**Exhibit 10.39**

 

**AGREEMENT**

 

**AND PLAN OF MERGER**

 

**BY AND AMONG**

 

**MICROSEMI CORPORATION,**

 

**APT ACQUISITION CORP.**

 

**AND**

 

**ADVANCED POWER TECHNOLOGY, INC.**

 

 

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**November 2, 2005**

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| ARTICLE I   | THE MERGER                                            |   |
|------------------|-------------------------------------------------------|--------|
|             |                                                  |
| 1.1.             | *The Merger*                                          |   |
| 1.2.             | *Effect of Merger*                                    |   |
| 1.3.             | *Effective Time*                                      |   |
| 1.4.             | *Certificate of  Incorporation; Bylaws*               |   |
| 1.5.             | *Directors and Officers*                              |   |
| 1.6.             | *Taking of Necessary Action;  Further Action*         |   |
| 1.7.             | *The Closing*                                         |   |
|             |                                                  |
| ARTICLE II  | CONVERSION OF SECURITIES                              |   |
|             |                                                  |
| 2.1.             | *Conversion of Securities*                            |   |
| 2.2.             | *Stock Options and Warrant*                           |   |
| 2.3.             | *Exchange of Certificates*                            |   |
|             |                                                  |   |
| ARTICLE III | REPRESENTATIONS AND  WARRANTIES OF THE COMPANY        |   |
|             |                                                  |
| 3.1.             | *Organization and  Qualification*                     |   |
| 3.2.             | *Capital Stock of  Subsidiaries*                      |   |
| 3.3.             | *Capitalization*                                      |   |
| 3.4.             | *Authority Relative to this  Agreement*               |   |
| 3.5.             | *No Conflict; Required  Filings and Consents*         |   |
| 3.6.             | *SEC Filings; Financial  Statements*                  |   |
| 3.7.             | *Absence of Changes or Events*                        |   |
| 3.8.             | *Litigation*                                          |   |
| 3.9.             | *Title to Properties*                                 |   |
| 3.10.            | *Certain Contracts*                                   |   |
| 3.11.            | *Compliance with Law*                                 |   |
| 3.12.            | *Intellectual Property Rights*                        |   |
| 3.13.            | *Taxes*                                               |   |
| 3.14.            | *Employees*                                           |   |
| 3.15.            | *Employee Benefit Plans*                              |   |
| 3.16.            | *Environmental Matters*                               |   |
| 3.17.            | *Insurance*                                           |   |
| 3.18.            | *Foreign Corrupt Practices  Act*                      |   |
| 3.19.            | *Export Control Laws*                                 |   |
| 3.20.            | *Finders or Brokers*                                  |   |
| 3.21.            | *Board Recommendation*                                |   |
| 3.22.            | *Vote Required*                                       |   |
| 3.23.            | *Opinion of Financial Advisor*                        |   |
| 3.24.            | *Tax Matters*                                         |   |
| 3.25.            | *State Takeover Statutes*                             |   |
| 3.26.            | *Registration Statement;  Proxy Statement/Prospectus* |   |
|                  |                                                       |        |  |

 

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| ARTICLE IV  | REPRESENTATIONS  AND WARRANTIES OF MERGER SUB AND PARENT                            |   |
|------------------|-------------------------------------------------------------------------------------|--------|
|             |                                                                                |   |
| 4.1.             | *Organization  and Qualification*                                                   |   |
| 4.2.             | *Capitalization*                                                                    |   |
| 4.3.             | *Authority  Relative to this Agreement*                                             |   |
| 4.4.             | *No Conflicts;  Required Filings and Consents*                                      |   |
| 4.5.             | *SEC  Filings; Financial Statements*                                                |   |
| 4.6.             | *Absence of  Changes or Events*                                                     |   |
| 4.7.             | *Litigation*                                                                        |   |
| 4.8.             | *Compliance  with Law*                                                              |   |
| 4.9.             | *Finders or  Brokers*                                                               |   |
| 4.10.            | *Tax Matters*                                                                       |   |
| 4.11.            | *Registration  Statement; Proxy Statement/Prospectus*                               |   |
|             |                                                                                |   |
| ARTICLE V   | COVENANTS AND  AGREEMENTS                                                           |   |
|             |                                                                                |   |
| 5.1.             | *Conduct of  Business of the Company Pending the Merger*                            |   |
| 5.2.             | *Preparation  of Registration Statement; Proxy Statement/Prospectus; Blue Sky Laws* |   |
| 5.3.             | *Company  Stockholder Meeting*                                                      |   |
| 5.4.             | *Additional  Agreements, Cooperation*                                               |   |
| 5.5.             | *Publicity*                                                                         |   |
| 5.6.             | *No Solicitation.*                                                                  |   |
| 5.7.             | *Access to  Information*                                                            |   |
| 5.8.             | *Notification  of Certain Matters*                                                  |   |
| 5.9.             | *Resignation  of Officers and Directors*                                            |   |
| 5.10.            | *Indemnification*                                                                   |   |
| 5.11.            | *Stockholder  Litigation*                                                           |   |
| 5.12.            | *Employee Benefit  Plans*                                                           |   |
| 5.13.            | *Determination  of Optionholders*                                                   |   |
| 5.14.            | *Preparation  of Tax Returns*                                                       |   |
| 5.15.            | *Tax-Free  Reorganization*                                                          |   |
| 5.16.            | *SEC  Filings; Compliance*                                                          |   |
| 5.17.            | *Listing of  Additional Shares*                                                     |   |
| 5.18             | *Environmental  Investigation*                                                      |   |
| 5.19             | *Delivery of  Ancillary Documents*                                                  |   |
|             |                                                                                |   |
| ARTICLE VI  | CONDITIONS TO  CLOSING                                                              |   |
|             |                                                                                |   |
| 6.1.             | *Conditions  to Each Party’s Obligation to Effect the Merger*                  |   |
| 6.2.             | *Conditions  to Obligations of Parent*                                              |   |
| 6.3.             | *Conditions  to Obligations of the Company*                                         |   |
|             |                                                                                |   |
| ARTICLE VII | TERMINATION                                                                         |   |
|             |                                                                                |   |
| 7.1.             | *Termination*                                                                       |   |
| 7.2.             | *Effect of  Termination*                                                            |   |
| 7.3.             | *Fees and Expenses.*                                                                |   |
|                  |                                                                                     |        |  |  |

