Exhibit
10.24






AGREEMENT
AND PLAN OF MERGER




THIS
AGREEMENT AND PLAN OF MERGER (this “Agreement”)
dated February 12, 2008, is entered into by and among Adtron Corporation, an
Arizona corporation (the “Company”),
SMART Modular Technologies, Inc., a California corporation (“Buyer”),
Armor Acquisition Corporation, an Arizona corporation and a wholly-owned
subsidiary of Buyer (“Merger
Sub”) and Alan Fitzgerald, as the Equity Holders’ representative (the
“Equity
Holders’ Representative”).




Recitals




WHEREAS,
upon the terms and subject to the conditions of this Agreement and in accordance
with Arizona Law, Buyer and the Company will enter into a business combination
transaction pursuant to which Merger Sub will merge with and into the Company
(the “Merger”).




WHEREAS,
each of the respective Boards of Directors of the Company, Buyer and Merger Sub
(i) has determined that the Merger is fair to and in the best interests of its
respective shareholders and has approved this Agreement and the other
transactions contemplated hereby and (ii) has recommended the approval and
adoption of this Agreement by its respective shareholders in accordance with
applicable Law.




WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a
condition and inducement to Buyer’s and Merger Sub’s willingness to enter into
this Agreement, the Company has obtained the irrevocable approval and adoption
of this Agreement and the other transactions contemplated hereby by the
shareholders of the Company set forth on Annex I (the “Major
Shareholders”) pursuant to a written consent in the form of Exhibit B
(the “Written
Consent”) signed by each Major Shareholder.




WHEREAS,
prior to the consummation of the Merger, and as a condition and inducement to
Buyer’s and Merger Sub’s willingness to enter into this Agreement, the employee
of the Company listed on Annex II (the “Key
Employee”) shall enter into employment agreements, assignment of
invention agreements and non-competition and non-solicitation agreements in form
satisfactory to Buyer and the Key Employee (the “Key
Employment Agreements”) with Buyer or an Affiliate of Buyer, which
agreements shall be effective as of the Effective Time.




WHEREAS,
the Company, Buyer and Merger Sub desire to make certain representations,
warranties, covenant, restrictions and other agreements in connection with the
Merger.




NOW,
THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants, obligations and agreements contained herein, and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, do
hereby covenant and agree as follows:




ARTICLE
1








DEFINITIONS




1.1Definitions.  Except
as otherwise defined herein, capitalized terms shall have the meanings given in
Exhibit
A.




ARTICLE
2








THE
MERGER




2.1The
Closing; Effect of the Merger.




(a)The
consummation of the transactions contemplated by this Agreement (the “Closing,”
such date, the “Closing
Date”) will be held at a mutually agreeable location on a date that is no
later than three (3) Business Days after the satisfaction or, to the extent
permitted, waiver of the last of the conditions to the Merger to be satisfied
(excluding conditions that, by their terms, are satisfied at the Closing, but
subject to the satisfaction or waiver (to the extent permitted hereunder) of
such conditions).  Immediately following the Closing, the parties
hereto will cause a plan of merger (the “Plan
of Merger”) and articles of merger (the “Articles
of Merger”) to be delivered for filing to the Arizona Corporation
Commission in accordance with Arizona Law.  The Merger shall become
effective at such time (the “Effective
Time”) as the Plan of Merger and the Articles of Merger are duly filed or
at such other time specified in the Articles of Merger.






1


(b)At the
Effective Time, Merger Sub shall be merged with and into the Company in
accordance with Arizona Law, whereupon the separate existence of Merger Sub
shall cease, and the Company shall be the surviving corporation (in such
capacity, the Company is sometimes referred to herein as the “Surviving
Corporation”).  From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public as well as a private nature, and be subject to all of
the obligations, liabilities, restrictions and disabilities of the Company and
Merger Sub (the “Constituent
Corporations”); all property, real, personal and mixed, and all accounts
payable arising in the ordinary course of business and accrued expenses due on
whatever account, and all debts, liabilities and duties due to each of the
Constituent Corporations shall be taken and deemed to be transferred to and
vested in the Surviving Corporation without further act or deed as provided in
Section 10-1106 of Arizona Law; and the Surviving Corporation shall be
responsible and liable for all liabilities and obligations of each of the
Constituent Corporations, in each case in accordance with Arizona
Law.




(c)At the
Effective Time, (i) the articles of incorporation of the Company in effect at
the Effective Time shall be amended to read in its entirety in the form of Annex
III, and, as so amended, such articles of incorporation shall be the
articles of incorporation of the Surviving Corporation until thereafter amended
in accordance with its terms and Arizona Law; and (ii) the bylaws of Merger Sub
in effect immediately prior to the Effective Time shall be the bylaws of the
Surviving Corporation (other than any express references to the name of Merger
Sub in such bylaws, which shall be amended to refer to the Surviving
Corporation) until thereafter amended in accordance with Arizona
Law.




(d)From and
after the Effective Time, the directors and officers of Merger Sub immediately
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation, each to hold such office in accordance with the provisions of
Arizona Law and the articles of incorporation and bylaws of the Surviving
Corporation.




2.2Effect
of the Merger on Capital Stock.




(a)At the
Effective Time, by virtue of the Merger and without any further action on the
part of any party or the holder of any of their respective
securities:




(i)except as
otherwise provided in
Section 2.2(a)(ii), each issued and outstanding share of Company Stock
(other than the Dissenting Shares) shall be converted into the right to receive
an amount of cash, without interest, equal to the Per Share Merger
Consideration;




(ii)each
share of Company Stock held by the Company as treasury stock immediately prior
to the Effective Time shall be cancelled, and no consideration shall be
delivered in exchange therefor; and




(iii)each
share of common stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and become one share of common stock
of the Surviving Corporation with the same rights, privileges, immunities and
franchises as the shares so converted and shall constitute the only issued and
outstanding shares of capital stock of the Surviving
Corporation.




(b)Notwithstanding
the foregoing, the parties acknowledge and agree that: (i) the
Indemnification Escrow Amount shall be deducted from the amount of the Closing
Consideration payable to the Equity Holders pursuant to Article
2, and shall only be payable upon release from the Indemnification Escrow
Account in accordance with this Agreement and the Indemnification Escrow
Agreement and to the extent not reduced by indemnification payments pursuant to
Article
8; and (ii) the Holdback Amount shall be deducted from the amount of the
Closing Consideration payable to the Equity Holders pursuant to Article
2, and shall only be payable after resolution of the Final Net Working
Capital, in accordance with Section
2.7.




2.3Treatment
of Stock Options.




(a)Vested
Options.  At the Effective Time, each outstanding Stock Option
that is vested immediately prior to the Effective Time (the “Vested
Options”) shall be cancelled, and promptly following the Effective Time,
Buyer shall pay, or shall cause to be paid, to each holder of such Vested
Options an amount in cash (less any applicable withholding tax) determined by
multiplying (i) the excess, if any, of (A) the Per Share Closing Consideration
over (B) the applicable per share exercise price of such option by (ii) the
number of shares of Common Stock such holder could have purchased had such
holder exercised such option in full immediately prior to the Effective Time
(with respect to each such holder, the “Per
Share Vested Option Consideration”). For purposes of the payment of the
Earnout Consideration in Section
2.9, a holder of Vested Options shall be considered an “Equity Holder”
only if such holder signs an Option Cancellation Agreement in form satisfactory
to Buyer and the Company (the “Option
Cancellation Agreements”) prior to the Closing Date.






2


(b)Accelerated
Options.  At the Effective Time, those outstanding Stock
Options, or a portion thereof, that were not vested immediately prior to the
Effective Time shall become vested as of the Effective Time in accordance with
the following schedule:




Percentage
      of Stock Option Acceleration
            Length
      of Employment Service50%
            Less
      than 12 months75%
            12
      months but less than 24 months100%
            24
      months or more




At the
Effective Time, each outstanding Stock Option shall be cancelled and, with
respect to each outstanding Stock Option that becomes vested pursuant to the
above schedule (the “Accelerated
Options”), following the Effective Time, Buyer shall pay, or shall cause
to be paid, each holder of such Accelerated Options an amount in cash (less any
applicable withholding tax) determined by multiplying (i) the excess, if any, of
(A) the Per Share Closing Consideration over (B) the applicable per share
exercise price of such option by (ii) the number of shares of Common Stock such
holder could have purchased had such holder exercised the accelerated portion of
the option in full immediately prior to the Effective Time (with respect to each
such holder, the “Per
Share Accelerated Option Consideration”).  For purposes of the
payment of the Earnout in Section
2.9, a holder of Accelerated Options shall be considered a “Equity
Holder” only if such holder (x) signs an Option Acceleration and Cancellation
Agreement in form satisfactory to Buyer and the Company (the “Option
Acceleration and Cancellation Agreements”), and (y) does not voluntarily
terminate his or her employment with the Surviving Corporation or Buyer and is
not terminated for cause through and including the date the Earnout
Consideration (if any) is paid by the Buyer pursuant to Section
2.9.




2.4Payment
for Securities.




(a)Paying
Agent.  Prior to the Effective Time, Buyer shall enter into an
agreement with an entity designated by Buyer and reasonably acceptable to the
Company to act as agent for the Equity Holders in connection with the Merger
(the “Paying
Agent”) for the purposes of exchanging certificates representing shares
of Company Stock (the “Certificates”)
and shares of Company Stock represented by Vested Options and Accelerated
Options, and to receive and distribute the Closing Consideration that the Equity
Holders shall become entitled to receive pursuant to this
Agreement.  On the Closing Date and prior to the filing of the Plan of
Merger and the Articles of Merger, Buyer shall deposit, or cause to be
deposited, with the Paying Agent, for the benefit of the Equity Holders, for
payment in accordance with this Agreement through the Paying Agent, cash in an
amount sufficient to permit payment of the aggregate Closing Consideration (less
the Indemnification Escrow Amount and the Holdback Amount) (the “Payment
Fund”).  If for any reason (including losses) the Payment Fund
is inadequate to pay the amounts to which the Equity Holders shall be entitled
under this Agreement, Buyer shall, or shall cause the Surviving Corporation to,
promptly deposit additional cash with the Paying Agent sufficient to make all
payments required under this Agreement, and Buyer and the Surviving Corporation
shall in any event be liable for payment thereof.  The Payment Fund
shall not be used for any other purpose.  The Surviving Corporation
shall pay all charges and expenses of the Paying Agent in connection with the
exchange of Certificates and Vested Options and Accelerated Options and
distribution of the Closing Consideration.




(b)Payment
Procedures.




(i)As soon
as practicable after the Effective Time, Buyer shall deliver or cause the Paying
Agent to deliver to each record holder, as of immediately prior to the Effective
Time, of a Certificate, as set forth in the Determination Certificate, a
customary letter of transmittal (“Letter
of Transmittal”) (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Paying Agent, and which shall be in a
customary form and agreed to by Buyer and the Company prior to the Closing) and
instructions for use in effecting the surrender of the Certificates, for payment
of such holder’s share of the Closing Consideration in accordance with this
Article
2.




(ii)Upon
surrender to the Paying Agent of a Certificate, together with the Letter of
Transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other customary documents as may be reasonably
required by the Surviving Corporation or the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the Per Share
Closing Consideration (less such Shareholder’s pro rata portion (in accordance
with their Percentage Ownership) of the Indemnification Escrow Amount and the
Holdback Amount) for each share formerly represented by such Certificate and
such Certificate shall then be cancelled.  No interest shall be paid
or accrued for the benefit of holders of the Certificates on the Closing
Consideration payable in respect of the Certificates.  Until
surrendered as contemplated by this Section
2.4(b)(ii) each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Closing Consideration as contemplated by this Article
2.




3


(iii)Promptly
after the Effective Time, the holder of each Vested Option shall be entitled to
receive in exchange therefor the Per Share Vested Option Consideration (less
such Stock Option Holder’s pro rata portion (in accordance with their Percentage
Ownership) of the Indemnification Escrow Amount and the Holdback Amount and less
any applicable withholding tax).  Each Vested Option shall be deemed
at any time after the Effective Time to represent for all purposes only the
right to receive Per Share Vested Option Consideration as contemplated by this
Article
2.




(iv)Promptly
after the Effective Time, the holder of each Accelerated Option shall be
entitled to receive in exchange therefor the Per Share Accelerated Option
Consideration (less such Stock Option Holder’s pro rata portion (in accordance
with their Percentage Ownership) of the Indemnification Escrow Amount and the
Holdback Amount and less any applicable withholding tax).  Each
Accelerated Option shall be deemed at any time after the Effective Time to
represent for all purposes only the right to receive Per Share Accelerated
Option Consideration as contemplated by this Article
2.




(c)No
Liability.  Neither Buyer nor any of its Affiliates shall be
liable to any Equity Holder for any amount paid to a public official pursuant to
applicable abandoned property, escheat or similar laws.




(d)Termination
of Payment Fund.  Any portion of the Payment Fund made
available to the Paying Agent pursuant to this Section
2.4 that remains unclaimed by the Equity Holders six (6) months after the
Effective Time, shall be returned to Buyer, upon demand, and any such Equity
Holder has not exchanged shares of Company Stock or Stock Options, as the case
may be, in accordance with this Section
2.4 prior to that time shall thereafter look only to Buyer for delivery
of the Closing Consideration, without any interest thereon.  Any
amounts remaining unclaimed by Equity Holders two (2) years after the Effective
Time shall be paid to the appropriate Governmental Authority pursuant to the
applicable abandoned property, escheat or similar Law.




(e)Withholding
Rights.  Each of Buyer, the Paying Agent and the Surviving
Corporation shall be entitled to deduct and withhold from the consideration
otherwise payable to any Person pursuant to this Agreement such amounts as it is
required to deduct and withhold with respect to the making of such payment under
any provision of federal, state, local or foreign Tax law.  If Buyer,
the Paying Agent or the Surviving Corporation so withholds amounts, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
Person in respect of which Buyer or the Surviving Corporation, as the case may
be, made such deduction and withholding.




(f)Lost
Certificates.  If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if reasonably
required by the Surviving Corporation, the entry by such Person into an
indemnification agreement in form reasonably satisfactory to Buyer, or the
posting by such Person of a bond, in such reasonable amount as the Surviving
Corporation may direct, as indemnity against any claim that may be made against
it with respect to such Certificate, the Paying Agent will deliver, in exchange
for such lost, stolen or destroyed Certificate, the Merger Consideration due in
respect of the shares of Company Stock evidenced by such Certificate, as
contemplated by this Article
2.




2.5Determination
Certificate.  On the date that is two (2) Business Days prior
to the Effective Time (the “Determination
Date”),
the Equity Holders’ Representative shall deliver to Buyer and the Paying Agent a
certificate in form satisfactory to Buyer and the Equity Holders’ Representative
(the “Determination
Certificate”) setting forth: (i) (A) the name and the wire transfer
account information and mailing address (or other delivery instructions
reasonably acceptable to Buyer and the Paying Agent) of each Equity Holder, (B)
such Equity Holder’s Percentage Ownership, and (C) the aggregate amount of
Closing Consideration payable to such Equity Holder in respect of all of the
shares of Company Stock, Vested Options and/or Accelerated Options owned by such
Equity Holder, together with the amounts to be withheld from the Closing
Consideration (x) pursuant to Section 2.4(e) and (y) representing each such
Equity Holder’s pro rata portion (in accordance with their Percentage Ownership)
of the Indemnification Escrow Amount and the Holdback Amount; (ii) the Debt
Repayment Amount; (iii) the Estimated Payroll Tax Amount; (iv) the Estimated
Transaction Expenses Amount; and (v) any supporting schedules and other
documentation reasonably requested by Buyer or the Paying
Agent.  Buyer and the Paying Agent may rely on the Determination
Certificate for all distributions to the Equity Holders pursuant to Article 2,
and shall have no responsibility or liability with respect thereto; provided
that the distribution instructions of the Equity Holders’ Representative set
forth in the Determination Certificate are followed.  From and after
the Determination Date, there shall be no further issuances of, or registration
of transfers of, shares of Company Stock or Stock Options.  If, after
the Effective Time, Certificates or Stock Options are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the Merger Consideration
provided for, and in accordance with the procedures set forth, in this Article
2.






4


2.6Indemnification
Escrow.  At the Effective Time, Buyer shall withhold from the
Closing Consideration otherwise payable in connection with the Merger an amount
of cash equal to the Indemnification Escrow Amount.  Prior to or
simultaneously with the Effective Time, the Equity Holders’ Representative and
Buyer shall enter into the Indemnification Escrow Agreement with the Escrow
Agent in mutually acceptable form (the “Indemnification
Escrow Agreement”).  On the Closing Date and prior to the
filing of the Plan of Merger and the Articles of Merger, Buyer shall deposit the
Indemnification Escrow Amount in the Indemnification Escrow Account to be
managed by the Escrow Agent pursuant to the terms of the Indemnification Escrow
Agreement.  Distributions of any cash from the Indemnification Escrow
Amount shall be governed by the terms and conditions of this Agreement and the
Indemnification Escrow Agreement (the cash in the Indemnification Escrow Account
at any given time, including all accrued interest, being referred to as the
“Escrowed
Remainder”).  The Indemnification Escrow Amount shall be
withheld from each Equity Holder based on such Person’s Percentage
Ownership.  Upon the expiration of the Survival Period, the Escrowed
Remainder, less any claims pending under Article
8, shall be paid to the Equity Holders in accordance with such Equity
Holder’s Percentage Ownership of the Escrowed Remainder.




2.7Post-Closing
Adjustment to Purchase Price.




(a)After the
Effective Time, the Equity Holders’ Representative and Buyer shall cooperate and
provide each other access to their respective books, records and employees (and
those of the Surviving Corporation) as are reasonably requested in connection
with the matters addressed in this Section
2.7.  Within sixty (60) days after the Closing Date, Buyer
shall cause to be prepared and delivered to the Equity Holders’ Representative a
balance sheet of the Company as of the close of business on the Closing Date
(the “Closing
Balance Sheet”), a certificate based on such Closing Balance Sheet
setting forth Buyer’s calculation of the Closing Net Working Capital (the “Closing
Net Working Capital Notice”) and a certificate setting forth the Payroll
Tax Amount and the Transaction Expenses Amount, together with any supporting
schedules and other documentation in connection with such certificate reasonably
requested from time to time by the Equity Holders’
Representative.  The Closing Balance Sheet and the calculation of the
Closing Net Working Capital shall be prepared in accordance with the principles
set forth in Annex
IV.




(b)If the
Equity Holders’ Representative objects to Buyer’s determination of Closing Net
Working Capital, as set forth in the Closing Net Working Capital Notice, then
the Equity Holders’ Representative shall provide Buyer written notice thereof,
setting forth the Equity Holders’ Representative’s calculation of such amount,
along with reasonable supporting information and calculations, within thirty
(30) days after receiving the Closing Net Working Capital Notice.  Any
such notice of disagreement shall specify those items or amounts as to which the
Equity Holders’ Representative disagrees, and the Equity Holders’ Representative
shall be deemed to have agreed with all other items and amounts contained in the
Closing Balance Sheet and the calculation of Closing Net Working Capital
delivered pursuant to Section
2.7(a).  If a notice of disagreement shall be delivered
pursuant to this Section
2.7(b), Buyer and the Equity Holders’ Representative shall, during the
twenty (20) days following such delivery, use their commercially reasonable
efforts to reach agreement on the disputed items or amounts in order to
determine, as may be required, the amount of Closing Net Working Capital, which
amount shall not be less than the amount thereof shown in the Closing Net
Working Capital Notice nor more than the amount thereof shown in the Equity
Holders’ Representative’s calculation delivered pursuant to this Section
2.7(b).  If, after such twenty (20) day period, the Equity
Holders’ Representative and Buyer are unable to agree on the Closing Net Working
Capital, such parties shall refer such dispute to a firm of independent public
accountants (other than an independent accounting firm used by any of Buyer or
the Company within the past five (5) years) mutually acceptable to Buyer and
Equity Holders’ Representative (the “Independent
Accountants”), which firm shall, acting as an expert and not as an
arbitrator, make a final and binding determination of Closing Net Working
Capital on a timely basis and shall promptly notify the Equity Holders’
Representative and Buyer in writing of its resolution.  Such final and
binding determination of the Closing Net Working Capital (the “Final
Net Working Capital”) shall become final and binding in accordance with
the terms of this Agreement.  In making such calculation, the
Independent Accountants shall consider only those items or amounts in the
Closing Balance Sheet or Buyer’s calculation of Closing Net Working Capital as
to which the Equity Holders’ Representative has disagreed, and shall not have
the power to modify or amend any term or provision of this
Agreement.  Buyer shall pay all costs and expenses of such review and
report if the difference between Final Net Working Capital and Buyer’s
calculation of Closing Net Working Capital delivered pursuant to Section
2.7(a) is greater than the difference between Final Net Working Capital
and Equity Holders’ Representative’s calculation of Closing Net Working Capital
delivered pursuant to this Section
2.7(b); provided
that in all other cases, such costs and expenses shall be included in the
Transaction Expenses Amount.  If the Equity Holders’ Representative
does not object to Buyer’s determination of Closing Net Working Capital within
the time period and in the manner set forth in this Section
2.7(b), or if the Equity Holders’ Representative accepts Buyer’s
determination of Closing Net Working Capital in writing, then Buyer’s
determination of Closing Net Working Capital shall become the Final Net Working
Capital and shall become final and binding for all purposes
hereunder.






5


2.8Holdback;
Adjustment of Purchase Price.




(a)Holdback.  At
the Effective Time, Buyer shall withhold from the Closing Consideration
otherwise payable in connection with the Merger an amount of cash equal to the
Holdback Amount.




(b)Definitions.  For
purposes of this Agreement:




“Minimum
Working Capital” means an amount equal to $1,216,829.




“Payroll
Tax Excess”
means, if the Payroll Tax Amount is less than the Estimated Payroll Tax Amount,
the amount of any such difference.




“Payroll
Tax Shortfall” means, if the Payroll Tax Amount is greater than the
Payroll Tax Amount, the amount of any such excess.




“Transaction
Expenses Excess” means, if the Transaction Expenses Amount is less than
the Estimated Transaction Expenses Amount, the amount of any such
difference.




“Transaction
Expenses Shortfall” means, if the Transaction Expenses Amount is greater
than the Estimated Transaction Expenses Amount, the amount of any such
excess.




“Working
Capital Excess” means, if the Final Net Working Capital is more than 10%
greater than the Minimum Working Capital, amount of any such excess above 110%
of the Minimum Working Capital.




“Working
Capital Shortfall” means, if the Final Net Working Capital is more than
10% less than the Minimum Working Capital, amount of any such difference below
90% of the Minimum Working Capital.




