EX-10.1



 





Exhibit 10.1




STOCK PURCHASE AGREEMENT




AMONG




ULTRALIFE BATTERIES, INC.




AND




INNOVATIVE SOLUTIONS CONSULTING, INC.,




MICHELE A. ALOISIO,




MARC DELAVERGNE,




THOMAS R. KNOWLTON,




KENNETH J. WOOD,




AND




W. MICHAEL COOPER




DATED AS OF SEPTEMBER 12, 2007





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page
	SECTION 1. DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	SECTION 2. PURCHASE AND SALE OF TARGET SHARES
	 	 	7	 
	(a) Basic Transaction
	 	 	7	 
	(b) Purchase Price; Allocation; Payment
	 	 	7	 
	(c) Closing
	 	 	10	 
	(d) Deliveries at Closing
	 	 	10	 
	(e) Closing Balance Sheet
	 	 	10	 
	(f) Dispute Mechanism for Certain Matters
	 	 	11	 
	 
	 	 	 	 
	SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES
	 	 	11	 
	(a) Sellers’ Representations and Warranties
	 	 	11	 
	(b) Buyer’s Representations and Warranties
	 	 	12	 
	 
	 	 	 	 
	SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES
	 	 	13	 
	(a) Organization, Qualification, and Corporate Power
	 	 	13	 
	(b) Capitalization
	 	 	13	 
	(c) Non-contravention
	 	 	14	 
	(d) Brokers’ Fees
	 	 	14	 
	(e) Title to Assets
	 	 	14	 
	(f) Subsidiaries
	 	 	14	 
	(g) Financial Statements
	 	 	14	 
	(h) Events Subsequent to Most Recent Fiscal Year End
	 	 	15	 
	(i) Undisclosed Liabilities
	 	 	17	 
	(j) Legal Compliance
	 	 	17	 
	(k) Tax Matters
	 	 	17	 
	(l) Real Property
	 	 	19	 
	(m) Intellectual Property
	 	 	22	 
	(n) Tangible Assets
	 	 	25	 
	(o) Inventory
	 	 	25	 
	(p) Contracts
	 	 	25	 
	(q) Notes and Accounts Receivable
	 	 	26	 
	(r) Powers of Attorney
	 	 	26	 
	(s) Insurance
	 	 	26	 
	(t) Litigation
	 	 	27	 
	(u) Product Warranty
	 	 	27	 
	(v) Product Liability
	 	 	27	 
	(w) Employees
	 	 	28	 
	(x) Employee Benefits
	 	 	28	 
	(y) Guaranties
	 	 	31	 
	(z) Environmental, Health, and Safety Matters
	 	 	31	 
	(aa) Systems Continuity
	 	 	32	 
	(bb) Certain Business Relationships with Target
	 	 	33	 






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	 	 	Page
	(cc) Customers and Suppliers
	 	 	33	 
	(dd) Disclosure
	 	 	33	 
	 
	SECTION 5. PRE-CLOSING COVENANTS
	 	 	33	 
	(a) General
	 	 	33	 
	(b) Notices and Consents
	 	 	33	 
	(c) Operation of Business
	 	 	33	 
	(d) Preservation of Business
	 	 	34	 
	(e) Full Access
	 	 	34	 
	(f) Notice of Developments
	 	 	34	 
	(g) Exclusivity
	 	 	34	 
	(h) Maintenance of Real Property
	 	 	34	 
	(i) Leases
	 	 	34	 
	(j) Tax Matters
	 	 	34	 
	(k) S Corporation Status
	 	 	35	 
	 
	 	 	 	 
	SECTION 6. POST-CLOSING COVENANTS
	 	 	35	 
	(a) General
	 	 	35	 
	(b) Litigation Support
	 	 	35	 
	(c) Transition
	 	 	36	 
	(d) Confidentiality
	 	 	36	 
	(e) Termination of Aloisio Guarantees
	 	 	36	 
	(f) Release of Target by Sellers
	 	 	37	 
	 
	 	 	 	 
	SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE
	 	 	37	 
	(a) Conditions to Buyer’s Obligation
	 	 	37	 
	(b) Conditions to Sellers’ Obligation
	 	 	40	 
	 
	 	 	 	 
	SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT
	 	 	41	 
	(a) Survival of Representations and Warranties
	 	 	41	 
	(b) Indemnification Provisions for Buyer’s Benefit
	 	 	41	 
	(c) Indemnification Provisions for Sellers’ Benefit
	 	 	42	 
	(d) Matters Involving Third Parties
	 	 	42	 
	(e) Determination of Adverse Consequences
	 	 	43	 
	(f) Setoff against Holdback Payments; Priority
	 	 	43	 
	(g) Other Indemnification Provisions
	 	 	43	 
	SECTION 9. TAX MATTERS
	 	 	44	 
	(a) Tax Indemnification
	 	 	44	 
	(b) Responsibility for Filing Tax Returns
	 	 	44	 
	(c) Cooperation on Tax Matters
	 	 	44	 
	(d) Tax Sharing Agreements
	 	 	45	 
	(e) Certain Taxes and Fees
	 	 	45	 
	(f) Section 338(h)(10) Election
	 	 	45	 
	(g) Tax Adjustment
	 	 	46	 






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	 	 	Page
	SECTION 10. TERMINATION
	 	 	47	 
	(a) Termination of Agreement
	 	 	47	 
	(b) Effect of Termination
	 	 	47	 
	 
	 	 	 	 
	SECTION 11. MISCELLANEOUS
	 	 	47	 
	(a) Nature of Sellers’ Obligations
	 	 	47	 
	(b) Press Releases and Public Announcements
	 	 	48	 
	(c) No Third-Party Beneficiaries
	 	 	48	 
	(d) Entire Agreement
	 	 	48	 
	(e) Succession and Assignment
	 	 	48	 
	(f) Counterparts
	 	 	48	 
	(g) Headings
	 	 	48	 
	(h) Notices
	 	 	48	 
	(i) Governing Law
	 	 	49	 
	(j) Amendments and Waivers
	 	 	49	 
	(k) Severability
	 	 	50	 
	(l) Expenses
	 	 	50	 
	(m) Construction
	 	 	50	 
	(n) Incorporation of Exhibits, Annexes, and Schedules
	 	 	50	 
	(o) Specific Performance
	 	 	50	 
	(p) Submission to Jurisdiction
	 	 	51	 
	(q) Tax Disclosure Authorization
	 	 	51	 
	(r) Attorneys Fees
	 	 	51	 





Attachments to Stock Purchase Agreement



Exhibit A: Target Financial Statements



Annex I: Exceptions to Sellers’ Representations and Warranties



Annex II: Exceptions to Buyer’s Representations and Warranties



Target Disclosure Schedule





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STOCK PURCHASE AGREEMENT




     This Stock Purchase Agreement (this “Agreement”) is entered into as of September 12, 2007, by
and among Ultralife Batteries, Inc., a Delaware corporation (“Buyer”), and Innovative Solutions
Consulting, Inc., a Maryland corporation (“Target”), Michele A. Aloisio, Marc DeLaVergne, Thomas R.
Knowlton, Kenneth J. Wood, and W. Michael Cooper (each a “Seller” and collectively, “Sellers”).
Buyer, Target and Sellers are referred to collectively herein as the “Parties.”



RECITALS




     A. The Sellers own all of the outstanding stock of Target as of the date of this Agreement.



     B. This Agreement contemplates a transaction in which Buyer will purchase from Sellers, and
Sellers will sell to Buyer, all of the outstanding capital stock of Target in return for cash.



     NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, and covenants herein contained, the Parties agree
as follows.



SECTION 1. DEFINITIONS




     “Adverse Consequences” means all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens,
losses, expenses, and fees, including court costs and attorneys’ fees and expenses.



     “Affiliate” means a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person specified.



     “Affiliated Group” means any affiliated group within the meaning of Code Section 1504(a) or
any similar group defined under a similar provision of state, local or foreign law.



     “Aloisio Guarantees” has the meaning set forth in Section 6(e) below.



     “Auditor” has the meaning set forth in Section 2(f) below.



     “Basis” means any past or present fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.



     “Buyer” has the meaning set forth in the preface above.



     “Closing” has the meaning set forth in Section 2(c) below.



     “Closing Balance Sheet” has the meaning set forth in Section 2(e) below.



 









 





     “Closing Date” has the meaning set forth in Section 2(c) below.



     “Closing Payment” has the meaning set forth in Section 2(b) below.



     “COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code Section
4980B and of any similar state law.



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



     “Confidential Information” means any information concerning the businesses and affairs of the
Target that is not already generally available to the public.



     “Controlled Group” has the meaning set forth in Code Section 1563.



     “Disclosure Schedule” has the meaning set forth in Section 4 below.



     “Employee Benefit Plan” has the meaning set forth in Section 4(x) below.



     “Employee Pension Benefit Plan” has the meaning set forth in ERISA Section 3(2).



     “Employee Welfare Benefit Plan” has the meaning set forth in ERISA Section 3(1).



     “Encumbrance Documents” has the meaning set forth in Section 4(l) below.



     “Enforcement Costs” has the meaning set forth in Section 11(r) below.



     “Environmental, Health, and Safety Requirements” shall mean all federal, state, local, and
foreign statutes, regulations, ordinances, and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual obligations, and all
common law concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances, or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation, each as amended and as now or hereafter in effect.



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



     “ERISA Affiliate” means any Person that is a member of a “controlled group of corporations”
with, or is under “common control” with, or is a member of the same “affiliated service group” with
Target, as defined in Section 414 of the Code.



     “Estoppel Certificates” has the meaning set forth in Section 7(a) below.



     “Fiduciary” has the meaning set forth in ERISA Section 3(21).



     “Financial Statements” has the meaning set forth in Section 4(g) below.



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     “First Holdback Excess Payment” has the meaning set forth in Section 2(b) below.



     “First Holdback Payment” has the meaning set forth in Section 2(b) below.



     “First Measuring Period” has the meaning set forth in Section 2(b) below.



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



     “Holdback Payments” has the meaning set forth in Section 2(b) below. For the avoidance of
doubt, the term “Holdback Payments” may include, as applicable, the First Holdback Payment, the
First Holdback Excess Payment, the Second Holdback Payment and the Third Holdback Payment.



     “Improvements” has the meaning set forth in Section 4(l) below.



     “Indemnified Party” has the meaning set forth in Section 8(d) below.



     “Indemnifying Party” has the meaning set forth in Section 8(d) below.



     “Intellectual Property” means all of the following in any jurisdiction throughout the world:
(a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent disclosures, together with
all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade names, corporate
names, Internet domain names, and rights in telephone numbers, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill associated therewith,
and all applications, registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in connection therewith,
(d) all mask works and all applications, registrations, and renewals in connection therewith, (e)
all trade secrets and confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing and cost information,
and business and marketing plans and proposals), (f) all computer software (including source code,
executable code, data, databases, and related documentation), (g) all advertising and promotional
materials, (h) all other proprietary rights, and (i) all copies and tangible embodiments thereof
(in whatever form or medium).



     “Knowledge” means actual knowledge after reasonable investigation.



     “Lease Consents” has the meaning set forth in Section 7(a) below.



     “Leased Real Property” means all leasehold or subleasehold estates and other rights to use or
occupy any land, buildings, structures, improvements, fixtures, or other interest in real property
held by Target.



     “Leases” means all leases, subleases, licenses, concessions and other agreements (written or
oral), including all amendments, extensions, renewals, guaranties, and other agreements with



-3-









 







respect thereto, pursuant to which Target holds any Leased Real Property, including the right
to all security deposits and other amounts and instruments deposited by or on behalf of Target
thereunder.



     “Liability” means any liability or obligation of whatever kind or nature (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any
liability for Taxes.



     “Lien” means any mortgage, pledge, lien, encumbrance, charge, or other security interest,
other than (a) liens for Taxes not yet due and payable and (b) other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.



     “Material Adverse Effect” or “Material Adverse Change” means any effect or change that would
be materially adverse to the business, assets, condition (financial or otherwise), operating
results, operations, or business prospects of Target, taken as a whole, or on the ability of
Sellers to consummate timely the transactions contemplated hereby (regardless of whether or not
such adverse effect or change can be or has been cured at any time or whether Buyer has knowledge
of such effect or change on the date hereof).



     “Most Recent Balance Sheet” means the balance sheet contained within the Most Recent Financial
Statements.



     “Most Recent Financial Statements” has the meaning set forth in Section 4(g) below.



     “Most Recent Fiscal Month End” has the meaning set forth in Section 4(g) below.



     “Most Recent Fiscal Year End” has the meaning set forth in Section 4(g) below.



     “Multiemployer Plan” has the meaning set forth in ERISA Section 3(37).



     “Non-Disturbance Agreements” has the meaning set forth in Section 7(a) below.



     “Ordinary Course of Business” means the ordinary course of business consistent with past
custom and practice (including with respect to quantity and frequency).



     “Party” has the meaning set forth in the preface above.



     “Permitted Encumbrances” means with respect to each parcel of Real Property: (a) real estate
taxes, assessments and other governmental levies, fees, or charges imposed with respect to such
Real Property that are (i) not due and payable as of the Closing Date or (ii) that are being
contested in good faith and for which appropriate reserves have been established in accordance with
GAAP; (b) mechanics’ liens and similar liens for labor, materials, or supplies provided with
respect to such Real Property incurred in the Ordinary Course of Business for amounts that are (i)
not due and payable as of the Closing Date or (ii) being contested in good faith and for which
appropriate reserves have been established in accordance with GAAP; (c) zoning, building codes and
other land use laws regulating the use or occupancy of such Real Property or the activities
conducted thereon which are imposed by any governmental authority having jurisdiction over



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such Real Property and are not violated by the current use or occupancy of such Real Property
or the operation of Target’s business as currently conducted thereon; and (d) easements, covenants,
conditions, restrictions, and other similar matters of record affecting title to such Real Property
which do not or would not impair the use or occupancy of such Real Property in the operation of
Target’s business as currently conducted thereon.



     “Person” means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization, any
other business entity, or a governmental entity (or any department, agency, or political
subdivision thereof).



     “Prohibited Transaction” has the meaning set forth in ERISA Section 406 and Code Section 4975.



     “Purchase Price” has the meaning set forth in Section 2(b) below.



     “Real Property” has the meaning set forth in Section 4(l) below.