 

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| ARTICLE VIII | MISCELLANEOUS                                    |   |
|-------------------|--------------------------------------------------|--------|
|              |                                             |   |
| 8.1.              | *Nonsurvival  of Representations and Warranties* |   |
| 8.2.              | *Waiver*                                         |   |
| 8.3.              | *Attorneys’  Fees*                          |   |
| 8.4.              | *Notices.*                                       |   |
| 8.5.              | *Counterparts*                                   |   |
| 8.6.              | *Interpretation;  Construction*                  |   |
| 8.7.              | *Amendment*                                      |   |
| 8.8.              | *No  Third-Party Beneficiaries*                  |   |
| 8.9.              | *Governing  Law*                                 |   |
| 8.10.             | *Jurisdiction*                                   |   |
| 8.11.             | *Entire  Agreement*                              |   |
| 8.12              | *Validity*                                       |   |
|                   |                                                  |        |  |

 

**EXHIBITS**

 
| A  | Voting Agreement                         |
|----|------------------------------------------|
| B. | Non-competition  Agreement               |
| C. | Lock-up Agreement                        |
| D. | Employment  Agreement*                   |
| E. | Option  Assumption Agreement             |
| F  | Certificate of  Merger                   |
| G  | List of Parties  to Ancillary Agreements |

 

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*Employment Agreementsmade available upon request.

 

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**AGREEMENT AND PLAN OF MERGER**

 

This AGREEMENT AND PLAN OF MERGER (this *“Agreement”*), dated November 2, 2005, is made andentered into by and among MICROSEMI CORPORATION, a Delaware corporation (*“Parent”*), APT ACQUISITION CORP., a Delaware corporation andwholly owned subsidiary of Parent (*“Merger Sub”*),and ADVANCED POWER TECHNOLOGY, INC., a Delaware corporation (the *“Company”*).  MergerSub and the Company are sometimes collectively referred to as the “*Constituent Corporations*.”

 

**WITNESSETH:**

 

WHEREAS, the respective Boards of Directors of Parent,Merger Sub and the Company have determined that it is advisable and in the bestinterests of the respective corporations and their stockholders that Merger Subbe merged with and into the Company in accordance with the Delaware General CorporationLaw (the *“DGCL”*) and the terms of this Agreement,pursuant to which the Company will be the surviving corporation and will be awholly owned subsidiary of Parent (the *“Merger”*); and

 

WHEREAS, for United States federal income taxpurposes, the parties intend that the Merger shall qualify as a “reorganization”under Section 368(a) of the Internal Revenue Code of 1986, as amended(the “*Code*”), and that this Agreementconstitute a “plan of reorganization” within the meaning of the Code; and

 

WHEREAS, Parent, Merger Sub and the Company desire tomake certain representations, warranties, covenants, and agreements inconnection with, and establish various conditions precedent to, the Merger; and

 

WHEREAS, as an inducement to Parent to enter into thisAgreement, certain third parties are concurrently herewith entering into one ormore of the following agreements (collectively the “Ancillary Agreements”): a StockholderVoting Agreement in substantially the form attached hereto as Exhibit A(the *“Voting Agreement”*); a Non-competitionAgreement in substantially the form attached hereto as Exhibit B (“Non-competitionAgreement”); a Lock-up Agreement in substantially the form attached hereto as Exhibit C(the “Lock-up Agreement”), a Key-Employee Employment Agreement in substantiallythe form attached hereto as Exhibit D (the “Employment Agreement”), and/oran agreement to induce Parent to assume the outstanding Company Options underthe Company Stock Option Plans in substantially the form attached hereto as Exhibit E(the “Option Assumption Agreement”).