(c)Buyer
shall, within five (5) Business Days after Final Net Working Capital is
determined pursuant to this Section
2.8, deliver to the Paying Agent an amount in cash equal to the Holdback
Amount, (x) less
the sum of (i) any Working Capital Shortfall, plus
(ii) any Payroll Tax Shortfall, and plus
(iii) any Transaction Expenses Shortfall, and (y) plus
the sum of (i) any Working Capital Excess, plus
(ii) any Payroll Tax Excess, and plus
(iii) any Transaction Expenses Excess, which aggregate amount shall then be
distributed by the Paying Agent to the Equity Holders in proportion to each such
Equity Holder’s Percentage Ownership.  In the event that the sum of
the amounts referred to in clause (x) above minus the sum of the amounts amount
referred to in clause (y) above is greater than the Holdback Amount, Buyer shall
be entitled to recover the amount of such difference by making a claim against
the Indemnification Escrow Account.  In the event that the aggregate
amount delivered to the Paying Agent pursuant to this Section
2.8(c) is less or greater than the Holdback Amount, such difference shall
be treated as an adjustment to the Closing Consideration.




(d)Any
amounts not paid when required pursuant to this Section
2.8 shall bear interest from the required date of payment to the date of
actual payment at a rate that is 2 percentage points (2%) per annum in excess of
the prime rate of interest announced publicly by The
Wall Street Journal from time to time as the base
rate.




2.9Earnout




(a)Definitions.  For
purposes of this Agreement:




“Net
Revenues” means an amount equal to revenues, as calculated in accordance
with GAAP and Buyer’s revenue recognition policies as consistently applied,
generated in connection with the sale of (i) the Surviving Corporation’s
products by the Surviving Corporation’s or Buyer’s sales force to the Surviving
Corporation’s Customers or Buyer’s customers, and (ii) the Buyer’s flash-based
products by the Surviving Corporation’s or the Buyer’s sales force to the
Surviving Corporation’s Customers.




“Gross
Profit” means an amount equal to Net Revenues less
cost of revenues, as calculated in accordance with GAAP and Buyer’s revenue
recognition policies as consistently applied, generated by and expended,
respectively, in connection with the sale of (i) the Surviving Corporation’s
products by the Surviving Corporation’s or Buyer’s sales force to the Surviving
Corporation’s Customers or Buyer’s customers, and (ii) the Buyer’s flash-based
products by the Surviving Corporation’s or the Buyer’s sales force to the
Surviving Corporation’s Customers.




“EBIT”
means earnings before interest and taxes, as calculated in accordance with GAAP
and Buyer’s revenue recognition policies as consistently applied, generated by
and expended, respectively, in connection with the sale of (i) the Surviving
Corporation’s products by the Surviving Corporation’s or Buyer’s sales force to
the Surviving Corporation’s Customers or Buyer’s customers, (ii) the Buyer’s
flash-based products by the Surviving Corporation’s or the Buyer’s sales force
to the Surviving Corporation’s Customers, and (iii) all Buyer’s products (other
than those described in clause (ii) above) by the Surviving Corporation’s or
Buyer’s sales force to the Surviving Corporation’s Customers.






6


“Surviving
Corporation’s Customers” means customers to whom the Company has sold
products prior to the Closing Date and any other customers from whom an RFQ or
other sales inquiry documentation is first received by the Company’s or the
Surviving Corporation’s sales force.




(b)Earnout
Consideration.  In addition to the Closing Consideration, Buyer
will, in the event of achievement of the applicable targets set forth in this
Section
2.9, pay, or cause to be paid, to the Equity Holders the amounts
determined in accordance with this Section
2.9(a), up to $15,000,000 in the aggregate (collectively, the “Earnout
Consideration”) as follows:




(i)if the
Net Revenues and Gross Profit recognized during calendar year 2008 (the “Earnout
Period”) equals or exceeds $16,000,000 and $6,400,000, respectively, an
amount equal to $10,000,000 x [Gross Profit – $6,400,000] / [$12,200,000 -
$6,400,000] (e.g., if Gross Profit = $12,000,000, then $10,000,000 x
[$12,000,000 – $6,400,000] / [$12,200,000 - $6,400,000] = $9,655,172.41), but in
no event shall the amount payable under this section exceed
$10,000,000;




(ii)if the
Net Revenues and EBIT recognized during the Earnout Period equals or exceeds
$16,000,000 and $2,200,000, respectively, an amount equal to $3,500,000 x [EBIT
– $2,200,000] / [$4,200,000 - $2,200,000] (e.g., if EBIT = $4,000,000, then
$3,500,000 x [$4,000,000 – $2,200,000] / [$4,200,000 - $2,200,000] =
$3,150,000), but in no event shall the amount payable under this section exceed
$3,500,000; and




(iii)if the
Surviving Corporation achieves the integration goals to be mutually agreed upon
by Buyer and the Equity Holders’ Representative after the date hereof, which
agreement shall not be unreasonably withheld; provided
that the determination of any satisfaction of such goals shall be made by Buyer
in its sole discretion, an amount up to $1,500,000.




(c)Adjustments
to Earnout.The
calculation of the Earnout Consideration will be subject to the following
adjustments :




(i)exclusion
of any additional depreciation, amortization or other expense resulting from the
write-up of any asset and any amortization of goodwill or other intangibles
relating to the transactions contemplated by this Agreement, including for any
federal or state income tax purposes;




(ii)exclusion
of all transaction costs of Buyer with respect to or arising out of consummation
of the transaction contemplated by this Agreement (including, without
limitation, all costs and expenses of arbitrators, accountants, the Paying
Agent, legal counsel and financial advisors of Buyer);




(iii)exclusion
of all losses in respect of which any Buyer Indemnitee has been actually paid
pursuant to a claim for indemnification against the Equity Holders pursuant to
Section 8.1;




(iv)exclusion
of charges against earnings or resulting from significant changes in accounting
principles that are not required by GAAP; and




(v)exclusion
of any retention bonuses or other incentive arrangements, in each case,
implemented by Buyer at or after the Effective Time.




(d)Earnout
Protection Provisions.  During the Earnout Period unless
otherwise approved in writing by Equity Holders’ Representative, Buyer agrees
to:




(i)use
reasonable commercial efforts to cause the Surviving Corporation to operate
consistent with past practices, provided such practices are reasonable and
customary in the Surviving Corporation’s industry, and in accordance with the
operating budget(s) prepared by the Surviving Corporation and approved in
writing by Buyer (the “Earnout
Budget”);




(ii)leave
with the Surviving Corporation at least an amount of working capital necessary
operate in the ordinary course and in accordance with the Earnout
Budget;




(iii)provide
such marketing, research and other information resources, personnel and
facilities as the Surviving Corporation may reasonably request to support the
Surviving Corporation’s budgeted growth, so long as such requests are consistent
with the Earnout Budget;




(iv)use
commercially reasonable efforts to cause the Surviving Corporation to preserve
its relationships with respect to customers, suppliers, contractors, employees
and others having business dealings with the Surviving
Corporation;






7


(v)not
increase the level of the Surviving Corporation’s general and administrative
expenses due to any “home office” or other similar corporate overhead charge
imposed by Buyer (in excess of similar expenses previously paid or incurred by
the Surviving Corporation);




(vi)use
reasonable commercial efforts to maintain the Surviving Corporation as a
separate entity and not combine, consolidate or merge it, or liquidate it, or,
except in the ordinary course of business, sell or otherwise dispose of its
assets; and




(vii)maintain
a system for tracking the Net Revenues, Gross Profits and EBIT for purposes of
the calculation of the Earnout Consideration.




(e)Disputes
and Payments.




(i)No later
than sixty (60) days after the end of the Earnout Period, Buyer shall deliver to
the Equity Holders’ Representative a statement setting forth Buyer’s good faith
calculation of the Net Revenues, Gross Profits, EBIT and the proposed Earnout
Consideration (the “Proposed
Earnout Statement”);




(ii)After
receipt of the Proposed Earnout Statement, the Equity Holders’ Representative
may request, and Buyer will provide to the Equity Holders’ Representative and
its accountants and other representatives, upon reasonable notice, reasonable
access during normal business hours to, or copies of, as the Equity Holders’
Representative or such accountants and other representatives shall reasonably
request, the information (including the books and records of the Surviving
Company), data, and work papers used in connection with the calculation of Net
Revenues, Gross Profits, EBIT and the Earnout Consideration and the preparation
of the Proposed Earnout Statement, and will make its and the Surviving
Corporation’s personnel and accountants reasonably available to the Equity
Holders’ Representative and its accountants and other representatives to discuss
any such information, data, or work papers.




(iii)The
Equity Holders’ Representative shall have sixty (60) days from the date that the
Equity Holders’ Representative receives the Proposed Earnout Statement (the
“Earnout
Dispute Period”) to notify Buyer, in writing, as to whether the Equity
Holders’ Representative (i) agrees with the Proposed Earnout Statement or (ii)
disagrees with such calculations, identifying with reasonable detail the items
with which the Equity Holders’ Representative disagrees (an “Earnout
Dispute Notice”).




(iv)If the
Equity Holders’ Representative fails to deliver an Earnout Dispute Notice to
Buyer during the Earnout Dispute Period, the Proposed Earnout Statement and the
Earnout Consideration shall be deemed to be final and correct and shall be
binding upon each of the parties hereto.




(v)If the
Equity Holders’ Representative delivers an Earnout Dispute Notice to Buyer
during the Earnout Dispute Period, Buyer and the Equity Holders’ Representative
shall, for a period of twenty (20) days from the date the Earnout Dispute Notice
is delivered to Buyer (the “Earnout
Resolution Period”), use their respective good faith efforts to amicably
resolve the items in dispute.  Any items so resolved by them shall be
deemed to be final and correct as so resolved and shall be binding upon each of
the parties hereto.




(vi)If Buyer
and the Equity Holders’ Representative are unable to resolve all of the items in
dispute during the Earnout Resolution Period, then either the Equity Holders’
Representative or Buyer may refer the items remaining in dispute (the “Remaining
Earnout Disputes”) to the Independent Accountants.  Such
referral shall be made in writing to the Independent Accountants, copies of
which shall concurrently be delivered to the non-referring party
hereto.  The referring party shall furnish the Independent
Accountants, at the time of such referral, with copies of the Proposed Earnout
Statement and the Earnout Dispute Notice.  The parties shall also
furnish the Independent Accountants with such other information and documents as
the Independent Accountants may reasonably request in order for them to resolve
the Remaining Earnout Disputes.  The parties hereto shall also, within
ten (10) days of the date the Remaining Earnout Disputes are referred to the
Independent Accountants, provide the Independent Accountants with a written
notice (an “Earnout
Position Statement”) describing in reasonable detail their respective
positions on the Remaining Earnout Disputes (copies of which shall concurrently
be delivered to the other party hereto).  If any party fails to timely
deliver its Earnout Position Statement to the Independent Accountants, the
Independent Accountants shall resolve the Remaining Earnout Disputes solely upon
the basis of the information otherwise provided to them.  The
Independent Accountants shall resolve all Remaining Earnout Disputes in a
written determination to be delivered to each of the parties hereto within
thirty (30) days after such matter is referred to them.  The decision
of the Independent Accountants as to the Remaining Earnout Disputes shall be
final and binding upon the parties hereto (except to correct manifest clerical
or mathematical errors) and shall not be subject to judicial
review.  The fees and disbursements of the Independent Accountants
shall be apportioned between Buyer and the Equity Holders based on the total
dollar value of disputed exceptions resolved in favor of each such party, with
each such party bearing such percentage of the fees and disbursements of the
Independent Accountants as the aggregate disputed exceptions resolved against
that party bears to the total dollar value of all disputed exceptions considered
by the Independent Accountants.






8


(vii)Within
three (3) Business Days following the date on which the Earnout Consideration is
finally determined pursuant to this Agreement (whether through failure of the
Equity Holders’ Representative to timely deliver an Earnout Dispute Notice,
agreement of the parties, or final determination of any Remaining Earnout
Disputes by the Independent Accountants), Buyer shall pay, or cause to be paid,
to the Equity Holders the Earnout Consideration in proportion to each such
Equity Holder’s Percentage Ownership.




2.10Dissenting
Shares.  Notwithstanding Section
2.2, any shares of Company Stock outstanding immediately prior to the
Effective Time and held by a Shareholder immediately prior to the Effective Time
who has not voted in favor of adoption of this Agreement or consented thereto in
writing and who has demanded appraisal for such shares in accordance with
Arizona Law and who has not failed to perfect, withdrawn or otherwise lost the
right to appraisal under Arizona Law (collectively, the “Dissenting
Shares”) shall not be converted into a right to receive the Merger
Consideration.  If, after the Effective Time, any holder of Dissenting
Shares fails to perfect, withdraws or loses the right to appraisal, such shares
shall be treated as if they had been converted as of the Effective Time into a
right to receive the Merger Consideration.  The Company shall give
Buyer prompt notice of any demands received by the Company prior to the Closing
Date for appraisal of shares of Company Stock, and Buyer shall have the right to
participate in all negotiations and proceedings with respect to such
demands.  Except with the prior written consent of Buyer, the Company
shall not make any payment with respect to, or offer to settle or settle, any
such demands.  Notwithstanding the foregoing, Dissenting Share
Payments paid or incurred prior to the Closing Date are referred to herein as
“Pre-Closing
Dissenting Share Payments” and shall be deducted from the Merger
Consideration.  Dissenting Share Payments paid or incurred after the
Closing Date are referred to herein as “Post-Closing
Dissenting Share Payments” which Buyer shall be entitled to recover under
the terms of Article
8.




ARTICLE
3








REPRESENTATIONS
AND WARRANTIES




3.1Representations
and Warranties of the Company.  The Company hereby represents
and warrants to Buyer that, subject to Section 11.19, except as set forth in the
Company Disclosure Schedule:




(a)Organization,
Existence and Good Standing.  The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona.  The Company is duly qualified as a foreign corporation, and
is in good standing, under the laws of all jurisdictions where the nature of its
business or the nature or location of its assets requires such qualification and
where the failure to so qualify would, individually or in the aggregate, have a
Material Adverse Effect.




(b)Consents.  No
notice to, or consent, authorization, order or approval of, or filing or
registration with, any Governmental Authority or other Person (including any
approvals of the U.S. Government, including, without limitation, the Department
of Defense, the Air Force and the National Aeronautics and Space Administration,
or any other agencies, departments or instrumentalities thereof) is required by
the Company in connection with the consummation by the Company of the
transactions contemplated by this Agreement or any other document, certificate
or instrument to be executed by the Company pursuant to or in connection with
this Agreement (collectively, the “Company
Documents”).




(c)Power
and Authority.  The Company has all necessary power and
authority to carry on its business as such business is now being
conducted.




(d)Authorization.




(i)The
execution, delivery and performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated have been duly
authorized by all necessary corporate action on the part of the
Company.  This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except to the
extent that enforcement may be affected by Laws relating to bankruptcy,
reorganization, insolvency and creditors’ rights and by the availability of
injunctive relief, specific performance and other equitable
remedies.  Each Company Document to be executed by the Company, when
executed and delivered by the Company, will constitute the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except to the extent that enforcement may be affected by Laws
relating to bankruptcy, reorganization, insolvency and creditors’ rights and by
the availability of injunctive relief, specific performance and other equitable
remedies.






9


(ii)At a
meeting duly called and held, or by unanimous written consent, the Company’s
Board of Directors has unanimously (A) determined that the Merger is fair
to and in the best interests of the shareholders of the Company,
(B) approved and adopted this Agreement and the transactions contemplated
hereby, and (C) resolved to recommend approval and adoption of this
Agreement by the shareholders of the Company.




(iii)The
affirmative vote of the holders of a majority of the outstanding shares of
Company Stock or the unanimous written consent of all of the outstanding shares
of Company Stock is the only vote or written consent of the holders of any of
the Company’s capital stock necessary in connection with the adoption of this
Agreement and the consummation of the Merger (the “Shareholder
Approval”).




(iv)The
Written Consents delivered concurrently with the execution of this Agreement
constitute the valid and effective approval and adoption of this Agreement and
the other transactions contemplated hereby by the Major
Shareholders.  The Written Consents are and will be as of the Closing
in full force and effect.




(e)Conflicts
Under Organizational Documents or Laws.  Neither the execution
and delivery of this Agreement, the Company Documents, nor the consummation of
the transactions contemplated hereby or thereby, will conflict with or result in
a breach of (i) any of the terms, conditions or provisions of the articles
of incorporation and bylaws of the Company or any resolution adopted by the
Company’s Board of Directors or any committee thereof, or (ii) any
applicable statute, law (statutory, common or otherwise), ordinance, rule,
regulation, mandate, order, writ, injunction, judgment, decree, ruling, charge,
or other requirement of, or any agreement with, any Governmental Authority
(each, a “Law”).




(f)Conflicts
Under Contracts.  Neither the Company nor any of its
Subsidiaries is party to, or bound by, any unexpired, undischarged or
unsatisfied contract under the terms of which either the execution and delivery
of this Agreement or the Company Documents, or the consummation by the Company
of the transactions contemplated hereby or thereby, will, with or without notice
or lapse of time or both, be a breach, default or an event of acceleration, or
cause any other change of any right or obligation or the loss of any benefit to
which the Company or any of its Subsidiaries is entitled under any provision of
any agreement or other instrument binding upon the Company or any of its
Subsidiaries or any license, franchise, permit, certificate, approval or other
similar authorization affecting, or relating in any way to, the assets or
business of the Company or any of its Subsidiaries, will require any consent
thereunder, will be grounds for termination, modification or cancellation
thereof, or will result in the creation or imposition of any Lien on any asset
of the Company or any of its Subsidiaries.




(g)Equity
Interests.  The Company does not hold or beneficially own and
has never held or beneficially owned any direct or indirect equity interest
(whether it be common or preferred stock or any comparable ownership interest in
any Person that is not a corporation), or any subscriptions, options, warrants,
rights, calls, convertible securities or other agreements or commitments for any
such equity interest, in any Person.




(h)Organizational
Documents.  True and complete copies of the articles of
incorporation and bylaws of the Company, in each case, as amended and currently
in full force and effect, all material stock records, and the corporate minute
books of the Company have been made available to Buyer prior to the date
hereof.  The Company is not in violation of any of the provisions of
its articles of incorporation or bylaws.  The minutes of the Company
made available to counsel for Buyer contain complete and accurate records of all
actions taken, and summaries of all meetings held, by the shareholders of the
Company, the board of directors of the Company (and any committees thereof)
since January 1, 2002 until the date hereof.




(i)Capitalization.




(i)The
authorized capital stock of the Company consists of (a) 10,000,000 shares of
Class A Common Stock, (b) 2,000,000 shares of Class B Common Stock, non-voting,
and (c) 1,000,000 shares of Preferred Voting Stock.  As of the date
hereof, there are issued and outstanding 3,786,250 shares of Class A Common
Stock, no shares of Class B Common Stock, and no shares of Company preferred
stock.  Section
3.1(i)(i) of the Company Disclosure Schedule sets forth each holder of
shares of Company Stock as of the date hereof, and the number of shares of each
class of Company Stock held thereby.  All of the issued and
outstanding shares of Company Stock have been validly issued, are fully paid and
nonassessable.




10


(ii)The
Company has reserved 2,000,000 shares of Class B Common Stock and 2,000,000
shares of Class A Common Stock for issuance to employees, directors and
consultants pursuant to the Company’s stock option plans, of which 163,750
shares of Class A Common Stock and 0 shares of Class B Common Stock are
outstanding pursuant to option exercises through the date hereof, 1,409,249
shares of Class A Common Stock and 901,225 shares of Class B Common Stock shares
are subject to outstanding unexercised options as of the date hereof and 427,001
shares of Class A Common Stock and 1,098,775 shares of Class B Common Stock
remain available for future grant as of the date hereof.  Section
3.1(i)(ii)of the Company Disclosure Schedule sets forth, as of the date
hereof, the holders of all of the outstanding Stock Options and the number of
Stock Options held by each such holder, the vesting schedule for each such Stock
Option, whether such Stock Option is an “incentive
stock option,” within the meaning of Section 422 of the Code, or a
nonqualified stock option and the exercise price for each such Stock
Option.  All Stock Options may, by their terms, be treated in
accordance with Article
2.




(iii)Section
3.1(i)(ii)of the Company Disclosure Schedule sets forth, the Percentage
Ownership of each Equity Holder.




(iv)Except as
set forth in this Section
3.1(i) and Section
3.1(i) of the Company Disclosure Schedule, there are no other shares of
capital stock or other securities of the Company authorized or outstanding, and
there are no outstanding subscriptions, options, warrants, rights (including
preemptive rights), calls, convertible securities, restricted shares, restricted
share units, stock appreciation rights, performance shares, contingent value
rights, “phantom”
stock or similar securities or rights that are derivative of or provide economic
benefits based, directly or indirectly, on the value or price of, any capital
stock or other voting securities or ownership interests in the Company or other
agreements or commitments of any character, relating to the issued or unissued
capital stock or other securities of the Company obligating the Company to issue
any securities of any kind.  There are no outstanding obligations of
the Company to repurchase, redeem or otherwise acquire any shares of capital
stock or other securities of the Company.  There are no voting trusts,
proxies or other similar agreements or understandings with respect to the voting
of any shares of capital stock or other securities of the
Company.  There are no declared or accrued unpaid dividends with
respect to any shares of capital stock or other securities of the
Company.




(j)Financial
Statements.  Section
3.1(j) of the Company Disclosure Schedule contains true and complete
copies of the Financial Statements.  The Financial Statements present
fairly in conformity with GAAP applied on a consistent basis (except that the
Financial Statements do not include footnotes), the financial position of the
Company as of the dates thereof and the consolidated results of operations and
cash flows of the Company for the periods covered thereby.  The
Company maintains accurate books and records reflecting its assets and
liabilities in all material respects and maintains proper and adequate internal
accounting controls which provide reasonable assurance that (i) transactions are
executed with management’s authorization and (ii) transactions are recorded as
necessary to permit preparation of the financial statements of the Company
(including the Financial Statements) in conformity with
GAAP.




(k)Title
to Assets.  The Company has good title to, or in the case of
leased assets, a valid leasehold interest in, its assets, free and clear of any
Liens, except for Permitted Liens.  The foregoing shall not apply to
Intellectual Property (which is dealt with exclusively in Section
3.1(x)) or Leased Real Estate (which is dealt with exclusively in Section
3.1(w)).




(l)Taxes.




(i)Each of
the Company and its Subsidiaries has timely filed all Returns required to be
filed on or before the date hereof, and has timely paid, withheld and remitted
all Taxes shown thereon as owing.  As of the time of filing, the
Returns were true and complete.  No extension of time within which to
file any Return has been requested by the Company or any of its Subsidiaries or
granted.




(ii)With
respect to all amounts in respect of Taxes imposed upon the Company or any of
its Subsidiaries or for which the Company or any of its Subsidiaries is liable
to any Taxing Authority for all taxable periods or portions of periods ending on
or before the Closing Date, all applicable Tax laws have been complied with and
all amounts required to be paid by the Company or any of its Subsidiaries to any
such Taxing Authority have been timely paid, withheld and
remitted.




