exv10w1



 





Exhibit 10.1




AGREEMENT AND PLAN OF MERGER




BY AND AMONG




RHOZET CORPORATION




DUSSELDORF ACQUISITION CORPORATION




HARMONIC, INC.




AND WITH RESPECT TO ARTICLES VII, VIII AND IX ONLY




DAVID TRESCOT




AS SHAREHOLDER REPRESENTATIVE




Dated as of July 25, 2007




 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	ARTICLE I THE MERGER	 	 	2	 
	1.1
	 	The Merger	 	 	2	 
	1.2
	 	Effective Time	 	 	2	 
	1.3
	 	Effect of the Merger	 	 	2	 
	1.4
	 	Articles of Incorporation and Bylaws	 	 	2	 
	1.5
	 	Directors and Officers	 	 	3	 
	1.6
	 	Effect of Merger on the Capital Stock of the Constituent Corporations	 	 	3	 
	1.7
	 	Dissenting Shares	 	 	12	 
	1.8
	 	Surrender of Certificates	 	 	13	 
	1.9
	 	No Further Ownership Rights in Company Capital Stock	 	 	14	 
	1.10
	 	Lost, Stolen or Destroyed Certificates	 	 	14	 
	1.11
	 	Taking of Necessary Action; Further Action	 	 	14	 
	 
	 	 	 	 	 	 
	ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY	 	 	15	 
	2.1
	 	Organization of the Company	 	 	15	 
	2.2
	 	Company Capital Structure	 	 	16	 
	2.3
	 	Subsidiaries	 	 	17	 
	2.4
	 	Authority	 	 	18	 
	2.5
	 	No Conflict	 	 	18	 
	2.6
	 	Consents	 	 	19	 
	2.7
	 	Company Financial Statements	 	 	19	 
	2.8
	 	Internal Controls	 	 	19	 
	2.9
	 	No Undisclosed Liabilities	 	 	20	 
	2.10
	 	No Changes	 	 	20	 
	2.11
	 	Accounts Receivable	 	 	23	 
	2.12
	 	Tax Matters	 	 	23	 
	2.13
	 	Restrictions on Business Activities	 	 	26	 
	2.14
	 	Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment; Customer Information	 	 	26	 
	2.15
	 	Intellectual Property	 	 	28	 
	2.16
	 	Agreements, Contracts and Commitments	 	 	32	 
	2.17
	 	Interested Party Transactions	 	 	33	 
	2.18
	 	Governmental Authorization	 	 	34	 
	2.19
	 	Litigation	 	 	34	 
	2.20
	 	Minute Books	 	 	34	 
	2.21
	 	Environmental Matters	 	 	35	 
	2.22
	 	Brokers’ and Finders’ Fees	 	 	36	 
	2.23
	 	Employee Benefit Plans and Compensation	 	 	36	 
	2.24
	 	Insurance	 	 	40	 
	2.25
	 	Compliance with Laws	 	 	41	 
	2.26
	 	Export Control Laws	 	 	41	 
	2.27
	 	Foreign Corrupt Practices Act	 	 	41	 
	2.28
	 	Warranties; Indemnities	 	 	42	 
	2.29
	 	Substantial Customers and Suppliers	 	 	42	 






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TABLE OF CONTENTS
(continued)





	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	2.30
	 	Complete Copies of Materials	 	 	42	 
	2.31
	 	Representations Complete	 	 	42	 
	2.32
	 	Consent Solicitation	 	 	42	 
	2.33
	 	Director and Officer Indemnification	 	 	43	 
	 
	 	 	 	 	 	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB	 	 	43	 
	3.1
	 	Organization and Standing	 	 	43	 
	3.2
	 	Authority	 	 	43	 
	3.3
	 	Consents	 	 	43	 
	3.4
	 	Parent Common Stock	 	 	43	 
	3.5
	 	No Conflict	 	 	43	 
	3.6
	 	SEC Documents	 	 	44	 
	3.7
	 	No Parent Material Adverse Effect	 	 	44	 
	3.8
	 	Information Supplied	 	 	44	 
	 
	 	 	 	 	 	 
	ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME	 	 	44	 
	4.1
	 	Conduct of Business of the Company	 	 	44	 
	4.2
	 	No Solicitation	 	 	48	 
	4.3
	 	Procedures for Requesting Parent Consent	 	 	48	 
	 
	 	 	 	 	 	 
	ARTICLE V ADDITIONAL AGREEMENTS	 	 	49	 
	5.1
	 	Access to Information	 	 	49	 
	5.2
	 	Confidentiality	 	 	49	 
	5.3
	 	Public Disclosure	 	 	50	 
	5.4
	 	Reasonable Efforts	 	 	50	 
	5.5
	 	Notification of Certain Matters	 	 	50	 
	5.6
	 	Shareholder Approval.  (a)	 	 	51	 
	5.7
	 	Securities Law Compliance	 	 	51	 
	5.8
	 	Merger Notification	 	 	52	 
	5.9
	 	Consents	 	 	53	 
	5.10
	 	Restrictions on Transfer	 	 	53	 
	5.11
	 	Termination and Modification of Agreements	 	 	53	 
	5.12
	 	Proprietary Information and Inventions Assignment Agreement	 	 	54	 
	5.13
	 	New Employment Benefits	 	 	54	 
	5.14
	 	Intentionally Deleted	 	 	54	 
	5.15
	 	No Liability for New Employees or Former Employees	 	 	54	 
	5.16
	 	Resignation of Officers and Directors	 	 	54	 
	5.17
	 	83(b) Elections	 	 	54	 
	5.18
	 	Termination of 401(k) Plan	 	 	55	 
	5.19
	 	Spreadsheet	 	 	55	 
	5.20
	 	Intentionally Deleted	 	 	55	 
	5.21
	 	FIRPTA Compliance	 	 	55	 
	5.22
	 	Affiliate Agreements	 	 	55	 
	5.23
	 	Employment Agreements	 	 	56	 






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TABLE OF CONTENTS
(continued)





	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	ARTICLE VI CONDITIONS TO THE MERGER	 	 	56	 
	6.1
	 	Conditions to Obligations of Each Party to Effect the Merger	 	 	56	 
	6.2
	 	Conditions to the Obligations of Parent and Sub	 	 	56	 
	6.3
	 	Conditions to Obligations of the Company	 	 	59	 
	 
	 	 	 	 	 	 
	ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; HOLDBACK	 	 	59	 
	7.1
	 	Survival of Representations and Warranties	 	 	59	 
	7.2
	 	Indemnification	 	 	60	 
	7.3
	 	Maximum Payments; Remedy	 	 	61	 
	7.4
	 	Means of Indemnification	 	 	61	 
	7.5
	 	Shareholder Representative	 	 	65	 
	 
	 	 	 	 	 	 
	ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER	 	 	66	 
	8.1
	 	Termination	 	 	66	 
	8.2
	 	Effect of Termination	 	 	67	 
	8.3
	 	Fees and Expenses	 	 	67	 
	8.4
	 	Amendment	 	 	67	 
	8.5
	 	Extension; Waiver	 	 	68	 
	 
	 	 	 	 	 	 
	ARTICLE IX GENERAL PROVISIONS	 	 	68	 
	9.1
	 	Notices	 	 	68	 
	9.2
	 	Interpretation	 	 	69	 
	9.3
	 	Counterparts	 	 	69	 
	9.4
	 	Entire Agreement; Assignment	 	 	69	 
	9.5
	 	Severability	 	 	69	 
	9.6
	 	Other Remedies	 	 	69	 
	9.7
	 	Governing Law; Exclusive Jurisdiction	 	 	70	 
	9.8
	 	Rules of Construction	 	 	70	 
	9.9
	 	Waiver of Jury Trial	 	 	70	 






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INDEX OF EXHIBITS




	 	 	 
	Exhibit	 	Description
	Exhibit A

	 	Forms of Employment Agreement
	Exhibit B

	 	Form of Certificate of Merger
	Exhibit C

	 	Form of Shareholder Certificate
	Exhibit D

	 	Form of Declaration of Registration Rights
	 
	 	 
	Schedules
	 	 
	 
	 	 
	Schedule 1.6(a)(ii)

	 	Key Employees
	Schedule 5.11(b)

	 	List of Modified Agreements
	Schedule 5.12

	 	Form of Employee Proprietary Information Agreement
	Schedule 5.12

	 	Form of Consultant Proprietary Information Agreement
	Schedule 5.19

	 	Spreadsheet
	Schedule 5.22

	 	Rule 145 Affiliates
	Schedule 6.2(g)

	 	Third Party Consents
	Schedule 6.2(h)

	 	Terminated Agreements






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     THIS AGREEMENT AND PLAN OF MERGER (the “Agreement”) is made and entered into as of July 25,
2007 by and among Harmonic, Inc., a Delaware corporation (“Parent”), Dusseldorf Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of Parent (“Sub”), Rhozet
Corporation, a California corporation (the “Company”), and with respect to Article VII, Article
VIII and Article IX hereof only, David Trescot as shareholder representative (the “Shareholder
Representative”).



RECITALS




     A. The Boards of Directors of each of Parent, Sub and the Company believe it is advisable and
in the best interests of each corporation and its respective shareholders that Parent acquire the
Company through the statutory merger of Sub with and into the Company (the “Merger”) and, in
furtherance thereof, have approved this Agreement and the Merger.



     B. Pursuant to the Merger, among other things, and subject to the terms and conditions of this
Agreement, all of the issued and outstanding capital stock of the Company shall be converted into
the right to receive the consideration set forth herein.



     C. Immediately prior to the Merger, all of the issued and outstanding options to purchase
capital stock of the Company shall be converted by the Company and the holders of such options into
the right to receive an amount in cash equal to the consideration to be paid to holders of the
Company’s capital stock in connection with the Merger, and shall be terminated.



     C. A portion of the consideration otherwise payable by Parent in connection with the Merger
shall be held back by Parent as partial security for the indemnification obligations set forth in
this Agreement.



     D. The Company, on the one hand, and Parent and Sub, on the other hand, desire to make certain
representations, warranties, covenants and other agreements in connection with the Merger.



     E. On or prior to the execution and delivery of this Agreement, as a material inducement to
Parent and Sub to enter into this Agreement, the Company shall have obtained the irrevocable
approval of the Merger, this Agreement and the transactions contemplated thereby (i) by the
Company’s Board of Directors and (ii) by the holders of at least a majority of the issued and
outstanding shares of capital stock of the Company, voting together on an as-converted to common
stock basis.



     F. Prior to the Effective Time, as a material inducement to Parent and Sub to consummate the
transactions contemplated by this Agreement, each of the Key Employees shall enter into an
Employment Agreement, substantially in one of the applicable forms attached hereto as Exhibit A (an
“Employment Agreement”), with Parent to be effective as of the Effective Time.



     G. The Merger is intended to qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the “Code”), and this Agreement is intended to
constitute a “plan of reorganization” within the meaning of the regulations promulgated under
Section 368 of the Code.



     NOW, THEREFORE, in consideration of the mutual agreements, covenants and other premises set
forth herein, the mutual benefits to be gained by the performance thereof, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted,
the parties hereby agree as follows:



 









 





ARTICLE I




THE MERGER




     1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof) and subject to and
upon the terms and conditions of this Agreement and the applicable provisions of the Corporations
Code of the State of California (“California Law”), Sub shall be merged with and into the Company,
the separate corporate existence of Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The surviving corporation after
the Merger is sometimes referred to hereinafter as the “Surviving Corporation.”



     1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1
hereof, the closing of the Merger (the “Closing”) will take place as soon as practicable following
the date upon which all of the conditions set forth in Article VI hereof other than those that by
their nature may only be satisfied or waived at the Closing, have been satisfied or waived, at the
offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, at 650 Page Mill Road, Palo
Alto, California, U.S.A., unless another time or place is mutually agreed upon in writing by Parent
and the Company. The date upon which the Closing actually occurs shall be referred to herein as the
“Closing Date.” On the Closing Date, the parties hereto shall cause the Merger to be consummated
by the filing of certain officers’ certificates and an agreement of merger in substantially the
form attached hereto as Exhibit B, with the Secretary of State of the State of California (the
“Certificate of Merger”), in accordance with the applicable provisions California Law (the time of
the acceptance of such filing by the Secretary of State of the State of California shall be
referred to herein as the “Effective Time”).



     1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as set
forth in this Agreement and as provided in the applicable provisions of California Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as
otherwise agreed to pursuant to the terms of this Agreement, all of the property, rights,
privileges, powers and franchises of the Company and Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Sub shall become the debts, liabilities
and duties of the Surviving Corporation.



     1.4 Articles of Incorporation and Bylaws.



          (a) Unless otherwise determined by Parent prior to the Effective Time, the articles of
incorporation of the Surviving Corporation shall be amended and restated as of the Effective Time
to be identical to the articles of incorporation of Sub as in effect immediately prior to the
Effective Time, until thereafter amended in accordance with California Law and as provided in such
articles of incorporation; provided, however, that at the Effective Time, Article I of the articles
of incorporation of the Surviving Corporation shall be amended and restated in its entirety to read
as follows: “The name of the corporation is Rhozet Corporation.”



          (b) Unless otherwise determined by Parent prior to the Effective Time, the bylaws of the
Surviving Corporation shall be amended and restated at the Effective Time to be identical to the
bylaws of Sub, as in effect immediately prior to the Effective Time (other than any express
references to the name of Sub in such bylaws, which shall be amended to refer to the Surviving
Corporation) until thereafter amended in accordance with California Law and as provided in the
articles of incorporation of the Surviving Corporation and such bylaws.



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     1.5 Directors and Officers.



          (a) Directors of Surviving Corporation. Unless otherwise determined by Parent prior to the
Effective Time, the directors of Sub immediately prior to the Effective Time shall be the directors
of the Surviving Corporation immediately after the Effective Time, each to hold the office of a
director of the Surviving Corporation in accordance with the provisions of California Law and the
articles of incorporation and bylaws of the Surviving Corporation until their successors are duly
elected and qualified.



          (b) Officers of Surviving Corporation. Unless otherwise determined by Parent prior to the
Effective Time, the officers of Sub immediately prior to the Effective Time shall be the officers
of the Surviving Corporation immediately after the Effective Time, each to hold office in
accordance with the provisions of the bylaws of the Surviving Corporation.



     1.6 Effect of Merger on the Capital Stock of the Constituent Corporations.



          (a)(i) Definitions. For all purposes of this Agreement, the following terms shall have the
following respective meanings:



     “Aggregate Consideration Amount” shall mean $15,500,000.



     “Aggregate Common Stock Consideration Amount” equals the Aggregate Consideration Amount minus
the Option Cash.



     “Business Day” shall mean each day that is not a Saturday, Sunday or other day on which Parent
is closed for business or banking institutions located in San Francisco, California are authorized
or obligated by law or executive order to close.



     “Cash Component of the Common Stock Consideration” shall mean, for each share of Company
Common Stock, an amount equal to the quotient of the Merger Cash divided by the Total Outstanding
Common Shares (rounded to the nearest one-hundred thousandth (0.00001) of a cent (with 0.000005 of
a cent and above rounded up).



     “Closing Merger Consideration” shall mean, with respect to each share of Company Common Stock
held by a Shareholder, an amount of consideration equal to (i) (A) the Stock Component of the
Common Stock Consideration, and (B) the Cash Component of the Common Stock Consideration, minus
(ii) the Holdback Amount.



     “Common Stock Consideration” shall mean (i) the Stock Component of the Common Stock
Consideration and (ii) the Cash Component of the Common Stock Consideration.



     “Company Capital Stock” shall mean the Company Common Stock and all other shares of capital
stock, if any, of the Company, taken together.



     “Company Common Stock” shall mean shares of common stock, without reference to par value per
share, of the Company.



     “Company Material Adverse Effect” shall mean any change, event or effect that is materially
adverse to the business, assets, financial condition, results of operations or prospects of the
Company and its Subsidiaries, taken as a whole.



-3-









 





     “Company Options” shall mean all issued and outstanding options to purchase or otherwise
acquire Company Capital Stock listed on Disclosure Schedule 2.2(c) held by any employee, consultant
or director of the Company or its Subsidiaries.



     “Holdback Amount” shall mean, with respect to each share of Company Common Stock held by a
Shareholder, (i) the number of shares of Parent Common Stock equal to the quotient obtained by
dividing (A) the quotient obtained by dividing (x) the product of .801 multiplied by the Total
Holdback Amount, by (y) the Trading Price, by (B) the Total Outstanding Common Shares, and (ii) an
amount in cash equal to the quotient obtained by dividing (A) the product of .199 multiplied by the
Total Holdback Amount by (B) the Total Outstanding Common Shares.



     “Key Employees” shall mean the employees of Company and any of its Subsidiaries identified on
Schedule 1.6(a)(ii) hereto.



     “Knowledge” or “Known” shall mean, with respect to the Company, the knowledge of any of the
officers, members of the boards of directors or senior managers of the Company or its Subsidiaries
after reasonable inquiry of those persons employed by the Company or the Subsidiaries with
administrative or operational responsibility for such matter.



     “Lien” shall mean any lien, pledge, charge, claim, mortgage, security interest or other
encumbrance of any sort.



     “Merger Cash” shall mean an amount in cash equal to the product of (i) 0.199 multiplied by
(ii) the Aggregate Common Stock Consideration Amount, rounded to the nearest whole cent (with 0.5
of a cent rounded down), subject to adjustment as set forth in Section 1.11.



     “Merger Shares” shall mean the number of shares of Parent Common Stock equal to the quotient
obtained by dividing the Merger Shares Value by the Trading Price, rounded down to the nearest
whole share.



     “Merger Shares Value” shall mean an amount equal to the product of (i) 0.801 multiplied by
(ii) the Aggregate Common Stock Consideration Amount, rounded to the nearest whole cent (with 0.5
of a cent rounded down), subject to adjustment as set forth in Section 1.11.



     “Option Cash” shall mean an amount in cash equal to the product of (i) the Aggregate
Consideration Amount multiplied by (ii) the quotient obtained by dividing the Total Outstanding
Options by the Total Outstanding Shares, rounded to the nearest whole cent (with 0.5 of a cent
rounded down).



     “Parent Common Stock” shall mean shares of the common stock, par value $0.001 per share, of
Parent.



     “Parent Material Adverse Effect” shall mean any change, event or effect that is materially
adverse to the business, assets, financial condition or results of operations of Parent; provided,
however, that in no event shall any of the following, alone or in combination with any of the
others, be deemed to constitute, nor shall any of the following be taken into account in
determining whether there has been or will be, a Parent Material Adverse Effect: (i) any change or
changes in the price per share of Parent Common Stock or a change in the trading volume of Parent
Common Stock; (ii) any occurrence or occurrences relating to the industry in which Parent operates,
other than that which affects Parent and its subsidiaries, taken as a whole, disproportionately;
(iii) failing to meet or otherwise satisfy analyst or other third party expectations relating to
the results of



-4-









 







Parent’s operations; or (iv) any occurrence or occurrences that proximately results
from the public announcement of this Agreement.



     “Parent’s Accountants” shall mean PricewaterhouseCoopers LLC, independent accountants of
Parent.



     “Permitted Liens” shall mean (i) statutory liens for taxes that are not yet due and payable,
(ii) statutory liens to secure obligations to landlords, lessors or renters under leases or rental
agreements, (iii) deposits or pledges made in connection with, or to secure payment of, workers’
compensation, unemployment insurance or similar programs mandated by applicable law, (iv) statutory
liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor,
materials or supplies and other like liens, and (v) liens in favor of customs and revenue
authorities arising as a matter of applicable law to secure payments of customs duties in
connection with the importation of goods.



     “Person” shall mean an individual or entity, including a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a Governmental Entity (or any department, agency, or political
subdivision thereof).



     “Plan” shall mean the Company’s 2006 Stock Plan, as amended to date.



     “Pro Rata Portion” shall mean, with respect to each Shareholder (other than a Shareholder
holding Dissenting Shares who does not effectively withdraw or lose such Shareholder’s dissenter’s
rights as contemplated by Section 1.7(b) hereof), an amount equal to the quotient of (i) the sum of
(A) the product of the number of Merger Shares to which such Shareholder is entitled pursuant to
Section 1.6 hereof multiplied by the Trading Price, plus (B) the amount of Merger Cash, in each
case issuable pursuant to Section 1.6 hereof in respect of the shares of Company Capital Stock
owned by such Shareholder as of the Effective Time, divided by (ii) the sum of (A) the product of
the aggregate number of Merger Shares to be issued to Shareholders multiplied by the Trading Price,
plus (B) the aggregate amount of the Merger Cash to be paid to Shareholders, in each case excluding
such Merger Shares and Merger Cash that would otherwise be issued to Shareholders if they had not
effectively withdrawn or lost their dissenters’ rights as contemplated by Section 1.7(b) hereof).



     “SEC” shall mean the United States Securities and Exchange Commission.



     “Securities Act” shall mean the United States Securities Act of 1933, as amended.



     “Shareholder” shall mean any holder of any Company Common Stock immediately prior to the
Effective Time.



     “Stock Component of the Common Stock Consideration” shall mean, for each share of Company
Common Stock, a fraction of a share of Parent Common Stock equal to the quotient of the Merger
Shares divided by the Total Outstanding Common Shares, rounded to the nearest one-hundred
thousandth (0.00001) (with amounts 0.000005 and above rounded down).



     “Total Consideration” shall mean the Merger Cash and the Merger Shares.



     “Total Holdback Amount” shall mean $2,325,000 of the Aggregate Common Stock Consideration
Amount.



-5-









 





     “Total Outstanding Options” shall mean all Company Options that are outstanding immediately
prior to the Effective Time.



     “Total Outstanding Common Shares” shall mean the aggregate number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time.



     “Total Outstanding Shares” shall mean the sum of the Total Outstanding Common Shares, plus the
Total Outstanding Options.



     “Trading Price” shall mean $9.272 (as adjusted as appropriate to reflect any stock splits,
stock dividends, combinations, reorganizations, reclassifications or similar events).



          (ii) Other Capitalized Terms. For all purposes of and under this agreement, the following
capitalized term shall have the respective meanings ascribed thereto in the section of this
Agreement set forth opposite each such capitalized term below:



	 	 	 
	Capitalized Term	 	Section
	401(k) Fees
	 	2.23(q) 
	401(k) Plan
	 	5.18 
	Acquisition Proposal
	 	4.2(a) 
	Action of Divestiture
	 	5.4(a) 
	Agreed-Upon Loss
	 	7.4(f)(v) 
	Agreement
	 	Recitals
	Balance Sheet Date
	 	2.7
	Articles of Incorporation
	 	2.1(a) 
	le plan (the “A/R Plan
	 	1.6(i)(i)
	California Law
	 	1.1
	Certificate of Merger
	 	1.2
	CFRA
	 	2.23(a)
	Charter Documents
	 	2.1(a)
	Closing
	 	1.2
	Closing Accounts Receivable Statement
	 	1.6(i)(i)
	Closing Date
	 	1.2
	Closing Statement of Assumed Liabilities
	 	1.6(i)(i)
	COBRA
	 	2.23(a)
	Code
	 	Recitals
	Company
	 	Recitals
	Company Accounts Collected Report
	 	1.6(i)(ii)
	Company Assumed Liabilities Report
	 	1.6(i)(ii)
	Company Authorizations
	 	2.18
	Company Employee Plan
	 	2.23(a)
	Company Intellectual Property
	 	2.15(a)
	Company Options
	 	1.6(a)(i)
	Company Product
	 	2.15(a)
	Company Registered Intellectual Property
	 	2.15(b)
	Company Certificates
	 	1.8(c)
	Conflict
	 	2.5
	Contract, Contracts
	 	2.5






-6-









 






	 	 	 
	Capitalized Term	 	Section
	Copyrights
	 	2.15(a)
	Current Balance Sheet
	 	2.7
	Customer Information
	 	2.14(f)
	Disclosure Schedule
	 	Article II
	Dissenting Share Payments
	 	1.7(c)
	Dissenting Shares
	 	1.7(a)
	DOL
	 	2.23(a)
	Effective Time
	 	1.2
	Employee
	 	2.23(a)
	Employee Agreement
	 	2.23(a)
	Employment Agreement
	 	Recitals
	Equipment
	 	2.14(e)
	ERISA
	 	2.23(a)
	ERISA Affiliate
	 	2.23(a)
	Exchange Agent
	 	1.8(a)
	Exchange Documents
	 	1.8(c)
	Export Approvals
	 	2.26(a)
	Final Assumed Liability Adjustment
	 	1.6(i)(iii)(3)
	Final Assumed Liability Differential
	 	1.6(i)(iii)(3)
	Financials
	 	2.7
	FIRPTA Compliance Certificate
	 	5.21
	FMLA
	 	2.23(a)
	Governmental Entity
	 	2.6
	HIPAA
	 	2.23(a)
	Holdback Distribution Date
	 	7.4(c)(i)
	Indemnified Parties
	 	7.2(a)
	“Independent Accounting Firm
	 	1.6(i)(iii)(2)
	Information Statement
	 	5.6(b)
	Initial Survival Date
	 	7.1
	In-Licenses
	 	2.15(p)
	Intellectual Property Rights
	 	2.15(a)
	International Employee Plan
	 	2.23(a)
	International Employees
	 	2.23(a)
	IP Licenses
	 	2.15(q)
	IRS
	 	2.23(a)
	Lease Agreements
	 	2.14(b)
	Leased Real Property
	 	2.14(a)
	Lock-up Agreement
	 	Recitals
	Loss, Losses
	 	7.2(a)
	Material Contract, Material Contracts
	 	2.16(b)
	Merger
	 	Recitals
	Nondisclosure Agreement
	 	5.2
	Object Code
	 	2.15(a)
	Objection Notice
	 	7.4(e)
	Officer’s Certificate
	 	7.4(d)(iv)
	Open Source License
	 	2.15(a)
	Open Source Materials
	 	2.15(a)
	Option Consideration
	 	1.6(c)(i)






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	Capitalized Term	 	Section
	Parent
	 	Recitals
	Parent SEC Filings
	 	3.6
	Patent
	 	2.15(a)
	Pension Plan
	 	2.23(a)
	Registered Intellectual Property
	 	2.15(a)
	Returns
	 	2.12(b)(i)
	Rule 145
	 	5.22
	Rule 145 Affiliate
	 	5.22
	Source Code
	 	2.15(a)
	Spreadsheet
	 	5.19
	Shareholder Certificate
	 	5.7(c)
	Shareholder Representative
	 	Recitals
	Shareholder Representative Expenses
	 	7.5(b)
	Sub
	 	Recitals
	Subsequent Survival Date
	 	7.1
	Subsidiary
	 	2.3
	Surviving Corporation
	 	1.1
	Tax, Taxes
	 	2.12(a)
	Technology
	 	2.15(a)
	Terminated Agreements
	 	5.11(a)
	Third Party Claim
	 	7.4(g)
	Trade Secrets
	 	2.15(a)
	Trademarks
	 	2.15(a)
	Unresolved Claims
	 	7.4(c)(i)






          (b) Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any
action on the part of Sub, the Company or the holders of shares of Company Capital Stock or Company
Options, and upon the terms and subject to the conditions set forth in this Section 1.6 and
throughout this Agreement, including the holdback provisions set forth in Article VII hereof, the
following shall occur:



               (i) Company Common Stock. Each outstanding share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting Shares) will be
cancelled and extinguished and will be converted automatically into the right to receive, upon
surrender of the
certificate representing such shares of Common Stock in the manner provided in Section 1.8
hereof, the Common Stock Consideration.



