholder.  Section 2.06.  Company
Warrants.(a)  Prior to
the Effective Time, the Company shall use its commercially reasonable efforts
to cause the exercise or conversion of all of the outstanding Company Warrants
for or into shares of Company Stock in accordance with the terms of the applicable
Company Warrants.  (b)At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Subsidiary, the
Company or the holders of Company Warrants, each Company Warrant outstanding
immediately prior to the Effective Time shall be canceled and extinguished, and
each holder thereof shall cease to have any rights with respect thereto, other
than the right to receive, in cash, without interest, (i) payment of an
amount equal to the excess of (A) the Initial Allocated Portion payable
with respect to the  16


shares of Company Stock
subject to such Company Warrant over
(B) the exercise price required to be paid to acquire the shares of
Company Stock subject to such Company Warrant and (ii) payment of an
amount equal to the Escrow Allocated Portion (if any) payable with respect to
the shares of Company Stock subject to such Company Warrant upon release of the
Escrow Amount (or any portion thereof) from the Escrow Account to such holder
pursuant to the terms of the Escrow Agreement.  Section 2.07.  Purchase
Price Adjustment Statement.(a) At
Closing, the Company shall deliver to Parent a certificate (the Purchase Price Adjustment Statement) of
the Company executed by an executive officer of the Company, which certificate
shall set forth the following, and contain a representation and warranty of the
Company as to the accuracy and completeness thereof, in each case as of the
Closing:  (i)a schedule setting forth all Transaction
Expenses, together with a description, the amount and reasonable documentation
in respect of each element thereof, and payment instructions therefor; and  (ii)a statement of the Companys calculation of
Net Cash, including:  (A)a schedule setting forth (A) the
exercise price of each unexpired and unexercised in-the-money Company Stock
Option outstanding immediately prior to the Effective Time and (B) the
exercise price of each unexpired and unexercised Company Warrant outstanding
immediately prior to the Effective Time;  (B)a statement of the Companys Actual Cash as
of the close of business on the Business Day immediately preceding the Closing
Date, together with printouts of online bank account balances or other
reasonable documentation thereof; and  (C)a statement of the Companys Indebtedness as
of the close of business on the Business Day immediately preceding the Closing
Date, together with a description of each element thereof.  (b)In addition, at least two (2) Business
Days prior to the Closing Date, the Company shall deliver to Parent a
certificate of the Company setting forth its good faith estimate of the
foregoing.  Section 2.08.  Closing
Payment Schedule.  (a) 
At least two (2) Business Days prior to the Closing Date, the Company
shall deliver to Parent and the Payment Agent a definitive closing payment
schedule (the Closing Payment Schedule)
in the format of, and using the formulae set forth in, an Excel spreadsheet
previously reviewed by the parties, a copy of which is attached as attached
Schedule 2.08, executed by an executive officer of the Company, which schedule
shall reflect all payments to which the Shareholders, the holders of Company
Stock Options and the holders of Company Warrants shall be entitled at Closing
in accordance with this Article 2 and shall set forth  17


the following and contain a
representation and warranty of the Company as to the accuracy and completeness
thereof, in each case as of the Closing:  (i)the name and mailing address (or other
delivery instructions reasonably acceptable to Parent and the Payment Agent) of
(A) each holder of record of outstanding shares of Company Stock
immediately prior to the Effective Time (each, a Closing Date Shareholder), (B) each holder of unexpired
and unexercised in-the-money Company Stock Options outstanding immediately
prior to the Effective Time (each, a Closing
Date Optionholder) and (C) each holder of unexpired and
unexercised Company Warrants outstanding immediately prior to the Effective
Time (each, a Closing Date Warrantholder)  (ii)(A) the number of shares of Company
Stock of each class and series held by each Closing Date Shareholder
immediately prior to the Effective Time, (B) the aggregate Initial
Allocated Portion payable to each Closing Date Shareholder at the Effective
Time and (C) the number and class of Dissenting Shares, if any, held by
each Closing Date Shareholder immediately prior to the Effective Time;  (iii)(A) the number of unexpired and
unexercised in-the-money Company Stock Options held by each Closing Date
Optionholder immediately prior to the Effective Time, (B) the aggregate
Initial Allocated Portion payable to each Closing Date Optionholder at the
Effective Time and (C) the aggregate of the exercise prices of the
unexpired and unexercised in-the-money Company Stock Options held by each
Closing Date Optionholder immediately prior to the Effective Time; and  (iv)(A) the number of unexpired and
unexercised Company Warrants held by each Closing Date Warrantholder
immediately prior to the Effective Time, (B) the aggregate Initial
Allocated Portion payable to each Closing Date Warrantholder at the Effective
Time and (C) the aggregate of the exercise prices of the unexpired and
unexercised Company Warrants held by each Closing Date Warrantholder
immediately prior to the Effective Time.  (b)Concurrently with the delivery of the Closing
Payment Schedule, the Company also shall deliver to Parent, in such detail as
shall be reasonably acceptable to Parent, all information on which the
calculations reflected in the Closing Payment Schedule are based.  If there are any changes between the date of
delivery of the Closing Payment Schedule and the Closing Date in any items that
are determined as of or immediately prior to the Effective Time, the Company
shall deliver to Parent and the Payment Agent at the Closing an updated Closing
Payment Schedule that reflects such changes. 
Any updated Closing Payment Schedule shall be executed by an executive
officer of the Company and shall contain a representation and warranty of the
Company as to the accuracy and completeness thereof, in each case as of the
Closing.  Section 2.09.  Withholding
Rights.Each of the Surviving
Corporation and Parent shall be entitled to deduct and withhold from the
consideration otherwise payable to any  18


Person pursuant to this
Agreement such amounts as it is required to deduct and withhold with respect to
the making of such payment under any provision of federal, state, local or
foreign tax law.  If the Surviving
Corporation or Parent, as the case may be, so withholds amounts, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
Person in respect of which the Surviving Corporation or Parent, as the case may
be, made such deduction and withholding.  Section 2.10.  Dissenting
Shares.(a) Notwithstanding
Section 2.03, shares of Company Stock outstanding immediately prior to the
Effective Time held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal for such shares in
accordance with California Law shall not be converted into a right to receive
any portion of the Merger Consideration in accordance with Section 2.03,
but the holder thereof shall be entitled only to such rights as are provided by
California Law, unless such holder fails to perfect, withdraws or otherwise
loses its right to appraisal.  If, after
the Effective Time, such holder fails to perfect, withdraws or loses its right
to appraisal, such shares shall be treated as if they had been converted as of
the Effective Time into a right to receive an a portion of the Merger
Consideration pursuant to Section 2.03(a). 
The Company shall give Parent prompt notice of any demands received by
the Company for appraisal of shares of Company Stock, and Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demands.  Except with the prior written
consent of Parent, the Company shall not make any payment with respect to, or
settle or offer to settle, any such demands.  Section 2.11.  Surrender
and Payment.  (a) Parent
will appoint U.S. Bank National Association to act as payment agent (the Payment Agent) for the purpose of
exchanging certificates representing the shares of Company Stock (the Certificates) for the Merger
Consideration.  Immediately following the
Effective Time, Parent will make available the Merger Consideration, less any amounts to be paid to holders of
Company Stock Options pursuant to Section 2.05 (which shall be paid by
Parent to the Surviving Corporation as promptly as practicable and in any event
immediately following the Effective Time) less
any amounts withheld pursuant to Section 2.09, to be paid in respect of
the Certificates in accordance with the provisions set forth in this
Article 2.  Promptly following the
Effective Time, Parent or the Payment Agent shall mail to every holder of record
of Company Preferred Stock that was issued and outstanding immediately prior to
the Effective Time and that has not previously delivered its Certificates
together with a properly completed and duly executed letter of transmittal (a Letter of Transmittal), in each case to
the mailing address (or pursuant to the other delivery instructions) set forth
in the Closing Payment Schedule, (x) a Letter of Transmittal and
(y) instructions for use of such Letter of Transmittal in effecting the
surrender of certificates.  (b)Each holder of outstanding Company Preferred
Stock that has been converted into the right to receive a portion of the Merger
Consideration pursuant to Section 2.03(a) will be entitled to
receive, upon surrender to the Payment Agent of a Certificate, together with a
properly completed Letter of Transmittal (which shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the Certificate to the Payment Agent), the Allocated Portion, if
any, payable  19


for each share of Company
Preferred Stock represented by such Certificate in accordance with the
procedures set forth in this Article 2. 
Until so surrendered, from and after the Effective Time each such
Certificate shall represent for all purposes only the right to receive the
Allocated Portion, if any, payable for each share of Company Stock represented
thereby.  (c)If any portion of the Merger Consideration is
to be paid to a Person other than the Person in whose name the surrendered
Certificate is registered, it shall be a condition to such payment that the
Certificate so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the Person requesting such payment shall pay to the
Payment Agent any transfer or other Taxes required as a result of such payment
to a Person other than the registered holder of such Certificate or establish
to the satisfaction of the Payment Agent that such Tax has been paid or is not
payable.  (d)From and after the Effective Time, there
shall be no further registration of transfers of shares of Company Stock.  If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be canceled and
exchanged for the Allocated Portion, if any, provided for, and in accordance
with the procedures set forth, in this Article 2.  (e)Any portion of the Merger Consideration made
available to the Payment Agent pursuant to Section 2.11(a) (and any
interest or other income earned thereon) that remains unclaimed by the holders
of shares of Company Stock sixty (60) Business Days after the Effective Time
shall be returned to Parent, upon demand, and any such holder who has not
exchanged shares of Company Stock for the Merger Consideration payable in
respect of such shares of Company Stock in accordance with this
Section 2.11 prior to that time shall thereafter look only to Parent for
payment of the Allocated Portion payable in respect of such shares of Company
Stock without any interest thereon. 
Notwithstanding the foregoing, Parent shall not be liable to any holder
of shares of Company Stock for any amount paid to a public official pursuant to
applicable abandoned property, escheat or similar laws.  Immediately prior to such time when amounts
remaining unclaimed by holders of shares of Company Stock would otherwise
escheat to or become property of any Governmental Authority, such unclaimed
amounts shall become, to the extent permitted by Applicable Law, the property
of Parent free and clear of any claims or interest of any Persons previously
entitled thereto.  (f)Any portion of the Merger Consideration made
available to the Payment Agent pursuant to Section 2.11(a) to pay for
any Dissenting Shares shall be returned to Parent, upon demand.  Section 2.12.  Lost Certificates.If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the entry by such Person into an
indemnification agreement in form satisfactory to Parent, or the posting by
such Person of a bond, in such reasonable amount as the Surviving Corporation
may direct, as indemnity against any claim that may be made against it with
respect to such Certificate, the Payment Agent will pay, in exchange for such
lost, stolen  20


or destroyed Certificate,
the Allocated Portion, if any, payable in respect of the shares of Company
Stock evidenced by such Certificate, in accordance with the procedures set
forth in this Article 2.  Section 2.13. 
Adjustments.Notwithstanding
anything to the contrary herein, the parties hereto acknowledge that
(a) the Initial Allocated Portion payable to each holder of Company Stock
as of the Effective Time may differ from the Initial Allocated Portion that
would have been payable to each holder of Company Stock as of the Effective
Time for various reasons, including if (i) any Damages had reduced the
Closing Date Payment instead of being payable from the Escrow Amount or
(ii) any deficiencies in the Companys calculations of the Purchase Price
Adjustment had reduced the Closing Date Payment instead of being payable from
the Escrow Amount; (b) the Equityholders Representative may make any
appropriate adjustments to the provisions of this Article 2 in order to
correct any such discrepancy (including adjusting the Escrow Allocated Portion
payable with respect to any share of Company Stock), provided that no such adjustment shall require any
additional payment by Parent or the Surviving Corporation; and (c) none of
the Equityholders Representative, Parent, the Surviving Corporation, the
Payment Agent and any Affiliate of the foregoing shall have any liability for
any such adjustment (or the failure to make any adjustment).  Section 2.14.  Tax
Treatment of Escrow Payment.The
parties acknowledge and agree (i) that any amount distributed by the
Escrow Agent from the Escrow Account to the Shareholders and the holders of
Company Warrants pursuant to the terms of the Escrow Agreement shall be
treated, for U.S. federal income tax purposes, as additional consideration paid
to the Shareholders for their Company Stock pursuant to the Merger as and when
such amount is distributed, and (ii) a portion of each such distribution
shall be treated as a payment of interest in accordance with Section 483
of the Code.  ARTICLE 3 THE SURVIVING CORPORATION  Section 3.01.  Articles of
Incorporation.  The articles
of incorporation of the Company in effect at the Effective Time shall be the
articles of incorporation of the Surviving Corporation until amended in
accordance with Applicable Law, provided
that, at the Effective Time, such articles of incorporation shall be amended as
set forth in Annex E.  Section 3.02.  Bylaws.  The bylaws of Merger Subsidiary in effect at
the Effective Time shall be the bylaws of the Surviving Corporation until
amended in accordance with Applicable Law.  Section 3.03.  Directors
and Officers.  From and after
the Effective Time, until successors are duly elected or appointed and
qualified in accordance with Applicable Law, (i) the directors of Merger
Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation and (ii) the officers of Merger Subsidiary at the Effective
Time shall be the officers of the Surviving Corporation.  21


ARTICLE
4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY  The Company hereby represents and warrants to
Parent that each of the statements contained in this Article 4 are true
and complete at and as of the date hereof and at and as of the Effective Time
except as otherwise provided herein and except as specifically disclosed in the
schedules attached hereto (each, a Schedule and
together, the Company Disclosure Schedule).  Each exception set forth in the Company
Disclosure Schedule and each other reference to this Agreement set forth in the
Company Disclosure Schedule shall be identified by reference to, or grouped
under a heading referring to, a specific individual section or subsection of
this Agreement and shall relate only to such section or subsection except to
the extent that (a) one portion of the Company Disclosure Schedule
specifically refers to another portion thereof by specific cross reference or (b) it
is readily apparent to Parent from the text of the disclosure in the Company
Disclosure Schedule that an item disclosed in one section or subsection of the
Company Disclosure Schedule is omitted from another section or subsection where
such disclosure would be appropriate, in which case such item shall be deemed
to have been disclosed in the section or subsection of the Company Disclosure
Schedule from which such item is omitted.  Section 4.01.  Corporate Existence and
Power.The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not
be material to the Company and its Subsidiaries, taken as a whole.  The Company is duly qualified to do business
and is in good standing in each jurisdiction where such qualification is
necessary, except for those jurisdictions where failure to be so qualified
would not have, individually or in the aggregate, a Material Adverse Effect on
the Company or any of its Subsidiaries, taken as a whole.  Section 4.02.  Corporate Authorization.(a) The execution, delivery
and performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby are within the Companys
corporate powers and, except for the required approval of the Shareholders in
connection with the consummation of the Merger, have been duly authorized by
all necessary corporate action on the part of the Company.  The Company has heretofore delivered or made
available to Parent true and complete copies of the articles of incorporation
and bylaws of the Company as currently in full force and effect.  The Company is not in violation of any of the
provisions of its articles of incorporation or bylaws.  The affirmative votes of (i) the holders
of a majority of the outstanding shares of Company Common Stock and Company
Preferred Stock (voting together as a single class on an As-Converted basis), (ii) the
holders of at least two-thirds of the outstanding shares of Company Investor
Preferred Stock (voting together as a single class on an As-Converted basis)
and (iii) the holders of a majority of the outstanding shares of the
Company Common Stock are the only votes of the Shareholders necessary in
connection with the consummation of the Merger and the other transactions
contemplated hereby (the Company Shareholder  22