     “Real Property Laws” has the meaning set forth in Section 4(l) below.



     “Released Parties” has the meaning set forth in Section 6(f) below.



     “Released Claims” has the meaning set forth in Section 6(f) below.



     “Reportable Event” has the meaning set forth in ERISA Section 4043.



     “Requisite Sellers” means Sellers holding a majority in interest of the Target Shares as set
forth in Section 4(b) of the Disclosure Schedule.



     “Re-Sale Transaction” has the meaning set forth in Section 2(b)(vi) below.



     “Sales” means revenues, determined in accordance with GAAP, that are achieved by Target in the
ordinary course of business.



     “Second Holdback Excess Payment” has the meaning set forth in Section 2(b) below.



     “Second Holdback Payment” has the meaning set forth in Section 2(b) below.



     “Second Measuring Period” has the meaning set forth in Section 2(b) below.



     “Section 338(h)(10) Election” has the meaning set forth in Section 9(f) below.



     “Section 338(h)(10) Election Liability” has the meaning set forth in Section 9(g) below.



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



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



     “Seller” and “Sellers” have the meanings set forth in the preface above.



-5-









 





     “Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, association, or other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company,
partnership, association, or other business entity (other than a corporation), a majority of
partnership or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination
thereof and for this purpose, a Person or Persons own a majority ownership interest in such a
business entity (other than a corporation) if such Person or Persons shall be allocated a majority
of such business entity’s gains or losses or shall be or control any managing director or general
partner of such business entity (other than a corporation). The term “Subsidiary” shall include all
Subsidiaries of such Subsidiary.



     “Systems” has the meaning set forth in Section 4(aa) below.



     “Target” has the meaning set forth in the preface above.



     “Target Share” means any share of the common stock, par value $0.10 per share, of Target.



     “Tax” or “Taxes” means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or
succeed to the Tax liability of any other Person.



     “Tax Adjustment” has the meaning set forth in Section 9(g) below.



     “Tax Return” means any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.



     “Third Holdback Payment” has the meaning set forth in Section 2(b) below.



     “Third Measuring Period” has the meaning set forth in Section 2(b) below.



     “Third Party Claim” has the meaning set forth in Section 8(d) below.



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



-6-









 





SECTION 2. PURCHASE AND SALE OF TARGET SHARES




     (a) Basic Transaction. On and subject to the terms and conditions of this Agreement, Buyer
agrees to purchase from each Seller, and each Seller agrees to sell to Buyer, all of his or her or
its Target Shares for the consideration specified below in this Section 2.



     (b) Purchase Price; Allocation; Payment. The aggregate consideration for the Target Shares
shall be up to $3,000,000, subject to adjustments after Closing pursuant to Section 2(b)(iii) for
accrued interest on Holdback Payments (as so adjusted, the “Purchase Price”). The Purchase Price
shall be allocated among Sellers in proportion to their respective holdings of Target Shares as set
forth in Section 4(b) of the Disclosure Schedule. On the terms and subject to the conditions set
forth herein, Buyer shall pay the Purchase Price to Sellers as follows:



          (i) At Closing, Buyer shall pay Sellers the aggregate amount of $1,000,000 by wire transfer of
immediately available funds into an account designated by Sellers prior to the Closing Date (the
“Closing Payment”). The Closing Payment shall be made by a single wire transfer; it is the
responsibility of Sellers to distribute the Closing Payment amongst themselves.




          (ii) On the terms and subject to the conditions set forth below, Buyer shall pay Sellers in up
to three installments an additional aggregate amount of up to, but in no event more than,
$2,000,000 (the “Holdback Payments”), as follows:





          (A) Buyer shall pay Sellers an amount (the “First Holdback Payment”) equal to 20% of
(1) Sales during the period commencing on the Closing Date and ending on the last day of the
fourth full fiscal quarter of Target following the Closing Date (the “First Measuring
Period”) less (2) $4,000,000. For the purposes of example only, if the Closing Date
is August 17, 2007, the First Measuring Period would begin on August 17, 2007 and end at
midnight on September 30, 2008.




          (B) Buyer shall pay Sellers an amount (the “Second Holdback Payment”) equal to 20% of
(1) Sales during the 12-month period commencing on the first day following the conclusion of
the First Measuring Period (the “Second Measuring Period”) less (2) $4,000,000.




          (C) Buyer shall pay Sellers an amount (the “Third Holdback Payment”) equal to 20% of
(1) Sales during the 12-month period commencing on the first day following the conclusion of
the Second Measuring Period (the “Third Measuring Period”) less (2) $4,000,000.




          (D) If the First Holdback Payment yields an amount less than or equal to $750,000, then
Buyer shall pay Sellers such amount within 60 days of the conclusion of the First Measuring
Period. If the First Holdback Payment yields an amount greater than $750,000, then Buyer
shall pay Sellers $750,000 within 60 days of the conclusion of the First Measuring Period
and the amount by which the First Holdback Payment exceeds $750,000 (the “First Holdback
Excess Payment”) shall be paid to Sellers within 60 days of the conclusion of either the
Second Measuring Period or the Third Measuring Period, as described below.



-7-









 






          (E) If the Second Holdback Payment plus the First Holdback Excess Payment, if any,
yields an amount less than or equal to $750,000, then Buyer shall pay Sellers such amount
within 60 days of the conclusion of the Second Measuring Period. If the Second Holdback
Payment plus the First Holdback Excess Payment, if any, yields an amount greater than
$750,000, then Buyer shall pay Sellers $750,000 within 60 days of the conclusion of the
Second Measuring Period, and the amount by which the Second Holdback Payment and the First
Holdback Excess Payment together exceed $750,000 (the “Second Holdback Excess Payment”)
shall be paid to Sellers within 60 days of the conclusion of the Third Measuring Period.




          (F) The Third Holdback Payment shall be paid (along with the Second Holdback Excess
Payment, if any) to Sellers within 60 days of the conclusion of the Third Measuring Period.




          (G) The following is an illustration of the operation of Section 2(b)(ii). For purposes
of this illustration, it is assumed that Sales during the First Measuring Period, the Second
Measuring Period and the Third Measuring Period were each $9,000,000. Since Sales during the
First Measuring Period were $9,000,000, the amount of the First Holdback Payment would be
$1,000,000 (i.e. 20% of the result of $9,000,000 minus $4,000,000), and Sellers would
receive $750,000 within 60 days of the conclusion of the First Measuring Period. The First
Holdback Excess Payment would be $250,000 and it would rollover for payment within 60 days
of the conclusion of the Third Measuring Period (because the payments made for the Second
Measuring Period would be in excess of $750,000, as discussed in the next sentence). Since
Sales during the Second Measuring Period were also $9,000,000, the amount of the Second
Holdback Payment would also be $1,000,000. Accordingly, Sellers would receive $750,000
within 60 days of the conclusion of the Second Measuring Period, and the remaining $250,000
attributable to the Second Measuring Period, along with the First Holdback Excess Payment
would rollover for payment within 60 days of the conclusion of the Third Measuring Period.
Since the combined amount of the First Holdback Excess Payment and the remaining $250,000
attributable to the Second Measuring Period would be $500,000, there cannot be a Third
Holdback Payment, as the upper limit of $2,000,000 on the aggregate amount of the Holdback
Payments would bar any additional payments. As a result, the $500,000 attributable to the
combination of the First Holdback Excess Payment and the remaining $250,000 attributable to
the Second Measuring Period would be paid to Sellers within 60 days of the conclusion of the
Third Measuring Period and there after Sellers would not be entitled to any additional
Holdback Payments. The foregoing assumes that Buyer did not exercise its right of setoff
under Section 8.




          (H) Each of the Holdback Payments shall be made by a single wire transfer of
immediately available funds into an account designated by Sellers prior to the applicable
payment deadline; it is the responsibility of Sellers to distribute each Holdback Payment
amongst themselves. Concurrently with the payment of each of the Holdback Payments or the
determination that a Holdback Payment has not been achieved, Buyer shall provide Sellers
with a notice that substantiates in reasonable detail the basis for the Holdback Payment or
the determination that the Holdback Payment has not been achieved.



-8-









 





          (iii) Buyer shall pay interest accrued at a rate of 5% per annum to Sellers on the First
Holdback Excess Payment and the Second Holdback Excess Payment, in each case at the time such
payments are made by Buyer to Sellers. Interest on the First Holdback Excess Payment shall accrue
from the 60th calendar day after the conclusion of the First Measuring Period. Interest
on the Second Holdback Excess Payment shall accrue from the 60th calendar day after the
conclusion of the Second Measuring Period. Payments hereunder shall be applied first to any
interest due in respect of the First Holdback Excess Payment and then any interest due in respect
of the Second Holdback Excess Payment.




          (iv) EACH OF THE HOLDBACK PAYMENTS IS SUBJECT TO THE RIGHT OF SETOFF IN FAVOR OF BUYER UNDER
SECTION 8. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN NO EVENT SHALL THE AGGREGATE AMOUNT
OF THE HOLDBACK PAYMENTS (EXCLUDING INTEREST UNDER SECTION 2(b)(iii)) EXCEED $2,000,000.




          (v) Following the Closing, until the expiration of the Third Measuring Period:





          (A) Subject to Section 2(b)(vi), Buyer shall maintain the business of Target as a
separate, wholly-owned subsidiary of Buyer, and during such period any transactions between
Buyer and such subsidiary shall be on an arm’s length basis or on terms that are more
favorable to such subsidiary than terms negotiated on an arm’s length basis, and during such
period Buyer shall keep separate accounting books and records for the business of Target;
and




          (B) Subject to Section 2(b)(vi), Buyer shall operate the business of Target in the
ordinary course, exercising reasonable business judgment with respect thereto, with due
consideration given to the past practices of the business of Target, and Buyer shall not
take any actions that are manifestly intended to deny Sellers the opportunity to receive
Holdback Payments. In addition, Buyer shall have the right to permanently discontinue and
terminate the business of Target if Buyer determines after the exercise of reasonable
business judgment that such actions are in its best interests and provided further that such
actions are not taken with the manifest intent to deny Sellers the opportunity to receive
Holdback Payments.



          (vi) Following the Closing, notwithstanding the terms of Section 2(b)(v), Buyer shall have the
right to sell the business of Target to a third-party in a bona fide arm’s length transaction
during any period in which the possibility remains under the terms of Section 2(b)(ii) that Sellers
can receive Holdback Payments (a “Re-Sale Transaction”). For purposes of Section 2(b)(vi), a
Re-Sale Transaction shall consist of a sale of substantially all of the assets of the business of
Target, as the same existed on the Closing Date, a sale of more than 50% of the Target Shares, or
any other transaction that would have the effect of conveying substantially all of the business of
Target, as the same existed on the Closing Date, to a third-party who is not an Affiliate of Buyer
or Sellers, in each case during, and only during, any period in which the possibility remains under
the terms of Section 2(b)(ii) that Sellers can receive Holdback Payments. In any such Re-Sale
Transaction (provided the possibility remains under the terms of Section 2(b)(ii) that Sellers can
receive Holdback Payments):




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          (A) If the net proceeds received by Buyer on account of the Re-Sale Transaction are
less than or equal to $1,000,000, then Sellers shall be entitled to retain any Holdback
Payments already paid to Sellers and shall be entitled to receive either the First Holdback
Excess Payment or the Second Holdback Excess Payment or both of them, provided in each case
that such payment or payments have already been earned in accordance with the terms of
Section 2(b)(ii), but Sellers shall not be entitled to any additional Holdback Payments and
their rights with respect thereto under this Agreement and otherwise shall be extinguished
and Sellers shall have no further rights to pursue Buyer, the purchaser in the Re-Sale
Transaction or any Affiliate of such parties for any additional consideration; or




          (B) If the net proceeds received by Buyer on account of the Re-Sale Transaction are
greater than $1,000,000, then following the closing of such Re-Sale Transaction Sellers
shall be entitled to a amount equal to 50% of the amount by which such net proceeds exceed
$1,000,000, up to a maximum amount of $2,000,000, and less the aggregate amount of any
Holdback Payments paid to Sellers or earned and due to be paid to Sellers in accordance with
the terms of Section 2(b)(ii). Thereafter, Sellers shall not be entitled to any additional
Holdback Payments and their rights with respect thereto under this Agreement shall be
extinguished and Sellers shall have no further rights to pursue Buyer, the purchaser in the
Re-Sale Transaction or any Affiliate of such parties for any additional consideration. For
illustrative purposes, assuming Sellers had received a First Holdback Payment of $750,000
but had not earned any additional Holdback Payments and further assuming that a hypothetical
Re-Sale Transaction yielded net proceeds to Buyer of $6,000,000, the amount due to Sellers
in respect thereof would be calculated by: subtracting $1,000,000 from $6,000,000 to yield
$5,000,000; multiplying the result of $5,000,000 by 0.5 to yield $2,500,000; applying the
$2,000,000 limitation to yield $2,000,000; and subtracting from $2,000,000 the First
Holdback Payment of $750,000 to yield an aggregate amount due to Sellers of $1,250,000.



     (c) Closing. The closing of the transactions contemplated by this Agreement (the “Closing”)
shall take place at the offices of Harter Secrest & Emery LLP, in Rochester, New York, commencing
at 10:00 a.m. local time on the second business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take at the Closing
itself) or such other place (including remotely, via electronic means), time and date as Buyer and
Requisite Sellers may mutually determine (the “Closing Date”); provided, however,
that the Closing Date shall be no later than September 12, 2007.



     (d) Deliveries at Closing. At the Closing, (i) Sellers will deliver to Buyer the various
certificates, instruments, and documents referred to in Section 7(a) below, (ii) Buyer will deliver
to Sellers the various certificates, instruments, and documents referred to in Section 7(b) below,
(iii) each Seller will deliver to Buyer stock certificates representing all of his or its Target
Shares, endorsed in blank or accompanied by duly executed assignment documents, and (iv) Buyer will
deliver to Sellers the consideration specified in Section 2(b) above.



     (e) Closing Balance Sheet. Within 45 days following Closing, Buyer will prepare a closing
balance sheet (the “Closing Balance Sheet”) and deliver the same to Sellers. Buyer will



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cause the Closing Balance Sheet to be derived from the books and records of Target, and to
present fairly the assets and liabilities of Target as of the Closing Date, in accordance with
GAAP.