11


(iii)No issues
have been raised and no claim, audit, action, suit, proceeding or investigation
is currently pending or Threatened by any Taxing Authority in connection with
any Tax or Tax Asset.  All deficiencies asserted or assessments made
as a result of any examinations of Returns previously filed by the Company or
any of its Subsidiaries have been paid, or are reflected as a liability in the
Financial Statements, or are being contested and an adequate reserve therefor
has been established and reflected as a liability in the Financial
Statements.  The charges, accruals and reserves for Taxes with respect
to the Company or any of its Subsidiaries reflected on the books of the Company
(excluding any provision for deferred income taxes reflecting either differences
between the treatment of items for accounting and income tax purposes or
carryforwards) are adequate to cover Tax liabilities accruing through the end of
the last period for which the Company ordinarily records items on its
books.  Since the end of the last period for which the Company
ordinarily records items on its books, neither the Company nor any of its
Subsidiaries has engaged in any transaction, or taken any other action, other
than in the ordinary course of business.  All information set forth in
the Financial Statements (including the notes thereto) relating to Tax matters
is true and complete.  No adjustment that would increase the Tax
liability, or reduce any Tax Asset, of the Company or any of its Subsidiaries
has been made, proposed or threatened by a Taxing Authority during any audit of
a Pre-Closing Tax Period which could reasonably be expected to be made, proposed
or threatened in an audit of any subsequent Pre-Closing Tax Period or
Post-Closing Tax Period.  There are no requests for rulings or
determinations in respect of any Tax or Tax Asset pending between the Company or
any of its Subsidiaries and any Taxing Authority.




(iv)Neither
the Company nor any of its Subsidiaries has waived any statute of limitations in
respect of Returns or agreed to any extension of time with respect to Tax
assessment or deficiency and neither the Company nor any of its Subsidiaries is
delinquent in the payment of any Tax.  All Returns filed with respect
to Tax years of the Company or any of its Subsidiaries through the Tax year
ended December 31, 2003 (in respect of federal corporate income tax) and the Tax
year ended December 31, 2002 (in respect of Arizona corporate income tax) have
been examined and closed or are Returns with respect to which the applicable
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired.  No adjustment that would increase the Tax
liability, or reduce any Tax Asset, of the Company or any of its Subsidiaries
has been made, proposed or threatened by a Taxing Authority during any audit of
a Pre-Closing Tax Period which could reasonably be expected to be made, proposed
or threatened in an audit of any subsequent Pre-Closing Tax Period or
Post-Closing Tax Period.  During the two-year period ending on the
date hereof, none of the Company, nor any Affiliate of the Company has made or
changed any tax election, changed any annual tax accounting period, or adopted
or changed any method of tax accounting (to the extent that any such action may
materially affect the Company or any of its Subsidiaries), nor has it, to the
extent it may affect or relate to the Company or any of its Subsidiaries, filed
any amended Return, entered into any closing agreement, settled any Tax claim or
assessment, or surrendered any right to claim a Tax refund, offset or other
reduction in Tax liability.




(v)None of
the Returns have been audited and no Returns currently are the subject of
audit.  The Company has delivered to Buyer correct and complete copies
of all federal Income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by Company or any of its Subsidiaries
since January 1, 2005.




(vi)Neither
the Company nor any of its Subsidiaries is party to or bound by any tax
indemnity, tax sharing or tax allocation agreement that would provide for the
allocation, apportionment, sharing or assignment of any Tax liability or
benefit, or the transfer or assignment of income, revenues, receipts, or gains
for the purpose of determining any person’s Tax liability.  Neither
the Company nor any of its Subsidiaries has been a member of an affiliated,
consolidated, combined or unitary group.  Neither the Company nor any
of its Subsidiaries has entered into any agreement or arrangement with any
Taxing Authority with regard to the Tax liability of the Company or any of its
Subsidiaries affecting any Tax period for which the applicable statute of
limitations, after giving effect to extensions or waivers, has not
expired.




(vii)No
jurisdiction where the Company or any of its Subsidiaries does not currently
file Returns has asserted that the Company or any of its Subsidiaries is or may
be liable for Tax in such jurisdiction.






12


(viii)Neither
the Company nor any of its Subsidiaries is a party to any understanding or
arrangement described in Section 6662(d)(2)(C)(ii) of the Code, or in a “reportable
transaction” within the meaning of Treasury Regulations Section
1.6011-4.  During the two-year period ending on the date hereof,
neither the Company nor any of its Subsidiaries was a distributing corporation
or a controlled corporation in a transaction intended to be governed by Section
355 of the Code.  Neither the Company nor any of its Subsidiaries has
participated in or cooperated with an international boycott within the meaning
of Section 999 of the Code and has not been requested to do so in connection
with any transaction or proposed transaction.




(ix)Neither
the Company nor any of its Subsidiaries will be required to include any
adjustment in taxable income for any Post Closing Tax Period under Section
481(c) of the Code (or any similar provision of the Tax laws of any
jurisdiction) as a result of a change in method of accounting for a Pre Closing
Tax Period.  No Tax Asset of the Company or any of its Subsidiaries is
currently subject to a limitation under Section 382 or Section 383 of the
Code.  Neither the Company nor any of its Subsidiaries will be
required to include for a Post-Closing Tax Period taxable income attributable to
income economically realized in a Pre-Closing Tax Period, including any income
that would be includible in a Post-Closing Tax Period as a result of the
installment method or the look-back method (as defined in Section 460(b) of the
Code).




(x)Neither
the Company nor any of its Subsidiaries owns an interest in real property in any
jurisdiction in which a Tax is imposed, or the value of the interest is
reassessed, on the transfer of an interest in real property and which treats the
transfer of an interest in an entity that owns an interest in real property as a
transfer of the interest in real property.




(xi)Except as
set forth on Section 3.1(l)(xi) of the Company Disclosure Schedule, no election
has been made under Treasury Regulations Section 301.7701-3 or any similar
provision of Tax law to treat the Company or any Affiliate of the Company as an
association, corporation or partnership.  The Company is not
disregarded as an entity for Tax purposes.




(xii)Notwithstanding
anything in this Agreement to the contrary, the Company makes no representation
or warranty hereunder with respect to any deferred Tax
Asset.




(m)Conduct
of Business.  Since the Financial Statements Date, the business
of the Company and any of its Subsidiaries has been conducted in the ordinary
course consistent with past practices and, except as set forth in Section
3.1(m) of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries has:




(i)created,
incurred, assumed or suffered to exist any indebtedness for borrowed money or
guarantees thereof, other than trade payables incurred in the ordinary course of
business;




(ii)incurred
any capital expenditures or any obligations or liabilities in respect thereof,
except for those contemplated by the capital expenditure budget for the Company
that is attached to Section
3.1(m)(ii) of the Disclosure Schedule (the “Capex
Budget”) including those purchased in advance of when they were budgeted
to be purchased;




(iii)created
or incurred any Lien on any material asset;




(iv)sold,
leased or transferred any of its property, except (1) for sales of its inventory
and transfers of cash in payment of the Company’s liabilities, all in the usual
and ordinary course of business, and (2) as otherwise permitted by this
Agreement;




(v)waived
any material right other than in the ordinary course of
business;




(vi)made any
loan, advance or capital contributions to or investment in any Person, except
for reasonable advances to employees and consultants for travel and business
expenses in the ordinary course of business consistent with past
practices;




(vii)paid or
delayed payment of accounts payable, or collected or delayed collection of
accounts receivable, in each case other than in the ordinary course of business
consistent with past practices;




(viii)changed
any method of accounting or accounting principles or practice, except for any
such change required by reason of a concurrent change in
GAAP;




(ix)made any
material change in pricing set or charged to its customers or in pricing set or
charged by its vendors;






13


(x)(A)
granted or increased any severance or termination pay to (or amendment to any
existing arrangement with) any current or former director, officer, employee or
independent contractor of the Company or any of its Subsidiaries, (B) increased
any benefits payable under any existing severance or termination pay policies or
employment agreements, (C) entered into any employment, deferred compensation,
severance, retention, change in control, tax gross-up, special bonus, stay bonus
or other similar agreement or arrangement (or amendment of any such existing
agreement) with any current or former director, officer, employee or independent
contractor of the Company or any of its Subsidiaries, (D) established, adopted
or amended (except as required by Applicable Law) any collective bargaining,
bonus, profit-sharing, thrift, pension, retirement, deferred compensation,
compensation, stock option, restricted stock or other benefit plan or
arrangement covering any current or former director, officer, employee or
independent contractor of the Company or any of its Subsidiaries, (E) increased
any compensation, bonus or other benefits payable to any current or former
director, officer, employee or independent contractor of the Company or any of
its Subsidiaries, (F) granted any stock option, restricted stock or any other
stock-based award to any current or former director, officer, employee or
independent contractor of the Company or any of its Subsidiaries, (G)
accelerated and/or cashed out any outstanding Stock Option, or (H) engaged in
hiring or termination practices that are not in the ordinary course of business
consistent with past practices;




(xi)settled,
or offered or proposed to settle, any material litigation, investigation,
arbitration, proceeding or other claim involving or against the Company or any
of its Subsidiaries;




(xii)entered
into any transaction or made any commitment with any Affiliate of the Company,
other than the payment of employee compensation or expense reimbursements in the
ordinary course of business consistent with past practices;




(xiii)entered
into any agreement to do any of the things described in the preceding clauses
(other than negotiations with Buyer and its representatives regarding the
transactions contemplated by this Agreement); or




(xiv)otherwise
suffered any Material Adverse Effect.




(n)No
Undisclosed Material Liabilities.  There are no liabilities or
obligations of the Company or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances that could
reasonably be expected to result in such a liability or obligation, other than
(i) liabilities or obligations disclosed and provided for in the Balance Sheet,
(ii) liabilities or obligations incurred in the ordinary course of business
consistent with past practices since the Financial Statements Date that,
individually or in the aggregate, are not material to the Company or any of its
Subsidiaries, and (iii) liabilities directly incurred under the terms of this
Agreement.




(o)Contracts.  Section
3.1(o) of the Company Disclosure Schedule contains a list of the
following material undischarged, unexpired or unsatisfied written agreements to
which the Company or any of its Subsidiaries is a party:




(i)agreements
for the employment of any employee;




(ii)consulting
agreements providing for annual cash compensation thereunder in excess of
$25,000;




(iii)collective
bargaining agreements;




(iv)leases or
subleases, whether as lessee or sublessee, lessor or sublessor, of personal
property, where the lease or sublease provides for an annual rent in excess of
$25,000 which cannot be cancelled by the Company without payment or penalty upon
notice of sixty (60) days or less;




(v)agreements
for the purchase or license of materials, supplies, goods, services, equipment
or other tangible or intangible assets expressly providing for (or which would
reasonably be expected to result in) either annual payments by the Company or
any of its Subsidiaries of $25,000 or more or aggregate payments by the Company
or any of its Subsidiaries of $50,000 or more;




(vi)sales,
rental, distribution or other similar agreements providing for the sale, rental
or distribution by the Company or any of its Subsidiaries of materials,
supplies, goods, services, equipment or other tangible or intangible assets
expressly providing for (or which would reasonably be expected to result in)
either annual payments to the Company or any of its Subsidiaries of $25,000 or
more or aggregate payments to the Company or any of its Subsidiaries of $50,000
or more;






14


(vii)agreements
restricting in any manner the right of the Company or any of its Subsidiaries to
compete with any other Person or in any line of business or in any area,
restricting the Company’s right to sell to or purchase from any other Person, or
restricting the right of any other Person to compete with the Company or any of
its Subsidiaries;




(viii)agreements
containing a “most
favored nation” or similar provision or providing for minimum purchase or
sale obligations;




(ix)agreements
between the Company or any of its Subsidiaries and any of its
Affiliates;




(x)agreements
of alliance, agency, representation, distribution, marketing or franchise which
cannot be cancelled by the Company without payment or penalty upon notice of
sixty (60) days or less;




(xi)loan or
credit agreements, pledge agreements, promissory notes, security agreements,
mortgages, debentures, indentures, letters of credit and
guaranties;




(xii)surety or
indemnification agreements;




(xiii)consulting,
services, development or collaboration agreements or other agreements for
development of products, technologies and/or services for the Company or any of
its Subsidiaries;




(xiv)partnership
agreements and joint venture agreements;




(xv)agreements,
contracts or commitments relating to the acquisition or disposition of any
business (whether by merger, sale of stock, sale of assets or
otherwise);




(xvi)agreements
relating to indebtedness for borrowed money or the deferred purchase price of
property (in either case, whether incurred, assumed, guaranteed or secured by
any asset);




(xvii)agreements
(including any prime contract, subcontract, teaming agreement or arrangement,
joint venture, basic ordering agreement, letter contract, purchase order,
delivery order, change order or other arrangement of any kind in writing) (A)
between the Company or any of its Subsidiaries and (x)any Governmental Authority
(acting on its own behalf or on behalf of another country or international
organization), (y) any prime contractor to any Governmental Authority or (z) any
subcontractor with respect to any contract described in clauses (x) or (y)
above, (B) financed by any Governmental Authority, or (C) subject to the
rules and regulations of any Governmental Authority concerning
procurement;




(xviii)agreements
or plans, including, without limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan, Company securities or debt
instruments, or any undertaking, promise or other obligation, written or oral,
of the Company to issue any securities, the value of any of the benefits of
which will be calculated on the basis of any of the transactions contemplated by
this Agreement;




(xix)any
shareholders agreement or similar agreement with or among any shareholders of
the Company, including any agreement that provides for preemptive rights or
imposes any limitation or restriction on Company Stock, including any
restriction on the right of a shareholder to vote, sell or otherwise dispose of
such Company Stock; and




(xx)any other
agreements that provide for the receipt or expenditure of more than $50,000 on
an annual basis, except agreements for the purchase or sale of goods or
rendering of services in the ordinary course of business and leases or subleases
of real property (which are dealt with exclusively in Section
3.1(w)).




Each of
the agreements, contracts, plans, leases, arrangements or commitments disclosed
in Section 3.1(o) of the Disclosure Schedule, or required to be disclosed
pursuant to this Section 3.1(o) or which would have been required to be so
disclosed had it been in existence as of the date of this Agreement (each, a
“Contract”)
is a valid and binding agreement of the Company, is in full force and effect and
is enforceable against the Company and, to the Knowledge of the Company, the
other parties thereto, except as enforceability may be affected by Laws relating
to bankruptcy, reorganization, insolvency and creditors’ rights and by the
availability of injunctive relief, specific performance and other equitable
remedies.  With respect to each Contract, there exists no (x) default
or event of default by the Company or any of its Subsidiaries or, to the
Knowledge of the Company, any other party thereto, or (y) event, occurrence or
condition that, with the giving of notice or the lapse of time, would give rise
to a default or event of default by the Company or any of its Subsidiaries or,
to the Knowledge of the Company, and other party thereto.  No Person
is renegotiating, or has a right (absent any default or breach of a Contract)
pursuant to the terms of any Contract to renegotiate, any material amount paid
or payable to the Company or any of its Subsidiaries under any Contract or any
other material term or provision of any Contract.  Neither the Company
n or any of its Subsidiaries has received any written or verbal indication of an
intention to terminate any Contract by any of the parties
thereto.  True and complete copies of each such Contract has been
available to Buyer prior to the date hereof.




15


(p)Permits.  The
Company possesses all material Permits (other than Environmental Permits) that
are required in order for the Company or any of its Subsidiaries to conduct its
business as presently conducted.  All such Permits are in full force
and effect, the Company is in compliance with and no condition exists that with
notice or lapse of time or both would constitute a default under, all such
Permits, and none of such Permits will be terminated or impaired or become
terminable, in whole or in part, as a result of the transactions contemplated
hereby.




(q)Employee
Benefit Plans.




(i)Section
3.1(q)(i) of the Disclosure Schedule contains a correct and complete list
identifying each Benefit Plan which is sponsored, maintained, administered,
contributed to by the Company or any Affiliate thereof and covers any current of
former employee, director or independent contractor of the Company or any of its
Subsidiaries or with respect to which the Company or any of its Subsidiaries has
any liability.  Copies of each Benefit Plan and any amendments thereto
have been made available to Buyer prior to the date hereof, and copies of, to
the extent applicable, any related trust or funding agreements or insurance
policies, amendments thereto, prospectuses or summary plan descriptions relating
thereto and the most recent annual report (Form 5500 including, if applicable,
Schedule B thereto) and tax return (Form 990) prepared in connection therewith
have been made available to Buyer prior to the date hereof.




(ii)Neither
the Company nor any of its Affiliates nor any predecessor thereof does now, or
did prior to the date hereof, sponsor, maintain or contribute to any plan
subject to Title IV of ERISA.




(iii)Neither
the Company nor any of its Affiliates contributes to any multiemployer plans
within the meaning of Section 4001(a)(3) of ERISA.




(iv)No
transaction prohibited by Section 406 of ERISA or Section 4975 of the Code has
occurred with respect to any employee benefit plan or arrangement which is
covered by Title I of ERISA, which transaction has or will cause the Company or
any of its Subsidiaries to incur any material liability under ERISA, the Code or
otherwise, excluding transactions effected pursuant to and in compliance with a
statutory or administrative exemption.




(v)No events
have occurred with respect to any Benefit Plan that could result in payment or
assessment of any material excise Taxes.




(vi)Each
Benefit Plan that is intended to be qualified under Section 401(a) of the Code
either has received a favorable determination letter from the IRS or is entitled
to rely on a favorable opinion letter issued to the prototype sponsor by the IRS
and has been so qualified during the period since its adoption, and no event has
occurred since the date of such determination that would materially adversely
affect such qualification.  Each trust created under any such Benefit
Plan is exempt from tax under Section 501(a) of the Code and has been so exempt
since its creation.  Copies of the most recent determination letter of
the Internal Revenue Service relating to each such Benefit Plan have been made
available to Buyer.  Each Benefit Plan has been maintained in material
compliance with its terms and with the requirements prescribed by all applicable
law, including ERISA and the Code, and there is no action, suit, investigation,
audit or proceeding pending against or involving or, to the Knowledge of the
Company, threatened against or involving, any Benefit Plan before any court or
arbitrator or any state, federal or local governmental body, agency or official
other than routine claims for benefits.




(vii)Neither
the Company nor any of its Subsidiaries has any current or projected liability
in respect of post-employment or post-retirement health or medical or life
insurance benefits for retired, former or current officers or employees of the
Company or any of its Subsidiaries, except as required to avoid excise tax under
Section 4980B of the Code.




(viii)All
contributions and payments accrued under each Benefit Plan, determined in
accordance with prior funding and accrual practices, as adjusted to include
proportional accruals for the period ending as of the date hereof, have been
discharged and paid on or prior to the date hereof except to the extent
reflected as a liability on the Balance Sheet.




(ix)No
Benefit Plan exists that, as a result of the transactions contemplated by this
Agreement (whether alone or in connection with other events), could result in
the payment to any current or former employee, director or independent
contractor of the Company or any of its Subsidiaries of any money or other
property or could result in the acceleration or provision of any other rights or
benefits to any current or former employee, director or independent contractor
of the Company or any of its Subsidiaries.




(x)No
payment, right or benefit as a result of the transactions contemplated by this
Agreement (whether alone or in connection with other events) would constitute a
“parachute payment” within the meaning of Section 280G of the
Code.






16


(xi)Each
Benefit Plan which is a nonqualified deferred compensation plan, within the
meaning of Section 409A of the Code, maintained by the Company on or after
January 1, 2005, has been operated in good faith compliance with the
requirements of Section 409A of the Code (or an available exemption
therefrom).  Since January 1, 2005, no stock options have been granted
by the Company or any of its Subsidiaries with an exercise price of less than
the fair market value of the underlying stock as of the date such option was
granted.




(r)Employees.  Section
3.1(r) of the Disclosure Schedule sets forth a true and complete list of all
employees of the Company or any of its Subsidiaries (the “Employees”)
together with their respective positions, locations, annual salaries, bonuses
and other compensation information.  To the Company’s Knowledge, none
of the Employees has indicated that he or she intends to resign or retire as a
result of or in connection with the transactions contemplated by this
Agreement.  No Employee is represented by any union, works council or
other labor organization or is covered under any union, collective bargaining or
similar labor agreement.  There are no labor negotiations in process
with any labor union relating to the Employees and, to the Knowledge of the
Company, there are no efforts in process by any labor union to organize any of
the Employees.  There is currently no labor strike, slowdown or
stoppage relating to any of the Employees pending or, to the Knowledge of the
Company.  There is no unfair labor practice complaint pending or, to
the Knowledge of the Company, threatened against the Company or any of its
Subsidiaries before the National Labor Relations Board or similar, non-U.S.,
state or local body.  Each of the Company and any of its Subsidiaries
has complied in all material respects with all applicable Laws relating to labor
and employment, including without limitation those relating to wages, hours,
collective bargaining, unemployment compensation, worker’s compensation, equal
employment opportunity, age and disability discrimination, immigration control,
employee classification, information privacy and security, payment and
withholding of taxes, and continuation coverage with respect to group health
plans.




(s)Litigation
and Claims.  There is no litigation, claim, proceeding, suit or
investigation by or before any Governmental Authority or arbitrator pending or,
to the Knowledge of the Company, Threatened against the Company or any of its
Subsidiaries with respect to or affecting the operations, business, properties
or assets of the Company or any of its Subsidiaries, or directors, officers or
representatives (in their capacity as such) of the Company or any of its
Subsidiaries or with respect to the consummation of the transactions
contemplated hereby.




(t)Decrees,
Orders or Awards.  Neither the Company nor any of its
Subsidiaries is a party to, or bound by, any decree, order, judgment or award of
any Governmental Authority with respect to or affecting the Company’s
operations, business, properties or assets.




(u)Compliance
with Laws.  Except for Environmental Laws (which are
exclusively provided for in Section
3.1(u)), neither the Company nor any of its Subsidiaries is in material
violation of, or materially delinquent with respect to, and to the Knowledge of
the Company, is not under investigation with respect to and has not been
threatened to be charged with or given notice of any violation of, any Law to
which the Company or any of its Subsidiaries, or their respective operations,
business or assets are subject including 21 C.F.R. 820.




(v)Environmental
Matters.




(i)Each of
the Company and any of its Subsidiaries has been and is in compliance with all
applicable Environmental Laws and Environmental Permits.




(ii)Each of
the Company and any of its Subsidiaries possesses all Environmental Permits
which are required for the operation of its business; such Environmental Permits
are valid and in full force and effect and will not be terminated or impaired or
become terminable, in whole or in part, as a result of the transactions
contemplated hereby.




(iii)No
notice, notification, demand, request for information, citation, summons or
order has been received, no complaint has been filed, no penalty has been
assessed and no investigation, action, claim, suit, proceeding or review is
pending, or to the Company’s Knowledge, threatened by any Governmental Authority
or other Person with respect to any matters relating to the Company or any of
its Subsidiaries and relating to or arising out of any Environmental Law or
Hazardous Substance.