Approval).  This Agreement constitutes a valid and
binding agreement of the Company, subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar laws relating to or
affecting creditors rights generally and to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law).  (b)At a
meeting duly called and held, the Companys Board of Directors has (i) unanimously
determined that the Merger is fair to and in the best interests of the
Shareholders, (ii) unanimously approved and adopted this Agreement and the
transactions contemplated hereby, and (iii) unanimously resolved to
recommend approval and adoption of this Agreement and approval of the Merger
and the other transactions contemplated hereby by the Shareholders.  Section 4.03.  Governmental
Authorization.The execution,
delivery and performance by the Company of this Agreement and the Escrow
Agreement and the consummation by the Company of the transactions contemplated
hereby and thereby require no action on the part of the Company by or in
respect of, or filing with, any Governmental Authority, other than (i) the
filing of the agreement of merger with the Secretary of State of the State of
California and appropriate documents with the relevant authorities of other
states in which Company is qualified to do business, (ii) compliance with
any applicable requirements of the 1933 Act, the 1934 Act, and any other
applicable securities laws, whether state or foreign, (iii) such filings
as may be required under the HSR Act and (iv) any actions or filings the
absence of which would not be reasonably expected to be, individually or in the
aggregate, material to the Company or to impair the ability of the Company to
consummate the transactions contemplated by this Agreement.  Section 4.04.  Non-Contravention.The execution, delivery and
performance by the Company of this Agreement and the Escrow Agreement and the
consummation of the transactions contemplated hereby and thereby do not and
will not (i) contravene, conflict with, or result in any violation or
breach of any provision of the articles of incorporation or bylaws of the
Company or any of its Subsidiaries, (ii) assuming compliance with the
matters referred to in Section 4.03, contravene, conflict with, or result
in a violation or breach of any provision of any Applicable Law, (iii) require
any consent or other action by any Person under, constitute a default, or an
event that, with or without notice or lapse of time or both, could become a
default, under, or cause or permit the termination, cancellation, acceleration
or other change of any right or obligation or the loss of any benefit to which
the Company or any of its Subsidiaries is entitled under any provision of any
agreement or other instrument binding upon the Company or any of its
Subsidiaries or any license, franchise, permit, certificate, approval or other
similar authorization affecting, or relating in any way to, the assets or business
of  the Company and its Subsidiaries or (iv) result
in the creation or imposition of any Lien on any asset of the Company or any of
its Subsidiaries, with such exceptions, in the case of each of clauses (ii) through
(iv), as would not be reasonably expected to be, individually or in the
aggregate, material to the Company or materially to impair the ability of the
Company to consummate the actions contemplated by this Agreement.  23


Section 4.05.  Capitalization.(a) The authorized capital
stock of the Company consists of 302,143,593 shares, including (i) 200,000,000
shares of Company Common Stock, of which 10,926,670 shares are issued and
outstanding, (ii) 251,692 shares of Company Series A-1 Preferred
Stock, of which 251,692 shares are issued and outstanding, (iii) 827,419
shares of Company Series B1-1 Preferred Stock, of which 806,927 shares are
issued and outstanding, (iv) 297,171 shares of Company Series B2 1
Preferred Stock, of which 286,511 shares are issued and outstanding, (v) 55,433,992
shares of Company Series C-1 Preferred Stock, of which 55,182,609 shares
are issued and outstanding, (vi) 15,840,446 shares of Company Series C-2
Preferred Stock, of which 13,664,445 shares are issued and outstanding and (vii) 29,492,873
shares of Company Series Z Preferred Stock, of which 216,027 shares are
issued and outstanding.  The Company has
no other capital stock authorized, issued or outstanding.  The Company Stock is, as of the date hereof,
held by the Persons and in the amounts set forth in Schedule 4.05(a), with the
latest known addresses of such Persons indicated thereon.  All outstanding shares of the Company are
duly authorized, validly issued, fully paid and non-assessable and not subject
to preemptive rights created by statute, the articles of incorporation or
bylaws of the Company or any agreement to which the Company is a party or by
which it is bound, and all outstanding shares of Company Stock and Company
Convertible Securities have been issued in compliance in all material respects
with federal and state securities laws. 
There are no declared or accrued unpaid dividends with respect to any
shares of the Company Stock.  (b)The Company
has reserved 14,746,436 shares of Company Series Z Preferred Stock for
issuance to employees, directors and consultants pursuant to the Company Stock
Option Plan, of which 216,027 shares are outstanding pursuant to option
exercises through the date hereof, 13,802,263 shares are subject to outstanding
unexercised options as of the date hereof and 728,146 shares remain available
for future grant as of the date hereof. 
Schedule 4.05(b) of the Company Disclosure Schedule sets forth each
Company Stock Option outstanding, the name of the optionholder, whether the
optionholder is an employee of the Company, the address of record for such
optionholder, the grant date and number of shares of Company Series Z
Preferred Stock subject to such option, the exercise price of such option, the
date on which such option expires and whether and to what extent such option is
intended to qualify as an incentive stock option as defined in Section 422
of the Code.  All of the Company Stock
Options will become fully vested and exercisable immediately prior to the
Effective Time provided that the optionholder has not terminated or ceased
providing services to the Company.  Each
such option was granted with an exercise price per share equal to or greater
than the fair market value of the underlying shares on the date of grant as
determined in good faith by the Companys board of directors.  The Company has heretofore delivered or made
available to Parent true and complete copies of the standard form of stock
option agreement, any stock option agreements which differ from such standard
form and a stock option ledger showing the vesting schedule and the number of
shares vested to date.  (c)The
Company has reserved 20,492 shares of Company Series B1-1 Preferred Stock,
10,660 shares of Company Series B2-1 Preferred Stock, 251,383 shares  24


of Company Series C-1
Preferred Stock and 1,176,001 shares of Company Series C-2 Preferred Stock
for issuance upon exercise of Company Warrants, of which no shares of Company Series B1-1
Preferred Stock, Series B2-1 Preferred Stock, C-1 Preferred Stock or Series C-2
Preferred Stock are outstanding pursuant to exercises of Company Warrants
through the date hereof and 20,492 shares of Company Series B1-1 Preferred
Stock, 10,660 shares of Company Series B2-1 Preferred Stock, 251,383
shares of Company Series C-1 Preferred Stock and 1,176,001 shares of
Company Series C-2 Preferred Stock are subject to outstanding unexercised
Company Warrants.  Schedule 4.05(c) of
the Company Disclosure Schedule sets forth each Company Warrant outstanding,
the name of the holder, the address of record for the holder, the grant date
and number and series of shares of Company Preferred Stock subject to such
warrant, the exercise price of such warrant, the initial exercise date for such
warrant, the expiration date of such warrant and to what extent the expiration
of such warrant will be accelerated as a result of the transactions
contemplated by this Agreement (indicating the circumstances that may cause
such acceleration).  The Company has heretofore
delivered or made available to Parent true and complete copies of all Company
Warrants, and all amendments thereto.  (d)There are
no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any securities of
the Company or obligating the Company to grant, extend, accelerate the vesting
of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement.  (e)No
outstanding Company Stock is subject to vesting or forfeiture or rights of
repurchase by the Company.  There are no
outstanding or authorized stock appreciation, dividend equivalent, phantom
stock, profit participation, or other similar rights with respect to the
Company or any of its securities.  In
addition, there are no declared or accrued unpaid dividends with respect to any
share of the Company Stock.  (f)There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting stock of the Company or any other matters involving any
securities of the Company.  (g)Except as
set forth in Sections 4.05(a), 4.05(b) and 4.05(c), there are no
outstanding (i) shares of capital stock or voting securities of the
Company or (ii) Company Convertible Securities (the items in clauses (i) and
(ii) being referred to collectively as the Company Securities). 
Except as set forth in Sections 4.05(a), 4.05(b) and 4.05(c), there
are no outstanding obligations, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any Company
Securities.  (h)None of the
Company Securities are owned by any Subsidiary of the Company.  25


Section 4.06.  Subsidiaries. (a) Each Subsidiary of the Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not
be material to the Company and its Subsidiaries, taken as a whole.  Each such Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where
failure to be so qualified would not have, individually or the aggregate, a
Material Adverse Effect on the Company. 
No Subsidiary is in violation of any of the provisions of its articles
or certificate of incorporation or bylaws. 
Schedule 4.06 sets forth for each Subsidiary its name, jurisdiction of
incorporation or other organization and all jurisdictions in which it is
authorized to do business.  (b)All of the
outstanding shares of capital stock of, or other voting securities or ownership
interests in, each Subsidiary of the Company are owned by the Company, directly
or indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other voting securities or ownership
interests).  There are no outstanding (i) securities
of the Company or any of its Subsidiaries convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests in
any Subsidiary of the Company or (ii) options or other rights to acquire
from the Company or any of its Subsidiaries, or other obligation of the Company
or any of its Subsidiaries to issue, any capital stock or other voting
securities or ownership interests in, or any securities convertible into or
exchangeable for any capital stock or other voting securities or ownership
interests in, any Subsidiary of the Company (the items in clauses (i) and (ii) being
referred to collectively as the Subsidiary
Securities).  There are no
outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any of the Subsidiary Securities.  (c)Other than
the Subsidiaries of the Company, neither the Company nor any of its
Subsidiaries own, directly or indirectly, any shares of capital stock of, other
securities or ownership interests of, or investments in, any other Person
(collectively, Third Party Interests).  Neither the Company nor any of its
Subsidiaries have any rights to, or are bound by any commitment or obligation
to, acquire by any means, directly or indirectly, any Third Party Interests or
to make any investment in, or contribution or advance to, any Person.  Section 4.07.  Financial Statements.(a) The audited balance
sheets as of December 31, 2007 and 2006 and the related audited statements
of income and cash flows for each of the years ended December 31, 2007,
2006 and 2005, and the unaudited interim financial statements for the nine
months ended September 30, 2008 of the Company have been provided to Parent
and are attached hereto as Schedule 4.07. 
The audited balance sheets as of December 31, 2007 and 2006 and the
related audited statements of income and cash flows for each of the years ended
December 31, 2007, 2006 and 2005 fairly present, in conformity with U.S.
generally accepted accounting principles (GAAP) applied
on a consistent basis (except as may be indicated in the  26


notes
thereto), the consolidated financial position of the Company and its Subsidiaries
as of the dates thereof and their consolidated results of operations and cash
flows for the periods then ended.  The
unaudited interim financial statements for the nine months ended September 30,
2008 fairly present, in all material respects, in conformity with U.S. GAAP
applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject only to normal
year-end adjustments and an absence of footnotes).  Each of the foregoing financial statements
includes all adjustments that are necessary for a fair presentation of the
consolidated financial position and results of operations and cash flows of the
Company and its Subsidiaries as of the date thereof and for the period covered
thereby.  The Company maintains a system
of internal controls over financial reporting that is adequate to the business
of the Company as currently conducted.  (b)The
Companys unrestricted cash and cash equivalents consist solely of cash held in
checking accounts, investments in a Janus Institutional Money Market Fund and
certificates of deposit not in excess of $100,000 held at separate banks (Actual Cash) and do not consist of any investments in
auction rate preferred securities, the Reserve Primary Fund, the Reserve Yield
Plus Fund or the Reserve International Liquidity Fund.  Section 4.08.  Absence of Certain
Changes.Since the Company
Balance Sheet Date, the business of the Company and its Subsidiaries has been
conducted in the ordinary course consistent with past practices and there has
not been:  (a)any event,
occurrence, development or state of circumstances or facts that has had or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company;  (b)any
declaration, setting aside or payment of any dividend or other distribution
with respect to any shares of capital stock of the Company;  (c)with
respect to any outstanding shares of capital stock or other securities of, or
other ownership interests in, the Company, any direct or indirect (i) reclassification,
combination, split or subdivision or (ii) redemption, repurchase, purchase
or other acquisition by the Company, except for repurchases by the Company of
Company Series Z Preferred Stock made in connection with the termination
of employment of Company employees;  (d)any
incurrence, assumption or guarantee by the Company or any of its Subsidiaries
of any indebtedness for borrowed money or guarantees thereof, other than trade
payables incurred in the ordinary course of business consistent with past
practices;  (e)any
creation or other incurrence by the Company or any of its Subsidiaries of any
material Lien on any material asset;  27


(f)any
making of any loan, advance or capital contributions to or investment in any
Person, except for (i) reasonable advances to employees and consultants
for travel and business expenses in the ordinary course of business consistent
with past practices, (ii) purchases of inventory and materials by the
Company in the ordinary course of business consistent with past practices and (iii) transactions
in the ordinary course of business with its wholly-owned Subsidiaries;  (g)any damage,
destruction or other casualty loss (whether or not covered by insurance)
materially affecting the business or assets of the Company or any of its
Subsidiaries;  (h)any
transaction or commitment made, or any contract or agreement entered into, by
the Company or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Company or any of its Subsidiaries of any contract or other right, in
either case, material to the Company and its Subsidiaries, taken as a whole;  (i)any
change in any method of accounting or accounting principles or practice by the
Company, except for any such change required by reason of a concurrent change
in GAAP;  (j)any (i) grant
of any severance pay to (or amendment to any existing arrangement with) any
director, officer or employee of the Company or any of its Subsidiaries, (ii) increase
in severance benefits payable to any director, officer or employee of the
Company or any of its Subsidiaries under any existing severance pay policies or
employment agreements, (iii) entering into any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of the Company or any of its
Subsidiaries, (iv) establishment, adoption or amendment (except as
required by Applicable Law) of any collective bargaining, bonus,
profit-sharing, thrift, pension, retirement, deferred compensation,
compensation, stock option, restricted stock or other benefit plan or
arrangement covering any director, officer or employee of the Company or any of
its Subsidiaries or (v) increase in compensation, bonus or other benefits
payable to any director, officer or employee of the Company or any of its
Subsidiaries;  (k)any
hiring, employment, or entry into a contract or agreement with any new
employees or independent contractors or consultants;  (l)any
material labor dispute, other than routine individual grievances of the
Companys employees;  (m)any material
Tax election made or changed, any annual Tax accounting period changed, any
method of Tax accounting adopted or changed, any material amended Tax Returns
or claims for Tax refunds filed, any closing agreement entered into, any
material Tax claim, audit or assessment settled, or any right to claim a
material Tax refund, offset or other reduction in Tax liability surrendered;  28