     (f) Dispute Mechanism for Certain Matters. In the event that another provision of this
Agreement refers to this section for a dispute process, then in connection with such calculation,
accounting treatment or other matter, then either party may submit such dispute, or the resolution
of only such item or items thereof as are in dispute, to BDO Seidman LLP (the “Auditor”) for
computation, verification or resolution in accordance with the provisions of this Agreement. Buyer
and Sellers shall make readily available to the Auditor all relevant books and records (including
work papers of a party’s independent public accountants) as the Auditor reasonably requests. The
Auditor’s computation or verification of the account, calculation or item or resolution of such
disputed item or items thereof (as the case may be), which Buyer and Sellers will instruct the
Auditor to deliver to them within 30 days after submission to the Auditor, will be final and
binding upon the parties for all purposes relating to this Section 2(f), and the Auditor’ fees and
expenses therefor will be borne by the non-prevailing party or, in the event that each party
prevails on some of the issues in dispute, will be shared proportionately, as determined by the
Auditor.



SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES




     (a) Sellers’ Representations and Warranties. Each Seller represents and warrants to Buyer that
the statements contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement throughout this Section
3(a)) with respect to himself or itself, except as set forth in Annex I attached hereto.



          (i) Organization of Certain Sellers. Seller (if a corporation or other entity) is duly
organized, validly existing, and in good standing under the laws of the jurisdiction of its
incorporation or other formation.




          (ii) Authorization of Transaction. Seller has full power and authority (including full
corporate or other entity power and authority) to execute and deliver this Agreement and to perform
his, her, or its obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of Seller, enforceable in accordance with its terms and conditions. Seller need not give
any notice to, make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions contemplated by this
Agreement. The execution, delivery, and performance of this Agreement and all other agreements
contemplated hereby have been duly authorized by Seller.




          (iii) Non-contravention. Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A) to the Knowledge of Sellers violate
any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which Seller is subject
or, if Seller is an entity, any provision of its charter, bylaws, or other governing documents, (B)
conflict with, result in a breach of, constitute a default under,


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result in the acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which Seller is a party or by which he or it is bound or to which any of his
or its assets is subject, that individually or in the aggregate could reasonably be expected to
have a Material Adverse Effect on Target’s business or financial condition, or (C) result in the
imposition or creation of a Lien upon or with respect to the Target Shares.




          (iv) Brokers’ Fees. Seller has no Liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by this Agreement.




          (v) Target Shares. Seller holds of record and owns beneficially the number of Target Shares
set forth next to his or its name in Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act and state securities
laws), Taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands. Seller is not a party to any option, warrant, purchase right, or other contract or
commitment that could require Seller to sell, transfer, or otherwise dispose of any capital stock
of Target (other than this Agreement). Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital stock of Target.




     (b) Buyer’s Representations and Warranties. Buyer represents and warrants to Sellers that the
statements contained in this Section 3(b) are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this Section 3(b)), except
as set forth in Annex II attached hereto.



          (i) Organization of Buyer. Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware.




          (ii) Authorization of Transaction. Buyer has full power and authority (including full
corporate or other entity power and authority) to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of
Buyer, enforceable in accordance with its terms and conditions. Buyer need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this Agreement. The
execution, delivery, and performance of this Agreement and all other agreements contemplated hereby
have been duly authorized by Buyer.




          (iii) Non-contravention. Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Buyer is subject or any provision of its
charter, bylaws, or other governing documents or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract,


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lease, license, instrument, or other arrangement to which Buyer is a party or by which it is
bound or to which any of its assets is subject.




          (iv) Brokers’ Fees. Buyer has no Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.




          (v) Investment. Buyer is not acquiring the Target Shares with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities Act.




          (vi) Financial Ability. Buyer presently maintains the financial ability to consummate the
transactions contemplated by this Agreement and meet its financial obligations hereunder and, to
the extent Buyer deems necessary, has obtained a commitment from a lender of Buyer’s choice to
provide the financing described in Section 7(a)(viii).




SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES




     Sellers jointly and severally represent and warrant to Buyer that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as set forth in the
disclosure schedule delivered by Sellers to Buyer on the date hereof and initialed by the Parties
(the “Disclosure Schedule”). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however, unless the Disclosure
Schedule identifies the exception with particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy)
of a document or other item shall not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 4.



     (a) Organization, Qualification, and Corporate Power. Target is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland. Target is duly
authorized to conduct business and is in good standing under the laws of each jurisdiction where
such qualification is required. Target has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. Section 4(a) of the Disclosure Schedule lists the
directors and officers of Target. Sellers have delivered to Buyer correct and complete copies of
the charter and bylaws of Target (as amended to date). The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of Target are correct and
complete. Target is not in default under or in violation of any provision of its charter or bylaws.



     (b) Capitalization. The entire authorized capital stock of Target consists of 1,000,000 Target
Shares, of which 11,265.676 Target Shares are issued and outstanding and no Target Shares are held
in treasury. All of the issued and outstanding Target Shares have been



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duly authorized, are validly issued, fully paid, and non-assessable, and are held of record by
the respective Sellers as set forth in Section 4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require Target to issue,
sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding
or authorized stock appreciation rights, phantom stock, profit participation, or similar rights
with respect to Target. There are no voting trusts, proxies, or other agreements or understandings
with respect to the voting of the capital stock of Target.



     (c) Non-contravention. Except as set forth on Section 4(c) of the Disclosure Schedule, neither
the execution and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) to the Knowledge of Sellers violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Target is subject or any provision of the
charter or bylaws of Target or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which Target is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Lien upon any of its assets). Target does not
need to give any notice to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.



     (d) Brokers’ Fees. Target has no Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this Agreement.



     (e) Title to Assets. Except as set forth on Section 4(e) of the Disclosure Schedule, Target
has good and marketable title to, or a valid leasehold interest in, the properties and assets used
by Target, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Liens, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet.



     (f) Subsidiaries. Target has no Subsidiaries.



     (g) Financial Statements. Attached hereto as Exhibit A are the following financial statements
(collectively the “Financial Statements”): (i) an unaudited balance sheet and statements of income,
changes in stockholders’ equity, and cash flow as of and for the fiscal year ended December 31,
2006 (the “Most Recent Fiscal Year End”) for Target; and (ii) an unaudited balance sheet and
statements of income, changes in stockholders’ equity, and cash flow (the “Most Recent Financial
Statements”) as of and for the six months ended June 30, 2007 (the “Most Recent Fiscal Month End”)
for Target. Except as set forth on Section 4(g) of the Disclosure Schedule, the Financial
Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the financial condition of
Target as of such dates and the results of operations of Target for such periods, are correct and
complete, and are consistent with the books and records of Target (which books and records are
correct and complete); provided, however, that the Most



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Recent Financial Statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other presentation items.



     (h) Events Subsequent to Most Recent Fiscal Year End. Except as set forth on Section 4(h) of
the Disclosure Schedule, since the Most Recent Fiscal Year End, there has not been any Material
Adverse Change. Without limiting the generality of the foregoing, since that date:



          (i) Target has not sold, leased, transferred, or assigned any of its assets, tangible or
intangible, other than for a fair consideration in the Ordinary Course of Business;




          (ii) Target has not entered into any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) either involving more than $10,000 or outside
the Ordinary Course of Business;




          (iii) no party (including Target) has accelerated, terminated, modified, or cancelled any
agreement, contract, lease, or license (or series of related agreements, contracts, leases, and
licenses) involving more than $10,000 to which Target is a party or by which Target is bound;




          (iv) Target has not imposed any Liens upon any of its assets, tangible or intangible;




          (v) Except as set forth on Section 4(h)(v) of the Disclosure Schedule, Target has not made any
capital expenditure (or series of related capital expenditures) either involving more than $10,000
or outside the Ordinary Course of Business;




          (vi) Target has not made any capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $10,000 or outside the Ordinary Course of Business;




          (vii) Except as set forth on Section 4(h)(vii) of the Disclosure Schedule, Target has not
issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either involving more than $5,000
singly or $10,000 in the aggregate;




          (viii) Target has not delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;




          (ix) Target has not cancelled, compromised, waived, or released any right or claim (or series
of related rights and claims) either involving more than $10,000 or outside the Ordinary Course of
Business;




          (x) Except as set forth on Section 4(h)(x) of the Disclosure Schedule, Target has not
transferred, assigned, or granted any license or sublicense of any rights under or with respect to
any Intellectual Property;




-15-









 








          (xi) there has been no change made or authorized in the charter or bylaws of Target;




          (xii) Except as set forth on Section 4(h)(xii) of the Disclosure Schedule, Target has not
issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants,
or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;




          (xiii) Target has not declared, set aside, or paid any dividend or made any distribution with
respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;




          (xiv) Target has not experienced any damage, destruction, or loss (whether or not covered by
insurance) to its property, except for normal wear and tear due to ordinary use;




          (xv) Target has not made any loan to, or entered into any other transaction with, any of its
directors, officers, and employees outside the Ordinary Course of Business;




          (xvi) Target has not entered into any employment contract or collective bargaining agreement,
written or oral, or modified the terms of any existing such contract or agreement;




          (xvii) Target has not granted any increase in the base compensation of any of its directors,
officers, and employees outside the Ordinary Course of Business;




          (xviii) Target has not adopted, amended, modified, or terminated any bonus, profit sharing,
incentive, severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect to any other Employee
Benefit Plan);




          (xix) Target has not made any other change in employment terms for any of its directors,
officers, and employees outside the Ordinary Course of Business;




          (xx) Target has not made or pledged to make any charitable or other capital contribution
outside the Ordinary Course of Business;




          (xxi) there has not been any other material occurrence, event, incident, action, failure to
act, or transaction outside the Ordinary Course of Business involving Target;




          (xxii) Target has not discharged a material Liability or Lien outside the Ordinary Course of
Business;




          (xxiii) Target has not made any loans or advances of money;




          (xxiv) Target has not disclosed any Confidential Information outside the Ordinary Course of
Business, and all disclosures of Confidential Information made within the Ordinary Course of
Business were subject to not less than a reasonable level of customary legal


-16-









 







protection for disclosures of the type in light of the circumstances surrounding such
disclosures; and




          (xxv) Target has not committed to any of the foregoing.




     (i) Undisclosed Liabilities. Target has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability), except for (i) Liabilities set forth on the face
of the Most Recent Balance Sheet and (ii) Liabilities which have arisen after the Most Recent
Fiscal Month End in the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).



     (j) Legal Compliance. Target and its predecessors and Affiliates, if any, have complied with
all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder and including the Foreign Corrupt Practices Act, 15 U.S.C.
78dd-1 et seq.) of federal, state, local, and foreign governments (and all agencies thereof) except
for any non-compliance that individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect on Target’s business or financial condition, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply.



     (k) Tax Matters.



          (i) Target (and any predecessor of Target) has been a validly electing S corporation within
the meaning of Code Section 1361 and Section 1362 at all times during its existence and Target will
be an S corporation up to and including the Closing Date.




          (ii) Target has no potential liability for any Tax under Code Section 1374. Target has not, in
the past 10 years, (A) acquired assets from another corporation in a transaction in which Target’s
Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the transferor or (B) acquired
the stock of any corporation that is a qualified subchapter S subsidiary.




          (iii) Target has filed all Tax Returns that it was required to file under applicable laws and
regulations. All such Tax Returns were correct and complete in all respects and have been prepared
in substantial compliance with all applicable laws and regulations. All Taxes due and owing by
Target (whether or not shown on any Tax Return) have been paid. Target currently is not the
beneficiary of any extension of time within which to file any Tax Return. No claim has ever been
made by an authority in a jurisdiction where Target does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet
due and payable) upon any of the assets of Target.




          (iv) Target has withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.




-17-









 








          (v) No Seller or director or officer (or employee responsible for Tax matters) of Target
expects any authority to assess any additional Taxes for any period for which Tax Returns have been
filed. No foreign, federal, state, or local tax audits or administrative or judicial Tax
proceedings are pending or being conducted with respect to Target. Target has not received from any
foreign, federal, state, or local taxing authority (including jurisdictions where Target has not
filed Tax Returns) any (i) notice indicating an intent to open an audit or other review, (ii)
request for information related to Tax matters, or (iii) notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against
Target; Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed
with respect to Target for taxable periods ended on or after December 31, 2003, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently are the subject of
audit. Sellers have delivered to Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or agreed to by
Target filed or received since December 31, 2003.




          (vi) Target has not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.




          (vii) Target is not a party to any agreement, contract, arrangement or plan that has resulted
or would result, separately or in the aggregate, in the payment of (i) any “excess parachute
payment” within the meaning of Code Section 280G (or any corresponding provision of state, local or
foreign Tax law) and (ii) any amount that will not be fully deductible as a result of Code 162(m)
(or any corresponding provision of state, local or foreign Tax law). Target has not been a United
States real property holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section 6662. Target is not a party to or bound by
any Tax allocation or sharing agreement. Target (A) has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group the common parent of which was
Target) or (B) has no Liability for the Taxes of any Person (other than Target) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.




          (viii) The unpaid Taxes of Target (A) did not, as of the Most Recent Fiscal Month End, exceed
the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and practice of Target
in filing their Tax Returns. Since the date of the Most Recent Balance Sheet, Target has not
incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used
in GAAP, outside the Ordinary Course of Business consistent with past custom and practice.




          (ix) Target will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing
Date as a result of any: (A) change in method of accounting for a taxable period ending on or prior
to the Closing Date; (B) “closing agreement” as described in Code Section




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7121 (or any corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (C) intercompany transactions or any excess loss account
described in Treasury Regulations under Code Section 1502 (or any corresponding or similar
provision of state, local or foreign income Tax law); (D) installment sale or open transaction
disposition made on or prior to the Closing Date; or (E) prepaid amount received on or prior to the
Closing Date.




          (x) Target has not distributed stock of another Person, or has had its stock distributed by
another Person, in a transaction that was purported or intended to be governed in whole or in part
by Code Section 355 or Section 361.




          (xi) Target has not, since October 3, 2004, (A) granted to any person an interest in a
nonqualified deferred compensation plan (as defined in Code Section 409A) which interest has been
or, upon the lapse of a substantial risk of forfeiture with respect to such interest, will be
subject to the Tax imposed by Code Section 409A, or (B) modified the terms of any nonqualified
deferred compensation plan in a manner that could cause an interest previously granted under such
plan to become subject to the Tax imposed by Code Section 409A. No person has a right to be
indemnified by Target for any Tax imposed by Code Section 409A.