(iv)There are
no liabilities or obligations of or relating to the Company or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, arising under or relating to any
Environmental Law or Hazardous Substance, and there are no facts, conditions,
situations or set of circumstances which could reasonably be expected to result
in or be the basis for any such liability or obligation.




(v)No
polychlorinated biphenyls, radioactive material, lead, asbestos or asbestos
containing material, incinerator, sump, surface impoundment, lagoon, landfill,
septic, wastewater treatment or other disposal system or underground storage
tank (active or inactive) is or has been present at, on or under any property
now or previously owned, leased or operated by the Company or any of its
Subsidiaries.




17


(vi)No
Hazardous Substance has been Released at, on or under any property now or
previously owned, leased or operated by the Company or any of its
Subsidiaries.






(vii)No
property now or previously owned, leased or operated by the Company or any of
its Subsidiaries or any property to which the Company or any of its Subsidiaries
has, directly or indirectly, transported or arranged for the transportation of
any Hazardous Substances is listed or, to the Company’s Knowledge, proposed for
listing, on the National Priorities List promulgated pursuant to CERCLA, on
CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list
of sites requiring investigation or clean up.




(viii)There has
been no environmental investigation, study, audit, test, review or other
analysis conducted of which the Company has Knowledge in relation to the current
or prior business of the Company or any of its Subsidiaries or any property or
facility now or previously owned, leased or operated by the Company or any of
its Subsidiaries which has not been delivered to Buyer at least 10 days prior to
the date hereof.




(ix)The
consummation of the transactions contemplated in this Agreement shall not
trigger any requirement for any action, consent or approval, registration,
remedial action, or filing under any Environmental Law or Environmental
Permit.




(x)For
purposes of this Section, the terms “Company”
and “Subsidiaries”
shall include any entity which is, in whole or in part, a predecessor of the
Company or any of its Subsidiaries.




(w)Leased
Real Estate.




(i)Neither
the Company nor any of its Subsidiaries owns any real
property.




(ii)Section
3.1(w)(ii) of the Disclosure Schedule contains a list of all street
addresses of the Leased Real Estate, which list is true and complete in all
material respects.




(iii)All
Leased Real Estate is leased to the Company pursuant to written leases, complete
copies of which have been previously delivered to Buyer, and all of which are
enforceable against the Company and, to the Knowledge of the Company, the other
parties thereto, except as enforceability may be affected by Laws relating to
bankruptcy, reorganization, insolvency and creditors’ rights and by the
availability of injunctive relief, specific performance and other equitable
remedies.  With respect to each such lease, there exists no (i)
default or event of default by the Company or any of its Subsidiaries or, to the
Knowledge of the Company, any other party thereto, or (ii) event, occurrence or
condition that, with the giving of notice or the lapse of time, would give rise
to a default or event of default by the Company or any of its Subsidiaries or,
to the Knowledge of the Company, and other party thereto.  The
Disclosure Schedule sets forth a description of any consent or approval required
of any counterparty under the terms of any such lease for the consummation of
the transactions contemplated by this Agreement.  To the Knowledge of
the Company, the Leased Real Estate is not subject to any leases, subleases or
tenancies of any kind, except for the Company’s leases.  The Leased
Real Estate constitutes all real property and improvements used in the conduct
of its business.




(iv)There are
no developments affecting any Leased Real Estate pending or, to the Knowledge of
the Company threatened, which might materially detract from the value,
materially interfere with any present or intended use of any such property or
assets.  Such real property, and its continued use, occupancy and
operation as currently used, occupied and operated, does not constitute a
nonconforming use under all applicable building, zoning, subdivision and other
land use and similar Law.  The plants, buildings, structures and
equipment owned by the Company or any of its Subsidiaries have no material
defects, are in good operating condition and repair and have been reasonably
maintained consistent with standards generally followed in the industry (giving
due account to the age and length of use of same, ordinary wear and tear
excepted), are adequate and suitable for their present and intended uses and, in
the case of plants, buildings and other structures (including the roofs
thereof), are structurally sound.  None of the structures on any such
owned or leased real property encroaches upon real property of another Person,
and no structure of any other Person substantially encroaches upon any of such
owned or leased real property.






18


(x)Intellectual
Property.




(i)For
purposes of this Agreement, “Intellectual
Property” means (A) patents and all proprietary rights associated
therewith, (B) trademarks, service marks, trade names, trade dress, domain
names, brand names, certification marks, corporate names and other indications
of origin, together with all goodwill related to the foregoing, (C) copyrights
and designs and all rights associated therewith and the underlying works of
authorship, (D) all inventions, processes, formulae, methods, schematics,
drawings, blue prints, technology, Software, discoveries, ideas and
improvements, (E) all registrations of any of the foregoing and all applications
therefor, where the same are registerable and (F) know-how, trade secrets, other
proprietary or confidential information and materials, in whatever form or
format; and “Company
Intellectual Property” means all Intellectual Property that is owned or
exclusively licensed by the Company or any of its Subsidiaries, and includes
without limitation all of the Company Registered Intellectual Property (as
defined below).  The Company is the sole and exclusive owner of the
Company Intellectual Property, free and clear of any Lien.




(ii)Section
3.1(x)(ii) of the Disclosure Schedule sets forth a list of all U.S. and
foreign copyright registrations, copyright applications, patents and patent
applications, trademark and service mark registrations, Internet domain name
registrations, trademark and service mark applications owned by or exclusively
licensed to the Company or any of its Subsidiaries (collectively, the “Company
Registered Intellectual Property”).  All applications for
Company Registered Intellectual Property have been properly made and filed, all
registrations for Company Registered Intellectual Property are properly
registered, and all annuity, maintenance, renewal and other fees relating to any
Company Registered Intellectual Property are current.  Effective
written assignments constituting an unbroken, complete chain-of-title from the
original owner(s) to the Company have been obtained with respect to all of the
Company Registered Intellectual Property and have been duly recorded with the
appropriate governmental authorities.  None of the Company
Intellectual Property has been adjudged invalid or unenforceable in whole or
part, and, to the Knowledge of the Company, all such Company Intellectual
Property is valid and enforceable.




(iii)To the
Knowledge of the Company, the Company owns, licenses, sublicenses or otherwise
possesses legally enforceable rights to use all Intellectual Property necessary
to conduct the business of the Company or any of its Subsidiaries as currently
conducted (the “Necessary
Intellectual Property”).  The execution and delivery of this
Agreement by the Company and the consummation of the transactions contemplated
hereby herein will not alter, encumber, impair or extinguish any Necessary
Intellectual Property or any of the rights of the Company or any of its
Subsidiaries therein, other than with respect to commercially available
off-the-shelf software generally available on non-discriminatory pricing
terms.  There is no claim, action, suit, investigation or proceeding,
pending or, to the Knowledge of the Company, Threatened by or before any
Governmental Authority (i) challenging or seeking to deny or restrict the
rights of the Company in any Necessary Intellectual Property, or
(ii) alleging that any services provided, processes used or products
manufactured, used, imported, exported or sold by or for the Company or any of
its Subsidiaries infringes, violates, injures or otherwise misappropriates any
Intellectual Property right of any third party.  Neither the Company
nor any of its Subsidiaries has received from any third party an offer to
license any Intellectual Property rights of such third
party.




(iv)Section
3.1(x)(iv) of the Disclosure Schedule sets forth, in all material
respects, a complete and accurate list of all Intellectual Property
Licenses.  All Intellectual Property Licenses are in full force and
effect, and the Company and any of its Subsidiaries has in all material respects
performed its obligations under each Intellectual Property
License.




(v)To the
Knowledge of the Company, no Person has infringed, injured, misappropriated or
otherwise violated any Company Intellectual Property.




(vi)The
Company has taken reasonable steps in accordance with normal industry practice
to maintain the confidentiality of all Company Intellectual Property that has a
value to the Company or any of its Subsidiaries that is contingent upon such
Company Intellectual Property remaining confidential.




(vii)Section
3.1(x)(vii) of the Disclosure Schedule contains, to the Knowledge of the
Company, a complete and accurate list of all Open Source Software included in
any product sold, licensed, or otherwise transferred by or for the Company or
any of its Subsidiaries.  For purposes of this Agreement, “Open
Source Software” means any Software that requires, as a condition of
distribution of such Software or of any derivative thereof, that such Software
or derivative be disclosed or distributed in source code form and/or be licensed
for the purpose of making derivative works.  By way of example, Open
Source Software includes all Software that is licensed or distributed under any
of the following or similar licenses: the GNU General Public License (GPL) or
Lesser General Public License (LGPL), the Artistic License, the Mozilla Public
License (MPL), the Common Public License, the Sun Community Source License
(SCSL), and the Sun Industry Standards Source License
(SISSL).






19


(viii)To the
Knowledge of the Company, there are no defects in any of the Proprietary
Software that would prevent such Proprietary Software from performing in
accordance with its user specifications, and there are no viruses, worms, Trojan
horses or similar programs in any of the Proprietary
Software.




(ix)No party
other than the Company possesses any current or contingent rights to any
material source code that is part of the Proprietary
Software.




(y)Products.  Each
of the products produced or sold by the Company or any of its Subsidiaries is,
and at all times up to and including the sale thereof has been, (i) in
compliance in all material respects with all applicable Laws and (ii) fit for
the ordinary purposes for which it is intended to be used and conforms in all
material respects to any promises or affirmations of fact made on the container
or label for such product or in connection with its sale.  There is no
design defect with respect to any of such products and each of such products
contains adequate warnings, presented in a reasonably prominent manner, in
accordance with applicable Laws, and current industry practice with respect to
its contents and use.




(z)Inventory.  The
inventory of the Company or any of its Subsidiaries, net of applicable reserves,
(i) was acquired or produced by the Company or any of its Subsidiaries in the
ordinary course of business, (ii) is in the physical possession of the Company
or any of its Subsidiaries or in transit to or from a customer or supplier,
(iii) has not been pledged as collateral or otherwise subjected to any Lien, and
(iv) is not held on consignment.  The inventory of the Company set
forth in the Balance Sheet was properly stated therein at the lesser of cost or
fair market value determined in accordance with GAAP consistently maintained and
applied by the Company.  Since the Financial Statements Date, the
inventory of the Company has been maintained in the ordinary course of
business.  All of the inventory recorded on the Balance Sheet consists
of, and all inventory of the Company or any of its Subsidiaries on the Closing
Date will consist of, items of a quality usable or saleable in the normal course
of business consistent with past practices and is and will be in quantities
sufficient for the normal operation of the business of the Company or any of its
Subsidiaries in accordance with past practice.




(aa)Accounts
Receivable.  All of the accounts receivable of the Company or
any of its Subsidiaries (i) represent amounts receivable, net of applicable
reserves, for products delivered or services rendered and (ii) have arisen from
bona fide transactions in the ordinary course of business.  All of the
accounts receivable of the Company reflected on the Balance Sheet are, and all
accounts and notes receivable arising from or otherwise relating to the business
of the Company as of the Closing Date will be, valid, genuine and fully
collectible in the aggregate amount thereof, subject to normal and customary
trade discounts, less any reserves for doubtful accounts recorded on the Balance
Sheet.  All accounts, notes receivable and other receivables arising
out of or relating to such businesses of the Company as of the Financial
Statements Date have been included in the Balance Sheet.




(bb)Brokers.  Except
for Houlihan Lokey Howard & Zukin, a copy of whose engagement agreement (and
all indemnification and other agreements related to such engagement) has been
made available to Buyer prior to the date hereof, none of the Company nor any of
its Affiliates has engaged or otherwise dealt with any broker, finder or other
Person in connection with this Agreement or the transactions contemplated hereby
that will result in or has resulted in Buyer becoming liable for any commission,
fee, or similar payment for arranging the transactions contemplated hereby or
introducing the parties to each other.  Section
3.1(bb) of the Disclosure Schedule sets forth the Company’s good faith
estimate of the Transaction Expenses Amount.




(cc)Bank
Accounts; Letters of Credit; Powers of Attorney.  Section
3.1(cc) of the Disclosure Schedule lists (i) all bank accounts, lock
boxes and safe deposit boxes relating to the business and operations of the
Company or any of its Subsidiaries (including the name of the bank or other
institution where such account or box is located and the name of each authorized
signatory thereto), (ii) all outstanding letters of credit issued by financial
institutions for the account of the Company or any of its Subsidiaries, and
(iii) the name and address of each person who has a power of attorney to act on
behalf of the Company or any of its Subsidiaries.  The Company has
heretofore delivered to Buyer true, correct and complete copies of each letter
of credit and each power of attorney described in Section
3.1(cc)of the Disclosure Schedule.




20


(dd)U.S.
Government Contracts.




(i)For
purposes of this Agreement, “Bid”
means any written offer by the Company or any of its Subsidiaries that if
accepted would lead to a Government Contract, “U.S.
Government” means the United States Government and any agencies,
instrumentalities and departments thereof (including, without limitation, the
Department of Defense, the National Aeronautics and Space Administration or any
other agencies, departments or instrumentalities thereof) and “U.S.
Government Contract” means any prime contract, subcontract, teaming
agreement or arrangement, joint venture, basic ordering agreement, letter
contract, purchase order, delivery order, change order or other arrangement of
any kind in writing either:  (A.) between the Company or any of its
Subsidiaries and (a) the U.S. Government (acting on its own behalf or on behalf
of another country or international organization), (b) any prime contractor of
the U.S. Government, or (c) any subcontractor with respect to any contract
described in clauses (a) or (b) above; or (B.) financed by the U.S. Government
and subject to the rules and regulations of the U.S. Government concerning
procurement, federal assistance instrument or Other
Transaction.




(ii)The
Company and any of its Subsidiaries has complied with all applicable
requirements of the U.S. Government Cost Accounting Standards, the Federal Truth
in Negotiations Act, the Buy American Act, the Trade Agreements Act, and any
other U.S. laws, rules, regulations or orders applicable to any U.S. Government
Contract or Bid.




(iii)(A) There
are no audits of any U.S. Government Contracts being conducted by the U.S.
Government, a prime contractor or any other party to any U.S. Government
Contract, other than those conducted in the ordinary course of business, (B)
except to the extent finally resolved (and any liability relating thereto has
been paid or reflected on the Balance Sheet), neither the Company nor any of its
Subsidiaries has with respect to any U.S. Government Contract received any
written (1) cure notice or show cause notice (as defined in the Federal
Acquisition Regulation Part 49, ¶49.607 (a) and (b)) pursuant to applicable
contract default provisions or notice of default, (2) contract termination,
whether for default, convenience, cancellation or lack of funding or other
reasons, (3) final decision or unilateral modification assessing a price
reduction, penalty or claim for damages or other remedy, (4) claim based on
assertions of defective pricing or violations of government cost accounting
standards or cost principles, (5) request for an equitable adjustment of, or
claim by any customer, subcontractor or supplier of the Company or any of its
Subsidiaries, (6) disallowance, written questioning or other written challenge
of any material direct or indirect costs, or (7) notice of any investigation or
enforcement proceeding of a criminal, civil or administrative nature by any
investigative or enforcement agency of any government (including any qui tam
action brought under the Civil False Claims Act alleging any irregularity,
misstatement or omission), and (C) to the Knowledge of the Company, no amount of
money due to the Company or any of its Subsidiaries with respect to any U.S.
Government Contract has been withheld or set off nor has any claim been made to
withhold or set off money and the Company and any of its Subsidiaries is
entitled to all progress payments received with respect
thereto.




(iv)(A)
Neither the Company nor any of its Subsidiaries, nor to the Knowledge of the
Company any of the principals of the Company or any of its Subsidiaries (as
defined in the Federal Acquisition Regulation Part 52, ¶52.209-5), is suspended
or debarred from doing business with or obtaining export licenses or approvals
from any agency of the U.S. Government or is the subject of a finding of
non-responsibility or ineligibility for U.S. Government
contracting.  (B) To the Knowledge of the Company, neither the Company
nor any of its Subsidiaries nor any of their representatives is, or during the
past three years has been, under administrative, civil or criminal
investigation, indictment or information by the U.S. Government with respect to
any alleged irregularity, misstatement or omission arising under or relating to
any U.S. Government Contract or Bid.  (C) During the past year,
neither the Company nor any of its Subsidiaries has conducted or initiated any
internal investigation or made a voluntary disclosure to the U.S. Government
with respect to any alleged irregularity, misstatement or omission arising under
or relating to a U.S. Government Contract or Bid.




(v)There are
no (A) claims pending or, to the Knowledge of the Company, Threatened against
the Company or any of its Subsidiaries by the U.S. Government or by any prime
contractor, subcontractor, vendor or other Person arising under or relating to
any U.S. Government Contract or (B) material disputes before any court or
administrative agency between the Company or any of its Subsidiaries and the
U.S. Government under the Contract Disputes Act or any other statute or
regulation or between the Company or any of its Subsidiaries and any prime
contractor, subcontractor or vendor arising under or relating to any U.S.
Government Contract.




21


(vi)Neither
the Company nor any of its Subsidiaries has received from the U.S. Government or
any prime contractor or subcontractor from a U.S. Government any special,
preferential or advantageous treatment in the award of a Government Contract, or
in any other manner, including as a “small business concern,” “small
disadvantaged business” (or “minority-owned business”), “women-owned” concern,
or any other socially and economically disadvantaged classification, as defined
in the Small Business Act (15 U.S.C. Sec. 631, et. seq.), the Federal Property
and Administrative Services Act (41 U.S.C. Sec. 252), section 7102 of the
Federal Acquisition Streamlining Act of 1994 (Public Law 103-355), 10 U.S.C. Sec
2323, Executive Order 12138, May 18, 1979, or regulations implementing these
requirements, including the Federal Acquisition Regulations.




(vii)Neither
the Company nor any of its Subsidiaries, nor to the Knowledge of the Company any
of the principals of the Company or any of its Subsidiaries, has received an
unfavorable past performance rating on any U.S. Government
Contract.




(ee)Insurance
Coverage.  The Company has furnished to Buyer a list of, and
furnished or made available prior to the date hereof true and complete copies
of, all insurance policies and fidelity bonds relating to the assets, business,
operations, employees, officers or directors of the Company or any of its
Subsidiaries.  There is no claim by the Company or any of its
Subsidiaries under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds or
in respect of which such underwriters have reserved their rights.  All
premiums payable under all such policies and bonds have been timely paid and the
Company and its Subsidiaries have otherwise complied in all material respects
with the terms and conditions of all such policies and bonds.  Such
policies of insurance and bonds (or other policies and bonds providing
substantially similar insurance coverage) are in full force and
effect.  Such policies and bonds are of the type and in amounts
customarily carried by Persons conducting businesses similar to those of the
Company.  To the Knowledge of the Company, no termination, premium
increase, or material alteration, has been threatened with respect to any of
such policies or bonds.  The Surviving Corporation shall after the
Effective Time continue to have coverage under such policies and bonds with
respect to events occurring prior to the Effective Time.




(ff)Affiliate
Transactions.  No shareholder, director or officer of the
Company or any of its Subsidiaries, and, to the Knowledge of the Company, no
Affiliate or “associate”
(or member of any of the “immediate families”) (as such terms are respectively
defined in Rule 12b-2 and Rule 16a-1 of the 1934 Act) of any director or officer
of the Company or any of its Subsidiaries, of any shareholder who has nominated
or designated a director of the Company or any of its Subsidiaries, or of any
other shareholder (but only to the extent arising in connection with such
shareholder’s equity investment in the Company), (i) is, or has in the past two
years been, involved, directly or indirectly, in any material business
arrangement or other material relationship with the Company or any of its
Subsidiaries (whether written or oral) (other than relationships arising out of
such Person’s capacity as a security holder, director, officer or employee of
the Company), (ii) directly or indirectly owns, or otherwise has any right,
title or interest in, to or under, any material property or right, tangible or
intangible, that is used by the Company or any of its Subsidiaries, or (iii) is,
or has in the past two years been, engaged, directly or indirectly, in the
conduct of the business of the Company or any of its Subsidiaries (other than in
such Person’s capacity as a security holder, director, officer or employee of
the Company).




(gg)No
Indebtedness.  Except as set forth in Section
3.1(gg) of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries has any Indebtedness.  Section
3.1(gg)of the Disclosure Schedule sets forth the lender or party owed,
the outstanding principal, any accrued and unpaid interest, any other amounts
(including any fees, penalties or other amounts) payable with respect to all
Indebtedness of the Company or any of its Subsidiaries, including as a result of
the Merger and the other transactions contemplated hereby.  Section
3.1(gg) sets forth the Company’s good faith estimate of the aggregate
amount of Indebtedness of the Company or any of its Subsidiaries as of the
Effective Time.




3.2Representations
and Warranties of Buyer and Merger Sub.  Each of Buyer and
Merger represents and warrants to the Company that, subject to Section 11.19,
except as set forth in the Buyer and Merger Sub Disclosure
Schedule:




(a)Organization,
Existence and Good Standing.  Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California.  Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Arizona.  Each of Buyer and Merger Sub is duly qualified as a foreign
corporation, and is in good standing, under the laws of all jurisdictions where
the nature of its business or the nature or location of its assets requires such
qualification and where the failure to so qualify would, individually or in the
aggregate, have a Material Adverse Effect.




(b)Consents.  No
notice to, or consent, authorization, order or approval of, or filing or
registration with, any Governmental Authority or other Person is required by the
Buyer or Merger Sub in connection with the consummation by Buyer and Merger Sub
of the transactions contemplated by this Agreement or any other document,
certificate or instrument to be executed by Buyer or Merger Sub pursuant to or
in connection with this Agreement (collectively, the “Buyer
Documents”).




22


(c)Power
and Authority.  Each of the Buyer and Merger Sub has all
necessary power and authority to carry on its business as such business is now
being conducted.




(d)Authorization.




(i)The
execution, delivery and performance by each of Buyer and Merger Sub of this
Agreement and the consummation by each of Buyer and Merger Sub of the
transactions contemplated have been duly authorized by all necessary corporate
action on the part of each of Buyer and Merger Sub.  This Agreement
has been duly executed and delivered by each of Buyer and Merger Sub and
constitutes the legal, valid and binding obligation of each of Buyer and Merger
Sub enforceable against each of Buyer and Merger Sub in accordance with its
terms, except to the extent that enforcement may be affected by Laws relating to
bankruptcy, reorganization, insolvency and creditors’ rights and by the
availability of injunctive relief, specific performance and other equitable
remedies.  Each Buyer Document to be executed by Buyer and/or Merger
Sub, when executed and delivered by Buyer and/or Merger Sub, will constitute the
legal, valid and binding obligation of each of Buyer and Merger Sub, enforceable
against each of Buyer and Merger Sub in accordance with its terms, except to the
extent that enforcement may be affected by Laws relating to bankruptcy,
reorganization, insolvency and creditors’ rights and by the availability of
injunctive relief, specific performance and other equitable
remedies




(ii)Prior to
the Effective Time, at a meeting duly called and held, or by unanimous written
consent, (A) Merger Sub’s Board of Directors shall have unanimously determined
that the Merger is fair to and in the best interests of the shareholder of
Merger Sub, (B) Merger Sub’s Board of Directors shall have approved and adopted
this Agreement and the transactions contemplated hereby, and (C) Merger Sub’s
Board of Directors shall have resolved to recommend approval and adoption of
this Agreement by the shareholder of Merger Sub.