(n)any receipt of notice by the Company
of any actual or threatened termination by any customer, supplier, distributor,
licensor or other Person material to the business of the Company and its
Subsidiaries, taken as a whole;  (o)any material change in
pricing or royalties set or charged by the Company to its customers or
licensees or in pricing or royalties set or charged by licensors to the
Company;  (p)any capital
expenditure, or commitment for a capital expenditure, for additions or
improvements to property, plant and equipment, except such capital expenditures
or commitments that do not, either individually or in the aggregate, exceed
$50,000; or  (q)agreement
by the Company or any officer or employee thereof in their capacities as such
to do any of the things described in the preceding clauses (a) through (p) (other
than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).  Section 4.09.  No Undisclosed Liabilities.  There are no liabilities or obligations of
the Company or any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances that could reasonably be
expected to result in such a liability or obligation, other than:  (a)liabilities
or obligations disclosed and provided for in the Company Balance Sheet or in
the notes thereto,  (b)liabilities
or obligations incurred in the ordinary course of business consistent with past
practices since the Company Balance Sheet Date that would not reasonably be
expected to be, individually or in the aggregate, material to the Company.  Section 4.10.  Compliance with Laws and Court
Orders.  The business of the
Company and each of its Subsidiaries is and has at all times since its
inception been conducted in compliance in all material respects with, and to
the Knowledge of the Company is not under investigation with respect to and has
not been threatened to be charged with or given notice of any violation of, any
Applicable Law.  Section 4.11.  Agreements, Contracts and Commitments.  (a) 
Neither the Company nor any of its Subsidiaries is a party to or bound
by:  (i)    any
lease or sublease (whether of real or personal property) providing for annual
rentals of $50,000 or more;  (ii)   any
agreement for the purchase or license of technology, materials, supplies,
goods, services, equipment or other tangible or intangible assets that provides
for either (A) annual payments by the Company or its Subsidiaries of
$50,000 or more to be made after the date of this Agreement or (B) aggregate  29


payments by the Company or its Subsidiaries
of $50,000 or more to be made after the date of this Agreement;  (iii)any license, sales,
distribution or other similar agreement providing for the sale or license by
the Company or any of its Subsidiaries of technology, materials, supplies,
goods, services, equipment or other assets that provides for either (A) annual
payments to the Company or its Subsidiaries of $50,000 or more or (B) aggregate
payments to the Company and the Subsidiaries of $50,000 or more;  (iv)any partnership,
joint venture or other similar agreement or arrangement;  (v)any agreement,
contract or commitment relating to the acquisition or disposition of any
business (whether by merger, sale of stock, sale of assets or otherwise);  (vi)any agreement
relating to indebtedness for borrowed money or the deferred purchase price of
property (in either case, whether incurred, assumed, guaranteed or secured by
any asset), except any such agreement with an aggregate outstanding principal
amount not exceeding $50,000 and which may be prepaid on not more than thirty
(30) days notice without the payment of any penalty;  (vii)except for agreements
with customers by the Company or its Subsidiaries in the ordinary course of
business consistent with past practices, any option (other than employee stock
options), license, franchise or similar agreement;  (viii)any alliance, agency,
dealer, sales representative, marketing, distribution, original equipment
manufacturer, remarketer, joint marketing, channel partner or other similar
agreement;  (ix)any development or
collaboration agreement or other agreement for development of products and
services for the Company or any of its Subsidiaries;  (x)any agreement
that limits the freedom of the Company or any Subsidiary to compete in any line
of business or with any Person or in any area or which could reasonably be
expected to so limit the freedom of the Company or any Affiliate after the
Effective Time;  (xi)any agreement with
any Affiliate of the Company (or any Subsidiary), with any director or officer
of the Company or any of its Subsidiaries, or, to the Knowledge of the Company
with any associate or any member of the immediate family (as such terms are
respectively defined in Rules 12b-2 and 16a-1 of the 1934 Act) of any such
director or officer;  30


(xii)   any
employment or consulting agreement, contract or commitment with an employee or
individual consultant or salesperson or consulting or sales agreement with a
firm or other organization;  (xiii)   any
employment or consulting agreement or any agreement with severance, change in
control or similar arrangements, that will result in any obligation (absolute
or contingent) of the Company or any Subsidiary to make any payment as a result
of the transactions contemplated by this Agreement, termination of employment
or both;  (xiv)   any
agreement or plan, including, without limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement; or  (xv)   any other
agreement, commitment, arrangement or plan not made in the ordinary course of
business that is material to the Company and its Subsidiaries, taken as a
whole, including without limitation, any agreement involving annual payments by
any customer to the Company and its Subsidiaries in excess of $75,000.  (b)Each
agreement, contract, plan, lease, arrangement or commitment disclosed in any
Schedule to this Agreement or required to be disclosed pursuant to this Section (each,
a Material Contract) is a valid and
binding agreement of the Company or its Subsidiaries, as the case may be,
subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws relating to or affecting creditors
rights generally and to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and is in full
force and effect with respect to the Company or any Subsidiary of the Company
and, to the Knowledge of the Company, each other party thereto, and none of the
Company, any Subsidiary of the Company or, to the Knowledge of the Company, any
other party thereto is in default or breach in any material respect under the
terms of any such agreement, contract, plan, lease, arrangement or commitment,
and, to the Knowledge of the Company, no event or circumstance has occurred
that, with notice or lapse of time or both, would reasonably be expected to
constitute any event of default thereunder. 
True and complete copies of each such agreement, contract, plan, lease,
arrangement or commitment have been made available to Parent.  (c)To the
Knowledge of the Company, as of the date of this Agreement, no person is
renegotiating, or has a right (absent any default or breach of a Material
Contract) pursuant to the terms of any Material Contract to renegotiate, any
material amount paid or payable to the Company under any Material Contract or
any other material term or provision of any Material Contract.  As of the date of this Agreement, the Company
has not received any written or verbal indication of an intention to terminate
any of the Material Contracts by any of the parties to any of the Material  31


Contracts.  To the Knowledge of the Company, as of the
Effective Time, no person is renegotiating, or has a right (absent any default
or breach of a Material Contract) pursuant to the terms of any Material
Contract to renegotiate, any material amount paid or payable to the Company
under any Material Contract or any other material term or provision of any
Material Contract, except as would not be material to the Company and its
Subsidiaries taken as a whole.  As of the
Effective Time, the Company has not received any written or verbal indication
of an intention to terminate any of the Material Contracts by any of the
parties to any of the Material Contracts, except as would not be material to
the Company and its Subsidiaries taken as a whole.  (d)The Company
and each Subsidiary have fulfilled all material obligations required pursuant
to each Material Contract to have been performed by the Company prior to the
date hereof.  (e)The
transactions contemplated by this Agreement will not give rise to any notice
requirements under any contract disclosed in response to Section 4.11(a).  (f)The
transactions contemplated by this Agreement will not give rise to any consent
requirements under any contract disclosed in response to Section 4.11(a).  (g)The
transactions contemplated by this Agreement will not give rise to any rights of
termination under any contract disclosed in response to Section 4.11(a).  Section 4.12.  Litigation.There is no material action, suit,
investigation or proceeding (or, to the Knowledge of the Company, any basis
therefor) pending against, or, to the Knowledge of the Company, threatened
against or affecting, the Company or any of its Subsidiaries, or, to the
Knowledge of the Company, pending or threatened against or affecting any
present or former officer, director or employee of the Company or any of its
Subsidiaries or any other Person in each case for whom the Company or any such
Subsidiary would reasonably be expected to be liable or any of their respective
properties or that in any manner challenges or seeks to prevent, enjoin, alter
or materially delay the Merger or any of the other transactions contemplated
hereby before any Governmental Authority.  Section 4.13.  Finders Fees.Except for Thomas Weisel Partners
LLC and EMA Partners, LLC, copies of whose engagement agreements have been
provided or made available to Parent, there is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of the Company or any of its Subsidiaries who might be entitled to
any fee or commission from the Company or any of its Affiliates in connection
with the transactions contemplated by this Agreement.  Section 4.14.  Tax Representations.  (a)Filing and Payment.  (i) All
Tax Returns required to be filed by or on behalf of the Company or any of its
Subsidiaries have been filed when due (taking into account any extension of
time to file) in accordance with all Applicable Laws; (ii) as of the time
of filing, the Tax Returns were true and complete in all material respects; and
(iii) all  32


Taxes shown as
due and payable on the Tax Returns that have been filed have been timely paid,
or withheld and remitted to the appropriate Taxing Authority.  (b)Financial Records.  (i) The
charges, accruals and reserves for Taxes with respect to the Company and its
Subsidiaries reflected on the books of the Company and its Subsidiaries
(excluding any provision for deferred income taxes reflecting either
differences between the treatment of items for accounting and income tax purposes
or carryforwards) are adequate to cover Tax liabilities accruing through the
end of the last period for which the Company and its Subsidiaries ordinarily
record items on their respective books and (ii) since the end of the last
period for which the Company and its Subsidiaries ordinarily record items on
their respective books, neither the Company nor any of its Subsidiaries has
incurred any liability for material Taxes other than in the ordinary course of
business.  (c)Procedure and Compliance. 
(i) All income and franchise Tax Returns filed with respect to the
Company and its Subsidiaries through the Tax year ended December 31, 2003
have been examined and closed or are Tax Returns with respect to which the
applicable period for assessment under Applicable Law, after giving effect to
extensions or waivers, has expired; (ii) neither the Company nor any of
its Subsidiaries has requested any extension of time within which to file any
Tax Return and has not yet filed such Tax Return; (iii) neither the Company
nor any of its Subsidiaries has granted any extension or waiver of the statute
of limitations period applicable to any Tax Return, which period (after giving
effect to such extension or waiver) has not yet expired; (iv) no
adjustment that would materially increase the Tax liability, or materially
reduce any Tax Asset, of the Company or any of its Subsidiaries has been made,
proposed or threatened in writing (or otherwise to the Knowledge of the
Company) by a Taxing Authority during any audit of a Pre-Closing Tax Period
which could reasonably be expected to be made, proposed or threatened in an
audit of any subsequent Pre-Closing Tax Period or Post-Closing Tax Period; (v) there
is no claim, audit, action, suit, proceeding or investigation now pending or
threatened in writing (or otherwise to the Knowledge of the Company) against
the Company or its Subsidiaries in respect of any Tax or Tax Asset; (vi) the
Company has not received a written Tax opinion with respect to any transaction
relating to the Company, other than a transaction in the ordinary course of
business; and (vii) there are no requests for rulings or determinations in
respect of any Tax or Tax Asset pending between the Company or any of its
Subsidiaries and any Taxing Authority.  (d)Taxing Jurisdictions. 
Schedule 4.14(d) sets forth a list of all jurisdictions (whether
foreign or domestic) in which the Company or any of its Subsidiaries files Tax
Returns.  No claim has ever been made in
writing (or otherwise to the Knowledge of the Company) by a Taxing Authority in
a jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that the Company or any of its Subsidiaries is or may be subject to
taxation in that jurisdiction nor is there a more likely than not basis for any
such claim.  (e)Tax Sharing, Consolidation and Similar Arrangements.  (i) Neither the Company nor any of its
Subsidiaries has been a member of an affiliated, consolidated, combined or
unitary group other than one of which the Company was the common  33


parent, or
made any election or participated in any arrangement whereby any Tax liability
or any Tax Asset of the Company or any of its Subsidiaries was determined or
taken into account for Tax purposes with reference to or in conjunction with
any Tax liability or any Tax Asset of any other Person; (ii) neither the
Company nor any of its Subsidiaries is party to any Tax Sharing Agreement or to
any other agreement or arrangement referred to in clause (ii) or (iii) of
the definition of Tax; and (iii) neither the Company nor any of its
Subsidiaries has entered into any formal agreement or arrangement with any
Taxing Authority with regard to the Tax liability of the Company or any of its
Subsidiaries affecting any Tax period for which the applicable statute of
limitations, after giving effect to extensions or waivers, has not expired.  (f)Certain Elections, Agreements and Arrangements.  (i) No election has been made under
Treasury Regulations Section 301.7701-3 or any similar provision of Tax
law to treat the Company or any of its Subsidiaries as an association,
corporation or partnership; (ii) none of the Company or any of its
Subsidiaries is disregarded as an entity for Tax purposes; (iii) during
the five-year period ending on the date hereof, none of the Company or any of
its Subsidiaries was a distributing corporation or a controlled corporation in
a transaction intended to be governed by Section 355 of the Code; and (iv) neither
the Company nor any of its Subsidiaries is a party to any understanding or
arrangement described in Section 6662(d)(2)(C)(ii) of the Code, or
has participated in a reportable transaction within the meaning of Treasury
Regulations Section 1.6011-4.  (g)Property and Leases.  (i) Neither
the Company nor any of its Subsidiaries owns an interest in real property in
any jurisdiction in which a Tax is imposed, or the value of the interest is
reassessed, on the transfer of an interest in real property and which treats
the transfer of an interest in an entity that owns an interest in real property
as a transfer of the interest in real property; and (ii) none of the
property owned by the Company or any of its Subsidiaries is tax-exempt use
property within the meaning of Section 168(h) of the Code.  (h)Post-Closing Attributes. 
(i) Neither the Company nor any of its Subsidiaries will be
required to include any adjustment in taxable income for any Post-Closing Tax
Period under Section 481(c) of the Code (or any similar provision of
the Tax laws of any jurisdiction) as a result of a change in method of
accounting for a Pre-Closing Tax Period; and (ii) neither the Company nor
any of its Subsidiaries will be required to include for a Post-Closing Tax
Period taxable income attributable to income economically realized in a
Pre-Closing Tax Period, including any distributions in a Pre-Closing Tax Period
from an entity that is fiscally transparent for Tax purposes and any income
that would be includible in a Post-Closing Tax Period as a result of the installment
method or the look-back method (as defined in Section 460(b) of the
Code).  Section 4.15.  Employee Matters and Employment Benefit
Plans.(a)  Schedule
4.15(a) contains a correct and complete list identifying each employee
benefit plan, as defined in Section 3(3) of ERISA, each employment,
severance or similar contract, plan, arrangement or policy and each other plan
or arrangement (written or oral) providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance (including any  34


self-insured
arrangements), health or medical benefits, employee assistance program,
disability or sick leave benefits, workers compensation, supplemental
unemployment benefits, severance benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life insurance
benefits) which is maintained, administered or contributed to by the Company or
any of its Affiliates and covers any current or former employee, director or
independent contractor of the Company or any of its Subsidiaries, or with
respect to which the Company or any of its Subsidiaries has any liability.  Copies of such plans (and, if applicable,
related trust or funding agreements or insurance policies) and all amendments
thereto and written interpretations thereof have been made available to Parent
together with the most recent annual report (Form 5500 including, if
applicable, Schedule B thereto) and tax return (Form 990) prepared in
connection with any such plan or trust. 
Such plans are referred to collectively herein as the Employee Plans.  (b)Neither the
Company nor any ERISA Affiliate nor any predecessor thereof does or is required
to sponsor, maintain or contribute to, or has in the past sponsored, maintained
or contributed to, any Employee Plan subject to Title IV of ERISA or any
non-U.S. defined benefit plan.  (c)Neither
the Company nor any ERISA Affiliate nor any predecessor thereof does or is
required to contribute to, or has in the past contributed to, any multiemployer
plan, as defined in Section 3(37) of ERISA (a Multiemployer Plan), or any multiple employer plan.  (d)Each
Employee Plan which is intended to be qualified under Section 401(a) of
the Code is so qualified and has been so qualified during the period since its
adoption.  The Company has made available
to Parent copies of the most recent Internal Revenue Service determination or
opinion letters with respect to each such Employee Plan.  (e)Each
Employee Plan has been maintained in material compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan.  No
material events have occurred with respect to any Employee Plan that could
result in payment or assessment by or against the Company of any material
excise taxes under Sections 4972, 4975, 4976, 4977, 4979, 4980B, 4980D,
4980E or 5000 of the Code.  (f)The
consummation of the transactions contemplated by this Agreement will not
(either alone or together with any other event) entitle any current or former
employee, director or independent contractor of the Company or any of its
Subsidiaries to severance pay, bonus, retirement, job security or similar
benefit or accelerate the time of payment or vesting or trigger any payment of
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any Employee Plan or any other employment or benefit arrangement.  35