 

NOW, THEREFORE, in consideration of therepresentations, warranties, covenants and agreements set forth in thisAgreement and in the Certificate of Merger (as defined in Section 1.3hereof), the parties hereto, intending to be legally bound, agree as follows:

 

# **ARTICLE ITHE MERGER**

# ** **

### *1.1**                              **TheMerger.*  At theEffective Time (as defined in Section 1.3 hereof), subject to the termsand conditions of this Agreement and the Certificate of Merger, Merger Subshall be merged with and into the Company, the separate existence of Merger Subshall cease, and the Company shall

 

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### continue as the surviving corporation. The Company, in its capacity as the corporation surviving the Merger, ishereinafter sometimes referred to as the *“Surviving Corporation.”*

###  

### *1.2**                              **Effect ofMerger.*  At theEffective Time, the effect of the Merger shall be as provided in thisAgreement, the Certificate of Merger and the applicable provisions of the DGCL.  Without limiting the generality of theforegoing, the Surviving Corporation shall succeed to and possess all theproperties, rights, privileges, immunities, powers, franchises and purposes,and be subject to all the duties, liabilities, debts, obligations, restrictionsand disabilities, of the Constituent Corporations, all without further act ordeed.

###  

### *1.3**                              **EffectiveTime.*  Subject to theterms and conditions of this Agreement, the parties hereto will cause the “Certificateof Merger,” the form of which is attached hereto as *Exhibit F*,to be executed, delivered and filed with the Secretary of State of the State ofDelaware in accordance with the applicable provisions of the DGCL at the timeof the Closing (as defined in Section 1.7 hereof).  The Merger shall become effective upon filingof the Certificate of Merger with the Secretary of State of the State of Delaware,or at such later time as may be agreed to by the parties and set forth in the Certificateof Merger.  The time of effectiveness isherein referred to as the *“Effective Time.”*  The day on which the Effective Time shalloccur is herein referred to as the *“Effective Date.”*

###  

### *1.4**                              **Certificateof Incorporation; Bylaws.* From and after the Effective Time and until further amended inaccordance with applicable law, the Certificate of Incorporation of theCompany, as in effect immediately prior to the Effective Time, shall be the Certificateof Incorporation of the Surviving Corporation, as amended as set forth in anexhibit to the Certificate of Merger. From and after the Effective Time and until further amended inaccordance with law, the Bylaws of Merger Sub as in effect immediately prior tothe Effective Time shall be the Bylaws of the Surviving Corporation.

###  

### *1.5**                              **Directorsand Officers.*  From andafter the Effective Time, the directors of the Surviving Corporation shall bethe persons who were the directors of Merger Sub immediately prior to theEffective Time, and the officers of the Surviving Corporation shall be thepersons who were the officers of Merger Sub immediately prior to the EffectiveTime.  Said directors and officers of theSurviving Corporation shall hold office for the term specified in, and subjectto the provisions contained in, the Certificate of Incorporation and Bylaws ofthe Surviving Corporation and applicable law. If, at or after the Effective Time, a vacancy shall exist on the Boardof Directors or in any of the offices of the Surviving Corporation, suchvacancy shall be filled in the manner provided in the Certificate ofIncorporation and Bylaws of the Surviving Corporation.

###  

### *1.6**                              **Taking ofNecessary Action; Further Action.*  Parent, Merger Sub and the Company,respectively, shall each use its or their commercially reasonable best effortsto take all such action as may be necessary or appropriate to effectuate theMerger under the DGCL at the time specified in Section 1.3 hereof.  If, at any time after the Effective Time, anyfurther action is necessary or desirable to carry out the purposes of thisAgreement and to vest the Surviving Corporation with full right, title andpossession to all properties, rights, privileges, immunities, powers andfranchises of either of the Constituent Corporations, the officers of theSurviving Corporation are fully authorized in the name of each ConstituentCorporation or otherwise to take, and shall take, all such lawful and necessaryaction.

###  

### *1.7**                              **TheClosing.*  The closingof the transactions contemplated by this Agreement (the *“Closing”*)will take place at the offices of Microsemi Corporation at 2381 Morse Avenue,Irvine,

 

2

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### California, 92614, within three (3) business days after the dateon which the last of the conditions set forth in Article VI shall havebeen satisfied or waived, or at such other place and on such other date as ismutually agreeable to Parent and the Company (the *“ClosingDate”*).  The Closingwill be effective as of the Effective Time.

###  

# **ARTICLE IICONVERSION OF SECURITIES**

# ** **

### *2.1**                              **Conversionof Securities.*  At theEffective Time, by virtue of the Merger and without any action on the part ofParent, Merger Sub, the Company, the holder of any shares of Company CommonStock (as defined below) or the holder of any options, warrants or other rightsto acquire or receive shares of Company Common Stock, the following shalloccur:

###  

### (a)                                  *Conversionof Company Common Stock.* At the Effective Time, each share of common stock, par value $.01 pershare, of the Company (the *“Company Common Stock”*)issued and outstanding immediately prior to the Effective Time (other than anyshares of Company Common Stock to be canceled pursuant to Section 2.1(b) willbe canceled and extinguished and be converted automatically into the right toreceive the sum of two dollars ($2.00) in cash (the “Cash Component”), withoutinterest, plus 0.435 shares (the *“Exchange Ratio”*) of commonstock, par value $.20 per share, of the Parent (the *“ParentCommon Stock”*). Notwithstanding anything to the contrary setforth above, the aggregate amount of cash received under this Section 2.1by the stockholders of the Company who exchange Company Common Stock for ParentCommon Stock in the Merger shall not exceed twenty percent (20%) of the sum of (i) suchamount of cash plus (ii) the product of (A) the aggregate number ofshares of Parent Common Stock to be received in the Merger by such stockholdersmultiplied by (B) the closing sale price for a share of Parent CommonStock on the NASDAQ National Market on the trading day immediately prior to theEffective Time, and the Stock Component shall be increased so as to preventsuch a result. All references in this Agreement to Parent Common Stock to beissued pursuant to the Merger shall be deemed to include the correspondingrights to purchase pursuant to the Parent SRP Plan (defined in Section 4.2hereof), except where the context otherwise requires.