               (ii) Aggregation of Parent Common Stock. For purposes of calculating the number of shares of
Parent Common Stock issuable and the amount of cash payable to each Shareholder pursuant to this
Section 1.6(b), all shares of the Company Common Stock held by each Shareholder shall be aggregated
on a certificate-by-certificate basis prior to such calculation. The aggregate number of shares of
Parent Common Stock issuable and the amount of cash payable to each Shareholder in respect of all
share certificates held by such Shareholder shall be rounded down to the nearest whole number of
shares of Parent Common Stock and nearest whole cent, respectively; provided, however, that the
maximum number of shares of Parent Common Stock issuable pursuant to the Merger shall not exceed
the Merger Shares and the maximum amount of cash payable pursuant to the Merger shall not exceed
the Merger Cash; and



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               (iii) Merger Consideration Available at Closing. Subject to the procedures set forth in
Section 1.8 and to the holdback provisions set forth in Section 1.6(b)(iv), at Closing each
Shareholder shall receive, for each share of Company Common Stock held by such Shareholder, the
Closing Merger Consideration.



               (iv) Holdback Amount. At Closing, for each share of Company Common Stock held by a
Shareholder, Parent shall withhold the Holdback Amount, up to all of which (if any) may be issued
or paid at the Holdback Distribution Date (as defined below). Prior to the Holdback Distribution
Date, the number of shares of Parent Common Stock issuable and the cash payable comprising the
Total Holdback Amount shall be subject to reduction as indemnity to compensate Indemnified Parties
(as defined below) for any and all Losses (as defined below) pursuant to Article VII hereof. The
portion of the Total Holdback Amount that Parent shall distribute to the Shareholders on the
Holdback Distribution Date shall be that number of shares of Parent Common Stock reserved at
Closing and cash, if any, comprising the Total Holdback Amount following all reductions for
aggregate Losses by Indemnified Parties pursuant to Article VII prior to the Holdback Distribution
Date.



               (v) Notwithstanding anything set forth in this Section 1.6(b), any Dissenting Shares will be
treated as set forth in Section 1.7 hereof, any unexercised Company Options shall be treated as
provided for in Section 1.6(c) below and any Company Capital Stock held by the Company or any
direct or indirect Subsidiary of the Company shall be treated as provided for in Section 1.6(e).



          (c) Treatment of Company Options.



               (i) Immediately prior to the Effective Time, each Company Option then outstanding under the
Plan, shall by virtue of the Merger and without any action on the part of the holder thereof, be
cancelled, extinguished and converted automatically into the right to receive an amount in cash
from the Company equal to the quotient obtained by dividing (x) Option Cash by (y) the Total
Outstanding Options (the “Option Consideration”), which amount shall be payable by the Company no
earlier than January 1, 2008 and no later than January 8, 2008 (the “Option Payment Date”). As
soon as practicable (and in no event more than five (5) calendar days) after the Option Payment
Date, the Company shall pay to each holder of a Company Option the Option Consideration required to
be paid to any such holder pursuant to this Section 1.6(c). Disclosure Schedule 2.2(c) shall list
the name of each holder of Company Options as of the date hereof and, for each such Company Option
(i) the exercise price, (ii) whether such Company Option qualifies as an incentive stock option
under Section 422 of the Code, (iii) the date of grant, (iv) the vesting commencement date, (v) the
vesting schedule, and (vi) the expiration date; provided, however, that the
Company shall process such payments through its payroll system and deduct (x) all applicable
income and payroll taxes required to be withheld or deducted and (y) the employer’s portion of all
payroll taxes required to be paid by the Company in connection with such payments to holders of
Company Options.



               (ii) At the Effective Time, each Company stock option that is not listed on Disclosure
Schedule 2.2(c) shall be cancelled and extinguished and shall not be entitled to receive any
consideration pursuant to this Agreement.



          (d) Cancellation of Company Owned Stock. Each share of Company Capital Stock held by the
Company or any direct or indirect subsidiary of the Company immediately prior to the Effective Time
shall be cancelled and extinguished as of the Effective Time.



-9-









 





          (e) Withholding Taxes. The Company, and on its behalf Parent and the Surviving Corporation,
shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable
pursuant to this Agreement to any Person such amounts as may be required to be deducted or withheld
therefrom under any provision of federal, state, local or foreign tax law or under any applicable
legal requirement. Any such amounts shall be withheld or deducted from the Merger Cash payable to
the Shareholder, provided that if such Merger Cash is insufficient to satisfy the full amount to be
withheld or deducted, the remainder shall be satisfied out of the Merger Shares issuable to the
Shareholder. The number of Merger Shares, if any, to be used to satisfy the remaining amount
required to be so deducted or withheld shall be determined by dividing such remaining amount by the
Closing Price, rounded to the nearest whole share (with 0.5 of a share rounded up). To the extent
such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.



          (f) Shareholder Loans. In the event that any Shareholder has outstanding loans from the
Company or any of its Subsidiaries as of the Effective Time, the consideration payable to such
Shareholder pursuant to this Section 1.6 shall be reduced by an amount equal to the sum of the
outstanding principal plus accrued interest of such Shareholder’s loans as of the Effective Time.
Any such amounts shall be deducted from the Merger Cash payable to the Shareholder, provided that
if such Merger Cash is insufficient to satisfy the full amount of the outstanding principal plus
accrued interest, the remainder shall be satisfied out of the Merger Shares issuable to the
Shareholder. The number of Merger Shares, if any, to be used to satisfy the remaining amount of
the outstanding principal and interest shall be determined by dividing such remaining amount by the
Trading Price, rounded to the nearest whole share (with 0.5 of a share rounded up). Such loans
shall be satisfied as to the amount by which the consideration is reduced pursuant to this Section
1.6(f). To the extent the consideration payable to such Shareholder is so reduced, such amount
shall be treated for all purposes under this Agreement as having been paid to such Shareholder.



          (g) Capital Stock of Sub. Each share of capital stock of Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of capital stock of the Surviving Corporation. Each
stock certificate of Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.



          (h) Shares Subject to Vesting. Each share of Parent Common Stock issued in exchange for
shares of Company Common Stock shall also be unvested and subject to the same repurchase option,
risk of forfeiture or other terms and conditions set forth in the Plan, as applicable, and the
agreements relating thereto, as in effect immediately prior to the Effective Time (including any
requirement that any unvested shares be held in escrow), and the certificate representing such
shares of Parent Common Stock may accordingly be marked with appropriate legends in the discretion
of Parent.



          (i) Aggregate Common Stock Consideration Amount Adjustment.



               (i) Closing Reports. No later than two (2) Business Days prior to the Closing Date, the
Company shall deliver to Parent a statement of accounts receivable as of the Closing Date (the
“Closing Accounts Receivable Statement”) and a statement, prepared in good faith, of the estimated
amount of Assumed Liabilities (as defined below) of the Company as of the Closing Date (the
“Closing Statement of Assumed Liabilities”), which statements shall be in form and substance
reasonably satisfactory to Parent. As used in this Section 1.6, “Assumed Liabilities” shall mean
the total liabilities of the Company as of the Closing Date, determined in accordance with GAAP
(other than the Option Cash, which is a liability of the



-10-









 







Company that will be assumed by Parent in
connection with the Merger, but shall not be referred to in this Section 1.6 as an “Assumed
Liability”), for the following types of liability, (i) accounts payable, (ii) accrued expenses,
(iii) payroll and benefits of Persons who will be employees of the Company as of the Closing, (iv)
$255,000 payable to persons who are holders of Company Options as of the date hereof in accordance
with the terms of the Company’s accounts receivable plan (the “A/R Plan”), and (v) certain payables
identified and agreed by the parties, as well as any payroll or related Taxes.



               (ii) Post-Closing Reports. Within fifty (50) calendar days following the Closing Date, Parent
shall furnish the Shareholder Representative with a report which shall set forth, in reasonable
detail, the amount of Assumed Liabilities of the Company as of the Closing Date (the “Company
Assumed Liabilities Report”). In making such determination, Parent shall prepare a balance sheet
of the Company as of the Closing Date and shall include such balance sheet as part of the Company
Assumed Liabilities Report. Furthermore, within fifty (50) calendar days following the Closing
Date, Parent shall furnish the Shareholder Representative with a report which shall set forth the
amounts collected by Parent or the Company since the Closing Date with respect to accounts that
were set forth on the Closing Accounts Receivable Statement (the “Company Accounts Collected
Report”).



               (iii) Disputes.



                    (1) Subject to clause (2) of this Section 1.6(i)(iii), the Company Assumed Liabilities Report
and the Company Accounts Collected Report shall be final, binding and conclusive on the Parent, the
Shareholder Representative and the Shareholders.



                    (2) The Shareholder Representative may dispute any amounts reflected on the Company Assumed
Liabilities Report (but not on the Company Accounts Collected Report), but only to the extent the
amount of Assumed Liabilities set forth therein exceeds the estimated amount of Assumed Liabilities
set forth in the Closing Statement of Assumed Liabilities and only on the basis that the amounts
reflected therein were not arrived at in accordance with GAAP or were arrived at based on
mathematical or clerical error; provided, however, that the Shareholder Representative shall have
notified the Parent in writing as to each disputed item, specifying the estimated amount thereof in
dispute and setting forth, in reasonable detail, the basis for such dispute, within ten (10)
Business Days of the Parent’s delivery of such Company Assumed Liabilities Report. In the event of
such a dispute, the Parent independent auditors (“Parent’s
Accountants”) and the Company’s former accountants (which shall have been retained by the
Shareholder Representative) shall attempt to reconcile their differences, and any resolution by
them as to any disputed amounts shall be final, binding and conclusive on the parties thereto. If
the Parent’s Accountants and the Company’s former accountants are unable to reach a resolution to
such dispute within twenty (20) Business Days after receipt of written notice of such dispute, the
dispute shall be submitted to an independent accounting firm of international reputation
(“Independent Accounting Firm”) mutually acceptable to Parent and Shareholder Representative, which
shall within twenty (20) Business Days after submission, determine and report to the Parent and
Shareholder Representative the resolution of such disputed items, and such report shall be final,
binding and conclusive on the Parent and the Shareholder Representative and the Shareholders.



                    (3) The Company Assumed Liabilities Report shall be deemed final for purposes of this Section
1.6(h) upon the earliest of (x) failure of the Shareholder Representative to notify Parent of a
dispute within ten (10) Business Days of Parent’s delivery of the Company Assumed Liabilities
Report, (y) the resolution of all disputes by the Parent’s Accountants and the Company’s former
accountants, and (z) the resolution of all disputes by the Independent Accounting Firm. If the
difference between the amounts set forth on the Company Accounts Collected Report minus the amount
of Assumed Liabilities as set



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forth in the Company Assumed Liabilities Report as deemed final by
the parties (the “Final Assumed Liability Differential”) is greater than zero (a positive amount),
then within five (5) Business Days of the Company Assumed Liabilities Report being deemed final,
Parent shall make payment of an amount equal to such difference to the Total Holdback Amount;
provided, however, that such amount shall not be used to compensate Indemnified Parties for any
Losses suffered and shall only be applied towards Shareholder Representative Expenses pursuant to
Section 7.5(b). If the Final Assumed Liability Differential is less than zero (a negative amount)
(such amount, the “Final Assumed Liability Adjustment”), such amount shall be paid from the Total
Holdback Amount in accordance with Section 7.4(d).



     1.7 Dissenting Shares.



          (a) Notwithstanding any other provisions of this Agreement to the contrary, any shares of
Company Capital Stock held by a holder who has demanded and perfected appraisal or dissenters’
rights for such shares in accordance with California Law and who, as of the Effective Time, has not
effectively withdrawn or lost such holder’s dissenters’ rights (the “Dissenting Shares”) shall not
be converted into or represent a right to receive the applicable consideration set forth in Section
1.6 hereof, but the holder thereof shall only be entitled to such rights as are provided by
California Law.



          (b) Notwithstanding the provisions of Section 1.7(a) hereof, if any holder of Dissenting
Shares who is otherwise entitled to exercise dissenters’ rights under the California Law shall
effectively withdraw or lose (through failure to perfect or otherwise) such holder’s dissenters’
rights under California Law then, as of the later of the Effective Time and the occurrence of such
event, such holder’s shares shall automatically be converted into and represent only the right to
receive the consideration for Company Capital Stock, as applicable, set forth in Section 1.6
hereof, without interest thereon, and subject to the provisions of Section 1.8 and Section 7.4
hereof, upon surrender of the certificate representing such shares. Any such holder of shares of
Company Capital Stock who shall effectively withdraw or lose such dissenters’ rights shall execute
and deliver to Parent the Shareholder Certificate substantially in the form attached hereto as
Exhibit C, as required under Section 7.2 hereof prior to such holder’s receipt of the applicable
consideration pursuant to Section 1.6 hereof.



          (c) The Company shall give Parent (i) prompt notice of any written demand for the exercise of
dissenters’ rights, withdrawals of such demands, and any other instruments served to or received by
the Company pursuant to the applicable provisions of California Law, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with respect to any such
demands or offer to settle or settle any such demands. Any communication to be made by the Company
to any Shareholder with respect to such demands shall be submitted to Parent in advance and shall
not be presented to any Shareholder prior to the Company receiving Parent’s consent.
Notwithstanding the foregoing, to the extent that Parent, the Surviving Corporation or the Company
(i) makes any payment or payments in respect of any Dissenting Shares in excess of the
consideration that otherwise would have been payable in respect of such shares in accordance with
this Agreement or (ii) incurs any Losses (including attorneys’ and consultants’ fees, costs and
expenses and including any such fees, costs and expenses incurred in connection with investigating,
defending against or settling any action or proceeding) in respect of any Dissenting Shares
(excluding payments for such shares) ((i) and (ii) together “Dissenting Share Payments”), Parent
shall be entitled to recover under the terms of Article VII hereof the amount of such Dissenting
Share Payments to the extent that such Dissenting Share Payments exceed the consideration that such
dissenting Shareholders would have received in the Merger had no Dissenting Share Payments been
made.



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     1.8 Surrender of Certificates.



          (a) Exchange Agent. The Secretary of Parent, or a Person selected by Parent, shall serve as
the exchange agent (the “Exchange Agent”) for the Merger.



          (b) Parent to Provide Parent Common Stock and Cash. As soon as reasonably practicable (but in
any event within five (5) Business Days) following the Closing Date, Parent shall make available to
the Exchange Agent for exchange in accordance with this Article I the Closing Merger Consideration,
comprising shares of Parent Common Stock issuable and cash payable pursuant to Section 1.6(b)(iii)
hereof in exchange for outstanding shares of Company Common Stock. Parent shall reserve the Total
Holdback Amount pursuant to Section 1.6(b)(iv), comprising shares of Parent Common Stock issuable
and cash payable on Holdback Distribution Date, subject to reduction as required to satisfy the
indemnification obligations pursuant to Article VII.



          (c) Exchange Procedures. As soon as reasonably practicable (but in any event within five (5)
Business Days) following the Closing Date, Parent or the Exchange Agent shall mail a letter of
transmittal in Parent’s standard form to each Shareholder at the address set forth opposite each
such person’s name on the Spreadsheet. After receipt of such letter of transmittal and any other
customary documents that Parent or the Exchange Agent may reasonably require in order to effect the
exchange (the “Exchange Documents”), the Shareholders will surrender the certificates representing
their shares of Company Common Stock (the “Company Certificates”) to the Exchange Agent for
cancellation together with duly completed and validly executed Exchange Documents. Upon surrender
of a Company Certificate for cancellation to the Exchange Agent, or such other agent or agents as
may be appointed by Parent, together with such Exchange Documents, duly completed and validly
executed in accordance with the instructions thereto, subject to the terms of Section 1.8(e)
hereof, the holder of such Company Certificate shall be entitled to receive from the Exchange Agent
in exchange therefor, no later than thirty (30) days thereafter, a certificate representing the
number of whole shares of Parent Common Stock and the cash payment to which such holder is entitled
pursuant to Section 1.6 hereof (less such holder’s respective portion of the Total Holdback Amount
to be held
back pursuant to Section 1.8(b) hereof and Article VII hereof, if any), and the Company
Certificate so surrendered shall be cancelled. Until so surrendered, each Company Certificate
outstanding after the Effective Time will be deemed, for all corporate purposes thereafter, to
evidence only the right to receive the number of full shares of Parent Common Stock and cash into
which such shares of Company Common Stock shall have been so converted. No portion of the Total
Consideration will be paid to the holder of any unsurrendered Company Certificate with respect to
shares of Company Common Stock formerly represented thereby until the holder of record of such
Company Certificate shall surrender such Company Certificate and the Exchange Documents pursuant
hereto.



          (d) Distributions With Respect to Unexchanged Shares. No dividends or other distributions
declared or made after the Effective Time with respect to Parent Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered Company Certificate with
respect to the shares of Parent Common Stock represented thereby until the holder of record of such
Company Certificate shall surrender such Company Certificate. Subject to applicable law, following
surrender of any such Company Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock.



-13-









 





          (e) Transfers of Ownership. If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the Company Certificate surrendered in exchange therefor
is registered it will be a condition of the issuance or delivery thereof that the certificate so
surrendered will be properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock
in any name other than that of the registered holder of the certificate surrendered, or established
to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not
payable.



          (f) No Liability. Notwithstanding anything to the contrary in this Section 1.8, neither the
Exchange Agent, the Surviving Corporation, nor any party hereto shall be liable to a holder of
shares of Company Capital Stock for any amount paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.



     1.9 No Further Ownership Rights in Company Capital Stock. The shares of Parent Common Stock
issued and cash paid in respect of the surrender for exchange of shares of Company Capital Stock in
accordance with the terms hereof, and the cash payable by the Company in respect of the
cancellation and extinguishment of the Company Options, shall be deemed to be full satisfaction of
all rights pertaining to such shares of Company Capital Stock and Company Options, and there shall
be no further registration of transfers on the records of the Surviving Corporation of shares of
Company Capital Stock or Company Options which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Company Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in this Article I.



     1.10 Lost, Stolen or Destroyed Certificates. In the event any Company Certificates with
respect to Company Common Stock shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed
certificates, upon the making of an affidavit of that fact by the holder thereof, such amount,
if any, as may be required pursuant to Section 1.6 hereof; provided, however, that Parent may, in
its discretion and as a condition precedent to the issuance thereof, require the Shareholder who is
the owner of such lost, stolen or destroyed certificates to either (i) deliver a bond in such
amount as it may direct or (ii) provide an indemnification agreement in form and substance
acceptable to Parent, against any claim that may be made against Parent or the Exchange Agent with
respect to the certificates alleged to have been lost, stolen or destroyed.



     1.11 Taking of Necessary Action; Further Action. If at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company, Parent and the Surviving Corporation and the
officers and directors of Parent and the Surviving Corporation are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such lawful and necessary
action.



     1.12 Treatment as Reorganization. Parent and Company hereby adopt this Agreement as a “plan of
reorganization” within the meaning of Section 1.368-2(g) and 1.368-3(a) of the United States
Treasury Regulations and agree to report the Merger as a reorganization within the meaning of
Section 368(a) of the Code to the extent permitted by applicable law. Notwithstanding the
foregoing, Parent makes no representations or warranties to the Company, the Company Shareholders
or to any other securityholder of the Company regarding the tax treatment of the Merger or any of
the tax consequences to the Company, the Company Shareholders or any other securityholder of the
Company relating to the Merger, this Agreement, or



-14-









 







any of the other transactions or agreements
contemplated hereby. The Company and the Company Shareholders acknowledge that they and the other
securityholders are relying solely on their own tax advisors in connection with the Merger, this
Agreement and the other transaction and agreements contemplated hereby.



     1.12 Adjustment to Merger Consideration. Notwithstanding anything else in this Agreement to
the contrary, immediate prior to the payment of the Closing Merger consideration, the number of
Merger Shares shall be increased, and the amount of Merger Cash shall be decreased to the minimum
extent necessary so that the fraction, the numerator of which is the product of the Merger Shares
and the average of the high and low trading price of Parent common stock on the Closing Date
(“Closing Share Value”), and the denominator of which is the sum of the Closing Share Value and the
Merger Cash, equals or exceeds eighty and one-tenths percent (80.1%). For purposes of the
foregoing, any adjustments to the number of Merger Shares and the amount of Merger Cash shall be
made by reference to the Trading Price. A similar adjustment shall be made with respect to the
cash, if any, to be paid to shareholders exercising dissenter’s rights.



ARTICLE II




REPRESENTATIONS AND WARRANTIES OF THE COMPANY




     The Company hereby represents and warrants to Parent and Merger Sub, subject to such
exceptions as are specifically disclosed in the Company Disclosure Schedule (each of which
disclosures, in order to be effective, shall clearly reference the appropriate section and, if
applicable, subsection of this Article II to
which it relates and each of which disclosures shall be deemed to be incorporated by reference
into the representations and warranties made in this Article II delivered by the Company to Parent
concurrently with the execution of this Agreement (the “Disclosure Schedule”, dated as of the date
hereof, as follows:



     2.1 Organization of the Company.



          (a) The Company is a corporation duly organized, validly existing and in good standing under
the laws of the State of California. The Company has the corporate power to own its properties and
to carry on its business as currently conducted and as currently contemplated to be conducted. The
Company is duly qualified or licensed to do business and in good standing as a foreign corporation
in each jurisdiction in which the character or location of its assets or properties (whether owned,
leased or licensed) or the nature of its business make such qualifications necessary. The Company
has delivered a true and correct copy of its Articles of incorporation, as amended to date (the
“Articles of Incorporation”) and bylaws, as amended to date, each in full force and effect on the
date hereof (collectively, the “Charter Documents”), to Parent. The Board of Directors of the
Company has not approved or proposed any amendment to any of the Charter Documents.



          (b) Section 2.1(b) of the Disclosure Schedule lists the directors and officers of the Company
as of the date hereof, separately noting which of such directors and officers has any rights to
indemnification from the Company and the scope and duration of such rights and also separately
lists any other Person with rights to indemnification from the Company. The operations now being
conducted by the Company are not now and have never been conducted by the Company under any other
name.



          (c) Section 2.1(c) of the Disclosure Schedule lists every state or foreign jurisdiction in
which the Company has Employees or facilities or otherwise conducts its business.




-15-









 





     2.2 Company Capital Structure.



          (a) As of the date of this Agreement, the authorized capital stock of the Company consists of
10,000,000 shares of Company Common Stock, of which 2,298,500 shares are issued and outstanding.
As of the date hereof, the capitalization of the Company is as set forth in Section 2.2(a) of the
Disclosure Schedule. The Company Capital Stock is held by the persons with the domicile addresses
and in the amounts set forth in Section 2.2(a) of the Disclosure Schedule which further sets forth for
each such person the number of shares held, class and/or series of such shares and the number of
the applicable stock certificates representing such shares. All outstanding shares of Company
Capital Stock are duly authorized, validly issued, fully paid and non-assessable and were not
issued in violation of, and are not subject to, preemptive rights created by statute, the Charter
Documents, or any agreement to which the Company is a party or by which it is bound. All
outstanding shares of Company Capital Stock and Company Options have been issued or repurchased (in
the case of shares that were outstanding and repurchased by the Company or any shareholder of the
Company) in compliance with all applicable federal, state, foreign, or local statutes, laws, rules,
or regulations, including federal and state securities laws, and were issued, transferred and
repurchased (in the case of shares that were outstanding and repurchased by the Company or any
shareholder of the Company) in accordance with any right of first refusal or similar right or
limitation, including those in the Charter Documents. Except as contemplated in Section 1.6(c)(i)
with respect to Company Options, the Company does not have any liability (contingent or otherwise)
or claim, loss, damage, deficiency, cost or expense relating to or arising out of the issuance or
repurchase of any Company Capital Stock or Company Options, or out of any agreements or
arrangements relating thereto (including any amendment of the terms of any such agreement or
arrangement). There are no declared or accrued but unpaid dividends with respect to any shares of
Company Capital Stock. The Company has no other capital stock authorized, issued or outstanding.