(iii)The
Merger Sub written consent of its shareholder delivered concurrently with the
execution of this Agreement by Merger Sub shall constitute the valid and
effective approval and adoption of this Agreement and the other transactions
contemplated hereby by the shareholder of Merger Sub.  Such Merger Sub
written consent will be as of the Closing in full force and
effect.




(e)Conflicts
Under Organizational Documents or Laws.  Neither the execution
and delivery of this Agreement, the Buyer Documents, nor the consummation of the
transactions contemplated hereby or thereby, will conflict with or result in a
breach of (i) any of the terms, conditions or provisions of the articles of
incorporation and bylaws of either Buyer or Merger Sub or any resolution adopted
by either of Buyer’s or Merger Sub’s Board of Directors or any committee
thereof, or (ii) any applicable Law.




(f)Conflicts
Under Contracts.  Neither Buyer nor Merger Sub is a party to,
or bound by, any unexpired, undischarged or unsatisfied written or oral
contract, agreement, indenture, mortgage, debenture, note, lease or other
instrument under the terms of which either the execution and delivery of this
Agreement or the Buyer Documents, or the consummation by each of Buyer or Merger
Sub of the transactions contemplated hereby or thereby, will be a breach,
default or an event of acceleration, will require any consent thereunder or will
be grounds for termination, modification or cancellation, or whereby timely
performance by each of Buyer or Merger Sub according to the terms of this
Agreement or the Buyer Documents may be prohibited, prevented or
delayed.




(g)Litigation.  There
is no claim, action, suit, proceeding, arbitration, investigation, hearing or
notice of hearing, pending or, to the knowledge of Buyer or Merger Sub,
Threatened by or before any Governmental Authority involving or in any way
related to Buyer, Merger Sub, or either party’s Affiliates and related to this
Agreement or the consummation of the transactions contemplated hereby, nor, to
the knowledge of Buyer or Merger Sub, are there any facts that would give rise
to any such claim, action, suit, proceeding, arbitration, investigation or
hearing.




(h)Brokers.  None
of Buyer, Merger Sub, or either party’s Affiliates has engaged or otherwise
dealt with any broker, finder or other Person in connection with this Agreement
or the transactions contemplated hereby that will result in or has resulted in
any party becoming liable for any commission, fee or similar payment for
arranging the transactions contemplated hereby or introducing the parties to
each other.




(i)Financing.  Buyer
has either (i) sufficient cash and available credit facilities, or (ii)
sufficient cash and firm commitments for credit facilities and/or equity
contributions, in either case, in an aggregate amount sufficient to pay on a
timely basis all of the consideration payable to the Equity Holders as required
by this Agreement, and to make all other necessary payments in connection with
the transactions contemplated under this Agreement, and to pay all related fees
and expenses.  Buyer has no reason to believe that any financing
and/or equity contribution, if any, needed by Buyer in connection with the
transactions contemplated under this Agreement will not be
consummated.






23


(j)Solvency.  Immediately
after giving effect to the purchase and sale of the Shares hereunder, Buyer will
not (i) be insolvent (either because the sum of its debts is greater than the
fair value of its assets, or because the fair value of its assets is less than
the amount required to pay its existing, probable and contingent liabilities),
(ii) have insufficient capital with which to engage in its business, or (iii)
have incurred debts beyond its ability to pay as they become due.  No
transfer of property will be made by Buyer and no obligation incurred by Buyer
in connection with the transactions contemplated by this Agreement with the
intent to hinder, delay or defraud either present or future creditors of
Buyer.




(k)Independent
Investigation.  Buyer has conducted an independent
investigation of the Company and its business operations, assets, liabilities,
results of operations, condition (including, operating, environmental and
financial condition) and prospects in making its determination as to the
propriety of the transactions contemplated by this Agreement and is satisfied
with the results thereof.  In entering into this Agreement, Buyer has
relied solely on the results of its investigation and on the representations and
warranties of the Company expressly contained in Section
3.1.




(l)Investment.  Buyer
is acquiring the shares of Company Stock hereunder for its own account for
investment and without the intent of distributing, granting a participation in,
or reselling such Company Stock or any part thereof in any transaction or series
of transactions that would constitute a “distribution”
within the meaning of the Securities Act.  Buyer understands that the
shares of Company Stock have not been registered under the Securities Act or any
state securities laws, and thus the Shares are “restricted
securities” under applicable United States federal and state securities
laws and Buyer must hold such shares indefinitely unless they are properly
registered and qualified, or an exemption therefrom is
available.




3.3Limitation
on Warranties.  EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, THE COMPANY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY
REPRESENTATION, WARRANTY, COVENANT, AGREEMENT, OR STATEMENT MADE OR INFORMATION
COMMUNICATED (ORALLY OR IN WRITING) TO BUYER (INCLUDING ANY OPINION,
INFORMATION, OR ADVICE WHICH MAY HAVE BEEN PROVIDED TO BUYER OR ANY OF ITS
AFFILIATES BY ANY TRUSTEE, DIRECTOR, OFFICER, EMPLOYEE, ACCOUNTING FIRM, LEGAL
COUNSEL, OR OTHER AGENT, CONSULTANT, OR REPRESENTATIVE OF THE
COMPANY).  ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.  ANY AND ALL PRIOR
REPRESENTATIONS AND WARRANTIES MADE BY ANY PARTY OR ITS REPRESENTATIVES, WHETHER
VERBALLY OR IN WRITING, ARE DEEMED TO HAVE BEEN MERGED INTO THIS AGREEMENT, IT
BEING INTENDED THAT NO SUCH PRIOR REPRESENTATIONS OR WARRANTIES SHALL SURVIVE
THE EXECUTION AND DELIVERY OF THIS AGREEMENT.




ARTICLE
4








COVENANTS
OF THE PARTIES




4.1Conduct
of the Company.  From the date hereof until the Effective Time,
the Company shall, and shall cause any of its Subsidiaries to, conduct its
business in the ordinary course consistent with past practice and use its
reasonable best efforts to (i) preserve intact its present business
organization, (ii) maintain in effect all of its foreign, federal, state and
local licenses, permits, consents, franchises, approvals and authorizations,
(iii) keep available the services of its directors, officers and key Employees,
(iv) maintain satisfactory relationships with its distributors, lenders,
suppliers, consultants, customers and others having material business
relationships with it, (v) manage its working capital (including the timing of
collection of accounts receivable and of the payment of accounts payable and the
management of inventory) in the ordinary course of business consistent with past
practice, and (vi) continue to make capital expenditures consistent with the
Capex Budget.  Without limiting the generality of the foregoing and
except as expressly contemplated by this Agreement, from the date hereof until
the Effective Time, without the prior written consent of Buyer (which shall be
granted in Buyer’s reasonable discretion), the Company shall not, and shall
cause any of its Subsidiaries not to:




(a)adopt any
change to its articles of incorporation or bylaws;




(b)(i)
issue, deliver or sell, or authorize the issuance, delivery or sale of, any
securities, except in connection with the exercise of any Stock Option granted
prior to the date hereof, or (ii) amend any term of any security (in each case,
whether by merger, consolidation or otherwise);




(c)split,
combine or reclassify any shares of capital stock or other securities of the
Company or any of its Subsidiaries or declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of the capital stock or other securities of the Company or
any of its Subsidiaries, or redeem, repurchase or otherwise acquire or offer to
redeem, repurchase, or otherwise acquire any securities of the Company or any of
its Subsidiaries;




24


(d)create,
incur or assume any Indebtedness;




(e)create or
incur any Lien on any material asset, other than a Permitted
Lien;




(f)incur any
capital expenditures or any obligations or liabilities in respect thereof,
except for those contemplated by the Capex Budget;




(g)acquire
(including, without limitation, by merger, consolidation, or acquisition of
stock or assets), directly or indirectly, any assets, securities, properties,
interests or businesses, other than supplies in the ordinary course of business
of the Company in a manner that is consistent with past
practice;




(h)sell,
lease, license or otherwise transfer of any assets, securities or property, in
each case, except (i) pursuant to contracts or commitments existing as of the
date of this Agreement which have been disclosed to Buyer in accordance with the
terms of this Agreement and (ii) sales of products in the ordinary course of
business consistent with past practice;




(i)make any
loan, advance or capital contribution to or investment in any Person, except in
the ordinary course of business consistent with past
practice;




(j)pay or
delay payment of accounts payable, or collected or delayed collection of
accounts receivable, in each case other than in the ordinary course of business
consistent with past practices;




(k)change
the Company’s methods of accounting, except as required by concurrent changes in
GAAP, as agreed to by its independent public accountants;




(l)(i) enter
into any agreement or arrangement that limits or otherwise restricts in any
material respect the Company or any of its Affiliates or any successor thereto
or that could, after the Closing Date, limit or restrict in any material respect
the Company, Buyer or any of their respective Affiliates, from engaging or
competing in any line of business, in any location or with any Person or (ii)
enter into, amend or modify in any material respect or terminate any Contract or
otherwise waive, release or assign any material rights, claims or benefits of
the Company or any of its Subsidiaries;




(m)(i) grant
or increase any severance or termination pay to (or amend any existing
arrangement with) any director, officer or employee of the Company or any of its
Subsidiaries, (ii) increase benefits payable under any existing severance or
termination pay policies or employment agreements, (iii) enter into any
employment, deferred compensation, severance, retention, change in control, tax
gross-up, special bonus, stay bonus or other similar agreement (or amend any
such existing agreement) with any director, officer or employee of the Company
or any of its Subsidiaries, (iv) establish, adopt or amend (except as required
by applicable Law or Governmental Authority) any collective bargaining, bonus,
profit-sharing, thrift, pension, retirement, deferred compensation,
compensation, stock option, restricted stock or other benefit plan or
arrangement covering any director, officer or employee of the Company or any of
its Subsidiaries, (v) increase compensation, bonus or other benefits payable to
any director, officer or employee of the Company or any of its Subsidiaries,
(vi) accelerate and/or cash-out any outstanding Stock Option, or (vii) engage in
hiring or termination practices that are not in the ordinary course of business
consistent with past practices;




(n)settle,
or offer or propose to settle, (i) any litigation, investigation, arbitration,
proceeding or other claim involving or against the Company or any of its
Subsidiaries, or (ii) any litigation, arbitration, proceeding or dispute that
relates to the transactions contemplated hereby;




(o)make or
change any Tax election, change any annual Tax accounting period, adopt or
change any method of Tax accounting, file any amended Return, enter into any
closing agreement, settle any Tax claim or assessment, surrender any right to
claim a Tax refund, offset or other reduction in Tax liability, consent to any
extension or waiver of the limitations period applicable to any Tax claim or
assessment or take or omit to take any other action, if any such action or
omission would have the effect of increasing the Tax liability or reducing any
Tax Asset of the Company or any of its Subsidiaries, Buyer or any Affiliate of
Buyer;




(p)shorten
or lengthen the customary payment terms or other terms of any contracts with
customers or suppliers;




(q)enter
into any transaction or commitment with any Affiliate, other than the payment of
employee compensation or expense reimbursements in the ordinary course of
business consistent with past practices;






25


(r)transfer
or license to any Person or entity or otherwise extend, amend or modify in any
material respect any Intellectual Property Rights of the
Company;




(s)merge or
consolidate with any other Person;




(t)enter
into any lease, contract or agreement with regard to real property other than
(i) renewals of existing leases on a month-to-month basis on terms similar to
such existing leases and (ii) new month-to-month leases for sales offices
entered into in the ordinary course consistent with past
practices;




(u)permit
any insurance policy naming it as a beneficiary or a loss payee to be cancelled
or terminated unless such insurance policy is replaced with a substantially
equivalent policy;




(v)take any
action that would make any representation and warranty of the Company hereunder
inaccurate in any material respect at, or as of any time prior to, the Effective
Time or knowingly fail to take any action necessary to prevent any such
representation or warranty from being inaccurate in any material respect at any
such time; or




(w)enter
into or amend any contract, agreement, commitment or arrangement that, if fully
performed, would not be permitted under this Section 4.1, or otherwise agree or
commit to do any of the things described in the preceding clauses (a) through
(v).




4.2Shareholder
Approvals.  As promptly as practicable, and in any event within
ten (10) calendar days, after the date hereof, the Company shall obtain the
Shareholder Approval pursuant to obtaining the Written Consent signed by each of
the shareholders of the Company, providedthat if all such Written Consents shall not have been obtained within
five (5) calendar days after the date hereof, a meeting of the shareholders of
the Company shall be duly called and held as soon as practicable for such
purpose, or, in either case, pursuant to and in strict accordance with the
applicable provisions of Arizona Law and the articles of incorporation and
bylaws of the Company.  Concurrently with the execution and delivery
of this Agreement by Merger Sub, Merger Sub shall obtain shareholder approval in
respect of the Merger pursuant to a written consent of its shareholder signed by
the Merger Sub’s shareholder, pursuant to and in strict accordance with the
applicable provisions of Arizona Law and the articles of incorporation and
bylaws of Merger Sub.




4.3Access
to Information.  Subject to any applicable confidentiality
agreements with third parties, the Company will, and will cause any of its
Subsidiaries to, (i) give to Buyer’s officers, employees, agents, attorneys,
consultants, accountants and lenders reasonable access during normal business
hours to all of the properties, books, contracts, documents, insurance policies,
records and personnel of or with respect to the Company or any of its
Subsidiaries, (ii) furnish to Buyer and such Persons as Buyer shall
designate to the Company such financial and operating data and other information
as Buyer or such Persons may at any time and from time to time reasonably
request, and (iii) instruct the Employees, counsel and financial advisors of the
Company to cooperate with Buyer in its investigation of the Company or any of
its Subsidiaries.  No investigation by Buyer or other information
received by Buyer shall operate as a waiver or otherwise affect any
representation, warranty or agreement given or made by the Company
hereunder.




4.4Commercially
Reasonable Efforts.  Subject to the terms and conditions of
this Agreement, each of the parties hereto shall use all commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable Law to
consummate the transactions contemplated hereby as soon as practicable,
including all commercially reasonable efforts in connection with (i) preparing
and filing as promptly as practicable with any Governmental Authority or other
third party all documentation to effect all necessary filings, notices,
petitions, statements, registrations, submissions of information, applications
and other documents, (ii) obtaining and maintaining all approvals, consents,
registrations, permits, authorizations and other confirmations required to be
obtained from any Governmental Authority or other third party that are
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, and (iii) encourage the Retained Employees to agree to be
employed by Buyer after the Closing.






26


4.5Notices
of Certain Events.  From the date hereof until the Effective
Time, upon the Knowledge of the Company, the knowledge of Buyer or the knowledge
of Merger Sub, as the case may be, each such party shall promptly give the other
parties written notice of the existence or occurrence of (i) any notice or other
communication from any Person alleging that the consent of such Person is or may
be required in connection with the transactions contemplated by this Agreement,
or that any compensation or other benefit is due to be paid to such Person on
the basis of any of the transactions contemplated by this Agreement, other than
payments expressly provided for herein, (ii) any notice or other communication
from any Governmental Authority in connection with the transactions contemplated
by this Agreement, (iii) any actions, suits, claims, investigations or
proceedings commenced or, to its respective Knowledge or knowledge threatened
against, relating to or involving or otherwise affecting the Company that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to clauses (l), (q), (s), (u), (v), (x) or (dd) of Section
3.1 or Section
3.2(g) or that relate to the consummation of the transactions
contemplated by this Agreement, (iv) any inaccuracy of any representation or
warranty contained in this Agreement and that would reasonably be expected to
cause the conditions set forth in Sections
5.1, 5.2,
and/or 5.3,
as the case may be, not to be satisfied, (v) any failure of any party to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder any condition, or (vi) any condition which might
reasonably be expected to prevent the timely consummation of the transactions
contemplated hereby.




4.6280G
Matters.  The Company shall use commercially reasonable efforts
to promptly submit to the shareholders of the Company for approval (in a manner
reasonably satisfactory to Buyer), by such number of shareholders of the Company
as is required by the terms of Section 280G(b)(5)(B) of the Code, any payments
and/or benefits that may separately or in the aggregate, constitute “parachute
payments” pursuant to Section 280G of the Code (“Section
280G Payments”) (if any) (which determination shall be made by the
Company and shall be subject to review and approval by Buyer), such that such
payments and benefits shall not be deemed to be Section 280G Payments, and prior
to the Effective Time the Company shall deliver to Buyer evidence reasonably
satisfactory to Buyer that (A) a vote of the shareholders of the Company was
solicited in conformance with Section 280G and the regulations promulgated
thereunder and the requisite shareholder approval was obtained with respect to
any payments and/or benefits that were subject to the shareholder vote (the
“280G
Shareholder Approval”), or (B) that the 280G Shareholder Approval was not
obtained and as a consequence, that such payments and/or benefits shall not be
made or provided to the extent they would cause any amounts to constitute
Section 280G Payments, pursuant to the waivers of those payments and/or
benefits, which were executed by the affected individuals prior to the
Shareholder vote.




4.7Option
Agreements.  Prior to the Closing, the Company shall use all
commercially reasonable efforts to obtain Option Cancellation Agreements from
the holders of Vested Options and Option Acceleration and Cancellation
Agreements from the holders of Accelerated Options.




4.8Payout
Letters; Release of Liens.




(a)Immediately
after the Effective Time, Buyer shall pay the portion of the Debt Repayment
Amount owed to Silicon Valley Bank in exchange for a pay out letter executed by
Silicon Valley Bank in form satisfactory to Buyer (the “Payout
Letter”) and termination of all liens on the assets of the Company,
including the appropriate UCC filing (the “Lien
Terminations”).




(b)Prior to
the Closing, the Company shall use all commercially reasonable efforts to obtain
the Payout Letters and the Lien Terminations at the Effective
Time.




4.9Formation
of Merger Sub.  As soon as practicable after the declaration of
the incorporation of Merger Sub by the Arizona Corporation Commission, Buyer
shall cause Merger Sub to execute a joinder to this Agreement in form
satisfactory to the Company.




4.10Small
Business Certifications.  As soon as practicable after the date
hereof and prior to the Closing, the Company shall provided Buyer with a list of
all certifications it has made with the U.S. Government with respect to any of
the arrangements described in Section 3.1(dd)(vi).








ARTICLE
5








CONDITIONS
TO CLOSING




5.1Conditions
to the Company’s Obligations.  The obligation of the Company to
consummate the Merger is subject to the fulfillment of all of the following
conditions as of the Closing:




27


(a)The
representations and warranties of Buyer and Merger Sub in Section 3.2
(as modified by the Buyer and Merger Sub Disclosure Schedule) and any
certificate or other writing delivered by Buyer or Merger Sub pursuant hereto
(i) that are qualified by materiality or Material Adverse Effect shall be true
and correct at and as of the Closing as if made at and as of such time (other
than such representations and warranties that are made as of a specified date,
which representations and warranties shall be true and correct as of such date)
and (ii) that are not qualified by materiality or Material Adverse Effect shall
be true and correct in all material respects at and as of the Closing as if made
at and as of such time (other than such representations and warranties that are
made as of a specified date, which representations and warranties shall be true
and correct in all material respects as of such date).




(b)All
obligations of Buyer and Merger Sub to be performed hereunder through, and
including as part of, the Closing shall have been performed and complied with in
all material respects.




(c)The
Company shall have received all Closing deliverables of Buyer pursuant to
Article 6.




5.2Conditions
to Buyer’s and Merger Sub’s Obligations.  The obligation of
Buyer and Merger Sub to close the transactions contemplated hereby is subject to
the fulfillment of all of the following conditions as of the
Closing:




(a)The
representations and warranties of the Company in Section
3.1 (other than under clauses (i) and (gg) of Section
3.1) (as modified by the Company Disclosure Schedule) and any certificate
or other writing delivered by the Company pursuant hereto (i) that are qualified
by materiality or Material Adverse Effect shall be true and correct at and as of
the Closing as if made at and as of such time (other than such representations
and warranties that are made as of a specified date, which representations and
warranties shall be true and correct as of such date) and (ii) that are not
qualified by materiality or Material Adverse Effect shall be true and correct in
all material respects at and as of the Closing as if made at and as of such time
(other than such representations and warranties that are made as of a specified
date, which representations and warranties shall be true and correct in all
material respects as of such date), (ii) the representations and warranties set
forth in clauses (i) and (gg) of Section
3.1 (as modified by the Company Disclosure Schedule) shall be true and
correct in all respects at and as of the Closing, as if made at and as of such
time (other than such representations and warranties that are made as of a
specified date, which representations and warranties shall be true and correct
as of such date).




(b)All
obligations of the Company to be performed hereunder through, and including as
part of, the Closing shall have been performed and complied with in all material
respects.




(c)The
Company shall have obtained all of the consents, authorizations, approvals,
waivers and exemptions contemplated under Section
3.1(b), and no such consent, authorization, approval, waiver or exemption
shall have been revoked.  Buyer shall have obtained all of the
consents, authorizations, approvals, waivers and exemptions contemplated under
Section
3.2(b), and no such consent, authorization, approval, waiver or exemption
shall have been revoked




(d)There
shall not have occurred and be continuing as of, or otherwise arisen before, the
Closing any event, occurrence, revelation or development of a state of
circumstances or facts which, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect.




(e)The
holders of no greater than five percent (5%) of the outstanding shares of
Company Stock shall have perfected appraisal, dissenters’ or similar rights
under applicable Law with respect to any of the transactions contemplated by
this Agreement.




(f)The Key
Employee shall be employed by the Company and the Key Employment Agreements
shall have been executed and shall be in full force and
effect.




(g)At least
90% of the Retained Employees shall have accepted offers of employment from
Buyer, and such acceptances shall be in full force and
effect.




(h)The Buyer
shall have received all Closing deliverables of the Company pursuant to Article
6.




5.3Condition
to Each Party’s Obligations.  The respective obligations of the
Company, Buyer and Merger Sub to consummate the Merger is subject to the
fulfillment of the following conditions as of the Closing:




(a)The
Shareholder Approval shall have been obtained and shall be in full force and
effect in accordance with Arizona Law.






28


(b)No
lawsuit, proceeding or investigation shall have been commenced by any Person on
any grounds to restrain, enjoin or hinder the consummation of the transactions
contemplated hereby, and no Law shall have been enacted or issued which
prohibits the consummation of the transactions contemplated
hereby.




(c)The
Escrow Agent shall have executed the Indemnification Escrow Agreement, and such
agreement shall be in full force and effect.




ARTICLE
6








CLOSING




6.1Form
of Documents.  At the Closing, the parties shall deliver the
documents, and shall perform the acts, set forth in this Article
6.  All documents which the Company shall deliver shall be in
form and substance reasonably satisfactory to Buyer and Buyer’s
counsel.  All documents which Buyer and Merger Sub shall deliver shall
be in form and substance reasonably satisfactory to the Company and its
counsel.