###  

### (b)                                 *Cancellationof Company Common Stock Owned by Parent or Company.*  At the Effective Time, all shares of CompanyCommon Stock that are owned by the Company as treasury stock and each share ofCompany Common Stock owned by Parent or any direct or indirect wholly ownedsubsidiary of Parent or of the Company immediately prior to the Effective Timeshall be canceled and extinguished without any conversion thereof.

###  

### (c)                                  *CompanyStock Option Plans and Warrant.*  At the Effective Time, the Company’s 1995Stock Option Plan and the Company’s Advanced Power Technology, Inc. 2005 EquityIncentive Plan (collectively, the *“Company Stock Option Plans”*)and all options to purchase Company Common Stock then outstanding under theCompany Stock Option Plans shall be assumed by Parent in accordance with Section 2.2hereof.  In addition, at the EffectiveTime, the Warrant to Purchase Stock dated February 2002 (the “Warrant”)shall be assumed by Parent in accordance with Section 2.2 hereof.

###  

### (d)                                 *CapitalStock of Merger Sub.* At the Effective Time, each share of common stock, $.01 par value, ofMerger Sub (*“Merger Sub Common Stock”*) issued and outstandingimmediately prior to the Effective Time shall be converted into and exchangedfor one validly issued, fully paid and nonassessable share of common stock,$.01 par value, of the Surviving Corporation,

 

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### and the Surviving Corporation shall be a wholly owned subsidiary ofParent.  Each stock certificate of MergerSub evidencing ownership of any such shares shall continue to evidenceownership of such shares of capital stock of the Surviving Corporation.

###  

### (e)                                  *Adjustmentsto Exchange Ratio.*  TheExchange Ratio shall be adjusted in the event of (i) any stock split,reverse split, stock dividend (including any dividend or distribution ofsecurities convertible into Parent Common Stock or Company Common Stock),reorganization, recapitalization, combination, exchange of shares, adjustmentor other like change with respect to Parent Common Stock or Company CommonStock occurring after the date hereof and prior to the Effective Time or (ii) anyincrease in the number of shares of Company Common Stock on a fully diluted,as-converted basis (i.e., assuming issuance of all shares of Company CommonStock issuable upon the exercise or conversion of all securities outstandingimmediately prior to the Effective Time which are convertible into orexercisable for shares of Company Common Stock, whether or not vested), otherthan increases resulting from transactions permitted in Section 5.1hereof, so as to provide holders of Company Common Stock and Parent the sameeconomic effect as contemplated by this Agreement prior to such stock split,reverse split, stock dividend, reorganization, recapitalization, combination,exchange of shares, adjustment or like change or increase.

###  

### (f)                                    *FractionalShares.*  No fraction ofa share of Parent Common Stock will be issued, but in lieu thereof each holderof shares of Company Common Stock who would otherwise be entitled to a fractionof a share of Parent Common Stock (after aggregating all fractional shares ofParent Common Stock to be received by such holder) shall receive from Parent anamount of cash without interest (rounded to the nearest whole cent) equal tothe product of (i) such fraction, multiplied by (ii) the closing saleprice for a share of Parent Common Stock on the Nasdaq National Market on thetrading day immediately prior to the Effective Time.

###  

### (g)                                 *DissentingShares*.  No dissenters’rights shall arise in connection with the Merger pursuant to Section 262(b) ofthe DGCL which applies to Company Common Stock.

###  

2.2.                              StockOptions and Warrant.

 

### (a)                                  Atthe Effective Time, each outstanding option to purchase shares of CompanyCommon Stock under the Company Stock Option Plans (each, a *“CompanyOption”*), whether vested or unvested immediately prior to theEffective Time, shall be assumed by Parent and converted into an option (each,an *“AssumedCompany Option”*) to acquire Parent Common Stock, onsubstantially the same terms and conditions as the Company Option, includingbut not limited to any performance criteria with respect to the Company’s businessoperations set forth in the applicable stock option agreements as wereapplicable under such Company Option.  TheAssumed Company Options will be calculated based on an “Implied Exchange Ratio”which shall equal the sum of (A) the Exchange Ratio plus (B) thequotient equal to dividing the Cash Component per share by the Parent CommonStock’s closing sale price per share on the Effective Date.  The number of whole shares of Parent CommonStock purchasable with an Assumed Company Option shall equal the number ofshares of Company Common Stock that were issuable upon exercise of such CompanyOption immediately prior to the Effective Time multiplied by the Implied ExchangeRatio, as adjusted pursuant to Section 2.1(e) above

 

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### (rounded down to the nearest whole number of shares of Parent CommonStock). The per share exercise price of the shares of Parent Common Stockissuable upon exercise of such Assumed Company Option shall be equal to theexercise price per share of Company Common Stock at which such Company Optionwas exercisable immediately prior to the Effective Time divided by the Implied ExchangeRatio, as adjusted pursuant to Section 2.1(e) above (rounded up tothe nearest whole cent).  Other than pursuantto the terms of existing commitments (all of which commitments are identifiedin Section 2.2 of the Company Disclosure Letter) (as defined in thepreamble to Article III hereof), the Company and any Company Stock OptionPlan administrator shall prior to the Effective Time not take any action thatwill add any benefit to the Company Options, including to extend the exerciseperiod of any Company Option or to cause the holder of any Company Option to receiveany right to payment under any circumstances, regardless of whether suchcircumstances are to occur before or after the Effective Time, or otherwise modifyor amend the terms of outstanding Company Options.