          (b) Section 2.2(b) of the Disclosure Schedule sets forth for all holders of Company Common
Stock, the name of the holder of such Company Common Stock, the repurchase price of such Company
Common Stock, the date of purchase of such Company Common Stock and the vesting schedule for such
Company Common Stock, including the extent vested to date, whether the vesting of such Company
Common Stock is subject to acceleration as a result of the transactions contemplated by this
Agreement or any other events (including a complete description of any such acceleration
provisions) and whether, to the Knowledge of the Company, the holder has made a timely election
with the Internal Revenue Service under Section 83(b) of the Code with respect to such Company
Common Stock.




          (c) Except for the Plan, neither the Company nor any of its Subsidiaries has ever
adopted, sponsored or maintained any stock option plan or any other plan or agreement providing for
equity compensation to any person. The Company has reserved 500,000 shares of Company Common Stock
for issuance to employees and directors of, and consultants to, the Company or any of its
Subsidiaries upon the issuance of stock or the exercise of options granted under the Plan, of which
(i) 500,000 shares are issuable, as of the date hereof, upon the exercise of outstanding,
unexercised options granted under the Plan, (ii) 500,000 shares have been issued upon the exercise
of options or purchase of restricted stock granted under the Plan and remain outstanding as of the
date hereof and (iii) no shares remain available for future grant. As of the date hereof, all
Company Options have been issued under the Plan. Except as described above, there are no other
Company Options outstanding. Section 2.2(c) of the Disclosure Schedule sets forth for each outstanding
Company Option, the name of the holder of such option, the type of entity of such holder, and any
ultimate parent entity of such holder, if not an individual, the domicile address of such holder,
the number of shares of Company Capital Stock issuable upon the exercise of such option or warrant,
the exercise price of such option or warrant, the date of grant of such option or warrant, the
vesting schedule for such option or

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warrant, including the extent vested to date and whether the vesting of such option or warrant is
subject to acceleration as a result of the transactions contemplated by this Agreement or any other
events (including an accurate summary of any such acceleration provisions), whether such option was
issued under the Plan and whether such option is a nonstatutory option or intended to qualify as an
incentive stock option as defined in Section 422 of the Code. The terms of the Plan and the
applicable agreements for each Company Option permit the assumption or substitution of options to
purchase Parent Common Stock as provided in this Agreement, without the consent or approval of the
holders of such securities, the Shareholders or otherwise and, if so assumed, without any
acceleration of the exercise schedules or vesting provisions in effect for such Company Options.
True and complete copies of all forms of agreements used by the Company to grant Company Options
have been provided to Parent and such forms of agreements and instruments have not been amended,
modified or supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments from the forms thereof provided to Parent.




          (d) Except for the Company Options listed on Section 2.2(c) of the Disclosure Schedule, there are
no options, warrants, calls, rights, convertible securities, commitments or agreements of any
character, written or oral, to which the Company or any of its Subsidiaries is a party or by which
the Company is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of the
Company or obligating the Company to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call, right, commitment or agreement except
for repurchases of restricted Company Common Stock upon termination of employment. There are no
outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar
rights with respect to the Company or any of its Subsidiaries. Except as contemplated hereby,
there are no voting trusts, proxies, or other agreements or understandings with respect to the
voting stock of the Company or any of its Subsidiaries. There are no agreements to which the
Company or any of its Subsidiaries is a party relating to the registration, sale or transfer
(including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights)
of any Company Capital Stock. As a result of the Merger, Parent will be the sole record and
beneficial holder of all issued and outstanding Company Capital Stock and all rights to acquire or
receive any shares of Company Capital Stock, whether or not such shares of Company Capital Stock
are outstanding.




          (e) No employee, officer, director or shareholder of the Company or member of his or her
immediate family is indebted to the Company, nor is the Company indebted to any of them other than
(i) for payment of salary for services rendered, (ii) reimbursement for reasonable expenses
incurred on behalf of the Company and (iii) for other standard employee benefits made generally
available to all employees.




          (f) Upon the receipt of the Requisite Shareholder Vote, the allocation of the Merger
Shares set forth in Section 1.6(b) will be consistent with the Articles of Incorporation of the Company.




     2.3 Subsidiaries. Section 2.3(a) of the Disclosure Schedule lists each corporation,
limited liability company, partnership, association, joint venture or other business entity in
which the Company owns, or has owned, any shares of capital stock or holds, or has held, any
interest in, or otherwise controls, or has controlled, directly or indirectly. Section 2.3(b) of the
Disclosure Schedule lists each corporation, limited liability company, partnership, association,
joint venture or other business entity of which the Company owns, directly or indirectly, more than
50% of the stock or other equity interest entitled to vote on the election of the members of the
board of directors or similar governing body (each, a “Subsidiary”). Each entity listed on Section
2.3(a) of the Disclosure Schedule that is no longer in existence has been duly dissolved in
accordance with its charter documents and the laws of the jurisdiction of its incorporation or
organization and there are no outstanding liabilities or obligations (outstanding, contingent or
otherwise), including taxes, with respect to



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any such entity. Each Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or organization. Each
Subsidiary has the corporate power to own its properties and to carry on its business as currently
conducted and as currently contemplated to be conducted. Each Subsidiary is duly qualified or
licensed to do business and in good standing as a foreign corporation in each jurisdiction in which
the character or location of its assets or properties (whether owned, leased or licensed) or the
nature of its business make such qualifications necessary. A true and correct copy of each
Subsidiary’s charter documents and bylaws, each as amended to date and in full force and effect on
the date hereof, has been delivered to Parent. Section 2.3(c) of the Disclosure Schedule lists the
directors and officers of each Subsidiary as of the date of this Agreement. All of the outstanding
shares of capital stock of each Subsidiary are owned of record and beneficially by the Company.
All outstanding shares of stock of each Subsidiary are duly authorized, validly issued, fully paid
and non-assessable and not subject to preemptive rights created by statute, the charter documents
or bylaws of such Subsidiary, or any agreement to which such Subsidiary is a party or by which it
is bound, and have been issued in compliance with all applicable legal requirements. There are no
options, warrants, calls, rights, commitments or agreements of any character, written or oral, to
which any Subsidiary is a party or by which it is bound obligating the Subsidiary to issue,
deliver, sell, repurchase or redeem, or cause to be issued, sold, repurchased or redeemed, any
shares of the capital stock of such Subsidiary or obligating such Subsidiary to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call right, commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with respect to any of
the Subsidiaries. Neither the Company nor any Subsidiary has agreed or is obligated to make any
future investment in or capital contribution to any Person.



     2.4 Authority. The Company has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of the Company and no further action
is required on the part of the Company to authorize the Agreement and the transactions contemplated
hereby and thereby, subject only to the approval of this Agreement and the transactions
contemplated hereby by the Shareholders. The vote required to approve this Agreement and the
transactions contemplated hereby by the Shareholders is set forth in Section 2.4 of the Disclosure
Schedule. This Agreement and the transactions contemplated hereby have been unanimously approved
by the Board of Directors of the Company. This Agreement has been duly executed and delivered by
the Company and assuming the due authorization, execution and delivery by the other parties hereto
and thereto, constitute the valid and binding obligations of the Company enforceable against it in
accordance with its terms.



     2.5 No Conflict. The execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby and thereby, will not conflict with or result
in any violation of or default under (with or without notice or lapse of time, or both) or give
rise to a right of termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a “Conflict”) (i) any provision of the Charter Documents
or the organizational documents of any of its Subsidiaries, as amended, (ii) any mortgage,
indenture, lease, contract, covenant, plan, insurance policy or other agreement, instrument or
commitment, permit, concession, franchise or license (each a “Contract” and collectively the
“Contracts”) to which the Company or any of its Subsidiaries is a party or by which any of their
respective properties or assets (whether tangible or intangible) are bound, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets (whether tangible or intangible).
Section 2.5 of the Disclosure Schedule sets forth all necessary notices, consents, waivers and
approvals as are required under any Contracts in connection with the Merger, or for any such
Contract to remain in full force and effect without limitation,



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modification or alteration after the Effective Time so as to preserve all rights of, and
benefits to, the Company and its Subsidiaries, as the case may be, under such Contracts from and
after the Effective Time. Following the Effective Time, the Surviving Corporation will be
permitted to exercise all of its rights under the Contracts without the payment of any additional
amounts or consideration other than ongoing fees, royalties or payments which the Company or any of
its Subsidiaries, as the case may be, would otherwise be required to pay pursuant to the terms of
such Contracts had the transactions contemplated by this Agreement not occurred.



     2.6 Consents. No consent, notice, waiver, approval, order or authorization of, or
registration, declaration or filing with any court, administrative agency or commission or other
federal, state, county, local or other foreign governmental authority, instrumentality, agency or
commission (each, a “Governmental Entity”) or any third party, including a party to any Material
Contract with the Company or any of its Subsidiaries (so as not to trigger any Conflict), is
required by, or with respect to, the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the transactions contemplated
hereby and thereby, except for (i) such consents, notices, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under applicable
securities laws, (ii) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the foreign merger control regulations identified
on Section 2.6 of the Disclosure Schedule, (iii) the filing of the Certificate of Merger with the
Secretary of State of the State of California, (iv) the adoption of this Agreement and approval of
the transactions contemplated by this Agreement by the Shareholders and (v) the consents identified
on Section 2.5 of the Disclosure Schedule.



     2.7 Company Financial Statements. Section 2.7 of the Disclosure Schedule sets forth the
Company’s (i) unaudited consolidated balance sheet as of June 30, 2007 (the “Balance
Sheet Date”), and the related consolidated statements of income, cash flow and shareholders’ equity
for the twelve (12) month period then ended (the “Financials”). The Financials are true and
correct in all material respects and present fairly the Company’s consolidated financial condition,
operating results and cash flows as of the dates and during the periods indicated therein, except
that the Financials have been prepared in accordance with the cash method accounting, which do not
reflect the Company’s consolidated financial condition, operating results and cash flows in
accordance with generally accepted accounting principles. The Company’s unaudited consolidated
balance sheet as of the Balance Sheet Date is referred to hereinafter as the “Current Balance
Sheet.”



     2.8 Internal Controls. The Company and each of its Subsidiaries has established and uses its
commercially reasonable efforts to adhere to and enforce, a system of internal accounting controls
designed to ensure the reliability of financial reporting and the preparation of financial
statements in accordance with the cash method of accounting (including the Financials), including
policies and procedures that (i) require the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of the Company and
its Subsidiaries, (ii) provide assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with the cash method of accounting, and that
receipts and expenditures of the Company and its Subsidiaries are being made only in accordance
with appropriate authorizations of management and the Board of Directors of the Company and (iii)
provide assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the assets of the Company and its Subsidiaries. Neither the Company nor any of its
Subsidiaries (including any Employee thereof) has identified or been made aware of (i) any
significant deficiency or material weakness in the system of internal accounting controls utilized
by the Company and its Subsidiaries, (ii) any fraud or other wrongdoing that involves the Company’s
management or other Employees who have a role in the preparation



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of financial statements or the internal accounting controls utilized by the Company and its
Subsidiaries or (iii) any claim or allegation regarding any of the foregoing.



     2.9 No Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has any
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any
type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required
to be reflected in financial statements in accordance with the cash method of accounting), except
for those which (i) have been reflected in the Current Balance Sheet or, (ii) have arisen in the
ordinary course of business consistent with past practices since the Balance Sheet Date and prior
to the date hereof and are reflected in the Closing Statement of Assumed Liabilities.



     2.10 No Changes. Since the Balance Sheet Date, there has not been, occurred or arisen any:



          (a) material transaction by the Company or any of its Subsidiaries except in the ordinary
course of business as conducted on that date and consistent with past practices;




          (b) modifications, amendments or changes to the Charter Documents or the organizational
documents of any Subsidiary;




          (c) expenditure, transaction or commitment exceeding $20,000 individually or $50,000 in the
aggregate or any commitment or transaction of the type described in Section 2.13 hereof in any case by
the Company or any of its Subsidiaries;




          (d) payment, discharge, waiver or satisfaction, in any amount in excess of $20,000 in any one
case, or $50,000 in the aggregate, of any claim, liability, right or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise of the Company or any of its Subsidiaries), other
than payments, discharges or satisfactions in the ordinary course of business of liabilities
reflected or reserved against in the Current Balance Sheet;




          (e) destruction of, damage to, or loss of any material assets (whether tangible or
intangible), material business or material customer of the Company or any of its Subsidiaries
(whether or not covered by insurance);




          (f) employment dispute, including claims or matters raised by any individual, Governmental
Entity, or any workers’ representative organization, bargaining unit or union regarding labor
trouble or claim of wrongful discharge or other unlawful employment or labor practice or action
with respect to the Company or any of its Subsidiaries;




          (g) adoption or change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or any of its Subsidiaries;




          (h) adoption of or change in any election in respect of Taxes, adoption or change in any
accounting method in respect of Taxes, agreement or settlement of any claim or assessment in
respect of Taxes, or extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;




          (i) revaluation by the Company or any of its Subsidiaries of any of its assets (whether
tangible or intangible), including writing down the value of inventory or writing off notes or
accounts receivable;




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          (j) except as set forth in Section 2.10(j) of the Disclosure Schedule, any declaration, setting
aside or payment of a dividend or other distribution (whether in cash, stock or property) in
respect of any Company Capital Stock or the capital stock of any Subsidiary, or any split,
combination or reclassification in respect of any shares of Company Capital Stock or the capital
stock of any Subsidiary, or any issuance or authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for shares of Company Capital Stock or the capital
stock of any Subsidiary, or any direct or indirect repurchase, redemption, or other acquisition by
the Company of any shares of Company Capital Stock or the capital stock of any Subsidiary (or
options, warrants or other rights convertible into, exercisable or exchangeable therefor), except
in accordance with the agreements evidencing Company Options or Company Common Stock subject to
vesting;




          (k) except as expressly provided for in this Agreement, including without limitation, the
Company’s obligation to pay deferred compensation as provided for in Section 1.6(b)(i)(i) of this
Agreement, increase in or other change to the salary or other compensation payable or to become
payable by the Company or any of its Subsidiaries to any of their respective officers, directors,
employees, consultants or advisors, or the declaration, payment or commitment or obligation of any
kind for the payment (whether in cash or equity) by the Company or any of its Subsidiaries of a
severance payment, termination payment, bonus or other additional salary or compensation to any
such person;




          (l) material agreement, contract, covenant, instrument, lease, license or commitment to which
the Company or any of its Subsidiaries is a party or by which it or any of its assets (whether
tangible or intangible) are bound or any termination, extension, amendment or modification of the
terms of any material agreement, contract, covenant, instrument, lease, license or commitment to
which the Company or any of its Subsidiaries is a party or by which it or any of their assets are
bound;




          (m) sale, lease, license or other disposition of any of the assets (whether tangible or
intangible) or properties of the Company or any of its Subsidiaries, including the sale of any
accounts receivable of the Company or any of its Subsidiaries, or any creation of any security
interest in such assets or properties other than in the ordinary course of business consistent with
past practices;




          (n) loan by the Company or any of its Subsidiaries to any Person except for advances to
employees for travel and business expenses in the ordinary course of business consistent with past
practices, or purchase by the Company or any of its Subsidiaries of any debt securities of any
Person or amendment to the terms of any outstanding loan agreement;




          (o) incurring by the Company or any of its Subsidiaries of any indebtedness, amendment of the
terms of any outstanding loan agreement, guaranteeing by the Company or any of its Subsidiaries of
any indebtedness, issuance or sale of any debt securities of the Company or any of its Subsidiaries
or guaranteeing of any debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business consistent with past practices;




          (p) waiver or release of any right or claim of the Company or any of its Subsidiaries,
including any waiver, release or other compromise of any account receivable of the Company or any
of its Subsidiaries;




          (q) (i) commencement or settlement of any lawsuit by the Company or any of its Subsidiaries,
or (ii) commencement, settlement, notice or, to the Knowledge of the Company, threat of any lawsuit
or proceeding or other investigation against the Company or any of its Subsidiaries or relating to
any

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of their businesses, properties or assets, or to the Knowledge of the Company, any reasonable
basis for any of the foregoing;




          (r) notice of any claim or potential claim of ownership, interest or right by any person other
than the Company or any of its Subsidiaries of the Company Intellectual Property owned by or
developed or created by the Company or any of its Subsidiaries or of infringement by the Company or
any of its Subsidiaries of any other Person’s Intellectual Property;




          (s) issuance, grant, delivery, sale or purchase, or proposal, contract or agreement to issue,
grant, deliver, sell or purchase, by the Company or any of its Subsidiaries, of any shares of
Company Capital Stock or shares of capital stock of any of its Subsidiaries or securities
convertible into, or exercisable or exchangeable for, shares of Company Capital Stock or shares of
capital stock of any of its Subsidiaries, or any subscriptions, warrants, options, rights or
securities to acquire any of the foregoing, except for (i) issuances of Company Capital Stock upon
the exercise of Company Options or (ii) prior to the date hereof, the grant of restricted Company
Common Stock or options to purchase Company Common Stock to employees of the Company under the
Plan;




          (t) (i) sale, lease, license or transfer of any Company Intellectual Property or execution,
modification or amendment of any agreement with respect to Company Intellectual Property with any
Person or with respect to the Intellectual Property of any Person except in the ordinary course of
business consistent with past practice, or (ii) purchase or license of any Intellectual Property or
execution, modification or amendment of any agreement with respect to the Intellectual Property of
any Person, (iii) agreement or modification or amendment of an existing agreement with respect to
the development of any Intellectual Property with a third party (other than entering into Employee
Proprietary Information Agreements with new employees), or (iv) change in pricing or royalties set
or charged by the Company or any of its Subsidiaries to its customers or licensees or in pricing or
royalties set or charged by Persons who have licensed Intellectual Property to the Company or any
of its Subsidiaries;




          (u) agreement or modification to any Contract pursuant to which any other party is or was
granted marketing, distribution, development, manufacturing or similar rights of any type or scope
with respect to any products or technology of the Company or any of its Subsidiaries;




          (v) event or condition of any character that has had or is reasonably likely to have a Company
Material Adverse Effect;




          (w) purchase or sale of any interest in real property, granting of any security interest in
any real property or lease, license, sublease or other occupancy of any Leased Real Property or
other real property by the Company or any of its Subsidiaries;




          (x) acquisition by the Company or any Subsidiary or agreement by the Company or any Subsidiary
to acquire by merging or consolidating with, or by purchasing any assets or equity securities of,
or by any other manner, any business or corporation, partnership, association or other business
organization or division thereof, or other acquisition or agreement to acquire any assets or any
equity securities that are material, individually or in the aggregate, to the business of the
Company or its Subsidiaries;




          (y) grant by the Company or any Subsidiary of any severance or termination pay (in cash or
otherwise) to any Employee, including any officer, except payments made pursuant to written
agreements disclosed in the Disclosure Schedule;




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          (z) except as expressly provided for in this Agreement, adoption or amendment of any Company
Employee Plan, execution or amendment of any Employee Agreement, or payment or agreement by the
Company or any Subsidiary to pay any bonus or special remuneration to any director or employee, or
increase or modify the salaries, wage rates or other compensation (including any equity-based
compensation) of any Employee other than as may be required by applicable laws;




          (aa) execution of any strategic alliance, affiliate or joint marketing arrangement or
agreement by the Company or any Subsidiary;




          (bb) any action to accelerate the vesting schedule of any Company Options or Company Common
Stock;




          (cc) hiring, promotion, demotion or termination or other change to the employment status or
title of any employees;




          (dd) alteration of any interest of the Company or any Subsidiary in a Subsidiary or any
corporation, association, joint venture, partnership or business entity in which the Company or any
Subsidiary directly or indirectly holds any interest;




          (ee) cancellation, amendment or renewal of any insurance policy of the Company or any
Subsidiary; or




          (ff) agreement by the Company or any of its Subsidiaries, or any officer or employees on
behalf of the Company or any of its Subsidiaries, to do any of the things described in the
preceding clauses (a) through (ee) of this Section 2.10 (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).




     2.11 Accounts Receivable.



          (a) The Company has made available to Parent a list of all accounts receivable of the Company
and its Subsidiaries as of the Balance Sheet Date, together with an aging schedule indicating a
range of days elapsed since invoice.




          (b) All of the accounts receivable of the Company and its Subsidiaries arose in the ordinary
course of business, are carried at values determined in accordance with the cash method of
accounting, are not subject to any valid set-off or counterclaim, do not represent obligations for
goods sold on consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement and are collectible except to the extent of reserves therefor set
forth in the Current Balance Sheet or, for receivables arising subsequent to the Balance Sheet
Date, as reflected on the books and records of the Company (which receivables are recorded in
accordance with the cash method of accounting). No person has any Lien on any accounts receivable
of the Company and its Subsidiaries and no request or agreement for deduction or discount has been
made with respect to any accounts receivable of the Company and its Subsidiaries.




     2.12 Tax Matters.



          (a) Definition of Taxes. For the purposes of this Agreement, the term “Tax” or, collectively,
“Taxes” shall mean (i) any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes based upon or measured
by gross


-23-









 







receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property taxes as well as public
imposts, fees and social security charges (including health, unemployment, workers’ compensation
and pension insurance), together with all interest, penalties and additions imposed with respect to
such amounts, (ii) any liability for the payment of any amounts of the type described in clause (i)
of this Section 2.12(a) as a result of being a member of an affiliated, consolidated, combined or unitary
group for any period, and (iii) any liability for the payment of any amounts of the type described
in clauses (i) or (ii) of this Section 2.12(a) as a result of any express or implied obligation to
indemnify any other person or as a result of any obligation under any agreement or arrangement with
any other person with respect to such amounts and including any liability for taxes of a
predecessor entity.




          (b) Tax Returns and Audits.




               (i) The Company and each of its Subsidiaries have (a) prepared and timely filed all required
federal, state, local and foreign returns, estimates, information statements and reports
(“Returns”) relating to any and all Taxes concerning or attributable to the Company or any of its
Subsidiaries or their respective operations and such Returns are true and correct and have been
completed in accordance with applicable law and (b) timely paid all Taxes they are required to pay
or established adequate reserves on the Current Balance Sheet for such Taxes.



               (ii) The Company and each of its Subsidiaries have withheld with respect to their respective
Employees and other third parties, all federal, state and foreign income Taxes and social security
charges and similar fees, Federal Insurance Contribution Act, Federal Unemployment Tax Act and
other Taxes required to be withheld, and have timely paid all such Taxes to the appropriate
authorities.



               (iii) Neither the Company nor any of its Subsidiaries has been delinquent in the payment of
any Tax, nor is there any Tax deficiency outstanding, assessed or proposed against the Company or
any of its Subsidiaries, nor has the Company or any of its Subsidiaries executed any waiver of any
statute of limitations on or extending the period for the assessment or collection of any Tax.



               (iv) No audit or other examination of any Return of the Company or any of its Subsidiaries is
presently in progress, nor has the Company or any of its Subsidiaries been notified of any request
for such an audit or other examination.



               (v) As of the date of the Current Balance Sheet, neither the Company nor any of its
Subsidiaries has any liabilities for unpaid Taxes which have not been accrued or reserved on the
Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and neither the
Company nor any of its Subsidiaries has incurred any liability for Taxes since the Balance Sheet
Date other than in the ordinary course of business.



               (vi) The Company has provided to Parent or its legal counsel, copies of all Returns for the
Company and its Subsidiaries filed for the previous four taxable years.



               (vii) There are (and immediately following the Effective Time there will be) no Liens on the
assets of the Company or any of its Subsidiaries relating to or attributable to Taxes other than
Permitted Liens. Neither the Company nor any of its Subsidiaries has Knowledge of any basis for
the assertion of any claim relating or attributable to Taxes which, if adversely determined, would
result in any Lien (other than Permitted Liens) on the assets of the Company or any of its
Subsidiaries.



-24-









 





               (viii) None of the Company’s or any of its Subsidiaries’ assets is treated as “tax-exempt use
property,” within the meaning of Section 168(h) of the Code.



               (ix) Neither the Company nor any of its Subsidiaries has (a) ever been a member of an
affiliated group (within the meaning of Code §1504(a)) filing a consolidated federal income Tax
Return (other than a group the common parent of which was Company), (b) ever been a party to any
Tax sharing, indemnification or allocation agreement, (c) any liability for the Taxes of any person
(other than Company or any of its Subsidiaries), under Treasury Regulation §1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor, by contract or
agreement, or otherwise and (d) ever been a party to any joint venture, partnership or other
arrangement that could be treated as a partnership for Tax purposes.