(g)There is no
contract, plan or arrangement (written or otherwise) covering any current or
former employee, director or independent contractor of the Company or any of
its Subsidiaries that, individually or collectively, could reasonably be
expected to give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.  (h)Neither the
Company nor any of its Subsidiaries has any liability in respect of
post-employment or post-retirement health, medical or life insurance benefits
for retired, former or current employees of the Company or its Subsidiaries
except as required under Section 4980B of the Code or similar applicable
state law.  No condition exists that
would prevent the Company or any of its Subsidiaries from amending or
terminating any Employee Plan providing health or medical benefits in respect
of any active employee of the Company or any of its Subsidiaries, to the extent
permitted under applicable law.  No
Employee Plan is subject to Section 409A of the Code.  Any such plan set forth on Schedule 4.15(h) is
and has been operated in good faith compliance with Section 409A of the
Code and the applicable guidance issued thereunder.  (i)All
contributions and payments accrued under each Employee Plan, determined in
accordance with prior funding and accrual practices, as adjusted to include
proportional accruals for the period ending as of the date hereof, have been
discharged and paid on or prior to the date hereof except to the extent
reflected as a liability on the Company Balance Sheet.  (j)There
has been no amendment to, written interpretation or announcement (whether or
not written) by the Company or any of its Affiliates relating to, or change in
employee participation or coverage under, an Employee Plan which could increase
materially the expense of maintaining such Employee Plan above the level of the
expense incurred in respect thereof for the fiscal year ended December 31,
2007.  (k)Neither
the Company nor any of its Subsidiaries is a party to or subject to, or is
currently negotiating in connection with entering into, any collective
bargaining agreement or other contract or understanding with a labor union or
labor organization.  (l)There
is no action, suit, investigation, audit or proceeding pending against or
involving or, to the Knowledge of the Company, threatened against or involving,
any Employee Plan before any court or arbitrator or any state, federal or local
governmental body, agency or official.  (m)The Company
and its Subsidiaries are in material compliance with all currently applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and are not engaged in any unfair labor
practice.  There is no unfair labor
practice complaint pending or, to the Knowledge of the Company, threatened
against the Company or any of its Subsidiaries before the National Labor
Relations Board.  (n)Neither the
Company nor any of its Subsidiaries has engaged in any workforce reduction
within the last 90 days which, alone or when aggregated with any  36


other
workforce reduction before or after the date hereof, would trigger obligations
under the Worker Adjustment and Retraining Notification Act (the WARN Act), or any similar state or local laws regulating
layoffs or employment terminations, with respect to its employees.  (o)The Company
has no Knowledge that any Key Employee intends to resign or retire as a result
of the transactions contemplated by this Agreement or otherwise within one year
after the Effective Time.  (p)Attached as
Schedule 4.15(p) is a true, complete and correct list of the employees of
the Company identified by each employees title, along with information
regarding each employees location of employment, salary and other compensation
paid to the employee by the Company.  The
Company does not employ any part-time employees or pay for the services of any
independent contractors.  Section 4.16.  Real and Personal Property; Absence of Liens
and Encumbrances.  (a) The
Company and its Subsidiaries do not own any real property and have never owned
any real property.  Schedule 4.16(a) sets
forth a list of all real property currently leased by the Company or any of its
Subsidiaries, the name of the lessor, the date of the lease and each amendment
thereto.  All such leases are in full
force and effect and enforceable by the Company or its Subsidiaries (except as
such enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, or other similar laws now or hereafter
in effect relating to creditors generally and by general equitable principles,
and regardless of whether enforceability is considered in a proceeding in
equity or at law), and there is not, under any of such leases, any existing
default by the Company or its Subsidiaries or, to the Knowledge of the Company,
by the other party thereto or event of default (or event which with notice or
lapse of time, or both, would constitute such a default).  The Company has heretofore made available to
Parent true and complete copies of all such leases.  (b)The Company
or its Subsidiaries have good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of their tangible
properties and assets, real, personal and mixed, used or held for use in their
respective businesses, free and clear of any Liens, except as reflected in the
Company Balance Sheet and except for Liens for Taxes not yet due and payable,
municipal and zoning ordinances, easements for public utilities and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby.  (c)Schedule
4.16(c) lists all material items of equipment (the Equipment)
owned or leased by the Company or any of its Subsidiaries with a book or fair
market value for each item in excess of $50,000 and such Equipment is, in the
aggregate, in all material respects, (i) adequate for the conduct of the
business of the Company and its Subsidiaries as currently conducted and (ii) in
good operating condition, regularly and properly maintained, subject to normal
wear and tear.  37


Section 4.17.  Products.  To the Companys Knowledge, each of the
products produced or sold by the Company or any of its Subsidiaries is, and at
all times up to and including the sale thereof has been, (i) in compliance
in all material respects with the terms and requirements of any applicable
warranty or other contract between the Company and such Person, (ii) in
conformance in all material respects with any promises or affirmations of fact
made in connection with its sale, and (iii) in compliance in all material
respects with Applicable Law.  All repair
services and other services that have been performed by the Company and its
Subsidiaries were performed properly and in conformity in all material respects
with the terms and requirements of all applicable warranties and other
Contracts and with Applicable Law, except for any deficiencies that can be
corrected without incurring expense materially in excess of the Companys
warranty reserves.  To the Companys
Knowledge, none of the Company and its Subsidiaries will incur or otherwise
become subject to any liability arising directly or indirectly from any product
manufactured or sold, or any repair services or other services performed by,
the Company or any of its Subsidiaries on or at any time prior to the Closing
Date in excess of the Companys warranty reserves.  To the Companys Knowledge, there are no
material unresolved claims or threatened claims by any customer or other Person
against the Company or any of its Subsidiaries (i) under or based upon any
warranty provided by or on behalf of the Company or any of its Subsidiaries
that have been received in writing by the Company or any of its Subsidiaries,
or (ii) under or based upon any other warranty relating to any product
sold by the Company or any of its Subsidiaries or any services performed by the
Company or any of its Subsidiaries.  To
the Companys Knowledge no event has occurred, and no condition or circumstance
exists, that could reasonably be expected (with or without notice or lapse of
time) to directly or indirectly give rise to or serve as a basis for the
assertion of any such claim.  No product
manufactured or sold by the Company or any of its Subsidiaries has been the
subject of any recall or other similar action; and no event has occurred, and
to the Companys Knowledge no condition or circumstance exists, that could
(with or without notice or lapse of time) directly or indirectly give rise to
or serve as a basis for any such recall or other similar action relating to any
such product.  Section 4.18.  Intellectual Property.  (a) To the Companys Knowledge, without
conducting any special investigation or study beyond that provided to Parent,
Schedule 4.18(a) sets forth all material Intellectual Property
necessary to conduct the business of the Surviving Corporation as currently
conducted (the Necessary Intellectual Property).  The Company and/or its Subsidiaries own or
otherwise have sufficient rights to use the Necessary Intellectual Property.  Consummation of the transactions contemplated
by this Agreement will not encumber, impair or extinguish any rights of the
Company or its Subsidiaries in the Necessary Intellectual Property, excluding
any off-the-shelf software licensed to the Company and/or its Subsidiaries that
is generally available commercially on nondiscriminatory terms (Off-the-Shelf Software). 
There are no claims pending or threatened in writing (or otherwise
threatened, to the Companys Knowledge) against the Company or its Subsidiaries
by any third party (i) challenging or seeking to deny or restrict the
rights of the Company or any of its Subsidiaries in any Necessary Intellectual
Property or (ii) alleging that any Intellectual Property right of any
third party is infringed or otherwise violated by the  38


business of
the Surviving Corporation as currently conducted or by any services or products
offered by the Company or its Subsidiaries.  (b)(i) To
the Knowledge of the Company, the Company and its Subsidiaries are the sole and
exclusive owners of the Company Intellectual Property, free and clear of any
Lien and there are no material restrictions on the disclosure, use, license or
transfer of the Company Intellectual Property or the Necessary Intellectual
Property by the Company and its Subsidiaries or by their respective assigns and
successors; and (ii) no third party has been granted any material current
or contingent license right by the Company and/or its Subsidiaries to utilize
any material Company Intellectual Property; in each case except pursuant to
licenses granted to or by the Company and/or its Subsidiaries in the ordinary
course of business and set forth in the agreements listed in Schedule 4.18(b).  None of the Company Intellectual Property has
been adjudged in a court as invalid, unenforceable, or not infringed, and there
are no proceedings pending or third party claims pending (excluding patent
prosecution before the patent offices of the world) or threatened in writing,
in each case challenging the scope, validity, or enforceability of any of the
Company Intellectual Property.  To the
Companys Knowledge, none of the Necessary Intellectual Property has been
adjudged in a court as invalid, unenforceable, or not infringed, and there are
no proceedings pending (excluding patent prosecution before the patent offices
of the world) or third party claims pending or threatened in writing, in each
case challenging the scope, validity or enforceability of any of the Necessary
Intellectual Property.  (c)Schedule
4.18(c) sets forth a list of all U.S. and foreign (i) issued patents
and patent applications, (ii) trademark registrations and applications
(including domain name registrations), and (iii) copyright registrations
and applications, included in the Company Intellectual Property (Company Registered Intellectual Property).  All applications for Company Registered
Intellectual Property and all registrations for Company Registered Intellectual
Property are subsisting (i.e., have not been finally abandoned), and all
annuity, maintenance, renewal and other fees necessary to maintain any Company
Registered Intellectual Property are current. 
Effective written assignments constituting an unbroken, complete
chain-of-title from the original owner(s) to the Company or its
Subsidiaries have been obtained with respect to all of the patent applications
and patents within the Company Registered Intellectual Property and have been
duly recorded with the appropriate governmental authorities, except where the
failure to do so is correctible within ninety (90) days after the Effective
Time.  (d)Schedule
4.18(d) lists all agreements under which the Company or its subsidiaries
are granted any license right or immunity with respect to the Intellectual
Property of any third party that constitutes Necessary Intellectual Property,
excluding Off-the-Shelf Software.  To the
Knowledge of the Company, each such agreement is in full force and effect, and
the Company has in all material respects performed its obligations thereunder.  (e)Except for
Company Intellectual Property that has become publicly available or known
through patenting, the publication of a patent application, or inherently
through the sale or distribution in the ordinary course of business of products  39


or methods
incorporating Company Intellectual Property, the Company and its Subsidiaries
have used reasonable commercial efforts to maintain the confidentiality of all
Company Intellectual Property that is material to the business of the Company.  (f)None of
the Company or any of its Subsidiaries has given to any Person an indemnity in
connection with any Intellectual Property right, other than indemnities (i) that,
individually or in the aggregate, could not result in liability to the Company
in excess of $100,000; (ii) under Contracts disclosed in Schedule 4.18(f);
or (iii) that arise under a standard form sales contract of the Company or
any of its Subsidiaries and whose terms do not materially differ from the
sample attached in Schedule 4.18(f).  (g)All
products sold by the Company or its Subsidiaries and covered by a patent,
trademark or copyright included in the Company Intellectual Property have been
marked with appropriate notices to the extent legally required in order to
collect damages.  (h)To the
extent that any Company Intellectual Property listed in Schedule 4.18(c) has
been developed or created by any party (including any current or former
employee of the Company or any of its Subsidiaries) for the Company or any of
its Subsidiaries, the party has assigned exclusive ownership to the Company
and/or its Subsidiaries with respect thereto. 
To the extent that any Company Intellectual Property has been developed
or created by any current or former employee of the Company or any of its
Subsidiaries, such person has signed a Proprietary Invention Agreement
substantially in the form of the agreement set forth in Exhibit C
or a form of agreement that is no less restrictive than such agreement.  (i)No
third party possesses any current or future contingent rights with respect to
any source code that is a material part of the software included in the Company
Intellectual Property.  Except as set
forth in Schedule 4.18(i), no Governmental Authority, university, college,
other educational institution or research center has any claim or right in or
to the Company Intellectual Property.  Section 4.19.  Insurance Coverage.Schedule 4.19 contains a complete
and accurate list of, and the Company has furnished or made available to Parent
true and complete copies of, all insurance policies and fidelity bonds relating
to the assets, business, operations, employees, officers or directors of the
Company and its Subsidiaries.  There is
no claim by the Company or any of its Subsidiaries 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 or in respect of which such
underwriters have reserved their rights. 
All premiums payable under all such policies and bonds have been timely
paid and the Company and its Subsidiaries have otherwise complied in all
material respects with the terms and conditions of all such policies and
bonds.  Such policies of insurance and
bonds (or other policies and bonds providing substantially similar insurance
coverage) have been in effect since February 1, 2007 and remain in full
force and effect.  The Company has no
Knowledge of any threatened termination of, premium increase with respect to,
or material alteration of coverage under, any of such policies or bonds.  40


Section 4.20.  Licenses and Permits.  Schedule 4.20 correctly lists each material
license, franchise, permit, certificate, approval or other similar
authorization necessary to the business of the Company and its Subsidiaries as
conducted as of the date of the Agreement (the Permits) together with the name of the government agency or
entity issuing such Permit.  The Permits
are valid and in full force and effect. 
Neither the Company nor any Subsidiary is in default under, and no
condition exists that with notice or lapse of time or both would reasonably be
expected to constitute a default under, the Permits.  None of the Permits will be terminated or
impaired or become terminable, in whole or in part, as a result of the
transactions contemplated hereby.  The
Company and each Subsidiary have made all material filings with governmental
entities and have received all material permits, registrations, licenses,
franchises, certifications and other approvals necessary to conduct and operate
its business as currently conducted or operated by it and to permit the Company
to own or use its assets in the manner in which such assets are currently owned
or used.  Section 4.21.Inventories.  The
inventories set forth in the Company Balance Sheet were properly stated therein
at the lesser of cost or fair market value determined in accordance with GAAP
consistently maintained and applied by the Company.  Since the Company Balance Sheet Date, the
inventories of the Company and its Subsidiaries have been maintained in the ordinary
course of business.  All such inventories
are owned free and clear of all Liens. 
All of the inventories recorded on the Company Balance Sheet consist of,
and all inventories of the Company and its Subsidiaries on the Closing Date
will consist of, items of a quality usable or saleable in the ordinary course
of business consistent with Parents past practices and are and will be in
quantities sufficient for the normal operation of the business of the Company
and its Subsidiaries in accordance with past practice.  Section 4.22.  Receivables.All accounts, notes receivable and
other receivables (other than receivables collected since the Company Balance
Sheet Date) reflected on the Company Balance Sheet are, and all accounts and
notes receivable arising from or otherwise relating to the business of the
Company and its Subsidiaries as of the Effective Time will be, valid and
genuine.  All accounts, notes receivable
and other receivables arising out of or relating to the business of the Company
and its Subsidiaries as of the Company Balance Sheet Date have been included in
the Company Balance Sheet and all reserves for doubtful accounts reflected
thereon were taken in accordance with GAAP applied on a consistent basis.  No person has any Lien on any such accounts
receivable and, to the Companys Knowledge, no request or agreement for
deduction or discount has been made with respect to any such accounts
receivable.  Section 4.23.  Environmental Matters.(a) No written notice,
notification, complaint, demand, request for information, citation, summons or
order has been received by the Company or any of its Subsidiaries, no
outstanding penalty has been assessed and no investigation, action, claim, suit
or proceeding is pending, or to the Knowledge of the Company, is threatened by
any Person with respect to any matters relating to the Company or any of its
Subsidiaries and relating to any Environmental Law, any Hazardous Substance or
any Environmental Permit actually or allegedly held or required by the Company or
any of its Subsidiaries.  41