###  

### (b)                                 Alloutstanding rights of the Company which it may hold immediately prior to theEffective Time to repurchase unvested shares of Company Common Stock (the *“RepurchaseOptions”*) shall continue in effect following the Merger andshall continue to be exercisable by the Parent upon the same terms andconditions in effect immediately prior to the Effective Time, except that theshares purchasable pursuant to the Repurchase Options and the purchase priceper shall be adjusted to reflect the conversion to Parent Common Stock and theExchange Ratio.

###  

### (c)                                  Parentshall take all corporate action necessary to reserve for issuance a sufficientnumber of shares of Parent Common Stock for delivery upon exercise of the AssumedCompany Options and to file all documents required to be filed to cause theshares of Parent Common Stock issuable upon exercise of the Assumed CompanyOptions to be listed on the Nasdaq National Market.  As soon as practicable after the EffectiveTime, but subject to Parent’s blackout procedures and the Lock-up Agreement,Parent shall file a registration statement with the U.S. Securities andExchange Commission (the *“SEC”*) on Form S-8 (orany successor form) or another appropriate form with respect to the ParentCommon Stock subject to such Assumed Company Options, and shall use allcommercially reasonable best efforts to maintain the effectiveness of suchregistration statement or registration statements (and maintain the currentstatus of the prospectus or prospectuses contained therein) for so long as suchAssumed Company Options remain outstanding. As soon as practicable after the Effective Time, Parent shall inform inwriting the holders of Company Options of their rights pursuant to the CompanyStock Option Plans and the agreements evidencing the grants of such CompanyOptions shall continue in effect on the same terms and conditions (subject tothe adjustments required by Section 2.2(a) hereof), after givingeffect to the Merger and the assumption by Parent of the Company Options as setforth herein.

###  

### (d)                                 Inthe case of any Company Option to which Section 421 of the Code applies byreason of Section 422 of the Code (*“Incentive Stock Options”*),the option exercise price, the number of shares of Parent Common Stockpurchasable pursuant to such option and the terms and conditions of exercise ofsuch option shall be determined in order to comply with Section 424(a) ofthe Code to the extent practicable.

###  

### (e)                                  Parentwill make good faith efforts to ensure, to the extent permitted by the Code andto the extent required by and subject to the terms of any such Incentive StockOptions, that Company Options which qualified as Incentive Stock Options priorto the Closing Date continue to qualify as Incentive Stock Options of Parentafter the Closing.

###  

(f)                                    Atthe Effective Time, the Warrant shall be assumed by Parent in accordance with Section 1.7.2of the Warrant.

 

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## 2.3.                              Exchangeof Certificates.

##  

### (a)                                  Priorto the Effective Time, Parent shall designate a commercial bank, trust companyor other financial institution, which may include Parent’s stock transferagent, to act as the exchange agent (*“Exchange Agent”*) in theMerger.

###  

### (b)                                 Promptlyafter the Effective Time, Parent shall make available to the Exchange Agent forexchange in accordance with this Article II, (i) the aggregate numberof shares of Parent Common Stock issuable pursuant to Section 2.1 inexchange for outstanding shares of Company Common Stock, and (ii) cash inan amount sufficient to permit payment of the Cash Component pursuant to Section 2.1(a) andcash in lieu of fractional shares pursuant to Section 2.1(f) (the *“ExchangeFund”*).

###  

### (c)                                  Promptly,and in any event no later than ten (10) business days after the EffectiveTime, the Parent shall cause to be mailed to each holder of record of acertificate or certificates which immediately prior to the Effective Timerepresented outstanding shares of Company Common Stock (the *“Certificates”*)(i) a letter of transmittal (which shall specify that delivery shall beeffected, and risk of loss and title to the Certificates shall pass, only uponproper delivery of the Certificates to the Exchange Agent, and shall be in suchform and have such other provisions as Parent may reasonably specify and whichshall be reasonably acceptable to the Company) and (ii) instructions foruse in effecting the surrender of the Certificates in exchange for the CashComponent and a certificate or certificates representing shares of ParentCommon Stock (and cash in lieu of fractional shares).  Upon surrender of a Certificate forcancellation to the Exchange Agent, together with such letter of transmittal,duly completed and validly executed, and such other documents as may bereasonably required pursuant to such instructions, the holder of suchCertificate shall be entitled to receive in exchange a certificate representingthe number of whole shares of Parent Common Stock, plus cash in lieu offractional shares in accordance with Section 2.1(f), to which such holderis entitled pursuant to Section 2.1, and the Certificate so surrenderedshall forthwith be canceled.  Untilsurrendered as contemplated by this Section 2.3, each Certificate that,prior to the Effective Time, represented shares of Company Common Stock will bedeemed from and after the Effective Time, for all corporate purposes, otherthan the payment of dividends, to evidence the right to receive the number offull shares of Parent Common Stock into which such shares of Company CommonStock shall have been so converted and the right to receive an amount of cashin lieu of the issuance of any fractional shares in accordance with Section 2.1(f).