               (x) The Company’s and each of its Subsidiaries’ tax basis in their respective assets for
purposes of determining its future amortization, depreciation and other income Tax deductions is
accurately reflected on the Company’s and its Subsidiaries’ Tax books and records.



               (xi) Neither the Company nor any of its Subsidiaries has been, at any time, a “United States
Real Property Holding Corporation” within the meaning of Section 897(c)(2) of the Code.



               (xii) No adjustment relating to any Return filed by the Company or any of its Subsidiaries has
been proposed formally or, to the Knowledge of the Company, informally by any Tax authority to the
Company or any of its Subsidiaries or any representative thereof.



               (xiii) Neither the Company nor any of its Subsidiaries has constituted either a “distributing
corporation” or a “controlled corporation” in a distribution of stock intended to qualify for
tax-free treatment under Section 355 of the Code (x) in the two years prior to the date of this
Agreement or (y) in a distribution which could otherwise constitute part of a “plan” or “series of
related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.



               (xiv) None of the Company or any of its Subsidiaries has engaged in a “reportable transaction”
as set forth in Treas. Reg. §1.6011-4(b), or any transaction that is the same or substantially
similar to one of the types of transactions that the Internal Revenue Service has determined to be
a Tax avoidance transaction and identified by notice, regulation, or other form of published
guidance as a “listed transaction,” as set forth in Treasury Regulation Section 1.6011-4(b)(2).



               (xv) The Company is and has at all times been resident for Tax purposes in its place of
incorporation or formation and is not and has not at any time been treated as resident in any other
jurisdiction for any Tax purpose (including any income tax treaty). The Company is not subject to
Tax in any jurisdiction other than its place of incorporation or formation by virtue of having a
branch, permanent establishment or other place of business or by virtue of having a source of
income in that jurisdiction, except for royalty income for which any income Tax is satisfied
through withholding. The Company is not liable for any Tax as the agent of any other person or
business and does not constitute a permanent establishment or other place of business of any other
person, business or enterprise for any Tax purpose.



               (xvi) The Company will not be required to include any material income or gain or exclude
any material deduction or loss from taxable income for any taxable year after the Closing Date as a
result of (a) any change in method of accounting under Section 481(c) of the Code, closing
agreement under Section 7121 of the Code, deferred intercompany gain or excess loss account under
Treasury Regulations



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under Section 1502 of the Code (or in each case, under any similar provision of applicable law),
(b) installment sale or open transaction disposition or (c) prepaid amount.



               (xvii) No relief (including by way of deduction, reduction, set-off, exemption or otherwise)
from, against or in respect of any Tax or charge has been claimed by or given to the Company or any
of its Subsidiaries which could be withdrawn, postponed, restricted or otherwise lost as a result
of any act, omission, event or circumstance arising or occurring at any time before the date hereof
or as a result of entering into this Agreement.



               (xviii) No power of attorney (or similar authority) relating to Tax matters, Tax audits or
Returns has been granted with respect to the Company or any of its Subsidiaries.



               (xix) The prices for any property or services (or for use of any property) charged by or to
the Company or any of its Subsidiaries are arm’s length prices for purposes of any applicable
transfer pricing laws, including Treasury Regulations promulgated under Section 482 of the Code.



               (xx) No claim has been made by any governmental entity in any jurisdiction where the Company
or any of its Subsidiaries does not file Returns that the Company or any such Subsidiary may be
subject to taxation by that jurisdiction.



               (xxi) The Company and each of its Subsidiaries have complied in all respects with all
applicable laws relating to the withholding and payment of Taxes (including withholding of Taxes
pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or any comparable provision of any
state, local or foreign laws) and have, within the time and in the manner prescribed by applicable
law, withheld from and paid over to the proper taxing authorities all amounts required to be so
withheld and paid over under such laws.



          (c) Executive Compensation Tax. There is no contract, agreement, plan or arrangement to
which the Company or any of its Subsidiaries is a party, including the provisions of this
Agreement, covering any Employee of the Company or any of its Subsidiaries, which, individually or
collectively, could give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code or that would give rise to a penalty under Section 409A of
the Code.




     2.13 Restrictions on Business Activities. There is no agreement (non-competition or
otherwise), commitment, judgment, injunction, order or decree to which the Company or any of its
Subsidiaries is a party or otherwise binding upon the Company or any of its Subsidiaries which has
or may reasonably be expected to have the effect of prohibiting or impairing any business practice
of the Company or any of its Subsidiaries, any acquisition of property (tangible or intangible) by
the Company or any of its Subsidiaries, the conduct of business by the Company or any of its
Subsidiaries, or otherwise limiting the freedom of the Company or any of its Subsidiaries to engage
in any line of business or to compete with any person. Without limiting the generality of the
foregoing, neither the Company nor any of its Subsidiaries has entered into any agreement under
which the Company or any of its Subsidiaries is restricted from selling, licensing, manufacturing
or otherwise distributing any of its technology or products or from providing services to customers
or potential customers or any class of customers, in any geographic area, during any period of
time, or in any segment of the market.



     2.14 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment; Customer
Information.



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          (a) Neither the Company nor any of its Subsidiaries owns any real property, nor has the
Company or any of its Subsidiaries ever owned any real property. Section 2.14(a) of the Disclosure
Schedule sets forth a complete and accurate list of all real property currently leased, subleased
or licensed by or from the Company or any of its Subsidiaries or otherwise used or occupied by the
Company or any of its Subsidiaries for the operation of their business (the “Leased Real
Property”), and a copy of each lease, license, sublease or other occupancy right and each amendment
thereto.




          (b) The Company has provided Parent true, correct and complete copies of all leases, lease
guaranties, subleases, agreements for the leasing, use or occupancy of, or otherwise granting a
right in or relating to the Leased Real Property, including all amendments, terminations and
modifications thereof (“Lease Agreements”); and there are no other Lease Agreements for real
property affecting the Leased Real Property or to which Company or any of its Subsidiaries is
bound, other than those identified in Section 2.14(a) of the Disclosure Schedule. All such Lease
Agreements are valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default, no rentals are past due, or event of default (or
event which with notice or lapse of time, or both, would constitute a default). Neither the
Company nor any of its Subsidiaries has received any notice of a default, alleged failure to
perform, or any offset or counterclaim with respect to any such Lease Agreement, which has not been
fully remedied and withdrawn. There are no other parties occupying or with a right to occupy, the
Leased Real Property, except as set forth in Section 2.14(a) of the Disclosure Schedule. Neither the
Company nor any of its Subsidiaries owes brokerage commissions or finders fees with respect to any
such Leased Real Property or would owe any such fees if any existing Lease Agreement were renewed
pursuant to any renewal options contained in such Lease Agreements.




          (c) The Leased Real Property is in good operating condition and repair, free from structural,
physical and mechanical defects, is maintained in a manner consistent with standards generally
followed with respect to similar properties, and is structurally sufficient and otherwise suitable
for the conduct of the business as presently conducted. Neither the operation of the Company or
any of its Subsidiaries on the Leased Real Property nor, to the Company’s Knowledge, such Leased
Real Property, including the improvements thereon, violate in any material respect any applicable
building code, zoning requirement or statute relating to such property or operations thereon.
There is not existing, the Company has not received any notice of, and to the Knowledge of the
Company, there is not presently contemplated or proposed, any eminent domain, condemnation or
similar action, or, to the Company’s Knowledge, zoning action or proceeding, with respect to any
portion of the Leased Real Property.




          (d) The Company and each of its Subsidiaries has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used or held for use in its business, free and clear of any
Liens, except (i) as reflected in the Current Balance Sheet, (ii) such imperfections of title and
encumbrances, if any, which do not detract from the value or interfere with the present use of the
property subject thereto or affected thereby and (iii) Permitted Liens.




          (e) All material items of equipment (the “Equipment”) owned or leased by the Company or any of
its Subsidiaries is in good operating condition, regularly and properly maintained, subject to
normal wear and tear.




          (f) The Company and each of its Subsidiaries has sole and exclusive ownership, free and clear
of any Liens, of all customer lists, customer contact information, customer correspondence and
customer licensing and purchasing histories relating to its current and former customers (the
“Customer

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Information”). No person other than the Company or its wholly owned Subsidiaries possesses
any claims or rights with respect to use of the Customer Information.




     2.15 Intellectual Property.



          (a) Definitions. For all purposes of this Agreement, the following terms shall have the
following respective meanings:




               “Company Intellectual Property” shall mean any and all Technology and Intellectual Property
Rights that are owned or purported to be owned by or exclusively licensed to the Company or its
Subsidiaries.



               “Company Product” shall mean all products, technologies and services developed (including
products, technologies and services under development), owned, made, provided, distributed,
imported, sold or licensed by or on behalf of the Company and any of its Subsidiaries.



               “Intellectual Property Rights” shall mean common law and statutory rights anywhere in the
world arising under or associated with (i) patents, patent applications and inventors’ certificates
(“Patent”), (ii) copyrights, copyright registrations and copyright applications, “moral” rights and
mask work rights (“Copyrights”), (iii) the protection of trade and industrial secrets and
confidential information (“Trade Secrets”), (iv) trademarks, trade names and service marks
(“Trademarks”), (iv) other proprietary rights relating or with respect to the protection of
Technology, (vi) divisions, continuations, renewals, reissuances and extensions of the foregoing
(as applicable) and (vii) analogous rights to those set forth above, including the right to enforce
and recover damages for the infringement or misappropriation of for any of the foregoing.



               “Object Code” shall mean software, including GDSII files, substantially or entirely in binary
form, which is intended to be directly executable by a computer after suitable processing and
linking but without the intervening steps of compilation or assembly or from which semiconductor
mask works can be derived.



               “Open Source Materials” shall mean all software or other material that is distributed as “free
software”, “open source software” or under a similar licensing or distribution terms (an “Open
Source License”), including, but not limited to, the GNU General Public License (GPL), GNU Lesser
General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License,
the Netscape Public License, the Sun Community Source License (SCSL) the Sun Industry Standards
License (SISL) and the Apache License.



               “Registered Intellectual Property” shall mean applications, registrations and filings for
Intellectual Property Rights that have been registered, filed, certified or otherwise perfected or
recorded with or by any state, government or other public or quasi public legal authority.



               “Source Code” shall mean software and code, including RTL, other than Object Code form,
including related comments and annotations, help text, data and data structures, instructions and
procedural, object oriented and other code, which may be printed out or displayed in human readable
form or from which Object Code can be derived by compilation or otherwise.



               “Technology” shall mean any or all of the following (i) works of authorship including computer
programs, Source Code, and executable code, RTL, GDSII files, whether embodied in



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software, firmware or otherwise, architecture, documentation, designs, files, records, and
data, (ii) inventions (whether or not patentable), discoveries, improvements, and technology, (iii)
proprietary and confidential information, trade secrets and know how, (iv) databases, data
compilations and collections and technical data, (v) logos, trade names, trade dress, trademarks
and service marks, (vi) domain names, web addresses and sites, (vii) tools, methods and processes,
(viii) devices, prototypes, schematics, breadboards, netlists, maskworks, test methodologies,
verilog files, emulation and simulation reports, test vectors and hardware development tools, and
(ix) any and all instantiations of the foregoing in any form and embodied in any media.



          (b) Section 2.15(b) of the Disclosure Schedule sets forth as of the date hereof a true, complete and
correct list of all Registered Intellectual Property owned by or filed in the name of Company or
any of its Subsidiaries (collectively the “Company Registered Intellectual Property”). The Company
Registered Intellectual Property is valid and subsisting (except with respect to applications), and
has not expired or been cancelled, or abandoned. There are no actions that must be taken by the
Company or any of its Subsidiaries within 120 days of the date hereof, including the payment of any
registration, maintenance or renewal fees or the filing of any documents, applications or
certificates for the purposes of maintaining, perfecting or preserving or renewing any Company
Registered Intellectual Property.




          (c) Except as set forth in Section 2.15(c) of the Disclosure Schedule, all Company Intellectual
Property is owned exclusively by Company or one or more of its Subsidiaries free and clear of any
Liens. Neither the Company nor any of its Subsidiaries has transferred ownership of, in whole or
in part, or granted an exclusive license to, any third party, of any Intellectual Property Rights
that are or were Company Intellectual Property.




          (d) Except as set forth on Section 2.15(d) of the Disclosure Schedule, all Company Intellectual
Property used in or necessary to the conduct of Company’s business as presently conducted or
currently contemplated to be conducted by the Company was written and created solely by either (i)
employees of the Company acting within the scope of their employment who have validly and
irrevocably assigned all of their rights, including all Intellectual Property Rights therein, to
the Company or (ii) by third parties who have validly and irrevocably assigned all of their rights,
including all Intellectual Property Rights therein, to the Company, and no third party owns or has
any rights to any of the Company Intellectual Property.




          (e) Except as set forth in Section 2.15(e) of the Disclosure Schedule, there is no pending or, to
the Company’s Knowledge, threatened (and at no time since the date of the Company’s incorporation
has there been pending any) suit, arbitration or other adversarial proceeding before any court,
government agency or arbitral tribunal or in any jurisdiction alleging that any activities or
conduct of the Company’s or any of its Subsidiaries’ business infringes or will infringe upon,
violate or constitute the unauthorized use of the Intellectual Property Rights of any third party
or challenging the ownership, validity, enforceability or registerability of any Company
Intellectual Property. The Company is not party to any settlements, covenants not to sue,
consents, decrees, stipulations, judgments, or orders resulting from suits, actions or similar
legal proceedings which (i) restrict the Company’s or any of its Subsidiaries’ rights to use,
license or transfer any Company Intellectual Property, (ii) restrict the conduct of the business of
the Company or any of its Subsidiaries in order to accommodate any third party’s Intellectual
Property Rights, or (iii) compel or require the Company or any of its Subsidiaries to license or
transfer any Company Intellectual Property.




          (f) The conduct of the business of the Company and its Subsidiaries (including the making,
using, selling, offering, performing and distributing any products or services) has not, and does
not as

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currently conducted, infringe upon, violate or constitute the unauthorized use of any
Intellectual Property Rights owned by any third party.




          (g) The Company and its Subsidiaries have taken reasonable measures to protect the proprietary
nature of the Intellectual Property Rights owned by the Company or such Subsidiary that is material
to the business of the Company and its Subsidiaries as currently conducted.




          (h) All Company Intellectual Property is, and following the transactions contemplated hereby
shall be freely transferable, alienable and exportable without the consent of, or notice to any
Governmental Entity or third party or the payment of any kind.




          (i) No third party that has licensed Intellectual Property or Intellectual Property Rights to
the Company or any of its Subsidiaries has ownership rights or license rights to improvements or
derivative works made by the Company or any of its Subsidiaries in such Intellectual Property that
has been licensed to the Company or any of its Subsidiaries.




          (j) No government funding, facilities or resources of a university, college, other educational
institution or research center or funding from third parties was used in the development of the
Company Intellectual Property. No Governmental Entity, university, college, other educational
institution or research center has any claim or right in or to the Company Intellectual Property.




          (k) The Company is not and has never been a member or promoter of, or a contributor to, any
industry standards body or similar organization that could require or obligate the Company to grant
or offer to any other person any license or right to any Company Intellectual Property.




          (l) To the Company’s Knowledge, no third party is misappropriating, infringing, diluting or
violating any material Company Intellectual Property. Neither Company nor any of its Subsidiaries
has brought any claims, suits, arbitrations or other adversarial proceedings before any court,
government agency or arbitral tribunal against any third party with respect to any Company
Intellectual Property which remain unresolved as of the date hereof.




          (m) Except as set forth in Section 2.15(m) of the Disclosure Schedule, neither the Company nor any
of its Subsidiaries has (i) granted, or is obligated to grant, access or rights to any of its
Source Code in or for any Company Product, (ii) made its Source Code for any Company Product
subject to any Open Source License or combined or distributed any Company Products with Open Source
Materials, or (iii) licensed or has granted a third party the right to obtain any Source Code for
or in any Company Product (including in any such case any conditional right to access or under
which the Company has established any escrow arrangement for the storage and conditional release of
any Source Code). None of the Company Products contains any third party software subject to an
Open Source License.




          (n) Except as set forth in Section 2.15(n) of the Disclosure Schedule, neither the Company nor any
of its Subsidiaries has any obligation to pay any third party any royalties or other fees in excess
of $20,000 in the aggregate in calendar year 2007 with respect to any Intellectual Property Rights
of a third party and no obligation to pay such royalties or other fees will result from the
execution and delivery by the Company of this Agreement and the consummation of the transactions
contemplated by this Agreement.




          (o) Section 2.15(o) of the Disclosure Schedule lists all Contracts whereby the Company has agreed
to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or

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otherwise assume or incur any obligation or liability or provide a right of rescission with
respect to the infringement or misappropriation by the company, any of its Subsidiaries or such
other person of the Intellectual Property Rights of any person other than the Company or any of its
Subsidiaries.




          (p) Section 2.15(p) of the Disclosure Schedule list all Contracts pursuant to which a third party
has licensed to the Company or any of its Subsidiaries any Intellectual Property Right or
Technology (“In-Licenses”) other than Contracts with respect to Technology that is commercially
available for an aggregate fee of less than $10,000.00.




          (q) Section 2.15(q) Disclosure Schedule list all Contracts pursuant to which the Company or any of
its Subsidiaries has granted a third party or affiliate any rights or licenses to any Company
Intellectual Property other than non-exclusive licenses granted in the ordinary course in
connection with the sale or distribution of Company Products (“Out-Licenses”; together with the
In-Licenses, the “IP Licenses”).




          (r) Neither the Company nor any of its Subsidiaries is in violation of any IP License that is
material to the business of the Company or any of its Subsidiaries or where the breach thereof is
likely to result in a claim by or against the Company. The consummation of the transactions
contemplated hereby will not result or cause (i) the breach by the Company or any of its
Subsidiaries of any IP License, (ii) the impairment or restriction of any right or licenses granted
to the Company or any of its Subsidiaries under an In-License, or (iii) the Company or any of its
Subsidiaries to grant, or expand the scope of a prior grant, of any rights to any material Company
Intellectual Property to a third party (including by the release of any Source Code of Company).




          (s) Section 2.15(s) of the Disclosure Schedule lists all (i) Contracts pursuant to which any third
party supplies components to the Company that are used in the production of Company Products, (ii)
Contracts with distributors of Company Products, (iii) Contracts with the top ten (10) suppliers as
measured in accordance with Section 2.29(a) and (iv) Contracts with the top ten (10) customers as
measured in accordance with Section 2.29(b).




          (t) Section 2.15(t) of the Disclosure Schedule lists all Company Products. The Company has provided
Parent a schedule of product releases which schedule is included in Section 2.15(t) of the Disclosure
Schedule. The Company has a good faith reasonable belief that it can achieve the release of
products on such schedule of product releases and is not currently aware of any change in its
circumstances or other fact that has occurred that would cause it to believe that it will be unable
to meet such release schedule.




          (u) Except for the warranties and indemnities contained in those contracts and agreements set
forth in Section 2.15(u) of the Disclosure Schedule and warranties implied by law (other than
non-exclusive licenses granted in connection with the sale of Company Products or related support
and maintenance agreements that have been entered into in the ordinary course of business
consistent with past practices that do not materially differ in substance from the Company’s
standard forms of agreement including attachments (copies of which have been provided to Parent)),
neither the Company nor any of its Subsidiaries has given any warranties or indemnities relating to
products or technology sold or services rendered by the Company or any of its Subsidiaries.




          (v) Neither this Agreement nor the transactions contemplated by this Agreement, including any
assignment to Parent by operation of law as a result of the Merger of any contracts or agreements
to which the Company or any of its Subsidiaries is a party, will result in: (i) Parent, any of its
subsidiaries or the Surviving Corporation granting to any third party any right to or with respect
to any




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Intellectual Property Rights owned by, or licensed to, any of them prior to the Closing, (ii)
Parent, any of its subsidiaries or the Surviving Corporation, being bound by, or subject to, any
non-compete or other material restriction on the operation or scope of their respective businesses,
or (iii) Parent, any of its subsidiaries or the Surviving Corporation being obligated to pay any
royalties or other material amounts, or offer any discounts, to any third party in excess of those
payable by, or required to be offered by, any of them, respectively, in the absence of this
Agreement or the transactions contemplated hereby.




     2.16 Agreements, Contracts and Commitments. Except as set forth in Section 2.16 of the
Disclosure Schedule (specifying the appropriate paragraph):



          (a) Neither the Company nor any of its Subsidiaries is a party to, nor is it bound by:




               (i) any employment, contractor or consulting agreement, contract or commitment with an
employee or individual consultant, contractor, or salesperson, any agreement, contract or
commitment to grant any severance or termination pay (in cash or otherwise) to any employee, or any
contractor, consulting or sales agreement, contract, or commitment with a firm or other
organization except (1) on the Company’s standard form of offer letter or (2) as otherwise may be
required by applicable law;



               (ii) any agreement or plan, including any stock option plan, stock appreciation rights plan or
stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement;



               (iii) any fidelity or surety bond or completion bond;



               (iv) any lease of personal property having a value in excess of $20,000 individually or
$50,000 in the aggregate;



               (v) any agreement of indemnification or guaranty except for the warranties and indemnities (a)
contained in those contracts and agreements set forth in Section 2.16(a)(v) of the Disclosure Schedule
(other than non-exclusive licenses granted in connection with the sale of Company products or
related support and maintenance agreements that have been entered into in the ordinary course of
business consistent with past practices that do not materially differ in substance from the
Company’s standard forms of agreement including attachments (copies of which have been provided to
Parent)), and (b) warranties implied by law;



               (vi) any agreement, contract or commitment relating to capital expenditures and involving
future payments in excess of $20,000 individually or $50,000 in the aggregate;



               (vii) any agreement, contract or commitment relating to the disposition or acquisition of
assets or any interest in any business enterprise outside the ordinary course of the Company’s
business;



               (viii) any mortgages, indentures, guarantees, loans or credit agreements, security agreements
or other agreements or instruments relating to the borrowing of money or extension of credit;



               (ix) any purchase order for the purchase of materials involving in excess of $20,000
individually or $50,000 in the aggregate;



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               (x) any construction contracts;



               (xi) any dealer, distribution, joint marketing, strategic alliance, affiliate or development
agreement (other than non-exclusive licenses granted in connection with the sale of Company
products or related support and maintenance agreements that have been entered into in the ordinary
course of business that do not materially differ in substance from the Company’s standard forms
agreement including attachments (copies of which have been provided to Parent));



               (xii) any agreement, contract or commitment to alter the Company’s interest in any Subsidiary,
corporation, association, joint venture, partnership or business entity in which the Company
directly or indirectly holds any interest;



               (xiii) any sales representative, original equipment manufacturer, manufacturing, value added,
remarketer, reseller, or independent software vendor, or other agreement for use or distribution of
the products, technology or services of the Company or any of its Subsidiaries (other than
non-exclusive licenses granted in connection with the sale of Company products or related support
and maintenance agreements that have been entered into in the ordinary course of business that do
not materially differ in substance from the Company’s standard forms agreement including
attachments (copies of which have been provided to Parent); or



               (xiv) any other agreement, contract or commitment that involves $20,000 individually or
$50,000 in the aggregate or more and is not cancelable without penalty within 30 days.



          (b) Each Material Contract to which the Company or any of its Subsidiaries is a party or any
of their respective properties or assets (whether tangible or intangible) is subject is a valid and
binding agreement of the Company or its Subsidiaries, as the case may be, enforceable against each
of the parties thereto in accordance with its terms, and is in full force and effect with respect
to the Company or the applicable Subsidiary and, to the Knowledge of the Company, any other party
thereto. The Company and each of its Subsidiaries are in compliance with and have not breached,
violated or defaulted under, or received notice that they have breached, violated or defaulted
under, any of the terms or conditions of any such Material Contract, nor to the Knowledge of the
Company is any party obligated to the Company or any of its Subsidiaries pursuant to any such
Contract subject to any breach, violation or default thereunder, nor does the Company have
Knowledge of any event that with the lapse of time, giving of notice or both would constitute such
a breach, violation or default by the Company, its Subsidiaries or any such other party. True and
complete copies of each Material Contract disclosed in the Disclosure Schedule or required to be
disclosed pursuant to this Section 2.16 (each a “Material Contract” and collectively, the “Material
Contracts”) have been delivered to Parent.




          (c) The Company and each of its Subsidiaries have fulfilled all material obligations required
pursuant to each Material Contract to have been performed by the Company prior to the date hereof,
and, without giving effect to the Merger, the Company will fulfill, when due, all of its
obligations under the Material Contracts that remain to be performed after the date hereof.




          (d) All outstanding indebtedness of the Company or its Subsidiaries may be prepaid without
penalty.