(b)Each of the
Company and its Subsidiaries is and, except as has been fully resolved, at all
times since its inception has been in compliance, in all material respects, with
all Environmental Laws and has obtained and is and, except as has been fully
resolved, at all times since its inception has been in compliance, in all
material respects, with all Environmental Permits; such Environmental Permits
are valid and in full force and effect and will not be terminated or impaired
or become terminable, in whole or in part, as a result of the transactions
contemplated hereby.  (c)No Hazardous
Substance has been discharged, disposed of, dumped, injected, pumped,
deposited, spilled, leaked, emitted or released at, on, from, under, to, in or
within any property now or previously owned, leased or operated by the Company
or any of its Subsidiaries in a manner which would reasonably result in a
material liability.  (d)No property now
or previously owned, leased or operated by the Company or any of its
Subsidiaries or any property to which the Company or any of its Subsidiaries
has, directly or indirectly, transported or arranged for the transportation of
any Hazardous Substances is listed or, to the Knowledge of the Company,
proposed for listing, on the National Priorities List promulgated pursuant to
CERCLA, on CERCLIS (as defined in CERCLA) or on any similar federal, state or
foreign list of sites requiring investigation or clean-up, which listing has
resulted in, or would reasonably result in, a material liability.  (e)Neither the
Company nor any of its Subsidiaries owns, leases or operates or has owned,
leased or operated any real property, or conducts or has conducted any operations,
in New Jersey or Connecticut.  (f)For purposes of
this Section 4.23, the terms Company
and Subsidiaries shall include
any entity that is, in whole or in part, a predecessor of the Company or any of
its Subsidiaries.  Section 4.24.  Certain Interests.(a)  To the Knowledge of the
Company, none of the shareholders of the Company or its Subsidiaries or any
officer or director of the Company or its Subsidiaries and no member of such
persons immediate family (as such term is defined in Rule 16a-1 of the
1934 Act):  (i)has been an officer, director or shareholder
of any significant supplier or customer of the Company, or of any company which
holds, directly or indirectly, 50% or more of the outstanding shares of any
such supplier or customer, provided, however,
that the ownership of securities representing not more than 1% of the
outstanding voting power of any supplier or customer, and which are listed on
any national securities exchange or traded actively in the national
over-the-counter market, shall not be deemed to be a shareholder as long as
the person owning such securities has no other connection or relationship with
such supplier or customer;  (ii)is a party to or directly or indirectly interested
in any license, partnership or alliance agreement with the Company or any of
its Subsidiaries;  42


(iii)owns, directly or indirectly, in whole or
in part, or has any other interest in any tangible or intangible property which
the Company or any of its Subsidiaries uses or has used in the conduct of its
business or otherwise (except for any such ownership or interest resulting from
the ownership of securities in a public company); or  (iv)has outstanding any indebtedness to the Company or
any of its Subsidiaries.  (b)Except for the
payment of employee compensation in the ordinary course of business, the
Company does not have any liability or any other obligation of any nature
whatsoever to any Shareholder or any affiliate thereof or to any officer or
director of the Company or, to the Knowledge of the Company, to any immediate
relative or spouse (or immediate relative of such spouse) of any such officer
or director.  Section 4.25.  Customers; Suppliers.(a) Schedule 4.25(a) sets
forth the names of the five (5) most significant customers (by dollar
amount of revenue) of the Company and its Subsidiaries for each of the year
ended December 31, 2007, and the period from January 1, 2008 through September 30,
2008, and the dollar amount of revenue for each such customer during such
periods.  The Company has received no
notice and has no Knowledge that any customer listed on Schedule 4.25(a) has
ceased to purchase or license the products of the Company, or has substantially
reduced, or intends to substantially reduce, the purchase or license of such
products from the Company.  As of the
date of this Agreement, the Company received no notice and has no Knowledge
that any customer listed on Schedule 4.25(a) is reasonably likely to cease
to purchase or license the products of the Company.  As of the Effective Time, the Company has
received no notice and has no Knowledge that any customer listed on Schedule
4.25(a) is reasonably likely to cease to purchase or license the products
of the Company, except as would not be material to the Company and its
Subsidiaries taken as a whole.  (b)Schedule 4.25(b) sets
forth the names of the five (5) most significant suppliers (by dollar
amount of purchases) of the Company and its Subsidiaries for each of the year
ended December 31, 2007, and the period from January 1, 2008 through September 30,
2008, and any sole-source suppliers that are material to the business of the
Company as presented, conducted or as proposed to be conducted, in each case
specifying the dollar amount of the purchases by the Company and its
Subsidiaries from each such supplier for each of the year ended December 31,
2007, and the period from January 1, 2008 through September 30,
2008.  The Company has received no notice
and has no Knowledge that any supplier listed on Schedule 4.25(b) has
threatened to (x) terminate or modify in a manner adverse to the Company
its relationship with the Company, (y) reduce the amount of goods or
services that it is willing to supply to the Company or (z) increase the
price of any good or service that it has previously supplied or that it expects
to supply to the Company.  Section 4.26.  Books and Records.The books of account and other
financial records of the Company have been maintained in accordance with sound
business practices that are adequate for the size and nature of the business of
the Company as  43


conducted as of the date of
this Agreement.  The minute books of the
Company made available to Parent contain complete and accurate records in all
material respects of all actions taken, and summaries of all meetings held, by
the Shareholders, the Board of Directors and any committees of the Board of
Directors of the Company since inception until the date hereof.  At the Effective Time, all of those books and
records will be in the possession of the Company.  The Company has previously made available all
of these books, records and accounts to Parent.  ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT  Parent represents and warrants to the Company that:  Section 5.01.  Corporate Existence and
Power.Each of Parent and
Merger Subsidiary is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted,
except for those licenses, authorizations, permits, consents and approvals the
absence of which would not have, individually or in the aggregate, a Material
Adverse Effect on Parent.  Since the date
of its incorporation, Merger Subsidiary has not engaged in any activities other
than in connection with or as contemplated by this Agreement.  Section 5.02.  Corporate Authorization.The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the Escrow
Agreement and the consummation by Parent and Merger Subsidiary of the
transactions contemplated hereby and thereby are within the corporate powers of
Parent and Merger Subsidiary, respectively, and have been duly authorized by
all necessary corporate action on the part of Parent and Merger Subsidiary,
respectively.  This Agreement, assuming
due authorization, execution and delivery by the other parties hereto,
constitutes a valid and binding agreement of Parent and Merger Subsidiary,
respectively.  Section 5.03.  Governmental
Authorization.The execution,
delivery and performance by Parent and Merger Subsidiary of this Agreement and
the consummation by Parent and Merger Subsidiary of the transactions
contemplated hereby require no action by or in respect of, or filing with, any
Governmental Authority, other than (i) the filing of an agreement of
merger with respect to the Merger with the Secretary of State of the State of
California and appropriate documents with the relevant authorities of other
states in which Parent is qualified to do business, (ii) compliance with
any applicable requirements of the 1933 Act, the 1934 Act and any other applicable
securities or takeover laws, whether state or foreign, (iii) such filings
as may be required under the HSR Act and (iv) any actions or filings the
absence of which could not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent or materially to impair the
ability of Parent and Merger Subsidiary to consummate the transactions
contemplated by this Agreement.  44


Section 5.04.  Non-Contravention.  The execution, delivery and performance by
Parent and Merger Subsidiary of this Agreement and the consummation by Parent
and Merger Subsidiary of the transactions contemplated hereby do not and will
not (i) contravene, conflict with, or result in any violation or breach of
any provision of the certificate of incorporation or bylaws of Parent or the
articles of incorporation or bylaws of Merger Subsidiary, or (ii) assuming
compliance with the matters referred to in Section 5.03, contravene,
conflict with, or result in any violation or breach of any provision of any
Applicable Law, except for such contraventions, conflicts and violations that
would not be reasonably expected to materially impair the ability of Parent and
Merger Subsidiary to consummate the transactions contemplated by this
Agreement.  Section 5.05.  Sufficient Funds.  As of the date hereof, Parent has, and as of
the Closing Parent will have, sufficient funds available to enable it to
consummate the transactions contemplated by this Agreement.  ARTICLE 6
COVENANTS OF THE COMPANY  The Company agrees that:  Section 6.01.  Conduct of the Company.  From
the date hereof until the earlier of the Effective Time and the termination of
this Agreement in accordance with Article 12, the Company shall, and shall
cause each of its Subsidiaries to, conduct its business in the ordinary course
consistent with past practice and in material compliance with all Applicable
Laws and use its commercially reasonable efforts to (i) preserve intact
its present business organization, properties and assets, (ii) maintain in
effect all of its foreign, federal, state and local licenses, permits,
consents, franchises, approvals and authorizations, (iii) keep available
the services of its directors, officers and key employees, (iv) maintain
satisfactory relationships with its customers, suppliers, distributors,
licensors, licensees, and others having material business relationships with
it, (v) manage its working capital (including the timing of collection of
accounts receivable and of the payment of accounts payable and the management
of inventory) in the ordinary course of business consistent with past practice,
(vi) maintain its Equipment in good operating condition and (vii) maintain
the insurance policies described in Section 4.19, its books and accounts
and its Intellectual Property Rights, in each case, consistent with past
practice and in accordance, in all material respects, with Applicable Law.  Without limiting the generality of the foregoing,
except pursuant to the prior written consent of Parent or as expressly
contemplated by this Agreement, the Company shall not, nor shall it permit any
of its Subsidiaries to:  (a)amend its
articles of incorporation, bylaws or other similar organizational documents
(whether by merger, consolidation or otherwise);  (b)split, combine
or reclassify any shares of capital stock of the Company or any of its
Subsidiaries or declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
the capital  45


stock of the Company or its
Subsidiaries, or redeem, repurchase or otherwise acquire or offer to redeem,
repurchase, or otherwise acquire any Company Securities or any Subsidiary
Securities;  (c)(i) issue,
deliver, sell, pledge, encumber or dispose of, or authorize the issuance,
delivery, sale, pledge, encumbrance or disposition of, any shares of any
Company Securities or Subsidiary Securities, other than the issuance of (A) any
shares of the Company Stock upon the exercise of Company Stock Options and
Company Warrants that are outstanding on the date of this Agreement in
accordance with the terms of those Company Stock Options and Company Warrants
on the date of this Agreement and (B) any Subsidiary Securities to the
Company or any other Subsidiary or (ii) amend any term of any Company
Security or any Subsidiary Security (in each case, whether by merger,
consolidation or otherwise);  (d)adopt a plan or
agreement of, or resolutions providing for or authorizing, complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization;  (e)acquire (by
merger, consolidation, acquisition of stock or assets or otherwise), directly or
indirectly, any assets, securities, properties, interests or businesses, other
than supplies in the ordinary course of business of the Company and its
Subsidiaries in a manner that is consistent with past practice;  (f)sell, lease or
otherwise transfer, or create or incur any Lien on, any of the Companys or its
Subsidiaries assets, securities, properties, interests or businesses, other
than sales of products in the ordinary course of business consistent with past
practice;  (g)incur any
capital expenditures or any obligations or liabilities exceeding $50,000 in the
aggregate in respect thereof;  (h)create, incur,
assume, suffer to exist or otherwise be liable with respect to any liabilities
or any indebtedness for borrowed money or guarantees thereof, other than trade
payables incurred in the ordinary course of business consistent with past
practice;  (i)make any loan,
advance or capital contribution to or investment in any Person other than
transactions in the ordinary course with its wholly-owned Subsidiaries;  (j)other than as
set forth on Schedule 6.01(j), (i) enter into any agreement or arrangement
that limits or otherwise restricts in any material respect the Company, any of
its Subsidiaries or any of their respective Affiliates or any successor thereto
or that could, after the Closing Date, limit or restrict in any material
respect the Company, any of its Subsidiaries, the Surviving Corporation, Parent
or any of their respective Affiliates, from engaging or competing in any line
of business, in any location or with any Person, (ii) enter into any
agreement (including any strategic alliance, joint development or joint
marketing agreement or any loan agreement or instrument), amend or modify in
any material respect or terminate any agreement or otherwise waive, release or
assign any material rights, claims or benefits of the Company or any of its
Subsidiaries under any  46


agreement, in each case
except in the ordinary course of business consistent with past practice or (iii) waive
any material benefits of, or agree to modify in any materially adverse respect,
or fail to enforce, or consent to any matter with respect to which its consent
is required under, any confidentiality, standstill or similar agreement to
which the Company or any of its Subsidiaries is a party;  (k)(i) grant
or increase any severance pay to (or amend any existing severance arrangement
with) any director, officer or employee of the Company or any of its
Subsidiaries, (ii) increase severance benefits payable under any existing
severance or termination pay policies or employment agreements, (iii) enter
into any employment, deferred compensation or other similar agreement (or amend
any such existing agreement) with any director, officer or employee of the
Company or any of its Subsidiaries, (iv) other than the payment of cash
bonuses not to exceed $200,000 in the aggregate to certain employees as set
forth on Schedule 6.01(k)(iv), establish, adopt or amend (except as
required by Applicable Law) any collective bargaining, bonus, profit-sharing,
thrift, pension, retirement, deferred compensation, compensation, stock option,
restricted stock or other benefit plan or arrangement covering any director,
officer or employee of the Company or any of its Subsidiaries, (v) other
than the payment in cash of a consulting fee not to exceed $50,000 pursuant to
the agreement set forth on Schedule 6.01(k)(v), pay or agree to pay any
consulting fees or (vi) increase compensation, bonus or other benefits payable
to any director, officer or employee of the Company or any of its Subsidiaries;  (l)(i) transfer,
sell or exclusively license to any Person any rights to any Intellectual
Property rights owned by or exclusively licensed to the Company or its Subsidiaries
or enter into with any Person any distribution agreement, reseller agreement,
security agreement, assignment or other conveyance or option for the foregoing,
with respect to any Intellectual Property rights owned by or exclusively
licensed to the Company or its Subsidiaries other than in the ordinary course
of business consistent with past practice, (ii) extend, amend or modify
any rights to any Intellectual Property rights owned by or exclusively licensed
to the Company or its Subsidiaries, (iii) purchase or acquire any
Intellectual Property rights of any Person or enter into any license agreement,
distribution agreement, reseller agreement, security agreement, assignment or
other conveyance or option for the foregoing, with respect to the Intellectual
Property rights of any Person (other than in the ordinary course of business
consistent with past practice, other than off the shelf shrink wrap, click
through or similar licenses for commercially available software, in each case
with no recurring license fee) or (iv) enter into, or amend, any agreement
with respect to the development of any Intellectual Property rights with a
Third Party;  (m)give to any Person an
indemnity in connection with any Intellectual Property right, other than
indemnities that arise under the standard form terms and conditions of sale of
the Company or any of its Subsidiaries;  (n)disclose any
secret or confidential Intellectual Property rights (except by way of issuance
of a patent) or permit to lapse or go abandoned any Intellectual Property
rights (or any registration or grant thereof or any application relating
thereto) to which, or  47