###  

### (d)                                 Nodividends or other distributions declared or made after the Effective Time withrespect to Parent Common Stock with a record date after the Effective Time willbe paid to the holder of any unsurrendered Certificate with respect to theshares of Parent Common Stock represented thereby until the holder of record ofsuch Certificate shall surrender such Certificate.  Subject to applicable law, followingsurrender of any such Certificate, there shall be paid to the record holder ofthe certificates representing whole shares of Parent Common Stock issued inexchange for the Certificate, without interest, at the time of such surrender,the amount of dividends or other distributions with a record date after theEffective Time theretofore paid with respect to such whole shares of ParentCommon Stock.

###  

### (e)                                  Noneof the Parent, the Surviving Corporation or the Exchange Agent shall be liableto any holder of shares of Company Common Stock for any amount properlydelivered to a public official in compliance with any abandoned property,escheat or similar law.

 

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### (f)                                    Atthe Effective Time, the stock transfer books of the Company shall be closed andthere shall be no further registration of transfers of shares of Company CommonStock thereafter on the records of the Company. From and after the Effective Time, the holders of the Certificatesrepresenting shares of Company Common Stock outstanding immediately prior tothe Effective Time shall cease to have any rights with respect to such sharesof Company Common Stock except as otherwise provided in this Agreement or bylaw.

###  

### (g)                                 Subjectto any applicable escheat or similar laws, any portion of the Exchange Fundthat remains unclaimed by the former stockholders of the Company for one yearafter the Effective Time shall be delivered by the Exchange Agent to Parent,upon demand of Parent, and any former stockholders of the Company shallthereafter look only to Parent for satisfaction of their claim for certificatesrepresenting shares of Parent Common Stock in exchange for their shares ofCompany Common Stock pursuant to the terms of Section 2.1 hereof.

###  

### (h)                                 Ifany Certificate shall have been lost, stolen or destroyed, upon the making ofan affidavit of that fact, in form and substance reasonably acceptable to theExchange Agent, by the person claiming such Certificate to be lost, stolen ordestroyed, and complying with such other conditions as the Exchange Agent mayreasonably impose (including the execution of an indemnification undertaking orthe posting of an indemnity bond or other surety in favor of the Exchange Agentand Parent with respect to the Certificate alleged to be lost, stolen ordestroyed), the Exchange Agent will deliver to such person, the Cash Component,such shares of Parent Common Stock and cash in lieu of fractional shares, ifany, as may be required pursuant to Section 2.1.

###  

# **ARTICLE IIIREPRESENTATIONS AND WARRANTIES OF THE COMPANY**

# ** **

The Company represents and warrants to Merger Sub andParent that the statements contained in this Article III are true andcorrect, except as set forth in the letter delivered by the Company to Parentand Merger Sub on the date hereof (the *“Company Disclosure Letter”*)(which Company Disclosure Letter sets forth the exceptions to therepresentations and warranties contained in this Article III with regardonly to the Sections corresponding to the respective captions of the exceptionsin the Company Disclosure Letter, any other Sections expressly referenced bysuch exceptions, and any additional Sections only if and to the extent that thecontext of the Company Disclosure Letter makes it reasonably apparent that suchexceptions apply to such other Sections in this Article III):

 

## *3.1.**                           *Organizationand Qualification.  Each of the Company and its Subsidiaries (asdefined below) is a company duly incorporated, validly existing and, ifapplicable, in good standing under the laws of the jurisdiction of itsincorporation and each such entity has all requisite corporate power andauthority to own, lease and operate its properties and to carry on its businessas now being conducted.  Each of theCompany and its Subsidiaries is duly qualified or licensed to carry on its businessas it is now being conducted, and is qualified to conduct business, in eachjurisdiction where the character of its properties owned or leased or thenature of its activities makes such qualification necessary, except forfailures to be so qualified that would not, individually or in the aggregate,have a Company Material Adverse Effect (as defined below).  Neither the Company nor any of itsSubsidiaries is in violation of any of the provisions of its Certificate ofIncorporation or other applicable charter document (any such document of anybusiness entity hereinafter referred to as its “CharterDocument”) or its Bylaws, or other applicable organizationaldocument (any such documents of any business entity hereinafter referred to asits “GoverningDocument”).  The

 

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## Company has delivered to Merger Sub accurate and complete copies of therespective Charter Documents and Governing Documents, as currently in effect,of each of the Company and its Subsidiaries. As used in this Agreement, the term “CompanyMaterial Adverse Effect” means any change, effect, event orcondition that (i) has a material adverse effect on the assets, businessor financial condition of the Company and its Subsidiaries, taken as a whole(other than any such change, effect, event or condition that arises as a resultof the transactions contemplated hereby), or (ii) would prevent ormaterially impair the Company’s ability to consummate the transactionscontemplated hereby.  As used in thisAgreement, the term “Subsidiary” when used with respect to any party meansany corporation or other organization, whether incorporated or unincorporated,of which such party directly or indirectly owns or controls at least a majorityof the securities or other interests having by their terms ordinary votingpower to elect a majority of the board of directors or others performingsimilar functions.