     2.17 Interested Party Transactions. Except as set forth in Section 2.17 of the Disclosure
Schedule, no officer or director or, to the Company’s Knowledge, other Shareholder of the Company
or any



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of its Subsidiaries (nor any parent, sibling, descendant or spouse of any of such persons, or any
trust, partnership or corporation in which any of such persons has or has had an interest), has or
has had, directly or indirectly, (i) an interest in any entity which furnished or sold, or
furnishes or sells, services, products, technology or Intellectual Property that the Company or any
of its Subsidiaries furnishes or sells, or proposes to furnish or sell, or (ii) any interest in any
entity that purchases from or sells or furnishes to the Company or any of its Subsidiaries, any
goods or services, or (iii) a beneficial interest in any Contract to which the Company or any of
its Subsidiaries is a party; provided, however, that ownership of no more than one percent (1%) of
the outstanding voting stock of a publicly traded corporation shall not be deemed to be an
“interest in any entity” for purposes of this Section 2.17. To the Company’s Knowledge, there are no
agreements, contracts, or commitments with regard to contribution or indemnification between or
among any of the Shareholders.



     2.18 Governmental Authorization. Each consent, license, permit, grant or other authorization
(i) pursuant to which the Company or any of its Subsidiaries currently operates or holds any
interest in any of their respective properties, or (ii) which is required for the operation of the
Company’s or any of its Subsidiaries’ business as currently conducted or currently contemplated to
be conducted or the holding of any such interest (collectively, “Company Authorizations”) has been
issued or granted to the Company and each Subsidiary, as the case may be. The Company and its
Subsidiaries are and have been at all times in compliance, in all material respects, with all
Company Authorizations. The Company Authorizations are in full force and effect and constitute all
Company Authorizations required to permit the Company and its Subsidiaries to operate or conduct
their respective businesses or hold any interest in their respective properties or assets.



     2.19 Litigation. There is no action, suit, claim or proceeding of any nature pending, or to
the Knowledge of the Company, threatened, against the Company or any of its Subsidiaries, their
properties (tangible or intangible) or any of their officers or directors, nor to the Knowledge of
the Company is there any reasonable basis therefor. There is no investigation or other proceeding
pending or, to the Knowledge of the Company, threatened, against the Company or any of its
Subsidiaries, any of their respective properties (tangible or intangible) or any of their officers
or directors by or before any Governmental Entity, nor to the Knowledge of the Company is there any
reasonable basis therefor. No Governmental Entity has at any time challenged or questioned the
legal right of the Company or any of its Subsidiaries to conduct their respective operations as
presently or previously conducted or as currently contemplated to be conducted. There is no
action, suit, claim or proceeding of any nature pending or, to the Knowledge of the Company,
threatened, against any Person who has a contractual right or a right pursuant to California Law to
indemnification from the Company related to facts and circumstances existing prior to the Effective
Time, nor are there, to the Knowledge of the Company, any facts or circumstances that would give
rise to such an action, suit, claim or proceeding.



     2.20 Minute Books. The minutes of the Company and each of its Subsidiaries delivered to
counsel for Parent contain complete and accurate records of all actions taken, and summaries of all
meetings held, by the Shareholders, the Board of Directors of the Company and its Subsidiaries (and
any committees thereof) since the time of incorporation of the Company and each of its
Subsidiaries, as the case may be. At the Closing, the minute books of the Company and each of its
Subsidiaries will be in the possession of the Company.



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     2.21 Environmental Matters.



          (a) Hazardous Material. Except as would not be reasonably likely to result in a material
liability to the Company or any of its Subsidiaries, neither the Company nor any of its
Subsidiaries has: (i) operated any underground storage tanks at any property that the Company or
any of its Subsidiaries has at any time owned, operated, occupied or leased, or (ii) released any
amount of any substance that has been designated by any Governmental Entity or by applicable
foreign, federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos, petroleum, toxic mold,
urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery Act of 1976, as
amended, and the regulations promulgated pursuant to said laws, but excluding office and janitorial
supplies properly and safely maintained, (a “Hazardous Material”). Except as would not be
reasonably likely to result in a material liability to the Company or any of its Subsidiaries, no
Hazardous Materials are present, as a result of the actions of the Company or any of its
Subsidiaries or any affiliate of the Company, or, to the Company’s Knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company or any of its Subsidiaries
has at any time owned, operated, occupied or leased. Neither the Company nor any of its
Subsidiaries currently sells (i) any products containing Hazardous Materials that will be banned or
restricted by the Restrictions on the Use of Certain Hazardous Substances in Electrical and
Electronic Equipment (2002/95/EC) directive (“RoHS”) or (ii) any products for which it is required
to pay a waste fee under California law. To the Knowledge of the Company, there are no facts or
circumstances likely to prevent or delay the ability of the Company or any of its Subsidiaries to
comply, when required, with RoHS. The Company and its Subsidiaries are in compliance in all
material respects with the registration and labeling requirements of the Waste Electrical and
Electronic Equipment Directive (2002/96/EC).




          (b) Hazardous Materials Activities. The Company and each of its Subsidiaries have conducted
all Hazardous Material Activities in compliance in all material respects with all applicable
Environmental Laws and in a manner that would not be reasonably likely to result in material
liability to the Company or any of its Subsidiaries. The Hazardous Materials Activities of the
Company and its Subsidiaries prior to the Closing have not resulted in the exposure of any person
to a Hazardous Material in a manner which has caused or could reasonably be expected to cause an
adverse health effect to any such person. For the purposes of this Section 2.21(b), the term “Hazardous
Materials Activities” shall mean the transfer, recycling, storage, use, treatment, manufacture,
removal, remediation, release, exposure of others to, sale, or distribution of any Hazardous
Material or any product or waste containing a Hazardous Material, or product manufactured with
Ozone depleting substances, including, without limitation, any required labeling, payment of waste
fees or charges (including so-called e-waste fees) and compliance with any product take-back or
product content requirements.




          (c) Permits. The Company and each of its Subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the “Environmental Permits”) necessary for
the conduct of their Hazardous Material Activities, and other businesses of each of the Company and
each of its Subsidiaries as such activities and businesses are currently being conducted and as
currently contemplated to be conducted.




          (d) Environmental Liabilities. No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to the Knowledge of the Company, threatened,
concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of the




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Company or any of its Subsidiaries. The Company has no Knowledge of any fact or circumstance that
could involve the Company or any of its Subsidiaries in any environmental litigation or impose upon
the Company or any of its Subsidiaries any environmental liability.




          (e) Reports and Records. The Company and each of its Subsidiaries have delivered to Parent
all records in the Company’s or each such Subsidiary’s possession, custody or control concerning
the Hazardous Materials Activities of the Company and each of its Subsidiaries relating to their
business and all environmental audits and environmental assessments of any Leased Real Property, or
otherwise in the possession, custody or control of the Company or any of its Subsidiaries. The
Company and each of its Subsidiaries have complied with all environmental disclosure obligations
imposed by applicable law with respect to this transaction.




     2.22 Brokers’ and Finders’ Fees. Neither the Company nor any of its Subsidiaries has
incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees
or agents’ commissions, fees related to investment banking or similar advisory services or any
similar charges in connection with the Agreement or any transaction contemplated hereby, nor will
Parent or the Surviving Corporation incur, directly or indirectly, any such liability based on
arrangements made by or on behalf of the Company. Section 2.22(a) of the Disclosure Schedule sets
forth the principal terms and conditions of any agreement, written or oral, with respect to such
fees.



     2.23 Employee Benefit Plans and Compensation.



          (a) Definitions. For purposes of this Agreement, the following terms shall have the following
meanings:




               “CFRA” shall mean the California Family Rights Act of 1993, as amended.



               “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.



               “Company Employee Plan” shall mean any plan, program, policy, practice, contract, agreement or
other arrangement providing for compensation, severance, termination pay, deferred compensation,
performance awards, stock or stock-related awards, welfare benefits, fringe benefits or other
employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or
unfunded, including, but not limited to, each “employee benefit plan,” within the meaning of
Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be
contributed to, by the Company, any of its Subsidiaries or any ERISA Affiliate for the benefit of
any Employee, and with respect to which the Company, any of its Subsidiaries or any ERISA Affiliate
has or may have any liability or obligation.



               “DOL” shall mean the United States Department of Labor.



               “Employee” shall mean any current or former employee, consultant or director of the Company,
any of its Subsidiaries or any ERISA Affiliate.



               “Employee Agreement” shall mean each management, employment, severance, consulting,
contractor, relocation, repatriation, expatriation, loan, visa, work permit or other agreement, or
contract (including, any offer letter or any agreement providing for acceleration of Company
Options or Company Common Stock) between the Company, any of its Subsidiaries or any ERISA
Affiliate and any Employee.



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



               “ERISA Affiliate” shall mean any other Person under common control with the Company or any of
its Subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code, and the
regulations issued thereunder.



               “FMLA” shall mean the Family Medical Leave Act of 1993, as amended.



               “HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996, as
amended.



               “International Employee Plan” shall mean each Company Employee Plan or Employee Agreement that
has been adopted or is maintained by the Company, any of its Subsidiaries or any ERISA Affiliate,
whether formally or informally or with respect to which the Company, any of its Subsidiaries or any
ERISA Affiliate will or may have any liability with respect to Employees who perform services
outside the United States.



               “International Employees” means any Employee who performs services outside of the United
States and whose principal place of employment is outside the United States.



               “IRS” shall mean the United States Internal Revenue Service.



               “PBGC” shall mean the United States Pension Benefit Guaranty Corporation.



               “Pension Plan” shall mean each Company Employee Plan that is an “employee pension benefit
plan,” within the meaning of Section 3(2) of ERISA.



          (b) Schedule. Section 2.23(b)(1) of the Disclosure Schedule contains an accurate and complete list
of each Company Employee Plan and each Employee Agreement. Neither Company nor any of its
Subsidiaries has made any plan or commitment to establish any new Company Employee Plan or Employee
Agreement, to modify any Company Employee Plan or Employee Agreement (except to the extent required
by law or to conform any such Company Employee Plan or Employee Agreement to the requirements of
any applicable law), or to enter into any Company Employee Plan or Employee Agreement except for
entering into at-will offer letters for Persons to be employees in the United States or entering
into Employment Agreements with International Employees in each case as previously disclosed to
Parent in writing, or as required by this Agreement. Section 2.23(b)(2) of the Disclosure Schedule sets
forth a table setting forth the name and annual base salary of each employee of the Company and
each of its Subsidiaries as of the date hereof. To the Knowledge of the Company, no employee
listed on Section 2.23(b)(2) of the Disclosure Schedule intends to terminate his or her employment for
any reason. Section 2.23(b)(3) of the Disclosure Schedule contains an accurate and complete list of all
Persons that currently have a consulting or advisory relationship with the Company or any of its
Subsidiaries.




          (c) Documents. The Company and each of its Subsidiaries has provided to Parent (i) correct
and complete copies of all documents embodying each Company Employee Plan and each Employee
Agreement including all amendments thereto and all related trust documents, (ii) the three most
recent annual reports (Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan,
(iii) if the Company Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets,




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(iv) the most recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Company Employee Plan, (v)
all material written agreements and contracts relating to each Company Employee Plan, including
administrative service agreements and group insurance contracts, (vi) all communications material
to any Employee or Employees relating to any Company Employee Plan and any proposed Company
Employee Plan, in each case, relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other events which would
result in any liability to the Company or any of its Subsidiaries, (vii) all correspondence to or
from any governmental agency relating to any Company Employee Plan, (viii) all COBRA forms and
related notices, (ix) all policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Company Employee Plan, (x) all discrimination tests for each Company Employee
Plan for the three most recent plan years, (xi) all registration statements, annual reports and
prospectuses prepared in connection with each Company Employee Plan, (xii) all HIPAA Privacy
Notices and all Business Associate Agreements to the extent required under HIPAA and (xiii) the
most recent IRS determination or opinion letter issued with respect to each Company Employee Plan.




          (d) Employee Plan Compliance. The Company and each of its Subsidiaries has performed in all
material respects, all obligations required to be performed by them under, is not in default or
violation of, and the Company and each of its Subsidiaries has no Knowledge of any default or
violation by any other party to, any Company Employee Plan, and each Company Employee Plan has been
established and maintained in accordance with its terms and in material compliance with all
applicable laws, statutes, orders, rules and regulations, including ERISA or the Code. Any Company
Employee Plan intended to be qualified under Section 401(a) of the Code has obtained a favorable
determination letter (or opinion letter, if applicable) as to its qualified status under the Code.
To the Company’s Knowledge, no “prohibited transaction,” within the meaning of Section 4975 of the
Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has
occurred with respect to any Company Employee Plan. There are no actions, suits or claims pending
or, to the Knowledge of the Company, threatened or reasonably anticipated (other than routine
claims for benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan. Each Company Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without liability to Parent, the Company,
any of its Subsidiaries or any ERISA Affiliate (other than ordinary administration expenses).
There are no audits, inquiries or proceedings pending or to the Knowledge of the Company or any
ERISA Affiliates, threatened by the IRS, DOL, or any other Governmental Entity with respect to any
Company Employee Plan. Neither the Company, any of its Subsidiaries nor any ERISA Affiliate is
currently subject to any penalty or Tax with respect to any Company Employee Plan under Section
502(i) of ERISA or Sections 4975 through 4980 of the Code and no such penalty or tax is reasonably
anticipated. The Company and each of its Subsidiaries have timely made all contributions and other
payments required by and due under the terms of each Company Employee Plan.




          (e) No Pension Plan. Neither the Company, any of its Subsidiaries nor any ERISA Affiliate has
ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan
subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.




          (f) No Self-Insured Plan. Neither the Company, any of its Subsidiaries nor any ERISA
Affiliate has ever maintained, established, sponsored, participated in or contributed to any
self-insured plan that provides benefits to employees (including any such plan pursuant to which a
stop-loss policy or contract applies) and no Company Employee Plan is self-insured.




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          (g) Collectively Bargained, Multiemployer and Multiple-Employer Plan. At no time has the
Company, any of its Subsidiaries or any ERISA Affiliate contributed to or been obligated to
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA). Neither the Company,
any of its Subsidiaries nor any ERISA Affiliate has at any time ever maintained, established,
sponsored, participated in or contributed to any multiple employer plan or to any plan described in
Section 413 of the Code.




          (h) Retiree Obligations. No Company Employee Plan or Employee Agreement provides, or reflects
or represents any liability to provide, retiree life insurance, retiree health or other retiree
employee welfare benefits to any person for any reason, except as may be required by COBRA or other
applicable statute, and neither the Company nor any of its Subsidiaries has ever represented,
promised or contracted (whether in oral or written form) to any Employee (either individually or to
Employees as a group) or any other person that such Employee(s) or other person would be provided
with retiree life insurance, retiree health or other retiree employee welfare benefits, except to
the extent required by statute.




          (i) COBRA; FMLA; CFRA; HIPAA. The Company, each of its Subsidiaries and each ERISA Affiliate
has, prior to the Effective Time, materially complied with COBRA, FMLA, CFRA and HIPAA.




          (j) Effect of Transaction. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby or any termination of employment or service in
connection therewith will (i) result in any payment (including severance, golden parachute, bonus
or otherwise), becoming due to any Employee, (ii) result in any forgiveness of indebtedness, (iii)
materially increase any benefits otherwise payable by the Company or any Subsidiary or (iv) result
in the acceleration of the time of payment or vesting of any such benefits except as required under
Section 411(d)(3) of the Code.




          (k) Parachute Payments. There is no agreement, plan, arrangement or other contract covering
any Employee that, considered individually or considered collectively with any other such
agreements, plans, arrangements or other contracts, will, or could reasonably be expected to, give
rise directly or indirectly to the payment of any amount that would be characterized as a
“parachute payment” within the meaning of Section 280G(b)(1) of the Code. There is no agreement,
plan, arrangement or other contract by which the Company or any of its Subsidiaries is bound to
compensate any Employee for excise taxes paid pursuant to Section 4999 of the Code. Section 2.23(k) of
the Disclosure Schedule lists all persons who the Company reasonably believes are “disqualified
individuals” (within the meaning of Section 280G of the Code and the regulations promulgated
thereunder) as determined as of the date hereof.




          (l) Section 409A. No compensation shall be includable in the gross income of any Employee as
a result of the operation of the Code Section 409A with respect to any arrangements or agreements
in effect prior to the Effective Time.




          (m) Employment Matters. The Company and each of its Subsidiaries is in compliance in all
material respects with all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment, employee safety
and wages and hours, and in each case, with respect to Employees: (i) has withheld and reported all
amounts required by law or by agreement to be withheld and reported with respect to wages, salaries
and other payments to Employees, (ii) is not liable for any arrears of wages, severance pay or any
Taxes or any penalty for failure to comply with any of the foregoing, and (iii) is not liable for
any payment to any trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits, social security or
other benefits or obligations for Employees (other than routine payments to be

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made in the normal course of business and consistent with past practice). There are no action,
suits, claims or administrative matters pending or threatened against the Company, any of its
Subsidiaries, or any of their Employees relating to any Employee, Employee Agreement or Company
Employee Plan. There are no pending or threatened or reasonably anticipated claims or actions
against Company, any of its Subsidiaries, any Company trustee or any trustee of any Subsidiary
under any workers’ compensation policy. The services provided by each of the Company’s, each
Subsidiary’s and their ERISA Affiliates’ Employees is terminable at the will of the Company and its
ERISA Affiliates. To the Knowledge of the Company, neither the Company nor any ERISA Affiliate has
direct or indirect liability with respect to any misclassification of any person as an independent
contractor rather than as an employee, or with respect to any employee leased from another
employer.




          (n) Labor. No work stoppage or labor strike against the Company or any of its Subsidiaries is
pending, or to the Knowledge of the Company, threatened, or reasonably anticipated. The Company
has no Knowledge of any activities or proceedings of any labor union to organize any Employees.
There are no actions, suits, claims, labor disputes or grievances pending or threatened or
reasonably anticipated relating to any labor matters involving any Employee, including charges of
unfair labor practices. Neither the Company nor any of its Subsidiaries has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act. Neither the Company nor
any of its Subsidiaries does presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company or any of its Subsidiaries. Within the
past year as measured from the date of this Agreement, neither the Company nor any of its
Subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act or any similar state or local law that remains unsatisfied.




          (o) No Interference or Conflict. To the Knowledge of the Company, no Shareholder, director,
officer, Employee or consultant of the Company or any of its Subsidiaries is obligated under any
contract or agreement, subject to any judgment, decree, or order of any court or administrative
agency that would interfere with such person’s efforts to promote the interests of the Company or
any of its Subsidiaries or that would interfere with the Company’s business. Neither the execution
nor delivery of this Agreement, nor the carrying on of the Company’s business as presently
conducted or proposed to be conducted nor any activity of such officers, directors, Employees or
consultants in connection with the carrying on of the Company’s business or any of its
Subsidiaries’ businesses as presently conducted or currently proposed to be conducted will, to the
Knowledge of the Company, conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract or agreement under which any of such
officers, directors, Employees, or consultants is now bound.




          (p) International Employee Plan. Neither the Company, any of its Subsidiaries nor any ERISA
Affiliate currently or has it ever had the obligation to maintain, establish, sponsor, participate
in, be bound by or contribute to any International Employee Plan.




          (q) 401(k) Fees. To the Company’s Knowledge, the termination of a 401(k) Plan will not
trigger liquidation charges, surrender charges or other related fees (“401(k) Fees”).




     2.24 Insurance. Section 2.24 of the Disclosure Schedule lists all insurance policies and
fidelity bonds covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, any of its Subsidiaries or any ERISA Affiliate, including
the type of coverage, the carrier, the amount of coverage, the term and the annual premiums of such
policies. There is no claim by the Company or any of its Subsidiaries or any ERISA Affiliate
pending under any of such policies or bonds as to which




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coverage has been questioned, denied or disputed or that the Company, any of its Subsidiaries
or any ERISA Affiliate has a reason to believe will be denied or disputed by the underwriters of
such policies or bonds. In addition, there is no pending claim of which its total value (inclusive
of defense expenses) will exceed the policy limits. All premiums due and payable under all such
policies and bonds have been paid, (or if installment payments are due, will be paid if incurred
prior to the Closing Date) and the Company, its Subsidiaries and its ERISA Affiliates are otherwise
in material compliance with the terms of such policies and bonds (or other policies and bonds
providing substantially similar insurance coverage). Such policies and bonds (or other policies
and bonds providing substantially similar coverage) have been in effect since 2001 (with the
exception of directors’ and officers’ insurance, which has been in effect since 2002) and remain in
full force and effect. The Company has no Knowledge of threatened termination of, or premium
increase with respect to, any of such policies. Neither the Company, any of its Subsidiaries nor
any affiliate of either has ever maintained, established, sponsored, participated in or contributed
to any self-insurance plan.




     2.25 Compliance with Laws. The Company and each of its Subsidiaries has complied in all material
respects with, is not in violation of in any material respect, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or regulation.



     2.26 Export Control Laws. The Company and each of its Subsidiaries has at all times conducted its
export transactions in accordance with (i) all applicable U.S. export and re-export controls,
including the United States Export Administration Act and Regulations and Foreign Assets Control
Regulations and (ii) all other applicable import/export controls in other countries in which the
Company conducts business. Without limiting the foregoing:



          (a) The Company and each of its Subsidiaries has obtained all export licenses, license
exceptions and other consents, notices, waivers, approvals, orders, authorizations, registrations,
declarations and filings with any Governmental Entity required for (i) the export and re-export of
products, services, software and technologies and (ii) releases of technologies and software to
foreign nationals located in the United States and abroad (“Export Approvals”);




          (b) The Company and each of its Subsidiaries is in compliance with the terms of all applicable
Export Approvals;




          (c) There are no pending or, to the Company’s Knowledge, threatened claims against the Company
or any Subsidiary with respect to such Export Approvals;




          (d) To the Company’s Knowledge, there are no actions, conditions or circumstances pertaining
to the Company’s or any Subsidiary’s export transactions that may give rise to any future claims;
and




          (e) No Export Approvals for the transfer of export licenses to Parent or the Surviving
Corporation are required, or such Export Approvals can be obtained expeditiously without material
cost.




          (f) Section 2.26(f) of the Disclosure Schedule sets forth the true, complete and accurate
export control classifications applicable to the Company’s products, services, software and
technologies.




     2.27 Foreign Corrupt Practices Act. Neither the Company nor any of its Subsidiaries (including any
of their officers, directors, agents, employees or other Person associated with or acting on their
behalf) has, directly or indirectly, taken any action which would cause it to be in violation of
the Foreign Corrupt



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Practices Act of 1977, as amended, or any rules or regulations thereunder, used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political
activity, made any unlawful payment to foreign or domestic government officials or employees or
made any bribe, rebate, payoff, influence payment, kickback or other similar unlawful payment.



     2.28 Warranties; Indemnities. Except for the warranties and indemnities contained in those
contracts and agreements set forth in Section 2.28 of the Disclosure Schedule (other than
non-exclusive licenses granted in connection with the sale of Company products or related support
and maintenance agreements that have been entered into in the ordinary course of business
consistent with past practices that do not differ from the Company’s standard forms of agreement
including attachments (copies of which have been provided to Parent)) and warranties implied by
law, neither the Company nor any of its Subsidiaries has given any warranties or indemnities
relating to products or technology sold or services rendered by the Company or any of its
Subsidiaries.



     2.29 Substantial Customers and Suppliers.



          (a) Section 2.29(a) of the Disclosure Schedule lists the 10 largest customers of the Company
and its Subsidiaries on the basis of revenues collected or accrued for the twelve month period
ending on the Balance Sheet Date.




          (b) Section 2.29(b) of the Disclosure Schedule lists the 10 largest suppliers of the Company
and its Subsidiaries on the basis of cost of goods or services purchased for the twelve month
period ending on the Balance Sheet Date.




          (c) Except as disclosed in Section 2.29(c) of the Disclosure Schedule, no such customer or
supplier has (i) ceased or materially reduced its purchases from or sales or provision of services
to the Company and its Subsidiaries since the beginning of such twelve month period, (ii) to the
Knowledge of the Company, overtly threatened to cease or materially reduce such purchases or sales
or provision of services or (iii) to the Knowledge of the Company been threatened with bankruptcy
or insolvency.




     2.30 Complete Copies of Materials. The Company has delivered true and complete copies of each
document (or summaries of same) that has been requested by Parent or its counsel, including all
Contracts and other documents listed on the Disclosure Schedule.



     2.31 Representations Complete. None of the representations or warranties made by the Company (as
modified by the Disclosure Schedule) in this Agreement, and none of the statements made in any
exhibit, schedule or certificate furnished by the Company pursuant to this Agreement contains any
untrue statement of a material fact or omits to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances under which made, not
misleading.



     2.32 Consent Solicitation. All information furnished on or in any document mailed, delivered or
otherwise furnished or to the be mailed, delivered or otherwise furnished to Shareholders by the
Company in connection with the solicitation of their consent to this Agreement and the Merger and
the other matters contemplated by Section 5.7 hereof, did not and will not, as the case may be,
contain any untrue statement of a material fact and did not and will not omit to state any material
fact necessary in order to make the statements made therein, in light of the circumstances under
which made, not misleading.



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     2.33 Director and Officer Indemnification. There are no pending claims for indemnification that
have been made by any officer or director of the Company and, to the Company’s Knowledge, there is
no reasonable basis therefor.



ARTICLE III




REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB




     Each of Parent and Sub hereby represents and warrants to the Company that on the date hereof
and as of the Effective Time, as though made at the Effective Time, as follows:



     3.1 Organization and Standing. Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of California. Each of Parent
and Sub has the corporate power to own its properties and to carry on its business as now being
conducted and is duly qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified or licensed or in good
standing would have a Parent Material Adverse Effect.