     (l) Real Property.



          (i) Target does not own any Real Property.




          (ii) Section 4(l)(ii) of the Disclosure Schedule sets forth the address of each parcel of
Leased Real Property, and a true and complete list of all Leases for each such Leased Real Property
(including the date and name of the parties to such Lease document). Target has delivered to Buyer
a true and complete copy of each such Lease document, and in the case of any oral Lease, a written
summary of the material terms of such Lease. Except as set forth in Section 4(l)(ii) of the
Disclosure Schedule, with respect to each of the Leases:





          (A) such Lease is legal, valid, binding, enforceable and in full force and effect;




          (B) the transaction contemplated by this Agreement does not require the consent of any
other party to such Lease (except for those Leases for which Lease Consents (as hereinafter
defined) are obtained), will not result in a breach of or default under such Lease that
individually or in the aggregate could reasonably be expected to have a Material Adverse
Effect on Target’s business or financial condition, and will not otherwise cause such Lease
to cease to be legal, valid, binding, enforceable and in full force and effect on identical
terms following the Closing;




          (C) Target’s possession and quiet enjoyment of the Leased Real Property under such
Lease has not been disturbed and there are no disputes with respect to such Lease;




          (D) neither Target nor any other party to the Lease is in breach or default under such
Lease, and no event has occurred or circumstance exists which, with



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the delivery of notice, the passage of time or both, would constitute such a breach or
default, or permit the termination, modification or acceleration of rent under such Lease;




          (E) no security deposit or portion thereof deposited with respect to such Lease has
been applied in respect of a breach or default under such Lease which has not been
redeposited in full;




          (F) Target neither owes or will owe in the future any brokerage commissions or finder’s
fees with respect to such Lease;




          (G) the other party to such Lease is not an Affiliate of, and otherwise does not have
any economic interest in, Target;




          (H) Target has not subleased, licensed or otherwise granted any Person the right to use
or occupy such Leased Real Property or any portion thereof;




          (I) Target has not collaterally assigned or granted any other Lien in such Lease or any
interest therein; and




          (J) there are no Liens on the estate or interest created by such Lease.



          (iii) The Leased Real Property identified in Section 4(l)(ii) of the Disclosure Schedule
(collectively, the “Real Property”), comprises all of the real property used or intended to be used
in, or otherwise related to, Target’s business; and Target is not a party to any agreement or
option to purchase any real property or interest therein.




          (iv) All buildings, structures, fixtures, building systems and equipment, and all components
thereof, including the roof, foundation, load-bearing walls and other structural elements thereof,
heating, ventilation, air conditioning, mechanical, electrical, plumbing and other building
systems, environmental control, remediation and abatement systems, sewer, storm and waste water
systems, irrigation and other water distribution systems, parking facilities, fire protection,
security and surveillance systems, and telecommunications, computer, wiring and cable
installations, included in the Real Property (the “Improvements”) are in good condition and repair
(except for ordinary wear and tear) and sufficient for the operation of Target’s business. There
are no structural deficiencies or latent defects affecting any of the Improvements and there are no
facts or conditions affecting any of the Improvements which would, individually or in the
aggregate, interfere in any respect with the use or occupancy of the Improvements or any portion
thereof in the operation of Target’s business as currently conducted thereon.




          (v) There is no condemnation, expropriation or other proceeding in eminent domain, pending or,
to the Knowledge of Sellers, threatened, affecting any parcel of Real Property or any portion
thereof or interest therein. There is no injunction, decree, order, writ or judgment outstanding,
nor any claims, litigation, administrative actions or similar proceedings, pending or threatened,
relating to the ownership, lease, use or occupancy of the Real Property or any portion thereof, or
the operation of Target’s business as currently conducted thereon.




          (vi) The Real Property is in compliance with all applicable building, zoning, subdivision,
health and safety and other land use laws, including the Americans with Disabilities


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Act of 1990, as amended, and all insurance requirements affecting the Real Property
(collectively, the “Real Property Laws”), and the current use and occupancy of the Real Property
and operation of Target’s business thereon does not violate any Real Property Laws. Target has not
received any notice of violation of any Real Property Law and there is no basis for the issuance of
any such notice or the taking of any action for such violation. There is no pending or anticipated
change in any Real Property Law that will materially impair the ownership, lease, use or occupancy
of any Real Property or any portion thereof in the continued operation of Target’s business as
currently conducted thereon.




          (vii) Each parcel of Real Property has direct vehicular and pedestrian access to a public
street adjoining the Real Property, or to the Knowledge of Sellers has vehicular and pedestrian
access to a public street via an insurable, permanent, irrevocable and appurtenant easement
benefiting such parcel of Real Property, and to the Knowledge of Sellers such access is not
dependent on any land or other real property interest which is not included in the Real Property.
None of the Improvements or any portion thereof is dependent for its access, use or operation on
any land, building, improvement or other real property interest which is not included in the Real
Property.




          (viii) All water, oil, gas, electrical, steam, compressed air, telecommunications, sewer,
storm and waste water systems and other utility services or systems for the Real Property have been
installed and are operational and sufficient for the operation of Target’s business as currently
conducted thereon. Each such utility service enters the Real Property from an adjoining public
street or valid private easement in favor of the supplier of such utility service or appurtenant to
such Real Property, and is not dependent for its access, use or operation on any land, building,
improvement or other real property interest which is not included in the Real Property.




          (ix) All certificates of occupancy, permits, licenses, franchises, approvals and
authorizations (collectively, the “Real Property Permits”) of all governmental authorities, boards
of fire underwriters, associations or any other entity having jurisdiction over the Real Property
which are required or appropriate to use or occupy the Real Property or operate Target’s business
as currently conducted thereon, have been issued and are in full force and effect. Section 4(l)(ix)
of the Disclosure Schedule lists all material Real Property Permits held by Target with respect to
each parcel of Real Property. Target has delivered to Buyer a true and complete copy of all Real
Property Permits. Target has not received any notice from any governmental authority or other
entity having jurisdiction over the Real Property threatening a suspension, revocation,
modification or cancellation of any Real Property Permit and there is no basis for the issuance of
any such notice or the taking of any such action. The Real Property Permits are transferable to
Buyer without the consent or approval of the issuing governmental authority or entity, no
disclosure, filing or other action by Target is required in connection with such transfer, and
Buyer shall not be required to assume any additional liabilities or obligations under the Real
Property Permits as a result of such transfer.




          (x) To the Knowledge of Sellers, the classification of each parcel of Real Property under
applicable zoning laws, ordinances and regulations permits the use and occupancy of such parcel and
the operation of Target’s business as currently conducted thereon, and permits the Improvements
located thereon as currently constructed, used and occupied.




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There are sufficient parking spaces, loading docks and other facilities at such parcel to
comply with such zoning laws, ordinances and regulations. Target’s use or occupancy of the Real
Property or any portion thereof or the operation of Target’s business as currently conducted
thereon is not dependent on a “permitted non-conforming use” or “permitted non-conforming
structure” or similar variance, exemption or approval from any governmental authority.




          (xi) To the Knowledge of Sellers, the current use and occupancy of the Real Property and the
operation of Target’s business as currently conducted thereon does not violate any easement,
covenant, condition, restriction or similar provision in any instrument of record or other
unrecorded agreement affecting such Real Property (the “Encumbrance Documents”). Neither Sellers
nor Target has received any notice of violation of any Encumbrance Documents, and there is no basis
for the issuance of any such notice or the taking of any action for such violation.




          (xii) To the Knowledge of Sellers, none of the Improvements encroach on any land which is not
included in the Real Property or on any easement affecting such Real Property, or violate any
building lines or set-back lines, and there are no encroachments onto any of the Real Property, or
any portion thereof, which encroachment would interfere with the use or occupancy of such Real
Property or the continued operation of Target’s business as currently conducted thereon.




          (xiii) To the Knowledge of Sellers, each parcel of Real Property is a separate lot for real
estate tax and assessment purposes, and no other real property is included in such tax parcel.
There are no Taxes, assessments, fees, charges or similar costs or expenses imposed by any
governmental authority, association or other entity having jurisdiction over the Real Property
(collectively, the “Real Estate Impositions”) with respect to any Real Property or portion thereof
which are delinquent. There is no pending or threatened increase or special assessment or
reassessment of any Real Estate Impositions for such parcel.




          (xiv) None of the Real Property or any portion thereof is located in a flood hazard area (as
defined by the Federal Emergency Management Agency).




     (m) Intellectual Property.



          (i) Target owns and possesses or has the right to use pursuant to a valid and enforceable,
written license, sublicense, agreement, or permission all Intellectual Property used in the
operation of the businesses of Target as presently conducted. Each item of Intellectual Property
owned or used by Target immediately prior to the Closing hereunder will be owned or available for
use by Target on identical terms and conditions immediately subsequent to the Closing hereunder.
Target has taken the actions described on Section 4(m)(i) of the Disclosure Schedule to maintain
and protect each item of Intellectual Property that Target owns or uses.




          (ii) Except as set forth on Section 4(m)(ii) of the Disclosure Schedule, Target has not
received notice that it has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of third parties, and none of Sellers and the
directors and officers (and employees with responsibility for Intellectual Property matters) of
Target have ever received any charge, complaint, claim, demand, or notice alleging any such


-22-









 







interference, infringement, misappropriation, or violation (including any claim that Target
must license or refrain from using any Intellectual Property rights of any third party). To the
Knowledge of any of Sellers and the directors and officers (and employees with responsibility for
Intellectual Property matters) of Target, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property rights of Target.




          (iii) Section 4(m)(iii) of the Disclosure Schedule identifies each patent or registration that
has been issued to Target with respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which Target has made with respect to any of its
Intellectual Property, and identifies each license, sublicense, agreement, or other permission
which Target has granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). Sellers have delivered to Buyer correct and complete copies of all
such patents, registrations, applications, licenses, sublicenses, agreements, and permissions (as
amended to date). Section 4(m)(iii) of the Disclosure Schedule also identifies each material
unregistered trademark, service mark, trade name, corporate name or Internet domain name, computer
software item (other than commercially available off-the-shelf software purchased or licensed for
less than a total cost of $1,000 in the aggregate) and each material unregistered copyright used by
Target in connection with any of its businesses. With respect to each item of Intellectual Property
required to be identified in Section 4(m)(iii) of the Disclosure Schedule:





          (A) Target owns and possesses all right, title, and interest in and to the item, free
and clear of any Lien, license, or other restriction or limitation regarding use or
disclosure;




          (B) the item is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;




          (C) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of any of Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, is threatened
which challenges the legality, validity, enforceability, use, or ownership of the item, and
there are no grounds for the same;




          (D) Target has never agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the item; and




          (E) no loss or expiration of the item is threatened, pending, or reasonably
foreseeable, except for patents expiring at the end of their statutory terms (and not as a
result of any act or omission by Sellers or Target, including without limitation, a failure
by Sellers or Target to pay any required maintenance fees).



          (iv) Section 4(m)(iv) of the Disclosure Schedule identifies each item of Intellectual Property
that any third party owns and that Target uses pursuant to license, sublicense, agreement, or
permission. The Sellers have delivered to Buyer correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With


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respect to each item of Intellectual Property required to be identified in Section 4(m)(iv) of
the Disclosure Schedule:





          (A) the license, sublicense, agreement, or permission covering the item is legal,
valid, binding, enforceable, and in full force and effect;




          (B) the license, sublicense, agreement, or permission will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following consummation
of the transaction contemplated hereby;




          (C) no party to the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration thereunder;




          (D) no party to the license, sublicense, agreement, or permission has repudiated any
provision thereof;




          (E) with respect to each sublicense, the representations and warranties set forth in
subsections (A) through (D) above are true and correct with respect to the underlying
license;




          (F) the underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;




          (G) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of any of Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, is threatened
that challenges the legality, validity, or enforceability of the underlying item of
Intellectual Property, and there are no grounds for the same; and




          (H) Target has not granted any sublicense or similar right with respect to the license,
sublicense, agreement, or permission.



          (v) To the Knowledge of any of Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of Target: (A) Target has not in the past nor
will interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued operation of its
businesses as presently conducted; (B) there are no facts that indicate a likelihood of any of the
foregoing; and (C) no notices regarding any of the foregoing (including, without limitation, any
demands or offers to license any Intellectual Property from any third party) have been received.




          (vi) Sellers have taken all necessary and desirable action to maintain and protect all of the
Intellectual Property of Target and will continue to maintain and protect all of the Intellectual
Property of Target prior to Closing so as not to adversely affect the validity or enforceability
thereof. To the Knowledge of any of Sellers, the owners of any of the Intellectual Property
licensed to Target have taken all necessary and desirable action to maintain and protect the
Intellectual Property covered by such license.




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          (vii) Sellers have complied in all material respects with and are presently in compliance in
all material respects with all foreign, federal, state, local, governmental (including, but not
limited to, the Federal Trade Commission and State Attorneys General), administrative or regulatory
laws, regulations, guidelines and rules applicable to any Intellectual Property and Sellers shall
take all steps necessary to ensure such compliance until Closing.




     (n) Tangible Assets. Target owns or leases all buildings, machinery, equipment, and other
tangible assets necessary for the conduct of their businesses as presently conducted. Each such
tangible asset is free from defects (patent and latent), has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and presently is proposed to
be used.



     (o) Inventory. The inventory of Target consists of raw materials and supplies, manufactured
and purchased parts, goods in process, and finished goods, all of which is merchantable and fit for
the purpose for which it was procured or manufactured, and none of which is slow-moving, obsolete,
damaged, or defective, subject only to the reserve for inventory writedown set forth on the face of
the Most Recent Balance Sheet (rather than in notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of Target.