under which, the Company or
any of its Subsidiaries has any right, title, interest or license;  (o)change any
method of accounting or accounting practice except for any such change required
by reason of a concurrent change in GAAP;  (p)commence, or
threaten to commence, settle, or offer or propose to settle, (i) any
litigation, investigation, arbitration, proceeding or other claim involving or
against the Company or its Subsidiaries or (ii) any litigation,
arbitration, proceeding or dispute that relates to the transactions
contemplated by this Agreement;  (q)make or change
any material Tax election, change any annual Tax accounting period, adopt or
change any material method of Tax accounting, amend any material Tax Returns or
file claims for Tax refunds, enter into any closing agreement, settle any
material Tax claim, audit or assessment, or surrender any right to claim a
material Tax refund, offset or other reduction in Tax liability, consent to any
extension or waiver of the limitations period applicable to any Tax claim or
assessment or take or omit to take any other action that would have the effect
of materially increasing the Tax liability or materially reducing any Tax Asset
of the Company or any of its Subsidiaries;  (r)shorten or
lengthen the customary payment terms or other terms of any contracts with
customers or suppliers other than in the ordinary course of business consistent
with past practices;  (s)enter into any
transaction or commitment with any Affiliate, other than transactions between
the Company and its wholly-owned Subsidiaries or among the Companys
wholly-owned Subsidiaries and other than the payment of employee compensation
or expense reimbursements in the ordinary course of business consistent with
past practices;  (t)enter into any
lease, contract or agreement with regard to real property other than renewals
of existing leases on a month-to-month basis on terms similar to such existing
leases;  (u)permit any
insurance policy naming it as a beneficiary or a loss payee to be cancelled or
terminated unless such insurance policy is replaced with a substantially
equivalent policy on substantially equivalent terms;  (v)take any action
that would make any representation or warranty of the Company hereunder, or
omit to take any action necessary to prevent any representation or warranty of
the Company hereunder from being, inaccurate in any respect at, or as of any
time before, the Effective Time; or  (w)agree, resolve or commit to
do any of the foregoing, or any other action that would prevent the Company
from performing or cause the Company not to perform its obligation hereunder.  48


Section 6.02.  Shareholder Approval;
Information Statement.  As
promptly as practicable following the date of this Agreement, the Company shall
submit this Agreement, the Merger and the transactions contemplated thereby to
all of the Shareholders as of the record date for approval and adoption
pursuant to and in strict accordance with California Law, the articles of
incorporation and the bylaws of the Company. 
Such submission shall contain an information statement (the Information Statement) to each Shareholder in a form
reasonably acceptable to Parent and that complies with applicable securities
laws and California Law.  In connection
therewith, the Information Statement shall include a summary of the terms and
conditions of this Agreement and a statement to the effect that the Board of
Directors of the Company unanimously (i) determined that the Merger is
advisable and fair to, and in the best interests of, the Company and the
Shareholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated thereby and (iii) recommends that the
Shareholders adopt and approve this Agreement, the Merger and the other
transactions contemplated thereby.  The
Information Statement shall specify that adoption of this Agreement shall
constitute approval by the Shareholders of (A) the escrow and
indemnification obligations of the Shareholders set forth in Article 12
hereof and deposit of the Escrow Amount into the Escrow Account and (B) the
appointment of Andrew Schwab as Equityholders Representative, under and as
defined in this Agreement.  None of the
information about the Company included in the Information Statement delivered
to Shareholders will 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 the light of the circumstances under which they
are made, not misleading.  The Company
shall provide Parent (and its counsel) with an opportunity to review and
comment on the Information Statement and any amendment or supplement thereto
prior to the submission of such materials to the Shareholders.  Section 6.03.  Access to Information.  From the date hereof until the earlier of the
Effective Time and the termination of this Agreement in accordance with Article 12
and subject to Applicable Law and the Mutual Non-Disclosure Agreement dated April 10,
2008 between the Company and Parent (the Confidentiality Agreement),
the Company shall (i) give Parent and its Representatives full access to
the offices, properties, books and records of the Company and the Subsidiaries,
(ii) furnish to Parent and its Representatives financial and operating
data and other information as such Persons may reasonably request and (iii) instruct
the Representatives of the Company and its Affiliates to cooperate with Parent
in its investigation of the Company and its Subsidiaries and its integration
planning activities.  Any investigation
pursuant to this Section 6.03 shall be conducted in such manner as not to
interfere unreasonably with the conduct of the business of the Company and its
Subsidiaries.  No investigation by Parent
or information or knowledge obtained by Parent shall operate as a waiver or otherwise
affect or be deemed to modify any representation or warranty or agreement made
by the Company hereunder.  Section 6.04.  No Solicitation; Other Offers.(a)From the date hereof until
the earlier of the Effective Time and the termination of this Agreement in
accordance with Article 12, neither the Company nor any of its Affiliates
nor any of their respective  49


Representatives shall,
directly or indirectly, take any of the following actions with any Person other
than Parent and its Representatives (i) solicit, initiate, entertain or
agree to any proposals or offers from any Person relating to (A) any
merger, share exchange, business combination, reorganization, consolidation or
similar transaction involving the Company or any of its Subsidiaries, (B) the
acquisition of beneficial ownership of any equity interest in the Company or
any of its Subsidiaries, whether by issuance by the Company or any of its
Subsidiaries or by purchase from the Shareholders of the Company or otherwise, (C) the
license or transfer of all or a material portion of the assets of the Company,
or (D) any transaction that may be inconsistent with or that may have an
adverse effect upon the Merger (any of the transactions described in clauses (A) through
(D), a Competing Transaction), or (ii) participate
in any discussions or negotiations regarding, or furnish to any Person any
information with respect to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any Person to do or seek, a Competing
Transaction.  (b)Each of the
Company and its Affiliates shall (and shall cause its Representatives to) cease
immediately any and all discussions or negotiations with any Person (other than
Parent and its Representatives) regarding a Competing Transaction.  Each of the Company and its Affiliates shall
enforce the terms and conditions of any confidentiality agreement entered into
with such Third Party with respect to any Competing Transaction and instruct
any Third Party (or its agents or advisors) in possession of confidential
information about the Company that was furnished by or on behalf of the Company
in connection with a potential Competing Transaction to return or destroy all
such information.  (c)The parties
hereto agree that irreparable damage would occur in the event that the
provisions of this Section 6.04 were not performed in accordance with
their specific terms or were otherwise breached.  It is accordingly agreed by the parties that
Parent shall be entitled to an immediate injunction or injunctions, without the
necessity of proving the inadequacy of money damages as a remedy and without
the necessity of posting any bond or other security, to prevent breaches of the
provisions of this Section 6.04 and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which Parent may be
entitled at law or in equity.  Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth above bythe Company, its Affiliates or any of the Representatives of the Company
and any of its Affiliates shall be deemed to be a breach of this Agreement by
the Company.  Section 6.05.  Key Employees; Other Benefit
Matters.  (a) The Company
will use its commercially reasonable efforts to assist Parent in its efforts to
offer employment and retention packages for Key Employees at no out-of-pocket
cost to the Company and will give Parent access to all employee compensation
information and records, to the extent permitted by Applicable Law.  The Company will not make and will cause its
officers, directors, and Affiliates not to make any statement which disparages Parent
or its Affiliates in writing, orally or otherwise to employees of the Company
and its Subsidiaries or otherwise.  50


(b)   Prior to the Effective Time, the Company
shall (i) pay cash bonuses not to exceed $200,000 in the aggregate to the
individual employees and in the amounts set forth on Schedule 6.01(k)(iv) and
(ii) pay in cash that consulting fee to the individual and in the amount
set forth on Schedule 6.01(k)(v).  (c)   Unless otherwise directed by Parent at least
ten (10) Business Days prior to the Effective Time, the Company shall
terminate any and all Employee Plans intended to qualify as a qualified cash or
deferred arrangement under Section 401(k) of the Code effective
immediately preceding the Effective Time, together with any amendments or
restatements required by Applicable Law or the plan administrator, and provide
Parent with evidence that such Employee Plans have been so terminated.  The Company shall terminate the deferred
compensation agreement set forth on Schedule 6.05(c) effective as of the
Effective Time.  (d)   The Company shall use commercially reasonable
efforts to obtain shareholder approval of any payments or benefits that could
be considered parachute payments for purposes of Section 280G of the Code
such that such payments and benefits shall not be subject to Section 280G
of the Code.  (e)   For one year following the Closing Date,
Parent shall arrange for each Company employee who continues as an employee of
the Company or a related entity to receive benefits under benefit plans that
are comparable in the aggregate to those provided to other similarly situated
(as to seniority, job description, salary and location) employees of Parent and
its subsidiaries in effect at the date of this Agreement (the Parent Plans).  (f)    Each Company employee shall, to the extent
permitted by Applicable Law, receive credit for purposes of determining
eligibility to participate and vesting (other than with respect to equity
plans) under Parent Plans for years of service with Company prior to the
Closing Date.  Parent shall cause any and
all pre-existing condition limitations, eligibility waiting periods and
evidence of insurability requirements under any group health plans (except to
the extent such limitations or waiting periods already are in effect with
respect to such employees and have not been satisfied under the comparable
Benefit Plans immediately prior to the Effective Time) to be waived with
respect to the Company employees and their eligible dependents and, to the
extent Company Employees are moved to Parent Plans prior to January 1,
2009, shall use reasonable efforts to provide them with credit for any
co-payments, deductibles, and offsets (or similar payments) arising prior to
the Closing Date for purposes of satisfying any applicable deductible,
out-of-pocket, or similar requirements under any Parent Plans in which they are
eligible to participate after the Closing Date. 
Notwithstanding the foregoing, none of the provisions contained herein
shall operate to duplicate any employee benefit provided to any Company
employee or the funding of any such benefit.  51


ARTICLE
7 COVENANTS
OF PARENT  Parent agrees that:  Section 7.01.  Obligations of Merger
Subsidiary.  Parent shall take
all action necessary to cause Merger Subsidiary to perform its obligations
under this Agreement and to consummate the Merger on the terms and conditions
set forth in this Agreement.  Section 7.02.  Indemnification of Officers
and Directors.  For six (6) years
after the Effective Time, Parent will cause the Surviving Corporation to honor
and fulfill in all respects the obligations of the Company and its Subsidiaries
under any indemnification agreement outstanding on the date hereof and in
effect immediately prior to the Effective Time between the Company and any of
its current or former directors and officers. 
In addition, for a period of six (6) years following the Effective
Time, Parent shall (and shall cause the Surviving Corporation to) cause the
articles of incorporation and bylaws (and other similar organizational
documents) of the Surviving Corporation to contain provisions with respect to
indemnification and exculpation that are at least as favorable to the
beneficiaries thereof as the indemnification and exculpation provisions
contained in the articles of incorporation and bylaws (or other similar
organizational documents) of the Company and its Subsidiaries immediately prior
to the Effective Time, and during such six-year period, such provisions shall
not be amended, repealed or otherwise modified in any respect, except as
required by Applicable Law.  ARTICLE
8 COVENANTS
OF PARENT AND THE COMPANY  The parties hereto agree that:  Section 8.01.  Commercially Reasonable
Efforts.  Subject to the terms
and conditions of this Agreement, the Company and Parent shall use their
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
Applicable Law to consummate the transactions contemplated by this Agreement,
including (i) preparing and filing as promptly as practicable with any
Governmental Authority or other Third Party all documentation to effect all
necessary filings, notices, petitions, statements, registrations, submissions
of information, applications and other documents and (ii) obtaining and
maintaining all approvals, consents, registrations, permits, authorizations and
other confirmations required to be obtained from any Governmental Authority or
other Third Party that are necessary, proper or advisable to consummate the
transactions contemplated by this Agreement; provided
that the parties hereto understand and agree that the commercially reasonable
efforts of any party hereto shall not be deemed to include (i) entering
into any settlement, undertaking, consent decree, stipulation or agreement with
any Governmental Authority in connection with the transactions contemplated
hereby or (ii) divesting or otherwise holding separate (including by
establishing a trust or otherwise), or taking any other action (or otherwise
agreeing to do  52


any of the foregoing) with
respect to any of its or the Surviving Corporations Subsidiaries or any of
their respective Affiliates businesses, assets or properties.  (b)   In furtherance and not in limitation of the
foregoing, each of Parent and the Company shall make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as practicable and in any event
within five (5) Business Days of the date hereof and to supply as promptly
as practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and to use their commercially reasonable
efforts to take all other actions necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable.  (c)   The parties agree to cooperate and to use
their respective commercially reasonable efforts to respond to any requests for
information from a Governmental Authority. 
Each party shall (i) give the other parties hereto prompt notice
upon obtaining knowledge of the making or commencement of any request, inquiry,
investigation, action or legal proceeding by or before any Governmental
Authority with respect to the Merger or any of the other transactions
contemplated by this Agreement, (ii) keep the other parties hereto
informed as to the status of any such request, inquiry, investigation, action
or legal proceeding, and (iii) promptly inform the other parties hereto of
any communication to or from the U.S. Federal Trade Commission or the U.S.
Department of Justice.  The parties will
consult and cooperate with one another, and consider in good faith the views of
one another, in connection with, and provide to the other parties in advance,
any analyses, appearances, presentations, memoranda, briefs, arguments,
opinions and proposals to be made or submitted by or on behalf of any party
hereto in connection with any inquiry, investigation, action or legal
proceeding.  Section 8.02.  Cooperation.  The
Company and Parent shall cooperate with one another in determining whether any
action by or in respect of, or filing with, any Governmental Authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any Material Contracts, in connection with the
consummation of the transactions contemplated by this Agreement and in seeking
timely to obtain any such actions, consents, approvals or waivers.  Section 8.03.  Public Announcements.  The parties agree to consult with and solicit
the consent of each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except for any press releases or public statements of Parent the
making of which may be required by Applicable Law or any listing agreement with
or rule of any national securities exchange, will not issue any such press
release or make any such public statement prior to such consultation and
consent.  Section 8.04.  Further Assurances.  At and after the Effective Time, the officers
and directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of the Company or Merger Subsidiary, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Merger Subsidiary, any other actions and things
to vest, perfect or confirm of record or  53