6.2Buyer’s
and Merger Sub’s Deliveries.  Subject to the fulfillment or
waiver of the conditions set forth in Section
5.2, Buyer and/or Merger Sub shall deliver to the Equity Holders’
Representative all of the following:




(a)A
certificate of good standing of Merger Sub issued not earlier than ten (10) days
prior to the Closing Date by the Arizona Corporation
Commission;




(b)A
certificate of each of Buyer’s and Merger Sub’s secretary certifying as true and
correct the following: (i) the incumbency and specimen signature of each officer
of Buyer and Merger Sub executing this Agreement and any Buyer Document; (ii) a
copy of each of Buyer’s and Merger Sub’s articles of incorporation and bylaws;
and (iii) a copy of the resolutions of Buyer’s Board of Directors (or any
committee thereof) and Merger Sub’s Board of Directors and shareholders
authorizing the execution, delivery and performance of this Agreement and the
Buyer Documents and the transactions contemplated hereby and
thereby;




(c)A closing
certificate executed by an authorized officer of Buyer and Merger Sub on behalf
of Buyer and Merger Sub, pursuant to which Buyer and Merger Sub certifies to the
Company that: (i) the conditions set forth in Sections
5.1 and 5.3
shall have been satisfied (or, if any such condition shall not have been
satisfied, specifying the circumstances of such failure to be satisfied and
Buyer’s waiver of such condition); and (ii) all documents to be executed and
delivered by Buyer and Merger Sub at the Closing have been executed by duly
authorized officers of Buyer and Merger Sub;




(d)An
original counterpart of the Indemnification Escrow Agreement executed by a duly
authorized officer of Buyer;




(e)Original
counterparts to that certain form of Assignment of Inventions Agreement (the
“Assignment
of Inventions Agreement”) with each of the Retained Employees executed by
a duly authorized officer of Buyer;




(f)Original
counterparts of each other Buyer Document to be delivered at Closing executed by
a duly authorized officer of Buyer and/or Merger Sub; and




(g)Without
limiting the foregoing, all other documents reasonably requested from Buyer by
the Company to consummate the transactions contemplated
hereby.




6.3Company
Deliveries.  Subject to the fulfillment or waiver of the
conditions set forth in Section
5.1, the Company shall deliver to Buyer all of the
following:




(a)The
minute books and stock records of the Company and any of its
Subsidiaries;




(b)A
certified copy of the Company’s articles of incorporation issued by the Arizona
Corporation Commission;




(c)A
certificate of good standing of the Company issued not earlier than ten (10)
days prior to the Closing Date by the Arizona Corporation
Commission;




29


(d)A
certificate of the secretary of the Company certifying as true and correct a
copy of the Company’s bylaws;




(e)A
certificate of the secretary of the Company certifying as true and correct the
following:  (i) the incumbency and specimen signature of each officer
of the Company executing this Agreement or any Company Document; (ii) a copy of
the resolutions of the Company’s Board of Directors authorizing the execution,
delivery and performance of this Agreement and the Company Documents and the
transactions contemplated hereby and thereby; (iii) the receipt of the
Shareholder Approval as of the Closing, all in form and substance reasonably
satisfactory to Buyer;




(f)A closing
certificate duly executed by the chief executive officer and the chief financial
officer of the Company, pursuant to which the Company certifies to Buyer that:
(i) the conditions set forth in Sections
5.2 and 5.3
shall have been satisfied (or, if any such condition shall not have been
satisfied, specifying the circumstances of such failure to be satisfied and the
Company’s express waiver of such condition); and (ii) all documents to be
executed and delivered by the Company at the Closing have been duly authorized
and executed;




(g)An
opinion of legal counsel to the Company.




(h)Evidence
reasonably satisfactory to Buyer that the Company has obtained all of the
consents, authorizations, approvals, waivers and exemptions contemplated
under  Section
3.1(b);




(i)An
original counterpart of the Indemnification Escrow Agreement duly executed by
the Equity Holders’ Representative;




(j)Original
counterparts to the Payout Letter and the Lien Terminations;




(k)Original
counterparts to the Option Cancellation Agreement executed by the Company and
each holder of Vested Options and original counterparts to the Option
Acceleration and Cancellation Agreement executed by the Company and each holder
of Accelerated Options;




(l)Original
counterparts to the Assignment of Inventions Agreement executed by each of the
Retained Employees;




(m)Original
counterparts of each other Company Document to be delivered at Closing duly
executed by the Company;




(n)Written
resignation from each of the officers and directors of the Company or any of its
Subsidiaries effective as of the Closing Date;




(o)A
certification dated not more than thirty (30) days prior to the Effective Time
and signed by the Company to the effect that the Company is not, nor has it been
within five years of the date of the certification, a “United States real
property holding corporation” as defined in Section 897 of the Code;
and




(p)Without
limiting the foregoing, all other documents reasonably requested from the
Company by Buyer to consummate the transactions contemplated
hereby.




ARTICLE
7








POST-CLOSING
AGREEMENTS




7.1Post
Closing Agreements.  From and after the Effective Time, the
parties shall have the respective rights and obligations which are set forth in
the remainder of this Article 7.




7.2Employees.




(a)Prior to
the Closing Date, the Company shall afford Buyer reasonable access to the
Employees to allow Buyer to interview such Employees.  Prior to the
Closing Date, Buyer shall make offers of employment to each of the Employees,
except those listed on Annex
V (the “Retained
Employees”).




30


(b)As of the
Closing, Buyer shall cause the Retained Employees to be covered by compensation
and benefit plans that provide compensation and benefits that are at least
comparable, in the aggregate, to the compensation and benefits provided to the
Retained Employees as of the date immediately preceding the Closing and
disclosed to Buyer in writing prior to the date hereof; provided
that on and after the Closing each Retained Employee shall be entitled to the
same vacation benefits as provided to such Employee as of the date immediately
preceding the Closing and disclosed to Buyer in writing prior to the date
hereof.  Buyer’s obligations pursuant to this Section
7.2(b) shall continue for a period of not less than one (1) year
following the Closing, except that Buyer’s obligations with respect to vacation
benefits for any Retained Employee shall continue so long as such Retained
Employee is employed by Buyer.  Nothing herein shall change the
at-will nature of employment of the Retained Employees after the Effective Time
or create any third-party beneficiary rights.




(c)With
respect to service and seniority, Buyer will recognize the service and seniority
of each of the Retained Employees as recognized by the Company for purposes of
the determination of eligibility, vesting (other than under equity plans), and
the extent of service or seniority-related welfare benefits such as vacation and
sick pay benefits.  Buyer will waive all waiting periods for
participation in Buyer’s benefit plans.




(d)With
respect to any group health plan or program of Buyer or Buyer’s Affiliates in
which any Retained Employee becomes eligible to participate, Buyer shall use
commercially reasonable efforts to ensure that such  Retained
Employees shall (i) receive credit for any deductibles, co-pays or other
out-of-pocket expenses paid under the corresponding group health plan or program
of the Company, and (ii) not be subject to any waiting periods or pre-existing
condition limitations to the extent that such pre-existing condition limitation
did not apply to such Retained Employee under the corresponding group health
plan or program of the Company or its  Affiliates.  Retained
Employees shall be permitted to rollover any account balances they may have
under the Company’s 401(k) plan sponsored by Buyer or Buyer’s
Affiliates.




7.3Third
Party Claims.  The parties shall cooperate with each other with
respect to the defense of any Third Party Claims subsequent to the Closing which
are not subject to the indemnification provisions contained in Article
8; provided
that the party requesting cooperation shall reimburse the other party for the
other party’s reasonable out-of-pocket costs and expenses of furnishing such
cooperation.




7.4Further
Assurances.  At and after the Effective Time, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of the Company or either Merger Sub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or either Merger Sub, any other actions and things
to vest, perfect or confirm of record or otherwise in the Surviving Corporation
any and all right, title and interest in, to and under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the
Merger.




ARTICLE
8








INDEMNIFICATION




8.1Indemnification
Obligations of the Equity Holders.  Subject to the provisions
of this Article
8 and except as otherwise provided herein, each Equity Holder shall
severally, but not jointly, in accordance with such Equity Holder’s Percentage
Ownership, indemnify, save and keep each Buyer Indemnitee harmless from and
against all Damages sustained or incurred by any Buyer Indemnitee, as a result
of, or arising out of, only the following:




(a)any
inaccuracy in or breach of any representation and warranty made by the Company
in Section
3.1 (exclusive of a breach under Sections
3.1(l) and 3.1(x)(iii))
(as modified by the Company Disclosure Schedule) (without giving effect to any
qualification or exception relating to materiality or Material Adverse Effect or
any similar qualification or standard contained therein in determining the
amount of any Damages) or in any certificate or other writing delivered pursuant
hereto or in connection herewith (each, a “Company
Warranty Breach”);




(b)any
breach by the Company of, or failure by the Company to comply with, any of the
covenants or obligations under this Agreement to be performed by the
Company;




(c)any (i)
Tax of the Company related to a Pre-Closing Tax Period, (ii) Tax of the Company
resulting from a breach of the provisions of Section
3.1(l), (iii) Tax resulting from the application of Section 280G of the
Code to any payment made pursuant to this Agreement or to any payment made as a
result of, or in connection with, any transaction contemplated by this
Agreement, (iv) any transfer and other similar Taxes incurred in connection with
the transactions contemplated hereby, and (v) liabilities, costs, expenses
(including, without limitation, reasonable expenses of investigation and
attorneys’ fees and expenses), losses, damages, assessments, settlements or
judgments arising out of or incident to the imposition, assessment or assertion
of any Tax described in (i), (ii), (iii) or (iv), (the sum of (i)-(v) being
referred to herein as a “Tax
Loss”);




31


(d)the
amount or portion of any Pre-Closing Dissenting Share Payments, the Payroll Tax
Amount or the Transaction Expenses Amount not deducted from the Closing
Consideration or the Holdback Amount pursuant to Section
2.8, and any Post-Closing Dissenting Share Payments;
or




(e)any
inaccuracy in or breach of any representation and warranty made by the Company
in Section
3.1(x)(iii) (without giving effect to (i) any qualification or exception
relating to Knowledge of the Company or made pursuant to any disclosure set
forth on the Company Disclosure Schedule, or (ii) any materiality or Material
Adverse Effect or any similar qualification or standard or any exceptions);
provided
that the Buyer Indemnitees shall only be entitled to indemnification pursuant to
this Section
8.1(e) in connection with any pending or overtly threatened litigation by
the Person set forth in Section
8.1(e) of the Company Disclosure Schedule or any of its Affiliates in the
event that infringement of specific patents by the Company or any of its
Subsidiaries is alleged or asserted by any such Person; provided
further that the Equity Holders’ shall not be required to indemnify the
Buyer Indemnitees with respect to such claims by any such Persons to the extent
of any Damages that are attributable to sales of the Surviving Corporation’s
products after the Closing Date.




8.2Indemnification
Obligations of Buyer.  Subject to the provisions of this Article
8 and except as otherwise provided herein, Buyer shall indemnify, save
and keep each Equity Indemnitee harmless against and from all Damages sustained
or incurred by any Equity Indemnitee, as a result of, or arising out of, the
following:




(a)any
inaccuracy in or breach of any representation and warranty made by Buyer or
Merger Sub in Section
3.2 (as modified by the Buyer and Merger Sub Disclosure Schedule)
(without giving effect to any qualification or exception relating to materiality
or Material Adverse Effect or any similar qualification or standard contained
therein in determining the amount of any Damages) or in any certificate or other
writing delivered pursuant hereto or in connection herewith (each, a “Buyer
Warranty Breach”); or




(b)any
breach by Buyer or Merger Sub of, or failure by Buyer or Merger Sub to comply
with, any of the covenants or obligations under this Agreement to be performed
by Buyer or Merger Sub.




8.3Duration
of Certain Indemnification Obligations.




(a)Claims
for indemnification under Section
8.1 may be asserted within the following time
periods:




(i)claims
(A) arising out of or in connection with any Company Warranty Breach (exclusive
of any claims under Sections
3.1(d)(Authorization), 3.1(i)(Capitalization), 3.1(b)(b)(Brokers)
or 3.1(gg)(Indebtedness)
or, for the avoidance of any doubt, any claims described in Section
8.3(a)(ii) to the extent any such claim may arise out of or in connection
with any Company Warranty Breach), or (B) made pursuant to Section
8.1(e), may be asserted until the date that is fifteen (15) months after
the Closing Date (the “Survival
Period”);




(ii)claims
arising out of or in connection with any inaccuracy in or breach of any
representation and warranty made by the Company under Section
3.1(l) or any other Tax Loss may be asserted until the close of business
on the 45th day after the expiration of the applicable statute of limitations
with respect to such matter, including any waiver, mitigation or extension
thereof (or if such date is not a Business Day, the next Business Day);
and




(iii)all other
claims may be asserted until the expiration of the applicable statute of
limitations.




(b)Claims
for indemnification under Section
8.2 may only be asserted within the following time
periods:




(i)claims
arising out of in connection with any Buyer Warranty Breach may be asserted
until the expiration of the Survival Period; and




(ii)all other
claims may be asserted until the expiration of the applicable statute of
limitations.




(c)Notwithstanding
the foregoing Sections
8.3(a) and (b),
any breach of representation, warranty, covenant or agreement in respect of
which indemnity may be sought under this Agreement shall survive the time at
which it would otherwise terminate pursuant to the preceding sentences, if
notice of the inaccuracy or breach thereof giving rise to such right of
indemnity shall have been given to the party against whom such indemnity may be
sought prior to such time in accordance with the terms of this Article
8.




8.4Amount
Limitations.




(a)Notwithstanding
any other provision hereof, the obligations of each Equity Holder pursuant to
Section
8.1 are subject to the following limitations:




32


(i)with
respect to indemnification by the Equity Holders for any Company Warranty Breach
(exclusive of indemnification with respect to Sections
3.1(d)(Authorization), 3.1(i)(Capitalization), 3.1(bb)(Brokers) or
3.1(gg)(Indebtedness), or, for the avoidance of any doubt, any claims
described in Section
8.1(c) to the extent any such claim may arise out of or in connection
with any Company Warranty Breach, or in cases of fraud or willful
misrepresentation (the “Specified
Exceptions”)), the Buyer Indemnitees shall not be entitled to recover
Damages unless and until the total amount of Damages asserted against the Equity
Holders exceeds the Indemnification Basket; provided
that if the total amount of such Damages exceeds such amount, then any
Indemnified Party that has suffered or incurred any Damages shall be indemnified
and held harmless for all such Damages, and not only those Damages that exceed
such amount;




(ii)with
respect to indemnification by the Equity Holders for any Company Warranty Breach
(exclusive of the Specified Exceptions) or pursuant to Section
8.1(e), the Buyer Indemnitees sole source of recourse shall be the
Escrowed Remainder;provided that the aggregate amount of Damages recoverable by the Buyer
Indemnitees pursuant to Section
8.1(a) shall not exceed 50% of the Indemnification Escrow Amount (plus
all income earned thereon in the Indemnification Escrow
Account);




(iii)with
respect to indemnification by the Equity Holderspursuant
to Section
8.1(e), the Buyer Indemnitees sole source of recourse shall be the
Escrowed Remainder;provided that the aggregate amount of Damages recoverable by the Buyer
Indemnitees pursuant to Section
8.1(e) shall not exceed 50% of the Indemnification Escrow Amount (plus
all income earned thereon in the Indemnification Escrow Account);
and




(iv)the
liability of each Equity Holder for Damages with respect to any indemnification
claim of Buyer Indemnitees under Section
8.1 shall not exceed such Equity Holder’s Individual
Portion.




(b)Notwithstanding
any other provision hereof, the obligations of Buyer pursuant to Section
8.2 are subject to the following limitations:




(i)with
respect to indemnification by Buyer for any Buyer Warranty Breach, the Equity
Indemnitees shall not be entitled to recover Damages unless and until the total
amount of Damages asserted against Buyer exceeds the Indemnification Basket;
provided
that if the total amount of such Damages exceeds such amount, then any
Indemnified Party that has suffered or incurred any Damages shall be indemnified
and held harmless for all such Damages, and not only those Damages that exceed
such amount; and




(ii)the
aggregate amount of Damages recoverable by the Equity Indemnitees pursuant to
Section
8.2 shall not exceed an amount equal to $15,000,000.




8.5Further
Limitations on the Indemnification Obligations of the Equity
Holders.




(a)Buyer
Indemnitees shall not be entitled to recover Damages under Section 8.1
unless and until a claim has been asserted by written notice (a “Claim
Notice”), specifying the details of the alleged misrepresentation or
breach of representation, warranty, covenant or obligation or other basis for
indemnification with reasonable particularity, the Sections of this Agreement
alleged to have been breached, a good faith estimate of the Damages claimed, and
all the relevant facts, delivered to the Equity Holders’ Representative on or
prior to the expiration of the Survival Period.




(b)Buyer
Indemnitees shall not be entitled to recover under Section
8.1:




(i)for
consequential Damages of any kind, including Damages consisting of business
interruption or lost profits (regardless of the characterization thereof), or
Damages for diminution of value of the Company; provided
that, for the avoidance of doubt, Buyer Indemnitees shall be entitled to recover
exemplary or punitive Damages arising pursuant to any Third Party
Claim;




(ii)with
respect to the failure to obtain any consent, or to satisfy any conditions
imposed incident to the giving of any consent listed in the Company Disclosure
Schedule and required in connection with, or as a consequence of, the
transactions contemplated by this Agreement; or




(iii)to the
extent the matter in question, taken together with all similar matters, does not
exceed the amount of any specific reserves with respect to such matters which
are reflected in the Financial Statements.




(c)The
amount of any recovery by Buyer Indemnitees pursuant to Section
8.1 shall be net of any foreign, federal, state and/or local income tax
benefits actually realized by Buyer Indemnitees as a result of the state of
facts which entitled Buyer Indemnitees to recover from the Equity Holders
pursuant to Section
8.1.




(d)The
amount of any recovery by Buyer Indemnitees pursuant to Section
8.1 shall be net of any amounts actually recovered under any insurance
policy or under any indemnification or other reimbursement obligation of a third
party.






33


(e)Buyer
Indemnitees shall have the duty to take all reasonably necessary steps to
mitigate any Damages that are, or may be, sustained or incurred by any Buyer
Indemnitee, including recovering all Damages from insurers so as to reduce the
amount of any Damages hereunder.




(f)Any
Damages otherwise recoverable by Buyer Indemnitees under Section 8.1
shall be first satisfied from funds held in the Indemnification Escrow Account
in accordance with the terms of the Indemnification Escrow
Agreement.  As more fully set forth in the Indemnification Escrow
Agreement, the Indemnification Escrow Account shall be in existence as of the
Closing and shall terminate upon the later of the expiration of the Survival
Period and the determination of all matters made in any Claim Notices, such that
all funds remaining therein shall be distributed to the Equity Holders’
Representative and shall no longer be available to Buyer Indemnitees, all in
accordance with the terms of the Indemnification Escrow
Agreement.




(g)The
Equity Holders shall not have any right of contribution from the Surviving
Corporation or Buyer with respect to any Damages claimed by a Buyer
Indemnitee.




8.6Right
of Set-Off.  If (a) the Escrowed Remainder has been exhausted,
or the escrow pursuant to the Indemnification Escrow Agreement has terminated in
accordance with its terms; and (b) any Buyer Indemnitee has made a claim or
claims for Damages in accordance with the terms of this Article 8 for an amount
or amounts in aggregate in excess of the balance of the Escrowed Remainder
available at such time (“Excess
Damages”), Buyer shall have the right to set-off against the Earnout
Consideration (such amounts, the “Earnout
Set-Off Amounts”) for any amount of Excess Damages determined to be due
and owing to such Buyer Indemnitee in the proportion of the Percentage Ownership
of each Equity Holder; provided,
however,
that, for the avoidance of doubt, Buyer shall not have the right to set-off
against the Earnout Consideration under this Section 8.6 with respect to
indemnification by the Equity Holders for any Company Warranty Breach (exclusive
of any Specified Exception) or pursuant to Section 8.1(e), it being understood
and agreed to by the parties that the Buyer Indemnitees’ sole source recourse
with respect to such indemnification claims shall be the Escrowed Remainder;
provided,further,that
the liability of each Equity Holder for Damages with respect to any
indemnification claim of Buyer Indemnitees under this Section 8.6 shall not
exceed such Equity Holder’s Individual Portion.  In order to be
eligible to set-off against the Earnout Consideration pursuant to this Section
8.6, Buyer must first notify the Equity Holders’ Representative in writing, the
Equity Holders’ Representative shall have the right to object to such set-off
claims in writing within thirty (30) days, and if the Equity Holders’
Representative so objects the parties shall negotiate in good faith for thirty
(30) days, and if the parties are unable to reach agreement, the resolution of
conflicts shall be in accordance with the procedures set forth in this Agreement
or the Set-Off Escrow Agreement; provided,
further
that Buyer shall withhold an amount equal to all unresolved Earnout Set-Off
Amounts (the “Unresolved
Earnout Set-Off Amount”) from the Earnout Consideration which is
otherwise due and payable pursuant to Section 2.9.  Simultaneously
with the payment of the Earnout Consideration to the Equity Holders, Buyer, the
Equity Holders’ Representative and the Indemnification Escrow Agent shall enter
into an escrow agreement in mutually acceptable form (the “Set-Off
Escrow Agreement”), Buyer shall deposit the Unresolved Earnout Set-Off
Amount in an escrow account pursuant to the Set-Off Escrow Agreement, and such
amount shall be disbursed to Buyer or the Equity Holders, in whole or in part,
in accordance with the terms of the Set-Off Escrow Agreement upon resolution of
each claim for Excess Damages in accordance with the provisions of this
Agreement and the Set-Off Escrow Agreement.




34


8.7Third
Party Claims.