     (p) Contracts. Section 4(p) of the Disclosure Schedule lists the following contracts and other
agreements to which Target is a party:



          (i) any agreement (or group of related agreements) for the lease of personal property to or
from any Person regardless of amount;




          (ii) any agreement (or group of related agreements) for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one year, result in a
loss to Target, or involve consideration in excess of $10,000;




          (iii) any agreement concerning a partnership or joint venture;




          (iv) any agreement (or group of related agreements) under which it has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation;




          (v) any agreement concerning confidentiality or non-competition;




          (vi) any agreement with any of Sellers and their Affiliates (other than Target);




          (vii) any profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other plan or arrangement for the benefit of its current or former
directors, officers, and employees;




          (viii) any collective bargaining agreement;




-25-









 








          (ix) any agreement for the employment of any individual on a full-time, part-time, consulting,
or other basis providing annual compensation in excess of $10,000 or providing severance benefits;




          (x) any agreement under which it has advanced or loaned any amount to any of its directors,
officers, and employees outside the Ordinary Course of Business;




          (xi) any agreement under which the consequences of a default or termination could have a
Material Adverse Effect;




          (xii) any agreement under which it has granted any Person any registration rights (including,
without limitation, demand and piggyback registration rights);




          (xiii) any agreement under which Target has advanced or loaned any other Person any amounts;
or




          (xiv) any other agreement (or group of related agreements) the performance of which involves
consideration in excess of $10,000.



Sellers have delivered to Buyer a correct and complete copy of each written agreement (as amended
to date) listed in Section 4(p) of the Disclosure Schedule and a written summary setting forth the
terms and conditions of each oral agreement referred to in Section 4(p) of the Disclosure Schedule.
With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and
in full force and effect; (B) the agreement will continue to be legal, valid, binding, enforceable,
and in full force and effect on identical terms following the consummation of the transaction
contemplated hereby; (C) no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit termination, modification,
or acceleration, under the agreement; and (D) no party has repudiated any provision of the
agreement.




     (q) Notes and Accounts Receivable. Except as set forth on Section 4(q) of the Disclosure
Schedule, all notes and accounts receivable of Target are reflected properly on their books and
records, are valid receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of Target.



     (r) Powers of Attorney. Except as set forth on Section 4(r) of the Disclosure Schedule, there
are no outstanding powers of attorney executed on behalf of Target.



     (s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the following information
with respect to each insurance policy (including policies providing property, casualty, liability,
and workers’ compensation coverage and bond and surety arrangements) to which Target has been a
party, a named insured, or otherwise the beneficiary of coverage at any time within the past 10
years:



          (i) the name, address, and telephone number of the agent;




-26-









 








          (ii) the name of the insurer, the name of the policyholder, and the name of each covered
insured;




          (iii) the policy number and the period of coverage;




          (iv) the scope (including an indication of whether the coverage was on a claims made,
occurrence, or other basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and




          (v) a description of any retroactive premium adjustments or other loss-sharing arrangements.



With respect to each such insurance policy: (A) the policy is legal, valid, binding, enforceable,
and in full force and effect; (B) the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the consummation of the
transaction contemplated hereby; (C) neither Target nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of notices), and no
event has occurred which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the policy; and (D) no party
to the policy has repudiated any provision thereof. Target has been covered during the past 10
years by insurance in scope and amount customary and reasonable for the businesses in which they
have engaged during the aforementioned period. Section 4(s) of the Disclosure Schedule describes
any self-insurance arrangements affecting Target.




     (t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each instance in which
Target (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii) is a party or , to the Knowledge of any of Sellers and the directors and officers (and
employees with responsibility for litigation matters) of Target, is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and investigations set
forth in Section 4(t) of the Disclosure Schedule could result in any Material Adverse Change. None
of Sellers and the directors and officers (and employees with responsibility for litigation
matters) of Target has any reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against Target or that there is any Basis for the
foregoing.



     (u) Product Warranty. Except as set forth on Section 4(u) of the Disclosure Schedule, each
product manufactured, sold, leased, or delivered by Target has been in conformity with all
applicable contractual commitments and all express and implied warranties, and Target has no
Liability (and there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving rise to any
Liability) for replacement or repair thereof or other damages in connection therewith.



     (v) Product Liability. Target has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability) arising out of any injury to individuals or



-27-









 







property as a result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by Target.



     (w) Employees. Section 4(w) of the Disclosure Schedule includes a list of current employees of
Target as of the signing of this Agreement. Except as noted on Section 4(w) of the Disclosure
Schedule, to the Knowledge of any of Sellers and the directors and officers (and employees with
responsibility for employment matters) of Target, no executive, key employee, or group of employees
has any plans to terminate employment with Target. Target is not a party to or bound by any
collective bargaining agreement, nor has Target experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes. Target has not committed any
unfair labor practice. None of Sellers and the directors and officers (and employees with
responsibility for employment matters) of Target has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with respect to employees of
Target.



     (x) Employee Benefits.



          (i) Section 4(x) of the Disclosure Schedule lists all employee benefit plans and collective
bargaining, employment or severance agreements or other similar arrangements which Target, or any
ERISA Affiliate, has ever sponsored, maintained, or to which contributions are made or have ever
been made, or for which obligations have been incurred, for the benefit of employees or former
employees of Target or an ERISA Affiliate, including, without limitation, (1) any “employee benefit
plan” (within the meaning of Section 3(3) of ERISA), (2) any profit-sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare
or incentive plan, agreement or arrangement, (3) any plan, agreement or arrangement providing for
“fringe benefits” or perquisites to employees, officers, directors or agents, including but not
limited to benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical,
sick leave, tuition reimbursement, medical, dental, hospitalization, life insurance, disability
insurance and other types of insurance, and (4) any employment agreement. The plans, agreements and
arrangements described in this Section 4(x) are referred to herein as “Employee Benefit Plans.”




          (ii) None of the Employee Benefit Plans is, and neither Target nor any other ERISA Affiliate
has ever contributed to or had any obligation to contribute to, (i) a plan subject to Title IV of
ERISA or Section 412 of the Code, (ii) a “multiemployer plan” (within the meaning of Section 3(37)
of ERISA), (iii) or a “multiple employer plan” (within the meaning of Section 413(c) of the Code),
any “voluntary employees’ beneficiary association” (within the meaning of Section 501(c)(9) of the
Code), or any “multiple employer welfare arrangement” (within the meaning of Section 3(40) of
ERISA).




          (iii) None of the Employee Benefit Plans, nor any trust created thereunder, now holds or has
heretofore held as assets any stock or securities issued by Target or any ERISA Affiliate.




          (iv) Target has delivered to Buyer true and complete copies of all documents (including plan
documents, trust agreements and insurance contracts) and summary plan descriptions of the Employee
Benefit Plans or summary descriptions of any such Employee




-28-









 







Benefit Plan not otherwise in writing. Target has delivered to Buyer true and complete copies
of the most recent determination letters and the Forms 5500 filed in the most recent three plan
years with respect to any Employee Benefit Plan, including all schedules thereto and financial
statements with attached opinions of independent accountants. Target has delivered to Buyer
summaries of material modifications and material communications distributed within the last year to
the participants of each Employee Benefit Plan. Target has delivered to Buyer all communications
received from or sent to the Internal Revenue Service, Pension Benefit Guaranty Corporation or the
Department of Labor within the last three years and any Forms 5330 required to be filed by Target
or any ERISA Affiliate, whether related to a Employee Benefit Plan or otherwise. Target and any
ERISA Affiliate, as applicable, have maintained all employee data necessary to administer each
Employee Plan, including all data required to be maintained under Sections 107 and 209 of ERISA,
and such data is true and correct and is maintained in usable form.




          (v) Each Employee Benefit Plan (and any related trust agreement) has been maintained, funded
and administered in accordance with its terms and the terms of any applicable collective bargaining
agreement, and Target, and each ERISA Affiliate, is in compliance with the applicable provisions of
ERISA, the Code and all laws applicable thereto. Without limitation of the foregoing:





          (A) None of Target, any ERISA Affiliate, nor any Employee Benefit Plan fiduciary has,
with respect to the Employee Benefit Plans, engaged in a non-exempt Prohibited Transaction,
and no event or condition exists with respect to any Employee Benefit Plan which constitutes
a reportable event within the meaning of Section 4043 of ERISA, as to which a waiver is not
applicable. No event has occurred and no condition exists with respect to any Employee
Benefit Plan which would give rise to any Liability under the Code or ERISA, including but
not limited to Sections 511, 4971, 4972, 4975, 4976, 4977, 4979, 4980B, 4980D, 4980E, 4980F
or 6652 of the Code, or to any fine or civil penalty under Sections 502, 4069 or 4071 of
ERISA.




          (B) Target and each ERISA Affiliate have complied in all respects with COBRA, the
Health Insurance Portability & Accountability Act of 1996, and Medicare Part D with respect
to any events occurring prior to and including the Closing Date. Each Employee Benefit Plan
that is subject to Section 1862(b)(1) of the Social Security Act has been operated in
compliance with the secondary payor requirements of Section 1862 of such Act.




          (C) Each Employee Benefit Plan that constitutes a “welfare benefit plan,” within the
meaning of Section 3(1) of ERISA, and for which contributions are claimed by Target or any
ERISA Affiliate as deductions under any provision of the Code, is in compliance with all
applicable requirements pertaining to such deduction. §4(x) of the Disclosure Schedule
discloses whether each welfare plan is (i) unfunded, (ii) with respect to welfare plans
subject to the provisions of the Code, funded through a “welfare benefit fund”, as such term
is defined in Section 419(e) of the Code, or other funding mechanism or (iii) insured.



-29-









 






          (D) Arrangements which constitute “nonqualified deferred compensation plans” as defined
by §409A of the Code have been administered in compliance with §409A or an exemption
therefrom since January 1, 2005.




          (E) All reports, returns and similar documents with respect to each Employee Benefit
Plan required to be filed with any Governmental Authority or distributed to any participant
of each Employee Benefit Plan have been duly and timely filed or distributed. All
contributions, fees, interest, penalties and assessments that are payable by or for Target
or any ERISA Affiliate have been timely reported, fully paid and discharged. There are no
unpaid contributions, fees, penalties, interest or assessments due from Target or any ERISA
Affiliate or from any other person that are or could become a Lien on any asset of Target or
any ERISA Affiliate or could otherwise adversely affect the business or assets of Target or
any ERISA Affiliate, and no assets of Target or any ERISA Affiliate are subject to (or
expected to be subject to) any such Lien. Target and each ERISA Affiliate have collected or
withheld all amounts that are required to be collected or withheld by them to discharge
their obligations, and all of those amounts have been paid to the appropriate Employee
Benefit Plans or governmental agencies or set aside in appropriate accounts for future
payment when due.



          (vi) No actions, suits, disputes or claims (other than routine claims for benefits in the
ordinary course) are pending or threatened with respect to any Employee Benefit Plan. No audits,
inquiries, reviews, proceedings, claims, or demands are pending with any governmental authority
with respect to any Employee Benefit Plan. There are no facts which could give rise to any
Liability in the event of any such investigation, claim, action, suit, audit, review, or other
proceeding (including, without limitation, any claim for breach of fiduciary duty).




          (vii) Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue Service that such
Employee Benefit Plan is qualified under Section 401(a) of the Code, and such determination letter
considers the Uruguay Round Agreements Act, the Small Business Job Protection Act of 1996, the
Uniformed Services Employment and Reemployment Rights Act of 1994, the Taxpayer Relief Act of 1997,
the Internal Revenue Service Restructuring and Reform Act of 1998, and the Community Renewal Tax
Relief Act of 2000. Each Employee Benefit Plan that is intended to be qualified under Section
401(a) of the Code has been timely amended to reflect the provisions of the Economic Growth & Tax
Relief Reconciliation Act of 2001 and any other statutory or regulatory changes requiring
amendments, and has been timely submitted for a determination letter regarding the provisions of
the Economic Growth & Tax Relief Reconciliation Act of 2001 if the deadline for such submission has
passed. No event has occurred that will or could give rise to the revocation of any applicable
determination letter, or the disqualification or loss of tax-exempt status of any such Employee
Benefit Plan or trust under Sections 401(a) or 501(a) of the Code.




          (viii) Each of the Employee Benefit Plans can be terminated within a period of thirty (30)
days following the Closing Date, without any additional contribution to such Employee Benefit Plan
or the payment of any additional compensation or amount or acceleration of any benefits.




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          (ix) No Employee Benefit Plan provides for or continues medical or health benefits, or life
insurance or other benefits (through insurance or otherwise) for any Person or any dependent or
beneficiary of any Person after such employee’s retirement or other termination of employment
except as may be required by COBRA or applicable state law, and there has been no communication to
any Person that could reasonably be expected to promise or guarantee any such benefits.




          (x) No condition exists as a result of which Target or any ERISA Affiliate would have any
Liability, whether absolute or contingent, including any obligations under the Employee Benefit
Plans, with respect to any misclassification of a Person performing services for Target or an ERISA
Affiliate as an independent contractor rather than as an employee.




          (xi) All contributions (including all employer contributions and employee salary reduction
contributions) and premium payments which are or have been due have been paid to or with respect to
each Employee Benefit Plan within the time required by law. All required or discretionary (in
accordance with historical practices) payments, premiums, contributions, reimbursements, or
accruals for all periods ending prior to or as of the Closing Date shall have been made or properly
accrued on the Closing Balance Sheets or will be properly accrued on the books and records of
Target and each ERISA Affiliate as of the Closing Date. None of the Employee Benefit Plans has any
unfunded liabilities which are not reflected on the Closing Balance Sheet or the books and records
of Target and each ERISA Affiliate.




          (xii) The consummation of the transactions contemplated by this Agreement will not entitle any
individual to severance pay, and will not accelerate the time of payment or vesting, or increase
the amount of compensation due to any individual. None of the Employee Benefit Plans obligates
Target or any ERISA Affiliate to pay separation, severance, termination or similar benefits solely
as a result of any transaction contemplated by this Agreement or solely as a result of “change of
control” (as such term is defined in Section 280G of the Code).




     (y) Guaranties. Target is not a guarantor or otherwise is liable for any Liability or
obligation (including indebtedness) of any other Person.



     (z) Environmental, Health, and Safety Matters. Except as set forth on Section 4(z) of the
Disclosure Schedule:



          (i) Target and its predecessors and Affiliates have complied and are in compliance with all
Environmental, Health, and Safety Requirements.




          (ii) Without limiting the generality of the foregoing, Target and its Affiliates have obtained
and complied with, and are in compliance with, all permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety Requirements for the occupation of their
facilities and the operation of their business; a list of all such permits, licenses and other
authorizations is set forth on Section 4(z)(ii) of the Disclosure Schedule.




          (iii) Neither Target nor its predecessors or Affiliates has received any written or oral
notice, report or other information regarding any actual or alleged violation of Environmental,
Health, and Safety Requirements, or any Liabilities or potential Liabilities,


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including any investigatory, remedial or corrective obligations, relating to any of them or
its facilities arising under Environmental, Health, and Safety Requirements.