otherwise in the Surviving
Corporation any and all right, title and interest in, to and under any of the
rights, properties or assets of the Company acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.  Section 8.05.  Notices of Certain Events.  Each of Parent, the Company and the
Equityholder Representative shall promptly notify the other parties of:  (a)        any notice or other communication from
any Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement, or that any
compensation or other benefit is due to be paid to such Person on the basis of
any of the transactions contemplated by this Agreement, other than payments
expressly provided for herein;  (b)        any notice or other communication from
any Governmental Authority in connection with the transactions contemplated by
this Agreement;  (c)        any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting the Company or any of
its Subsidiaries that, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 4.10, Section 4.12,
Section 4.13 or Section 4.23, as the case may be, or that relate to
the consummation of the transactions contemplated by this Agreement;  (d)        any inaccuracy of any representation or
warranty contained in this Agreement at any time during the term hereof that
would reasonably be expected to cause the conditions set forth in Section 9.02(a) or
Section 9.03(a), as the case may be, not to be satisfied; and  (e)        any failure of any party to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder.  Section 8.06.  Confidentiality.(a)  The parties acknowledge
that the Company and Parent previously have executed the Confidentiality
Agreement, which will continue in full force and effect in accordance with its
terms.  (b)        Prior to the Effective Time and after
any termination of this Agreement, the Company shall hold, and shall use its
best efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by Applicable Law or any Governmental Authority, all confidential
documents and information concerning Parent or Merger Subsidiary furnished to
it or its Affiliates in connection with the Merger and the other transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known on a non-confidential basis by
such party, (ii) in the public domain through no fault of such party or (iii) later
lawfully acquired by such party from sources other than the other party (provided  that
such sources are not known by such party to be bound by a confidentiality
agreement or otherwise prohibited from disclosing the information).  The Company shall satisfy its obligation to
hold any such  54


information in
confidence if it exercises the same care with respect to such information as it
would take to preserve the confidentiality of its own similar information, and
in any event at least reasonable care. 
If this Agreement is terminated, the Company shall, and shall cause its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents to, destroy or deliver to Parent, upon request, all documents and other
materials, and all copies thereof, that it or its Affiliates obtained, or that
were obtained on their behalf, from Parent or Merger Subsidiary in connection
with this Agreement and that are subject to such confidence.  ARTICLE
9 CONDITIONS
TO THE MERGER  Section 9.01.  Conditions to the Obligations
of Each Party.  The
obligations of the Company, Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following conditions:  (a)        The Company Shareholder Approval shall
have been obtained in accordance with Applicable Law and shall be in full force
and effect.  (b)        No provision of Applicable Law shall
prohibit the consummation of the Merger.  (c)        Any applicable waiting period under the
HSR Act relating to the Merger shall have expired or been terminated.  (d)        All actions by or in respect of, or
filings with, any Governmental Authority, required to permit the consummation
of the Merger shall have been taken, made or obtained.  (e)        No temporary restraining order,
preliminary injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition prohibiting the consummation of the
Merger shall be in effect; nor shall any Applicable Law be enacted, entered or
enforced which prohibits the consummation of the Merger.  (f)         The Escrow Agent shall have executed
and delivered the Escrow Agreement, and such agreement shall be in full force
and effect.  Section 9.02.  Conditions to the Obligations
of the Company.  The
obligation of the Company to consummate the Merger is subject to the
satisfaction of the following further conditions:  (a)        The representations and warranties of
the Parent and Merger Subsidiary contained in this Agreement shall be true and
correct (in the case of representations and warranties qualified as to
materiality or Material Adverse Effect) or true and correct in all material
respects (in the case of other representations and warranties) at and as of the
date of this Agreement and at and as of the Effective Time as if made at and as
of such time  55


(other than
such representations and warranties that by their terms address matters only as
of another specified time, in which case only as of such time), except for
those failures to be so true and correct as have not had and would not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the ability of Parent and Merger Subsidiary to consummate the
Merger.  (b)        Parent shall have performed or complied
in all material respects with all covenants and obligations required to be
performed by it under this Agreement at or prior to the Effective Time.  (c)        Parent shall have delivered to the
Company a certificate of Parent, executed by an executive officer of Parent,
that each of the conditions set forth in Section 9.02(a) and (b) has
been satisfied in all material respects.  (d)        Parent shall have delivered to the
Company a copy of the Escrow Agreement, duly and validly executed by Parent.  Section 9.03.  Conditions to the Obligations
of Parent and Merger Subsidiary. 
The obligations of Parent and Merger Subsidiary to consummate the Merger
are subject to the satisfaction of the following further conditions:  (a)        (i) The representations and
warranties of the Company contained in this Agreement shall be true and correct
(in the case of representations and warranties qualified as to materiality or
Material Adverse Effect) or true and correct in all material respects (in the
case of other representations and warranties) at and as of the date of this
Agreement and at and as of the Effective Time as if made at and as of such time
(other than such representations and warranties that by their terms address
matters only as of another specified time, in which case only as of such time);
and (ii) the representations and warranties of the Company contained in
any certificate or other writing delivered by the Company pursuant to this
Agreement shall be true and correct at and as of the date delivered and at and
as of the Effective Time as if made at and as of such time (other than such
representations and warranties that by their terms address matters only as of
another specified time, in which case only as of such time).  (b)        The Company shall have performed or
complied in all material respects with all covenants and obligations required
to be performed by it under this Agreement at or prior to the Effective Time.  (c)        The Company shall have received all
consents, authorizations or approvals from the Governmental Authorities
referred to in Section 4.03, in each case in form and substance reasonably
satisfactory to Parent, and no such consent, authorization or approval shall
have been revoked.  (d)        There shall not have occurred any event,
occurrence, revelation or development of a state of circumstances or facts
which, individually or in the aggregate, has had or would reasonably be
expected to have a Material Adverse Effect on the Company.  56


(e)   The Company shall have delivered to Parent a
certificate of the Company, executed by an executive officer of the Company,
that each of the conditions set forth in Section 9.03(a) through (d) has
been satisfied in all respects.  (f)    There shall not have been any action taken,
or any Applicable Law proposed, enacted, enforced, promulgated, issued or
deemed applicable to the Merger, by any Governmental Authority, other than the
application of the waiting period provisions of the HSR Act to the Merger, that,
in the judgment of Parent, is likely, directly or indirectly, (i) to make
illegal, delay materially or otherwise directly or indirectly restrain or
prohibit the consummation of the Merger, (ii) to restrain or prohibit
Parents or the Surviving Corporations ownership or operation of all or any
material portion of the Company or any of its Subsidiaries, or of Parent and
its Subsidiaries taken as a whole, (iii) to compel Parent or the Surviving
Corporation to dispose of or hold separate all or any material portion of the
business or assets of the Company or any of its Subsidiaries, or of Parent and
its Subsidiaries, taken as a whole, or (iv) to have a Material Adverse
Effect on the Company or any of its Subsidiaries, taken as a whole.  (g)   Appraisal, dissenters or similar rights
under Applicable Law with respect to any of the transactions contemplated by
this Agreement shall not remain outstanding with respect to more than ten
percent (10%) of the outstanding shares of Company Stock (on an As-Converted
basis).  (h)   Parent shall have received an opinion of
Morrison & Foerster LLP, counsel to the Company, dated as of the
Closing Date, in the form attached hereto as Exhibit E.  (i)    The Company shall have provided notice in
accordance with the terms of each agreement identified in Schedule 4.11(e) of
the Company Disclosure Schedule.  (j)    Each Key Employee Employment Agreement with
each Key Employee set forth on Schedule 9.03(j) shall be in full force and
effect.  (k)   Each of the contracts set forth on Schedule
9.03(k) shall be in full force and effect.  (l)    Parent shall have been furnished evidence
reasonably satisfactory to it that (x) all Company Stock Options and
Company Warrants have been exercised or terminated at or prior to the Effective
Time and that there are no Company Stock Options or Company Warrants
outstanding as of the Effective Time and (y) all required notifications of
the Merger and the other transactions contemplated hereby to the holders of
Company Stock, Company Stock Options and Company Warrants have been properly
and timely delivered.  (m)  The Company shall have delivered (i) a
certification for the Company, dated not more than 30 days prior to the Closing
Date and signed by the Company, that satisfies the requirements of Treasury
Regulation Sections 1.897-2(h)(2) and 1.1445-2(c)(3) and confirms
that the Company is not, nor has it been within 5 years of the date of the
certification, a United States real property holding corporation as defined
in Section  57


897 of the
Code and (ii) a notice to the Internal Revenue Service, signed by the
Company, that satisfies the requirements of Treasury Regulation Section 1.897-2(h)(2).  (n)   The Company shall have delivered to the
Parent the Purchase Price Adjustment Statement and the Closing Payment Schedule
upon the terms and subject to the conditions of Section 2.07 and Section 2.08,
respectively, of this Agreement.  (o)   The Company and the Equityholders
Representative shall have delivered to Parent a copy of the Escrow Agreement,
duly and validly executed by the Company and the Equityholders Representative,
respectively.  (p)   Parent shall have received such customary
documents from the Company as Parent may reasonably request in good faith for
the purpose of facilitating the consummation of the Merger and the other
transactions contemplated by this Agreement and the Related Agreements.  ARTICLE
10 TAX
MATTERS  Section 10.01.  Responsibility for Filing Tax
Returns.  Parent shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company related to a Pre-Closing Tax Period and required to be filed after the
Closing Date.  Parent shall permit the
Equityholders Representative to review and comment on each such Tax Return prior
to filing to the extent that such Tax Return would result in a Tax liability
for which an indemnification claim under Article 11 may be made by a
Parent Indemnified Party against the Indemnitors and shall reasonably consider
such revisions to such Tax Returns as a requested by the Equityholders
Representative, and shall make any revision to such Tax Return as may be
requested by the Equityholders Representative to cause such Tax Return to be
consistent with the prior practice of the Company (unless otherwise required by
applicable Tax law) if such revision would result in a reduction of indemnity
liability of the Indemnitors in respect of the Tax liabilities of the
Company.  Parent shall timely remit (or
cause to be timely remitted) by or on behalf of the Company all Taxes that
become due from the Company after the Closing Date.  Section 10.02.  Amended Returns.  Parent shall not amend (or cause to be
amended) a Tax Return of the Company with respect to a taxable period beginning
before the Closing Date if such amendment would reasonably be expected to
result in a Tax liability for which an indemnification claim under Article 11
may be made by a Parent Indemnified Party, without the consent of the
Equityholders Representative, which consent shall not be unreasonably withheld
or delayed.  Section 10.03.  Transfer Taxes.  Notwithstanding the requirements of any
Applicable Laws to the contrary, Parent shall be responsible for and shall pay,
or cause to be paid, any Transfer Taxes when due, and shall, at its own
expense, file any necessary Tax Returns and other documentation with respect to
all such Transfer Taxes.  For the  58


avoidance of doubt, 50% of all
Transfer Taxes shall be deemed included in Transaction Expenses.  ARTICLE
11 SURVIVAL;
INDEMNIFICATION  Section 11.01.  Survival.  The Companys representations and warranties
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time until the date that is eighteen
months after the Closing Date; provided, however, that the representations and warranties contained
in Sections 4.02, 4.05, 4.08(c) and 4.13 and in the Purchase Price
Adjustment Statement delivered pursuant to Section 2.07 (collectively, the
Specified Representations) shall
survive the Effective Time until the date that is three years after the Closing
Date.  The covenants and agreements of
the parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive the
Effective Time indefinitely or for the shorter period explicitly specified
therein, except that for such covenants and agreements that survive for such
shorter period, breaches thereof shall survive indefinitely or until the latest
date permitted by law.  Notwithstanding
the preceding sentences, any breach of representation, warranty, covenant or
agreement in respect of which indemnity may be sought under this Agreement
shall survive the time at which it would otherwise terminate pursuant to the
preceding sentences, if notice of the inaccuracy or breach thereof giving rise
to such right of indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time. 
All of Parents and Merger Subsidiarys representations and warranties
contained herein or in any instrument delivered pursuant to this Agreement
shall terminate at the Effective Time.  Section 11.02.  Indemnification.  (a) The Shareholders, the Closing Date Optionholders
and the Closing Date Warrantholders (collectively, for the purposes of this Article 11,
the Indemnitors) hereby severally, but not
jointly, indemnify Parent and its Affiliates (including, after the Effective
Time, the Surviving Corporation and its Subsidiaries) and their respective
successors and assigns (collectively, the Indemnified
Parties) against and agree to hold each of them harmless from any
and all damage, loss, liability and expense (including reasonable expenses of
investigation and reasonable attorneys and consultants fees and expenses in
connection with any action, suit or proceeding whether involving a Third Party
claim or a claim solely between the parties hereto), and any incidental,
indirect or consequential damages, losses, liabilities or expenses, and any
lost profits or diminution in value (Damages),
incurred, suffered or accrued by any Indemnified Party arising out of any
misrepresentation or breach of warranty (without giving effect to any
qualification or exception as to materiality or Material Adverse Effect or any
similar qualification or standard including specified dollar thresholds
contained therein in determining the amount of any Damages) or breach of
covenant or agreement made or to be performed by the Company pursuant to this
Agreement (the Breach) regardless of whether
such Damages arise as a result of the  59


negligence, strict liability or
any other liability under any theory of law or equity of, or violation of any
law by, the Indemnified Parties.  (b)   With respect to indemnification under Section 11.02(a) by
the Indemnitors (other than (x) a Breach of any Specified Representation
and (y) claims arising out of fraud, willful misrepresentation or willful
breach of covenant), (i) no Indemnified Party shall be entitled to
indemnification pursuant to this Section 11.02 for Damages arising out of
any single Breach (or series of related Breaches) unless such Damages exceed
$5,000 (the Minimum Claim Amount), (ii) no
Indemnified Party shall be entitled to indemnification pursuant to this Section 11.02
until such time as the total amount of all Damages that have been directly or
indirectly suffered, incurred or accrued by any one or more of the Indemnified
Parties, or to which any one or more of the Indemnified Parties has or have
otherwise become subject, exceeds $300,000 in the aggregate (the Deductible
Amount) and only to the extent of such excess, and (iii) the
Indemnitors maximum liability to Indemnified Parties pursuant to this Section 11.02
shall not exceed the Escrow Fund (it being understood that the Escrow Fund
shall be the sole recourse of the Indemnified Parties for any such
Breach).  With respect to indemnification
by the Indemnitors for a Breach of any Specified Representation and for claims
arising out of fraud, willful misrepresentation or willful breach of covenant,
the Indemnified Parties shall be indemnified from the first dollar and without
regard to the Minimum Claim Amount or the Deductible Amount and each Indemnitor
shall be liable only for that portion of the Damages equal to its pro rata
share of the Merger Consideration to which it is entitled pursuant to Section 2.03(a).  The maximum liability of an Indemnitor with
respect to indemnification for a Breach of any Specified Representation or
claims arising out of fraud, willful misrepresentation or willful breach of
covenant shall be 100% of the Merger Consideration to which it is entitled
pursuant to Section 2.03(a).  The
indemnification provided by this Section 11.02 and resort to the Escrow
Fund shall be the sole and exclusive remedy available to the Indemnified
Parties after the Effective Time for any claim related to this Agreement or the
transactions contemplated hereby, except with respect to (i) claims
arising out of fraud, willful misrepresentation or willful breach of covenant
and (ii) claims arising out of any Breach of a Specified Representation,
which are limited as provided by the two immediately preceding sentences.  The Indemnitors hereby waive any and all
rights of indemnification, contribution or subrogation against the Company with
respect to any indemnification payment made by any party pursuant to this Article 11.  (c)   Any Indemnified Party seeking indemnification
from another party hereto (the Indemnifying
Party) under this Section 11.02 shall give the Escrow Agent
and the Equityholders Representative notice of the assertion of any claim or
the commencement of any suit, action or proceeding by any Third Party in
respect of which indemnity may be sought under this Agreement, stating in
reasonable detail the basis for indemnification (taking into account the
information then available to the Indemnified Party).  The failure to so notify the Indemnifying
Party shall not relieve the Indemnifying Party of its obligations hereunder,
except to the extent such failure shall have materially and adversely
prejudiced the Indemnifying Party.  All
fees, expenses and other Damages of the Indemnified Party in connection with
any matter for which indemnity may be  60