(a)Notice
and Acceptance.  Forthwith following the receipt of notice of a
Third Party Claim, the party receiving the notice of the Third Party Claim shall
promptly notify the other party of its existence setting forth with reasonable
specificity the facts and circumstances of which such party has received notice,
and if the party giving such notice is an Indemnified Party, specifying the
basis hereunder upon which the Indemnified Party’s claim for indemnification is
asserted.  The Indemnified Party shall tender the defense of a Third
Party Claim to the Indemnifying Party.  If the defense of a Third
Party Claim is so tendered and within thirty (30) days thereafter such tender is
accepted by the Indemnifying Party, then, except as herein provided, the
Indemnified Party shall not, and the Indemnifying Party shall, have the right to
contest, defend and litigate such Third Party Claim; provided that prior to
assuming control of such defense, the Indemnifying Party must acknowledge that
it would have an indemnification obligation for any Damages resulting from such
Third Party Claim as provided under this Article
8; and provided,
further
that the Indemnifying Party shall not be entitled to assume or maintain control
of the defense of any Third Party Claim if (i) the Third Party Claim relates to
or arises in connection with any criminal proceeding, action, indictment,
allegation or investigation, (ii) the Indemnified Party reasonably believes an
adverse determination with respect to the Third Party Claim would be detrimental
to the Indemnified Party’s reputation or future business prospects, (iii) the
Third Party Claim seeks an injunction or equitable relief against the
Indemnified Party, or (iv) the specified damages of such Third Party Claim
exceeds an amount equal to the Escrowed Remainder less the sum of (A)  the
amount subject to any other Claims outstanding with respect to such
Indemnification Escrow Amount plus (B) the reasonably anticipated expenses for
litigation of such Claim.  The Indemnifying Party shall conduct any
such defense in good faith, with appropriate diligence and in the best interest
of the Indemnified Party.  The Indemnified Party shall have the right
to be represented by counsel at its own expense in any such contest, defense,
litigation or settlement conducted by the Indemnifying Party in accordance with
this Article
8; provided
that the Indemnified Party shall be entitled to reimbursement therefor if the
Indemnifying Party shall lose its right to contest, defend and litigate the
Third Party Claim as herein provided.




(b)Settlement.  If
the Indemnifying Party shall assume the control of the defense of any Third
Party Claim in accordance with the provisions of this Section
8.7, the Indemnifying Party shall obtain the prior written consent of the
Indemnified Party before entering into any settlement of such Third Party Claim
if the settlement does not expressly unconditionally release the Indemnified
Party from all liabilities and obligations with respect to such Third Party
Claim or the settlement imposes injunctive or other equitable relief against, or
any other adverse effect on, the Indemnified Party.




(c)Indemnified
Party’s Rights.  The Indemnifying Party shall lose its right to
contest, defend and litigate the Third Party Claim if it shall fail to
diligently contest the Third Party Claim.  If an Indemnified Party is
entitled to indemnification against a Third Party Claim, and the Indemnifying
Party is not entitled or fails to accept a tender of, or assume, the defense of
a Third Party Claim pursuant to this Section
8.7, or if, in accordance with the foregoing, the Indemnifying Party
shall lose its right to contest, defend and litigate such a Third Party Claim,
the Indemnified Party shall have the right, without prejudice to its right of
indemnification hereunder, in its discretion exercised in good faith and upon
the advice of counsel, to contest, defend and litigate such Third Party Claim,
and may settle such Third Party Claim, either before or after the initiation of
litigation, at such time and upon such terms as the Indemnified Party deems fair
and reasonable; provided
that at least ten (10) days prior to any such settlement, written notice of its
intention to settle is given to the Indemnifying Party.  If, pursuant
to this Section
8.7, the Indemnified Party so contests, defends, litigates or settles a
Third Party Claim for which it is entitled to indemnification hereunder, the
Indemnified Party shall be reimbursed by the Indemnifying Party for the
reasonable attorneys’ fees and other expenses of contesting, defending,
litigating and/or settling the Third Party Claim which are incurred from time to
time, forthwith following the presentation to the Indemnifying Party of itemized
bills for said attorneys’ fees and other expenses.




(d)Tax
Loss Claims.  With respect to any Third Party Claim that is
reasonably expected to give rise to a Tax Loss, Buyer shall notify the Equity
Holders’ Representative of the existence of such Third Party Claim and set forth
with reasonable specificity the facts and circumstances of which such party has
received notice.  Promptly thereafter, Equity Holders’ Representative
may elect on behalf of the Equity Holders for the Equity Holders to participate
in (but not control) the defense thereof and to employ counsel, at their own
expense, separate from the counsel employed by Buyer.  If Equity
Holders’ Representative does not elect to have Equity Holders assume such
defense, Buyer may pay, compromise or contest the Tax at
issue.  Whether or not Equity Holders’ Representative choose to have
Equity Holders defend or prosecute any claim, all of the parties hereto shall
cooperate in the defense or prosecution thereof.




35


8.8Indemnification
Exclusive Remedy.  The parties acknowledge and agree that, from
and after the Closing, the sole and exclusive remedy for any actual or alleged
breach or inaccuracy of any representation or warranty in this Agreement, or in
any Company Document or Buyer Document, or of any covenant or agreement to be
performed hereunder, or under any Company Document or Buyer Document, shall be
indemnification in accordance with this Article
8.  In furtherance of the foregoing, except in the case of
fraud, the parties hereby waive, to the fullest extent permitted by applicable
Law, any and all other rights, claims, and causes of action (including rights of
contributions, if any) that may be based upon, arise out of, or relate to this
Agreement, any Company Document or any Buyer Document, or the negotiation,
execution, or performance hereof or thereof (including any tort or breach of
contract claim or cause of action based upon, arising out of, or related to any
representation or warranty made herein or therein), known or unknown, foreseen
or unforeseen, which exist or may arise in the future, that they may have
against the other arising under or based upon any Law, common law, or
otherwise.




8.9Straddle
Period Taxes.  For purposes of this Agreement, in the case of
any Taxes that are imposed on a periodic basis and are payable for a Tax period
that includes (but does not end on) the Closing Date, the portion of such Tax
related to the portion of such Tax period ending on and including the Closing
Date shall (a) in the case of any Taxes (other than those set forth in Section
8.9(b) below) be deemed to be the amount of such Tax for the entire Tax
period multiplied by a fraction the numerator of which is the number of days in
the Tax period ending on and including the Closing Date and the denominator of
which is the number of days in the entire Tax period; and (b) in the case of any
Tax based upon or related to income, and any gross receipts, sales, capital,
franchise or use Tax, be deemed equal to the amount which would be payable if
the relevant Tax period ended on and included the Closing Date.  All
determinations necessary to give effect to the allocation set forth in the
foregoing clause (a) shall be made in a manner consistent with prior practice of
the Company.




8.10Purchase
Price Adjustment.  Any amount paid by the Equity Holders or
Buyer under Article
8 will be treated as an adjustment to the Merger
Consideration.




ARTICLE
9








TERMINATION




9.1General.  The
parties shall have the rights and remedies with respect to the termination
and/or enforcement of this Agreement which are set forth in this Article
9.




9.2Right
to Terminate.  Anything to the contrary herein notwithstanding,
this Agreement and the transactions contemplated hereby may be terminated at any
time prior to the Effective Time (notwithstanding the receipt of the Shareholder
Approval):




(a)by the
mutual written consent of Buyer and the Company;




(b)by
written notice given in accordance with Section
11.2, by either Buyer or the Company, if:




(i)the
Closing shall not have occurred by 11:59 p.m. on March 14, 2008 (the “Target
Closing Date”); provided, however, the right to terminate this Agreement
under this Section
9.2(b) shall not be available to any party whose failure to fulfill any
of its obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur; or




(ii)there
shall be any applicable Law or ruling of any Governmental Authority that (A)
makes consummation of the transactions contemplated hereby illegal or otherwise
prohibited or (B) enjoins the Company or Buyer from consummating the
transactions contemplated hereby and such enjoinment shall have become final and
nonappealable;




(c)by Buyer,
if there has been a breach or violation of any of the representations and
warranties or covenants on the part of the Company or the Equity Holders’
Representative contained in this Agreement that would cause any condition set
forth in Section 5.1
or 5.3
not to be satisfied, and such condition has not been waived by Buyer in writing
and has not been cured by the Company within five (5) days of written notice
thereof; provided
that if such breach or violation cannot reasonably be cured within such five (5)
day period but can be reasonably cured prior to the Target Closing Date and the
Company is diligently proceeding to cure, and continues to diligently proceed to
cure such breach or violation, this Agreement may not be terminated pursuant to
this Section
9.2(c);




36


(d)by the
Company, if there has been a breach or violation by Buyer and/or Merger Sub of
any of such Person’s respective representations and warranties or covenants
contained in this Agreement that would cause any condition set forth in Section
5.2 or 5.3
not to be satisfied, and such condition has not been waived by the Company in
writing and has not been cured by Buyer and/or Merger Sub within five (5) days
of written notice thereof; provided
that if such breach or violation cannot reasonably be cured within such five (5)
day period but can be reasonably cured prior to the Target Closing Date and
Buyer and/or Merger Sub is diligently proceeding to cure, and continues to
diligently proceed to cure such breach or violation, this Agreement may not be
terminated pursuant to this Section
9.2(d);




(e)by Buyer
if any of the conditions to the obligations of Buyer and Merger Sub set forth in
Sections
5.2 or 5.3
shall have become incapable of fulfillment by the Target Closing Date and shall
not have been waived by Buyer in writing; provided,
however,
that Buyer shall not be entitled to terminate this Agreement pursuant to this
Section
9.2(e) if Buyer is in breach in any material respect of its
representations and warranties or covenants contained in this Agreement;
or




(f)by the
Company if any of the conditions to the obligation of the Company set forth in
Sections
5.1 or 5.3
shall have become incapable of fulfillment and shall not have been waived by the
Company in writing; provided,
however,
that the Company shall not be entitled to terminate this Agreement pursuant to
this Section
9.2(f)if Company is in breach in any material respect of its
representations and warranties or covenants contained in this
Agreement.




9.3Certain
Effects of Termination.  In the event of the termination of
this Agreement by either the Company or Buyer as provided in Section
9.2:  (a) each party, if so requested by the other party, will
return promptly every document furnished to it by the other party (or any
division, associate or Affiliate of such other party) in connection with the
transactions contemplated hereby, whether so obtained before or after the
execution of this Agreement, and any copies thereof (except for copies of
documents publicly available) which may have been made, and will use reasonable
efforts to cause its representatives and any representatives of financial
institutions and investors and others to whom such documents were furnished
promptly to return such documents and any copies thereof any of them may have
made; and (b) any applicable confidentiality agreement between the parties shall
remain in effect.  This Section
9.3 and Article 11 shall survive any termination of this
Agreement.




9.4Remedies.  Notwithstanding
any termination right granted in Section
9.2, in the event of the non-fulfillment of any condition to a party’s
closing obligations, in the alternative, such party may elect to do one of the
following: (a) proceed to close despite the non-fulfillment of such closing
condition, it being understood that consummation of the Closing shall be deemed
a waiver of a breach of any representation, warranty or covenant and of such
party’s rights and remedies with respect thereto to the extent that such party
shall have actual knowledge of such breach and the Closing shall nonetheless
occur; (b) decline to close, terminate this Agreement as provided in Section
9.2, and thereafter seek damages to the extent permitted in Section
9.5; or (c) seek specific performance of the obligations of the
other party.  Each party hereby agrees that in the event of any
material breach by such party of this Agreement, the remedies available to the
other party at law would be inadequate and that such party’s obligations under
this Agreement may be specifically enforced.




9.5Right
to Damages.  If this Agreement is terminated pursuant to Section
9.2, neither party hereto shall have any right whatsoever to assert a
claim against the other party, and all rights and obligations of the parties
hereunder shall terminate without any liability of any party to any other party,
unless the circumstances giving rise to such termination were caused by the
other party’s willful failure to comply with a covenant or agreement set forth
herein, in which event termination shall not be deemed or construed as limiting
or denying any equitable right or remedy of said party.




ARTICLE
10








EQUITY
HOLDERS’ REPRESENTATIVE




10.1Equity
Holders’ Representative.  Effective upon the Effective Time,
pursuant to the Written Consent, the Option Cancellation Agreement, and the
Option Acceleration and Cancellation Agreement, and without any further act of
any of the Equity Holders, the Equity Holders’ Representative shall be hereby
appointed as the representative of the Equity Holders and as the
attorney-in-fact and agent for and on behalf of each Equity Holder solely with
respect to those matters set forth in this Agreement, including, but not limited
to:




(a)executing
and delivering, on behalf of each Equity Holder, and accepting delivery of, on
behalf of such Equity Holder, such documents as may be deemed appropriate by the
Equity Holders’ Representative to consummate this Agreement;




(b)endorsing
and delivering on behalf of each Shareholder, Certificates in exchange for the
Merger Consideration;




37


(c)endorsing
and delivering on behalf of each Stock Option Holder, Stock Options in exchange
for the Merger Consideration;




(d)(i)
disputing or refraining from disputing, on behalf of each Equity Holder, any
claim made by a Buyer Indemnitee under Article
8; (ii) negotiating and compromising, on behalf of each Equity Holder,
any dispute that may arise hereunder, and exercising or refraining from
exercising any remedies available under Article
8; and (iii) executing, on behalf of each Equity Holder, any settlement
agreement, release or other document with respect to such dispute or
remedy;




(e)giving
and receiving, on behalf of each Equity Holder, all notices required to be given
hereunder with respect to such Equity Holders;




(f)amending
this Agreement or any of the Company Documents to be delivered to Buyer and/or
Merger Sub by each Equity Holder pursuant to this Agreement;
and




(g)taking
all other actions contemplated to be taken by or on behalf of Equity Holders in
this Agreement.




10.2Mutual
Acceptance.  By the Equity Holders’ Representative’s execution
of this Agreement, the Equity Holders’ Representative accepts the appointment as
the Equity Holders’ Representative hereunder and agrees to be bound by the terms
and conditions of this Agreement.  By the Equity Holders’
Representative’s execution of this Agreement, each Equity Holder agrees
that:




(a)all
actions, decisions and instructions of the Equity Holders’ Representative shall
be conclusive and binding upon all of the Equity Holders;




(b)the
provisions of this Section are independent and severable, are irrevocable and
coupled with an interest and shall be enforceable notwithstanding any rights or
remedies that any Equity Holder may have in connection with the transactions
contemplated by this Agreement; and




(c)the
provisions of this Section shall be binding upon the executors, heirs, legal
representatives and successors of each Equity Holder.




10.3Powers.  The
Equity Holders’ Representative shall have such powers and authority as are
necessary to carry out the functions assigned Equity Holders’ Representative
under this Agreement; provided,
however,
the Equity Holders’ Representative shall have no obligation to act on behalf of
Shareholders except as expressly provided herein.




10.4Vacancy.  In
the event the Equity Holders’ Representative becomes unable to perform the
Equity Holders’ Representative’s responsibilities hereunder or resigns from such
position, Equity Holders representing greater than 50% of the aggregate
Percentage Ownership shall select another representative to fill such vacancy
and such substituted representative shall be deemed to be the Equity Holders’
Representative for all purposes of this Agreement upon his acceptance thereof in
writing.




10.5Removal.  Equity
Holders representing greater than 50% of the aggregate Percentage Ownership
shall have the right, exercisable from time to time upon written notice
delivered to the Equity Holders’ Representative and Buyer: (a) to remove the
Equity Holders’ Representative, with or without cause and (b) to appoint another
Person to fill a vacancy caused by the resignation or removal of the Equity
Holders’ Representative.




10.6No
Compensation; Reimbursement.  The Equity Holders’
Representative shall not be entitled to any fee, commission or other
compensation for the performance of services hereunder, but shall be entitled to
be reimbursed by Equity Holders for all expenses reasonable incurred in the
performance of such Equity Holders’ Representative’s duties, including, without
limitation, attorneys and accountants fees and expenses.




10.7Liability.  In
exercising or failing to exercise the powers or duties conferred upon the Equity
Holders’ Representative hereunder, the Equity Holders’ Representative shall
incur no responsibility or liability whatsoever to any Equity Holder by reason
of any error in judgment or other act or omission performed or omitted, except
for any act or failure to act which constitutes fraud, gross negligence or
willful misconduct.






38


10.8Indemnification.  Each
Equity Holder shall indemnify the Equity Holders’ Representative, based upon
each such Person’s Percentage Ownership, against all damages (including
reasonable attorneys’, accountants’ and other experts’ or consultant’s fees) of
any nature whatsoever (including any and all expense whatsoever reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened or any claims whatsoever), arising out of or in
connection with any claim, investigation, challenge, action or proceeding or in
connection with any appeal thereof, relating to the acts or omissions of the
Equity Holders’ Representative; provided,
however,
the foregoing indemnification shall not apply in the event of any action or
proceeding which finally adjudicates the Equity Holders’ Representative liable
for fraud, gross negligence or willful misconduct.  In the event of
any indemnification under this Section, upon written notice from the Equity
Holders’ Representative to Equity Holders as to the existence of a deficiency
toward the payment of any such indemnification amount, each Equity Holder shall
promptly deliver to the Equity Holders’ Representative full payment of such
Person’s Percentage Ownership of the amount of such
deficiency.




10.9Survival.  All
of the indemnities, immunities and powers granted to the Equity Holders’
Representative under this Agreement shall survive the Effective Time and/or any
termination of this Agreement.




10.10Reliance.  Buyer,
the Surviving Corporation and the Equity Holders shall have the right to rely
conclusively upon all actions taken or omitted to be taken by the Equity
Holders’ Representative pursuant to this Agreement.




ARTICLE
11








MISCELLANEOUS




11.1Publicity.  Except
as otherwise required by applicable Law, press releases and other publicity
concerning the transactions contemplated hereby shall be made only with the
prior agreement of the Company and Buyer (and in any event, the parties shall
use all reasonable efforts to consult and agree with each other with respect to
the content of any such required press release or other
publicity).




11.2Notices.  All
notices required or permitted to be given hereunder shall be in writing and may
be delivered by hand, by facsimile, by nationally recognized private courier, or
by United States mail.  Notices delivered by mail shall be deemed
given three (3) Business Days after being deposited in the United States mail,
postage prepaid, registered or certified mail, return receipt
requested.  Notices delivered by hand, by facsimile, or by nationally
recognized private courier shall be deemed given on the first Business Day
following receipt; provided, however, that a notice delivered by facsimile shall
only be effective if such notice is also delivered by hand, or deposited in the
United States mail, postage prepaid, registered or certified mail, within two
(2) Business Days after its delivery by facsimile.  All notices shall
be addressed as follows:




If to the
Company or the Equity Holders’ Representative:




Alan
Fitzgerald


501 E.
Park Avenue


Gilbert,
Arizona 85234




with a
copy to (which copy shall not constitute notice):




Snell
& Wilmer L.L.P.


One
Arizona Center


Phoenix,
Arizona 85004


Attn:
Terry Roman, Esq.


Fax:  (602)
382-6070




If to
Buyer:




SMART
Modular Technologies, Inc.


4211
Starboard Dr.


Fremont
California 94538


Attn:
Iain MacKenzie


Fax:  (510)
360-8500




39


with a
copy to (which copy shall not constitute notice):




Davis
Polk & Wardwell


1600 El
Camino Real


Menlo
Park, California  94025


Attn:  Alan
F. Denenberg


Fax:  (650)
752-2111




or to
such other addresses as may be designated by notice given in accordance with the
provisions hereof.




11.3Expenses;
Transfer Taxes.  Except as otherwise provided herein, each
party hereto shall bear all fees and expenses incurred by such party in
connection with, relating to or arising out of the negotiation, preparation,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, including financial advisors’, attorneys’,
accountants’ and other professional fees and expenses.




11.4Entire
Agreement.  This Agreement, the Buyer Documents and the Company
Documents constitute the entire agreement between the parties with respect to
the subject matter hereof, shall supersede any other prior or contemporaneous
agreements between the parties relating to the subject matter hereof, and shall
be binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, successors and permitted
assigns.  Each Annex, Exhibit and Schedule hereto, the Company
Disclosure Schedule, and the Buyer and Merger Sub Disclosure Schedule shall be
considered incorporated into this Agreement.




11.5Disclosures
and Projections.  Except as expressly set forth in Sections
3.1 and 3.3,
the Company makes no express or implied warranty of any kind whatsoever,
including any representation or warranty as to the securities or the property of
the Company, the relationship of the Company with its respective customers and
suppliers, or the future profitability or future earnings performance of the
Company.  Buyer acknowledges that any estimates, forecasts, or
projections furnished or made available to it concerning the Company (including
the contents of the Project Armour executive summary and Business Overview
(October 2007) circulated by its advisors, Houlihan Lokey Howard & Zukin) or
its properties, business or assets have not been prepared in accordance with
GAAP or standards applicable under the Securities Act, and such estimates are
based upon numerous assumptions, and are subject to material risks and
uncertainties and are hereby disclaimed by the Company.  Buyer
acknowledges that actual results may vary, perhaps
materially.




11.6Non-Waiver.  The
failure in any one or more instances of a party to insist upon performance of
any of the terms, covenants or conditions of this Agreement, to exercise any
right or privilege in this Agreement conferred, or the waiver by said party of
any breach of any of the terms, covenants or conditions of this Agreement, shall
not be construed as a subsequent waiver of any such terms, covenants,
conditions, rights or privileges, but the same shall continue and remain in full
force and effect as if no such forbearance or waiver had occurred.  No
waiver shall be effective unless it is in writing and signed by an authorized
representative of the waiving party.




11.7Counterparts.  This
Agreement may be executed in multiple counterparts and by facsimile or other
electronic transmission, each of which shall be deemed to be an original, and
all such counterparts shall constitute but one instrument.




11.8Severability.  Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable Law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable Law, such invalidity, illegality or unenforceability shall not
affect any other provision and such provision or portion thereof shall be struck
from the remainder of this Agreement, which shall remain in full force and
effect.  This Agreement shall be reformed, construed and enforced so
as to best give effect to the intent of the parties under this
Agreement.




11.9Applicable
Law.  This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal Laws of the State of Arizona applicable to contracts
made in that state, without giving effect to any choice of law or conflict of
law provision or rule that would cause the application of the Laws of any
jurisdiction other than the State of Arizona.




11.10Binding
Effect; Benefit.  This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their successors and permitted
assigns.  Nothing in this Agreement, express or implied, shall confer
on any Person other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, including third party beneficiary
rights.




11.11Successors
and Assigns.  The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto; except that Buyer may transfer or assign its
rights and obligations under this Agreement, in whole or from time to time in
part, to (i) one or more of its Affiliates at any time and (ii) after the
Effective Time, to any Person; provided that no such transfer or assignment
shall relieve Buyer of its obligations hereunder or enlarge, alter or change any
obligation of any other party hereto or due to Buyer.




40


11.12Rule
of Construction.  The parties acknowledge and agree that each
has negotiated and reviewed the terms of this Agreement, assisted by such legal
and tax counsel as they desired, and has contributed to its
revisions.  The parties further agree that the rule of construction
that any ambiguities are resolved against the drafting party will be
subordinated to the principle that the terms and provisions of this Agreement
will be construed fairly as to all parties and not in favor of or against any
party.




11.13Governmental
Reporting.  Anything to the contrary in this Agreement
notwithstanding, nothing in this Agreement shall be construed to mean that a
party hereto or other Person must make or file, or cooperate in the making or
filing of, any return or report to any Governmental Authority in any manner that
such Person or such party reasonably believes or reasonably is advised is not in
accordance with Law.




11.14Waiver
of Trial by Jury.  Each of the parties hereto waives the right
to a jury trial in connection with any lawsuit, action or proceeding seeking
enforcement of such party’s rights under this Agreement.