     3.2 Authority. Each of Parent and Sub has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by each of Parent and Sub of this Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all necessary corporate
action on the part of Parent and Sub and no further corporate action is required on the part of the
Parent and Sub to authorize the Agreement and the Merger. This Agreement has been duly executed
and delivered by Parent and Sub and constitute the valid and binding obligations of Parent and Sub,
enforceable against each of Parent and Sub in accordance with their terms.



     3.3 Consents. No consent, notice, waiver, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or any third party is required by or with
respect to Parent or Sub in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby and thereby, except for (i) such consents,
notices, waivers, approvals, orders, authorizations, registrations, declarations and filings as may
be required under applicable securities laws, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under applicable foreign
merger control regulations, (iii) the filing of the Certificate of Merger with the Secretary of
State of the State of California and (iv) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings which, if not obtained or made, would not
have a Parent Material Adverse Effect.



     3.4 Parent Common Stock. The Parent Common Stock which constitutes the Merger Shares has been
duly authorized, and upon consummation of the transactions contemplated by this Agreement, will be
validly issued, fully paid and nonassessable.



     3.5 No Conflict. The execution and delivery by Parent and Sub of this Agreement and the
consummation of the transactions contemplated hereby and thereby, will not conflict with or result
in a Conflict under (i) any provision of the Charter Documents or the organizational documents of
Parent or Sub, as amended or (ii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Sub or any of their material respective properties or assets
(whether tangible or intangible).



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     3.6 SEC Documents. Parent has made available to the Company, by reference to Parent’s and the
SEC’s website, Parent’s annual report on Form 10-K for the fiscal year ended December 31, 2006, all
quarterly reports on Form 10-Q and reports on Form 8-K and amendments thereto filed by Parent with
the SEC since December 31, 2006 and up to the date of this Agreement, if any, and any proxy
materials distributed to Parent’s stockholders since December 31, 2006 and up to the date of this
Agreement, in each case excluding any exhibits or attachments thereto (the “Parent SEC Filings”).
The Parent SEC Filings (a) conformed, as of the dates of their respective filing with the SEC, in
all material respects, to the requirements set forth in the instructions for such forms under the
Securities Act and the Exchange Act, and (b) when taken together, did not, as of their respective
filing dates, contain any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements contained therein, in light of the circumstances under
which they were made, not misleading, except to the extent corrected by a subsequently filed report
with the SEC prior to the date hereof. The financial statements of Parent included in the Parent
SEC Filings fairly and accurately represented, in all material respects, the consolidated financial
condition of Parent as of their respective dates and Parent’s consolidated results of operations
for the respective periods specified therein were prepared in accordance with GAAP (except as
indicated in the notes thereto or, in the case of unaudited statements included in quarterly
reports on Form 10-Q, as permitted by Article 10 of Regulation S-X and the rules to Form 10-Q of
the SEC, and subject, in the case of unaudited statements, to normal year end audit adjustments).



     3.7 No Parent Material Adverse Effect. From June 30, 2007 to the date of this Agreement, there
has occurred no event or condition that has had a Parent Material Adverse Effect.



     3.8 Information Supplied. The information about Parent or Sub provided by Parent or Sub in
writing to the Company expressly for the purposes of furnishing such information on or in any other
document mailed, delivered or otherwise furnished to Shareholders by the Company in connection with
the solicitation of their consent to this Agreement and the Merger and the other matters
contemplated by Section 5.7 hereof, will not contain, at or prior to the Effective Time, any untrue
statement of a material fact and will not omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which made, not misleading.
Notwithstanding the foregoing, neither Parent nor Sub makes any representation or warranty with
respect to any information supplied by the Company which is contained in any of the foregoing
documents, provided that such information was supplied by the Company expressly for such purpose.



ARTICLE IV




CONDUCT PRIOR TO THE EFFECTIVE TIME




     4.1 Conduct of Business of the Company. During the period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, the Company agrees to conduct the business of
Company and its Subsidiaries, except to the extent that Parent shall otherwise consent in writing
in accordance with Section 4.3 hereof, in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted, to pay the debts and Taxes of the Company and its
Subsidiaries when due (subject to Parent’s review and consent to the filing of any Tax Return, as
set forth in Section 4.1(e) below), to pay or perform other obligations when due, and to preserve
intact the present business organizations of the Company and its Subsidiaries, keep available the
services of the present officers and Employees of the Company and its Subsidiaries and preserve the
relationships of the Company and its Subsidiaries with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with them, all with the goal of
preserving substantially unimpaired the goodwill and ongoing businesses of



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the Company and its Subsidiaries at the Effective Time. The Company shall promptly notify Parent of
any material event or occurrence involving the Company or any of its Subsidiaries that arises
during the period from the date of this Agreement and continuing until the earlier of the
termination date of this Agreement or the Effective Time. Neither the Company nor any of its
Subsidiaries shall, without the prior written consent of Parent, which consent is to be requested
in accordance with Section 4.3 hereof:



          (a) cause or permit any modifications, amendments or changes to the Charter Documents or the
organizational documents of any Subsidiary;




          (b) undertake any expenditure, transaction or commitment not in the ordinary course of
business consistent with past practice and exceeding $20,000 individually or $50,000 in the
aggregate or any commitment or transaction of the type described in Section 2.13 hereof (it being
understood that ordinary course payroll practice that is consistent with past practice shall not
require the consent of Parent);




          (c) pay, discharge, waive or satisfy, in an amount in excess of $20,000 in any one case, or
$50,000 in the aggregate, any claim, liability, right or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in the Current Balance
Sheet or claims, liabilities, rights or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) incurred or to be incurred in the ordinary course of business;




          (d) adopt or change accounting methods or practices (including any change in depreciation or
amortization policies or rates) other than as required by GAAP;




          (e) make or change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, enter into any agreement, settle any claim or assessment in respect of
Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes or file any Return unless a copy of such Return has been delivered
to Parent for review a reasonable time prior to filing and Parent has approved such Return;




          (f) revalue any of its assets (whether tangible or intangible), including writing down the
value of inventory or writing off notes or accounts receivable;




          (g) declare, set aside, or pay any dividends on or make any other distributions (whether in
cash, stock or property) in respect of any Company Capital Stock or the capital stock of any
Subsidiary, or split, combine or reclassify any Company Capital Stock or the capital stock of any
Subsidiary or issue or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of Company Capital Stock or the capital stock of any Subsidiary, or
directly or indirectly repurchase, redeem or otherwise acquire any shares of Company Capital Stock
or the capital stock of any Subsidiary (or options, warrants or other rights convertible into,
exercisable or exchangeable for Company Common Stock or the capital stock of any Subsidiary) except
in accordance with the agreements evidencing Company Options or Company Common Stock;




          (h) increase or otherwise change the salary or other compensation payable or to become payable
to any officer, director, employee, consultant or advisor, or make any declaration, payment or
commitment or obligation of any kind for the payment (whether in cash or equity) of a
severance payment, termination payment, bonus or other additional salary or compensation to any
such person except pursuant to

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the terms of Employee Agreements or Company Employee Plans in existence on the date of this
Agreement and disclosed in Section 2.23(b)(1) of the Disclosure Schedule;




          (i) sell, lease, license or otherwise dispose of any of the assets or properties of the
Company or grant any security interest in any of its properties or assets (other than Company
Intellectual Property in accordance with Section 4.1(o)), except properties or assets (whether
tangible or intangible) which are not Intellectual Property and only in the ordinary course of
business and consistent with past practice;




          (j) make any loan to any Person or purchase debt securities of any Person or amend the terms
of any outstanding loan agreement;




          (k) incur any indebtedness for borrowed money, amend the terms of any outstanding loan
agreement, guarantee any indebtedness for borrowed money of any Person, issue or sell any debt
securities or guarantee any debt securities of any Person;




          (l) waive or release any material right or claim of the Company or any of its Subsidiaries,
including any write-off or other compromise of any account receivable of the Company or any of its
Subsidiaries;




          (m) commence or settle any lawsuit, threat of any lawsuit or proceeding or other investigation
by or against the Company or any Subsidiary or relating to any of their businesses, properties or
assets;




          (n) issue, grant, deliver or sell or authorize or propose or contract for the issuance, grant,
delivery or sale of, or purchase or propose or contract for the purchase of, any Company Capital
Stock or the capital stock of any Subsidiary or any securities convertible into, exercisable or
exchangeable for, or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating any of them to issue or purchase any such shares or other
convertible securities, except for the issuance of Company Capital Stock pursuant to the exercise
of outstanding Company Options;




          (o) (i) sell, lease, license or transfer to any Person any rights to any Company Intellectual
Property or enter into any agreement or modify or amend any existing agreement with respect to any
Company Intellectual Property with any Person or with respect to any Intellectual Property of any
Person except in the ordinary course of business consistent with past practice, (ii) license any
material Intellectual Property outside the ordinary course of business, license any Intellectual
Property to be incorporated into any product of the Company, or purchase any Intellectual Property,
or enter into any agreement or modify or amend any existing agreement with respect to the
Intellectual Property of any Person, (iii) enter into any agreement or modify or amend any existing
agreement with respect to the development of any Intellectual Property with a third party, or (iv)
propose or consent to any change to pricing or royalties set or charged by the Company or any of
its Subsidiaries to its customers or licensees, or the pricing or royalties set or charged by
Persons who have licensed Intellectual Property to the Company or any of its Subsidiaries;




          (p) enter into or amend any Contract pursuant to which any other party is granted marketing,
distribution, development, manufacturing or similar rights of any type or scope with respect to any
products or technology of the Company or any of its Subsidiaries;




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          (q) enter into any agreement to purchase or sell any interest in real property, grant any
security interest in any real property, enter into any lease, sublease, license or other occupancy
agreement with respect to any real property or alter, amend, modify or terminate any of the terms
of any Lease Agreements;




          (r) terminate, amend or otherwise modify (or agree to do so), or violate the terms of, any of
the Contracts set forth or described in the Disclosure Schedule;




          (s) acquire or agree to acquire by merging or consolidating with, or by purchasing any assets
or equity securities of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material or any equity securities, individually or in the aggregate,
to the business of the Company or any of its Subsidiaries;




          (t) grant any severance or termination pay (in cash or otherwise) to any Employee, including
any officer, except payments made pursuant to written agreements existing on the date hereof and
disclosed in the Disclosure Schedule;




          (u) adopt or amend any Company Employee Plan, enter into or amend any Employee Agreement,
enter into any employment contract, pay or agree to pay any bonus or special remuneration to any
director or Employee, or increase or modify the salaries, wage rates, or other compensation
(including any equity-based compensation) of its Employees except payments made pursuant to written
agreements outstanding on the date hereof and disclosed in Section 4.1(u) of the Disclosure
Schedule or to meet the requirements of applicable law or as required by this Agreement;




          (v) enter into any strategic alliance, affiliate agreement or joint marketing arrangement or
agreement;




          (w) take any action to accelerate the vesting schedule of any of the outstanding Company
Options or Company Common Stock;




          (x) hire, offer to hire or terminate any Employees, or encourage or otherwise cause any
Employees to resign from the Company or any of its Subsidiaries;




          (y) promote, demote, terminate or otherwise change the employment status or titles of any
employee;




          (z) alter, or enter into any commitment to alter, its interest in any Subsidiary, corporation,
association, joint venture, partnership or business entity in which the Company or any Subsidiary
directly or indirectly holds any interest;




          (aa) cancel, amend or renew any insurance policy; or




          (bb) take, commit, or agree in writing or otherwise to take, any of the actions described in
Sections 4.1(a) through 4.1(aa) hereof, or any other action that would (i) prevent the Company from
performing, or cause the Company not to perform, its covenants or agreements hereunder or (ii)
cause or result in any of its respective representations and warranties contained herein being
untrue or incorrect.




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     4.2 No Solicitation.



          (a) Until the earlier of (i) the Effective Time, or (ii) the date of termination of this
Agreement pursuant to the provisions of Section 8.1 hereof, the Company shall not (nor shall the
Company permit, as applicable, any of its officers, directors, employees, shareholders, agents,
representatives or affiliates to), directly or indirectly, take any of the following actions with
any party other than Parent and its designees: (a) solicit, encourage, seek, support, assist,
initiate or participate in any inquiry, negotiations or discussions, or enter into any agreement,
with respect to any offer or proposal to acquire all or any part of the business, properties,
assets or technologies of the Company and its Subsidiaries (other than inventory or licenses in the
ordinary course of business of the Company), or any amount of the Company Capital Stock or capital
stock of any Subsidiary (whether or not outstanding), whether by merger, purchase of assets, tender
offer, license or otherwise, or effect any such transaction (any such offer or proposal, an
“Acquisition Proposal”), (b) disclose any information not customarily disclosed to any Person
concerning the business, technologies or properties of the Company and its Subsidiaries, or afford
to any Person access to its or their respective properties, technologies, books or records, not
customarily afforded such access, (c) assist or cooperate with any Person in connection with an
Acquisition Proposal, other than with respect to the purchase of inventory in the ordinary course
of business or (d) enter into any agreement with any person relating to an Acquisition Proposal an
shall provided copies of all writings provided by such Person in connection with such Acquisition
Proposal. The Company shall immediately cease and cause to be terminated any such negotiations,
discussion or agreements (other than with Parent) that are the subject matter of clause (a), (b),
(c) or (d) above.




          (b) The Company shall notify Parent promptly (but in no event later than 24 hours) after
receipt of any Acquisition Proposal, or modification of or amendment to any Acquisition Proposal,
or request for nonpublic information relating to the Company or any of its Subsidiaries or for
access to the properties, books or records of the Company or any Subsidiary, or notice by any
Person that it is considering making, or has made, an Acquisition Proposal. Such notice to Parent
shall be made orally and in writing and shall indicate the identity of the Person making the
Acquisition Proposal or intending to make or considering making an Acquisition Proposal or
requesting non-public information or access to the books and records of the Company or any
Subsidiary and the terms of any such Acquisition Proposal or modification or amendment to the
Acquisition Proposal. The Company shall keep Parent informed, on a current basis, of any material
changes in the status and any material changes or modifications in the terms of any such
Acquisition Proposal, indication or request.




          (c) The parties hereto agree that irreparable damage would occur in the event that the
provisions of this Section 4.2 were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed by the parties hereto that Parent shall be entitled
to an immediate injunction or injunctions, without the necessity of proving the inadequacy of money
damages as a remedy and without the necessity of posting any bond or other security, to prevent
breaches of the provisions of this Section 4.2 and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this being in addition
to any other remedy to which Parent may be entitled at law or in equity. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth above by any officer,
director, agent, representative or affiliate of Company shall be deemed to be a breach of this
Agreement by Company.




     4.3 Procedures for Requesting Parent Consent. If the Company desires to take an action which
would be prohibited pursuant to Section 4.1 hereof without the written consent of Parent, prior to
taking such



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action the Company may request such written consent by sending an e-mail or facsimile to each of
the following individuals:


Patrick J. Harshman

Telephone: (408) 542-2694

Facsimile: (408) 542-2516

E-mail address: patrick.harshman@harmonicinc.com



Robin N. Dickson

Telephone: (408) 542-2661

Facsimile: (408) 542-2516

Email address: robin.dickson@harmonicinc.com



Robert G. Day

Telephone: (650) 493-9300

Facsimile: (650) 493-6811

E-mail address: rday@wsgr.com




ARTICLE V




ADDITIONAL AGREEMENTS




     5.1 Access to Information. Until the earlier of the termination of this Agreement or the
Effective Time, the Company shall afford Parent and its accountants, counsel and other
representatives, reasonable access at reasonable times during the period from the date hereof
through the Effective Time to (i) all of the properties (including for the performance of
environmental tests or investigations as Parent may desire), books, contracts, commitments and
records of the Company and its Subsidiaries, including all Company Intellectual Property (including
access to design processes and methodologies and all source code, provided that each individual
reviewing source code will enter into a nondisclosure agreement with the Company in a form
reasonably acceptable to the Company), (ii) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law) of the Company and its
Subsidiaries as Parent may reasonably request, and (iii) all Employees of the Company and its
Subsidiaries as identified by Parent. Any access to the Company’s offices will be subject to the
Company’s reasonable security measures and insurance requirements. The Company agrees to provide
to Parent and its accountants, counsel and other representatives copies of internal financial
statements (including Tax Returns and supporting documentation) promptly upon request. Until the
earlier of the termination of this Agreement or the Effective Time, Parent will provide the Company
with copies of such publicly available information about Parent as the Company may request. No
information or knowledge obtained in any investigation pursuant to this Section 5.1 or otherwise
shall affect or be deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger in accordance with the terms
and provisions hereof.



     5.2 Confidentiality. Each of the parties hereto hereby agrees that the information obtained in any investigation
pursuant to Section 5.1 hereof, or pursuant to the negotiation and execution of this Agreement or
the effectuation of the transactions contemplated hereby, shall be governed by the terms of the
Mutual Non-Disclosure Agreement dated March 22, 2007 (the “Nondisclosure Agreement”), between the
Company and Parent. Parent and the Company agree that such information will constitute
“Confidential Information” as contemplated by the Nondisclosure Agreement, notwithstanding any
failure (i) to specifically designate



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such information as “Confidential,” “Proprietary” or some similar designation and (ii) to confirm
in writing that information communicated orally is “Confidential Information.” The Company further
acknowledges that the Parent Common Stock is publicly traded and that any information obtained
during the course of its due diligence could be considered to be material non-public information
within the meaning of federal and state securities laws. Accordingly, the Company acknowledges and
agrees not to engage in any discussions or correspondence regarding or transactions in the Parent
Common Stock in violation of applicable securities laws.



     5.3 Public Disclosure. Neither Parent nor the Company (nor any of their respective
representatives) shall issue any statement or communication to any third party (other than their
agents that are bound by confidentiality restrictions) regarding the subject matter of this
Agreement or the transactions contemplated hereby, including, if applicable, the termination of
this Agreement and the reasons therefor, without the consent of the other, except that this
restriction shall be subject to Parent’s obligation to comply with applicable securities laws and
the rules of the Nasdaq Stock Market.



     5.4 Reasonable Efforts.



          (a) Subject to the terms and conditions provided in this Agreement, each of the parties hereto
shall use its reasonable efforts to take promptly, or cause to be taken promptly, all actions, and
to do promptly, or cause to be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the transactions contemplated
hereby, to cause all conditions to the obligations of the other parties hereto to effect the Merger
to occur, to obtain all necessary waivers, consents, approvals and other documents required to be
delivered hereunder and to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement; provided, however, that Parent shall not
be required to agree to (x) any license, sale or other disposition or holding separate (through
establishment of a trust or otherwise) of any shares of capital stock or of any business, assets or
properties of Parent, its subsidiaries or affiliates or of the Company or its Subsidiaries, (y) the
imposition of any limitation on the ability of Parent, its subsidiaries or affiliates or the
Company or its Subsidiaries to conduct their respective businesses or own any capital stock or
assets or to acquire, hold or exercise full rights of ownership of their respective businesses and,
in the case of Parent, the businesses of the Company and its Subsidiaries, or (z) the imposition of
any impediment on Parent, its subsidiaries or affiliates or the Company or its Subsidiaries under
any statute, rule, regulation, executive order, decree, order or other legal restraint governing
competition, monopolies or restrictive trade practices (any such action described in (x), (y) or
(z), an “Action of Divestiture”). Nothing herein shall require Parent to litigate with any
Governmental Entity.




          (b) Each party hereto, at the request of another party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be reasonably necessary or
desirable for effecting completely the consummation of the Merger and the transactions contemplated
hereby.




     5.5 Notification of Certain Matters. The Company shall give prompt notice to Parent of: (i) the occurrence or non-occurrence of
any event, which occurrence or non-occurrence is reasonably likely to cause any representation or
warranty of the Company contained in this Agreement to be untrue or inaccurate at or prior to the
Effective Time, and (ii) any failure of the Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder; provided, however, that
the delivery of any notice pursuant to this Section 5.5 shall not (a) limit or otherwise affect any
remedies available to the party receiving such notice or (b) constitute an acknowledgment or
admission of a breach of this Agreement.



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No disclosure by the Company pursuant to this Section 5.5 shall be deemed to amend or supplement
the Disclosure Schedule or prevent or cure any misrepresentations, breach of warranty or breach of
covenant.




     5.6 Shareholder Approval. (a) Immediately following the execution of this Agreement, the
Company shall deliver to Parent an action by written consent in a form reasonably acceptable to
Parent (a “Written Consent”) executed by each of the persons listed on Schedule 5.6 hereof, which
Written Consent shall set forth the irrevocable approval of the Merger, this Agreement and the
transactions contemplated hereby, which shall also include and constitute the irrevocable approval
by such Company Shareholders of: (i) the holdback and indemnification obligations of the Company
Shareholders set forth in Article VII hereof and (ii) the appointment of David Trescot as the
Shareholder Representative.



          (b) Following the execution of this Agreement, the Company shall use commercially reasonable
efforts to solicit and obtain the Written Consent of the remaining Company Shareholders to approve
and adopt the Agreement and approve the Merger. In connection with such Shareholder approval and
as soon as practicable after the execution of this Agreement, the Company shall prepare, with the
cooperation of Parent, an information statement (the “Information Statement”) for the purpose of
soliciting the Written Consent of the Company Shareholders. The Information Statement shall also
constitute a disclosure document for the offer and sale of the Merger Shares in the Merger and
shall comply with the information requirements of Rule 502(b) promulgated under the Securities Act
so that Parent, if it so chooses, may avail itself of the exemption provided by Rule 506
promulgated under the Securities Act. Each of Parent and the Company agrees to provide promptly to
the other such information concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or appropriate for
inclusion in the Information Statement or in any amendments or supplements to the Information
Statement. Each of the parties hereto will promptly advise the other parties in writing if at any
time prior to the Effective Time either the Company or Parent shall obtain knowledge of any facts
that might make it necessary or appropriate to amend or supplement the Information Statement in
order to make the statements contained or incorporated by reference therein not misleading or to
comply with applicable law. The Board of Directors of the Company shall recommend to the
Shareholders that such Shareholders approve and adopt the Agreement and approve the Merger and the
transactions contemplated hereby, and the Information Statement shall contain such recommendation,
as well as the conclusion of the Board of Directors of the Company that the terms and conditions of
the Merger are in the best interests of the Shareholders in the opinion of the Board of Directors.
Notwithstanding anything to the contrary contained herein, the Company shall not include in the
Information Statement any information with respect to Parent or its affiliates or associates, the
form and content of which information shall not have been approved by Parent prior to such
inclusion.




     5.7 Securities Law Compliance.



          (a) Issuance of Parent Common Stock. Each of Parent, Merger Sub and the Company hereto
acknowledges and agrees that the shares of Parent Common Stock issuable to the Shareholders
pursuant to Section 1.6 hereof, shall be issued pursuant to an exemption or exemptions from
registration under Regulation D promulgated under the Securities Act and the exemption from
qualification under the laws of the State of California and other applicable state securities laws. The certificates
for shares of Parent Common Stock to be issued in the Merger shall bear appropriate legends to
identify such privately placed shares as being restricted under the Securities Act and to comply
with applicable state securities laws. The Company acknowledges and understands that Parent is
relying upon certain written representations made on behalf of each Shareholder in issuing the
shares of Parent Common Stock.




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          (b) Blue Sky Laws. As promptly as practical after the date of this Agreement, Parent and
Company shall prepare and make such filings as are required under applicable blue sky laws relating
to the transactions contemplated by this Agreement. The Company shall assist Parent as may be
necessary to comply with the securities and blue sky laws relating to the transactions contemplated
by this Agreement .




          (c) Shareholder Certificate. The Company shall deliver or cause to be delivered to
Parent, prior to the Closing Date, an executed Shareholder Certificate in substantially the form
attached hereto as Exhibit C (the “Shareholder Certificate”) from each Shareholder; provided,
however, the Company shall deliver or cause to be delivered to Parent an executed Shareholder
Certificate from each Shareholder listed on Schedule 5.7(c) hereto immediately following execution
of this Agreement.




          (d) Registration Statement on Form S-3. Parent shall use commercially reasonable efforts to
file, as soon as reasonably practicable following the Closing Date, a registration statement on
Form S-3 with the SEC covering the resale of the shares of Parent Common Stock issued to the
Company Shareholders pursuant to the Merger, provided that if Parent is required to file the
Company’s financial statements pursuant Form 8-K, then Parent shall use reasonable commercial
efforts to file such Form S-3 as soon as reasonably practicable following such filing on Form 8-K,
and shall use commercially reasonable efforts to cause such Registration Statement to be declared
effective by the SEC as promptly as reasonably practicable after filing and to keep such
Registration Statement effective until the earlier of (i) the date on which all securities included
in such Registration Statement have been sold or (ii) the 12 month anniversary of the Closing. Any
such registration shall be subject to the terms and conditions set forth in the Declaration of
Registration Rights attached hereto as Exhibit D.




          (e) Additional Assurances. At the request of Parent, the Company shall use its commercially
reasonable efforts to cause each Shareholder to execute and deliver to Parent such instruments and
do and perform such acts and things as may be necessary or desirable for complying with all
applicable securities laws and corporate laws.




          (f) Board and Shareholder Approval. The Board of Directors of the Company shall not alter,
modify, change or revoke its unanimous approval of this Agreement, the Merger and the transactions
contemplated hereby, nor shall the Board of Directors of the Company encourage or solicit the
Shareholders to alter, modify, change or revoke their approval of this Agreement, the Merger and
the transactions contemplated hereby.