##  

## *3.2.**                           *CapitalStock of Subsidiaries. Neither the Company nor any of its Subsidiaries owns, controls or holdswith the power to vote, directly or indirectly, of record, beneficially orotherwise, any share of capital stock or any equity or ownership interest inany company, corporation, partnership, association, joint venture, business,trust or other entity, except for the Subsidiaries described in the Company SECReports (as defined in Section 3.6(a) hereof) or listed in Section 3.2of the Company Disclosure Letter, and except for ownership of securities in anypublicly traded company held for investment by the Company or any of itsSubsidiaries and comprising less than five percent of the outstanding stock ofsuch company.  Except as set forth in Section 3.2of the Company Disclosure Letter, the Company is directly or indirectly therecord and beneficial owner of all of the outstanding shares of capital stockof each of its Subsidiaries and no equity securities of any of suchSubsidiaries are or may be required to be issued by reason of any options,warrants, scrip, rights to subscribe for, calls or commitments of any characterwhatsoever relating to, or securities or rights convertible into orexchangeable for, shares of any capital stock of any such Subsidiary, and thereare no contracts, commitments, understandings or arrangements by which theCompany or any such Subsidiary is bound to issue, transfer or sell any sharesof such capital stock or securities convertible into or exchangeable for suchshares.  Other than as set forth in Section 3.2of the Company Disclosure Letter, all of such shares so owned by the Companyare validly issued, fully paid and nonassessable and are owned by it free andclear of any claim, lien, pledge, security interest or other encumbrance of anykind (collectively “Liens”) with respect thereto otherthan restrictions on transfer pursuant to applicable securities laws.

##  

## *3.3.**                           *Capitalization.  The authorized capital stock of the Company consistsof 19,000,000 shares of Company Common Stock, $.01 par value per share, and 1,000,000shares of preferred stock, $.001 par value per share (the “CompanyPreferred Stock”).  As of the close of business on November 1,2005 (the “Company Measurement Date”), (a) 10,826,064 sharesof Company Common Stock were issued and outstanding, (b) no shares ofCompany Preferred Stock were issued and outstanding, (c) the Company had 116,850shares of Treasury stock, and (d) Company Options to purchase 1,533,785shares of Company Common Stock had been granted and remained outstanding underthe Company Stock Option Plans, and (e) a warrant to purchase 1,725 sharesof Company Common Stock. Except as permitted by Section 5.1(b), since theCompany Measurement Date, no additional shares in the Company have been issuedand no Rights (as defined below) have been granted.  Except as described in the preceding sentenceor as set forth in Section 3.3 of the Company Disclosure Letter, theCompany has no outstanding bonds, debentures, notes or other securities orobligations the holders of which have the right to vote or which areconvertible into or exercisable for securities having the right to vote on anymatter on which any stockholder of the Company has a right to vote.  All issued and outstanding shares of CompanyCommon Stock are

 

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## duly authorized, validly issued, fully paid, nonassessable and free ofpreemptive rights.  There are not as ofthe date hereof any existing options, warrants, stock appreciation rights,stock issuance rights, calls, subscriptions, convertible securities or otherrights which obligate the Company or any of its Subsidiaries to issue, exchange,transfer or sell any shares of the capital stock of the Company or any of itsSubsidiaries, other than rights to purchase shares of Company Common Stockissuable under the Company Stock Option Plans (“Rights”).  As of the date hereof, there are nooutstanding contractual obligations of the Company or any of its Subsidiariesto repurchase, reprice, redeem or otherwise acquire any shares of the capitalstock of the Company or any of its Subsidiaries.  As of the date hereof, there are nooutstanding contractual obligations of the Company to vote or to dispose of anyshares of the capital stock of any of its Subsidiaries.

##  

## *3.4.**                           *AuthorityRelative to this Agreement. The Company has the requisite corporate power and authority to executeand deliver, and perform its obligations under this Agreement and, subject toobtaining the necessary approval of its stockholders, to consummate the Mergerand the other transactions contemplated hereby under applicable law.  The execution and delivery of this Agreement andthe consummation of the Merger and other transactions contemplated hereby havebeen duly and validly authorized by the Board of Directors of the Company andno other corporate proceedings on the part of the Company are necessary toauthorize this Agreement or to consummate the Merger or other transactionscontemplated hereby (other than approval by the Company’s stockholders asrequired by applicable law).  ThisAgreement and the agreements contemplated hereby have been duly and validlyexecuted and delivered by the Company and, assuming the due authorization,execution and delivery hereof by Parent and Merger Sub, each constitutes avalid and binding agreement of the Company, enforceable against the Company inaccordance with its terms, except to the extent that its enforceability may belimited by applicable bankruptcy, insolvency, reorganization, moratorium orother laws affecting the enforcement of creditors rights generally or bygeneral equitable principles.