11.15Consent
to Jurisdiction.  The parties each agree to the non-exclusive
jurisdiction of any state or Federal court within the State of Arizona with
respect to any claim or cause of action arising under or relating to this
Agreement, and waive personal service of any and all process upon it, and
consent that all services of process be made by registered or certified mail,
return receipt requested, directed to it at its address as set forth in Section
11.2, and service so made shall be deemed to be completed when
received.  The parties each waive any objection based on forum non
conveniens and waive any objection to venue of any action instituted
hereunder.  Nothing in this paragraph shall affect the right of the
parties to serve legal process in any other manner permitted by
law.




11.16Amendments.  This
Agreement shall not be modified or amended except pursuant to an instrument in
writing executed and delivered on behalf of each of the parties
hereto.




11.17Headings.  The
headings contained in this Agreement are for convenience of reference only and
shall not affect the meaning or interpretation of this
Agreement.




11.18Interpretive
Matters.  The headings used in this Agreement have been
inserted for convenience and do not constitute provisions to be construed or
interpreted in connection with this Agreement.  Unless the context of
this Agreement otherwise requires, (a) words of any gender will be deemed to
include each other gender; (b) words using the singular or plural number also
will include the plural or singular number, respectively; (c) the terms “hereof”,
“herein”,
“hereby”
and derivative or similar words will refer to this entire Agreement; and (d) the
terms “includes”
and “including”
shall mean “includes
without limitation” and “including
without limitation,” respectively.  References to any Person
include the successors and permitted assigns of that
Person.  References from or through any date mean, unless otherwise
specified, from and including or through and including,
respectively.




11.19Disclosure
Schedule References.  The
parties hereto agree that any reference in a particular Section of the Company
Disclosure Schedule or the Buyer and Merger Sub Disclosure Schedule shall only
be deemed to be an exception to (or, as applicable, a disclosure for purposes
of) (i) the representations and warranties (or covenants, as applicable) of the
relevant party that are contained in the corresponding Section of this Agreement
and (ii) any other representations and warranties of such party that is
contained in this Agreement, but only if the relevance of that reference as an
exception to (or a disclosure for purposes of) such representations and
warranties would be readily apparent to a reasonable Person who has read that
reference and such representations and warranties.








[Remainder
of page intentionally left blank.  Signature page
follows.]




41




IN
WITNESS WHEREOF, the parties have executed this Agreement and Plan of Merger
effective as of the date first above written.


ADTRON
      CORPORATIONBy:Name:Title:SMART
      MODULAR TECHNOLOGIES, INC.By:Name:Title:ARMOR
      ACQUISITION CORPORATIONBy:Name:Title:ALAN
      FITZGERALD,
                as
      Equity Holders’
Representative


42


Exhibit
A




1.1           Definitions.  For
purposes of this Agreement, the following terms have the meanings set forth
below.




“Affiliate”
with respect to any Person means any other Person who directly or indirectly
Controls, is Controlled by, or is under common Control with such Person
including, in the case of any Person who is an individual, his or her spouse,
any of his or her descendants (natural or adopted) or ancestors, and any of
their spouses.




“Agreement”
means this Agreement and Plan of Merger, including all Exhibits and Schedules
hereto, as the same may be amended, modified or supplemented from time to time
in accordance herewith.




“Arizona
Law” means the Arizona Business Corporation Act (A.R.S. 10-001 et seq.)
and applicable case law.




“assets”
of any Person means all assets and properties of every kind, nature, character
and description (whether real, personal or mixed, whether tangible or
intangible, and wherever situated), including the related goodwill, which assets
and properties are operated, owned or leased by such Person.




“Balance
Sheet” means the unaudited balance sheet of the Company as of the
Financial Statements Date.




“Benefit
Plan” means each Plan, Multiemployer Plan, Welfare Plan and Other Benefit
Plan.




“Business
Day” means a day, other than a Saturday, Sunday or other day on which
commercial banks in Phoenix, Arizona or New York, New York are authorized or
required by Law to close.




“Buyer”
has the meaning set forth in the Introductory Paragraph.




“Buyer
and Merger Sub Disclosure Schedule” means the schedules delivered by
Buyer concurrently herewith and identified by the parties as the Buyer and
Merger Sub Disclosure Schedule.




“Buyer
Documents” has the meaning set forth in Section 3.2(b).




“Buyer
Indemnitees” means Buyer and its Affiliates (including, after the
Effective Time, the Surviving Corporation) and their respective directors,
managers, officers, members, shareholders and partners, and the term “Buyer
Indemnitee” means any one of the foregoing Buyer
Indemnitees.




“CERCLA”
means the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, and any rules or regulations promulgated
thereunder.




“Closing
Consideration” means an amount equal to $20,000,000, minus
(ii) the Estimated Payroll Tax Amount,minus (iii) the Estimated Transaction Expense Amount, and minus
(iv) the Pre-Closing Dissenting Share Payments.




“Closing
Net Working Capital” means the Net Working Capital of the Company as
shown on the Closing Balance Sheet, as determined by Buyer in accordance with
Section 2.7.




“Closing
Net Working Capital Notice” has the meaning set forth in Section
2.7(a).




“Code”
means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.




“Company”
has the meaning set forth in the Introductory Paragraph.




“Company
Disclosure Schedule” means the schedules delivered by the Company
concurrently herewith and identified by the parties as the Company Disclosure
Schedule.




“Company
Documents” has the meaning set forth in Section 3.1(b).




“Company
Stock” means the Class A Common Stock, $0.1 par value per share, of the
Company and the Class B Common Stock, non-voting, $0.1 par value per share, of
the Company.




“Contracts”
has the meaning set forth in Section 3.1(o).




“Control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through
ownership of securities, by contract or otherwise.




“Damages”
means all money judgments, payment obligations, Taxes, assessments, levies,
losses, damages, costs, fines, penalties and reasonable attorneys’ fees and
expenses incurred in investigating or defending a Third Party Claim, including
Tax Losses, or in connection with a claim solely between the parties hereto to
enforce the provisions hereof.






43


“Debt
Repayment Amount” means the sum of all amounts payable in full
satisfaction of all Indebtedness of the Company as of the Closing
Date.




“Dissenting
Share Payments” means (i) any payments made by or on behalf of the
Company or Buyer 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 and (ii) any other costs or expenses incurred
by the Company or Buyer (including attorneys’ fees, costs and expenses in
connection with any action or proceeding or in connection with any
investigation) in respect of any Dissenting Shares.




“Dissenting
Shares” has the meaning set forth in Section 2.10.




“Earnout
Consideration” has the meaning set forth in Section 2.9(b).




“Employees”
has the meaning set forth in Section 3.1(r).




“Environmental
Laws” means all federal, state, local or foreign statutes, laws
(including common law) or regulations treaty, judicial decision, regulation,
rule, judgment, order, decree, injunction, permit or governmental restriction or
requirement or any agreement with any Governmental Authority or other Third
Party, relating to human health and safety or the environment, including laws
and regulations relating to Releases or Threatened Releases of Hazardous
Substances, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.




“Environmental
Permits” means all permits, licenses, registrations, franchises,
certificates, approvals and other similar authorizations of Governmental
Authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the business, properties or assets of the Company or any
of its Subsidiaries as currently conducted.




“Equity
Holders” means the Shareholders and Stock Option Holders.




“Equity
Indemnitees” means the Equity Holders, and their respective directors,
managers, officers, members, shareholders, partners, successors and assigns, and
the term “Equity
Indemnitee” means any one of the foregoing Equity
Indemnitees.




“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and the
rules and regulations promulgated thereunder.




“ERISA
Affiliate” of any entity means any other entity that, together with such
entity, would be treated as a single employer under Section 414 of the
Code.




“Escrow
Agent” means the escrow agent mutually agreed to by Buyer and Equity
Holders’ Representative who will maintain the Indemnification Escrow Account
under the Indemnification Escrow Agreement.




“Estimated
Payroll Tax Amount” means the Payroll Tax Amount, as estimated in good
faith by the Company, as set forth on the Determination
Certificate.




“Estimated
Transaction Expense Amount” means the Transaction Expense Amount, as
estimated in good faith by the Company, as set forth on the Determination
Certificate.




“Final
Net Working Capital” means the Net Working Capital of the Company as of
the Closing Date as finally determined in accordance with Section
2.7.




“Financial
Statements” means the Company’s audited balance sheet, pro-forma
statement of income and retained earnings, pro-forma statement of cash flows,
and the notes thereto as of and for the twelve (12) month period ended December
31, 2007.




“Financial
Statement Date” means December 31, 2007.




“GAAP”
means those accounting principles generally accepted in the United
States.




“Governmental
Authority” means any instrumentality, subdivision, court, administrative
agency, commission, official or other authority of the United States or any
other country or any state, county, province, municipality, locality or other
government or political subdivision thereof, any quasi-governmental or private
body exercising any regulatory, taxing or other governmental or
quasi-governmental authority, or any arbitrator.






44


“Hazardous
Substances” means any pollutant, contaminant, waste or chemical or any
toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous
substance, waste or material, or any substance, waste or material having any
constituent elements displaying any of the foregoing characteristics, including,
without limitation, petroleum, its derivatives, by products and other
hydrocarbons, and any substance, waste or material regulated under any
environmental law, including without limitation (i) any “hazardous
waste” as defined in the Resource Conservation and Recovery Act of 1976
(42 U.S.C.  Sections 6901 et seq.), as amended through the Closing
Date, and regulations promulgated thereunder; and (ii) any “hazardous
substance” as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C.  Sections 9601 et
seq.), as amended through the Closing Date, and regulations promulgated
thereunder.




“Holdback
Amount” means $250,000.




“Indebtedness”
means, collectively, any (i) indebtedness for borrowed money, (ii) indebtedness
evidenced by any bond, debenture, note, mortgage, indenture or other debt
instrument or debt security, (iii) amounts owing as deferred purchase price for
the purchase of any property (other than trade payables and other current
liabilities arising in the ordinary course of business) or (iv) guarantees with
respect to any indebtedness or obligation of a type described in clauses (i)
through (iii) above of any other Person, other than in each of clause (i)
through (iv) any intercompany indebtedness.




“Indemnification
Basket” means an amount equal to $250,000.




“Indemnification
Escrow Account” means the account established with and maintained by the
Escrow Agent pursuant to the Indemnification Escrow Agreement.




“Indemnification
Escrow Amount” means $4,000,000.




“Indemnified
Party” means, with respect to a particular matter, a Person who is
entitled to indemnification from another party hereto pursuant to Article
8.




“Indemnifying
Party” means, with respect to a particular matter, a party hereto who is
required to provide indemnification under Article 8 to another
Person.




“Individual
Portion” means, with respect to any Equity Holder, an amount equal to the
product of such Equity Holder’s Percentage Ownership multiplied by the aggregate
amount of Damages for which the Equity Holders are liable pursuant to Section
8.1.




“Intellectual
Property” has the meaning in Section
3.1(x).




“Intellectual
Property Licenses” means all agreements between the Company and any
Person, other than agreements for commercial off-the-shelf software available on
non-discriminatory pricing terms, pursuant to which (i) the Company grants any
current or contingent right to use, or a covenant not to be sued under, any
Intellectual Property right or (ii) the Company obtains the right to use, or a
covenant not to be sued under, any Intellectual Property right.




“IRS”
means the Internal Revenue Service.




“Knowledge”
of any Person that is not an individual means the knowledge of such Person’s
officers after reasonable inquiry and, in respect of the Company, of each of
Alan Fitzgerald, Bob Benkendorf, and Gloria Zemela after reasonable
inquiry.




“Law”
has the meaning set forth in Section 3.1(e).




“Leased
Real Estate” means all real property leased or subleased by the
Company.




“Liabilities”
means any obligation or liability of the Company or any of its Subsidiaries of
any nature whatsoever (direct or indirect, matured or unmatured, absolute,
accrued, contingent or otherwise) which would be required by GAAP to be provided
or reserved against on a balance sheet.




“Liens”
means all judgments, pledges, rights of first refusal or first offer, mortgages,
indentures, claims, liens, security interests and other encumbrances of every
kind and nature.




45


“Material
Adverse Effect” means any change or effect (or series of related changes
or effects) which in the aggregate has or is reasonably likely to have a
material adverse effect upon the business, assets, liabilities, results of
operations or financial condition of the Company and any of its Subsidiaries,
taken as a whole; provided that the foregoing shall not include any change or
effect resulting from (i) United States or global business or economic
conditions or conditions in the industry in which the Company is engaged in
business which do not disproportionately affect the Company, (ii) changes in any
Law after the date hereof, (iii) U.S. or international political or social
conditions, including military conflicts or acts of terrorism anywhere in the
world and including any pandemics, (iv) the general public awareness of the
transactions contemplated in this Agreement or the execution of this Agreement
or announcement thereof (including any changes in the relationship between the
Company and any of its customers or suppliers), (v) any change in GAAP after the
date hereof, or (vi) any adverse change in or effect on the business of the
Company that is cured before the earlier to occur of (A) the Closing Date
and (B) the date on which this Agreement is terminated pursuant to




Article
9.




“Merger
Consideration” shall mean the Closing Consideration, plus
the Earnout Consideration (if any).




“Net
Working Capital” means the net working capital of the Company calculated
(i) in accordance with the formula and methodology set forth on Annex
IV, and (ii) in any event, in accordance with GAAP, except as set forth
onAnnex IV.




“Other
Benefit Plan” means any bonus, deferred compensation, stock purchase,
stock option, restricted stock, stock appreciation rights, phantom stock rights,
severance, salary continuation, vacation, sick leave or other employee plan,
agreement or arrangement other than a Plan, Multiemployer Plan and Welfare
Plan.




“Payroll
Tax Amount” means all Medicare (or similar state tax) contributions
resulting from the exercise, repurchase or cash-out of any Stock Options, in
each case including payments pursuant to Section 2.3.




“Per
Share Closing Consideration” means the quotient obtained by dividing (i)
the Closing Consideration by (ii) the total number of outstanding shares of
Company Stock plus
the total number of shares represented by all Accelerated Options and Vested
Options, in each case, as of immediately prior to the Effective Time (excluding
any shares of Company Stock cancelled pursuant to Section 2.2(a)(ii) and
Dissenting Shares).




“Per
Share Merger Consideration” means the quotient obtained by dividing (i)
the Merger Consideration by (ii) the total number of outstanding shares of
Company Stock plus
the total number of shares represented by all Accelerated Options and Vested
Options, in each case, as of immediately prior to the Effective Time (excluding
any shares of Company Stock cancelled pursuant to Section 2.2(a)(ii) and
Dissenting Shares).




“Per
Share Accelerated Option Consideration” has the meaning given in Section
2.3(b).




“Per
Share Vested Option Consideration” has the meaning given in Section
2.3(a).




“Percentage
Ownership” means, with respect to each Shareholder or Stock Option
Holder, as the case may be, the percentage equal to the quotient obtained by
dividing (i) either (A) the number of shares of Company Stock held by such
Shareholder, as of immediately prior to the Effective Time, and/or (B) the
number of shares of Common Stock such Stock Option Holder of could have
purchased had such holder exercised such Accelerated Options and/or Vested
Options in full immediately prior to the Effective Time, by (ii) the total
number of outstanding shares of Company Stock, plus
the total number of shares represented by all outstanding Accelerated Options
and Vested Options, in each case, as of immediately prior to the Effective Time
(excluding any shares of Company Stock cancelled pursuant to Section 2.2(a)(ii)
and Dissenting Shares).




“PBGC”
means the Pension Benefit Guaranty Corporation.




“Permits”
means all licenses, franchises, permits, certificates, consents, registrations,
authorizations or approvals of any Governmental Authority, other than
Environmental Permits.




“Permitted
Liens” means all (i) statutory Liens for Taxes not yet due; (ii)
statutory Liens of landlords, carriers, warehousemen, mechanics and materialmen
incurred in the ordinary course of business for sums not yet due; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social security
or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, performance and return of money bonds and similar
obligations; (iv) Liens consisting of zoning or planning restrictions or
regulations, easements, Permits, restrictive covenants, encroachments and other
restrictions or limitations on the use of the Company’s assets, or
irregularities in title which, individually do not in the aggregate materially
detract from the value or use of the Company’s assets; and (v) Liens securing
Indebtedness reflected on the Financial Statements.




“Person”
means any individual, corporation, partnership, limited liability company, joint
venture, association, bank, trust company, trust or other entity, or any
governmental entity, agency or political subdivision.






46


“Plan”
means any employee pension benefit plan as defined in Section 3(2) of
ERISA.




“Post
Closing Tax Period” means any Tax period beginning after the Closing
Date; and, with respect to a Tax period that begins on or before the Closing
Date and ends thereafter, the portion of such Tax period beginning after the
Closing Date.




“Pre-Closing
Tax Period” means any Tax period ending on or before the Closing Date;
and, with respect to a Tax period that begins on or before the Closing Date and
ends thereafter, the portion of such Tax period ending on the Closing
Date.




“Proprietary
Software” means Software which is owned by or exclusively licensed to the
Company or any of its Subsidiaries.




“Release”
means any release, spill, emission, emptying, leaking, injection, deposit,
disposal, dumping, discharge, dispersal, leaching, pumping, pouring, or
migration into the atmosphere, soil, surface water, groundwater or
property.




“Restrictions”
means, except as set forth in the Company’s articles of incorporation and
bylaws, all of the following with respect to the Shares: options, proxies,
voting trusts, voting agreements, shareholder agreements, preemptive rights, and
transfer and other similar restrictions (other than those imposed by applicable
Law).




“Retained
Employees” has the meaning set forth in Section 7.2(a).




“Returns”
means all Tax returns, statements, reports, elections, declarations,
disclosures, schedules and forms (including estimated tax or information returns
and reports) filed or required to be filed with any Taxing Authority with
respect to any Pre Closing Tax Period by or on behalf of the
Company.




“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.




“Shareholders”
means holders of shares of Company Stock at the Effective Time.




“Shares”
means all of the issued and outstanding capital stock of the Company to be
purchased by Buyer hereunder, representing 100% of the issued and outstanding
shares of the Company.




“Software”
means (i) all computer programs (including any and all software implementation
of algorithms, models and methodologies whether in source code or object code),
databases and computations (including any and all data and collections of data),
and all documentation, including user manuals and training materials, relating
to any of the foregoing; and (ii) the content and information contained in any
web site.




“Stock
Option” means each unexpired and unexercised option in respect of any
shares of capital stock of the Company.




“Stock
Option Holder” means a holder of Accelerated Options or Vested
Options.




“Subsidiary”
means, with respect to any Person, any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at any time
directly or indirectly owned by such Person.




“Tax”
or “Taxes”
means any (a) federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or withholding, or other tax, charge,
levy, assessment, or fee of any kind whatsoever, whether computed on a separate
or consolidated, unitary or combined basis or in any other manner, imposed by
any Governmental Authority (a “Taxing
Authority”) including any interest, penalties, additions to tax, or
additional amounts in respect of the foregoing; (b) liability for the payment of
any amounts of the type described in clause (a) arising as a result of being (or
ceasing to be) before the Closing Date a member of any affiliated, consolidated,
combined or unitary group (or being included (or required to be included) in any
Return relating thereto); and (c) liability for the payment of any amounts of
the type described in clause (a) or (b) as a result of any express or implied
obligation, by contract or pursuant to Law, to indemnify or otherwise assume or
succeed to the liability of any other person.




“Tax
Asset” means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction or any other credit or tax
attribute that could be carried forward or back to reduce Taxes (including
without limitation deductions and credits related to alternative minimum
Taxes).




“Third
Party Claim” means any action, lawsuit, proceeding, investigation, or
like matter which is asserted or Threatened by a Person other than the parties
hereto, their successors and permitted assigns, against any Indemnified Party or
to which any Indemnified Party is subject.






47


“Threatened”
– A matter or action shall be deemed to have been “Threatened”
for purposes of this Agreement if any demand or statement has been made that
would lead a reasonable Person to conclude that such matter or action is
reasonably likely to be asserted, commenced, taken or otherwise
pursued.




“Transaction
Expense Amount” means the sum of all amounts payable with respect to the
fees and expenses of, the Company’s financial advisors, bankers, legal counsel,
auditors, accountants and consultants in connection with the negotiation,
execution and consummation of this Agreement and the transactions contemplated
hereby; provided
that, when calculating the Transaction Expense Amount, an amount equal to
$15,000 shall be deducted from the aggregate fees and expenses of the Company’s
legal counsel.




“Welfare
Plan” means any employee welfare benefit plan as defined in Section 3(1)
of ERISA.






48


ANNEX
I




MAJOR
SHAREHOLDERS




Shareholder
            Number
      of Shares of Class A Common Stock
            Percentage
      Ownership of Class A Common StockAlan
      Fitzgerald
            2,700,000
            71.31%Sheila
      Fitzgerald
            300,000
            7.92%Robert
      Benkendorf
            300,000
            7.92%Gloria
      Zemla
            45,000
            1.19%


49


ANNEX
II




KEY
EMPLOYEE




Alan
Fitzgerald


50


ANNEX
III




Form of
Amended and Restated Articles of IncoRporation


51


ANNEX
IV




NET
WORKING CAPITAL




•
            “Net
      Working Capital” means the excess of Current Assets over Current
      Liabilities, excluding the effect (including the Tax effect) of any act,
      event or transaction after the Closing not in the ordinary course of
      business of the Company.




•
            “Current
      Assets” means the current assets (consisting of cash and cash
      equivalents, accounts receivable (net of allowances), inventory (net of
      reserves), prepaid expenses and income tax receivables) of the
      Company.




•
            “Current
      Liabilities” means the current liabilities (consisting of accounts
      payable, accrued expenses, the amount set forth in the Payout Letter as
      fully discharging the Company’s line of credit with Silicon Valley Bank,
      and the current portion of the Citicorp Vendor Finance, Inc. capital
      lease) of the Company.




•
            “Closing
      Net Working Capital” means the Net Working Capital of the Company
      as shown on the Closing Balance Sheet, as determined by Buyer in
      accordance with this Annex IV and Section
      2.7.




•
            The
      Closing Balance Sheet shall (x) fairly present the financial position of
      the Company as at the close of business on the Closing Date in accordance
      with GAAP applied on a consistent basis, (y) include line items
      substantially consistent with those in the Balance Sheet, and (z) be
      prepared in accordance with accounting policies and practices consistent
      with those used in the preparation of the Balance Sheet, but in all
      instances in accordance with GAAP.




•
            If
      in connection with the preparation of the Closing Balance Sheet or the
      calculation of Closing Net Working Capital, any errors or omissions are
      discovered with respect to any item that affects the value of current
      assets over current liabilities of the Company as shown on the Balance
      Sheet, then the Balance Sheet, Closing Balance Sheet, and Minimum Working
      Capital shall be appropriately adjusted to correct for the effect of such
      errors or omissions so that the Closing Balance Sheet reflects only the
      passage of time with respect to any such item.  All of the
      adjustments to be made in the preceding sentence shall be made in
      accordance with GAAP applied on a consistent
  basis.




•
            An
      indicative form of Closing Balance Sheet is attached hereto as Appendix
      1.




2077310.6
 52