          (iv) None of the following exists at any property or facility owned or operated by Target: (1)
underground storage tanks, (2) asbestos-containing material in any form or condition, (3) materials
or equipment containing polychlorinated biphenyls, or (4) landfills, surface impoundments, or
disposal areas.




          (v) Neither Target nor its predecessors or Affiliates have treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or operated any property or facility
(and no such property or facility is contaminated by any such substance) in a manner that has given
or would give rise to Liabilities, including any Liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
(“CERCLA”), the Solid Waste Disposal Act, as amended (“SWDA”) or any other Environmental, Health,
and Safety Requirements.




          (vi) Neither this Agreement nor the consummation of the transaction that is the subject of
this Agreement will result in any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of the so-called
“transaction-triggered” or “responsible property transfer” Environmental, Health, and Safety
Requirements.




          (vii) Neither Target nor its predecessors or Affiliates has, either expressly or by operation
of law, assumed or undertaken any Liability, including without limitation any obligation for
corrective or remedial action, of any other Person relating to Environmental, Health, and Safety
Requirements.




          (viii) No facts, events or conditions relating to the past or present facilities, properties
or operations of Target or its predecessors or Affiliates will prevent, hinder or limit continued
compliance with Environmental, Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health, and Safety Requirements, or
give rise to any other Liabilities pursuant to Environmental, Health, and Safety Requirements,
including without limitation any relating to onsite or offsite releases or threatened releases of
hazardous materials, substances or wastes, personal injury, property damage or natural resources
damage.




     (aa) Systems Continuity. Except as set forth on Section 4(aa) of the Disclosure Schedule, none
of the computer software, computer hardware (whether general or special purpose),
telecommunications capabilities (including all voice, data and video networks) and other similar or
related items of automated, computerized, and/or software systems and any other networks or systems
and related services that are used by or relied on by Target in the conduct of its business
(collectively, the “Systems”) have experienced bugs, failures, breakdowns, or continued substandard
performance in the past 12 months that has caused any substantial disruption or interruption in or
to the use of any such Systems by Target.



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     (bb) Certain Business Relationships with Target. None of Sellers, their Affiliates, Sellers’
directors, officers, employees and stockholders and Target’s directors, officers, employees, and
stockholders has been involved in any business arrangement or relationship with Target within the
past 12 months, and none of Sellers, their Affiliates, Seller’s directors, officers, employees and
stockholders and Target’s directors, officers, employees, and stockholders owns any asset, tangible
or intangible, which is used in the business of Target.



     (cc) Customers and Suppliers.



          (i) Section 4(cc) of the Disclosure Schedule lists the 10 largest customers of Target for each
of the two most recent fiscal years and sets forth opposite the name of each such customer the
percentage of consolidated net sales attributable to such customer. Section 4(cc) of the Disclosure
Schedule also lists any additional current customers that Target anticipates shall be among the 10
largest customers for the current fiscal year.




          (ii) Since the date of the Most Recent Balance Sheet, no supplier of Target has indicated that
it shall stop, or decrease the rate of, supplying materials, products or services to Target, and no
customer listed on Section 4(cc) of the Disclosure Schedule has indicated that it shall stop, or
decrease the rate of, buying materials, products or services from Target.




     (dd) Disclosure. The representations and warranties contained in this Section 4 do not contain
any untrue statement of a material fact or omit to state any material fact necessary in order to
make the statements and information contained in this Section 4 not misleading.



SECTION 5. PRE-CLOSING COVENANTS




     The Parties agree as follows with respect to the period between the execution of this
Agreement and the Closing.



     (a) General. Each of the Parties will use his, her, or its best efforts to take all action and
to do all things necessary, proper, or advisable in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing
conditions set forth in Section 7 below).



     (b) Notices and Consents. Sellers will cause Target to give any notices to third parties, and
will cause Target to use its best efforts to obtain any third party consents referred to in Section
4(c) above, the Lease Consents, and the items set forth on Section 5(b) of the Disclosure Schedule.
Each of the Parties will (and Sellers will cause Target to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters referred to in Section 3(a)(ii), Section
3(b)(ii), and Section 4(c) above.



     (c) Operation of Business. Sellers will not cause or permit Target to engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, Sellers will not cause or permit Target to (i) declare,
set aside, or pay any dividend or make any distribution whatsoever with respect to its capital
stock (whether in cash or in kind) or redeem, purchase, or otherwise acquire any of its



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capital stock or (ii) otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 4(h) above.



     (d) Preservation of Business. Sellers will cause Target to keep its business and properties
substantially intact, including its present operations, physical facilities, working conditions,
insurance policies, and relationships with lessors, licensors, suppliers, customers, and employees.



     (e) Full Access. Each of Sellers will permit, and Sellers will cause Target to permit,
representatives of Buyer (including legal counsel and accountants) to have full access at all
reasonable times, and in a manner so as not to interfere with the normal business operations of
Target, to all premises, properties, personnel, books, records (including Tax records), contracts,
and documents of or pertaining to Target.



     (f) Notice of Developments. Sellers will give prompt written notice to Buyer of any material
adverse development causing a breach of any of the representations and warranties in Section 4
above. Each Party will give prompt written notice to the others of any material adverse development
causing a breach of any of his or its own representations and warranties in Section 3 above. No
disclosure by any Party pursuant to this Section 5(f), however, shall be deemed to amend or
supplement Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.



     (g) Exclusivity. None of Sellers will (and Sellers will not cause or permit Target to) (i)
solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any substantial portion of the
assets, of Target (including any acquisition structured as a merger, consolidation, or share
exchange) or (ii) participate in any discussions or negotiations regarding, furnish any information
with respect to, assist or participate in, or facilitate in any other manner any effort or attempt
by any Person to do or seek any of the foregoing. None of Sellers will vote their Target Shares in
favor of any such acquisition. Sellers will notify Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.



     (h) Maintenance of Real Property. Sellers will cause Target to maintain the Real Property,
including all of the Improvements, in substantially the same condition as of the date of this
Agreement, ordinary wear and tear excepted, and shall not demolish or remove any of the existing
Improvements, or erect new improvements on the Real Property or any portion thereof, without the
prior written consent of Buyer.



     (i) Leases. Except to the extent necessary to satisfy the Closing conditions set forth in
Section 7 below, Sellers will not cause or permit any of Target’s Leases to be amended, modified,
extended, renewed or terminated, nor shall Target enter into any new lease, sublease, license or
other agreement for the use or occupancy of any real property, without the prior written consent of
Buyer.



     (j) Tax Matters. Without the prior written consent of Buyer, Target shall not make or change
any election, change an annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or



-34-









 







assessment relating to Target, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or assessment relating to
Target, or take any other similar action relating to the filing of any Tax Return or the payment of
any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent
or other action would have the effect of increasing the Tax liability of Target for any period
ending after the Closing Date or decreasing any Tax attribute of Target existing on the Closing
Date.



     (k) S Corporation Status. Target and Sellers shall not revoke Target’s election to be taxed as
an S corporation within the meaning of Code Section 1361 and Section 1362. Target and Sellers shall
not take or allow any action, other than the sale of Target’s stock pursuant to this Agreement,
that would result in the termination of Target’s status as a validly electing S corporation within
the meaning of Code Section 1361 and Section 1362.



     (l) [INTENTIONALLY DELETED].



     (m) Restrictive Stock Transfer Agreements. Prior to Closing, Target and Sellers shall cancel
any restrictive stock transfer agreements or similar agreements between or among them that pertain
to the Shares.



     (n) 401(k) Plan Termination. Notwithstanding anything in this Agreement to the contrary, prior
to Closing, Sellers shall cause the Company to terminate the Innovative Solutions Consulting, Inc.
401(k) Plan (the “401(k) Plan”) and any other Company Plan intended to be qualified under Code
Section 401(a) or 403(a). In addition, (a) Sellers shall cause the Company to remove, or Sellers
shall cause to resign, as a trustee under the 401(k) Plan Michele A. Aloisio and each other
trustee, if any, of the 401(k) Plan, effective as of the Closing Date; and (b) Sellers shall cause
the Company to appoint, effective as of the Closing Date, successor trustees designated by Buyer.



SECTION 6. POST-CLOSING COVENANTS




     The Parties agree as follows with respect to the period following the Closing.



     (a) General. In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the Parties will take such further
action (including the execution and delivery of such further instruments and documents) as any
other Party reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under Section 8 below).
Sellers acknowledge and agree that from and after the Closing Buyer will be entitled to possession
of all documents, books, records (including Tax records), agreements, and financial data of any
sort relating to Target.



     (b) Litigation Support. In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any
fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date



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involving Target, each of the other Parties will cooperate with him or it and his or its
counsel in the contest or defense, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8 below).



     (c) Transition. None of Sellers will take any action that is designed or intended to have the
effect of discouraging any lessor, licensor, customer, supplier, or other business associate of
Target from maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. Each of Sellers will refer all customer inquiries
relating to the businesses of Target to Buyer from and after the Closing.



     (d) Confidentiality. Each of the parties hereto will treat and hold as such all of the
Confidential Information of the other parties, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to such other party or
destroy, at the request and option of disclosing party, all tangible embodiments (and all copies)
of the Confidential Information which are in his, her, or its possession. In the event that any
party is requested or required pursuant to written or oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar
process to disclose any Confidential Information, such party will notify the disclosing party
promptly of the request or requirement so that the disclosing party may seek an appropriate
protective order or waive compliance with the provisions of this Section 6(d). If, in the absence
of a protective order or the receipt of a waiver hereunder, any of receiving parties is, on the
advice of counsel, compelled to disclose any Confidential Information to any tribunal or party in a
proceeding therein or else stand liable for contempt, such party may disclose the Confidential
Information to the tribunal or such person involved in such action; provided,
however, that the disclosing party shall use his, her, or its best efforts to obtain, at
the reasonable request of the disclosing party, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information required to be disclosed
as the disclosing party shall designate. The foregoing provisions shall not apply to any
Confidential Information that is generally available to the public immediately prior to the time of
disclosure unless such Confidential Information is so available due to the actions of a party, nor
shall the foregoing provisions apply to Buyer to the extent Buyer is required to disclose such
information in order to comply with its disclosure obligations as a publicly-traded company under
applicable federal securities laws and stock exchange rules and listing standards.



     (e) Termination of Aloisio Guarantees. Michele A. Aloisio is a party to certain guarantees as
more fully identified in Schedule Section 6(e) of the Disclosure Schedules (the “Aloisio
Guarantees”). Buyer has represented to Sellers that it is Buyer’s intention to refinance or
otherwise terminate the debt that is guaranteed by the Aloisio Guarantees, and Sellers are relying
on this representation in entering into this Agreement. Therefore, as further commitment under
Buyer’s representation, Buyer hereby agrees to, promptly after Closing, take all actions and
execute all documents reasonably necessary to have the Aloisio Guarantees released, and Buyer
hereby agrees and covenants to defend, indemnify and hold harmless Michele A. Aloisio on any
action, suit, proceeding or other claim against him pursuant to the Aloisio Guarantees that arises
out of or directly relates to facts and circumstances occurring exclusively after the Closing Date.
For the avoidance of doubt, the Parties acknowledge that Buyer shall have no indemnity



-36-









 







obligation hereunder with respect to facts and circumstances occurring on or before the
Closing Date.



     (f) Release of Target by Sellers. Effective at and (only) upon Closing, each Seller (each a
“Releasing Party”) hereby irrevocably and unconditionally releases and forever discharges the
Target and its respective successors and assigns (the “Released Parties”) from any and all claims,
charges, complaints, causes of action, damages, agreements and liabilities of any kind or nature
whatsoever, including any claim by the Sellers against the Target for indemnification or for
advances with respect to actions or omissions (or claims or allegations thereof) of Sellers prior
to the Closing in their capacities as shareholders, officers, directors or employees of the Target
(“Released Claims”), whether known or unknown and whether at law or in equity, arising from conduct
occurring on or prior to the Closing Date, including without limitation any Released Claims
relating to or arising out of such Seller’s ownership of Stock; provided that (i) nothing contained
herein shall release the Target from any of its post-Closing obligations and liabilities to a
Releasing Party created under this Agreement or constitute a waiver of any claims that such
Releasing Party may bring or have for indemnification by the Released Parties under Section 8, and
(ii) this release shall only relate to those claims arising from conduct or omissions occurring on
or before the Closing.



     (g) Winding-Up of 401(k) Plan. It is understood that Target will be responsible for ensuring
the proper liquidation of the 401(k) Plan after the Closing Date and the operation of the 401(k)
Plan on a terminated basis in compliance with applicable law pending completion of the termination
and liquidation process.



SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE




     (a) Conditions to Buyer’s Obligation. Buyer’s obligation to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the following
conditions:



          (i) the representations and warranties set forth in Section 3(a) and Section 4 above shall be
true and correct in all material respects at and as of the Closing Date, except to the extent that
such representations and warranties are qualified by terms such as “material” and “Material Adverse
Effect,” in which case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;




          (ii) Sellers shall have performed and complied with all of their covenants hereunder in all
material respects through the Closing, except to the extent that such covenants are qualified by
terms such as “material” and “Material Adverse Effect,” in which case Sellers shall have performed
and complied with all of such covenants in all respects through the Closing;




          (iii) Target shall have procured all of the third party consents specified in Section 5(b)
above;




          (iv) no action, suit, or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction


-37-









 







or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of Buyer to own the Target Shares and to control
Target, or (D) affect adversely the right of Target to own its assets and to operate its businesses
(and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);




          (v) Sellers shall have delivered to Buyer a certificate to the effect that each of the
conditions specified above in Section 7(a)(i)-(iv) is satisfied in all respects;




          (vi) the Parties shall have received all other authorizations, consents, and approvals of
governments and governmental agencies referred to in Section 3(a)(ii), Section 3(b)(ii), and
Section 4(c) above;




          (vii) Buyer shall have received the resignations, effective as of the Closing, of each
director and officer of Target other than those whom Buyer shall have specified in writing at least
five business days prior to the Closing;




          (viii) Buyer shall have obtained on terms and conditions satisfactory to it any debt or equity
financing it needs in order to consummate the transactions contemplated hereby and fund the working
capital requirements of Target after the Closing;




          (ix) all actions to be taken by the Sellers in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby shall be satisfactory in form and substance
to Buyer;




          (x) Target shall have obtained and delivered to Buyer a written consent for the assignment of
each of the Leases, as well as a modification of the use restriction in the lease agreement for the
premises located at 44180 Airport View Drive, Hollywood, Maryland, to permit fabrication and
manufacturing activities and a waiver of tenant’s obligation under such lease agreement to
surrender such premises to landlord in the condition in which such premises were originally
delivered to tenant and, if requested by Buyer’s lender, a waiver of landlord liens, collateral
assignment of lease or leasehold mortgage from the landlord or other party whose consent thereto is
required under such Lease (the “Lease Consents”), in form and substance satisfactory to Buyer and
Buyer’s lender;




          (xi) Target shall have obtained and delivered to Buyer an estoppel certificate with respect to
each of the Leases, dated no more than 30 days prior to the Closing Date, from the other party to
such Lease, in form and substance satisfactory to Buyer (the “Estoppel Certificates”);




          (xii) Target shall have obtained and delivered to Buyer a non-disturbance agreement with
respect to each of the Leases for the Leased Real Property, in form and substance satisfactory to
Buyer, from each lender encumbering any real property underlying the Leased Real Property for such
Lease (the “Non-Disturbance Agreements”);




-38-









 








          (xiii) no damage or destruction or other change has occurred with respect to any of the Real
Property or any portion thereof that, individually or in the aggregate, would materially impair the
use or occupancy of the Real Property or the operation of Target’s business as currently conducted
thereon;




          (xiv) each of Marc DeLaVergne, Thomas R. Knowlton, and Kenneth J. Wood shall have entered into
employment agreements with Buyer (or an Affiliate of Buyer) on terms reasonably satisfactory to
Buyer, and such agreements shall be in full force and effect as of the Closing;




          (xv) Sellers shall have delivered to Buyer copies of the certificate of incorporation of
Target certified on or soon before the Closing Date by the Secretary of State (or comparable
officer) of the jurisdiction of Target’s incorporation;




          (xvi) Sellers shall have delivered to Buyer copies of the certificate of good standing of
Target issued on or soon before the Closing Date by the Secretary of State (or comparable officer)
of the jurisdiction of Target’s organization and of each jurisdiction in which each such Target is
qualified to do business;




          (xvii) Sellers shall have delivered to Buyer a certificate of the secretary or an assistant
secretary of Target, dated the Closing Date, in form and substance reasonably satisfactory to
Buyer, as to (i) no amendments to the Certificate of Incorporation of Target since the date
specified in clause (xxii) above; (ii) the bylaws of Target; and (iii) any resolutions of the board
of directors of Target relating to this Agreement and the transactions contemplated hereby;




          (xviii) Each Seller shall have delivered to Buyer a release of all claims against Target, in
form and substance satisfactory to Buyer, and shall have entered into confidentiality,
non-solicitation, non-compete and non-disparagement agreements with Target on terms satisfactory to
Buyer, and such releases and agreements shall be in full force and effect as of the Closing.




          (xix) Any amounts owed by Target to Sellers shall have been paid in full and, at the request
of Buyer, Sellers shall deliver to Target a release to such effect in form and substance
satisfactory to Buyer.




          (xx) Buyer shall have obtained the approval of its lenders of this Agreement and the
transactions contemplated thereby.




          (xxi) Buyer shall have obtained the approval of its board of directors of this Agreement and
the transactions contemplated thereby.




          (xxii) Target and each Seller shall have delivered to Buyer signed copies of any applicable
forms and attachments thereto required in connection with the Section 338(h)(10) Election pursuant
to Section 9(f) below.




          (xxiii) W. Michael Cooper shall have discontinued any use or occupancy of the premises located
at 44180 Airport View Drive, Hollywood, Maryland for the private practice of


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law or any other activity other than activities within the scope of and pursuant to his then
current duties as an employee of Target.



Buyer may waive any condition specified in this Section 7(a) if it executes a writing so stating at
or prior to the Closing.




     (b) Conditions to Sellers’ Obligation. The obligation of Sellers to consummate the
transactions to be performed by them in connection with the Closing is subject to satisfaction of
the following conditions:



          (i) the representations and warranties set forth in Section 3(b) above shall be true and
correct in all material respects at and as of the Closing Date, except to the extent that such
representations and warranties are qualified by terms such as “material” and “Material Adverse
Effect,” in which case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;




          (ii) Buyer shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing, except to the extent that such covenants are qualified by
terms such as “material” and “Material Adverse Effect,” in which case Buyer shall have performed
and complied with all of such covenants in all respects through the Closing;




          (iii) no action, suit, or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded following consummation
(and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);




          (iv) Buyer shall have delivered to Sellers a certificate to the effect that each of the
conditions specified above in Section 7(b)(i)-(iii) is satisfied in all respects;




          (v) the Parties shall have received all authorizations, consents, and approvals of governments
and governmental agencies referred to in Section 3(a)(ii), Section 3(b)(ii), and Section 4(c)
above;




          (vi) all actions to be taken by Buyer in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory in form and substance
to the Requisite Sellers.



The Requisite Sellers may waive any condition specified in this Section 7(b) on behalf of all
Sellers if they execute a writing so stating at or prior to the Closing.




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SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT




     (a) Survival of Representations and Warranties.



          (i) All of the representations and warranties of the Parties contained in Section 3 of this
Agreement shall survive the Closing hereunder (even if the damaged Party knew or had reason to know
of any misrepresentation or breach of warranty or covenant at the time of Closing) and continue in
full force and effect forever thereafter (subject to any applicable statutes of limitations).




          (ii) Except for those representations and warranties of the Parties contained in Sections
4(a)-(f) (inclusive), (j), (k) and (z) of this Agreement, all of the representations and warranties
of the Parties contained in Section 4 of this Agreement, shall survive the Closing hereunder (even
if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of Closing) and continue in full force and effect for a period of 3 years from
the Closing Date. This provision shall not extinguish claims that are made within 3 years of the
Closing Date but that remain unresolved on or after the date that is 3 years after the Closing
Date.




          (iii) All of the representations and warranties of the Parties contained in Sections 4(a)-(f)
(inclusive), (j), (k) and (z) of this Agreement shall survive the Closing hereunder (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of warranty or covenant
at the time of Closing) and continue in full force and effect until the expiration of any
applicable statutes of limitations (after giving effect to any extensions or waivers) plus 60 days.




     (b) Indemnification Provisions for Buyer’s Benefit.



          (i) In the event any Seller breaches (or in the event any third party alleges facts that, if
true, would mean any Seller has breached) any of his, her, or its representations, warranties, and
covenants contained herein (other than the covenants in Section 2(a) above and the representations
and warranties in Section 3(a) above) and, provided that Buyer makes a written claim for
indemnification against any Seller pursuant to Section 11(h) below within the survival period (if
there is an applicable survival period pursuant to Section 8(a) above), then each Seller shall be
obligated jointly and severally to indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer may suffer (including any Adverse Consequences Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach); provided, however, that Sellers shall
not have any obligation to indemnify Buyer from and against any Adverse Consequences resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or alleged breach) of
any representation or warranty of Sellers contained in Sections 4(g)-(i) inclusive, Sections
4(l)-(y) inclusive and Sections 4(aa)-(dd) inclusive above until Buyer has suffered Adverse
Consequences by reason of all such breaches (or alleged breaches) in excess of a $30,000 aggregate
threshold, at which point Sellers will be obligated to indemnify Buyer from and against only such
Adverse Consequences above such $30,000 aggregate threshold.




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          (ii) In the event any Seller breaches (or in the event any third party alleges facts that, if
true, would mean any Seller breached) any of his, her, or its covenants in Section 2(a) above or
any of his, her, or its representations and warranties in Section 3(a) above, and provided that
Buyer makes a written claim for indemnification against such a Seller pursuant to Section 11(h)
below within the survival period (if there is an applicable survival period pursuant to Section
8(a) above), then such Seller shall indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer may suffer (including any Adverse Consequences Buyer may suffer after the end of
any applicable survival period) resulting from arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).




          (iii) Each Seller shall be obligated jointly and severally to indemnify Buyer from and against
the entirety of any Adverse Consequences Buyer may suffer resulting from, arising out of, relating
to, in the nature of, or caused by any occurrence or circumstance related to Target or its business
that first arose, in whole or in part, on or before the Closing Date.




          (iv) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL THE
AGGREGATE LIABILITY OF SELLERS TO BUYER UNDER THIS SECTION 8(B) EXCEED THE PURCHASE PRICE.




     (c) Indemnification Provisions for Sellers’ Benefit. In the event Buyer breaches (or in the
event any third party alleges facts that, if true, would mean Buyer has breached) any of its
representations, warranties, and covenants contained herein and, provided that any Seller makes a
written claim for indemnification against Buyer pursuant to Section 11(h) below within such
survival period (if there is an applicable survival period pursuant to Section 8(a) above), then
Buyer shall indemnify each Seller from and against the entirety of any Adverse Consequences
suffered (including any Adverse Consequences suffered after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).



     (d) Matters Involving Third Parties.



          (i) If any third party shall notify any Party (the “Indemnified Party”) with respect to any
matter (a “Third Party Claim”) which may give rise to a claim for indemnification against any other
Party (the “Indemnifying Party”) under this Section 8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; provided, however, that no delay
on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.




          (ii) Any Indemnifying Party will have the right to defend the Indemnified Party against the
Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so
long as (A) the Indemnifying Party notifies the Indemnified Party in writing within 15 days after
the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the


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Indemnifying Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice materially adverse to the
continuing business interests or the reputation of the Indemnified Party, and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.




          (iii) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in
accordance with Section 8(d)(ii) above, (A) the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably), and (C) the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably).




          (iv) In the event any of the conditions in Section 8(d)(ii) above is or becomes unsatisfied,
however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or
enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may
deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending against the Third Party
Claim (including reasonable attorneys’ fees and expenses), and (C) the Indemnifying Parties will
remain responsible for any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 8.




     (e) Determination of Adverse Consequences. All indemnification payments under this Section 8
and Section 9(a) shall be deemed adjustments to the Purchase Price.



     (f) Setoff against Holdback Payments; Priority. Any indemnification to which Buyer is entitled
under this Agreement as a result of any Adverse Consequences Buyer may suffer may be satisfied by
Buyer setting-off such indemnification amounts against any Holdback Payments due to Sellers, and
Buyer shall seek to satisfy such indemnification amounts against any Holdback Payments due to
Sellers prior to and before seeking to satisfy such indemnification amounts against other assets of
Sellers. The exercise by Buyer of such right of setoff shall not preclude Buyer from pursuing other
remedies available to Buyer against Sellers.



     (g) Other Indemnification Provisions. The foregoing indemnification provisions are in addition
to, and not in derogation of, any statutory, equitable, or common law remedy (including without
limitation any such remedy arising under Environmental, Health, and Safety Requirements) any Party
may have with respect to Target or the transactions contemplated by this Agreement. Each Seller
hereby agrees that he, she, or it will not make any claim for indemnification against Target by
reason of the fact that he, she, or it was a director, officer, employee, or agent of any such
entity or was serving at the request of any such entity as a



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partner, trustee, director, officer, employee, or agent of another entity (whether such claim
is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement,
or otherwise) with respect to any action, suit, proceeding, complaint, claim, or demand brought by
Buyer against such Seller (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).



SECTION 9. TAX MATTERS




     The following provisions shall govern the allocation of responsibility as between Buyer and
Sellers for certain tax matters following the Closing Date:



     (a) Tax Indemnification. Each Seller shall jointly and severally indemnify Target, Buyer, and
each Buyer Affiliate and hold them harmless from and against without duplication, any loss, claim,
liability, expense, or other damage attributable to (i) all Taxes (or the non-payment thereof) of
Target for all Taxable periods ending on or before the Closing Date and the portion through the end
of the Closing Date for any Taxable period that includes (but does not end on) the Closing Date
(“Pre-Closing Tax Period”), (ii) all Taxes of any member of an affiliated, consolidated, combined
or unitary group of which Target (or any predecessor of Target) is or was a member on or prior to
the Closing Date, including pursuant to Treasury Regulation Section 1.1502-6 or any analogous or
similar state, local, or foreign law or regulation, and (iii) any and all Taxes of any person
(other than Target) imposed on Target as a transferee or successor, by contract or pursuant to any
law, rule, or regulation, which Taxes relate to an event or transaction occurring before the
Closing.



     (b) Responsibility for Filing Tax Returns. At their expense, Sellers shall prepare or caused
to be prepared and file or caused to be filed all Tax Returns for Target for periods ending on or
before the Closing Date. Sellers shall permit Buyer to review and comment on each such Tax Return
described in the preceding sentence prior to filing. Buyer shall have the right to contest the
contents of all such Tax Returns, and any conflict between Sellers and Buyer with respect thereto
shall be resolved in accordance with the provisions of Section 2(f), except that the parties shall
have twenty (20) days in which to attempt to reach mutual agreement before referring the
calculation to the Auditor.



     (c) Cooperation on Tax Matters.



          (i) Buyer, Target, and Sellers shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the filing of Tax Returns pursuant to Section 9(c)
and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include
the retention and (upon the other Party’s request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional information and explanation of any
material provided hereunder. Target and Sellers agree (A) to retain all books and records with
respect to Tax matters pertinent to Target relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective taxable periods, and


-44-









 







to abide by all record retention agreements entered into with any taxing authority, and (B) to
give the other Party reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other Party so requests, Target or Sellers, as the case may be,
shall allow the other Party to take possession of such books and records.




          (ii) Buyer and Sellers further agree, upon request, to use their best efforts to obtain any
certificate or other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).




          (iii) Buyer and Sellers further agree, upon request, to provide the other party with all
information that either party may be required to report pursuant to Code Section 6043 and all
Treasury Regulations promulgated thereunder.




     (d) Tax Sharing Agreements. All Tax sharing agreements or similar agreements with respect to
or involving Target shall be terminated as of the Closing Date and, after the Closing Date, Target
shall not be bound thereby or have any liability thereunder.



     (e) Certain Taxes and Fees. All transfer, documentary, sales, use, stamp, registration and
other such Taxes, and all conveyance fees, recording charges and other fees and charges (including
any penalties and interest) incurred in connection with consummation of the transactions
contemplated by this Agreement shall be paid by Sellers when due, and Sellers will, at their own
expense, file all necessary Tax Returns and other documentation with respect to all such Taxes,
fees and charges, and, if required by applicable law, Buyer will, and will cause its Affiliates to,
join in the execution of any such Tax Returns and other documentation.