     5.8 Merger Notification.



          (a) To the extent applicable, as soon as may be reasonably practicable, the Company and Parent
(and any applicable Shareholder of the Company) shall make all filings, notices, petitions,
statements, registrations and submissions of information, application or submission of other
documents required by any Governmental Entity in connection with the Merger and the transactions
contemplated hereby, including: filings required by the merger notification or control laws or
regulations of any other applicable jurisdictions identified in Section 5.8 of the Disclosure
Schedule. Each of Parent and the Company shall cause all documents that it is responsible for filing with any Governmental Entity under this Section
5.8 to comply in all material respects with applicable law.




          (b) The Company and Parent (and/or any applicable Shareholder of the Company) each shall
promptly (i) supply the others with any information which reasonably may be required in order to
effectuate the filings contemplated by Section 5.8(a) and (ii) supply any additional information
which

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reasonably may be required by the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate. Except where prohibited by
applicable law, the Company shall consult with Parent prior to taking a position with respect to
any such filings, shall permit Parent to review and discuss in advance, and consider in good faith
the views of Parent in connection with, any analyses, appearances, presentations, memoranda,
briefs, white papers, other materials, arguments, opinions and proposals before making or
submitting any of the foregoing to any Governmental Entity in connection with any investigations or
proceedings in connection with this Agreement or the transactions contemplated hereby, coordinate
with Parent in preparing and providing such information and promptly provide Parent (and its
counsel) copies of all filings, presentations and submissions (and a summary of oral presentations)
made by the Company with any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby. Parent shall have principal control over the strategy for
interacting with such Governmental Entities in connection with the matters contained in this
Section 5.8.




          (c) Each of Parent and the Company shall notify the other promptly upon the receipt of (i) any
comments from any officials of any Governmental Entity in connection with any filings made pursuant
hereto and (ii) any request by any officials of any Governmental Entity for amendments or
supplements to any filings made pursuant to, or information provided to comply in all materials
respect with, applicable law. Whenever any event occurs that is required to be set forth in an
amendment or supplement to any filing made pursuant to Section 5.8(a), Parent or the Company, as
the case may be, will promptly inform the other of such occurrence and cooperate in filing with the
applicable Governmental Entity such amendment or supplement.




     5.9 Consents. The Company shall use commercially reasonable best efforts to obtain all necessary
consents, waivers and approvals of any parties to any Contract as are required thereunder in
connection with the Merger or for any such Contracts to remain in full force and effect, all of
which are required to be listed in Section 2.5 of the Disclosure Schedule, so as to preserve all
rights of, and benefits to, the Company under such Contract from and after the Effective Time.
Such consents, waivers and approvals shall be in a form acceptable to Parent. In the event that
the other parties to any such Contract, including any lessor or licensor of any Leased Real
Property, conditions its grant of a consent, waiver or approval (including by threatening to
exercise a “recapture” or other termination right) upon the payment of a consent fee, “profit
sharing” payment or other consideration, including increased rent payments or other payments under
the Contract, the Company shall be responsible for making all payments required to obtain such
consent, waiver or approval, and Parent shall be entitled to indemnification for all losses, costs,
claims, liabilities and damages arising from the same.



     5.10 Restrictions on Transfer. All certificates representing Parent Common Stock deliverable to
any Shareholder of the Company pursuant to this Agreement and in connection with the Merger and any
certificates subsequently issued with respect thereto or in substitution therefor (including any
shares issued or issuable in respect of any such shares upon any stock split, stock dividend,
recapitalization, or similar event) shall bear any legend required by the Secretary of State of the
State of Delaware or such as are required pursuant to any federal, state, local or foreign law
governing such securities.



     5.11 Termination and Modification of Agreements.



          (a) The Company shall terminate each of the agreements listed on Schedule 6.2(h) hereof (the
“Terminated Agreements”), effective as of and contingent upon the Closing, including sending all
required notices, such that each such agreement shall be of no further force or effect immediately
following the Effective Time. Upon the Closing, the Company shall have paid all amounts owed under
the Terminated Agreements (as a result of the termination of the Terminated Agreements or
otherwise), and the

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Surviving Corporation will not incur any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise) under any Terminated Agreement following the
Closing Date.




          (b) The Company shall use commercially reasonable best efforts to amend each of the agreements
listed on Schedule 5.11(b) hereof, and shall provide such notices or take such other actions as are
required to terminate those agreements (or any of them) in accordance with their terms, in each
case in accordance with Schedule 5.11(b) hereof. The parties expressly acknowledge and agree that
the foregoing covenants in this Section 5.11(b) shall not require the Company to (i) effect any
such amendment or (ii) to terminate any such agreement prior to the later of (x) the Effective Time
or (y) the expiration of any notice period that is a condition precedent to any such termination.




     5.12 Proprietary Information and Inventions Assignment Agreement. The Company shall cause each
current and former employee of the Company or any Subsidiary to have entered into and executed, and
each person who becomes an employee of the Company or any Subsidiary after the date hereof and
prior to the Closing shall be required by the Company to enter into and execute, an Employee
Proprietary Information Agreement in the form of Schedule 5.12 with the Company and each of its
Subsidiaries effective as of such employee’s first date of employment or service. The Company
shall cause each current and former consultant or contractor of the Company or any Subsidiary
(other than any consultant or contractor who did not have any involvement in product research,
design, development, engineering, testing, or support or access to proprietary information) to have
entered into and executed, and each person who becomes a consultant or contractor of the Company or
any Subsidiary after the date hereof and prior to the Closing shall be required by the Company to
enter into and execute, a Consultant Proprietary Information Agreement in the form of Schedule 5.12
with the Company and each of its Subsidiaries effective as of such consultant or contractor’s first
date of service.



     5.13 New Employment Benefits. Employees shall be eligible to receive benefits consistent with
Parent’s applicable human resources policies. Parent will or will cause the Surviving Corporation
or appropriate subsidiary of Parent to give Employees credit under such policies for prior service
at the Company for purposes of eligibility and vesting under any plan of Parent intended to qualify
within the meaning of Section 401(a) of the Code. The Company shall cause each of the Company and
each of its Subsidiaries to terminate effective as of the Closing Date all employment agreements
and other arrangements with its employees and contractors.



     5.14 Intentionally Deleted.



     5.15 No Liability for New Employees or Former Employees. The parties hereto agree that neither
Parent nor Sub shall have any liability for (a) any employees hired by the Company after the date
hereof and (b) any employees that terminate their employment with the Company after the date
hereof, in the event the Merger is not consummated.



     5.16 Resignation of Officers and Directors. The Company shall cause each officer and director of the Company and its Subsidiaries to
execute a resignation letter effective as of the Effective Time.



     5.17 83(b) Elections. The Company shall use its best efforts to deliver to Parent, not less than
five (5) Business Days prior to the Closing, copies of all elections filed (or to be filed prior to
the Closing) with the Internal Revenue Service under Section 83(b) of the Code in connection with
purchases of unvested Company Common Stock occurring after the date hereof together with evidence
of timely filing of such election statement with the appropriate Internal Revenue Service Center.



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     5.18 Termination of 401(k) Plan. Effective as of no later than the Business Day immediately
preceding the Closing Date, each of the Company, its Subsidiaries and any ERISA Affiliate (as such
term is defined in Section 2.23 hereof) shall terminate any and all group severance, salary
continuation and separation programs and all Company Employee Plans intended to include a Code
Section 401(k) arrangement (each, a “401(k) Plan”) (unless Parent provides written notice to the
Company that one or more of such 401(k) Plans shall not be terminated). Unless Parent provides
such written notice to the Company, no later than five (5) Business Days prior to the Closing Date,
the Company shall provide Parent with evidence that such 401(k) Plan(s) have been terminated
(effective as of the day immediately preceding the Closing Date) pursuant to resolutions of the
Board of Directors of the Company, its Subsidiaries or such ERISA Affiliate, as the case may be.
The form and substance of such resolutions shall be subject to review and approval of Parent. The
Company also shall take such other actions in furtherance of terminating such 401(k) Employee
Plan(s) as Parent may reasonably require.



     5.19 Spreadsheet. The Company shall deliver to Parent and the Exchange Agent a spreadsheet (the
“Spreadsheet”) substantially in the form attached hereto as Schedule 5.19, which spreadsheet shall
be certified as complete and correct by the Chief Executive Officer and Chief Financial Officer of
the Company as of the Closing and which shall include, among other things, as of the Closing, (i)
all Shareholders and their respective addresses, the number of shares of Company Capital Stock held
by such persons (including whether such shares are Company Common Stock or any other capital
stock), the respective certificate numbers, whether such shares of Company Capital Stock are
subject to vesting (and if so, for each certificate, the number of shares that are vested as of the
Closing), the date of acquisition of such shares, the Pro Rata Portion of Merger Shares to be held
back pursuant to Section 1.6(b)(iv), the Pro Rata Portion of Merger Cash (if any) to be held back
pursuant to Section 1.6(b)(iv), the number of Merger Shares (if any) to be issued and amount of
Merger Cash to be paid to each holder at Closing, outstanding Shareholder loans (if any) to be
deducted from any consideration payable to a Shareholder pursuant to Section 1.6(f), and such other
information relevant thereto or which the Exchange Agent may reasonably request, and (ii) all
holders of Company Options and their respective addresses, the number of shares of Company Capital
Stock underlying each such Company Option, the grant dates and exercise prices of such Company
Options and the vesting arrangement with respect to such Company Options, the exercise price of
each Company Option, and indicating, with respect to each Company Option, whether such Company
Option is an incentive stock option or a non-qualified stock option, the amount of Option
Consideration to be issued to each holder, and such other information relevant thereto or which
Parent may reasonably request. The Company shall deliver the Spreadsheet three (3) Business Days
prior to the Closing Date.



     5.20 Intentionally Deleted.



     5.21 FIRPTA Compliance. On the Closing Date, the Company shall deliver to Parent a properly executed notice and
certificate (a “FIRPTA Compliance Certificate”) in a form reasonably acceptable to Parent for
purposes of satisfying Parent’s obligations under Treasury Regulation Section 1.1445-2(c)(3).



     5.22 Affiliate Agreements. Schedule 5.22 hereto sets forth those persons who, in the Company’s
reasonable judgment, are or may be “affiliates” of the Company within the meaning of Rule 145 (each
such person, a “Rule 145 Affiliate”) promulgated under the Securities Act (“Rule 145”). The
Company shall provide Parent such information and documents as Parent shall reasonably request for
purposes of reviewing such list. Parent and Sub shall be entitled to issue appropriate stop
transfer instructions to the transfer agent for Parent Common Stock and to place the following
legend on the certificates evidencing any Parent Common Stock to be received by such Rule 145
Affiliates pursuant to the terms of this Agreement:



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     “THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
CLOSED ON [DATE] BETWEEN HARMONIC, INC. AND RHOZET CORPORATION TO WHICH RULE 145
APPLIES AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE 145(d) OR PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE
ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.”


The legend set forth above shall be removed (by delivery of a substitute certificate without such
legend) and Parent shall so instruct its transfer agent, if the Rule 145 Affiliate holding the
applicable shares delivers to Parent (i) satisfactory written evidence that the shares have been
sold in compliance with Rule 145 (in which case, the substitute certificate shall be issued in the
name of the transferee), or (ii) an opinion of counsel, in form and substance reasonably
satisfactory to Parent, to the effect that public sale of the shares by the holder thereof is no
longer subject to Rule 145.




     5.23 Employment Agreements. Each of the Key Employees shall have executed and delivered the
appropriate form of Employment Agreement.



ARTICLE VI




CONDITIONS TO THE MERGER




     6.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of
the Company, Parent and Sub to effect the Merger shall be subject to the satisfaction, at or prior
to the Effective Time, of the following conditions:



          (a) No Order; Injunctions; Restraints; Illegality. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree,
injunction, order or other legal restraint (whether temporary, preliminary or permanent) which is
in effect and which has the effect of making the Merger illegal or otherwise prohibiting or
preventing consummation of the Merger.




          (b) Federal Securities Law Compliance. The transactions contemplated by this Agreement
relating to the issuance of Parent Common Stock in the Merger shall have satisfied the requirements
of one or more exemptions from registration under the Securities Act.




     6.2 Conditions to the Obligations of Parent and Sub. The obligations of Parent and Sub to effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by Parent and Sub:



          (a) Representations, Warranties and Covenants. (i) The representations and warranties of the
Company in this Agreement (other than the representations and warranties of the Company as of a
specified date, which shall be true and correct as of such date, shall have been true and correct
on the date they were made and shall be true and correct in all material respects (without giving
effect to any limitation as

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to “materiality”, “Company Material Adverse Effect” or “Knowledge” set forth therein) on and as of
the Closing Date as though such representations and warranties were made on and as of such date,
and (ii) the Company shall have performed and complied in all material respects with all covenants
and obligations under this Agreement required to be performed and complied with by such parties as
of the Closing.




          (b) No Material Adverse Effect. Since the Balance Sheet Date, there shall not have occurred
any event or condition of any character that has had or is reasonably likely to have, either
individually or in the aggregate with all such other events or conditions, a Company Material
Adverse Effect, determined without regard to whether such change constitutes a breach of a
representation or warranty.




          (c) 280G Shareholder Vote. With respect to any payments and/or benefits that Parent
determines may constitute “parachute payments” under Section 280G of the Code, the Company
Shareholders shall have (i) approved, pursuant to the method provided for in the regulations
promulgated under Section 280G of the Code, any such “parachute payments” or (ii) shall have voted
upon and disapproved such parachute payments, and, as a consequence, such “parachute payments”
shall not be paid or provided for in any manner.”




          (d) Dissenters’ Rights. None of the Shareholders shall continue to have a right to exercise
appraisal, dissenters’ or similar rights under applicable law with respect to their Company Capital
Stock by virtue of the Merger.




          (e) Litigation. There shall be no action, suit, claim, order, injunction or proceeding of any
nature pending, or overtly threatened, (i) against the Company or any Subsidiary, their respective
properties or any of their respective officers, directors or subsidiaries arising out of, or in any
way connected with, the Merger or the other transactions contemplated by the terms of this
Agreement or otherwise seeking any of the results set forth in Section 6.1(a) hereof that is
reasonably likely to materially and adversely affect the consummation of the Merger or (ii) against
the Company or any Subsidiary, their respective properties or any of their respective officers,
directors or subsidiaries that has had or is reasonably likely to have a Company Material Adverse
Effect.




          (f) Governmental Approval. All material approvals from any Governmental Entity deemed
appropriate or necessary by Parent shall have been timely obtained, and all filings under
applicable blue sky laws relating to the transactions contemplated by this Agreement shall have
been made.




          (g) Third Party Consents. The Company shall have delivered to Parent all necessary
assignments of Contracts and consents, waivers, and approvals of parties to each Contract
(including Lease Agreements) set forth on Schedule 6.2(g) hereto as are required thereunder for
such Contract to remain in full force and effect without limitation, modification or alteration
after the Effective Time.




          (h) Termination of Agreements. The Company shall have terminated each of those agreements
listed on Schedule 6.2(h) hereto effective as of and contingent upon the Closing and, from and
after the Closing, each such agreement shall be of no further force or effect.




          (i) Employment Agreements. Each of the Key Employees shall have executed and delivered to
Parent an Employment Agreement and shall not have taken any action which would be prohibited
thereby were such agreement in effect at the time of such action and such Employment Agreement
shall be in effect as of the Effective Time.




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          (j) Resignation of Officers and Directors. Parent shall have received a written resignation
letter from each of the officers and directors of the Company and its Subsidiaries effective as of
the Effective Time in a form acceptable to Parent.




          (k) Termination of Company Options. The Company shall have delivered written evidence
reasonably acceptable to Parent to the effect that each Company stock option that is not listed on
Disclosure Schedule 2.2(c) will be terminated immediately prior to the Effective Time of the
Merger.




          (l) Termination of 401(k) Plans. Unless Parent has otherwise instructed the Company pursuant
to Section 5.18 hereof, Parent shall have received from the Company evidence reasonably acceptable
to Parent that all 401(k) Plans have been terminated pursuant to resolution of the Board of
Directors of the Company, each of its Subsidiaries or the ERISA Affiliate, as the case may be (the
form and substance of which shall have been subject to review and approval of Parent), effective as
of no later than the day immediately preceding the Closing Date.




          (m) Spreadsheet. Parent and the Exchange Agent shall have received from the Company three (3)
Business Days prior to the Closing Date the Spreadsheet pursuant to Section 5.17, which shall have
been certified as of the Closing Date as complete and correct by the Chief Executive Officer and
the Chief Financial Officer of the Company.




          (n) Intentionally Deleted.




          (o) Securities Filings. The Company shall have made such securities laws filings required in
connection with the lawful issuance and sale of shares of Company Common Stock and Company Options
since the date of the Company’s incorporation.




          (p) Certificate of the Company. Parent shall have received certificates from the Company,
validly executed by the Chief Executive Officer and Chief Financial Officer of the Company for and
on the Company’s behalf, to the effect that, as of the Closing:




               (i) the representations and warranties of the Company in this Agreement (other than the
representations and warranties of the Company as of a specified date, which were true and correct
as of such date) were true and correct on the date they were made and are true and correct in all
material respects (without giving effect to any limitation as to “materiality,” “Company Material
Adverse Effect” or “Knowledge” set forth therein) on and as of the Closing Date as though such
representations and warranties were made on and as of such date; and



               (ii) the Company has performed and complied in all material respects with all covenants and
obligations under this Agreement required to be performed and complied with by such party as of the
Closing.



          (q) Certificate of Secretary of Company. Parent shall have received a certificate, validly
executed by the Secretary of the Company, certifying as to (i) the terms and effectiveness of the
Charter Documents, (ii) the valid adoption of resolutions of the Board of Directors of the Company
(whereby the Merger and the transactions contemplated hereunder, were unanimously approved by the
Board of Directors) and (iii) that the Shareholders constituting the Requisite Shareholder Vote have adopted and
approved the Merger, this Agreement and the consummation of the transactions contemplated hereby
and approval of any




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payments or benefits that may be deemed to constitute a “parachute payment”
within the meaning of 280G of the Code.




          (r) Certificate of Good Standing. Parent shall have received a long-form certificate of good
standing from the Secretary of State of the State of California which is dated within two (2)
Business Days prior to Closing with respect to the Company.




          (s) FIRPTA Certificate. Parent shall have received a copy of the FIRPTA Compliance
Certificate, validly executed by a duly authorized officer of the Company.




     6.3 Conditions to Obligations of the Company. The obligations of the Company to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:



          (a) Representations, Warranties and Covenants. (i) The representations and warranties of
Parent and Sub in this Agreement (other than the representations and warranties of Parent and Sub
as of a specified date, which shall be true and correct as of such date) shall have been true and
correct when made and shall be true and correct in all material respects (without giving effect to
any limitation as to “materiality” or “Parent Material Adverse Effect” set forth therein) on and as
of the Closing Date as though such representations and warranties were made on and as of such date,
and (ii) each of Parent and Sub shall have performed and complied in all material respects with all
covenants and obligations under this Agreement required to be performed and complied with by such
parties as of the Closing Date.




          (b) Certificate of Parent. The Company shall have received a certificate from Parent executed
by a Vice President for and on its behalf to the effect that, as of the Closing:




               (i) all representations and warranties made by Parent and Sub in this Agreement (other than
the representations and warranties of Parent and Sub as of a specified date, which were true and
correct as of such date) were true and correct on the date they were made and are true and correct
in all material respects on and as of the Closing Date as though such representations and
warranties were made on and as of such date;



               (ii) Parent and Sub have performed and complied in all material respects with all covenants
and obligations under this Agreement required to be performed or complied with by such parties as
of the Closing; and



ARTICLE VII




SURVIVAL OF REPRESENTATIONS AND WARRANTIES; HOLDBACK




     7.1 Survival of Representations and Warranties. The representations and warranties of the Company contained in this Agreement, or in any
certificate or other instruments delivered pursuant to this Agreement, shall survive for a period
of eighteen (18) months following the Closing Date (such date, the “Initial Survival Date”);
provided that the representations and warranties Section 2.15 hereof (under the heading
“Intellectual Property”) shall survive for a period of thirty-six (36) months following the Closing
Date; and provided further that the representations and warranties in Section 2.2 (under the
heading “Company Capital Structure”), Section 2.4 (under the heading “Authority”), Section 2.12
hereof (under the heading “Tax Matters”), and Section 2.23 (under the heading “Employee Benefit
Plans and Compensation”)



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shall survive until the expiration of the applicable statue of limitations including extensions
thereof (the “Subsequent Survival Date”); provided further, that in the event of fraud or
intentional misrepresentation, the representations or warranties that are the subject of such fraud
or intentional misrepresentation shall survive until the expiration of the applicable statute of
limitations. The representations and warranties of Parent and Sub contained in this Agreement, or
in any certificate or other instrument delivered pursuant to this Agreement shall terminate at the
Closing. The covenants and other agreements set forth in this Agreement shall terminate at the
Closing, except for the covenants and agreements which by their terms contemplate or require
performance following the Closing, each of which shall survive without limitation until complete
performance of the terms thereof.



     7.2 Indemnification.



          (a) By virtue of the consummation of the Merger, the Shareholders agree to jointly and
severally indemnify and hold harmless Parent and its officers, directors, affiliates, employees,
agents and representatives, including the Surviving Corporation (the “Indemnified Parties”),
against all claims, losses, liabilities, damages, deficiencies, diminution in value, costs,
interest, awards, judgments, penalties and expenses, including reasonable attorneys’ and
consultants’ fees and expenses and including any such reasonable expenses incurred in connection
with investigating, defending against or settling any of the foregoing (hereinafter individually a
“Loss” and collectively “Losses”) incurred or sustained by the Indemnified Parties, or any of them
(including the Surviving Corporation), directly or indirectly, as a result of (i) any breach or
inaccuracy of a representation or warranty of the Company contained in this Agreement or any
certificates or other instruments delivered by or on behalf of the Company pursuant to this
Agreement (provided that, in the event of any such breach or inaccuracy, for purposes of
determining the amount of any Loss no effect will be given to any qualification as to
“materiality”, a “Company Material Adverse Effect” or “Knowledge” contained therein), (ii) any
failure by the Company to perform or comply with any covenant applicable to it contained in this
Agreement or any certificates or other instruments delivered pursuant to this Agreement, (iii) any
fraud in connection with this Agreement or any certificates or other instruments delivered pursuant
to this Agreement on the part of the Company, (iv) any Dissenting Share Payments, to the extent
that such Dissenting Share Payments exceed the consideration that such dissenting Shareholders
would have received in the Merger had no Dissenting Share Payments been made, (v) any Final Assumed
Liability Adjustment, (vi) any payment or consideration arising under any consents, waivers or
approvals of any party under any agreement as are required in connection with the Merger or for any
such agreement to remain in full force or effect following the Effective Time, (vii) any failure of
the Spreadsheet to be true and correct in all respects (including with respect to the Option Cash
to be paid to Persons who were holders of Company Options immediately prior to the Closing), (viii)
any Tax liability of the Company or any Subsidiary or affiliate thereof relating to any period of
time before and through the Closing Date (the “Pre-Closing Period”), and (ix) any Losses relating
to wages, payments, reimbursements, benefits, taxes and any other Losses relating to employees or
consultants of the Company relating to the Pre-Closing Period. The Shareholders (including any
officer or director of the Company) shall not have any right of contribution, indemnification or
right of advancement from the Surviving Corporation or Parent with respect to any Loss claimed by
an Indemnified Party.




          (b) Any Person committing fraud or any intentional misrepresentation in connection with this
Agreement or any certificate or other instrument delivered pursuant to this Agreement, or who has
knowledge of the same, shall be severally, and not jointly, liable for, and shall indemnify
and hold the Indemnified Parties harmless for, any Losses incurred or sustained by the Indemnified
Parties, or any of them (including the Surviving Corporation), directly or indirectly, as a result
of such fraud or intentional misrepresentation committed by such Person (or who has actual
knowledge of the same).





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          (c) Subject to Section 7.2(b) and Section 7.3(b), the Shareholders shall be jointly and
severally liable for, and shall indemnify and hold the Indemnified Parties harmless for, any Losses
incurred or sustained by the Indemnified Parties, or any of them (including the Surviving
Corporation), directly or indirectly, arising out of any fraud or intentional misrepresentation in
connection with this Agreement or any certificate or other instrument delivered pursuant to this
Agreement on the part of the Company.




     7.3 Maximum Payments; Remedy.



          (a) Except as set forth in Section 7.3(b) hereof, the maximum amount an Indemnified Party may
recover from a Shareholder individually pursuant to the indemnity set forth in Section 7.2 hereof
for Losses shall be limited to such Shareholder’s Pro Rata Portion of $9,400,000 of the Aggregate
Common Stock Consideration Amount received by all Shareholders.




          (b) Notwithstanding anything to the contrary set forth in this Agreement, in the event of
Losses arising out of any fraud or intentional misrepresentation by any Person (other than Parent
and its affiliates) in connection with this Agreement or any certificates or other instruments
delivered pursuant to this Agreement, each Shareholder shall be liable for all such Losses up to
the full amount of the Total Consideration received by such Shareholder, provided further that
nothing in this Agreement shall limit the liability of any Person (including any Shareholder) for
any such Losses if such Person perpetrated such fraud or intentional misrepresentation or had
actual knowledge of the same, and nothing in this Agreement shall prevent or limit any right of
other Shareholders for contribution from any other Shareholder who perpetrated such fraud or
intentional misrepresentations.