sought shall
be reimbursed from the Escrow Account in accordance with the Escrow Agreement.  (d)   If (x) the Equityholders Representative
shall not have objected to the amount claimed by the Indemnified Party for
indemnification from the Escrow Fund with respect to any Damages in accordance
with the procedures set forth herein and in the Escrow Agreement or (y) the
Equityholders Representative shall have delivered notice of its disagreement
as to the amount of any indemnification requested by the Indemnified Party from
the Escrow Fund and either (i) the Equityholders Representative and the
Indemnified Party shall have, subsequent to the giving of such notice, mutually
agreed that the Indemnified Party is entitled to indemnification from the
Escrow Fund for a specified amount and shall have so jointly notified the
Escrow Agent or (ii) a final judgment shall have been rendered by the
court having jurisdiction over the matters relating to such claim by the
Indemnified Party for indemnification from the Escrow Fund, and the Escrow
Agent shall have received, in the case of clause (i) above, joint written
instructions from the Equityholders Representative and the Indemnified Party
or, in the case of clause (ii) above, a copy of the final judgment of
the court and written instructions from the Indemnified Party, the Escrow Agent
shall deliver to the Indemnified Party funds from the Escrow Fund in respect of
any amount determined to be owed to the Indemnified Party under this Section in
accordance with the Escrow Agreement.  (e)   In all matters relating to this Section, the
Equityholders Representative shall be the only party entitled to assert the
rights of the Indemnitors, and the Equityholders Representative shall perform
all of the obligations of the Indemnitors hereunder.  Parent shall be entitled to rely on all
statements, representations and decisions of the Equityholders Representative.  (f)    The representations and warranties and the
covenants and agreements of the Company, and the rights and remedies that may
be exercised by the Indemnified
Parties, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or Knowledge of, any
Indemnified Party.  Section 11.03.  Equityholders Representative.  (a) Effective upon and by virtue of the
vote of the Shareholders approving and adopting this Agreement and the Merger,
and without any further act of any of the Indemnitors, the Equityholders
Representative shall be hereby appointed as the representative of the
Indemnitors and as the attorney-in-fact and agent for and on behalf of each
Indemnitor with respect to (i) any claims by any Indemnified Party against
the Escrow Fund under Articles 2 and 11 of this Agreement and (ii) any
amendments to the Escrow Agreement.  The
Equityholders Representative hereby accepts such appointment.  The Equityholders Representative shall have
the authority to take any and all actions and make any decisions required or
permitted to be taken by the Equityholders Representative under the Escrow
Agreement and this Agreement, including the exercise of the power to (iii) authorize
the payment of all or any part of the Escrow Amount, (iv) agree to, negotiate,
enter into settlements and compromises of, commence any suit, action or
proceeding, demand arbitration of, and comply with orders of courts or awards
of arbitrators with respect to, claims by any  61


Indemnified Party against the
Escrow Fund under Articles 2 and 11 of this Agreement, (v) arbitrate,
litigate, resolve, settle or compromise any dispute that may arise pursuant to
the Escrow Agreement and (vi) take all actions necessary in the judgment
of the Equityholders Representative for the accomplishment of the
foregoing.  The Equityholders
Representative will have sole authority and power to act on behalf of each
Indemnitor with respect to the disposition, settlement or other handling of all
claims against the Escrow Fund under this Agreement and all related rights or
obligations of the Indemnitors arising under this Agreement.  The Equityholders Representative will also
have sole authority and power to act on behalf of each Indemnitor with respect
to any amendments to the Escrow Agreement.  (b)   In all matters relating to the disposition,
settlement or other handling of claims against the Escrow Fund under this
Agreement or any amendments to the Escrow Agreement, the Equityholders
Representative (or his or her successor) shall be the only party entitled to
assert the rights of the Indemnitors.  A
decision, act, consent or instruction of the Equityholders Representative
hereunder shall constitute a decision, act, consent or instruction of all
Indemnitors and shall be final, binding and conclusive upon each of such
Indemnitors, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Equityholders Representative as being the
decision, act, consent or instruction of each and every Indemnitor.  The Escrow Agent and Parent shall be relieved
from any liability to any Person for any acts done by them in accordance with
such decision, act, consent or instruction of the Equityholders
Representative.  (c)   The Equityholders Representative shall have
the right to recover from the Escrow Fund his reasonable out-of-pocket expenses
(the Equityholders Representatives Expenses),
prior to any distribution to the Indemnitors, but after any disbursement from
the Escrow Fund to any Indemnified Party and the Escrow Agent pursuant to the
terms and conditions of the Escrow Agreement; provided,
however, that the Equityholders Representative shall have the right
to recover from the Escrow Fund Equityholders Representatives Expenses in an
aggregate amount of up to $100,000 prior to any distribution to the Indemnitors
and prior to any disbursement from the Escrow Fund to any Indemnified Party and
the Escrow Agent.  The Equityholders
Representatives Expenses will be paid to the Equityholders Representative
from the Escrow Fund promptly following delivery by the Equityholders
Representative to the Escrow Agent of a written request for payment of such
Equityholders Representatives Expenses (which written request shall include
reasonable documentation to support such Equityholders Representatives
Expenses).  In the event the Escrow Fund
is insufficient to satisfy the Equityholders Representatives Expenses, then
each Indemnitor will be obligated to pay a pro rata portion of the
Equityholders Representatives Expenses in excess of the Escrow Fund.  (d)   The Equityholders Representative will incur
no liability with respect to any action taken or suffered by any party in
reliance upon any notice, direction, instruction, consent, statement or other
document believed by such Equityholders Representative to be genuine and to
have been signed by the proper person (and shall have no responsibility  62


to determine
the authenticity thereof), nor for any other action or inaction, except his or
her own gross negligence, bad faith or willful misconduct.  (e)   The Indemnitors shall severally but not
jointly indemnify the Equityholders Representative and hold the Equityholders
Representative harmless against any loss, liability or expense incurred without
gross negligence, bad faith or willful misconduct, to the extent permitted by
Applicable Law, on the part of the Equityholders Representative and arising
out of or in connection with the acceptance or administration of the
Equityholders Representatives duties hereunder, including the reasonable fees
and expenses of any legal counsel retained by the Equityholders
Representative.  (f)    At any time during the term of the Escrow
Agreement, a majority-in-interest of holders of any amounts then held in the
Escrow Fund may, by written consent, appoint a new representative as the
Equityholders Representative.  Notice
together with a copy of the written consent appointing such new representative
and bearing the signatures of holders of a majority-in-interest of those
holders must be delivered to Parent and the Escrow Agent not less than ten (10) calendar
days prior to such appointment.  Such
appointment will be effective upon the later of the date indicated in the
consent or the date such consent is received by Parent and the Escrow Agent.  (g)   In the event that the Equityholders
Representative becomes unable or unwilling to continue in his or its capacity
as Equityholders Representative, or if the Equityholders Representative
resigns as a Equityholders Representative, a majority-in-interest of the
holders of any amounts then held in the Escrow Fund may, by written consent,
appoint a new representative as the Equityholders Representative.  Notice and a copy of the written consent
appointing such new representative and bearing the signatures of the holders of
a majority-in-interest of such holders must be delivered to Parent and the
Escrow Agent.  Such appointment will be
effective upon the later of the date indicated in the consent or the date such
consent is received by Parent and the Escrow Agent.  ARTICLE
12 TERMINATION  Section 12.01.  Termination.This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the Shareholders):  (a)        by mutual written agreement of the
Company and Parent;  (b)        by either the Company or Parent, if:  (i)    the Merger has not been consummated on or before January 31, 2009
(the End Date); provided that the right to terminate this
Agreement pursuant to this Section 12.01(b)(i) shall not be available
to any party  63


whose breach of any provision of this
Agreement results in the failure of the Merger to be consummated by such time;
or  (ii)   there shall be any Applicable Law that (A) makes consummation
of the Merger illegal or otherwise prohibited or (B) enjoins the Company
or Parent from consummating the Merger and such injunction shall have become
final and nonappealable.  (c)        by Parent, if:  (i)    a breach of any representation or warranty or failure to perform
any covenant or agreement on the part of the Company set forth in this
Agreement shall have occurred, in either case such that Parents related
condition to the consummation of the Merger as set forth in Article 9
would fail to be satisfied, and such condition is incapable of being satisfied
by the End Date; or  (ii)   the Company shall have intentionally and materially breached any
of its obligations under Section 6.02 or Section 6.04.  (d)        by the Company, if a breach of any
representation or warranty or failure to perform any covenant or agreement on
the part of the Parent or Merger Subsidiary set forth in this Agreement shall
have occurred in any case such that the Companys related condition to the
consummation of the Merger as set forth in Article 9 would fail to be
satisfied, and such condition is incapable of being satisfied by the End Date.  The party desiring to terminate this Agreement pursuant to this Section 12.01
(other than pursuant to Section 12.01(a)) shall give notice of such
termination to the other party in accordance with Section 13.01.  Section 12.02.  Effect of Termination.If this Agreement is terminated
pursuant to Section 12.01, this Agreement shall become void and of no
effect without liability of any party (or any Shareholder, director, officer,
employee, agent, consultant or representative of such party) to the other party
hereto; provided that, if such termination
shall result from the willful (i) failure of either party to fulfill a
condition to the performance of the obligations of the other party or (ii) failure
of either party to perform a covenant hereof, such party shall be fully liable
for any and all liabilities and damages incurred or suffered by the other party
as a result of such failure.  The
provisions of this Section 12.02 and Sections 13.03, 13.05, 13.06,
13.07 and 13.08 shall survive any termination hereof pursuant to Section 12.01.  ARTICLE
13 MISCELLANEOUS  Section 13.01.  Notices.  All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmission) and shall be given or made (and shall deemed to have been duly
given or made upon receipt) by delivery in  64


person, by cable, telecopy,
facsimile, telegram, telex or courier or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 13.01):  if to Parent or Merger Subsidiary, to:  Affymetrix, Inc. 3420 Central
Expressway Santa Clara,
California  95051 Attention:  John F. (Rick) Runkel, Executive Vice President
and General Counsel Facsimile No.:
(408) 731-5380  with a copy to:  Davis Polk & Wardwell 1600 El Camino Real Menlo Park, California  94025 Attention:  Sarah K. Solum Facsimile No.: (650) 752-2111  if to the Company or the Equityholders Representative to:  on or before December 31, 2008:  5AM Ventures 3000 Sand Hill Road Building 4, Suite 230 Menlo Park, California  94025 Attention:  Andrew J. Schwab Facsimile No.: (650) 233-8923  on or after January 1, 2009:  5AM Ventures 2200 Sand Hill Road, Suite 110 Menlo Park, California  94025 Attention:  Andrew J. Schwab Facsimile No.: (650) 233-8923  65


in either case, with a copy to:  Morrison & Foerster LLP 755 Page Mill Road Palo Alto, California  94034 Attention: 
Paul Chip L. Lion III Facsimile No.: (650) 494-0792  or such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the other parties hereto.  All such notices, requests and other
communications shall be deemed received on the date of receipt by the recipient
thereof if received prior to 5:00 p.m. in the place of receipt and such
day is a Business Day in the place of receipt. 
Otherwise, any such notice, request or communication shall be deemed not
to have been received until the next succeeding Business Day in the place of
receipt.  Section 13.02.  Amendments; No Waivers.  (a) Any provision of this Agreement may
be amended or waived prior to the Effective Time if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment,
by each party to this Agreement or, in the case of a waiver, by each party
against whom the waiver is to be effective.  (b)        No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.  Section 13.03.  Expenses.  Except as otherwise provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.  Section 13.04.  Successors and Assigns.  The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided
that no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of each other party
hereto, except that Parent or Merger Subsidiary may transfer or assign, in
whole or from time to time in part, to one or more of their Affiliates, the
right to enter into the transactions contemplated by this Agreement, but any
such transfer or assignment will not relieve Parent or Merger Subsidiary of its
obligations hereunder.  Section 13.05.  Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to the conflicts of law rules of such state.  Section 13.06.  Jurisdiction.  The parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be  66


brought in any federal court
located in the Northern District of California or any California state court
located in Santa Clara County, California, and each of the parties hereby
irrevocably consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection that
it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.  Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. 
Without limiting the foregoing, each party agrees that service of
process on such party as provided in Section 13.01 shall be deemed
effective service of process on such party.  Section 13.07.  WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  Section 13.08.  Counterparts; Effectiveness;
Benefit.  This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument.  This Agreement shall become
effective when each party hereto shall have received a counterpart hereof
signed by all of the other parties hereto. 
Until and unless each party has received a counterpart hereof signed by
the other party hereto, this Agreement shall have no effect and no party shall
have any right or obligation hereunder (whether by virtue of any other oral or
written agreement or other communication). 
No provision of this Agreement is intended to confer any rights,
benefits, remedies, obligations, or liabilities hereunder upon any Person other
than the parties hereto and their respective successors and assigns.  Section 13.09.  Entire Agreement.  This Agreement and the Related Agreements
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter
of this Agreement.  Section 13.10.  Captions.  The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.  Section 13.11.  Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party.  Upon such a determination, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.  67


Section 13.12.  Specific Performance.  The parties hereto agree that irreparable
damage would occur if any provision of this Agreement were not performed in
accordance with the terms hereof and that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement or to enforce
specifically the performance of the terms and provisions hereof in any federal
court located in the Northern District of the State of California or any
California state court located in Santa Clara County, California, in addition
to any other remedy to which they are entitled at law or in equity.  68


IN WITNESS WHEREOF, the parties hereto have
caused this Agreement and Plan of Merger to be duly executed by their
respective authorized officers as of the day and year first above written.  PANOMICS, INC.By:
  /s/ Frank WitneyName:
  Frank WitneyTitle:
  President and Chief
  Executive OfficerAFFYMETRIX, INC.By:
  /s/ John BattyName:
  John BattyTitle:
  Executive Vice President
  and Chief Financial OfficerPANDA ACQUISITION CORPORATIONBy:
  /s/ Kevin KingName:
  Kevin KingTitle:
  PresidentANDREW SCHWABBy:
  /s/ Andrew SchwabName:
  Andrew SchwabTitle:
  Equityholders
  Representative