     (f) Section 338(h)(10) Election.



          (i) At Buyer’s request, Target and each Seller shall join with Buyer in making an election
under Sections 338(h)(10) of the Code and the Treasury Regulations, including Treasury Regulation
Section 1.338(h)(10)-1T(c)(1), and any corresponding or similar elections under state, local or
foreign Tax Law (collectively, a “Section 338(h)(10) Election”) with respect to the purchase and
sale of the Target Shares. Target and Sellers shall include any income, gain, loss, deduction, or
other Tax item resulting from the Section 338(h)(10) Election on their Tax Returns to the extent
required by applicable law.




          (ii) Buyer shall be responsible for the preparation and filing of all forms and documents
required in connection with the Section 338(h)(10) Election. Sellers shall execute and deliver to
Buyer such documents or forms as are reasonably requested and are required by any law, rule or
regulation to complete properly the Section 338(h)(10) Election no later than 60 days after the
Closing. For the purposes of executing the Section 338 Election, on or prior to the Closing Date,
Seller and Buyer will execute two copies of the applicable Internal Revenue Service form and all
attachments required to be filed therewith pursuant to applicable Treasury Regulations.




          (iii) Buyer, not less than 30 days prior to the date the forms required under Section
338(h)(10) of the Code are required to be filed, will provide Sellers with a valuation statement
reflecting, as of the Closing Date, the fair market values of all of the assets and the


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liabilities and obligations of the Target. Buyer and Sellers will file, and will cause their
Affiliates to file, all Tax Returns and statements, forms and schedules in connection therewith in
a manner consistent with such valuation and will take no position contrary thereto unless required
to do so by applicable Tax laws.




          (iv) To the extent permitted by state and local law, the principles and procedures of this
section will also apply with respect to Section 338(h)(10) Election or equivalent or comparable
provision under state or local law. Sellers will make any election similar to a Section 338(h)(10)
Election which is optional under any state or local law, and will cooperate and join in any
election made by Target, Buyer or its Affiliates to effect such an election so as to treat the
transaction as a sale of assets for state and local income Tax purposes.




     (g) Tax Adjustment. If Buyer makes a Section 338(h)(10) Election, and if such Section
338(h)(10) Election causes each Seller’s after-Tax net proceeds from the sale of Target’s stock to
be less than the after-Tax net proceeds that such Seller would have received had the Section
338(h)(10) Election not been made, taking into account all appropriate state, federal and local Tax
implications (the “Section 338(h)(10) Election Liability”), then Buyer shall pay to Sellers, in
cash, an aggregate amount determined pursuant to the following scale (the “Tax Adjustment”):



          (i) If the aggregate amount of the Section 338(h)(10) Election Liability is more than $1 but
less than $50,000, then Buyer shall pay Sellers the aggregate amount of the Section 338(h)(10)
Election Liability;




          (ii) If the aggregate amount of the Section 338(h)(10) Election Liability is at least $50,000
but less than $77,000, then Buyer shall pay Sellers the aggregate amount of $50,000; or




          (iii) If the aggregate amount of the Section 338(h)(10) Election Liability is $77,000 or more,
then Buyer shall pay Sellers an aggregate amount equal to 65% of the aggregate amount of the
Section 338(h)(10) Election Liability.



The amount of the Tax Adjustment shall be paid to each eligible Seller prior to the date that any
Tax return is required to be filed in which the Section 338(h)(10) Election would have an impact on
a Seller’s Tax liability. If a Tax impact would occur in multiple years, only the amount necessary
to pay a Tax Adjustment for each year shall be paid in that year. In order to be entitled to a Tax
Adjustment each Seller shall provide Buyer with a schedule, not later than 30 days before the due
date of the Tax return with respect to which the Tax Adjustment is requested, computing the amount
of the Tax Adjustment. The Tax Adjustment shall reflect the actual calculation of each Seller’s tax
and shall not be based on assumed or hypothetical Tax rates. Buyer shall have the right to contest
the calculation of any requested Tax Adjustment, and any conflict with respect to the calculation
of a Tax Adjustment shall be resolved in accordance with the provisions of Section 2(f), except
that the parties shall have 20 days in which to attempt to reach mutual agreement before referring
the calculation to the Auditor.




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SECTION 10. TERMINATION




     (a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided
below:



          (i) Buyer and Requisite Sellers may terminate this Agreement by mutual written consent at any
time prior to the Closing;




          (ii) Buyer may terminate this Agreement prior to the Closing by giving written notice to
Requisite Sellers on or before the 15th day following the date of this Agreement (or
such shorter time if Closing occurs within such 15-day period) if Buyer is not satisfied with the
results of its continuing business, legal, environmental, and accounting due diligence regarding
Target;




          (iii) Buyer may terminate this Agreement by giving written notice to Requisite Sellers at any
time prior to the Closing (A) in the event any of Sellers has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect, Buyer has notified
Requisite Sellers of the breach, and the breach has continued without cure for a period of 15 days
after the notice of breach or (B) if the Closing shall not have occurred on or before September 28,
2007, by reason of the failure of any condition precedent under Section 7(a) hereof (unless the
failure results primarily from Buyer itself breaching any representation, warranty, or covenant
contained in this Agreement); and




          (iv) Requisite Sellers may terminate this Agreement by giving written notice to Buyer at any
time prior to the Closing (A) in the event Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect, any Seller has notified
Buyer of the breach, and the breach has continued without cure for a period of 15 days after the
notice of breach or (B) if the Closing shall not have occurred on or before September 28, 2007, by
reason of the failure of any condition precedent under Section 7(b) hereof (unless the failure
results primarily from any Seller breaching any representation, warranty, or covenant contained in
this Agreement).




     (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section 10(a)
above, all rights and obligations of the Parties hereunder shall terminate without any Liability of
any Party to any other Party (except for any Liability of any Party then in breach).



SECTION 11. MISCELLANEOUS




     (a) Nature of Sellers’ Obligations.



          (i) The covenants of each Seller in Section 2(a) above concerning the sale of his, her, or its
Target Shares to Buyer and the representations and warranties of each Seller in Section 3(a) above
concerning the transaction are individual, and not joint and several, obligations. This means that
the particular Seller making the representation, warranty, or covenant shall be solely responsible
to the extent provided in Section 8(b)(ii) above for any Adverse Consequences Buyer may suffer as a
result of any breach thereof.




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          (ii) The remainder of the representations, warranties, and covenants in this Agreement are
joint and several obligations. This means that each Seller shall be responsible to the extent
provided in Section 8(b)(i) and (iii) above for the entirety of any Adverse Consequences Buyer may
suffer as a result of any breach thereof.




     (b) Press Releases and Public Announcements. No Party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement without the prior written
approval of Buyer and Requisite Sellers; provided, however, that any Party may make
any public disclosure it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Parties prior to making the disclosure).



     (c) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon
any Person other than the Parties and their respective successors and permitted assigns.



     (d) Entire Agreement. This Agreement (including the documents referred to herein) constitutes
the entire agreement among the Parties and supersedes any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they relate in any way to
the subject matter hereof, including, but not limited to that certain letter of intent and term
sheet dated as of June 1, 2007, which letter of intent and term sheet are hereby terminated.



     (e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit
of the Parties named herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his, her, or its rights, interests, or obligations hereunder
without the prior written approval of Buyer and Requisite Sellers; provided,
however, that Buyer may (i) assign any or all of its rights and interests hereunder to one
or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Buyer nonetheless shall remain responsible for
the performance of all of its obligations hereunder).



     (f) Counterparts. This Agreement may be executed in one or more counterparts (including by
means of facsimile), each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.



     (g) Headings. The section headings contained in this Agreement are inserted for convenience
only and shall not affect in any way the meaning or interpretation of hereof.



     (h) Notices. All notices, requests, demands, claims, and other communications hereunder will
be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed
duly given (i) when delivered personally to the recipient, (ii) one business day after being sent
to the recipient by reputable overnight courier service (charges prepaid), (iii) one business day
after being sent to the recipient by facsimile transmission or electronic mail, or (iv) four
business days after being mailed to the recipient by certified or



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registered mail, return receipt requested and postage prepaid, and addressed to the intended
recipient as set forth below:



	 	 	 	 	 
	 

	 	If to Buyer:
	 	Ultralife Batteries, Inc.
	 

	 	 	 	2000 Technology Parkway
	 

	 	 	 	Newark, NY 14513
	 

	 	 	 	Attention: General Counsel
	 

	 	 	 	Facsimile: (315) 331-7048
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Harter Secrest & Emery LLP
	 

	 	 	 	1600 Bausch & Lomb Place
	 

	 	 	 	Rochester, NY 14604
	 

	 	 	 	Attention: Jeffrey H. Bowen, Esq.
	 

	 	 	 	Facsimile: (585) 232-2152
	 
	 	 	 	 
	 

	 	If to Sellers:
	 	Mr. Michele Aloisio
	 

	 	 	 	44850 Joy Chapel Road
	 

	 	 	 	Hollywood, MD 20636
	 

	 	 	 	Attention: Michele A. Aloisio
	 

	 	 	 	Phone: (301) 373-6555
	 
	 	 	 	 
	 

	 	And:
	 	Mr. Marc DeLaVergne
	 

	 	 	 	2585 Aspen Road
	 

	 	 	 	Port Republic, MD 20676
	 

	 	 	 	Phone: (410) 586-8763
	 
	 

	 	With a copy to:
	 	Bowie & Jensen, LLC
	 

	 	 	 	29 W. Susquehanna Ave., Suite 600
	 

	 	 	 	Towson, MD 21204
	 

	 	 	 	Attention: Michael D. Oliver
	 

	 	 	 	Facsimile: (410) 583-2437





For the avoidance of doubt, any notice, request, demand, claim, or other communication hereunder to
be given to Sellers shall be deemed given to all of the Sellers if it is given to Mr. Aloisio and
Mr. DeLaVergne in accordance with the provisions above. Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.




     (i) Governing Law. This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of New York without giving effect to any choice or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.



     (j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by Buyer and Requisite Sellers. No waiver by any
Party of any provision of this Agreement or any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be valid unless the



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same shall be in writing and signed by the Party making such waiver nor shall such waiver be
deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent
such default, misrepresentation, or breach of warranty or covenant.



     (k) Severability. Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or enforceability of the remaining
terms and provisions hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.



     (l) Expenses. Each of Buyer, Sellers, and Target will bear his, her, or its own costs and
expenses (including legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby. If, and only if, the transactions contemplated by this Agreement
are consummated in accordance with the terms of this Agreement, then (i) Sellers shall be
responsible for all of their own legal costs and expenses incurred in connection with such
transactions, as well as all of Target’s legal costs and expenses incurred in connection with such
transactions, and at Closing Seller’s shall reimburse Buyer for any amounts already paid by or
through Target for Sellers’ and Target’s legal costs and expenses incurred in connection with such
transactions; (ii) Sellers shall be responsible for up to the first $15,000 in accounting costs and
expenses incurred by Target in connection with such transactions, and at Closing Seller’s shall
reimburse Buyer for such amount; and (iii) Buyer shall be responsible for Target’s other costs and
expenses incurred in connection with such transactions; provided, however, in no
event shall Buyer have any responsibility or liability whatsoever for any obligation undertaken by
Sellers or Target to pay any finder’s fee, commission or similar payment in connection with this
Agreement or the transactions contemplated hereby.



     (m) Construction. The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of
proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word “including” shall mean including without limitation. The
Parties intend that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty, or covenant
contained herein in any respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.



     (n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes, and Schedules
identified in this Agreement are incorporated herein by reference and made a part hereof.



     (o) Specific Performance. Each Party acknowledges and agrees that the other Parties would be
damaged irreparably in the event any provision of this Agreement is not performed in accordance
with its specific terms or otherwise is breached, so that a Party shall be entitled to



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injunctive relief to prevent breaches of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in addition to any other remedy to which such Party
may be entitled, at law or in equity. In particular, the Parties acknowledge that the business of
Target is unique and recognize and affirm that in the event Sellers breach this Agreement, money
damages would be inadequate and Buyer would have no adequate remedy at law, so that Buyer shall
have the right, in addition to any other rights and remedies existing in its favor, to enforce its
rights and the other Parties’ obligations hereunder not only by action for damages but also by
action for specific performance, injunctive, and/or other equitable relief.



     (p) Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state
or federal court having jurisdiction in Wayne County, New York, in any action or proceeding arising
out of or relating to this Agreement and agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court. Each Party also agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of any other Party
with respect thereto. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.



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



     (r) Attorneys Fees. Notwithstanding any other provision herein, if Buyer or Sellers incur
expenses (including but not limited to reasonable attorneys’ fees and other professional fees) to
enforce their respective rights to payments hereunder (collectively, “Enforcement Costs”), and the
prevailing party or parties in any such action or matter (whether or not an actual lawsuit or other
action is filed) shall be entitled to recover from the non-prevailing party or parties all of the
Enforcement Costs so incurred by such prevailing party or parties, and the non-prevailing party or
parties hereby agree to pay such Enforcement Costs.



[THE SIGNATURES OF THE PARTIES APPEAR ON THE NEXT PAGE]




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



	 	 	 	 	 
	 	BUYER:



Ultralife Batteries, Inc.

 	 
	 	/s/ Peter F. Comerford
 	 
	 	Peter F. Comerford, Vice President of 	 
	 	Administration and General Counsel 	 
	 
	 	SELLERS:

 	 
	 	/s/ Michele A. Aloisio
 	 
	 	Michele A. Aloisio, Individually 	 
	 	 	 
	 	                        /s/ Marc DeLaVergne
 	 
	 	Marc DeLaVergne, Individually 	 
	 	 	 
	 	                        /s/ Thomas R. Knowlton
 	 
	 	Thomas R. Knowlton, Individually 	 
	 	 	 
	 	                         /s/ Kenneth J. Wood
 	 
	 	Kenneth J. Wood, Individually 	 
	 	 	 
	 	                        /s/ W. Michael Cooper
 	 
	 	W. Michael Cooper, Individually 	 
	 	 	 
	 	TARGET:



Innovative Solutions Consulting, Inc.

 	 
	 	/s/ Michele A. Aloisio
 	 
	 	Michele A. Aloisio, President 	 
	 	 	 
	 




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