          (c) Nothing in this Article VII shall limit the liability of the Company for any breach by the
Company of any representation, warranty or covenant contained in this Agreement, or in any
certificates or other instruments delivered pursuant to this Agreement if the Merger does not
close.




          (d) Notwithstanding anything to the contrary herein, the parties hereto agree and acknowledge
that any Indemnified Party may bring a claim for indemnification for any Loss under this Article
VII notwithstanding the fact that such Indemnified Party had knowledge of the breach, event or
circumstance giving rise to such Loss prior to the Closing or waived any condition to the Closing
related thereto.




          (e) Notwithstanding anything to the contrary herein, nothing shall prohibit Parent from
seeking and obtaining recourse against any Shareholder in the event that Parent issues more shares
of Parent
Common Stock or pays more cash to the Shareholder than the Shareholder is entitled pursuant to
Article I of this Agreement.




     7.4 Means of Indemnification.



          (a) Holdback. By virtue of this Agreement and as partial security (subject to Section 7.4(b)
below) for the indemnity obligations provided for in Section 7.2 hereof, at the Effective Time,
Parent will, with respect to each share of Company Common Stock, withhold the Holdback Amount,
without any act of the Shareholders. The Total Holdback Amount shall be available to compensate
the Indemnified Parties for any claims by such parties for any Losses suffered or incurred by them
and for which they are entitled to recovery under this Article VII. Any Loss incurred by the
Indemnified Parties on or prior to the Initial Survival Date (or, with respect to certain matters,
as set forth in Section 7.4(c), the Distribution Date)




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shall result in a reduction in the Total
Holdback Amount in a manner as governed by the terms set forth herein.




          (b) Satisfaction of Claims. Except to the extent that the Losses resulted from fraud or
intentional misrepresentation committed by the Company (in which case recovery of such Losses, at
the discretion of an Indemnified Party, may also be pursued directly against the Shareholders,
subject to Section 7.3) or as otherwise provided in Section 7.3(b), claims by an Indemnified Party
for Losses pursuant to this Agreement shall be satisfied first, from the Total Holdback Amount, and
once the Total Holdback Amount has been fully paid out or otherwise set aside for previous claims
and Shareholder Representative Expenses, second, from the Shareholders on a several and not joint
basis for their Pro Rata Portion of such Losses.




          (c) Distribution at Holdback Distribution Date.




                    (i) Promptly following the date that is thirty (30) days after the Initial Survival Date (the
“Holdback Distribution Date”), one-hundred percent (100%) of the Total Holdback Amount, less any
amount in respect of any satisfied and unsatisfied claims specified in any Officer’s Certificate
(as defined below) (“Unresolved Claims”) delivered to the Shareholder Representative on or prior to
the Holdback Distribution Date with respect to facts and circumstances existing on or prior to the
Initial Survival Date (with respect to claims for Losses relating to representations and warranties
for which the survival terminates on the Initial Survival Date) or subsequent to the Initial
Survival Date but on or prior to the Holdback Distribution Date for all other claims, shall be
distributed to the Shareholders in accordance with clause (iii) of this Section 7.4(c).



                    (ii) In the event that (a) there exist Unresolved Claims following the expiration of the
Holdback Distribution Date that relate to one or more Officer’s Certificates alleging Losses
occurring before the Initial Survival Date, and (b) the amount of Losses incurred by the
Indemnified Parties is determined to be less than the amount claimed on all such Officer’s
Certificates under the objection and conflict procedures in Section 7.4(e) and Section 7.4(e), then
Parent shall promptly deliver to the Shareholders that portion of such Unresolved Claim(s) that
should have been distributed to the Shareholders at the Holdback Distribution Date had such
Officer’s Certificates alleged the correct amount of Losses finally determined pursuant to Section
7.4(e) and Section 7.4(e), which portion of the Total Holdback Amount shall be distributed to the
Shareholders in accordance with clause (iii) of this Section 7.4(c).



                    (iii) Delivery of the Total Holdback Amount or any portion thereof to the Shareholders
pursuant to this Section 7.4(c) shall be made in proportion to the Shareholders’ respective Pro
Rata Portions of the remaining portion of the Total Holdback Amount, with the Parent Common Stock
delivered to each Shareholder rounded down to the nearest share, and the cash amount delivered to
each Shareholder rounded to the nearest whole cent (with $0.005 rounded down).



          (d) Procedures for Claims for Indemnification.




                    (i) Subject to clause (v) of this Section 7.4(d), Parent may not reduce the Total Holdback
Amount unless and until Parent delivers an Officer’s Certificate to the Shareholder Representative
identifying Losses.



                    (ii) Notwithstanding any provision of this Agreement to the contrary, except as set forth in
clause (iii) of this Section 7.4(d), an Indemnified Party may not recover any Losses under



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clause
(i) of Section 7.2(a) hereof unless and until one or more Officer’s Certificates identifying such
Losses under clause (i) of Section 7.2(a) in excess of $75,000 in the aggregate (the “Basket
Amount”) has or have been delivered to the Shareholder Representative as provided in Section 7.4(d)
hereof, in which case Parent shall be entitled to recover all Losses so identified.



                    (iii) Parent shall be entitled to recover for, and the Basket Amount shall not apply as a
threshold to, any and all claims or payments made with respect to all Losses (a) incurred pursuant
to clauses (ii) through (ix) of Section 7.2(a) hereof, (b) incurred as a result of any breach or
inaccuracy of the representations or warranties set forth in Section 2.2 (under the heading
“Company Capital Structure”), Section 2.4 (under the heading “Authority”), Section 2.11 hereof
(under the heading “Tax Matters”), Section 2.15 hereof (under the heading “Intellectual Property”),
Section 2.22 hereof (under the heading “Employee Benefit Plans and Compensation”) or as a result of
any breach or inaccuracy of any representations or warranties that are the subject of fraud or
intentional misrepresentation and (c) that are Agreed Upon-Losses (as defined in Section 7.4(f)(v)
hereof).



                    (iv) For the purposes hereof, “Officer’s Certificate” shall mean a certificate signed by any
officer of Parent: (1) stating that an Indemnified Party has paid, sustained, incurred, or properly
accrued, or reasonably anticipates that it will have to pay, sustain, incur, or accrue Losses, and
(2) specifying in reasonable detail the individual items of Losses included in the amount so stated
(and the method of computation of each such item of Loss, if applicable), the date each such item
was paid, sustained, incurred, or properly accrued (in accordance with GAAP), or the basis for such
reasonably anticipated Loss(es), and (3) the basis for indemnification under Section 7.2 to which
such item of Loss is related (including, if applicable, the specific nature of the
misrepresentation, breach of warranty or covenant to which such item is related).



                    (v) If the Shareholder Representative does not object in writing within the twenty (20) day
period after delivery by the Parent of the Officer’s Certificate, such failure to so object shall
be an irrevocable acknowledgment by the Shareholder Representative and the Shareholders that the
Indemnified Party is entitled to the full amount of the claim for Losses set forth in such
Officer’s Certificate.



          (e) Objections to Claims. For a period of twenty (20) days after delivery of an Officer’s
Certificate pursuant to Section 7.4(d), Parent shall make no deduction for the Total Holdback
Amount pursuant to Section 7.4(d) hereof (other than Agreed-Upon Losses as described below) unless
Parent shall have received written authorization from the Shareholder Representative to make such
deduction. After the
expiration of such twenty (20) day period, Parent shall deduct from the Total Holdback Amount
an amount equal to the amount of Losses claimed in the Officer’s Certificate; provided that no such
payment may be made if the Shareholder Representative shall object in a written statement to the
claim made in the Officer’s Certificate (an “Objection Notice”), and such Objection Notice shall
have been delivered to the Parent prior to the expiration of such twenty (20) day period.
Notwithstanding the foregoing, the Shareholder Representative hereby waives the right to object to
any claims against the Total Holdback Amount in respect of any Agreed-Upon Loss. The Shareholder
Representative hereby authorizes Parent to pay from the Total Holdback Amount all such amounts
equal to the amount of Losses claimed in any Officer’s Certificate in respect of any Agreed-Upon
Loss upon receipt of such Officer’s Certificate without regard to the ten (10) day period set forth
in this Section 7.4(e).




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          (f) Resolution of Conflicts; Arbitration.




                    (i) In case the Shareholder Representative delivers an Objection Notice in accordance with
Section 7.4(e) hereof (other than in connection with Agreed-Upon Losses as defined in Section
7.4(f)(v) hereof, for which the Shareholder Representative has waived the right to object), the
Shareholder Representative and Parent shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the Shareholder Representative and
Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties and, in the case of a claim against the Total Holdback Amount, shall be furnished to
Parent and the Shareholder Representative. The Parent shall be entitled to rely on any such
memorandum and make deductions from the Total Holdback Amount in accordance with the terms thereof.



                    (ii) If no such agreement can be reached after good faith negotiation and prior to thirty (30)
days after delivery of an Objection Notice, either Parent or the Shareholder Representative may
demand arbitration of the matter unless the amount of the Loss that is at issue is the subject of a
pending litigation with a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration, and in either such event the matter
shall be settled by arbitration conducted by one arbitrator mutually agreeable to Parent and the
Shareholder Representative. In the event that, within thirty (30) days after submission of any
dispute to arbitration, Parent and the Shareholder Representative cannot mutually agree on one
arbitrator, then, within fifteen (15) days after the end of such thirty (30) day period, Parent and
the Shareholder Representative shall each select one arbitrator. The two arbitrators so selected
shall select a third arbitrator. If the Shareholder Representative fails to select an arbitrator
during this fifteen (15) day period, then the parties agree that the arbitration will be conducted
by one arbitrator selected by Parent.



                    (iii) Any such arbitration shall be held in Santa Clara County, California, under the rules
then in effect of the American Arbitration Association. The arbitrator(s) shall determine how all
expenses relating to the arbitration shall be paid, including the respective expenses of each
party, the fees of each arbitrator and the administrative fee of the American Arbitration
Association. The arbitrator or arbitrators, as the case may be, shall set a limited time period
and establish procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrator or majority of the three
arbitrators, as the case may be, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrator, or a majority of the three arbitrators, as the
case may be, shall rule upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys’ fees and costs, to the same extent as a competent court of
law or equity, should the arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that discovery was refused
or objected to without
substantial justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in such Officer’s
Certificate shall be final, binding, and conclusive upon the parties to this Agreement and the
Shareholders. Such decision shall be written and shall be supported by written findings of fact
and conclusions which shall set forth the award, judgment, decree or order awarded by the
arbitrator(s), and the Parent shall be entitled to rely on, and make deductions from the Total
Holdback Amount in accordance with, the terms of such award, judgment, decree or order as
applicable. Within 30 days of a decision of the arbitrator(s) requiring payment by one party to
another, such party shall make the payment to such other party, including any deduction from the
Total Holdback Amount, as applicable.



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                    (iv) Judgment upon any award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. Except as set forth in Section 7.4(f)(v) hereof, the forgoing arbitration provision
shall apply to any dispute among the Shareholders or any Indemnifying Party and the Indemnified
Parties under this Article VII hereof, whether relating to claims upon the Total Holdback Amount or
to the other indemnification obligations set forth in this Article VII (other than with respect to
claims for indemnification outside of the Total Holdback Amount pursued directly against any
Shareholder or any other Person as permitted by this Article VII).



                    (v) This Section 7.4(f) shall not apply to claims against the Total Holdback Amount made in
respect of (A) any Dissenting Share Payments to the extent that such Dissenting Share Payments
exceed the consideration that such dissenting Shareholders would have received in the Merger has no
Dissenting Share Payment been made, and (B) any Final Assumed Liability Adjustment (each of (A) and
(B), an “Agreed-Upon Loss”). Claims against the Total Holdback Amount made in respect of
any Agreed-Upon Loss shall be resolved in the manner described in Section 7.4(d) hereof.



          (g) Third-Party Claims. In the event Parent becomes aware of a third party claim or other
circumstance (other than a claim or circumstance that is the subject of an Agreed-Upon Loss) (a
“Third Party Claim”) which Parent reasonably believes may result in a demand against the Total
Holdback Amount or for other indemnification pursuant to this Article VII, Parent shall notify the
Shareholder Representative of such claim or circumstance, and the Shareholder Representative shall
be entitled on behalf of the Shareholders, at their expense, to participate in, but not to
determine or conduct, the defense of such Third Party Claim. Parent shall have the right in its
sole discretion to conduct the defense of, and to settle, any such claim; provided, however, that
except with the consent of the Shareholder Representative, no settlement of any such Third Party
Claim with third party claimants shall be determinative of the amount of Losses relating to such
matter. In the event that the Shareholder Representative has consented to any such settlement, the
Shareholders shall have no power or authority to object under any provision of this Article VII to
the amount of any Third Party Claim by Parent against the Total Holdback Amount or the
Shareholders, with respect to such settlement. If there is a Third Party Claim that, if adversely
determined would give rise to a right of recovery for Losses hereunder, then any amounts incurred
or accrued by the Indemnified Parties in defense of such Third Party Claim, regardless of the
outcome of such claim, shall be deemed Losses hereunder. Notwithstanding anything in this
Agreement to the contrary, this Section 7.4(g) shall not apply to any Third Party Claim that is the
subject of an Agreed-Upon Loss. Claims against the Total Holdback Amount made in respect of any
Agreed-Upon Loss shall be resolved in the manner described in Section 7.4(f)(v) above.




     7.5 Shareholder Representative.



          (a) By virtue of the approval of the Merger and this Agreement by the Shareholders, each of
the Shareholders shall be deemed to have agreed to appoint David Trescot as its agent and
attorney-in-fact, as the Shareholder Representative for and on behalf of the Shareholders to give
and receive notices and communications, to agree to the adjustment (if any) of the Aggregate Common
Stock Consideration Amount pursuant to the terms of Section 1.6(d) hereof, to authorize deductions
from the Total Holdback Amount in satisfaction of claims by any Indemnified Party, to object to the
foregoing adjustments or payments, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect
to such claims, to assert, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with respect to, any other
claim by any Indemnified Party against any Shareholder or by any such Shareholder against any
Indemnified Party, any dispute between any Indemnified Party and any such Shareholder, any dispute
relating to the Company Assumed Liabilities Report, in each case relating to this




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Agreement or the
transactions contemplated hereby, and to take all other actions that are either (i) necessary or
appropriate in the judgment of the Shareholder Representative for the accomplishment of the
foregoing or (ii) specifically mandated by the terms of this Agreement. Such agency may be changed
by the Shareholders from time to time upon not less than thirty (30) days prior written notice to
Parent; provided, however, that the Shareholder Representative may not be removed unless holders of
a two-thirds interest of the Total Holdback Amount agree to such removal and to the identity of the
substituted agent. Notwithstanding the foregoing, a vacancy in the position of Shareholder
Representative may be filled by the holders of a majority in interest of the Total Holdback Amount.
No bond shall be required of the Shareholder Representative, and the Shareholder Representative
shall not receive any compensation for its services. Notices or communications to or from the
Shareholder Representative shall constitute notice to or from the Shareholders.




          (b) The Shareholder Representative shall not be liable for any act done or omitted hereunder
as Shareholder Representative while acting in good faith and in the exercise of reasonable
judgment. The Shareholders shall indemnify the Shareholder Representative and hold the Shareholder
Representative harmless against any loss, liability or expense incurred without gross negligence or
bad faith on the part of the Shareholder Representative and arising out of or in connection with
the acceptance or administration of the Shareholder Representative’s duties hereunder, including
the reasonable fees and expenses of any legal counsel retained by the Shareholder Representative
(“Shareholder Representative Expenses”). Following the Holdback Distribution Date, the resolution
of all Unresolved Claims and the satisfaction of all claims made by Indemnified Parties for Losses,
the Shareholder Representative shall have the right to recover Shareholder Representative Expenses
from the Total Holdback Amount prior to any distribution to the Shareholders, and prior to any such
distribution, shall deliver to Parent a certificate setting forth the Shareholder Representative
Expenses actually incurred and amount in cash to be distributed as satisfaction of such expenses.
A decision, act, consent or instruction of the Shareholder Representative, including an amendment,
extension or waiver of this Agreement pursuant to Section 8.3 and Section 8.5 hereof, shall
constitute a decision of the Shareholders and shall be final, binding and conclusive upon the
Shareholders; and Parent may rely upon any such decision, act, consent or instruction of the
Shareholder Representative as being the decision, act, consent or instruction of the Shareholders.
The Parent are hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholder Representative.




          (c) Notwithstanding anything in this Agreement to the contrary, the Shareholder Representative
shall have no authority to act on behalf of any Shareholder in connection with any claim by an
Indemnified Party seeking recovery for any Losses outside of the Total Holdback Amount.




ARTICLE VIII




TERMINATION, AMENDMENT AND WAIVER




     8.1 Termination. Subject to Section 8.2 hereof, this Agreement may be terminated and the
Merger abandoned at any time prior to the Closing:



          (a) by mutual agreement of the Company and Parent;




          (b) by Parent or the Company if the Closing Date shall not have occurred by forty-five (45)
days following the date of this Agreement; provided, however, that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose action or failure to
act has been a principal cause of or resulted in the failure of the Merger to occur on or before
such date and such action or failure to




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act constitutes breach of this Agreement; provided,
further, that if the failure to consummate the Merger by the Termination Date is wholly or in part
caused by a delay in (i) any consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under foreign merger control regulations, or (ii) any
consents, notices, waivers, approvals, orders, authorizations, registrations, declarations and
filings, and applicable waiting periods, as may be required under applicable blue sky laws, the
Termination Date shall be automatically extended, without any action on the part of the parties, on
a day-for-day basis by the amount of time necessary to satisfy (i) through (v), as applicable,
which extension shall in no event exceed sixty (60) days;




          (c) by Parent if any Governmental Entity shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction, order or other legal
restraint which is in effect and which has the effect of making the Merger illegal;




          (d) by Parent if there shall be any action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity, which
would constitute an Action of Divestiture;




          (e) by Parent if it is not in material breach of its obligations under this Agreement and
there has been a breach of any representation, warranty, covenant or agreement of the Company
contained in this Agreement such that the conditions set forth in Section 6.2(a) hereof would not
be satisfied and such breach has not been cured within ten (10) calendar days after written notice
thereof to the Company; provided, however, that no cure period shall be required for a breach which
by its nature cannot be cured; or




          (f) by the Company if none of the Company or any of its Subsidiaries is in material breach of
their respective obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement of Parent contained in this Agreement such that the
conditions set forth in Section 6.3(a) hereof would not be satisfied and such breach has not been
cured within ten (10) calendar days after written notice thereof to Parent; provided, however, that
no cure period shall be required for a breach which by its nature cannot be cured.




     8.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 8.1 hereof, this
Agreement shall forthwith become void and there shall be no liability or obligation on the part of
Parent, the Company, or its respective officers, directors or Shareholders, if applicable;
provided, however, that each party hereto and each Person shall remain liable for any breaches of
this Agreement or in any certificate or other instruments delivered pursuant to this Agreement
prior to its termination; and provided further, however, that the provisions of Sections 5.2, 5.3,
5.15, 7.3(c) and 8.3 hereof, Article IX hereof and this Section 8.2 shall remain in full force and
effect and survive any termination of this Agreement pursuant to the terms of this Article VIII.



     8.3 Fees and Expenses. Except as set forth in this Section 8.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated hereby shall be paid
by the party incurring such expenses whether or not the Merger is consummated; provided, however,
that Parent and the Company shall share equally the filing fee for the Notification and Report
Forms filed with the FTC and DOJ under the HSR Act, and all premerger notification and reports
forms under similar applicable laws of other jurisdictions.



     8.4 Amendment. This Agreement may be amended by the parties hereto at any time by execution
of an instrument in writing signed on behalf of the party against whom enforcement is sought. For



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purposes of this Section 8.4, the Shareholders agree that any amendment of this Agreement signed by
the Shareholder Representative shall be binding upon and effective against the Shareholders whether
or not they have signed such amendment.



     8.5 Extension; Waiver. At any time prior to the Closing, Parent, on the one hand, and the
Company and the Shareholder Representative, on the other hand, may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations of the other party hereto, (ii)
waive any inaccuracies in the representations and warranties made to such party contained herein or
in any document delivered pursuant hereto, and (iii) waive compliance with any of the covenants,
agreements or conditions for the benefit of such party contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. For purposes of this Section 8.5, the Shareholders
agree that any extension or waiver signed by the Shareholder Representative shall be binding upon
and effective against all Shareholders whether or not they have signed such extension or waiver.



ARTICLE IX




GENERAL PROVISIONS




     9.1 Notices. All notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally or by commercial messenger or courier service, or mailed by
registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment
of complete transmission) to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice or, if specifically provided for elsewhere in this
Agreement such as Section 4.3, by email); provided, however, that notices sent by mail will not be
deemed given until received:



	 	 	 	 	 
	 

	 	(a)
	 	if to Parent or Sub, to:
	 
	 	 	 	 
	 

	 	 	 	Harmonic, Inc.
	 

	 	 	 	549 Baltic Way
	 

	 	 	 	Sunnyvale, CA 94089
	 

	 	 	 	Attn: Robin N. Dickson
	 

	 	 	 	Telephone: (408) 542-2661
	 

	 	 	 	Facsimile: (408) 542-2516
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Wilson Sonsini Goodrich & Rosati
	 

	 	 	 	Professional Corporation
	 

	 	 	 	650 Page Mill Road
	 

	 	 	 	Palo Alto, CA 94304
	 

	 	 	 	Attention:  Jeffey D. Saper, Esq.
	 

	 	 	 	                  Robert G. Day, Esq.
	 

	 	 	 	Telephone No.: (650) 493-9300
	 

	 	 	 	Facsimile No.: (650) 493-6811






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	 	(b)
	 	if to the Company or the Shareholder Representative, to:
	 
	 	 	 	 
	 

	 	 	 	David Trescot
	 

	 	 	 	751 Live Oak Drive
	 

	 	 	 	Menlo Park, CA 94025
	 

	 	 	 	Attention: David Trescot
	 

	 	 	 	Facsimile No.: (408) 432-3334
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Teraoka & Partners LLP
	 

	 	 	 	One Embarcadero Center Suite 1020
	 

	 	 	 	San Francisco, CA 94111
	 

	 	 	 	Attention: Catherine M. Gormley
	 

	 	 	 	Facsimile No.: (415) 981-0222






     9.2 Interpretation. The words “include,” “includes” and “including” when used herein shall be
deemed in each case to be followed by the words “without limitation.” The table of contents and
headings contained in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.



     9.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.



     9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the Disclosure
Schedule, the Nondisclosure Agreement, and the documents and instruments and other agreements among
the parties hereto referenced herein: (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and understandings both
written and oral, among the parties with respect to the subject matter hereof; (ii) are not
intended to confer upon any other person any rights or remedies hereunder; and (iii) shall not be
assigned by operation of law or otherwise, except that Parent may assign its rights and delegate
its obligations hereunder to its affiliates as long as Parent remains ultimately liable for all of
Parent’s obligations hereunder. For the avoidance of doubt, the Term Sheet shall be deemed
terminated as of the date hereof, and all provisions thereof, including any provisions thereof
which by their terms state that they shall survive the termination of the Term Sheet, shall be of
no further force and effect.



     9.5 Severability. In the event that any provision of this Agreement or the application
thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or
unenforceable, the remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of such void or
unenforceable provision.



     9.6 Other Remedies. Except as otherwise expressly set forth herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any
other remedy



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conferred hereby, or by law or equity upon such party, and the exercise by a party of
any one remedy will not preclude the exercise of any other remedy.



     9.7 Governing Law; Exclusive Jurisdiction. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof. Subject to Section 7.4(f) hereof,
each of the parties hereto irrevocably consents to the exclusive jurisdiction and venue of any
court within Santa Clara County, State of California, in connection with any matter based upon or
arising out of this Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might otherwise have to such
jurisdiction, venue and such process. Subject to Section 7.4(f) hereof, each party agrees not to
commence any legal proceedings related hereto except in such courts.



     9.8 Rules of Construction. The parties hereto agree that they have been represented by
counsel during the negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing that ambiguities in
an agreement or other document will be construed against the party drafting such agreement or
document.



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



[remainder of page intentionally left blank]




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     IN WITNESS WHEREOF, Parent, Sub, the Company, and the Shareholder Representative have caused
this Agreement to be signed, all as of the date first written above.



	 	 	 	 	 	 	 
	 	 	HARMONIC INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Robin Dickson 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Robin Dickson	 	 
	 	 	Title: Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	RHOZET CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ David Trescot 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: David Trescot	 	 
	 	 	Title: Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	DUSSELDORF ACQUISITION CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Patrick Harshman  	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Patrick Harshman	 	 
	 	 	Title: President	 	 
	 
	 	 	 	 	 	 
	 	 	SHAREHOLDER REPRESENTATIVE	 	 
	 
	 	 	 	 	 	 
	 	 	  	 	 
	 	 	/s/
David Trescot 	 	 
	 	 	DAVID TRESCOT