##  

*3.5.**                           **NoConflict; Required Filings and Consents.*

 

### (a)                                  Assumingthat all filings, permits, authorizations, consents and approvals or waiversthereof have been duly made or obtained as contemplated by Section 3.5(b) hereof,neither the execution and delivery of this Agreement by the Company nor theconsummation of the Merger or other transactions contemplated hereby norcompliance by the Company with any of the provisions hereof will (i) violate,conflict with, or result in a breach of any provision of, or constitute adefault (or an event which, with notice or lapse of time or both, wouldconstitute a default) under, or result in the termination or suspension of, oraccelerate the performance required by, or result in a right of termination oracceleration under, or result in the creation of any Lien upon any of theproperties or assets of the Company or any of its Subsidiaries under, any ofthe terms, conditions or provisions of (A) their respective CharterDocuments or Governing Documents, (B) any note, bond, charge, lien,pledge, mortgage, indenture or deed of trust to which the Company or any suchSubsidiary is a party or to which they or any of their respective properties orassets may be subject, or (C) any license, lease, agreement or otherinstrument or obligation to which the Company or any such Subsidiary is a partyor to which they or any of their respective properties or assets may besubject, or (ii) violate any judgment, ruling, order, writ, injunction,decree, statute, rule or regulation applicable to the Company or any ofits Subsidiaries or any of their respective properties or assets, except, inthe case of clauses (i) (B) and (C) and (ii) above, forsuch violations, conflicts, breaches, defaults, terminations, suspensions,accelerations, rights of termination or acceleration or creations of liens,security interests, charges or encumbrances which would not, individually or inthe aggregate, have a Company Material Adverse Effect.

 

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### (b)                                 Nofiling, registration with or notification to, and, no permit, authorization,consent or approval of any court, commission, governmental body, regulatoryauthority, agency or tribunal wherever located (a *“GovernmentalEntity”*) is required to be obtained, made or given by theCompany in connection with the execution and delivery of this Agreement or theconsummation by the Company of the Merger or other transactions contemplatedhereby or thereby except (i) (A) the filing of the Certificate ofMerger as provided in Section 1.3 hereof, (B) in connection with theapplicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of1976, as amended (the *“HSR Act”*), (C) thefiling of the *Proxy Statement/Prospectus* (as defined in Section 3.26hereof) and such reports under Sections 13(a), 13(d), 15(d) or 16(a) withthe SEC in accordance with the Securities Exchange Act of 1934, as amended, andthe rules and regulations promulgated thereunder (the *“ExchangeAct”*) and the Securities Act of 1933, as amended, and the rules andregulations promulgated thereunder (the *“Securities Act”*), as maybe required in connection with this Agreement and the transactions contemplatedhereby, or (D) such consents, approvals, orders, authorizations,registrations, declarations and filings as may be required under applicablestate securities laws and the laws of any country other than the United States,or in any case (ii) where the failure to obtain any such consents,approvals, authorizations or permits, or to make such filings or notifications,would not, individually or in the aggregate, have a Company Material AdverseEffect.

###  

*3.6.**                           **SECFilings; Financial Statements.*

 

### (a)                                  TheCompany has filed all forms, reports, schedules, statements and other documentsrequired to be filed by it since January 1, 2002 to the date hereof (collectively,as supplemented and amended since the time of filing, the *“CompanySEC Reports”*) with the SEC. The Company SEC Reports (i) were prepared in all material respectswith all applicable requirements of the Securities Act and the Exchange Act, asthe case may be and (ii) did not at the time they were filed contain anyuntrue statement of a material fact or omit to state any material fact requiredto be stated therein or necessary in order to make the statements therein, inlight of the circumstances under which they were made, not misleading.  The representation in clause (ii) ofthe preceding sentence does not apply to any misstatement or omission in anyCompany SEC Report filed prior to the date of this Agreement which wassuperseded by a subsequent Company SEC Report filed prior to the date of thisAgreement.  No Subsidiary of the Companyis required to file any report, form or other document with the SEC. TheCompany is, and shall at all times prior to the Effective Time remain, in full compliancewith the requirements of the Securities Exchange Commission, applicable statesecurities commissions, the Nasdaq Stock Market and the Sarbanes Oxley Act of2002, including but not limited to its Section 404, “Management Assessmentof Internal Controls.”

###  

### (b)                                 Theaudited consolidated financial statements and unaudited consolidated interimfinancial statements of the Company and its Subsidiaries included orincorporated by reference in such Company SEC Reports (collectively, the *“FinancialStatements”*) have been prepared in accordance with UnitedStates generally accepted accounting principles applied on a consistent basisduring the periods involved (except as may be otherwise indicated in the notesthereto) and present fairly, in all material respects, the financial positionand results of operations and cash flows of the Company and its Subsidiaries ona consolidated basis at the respective dates and for the respective periodsindicated (except, in the case of all such financial statements that are interimfinancial statements, for footnotes and normal year-end adjustments).

###  

### (c)                                  Neitherthe Company nor any of its Subsidiaries has any liabilities or obligations ofany nature, whether absolute, accrued, un-matured, contingent or otherwisewhether due or to become due, known or unknown, or any unsatisfied judgments orany leases of personalty

 

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### or realty or unusual or extraordinary commitments that are required tobe shown on the face of a balance sheet or disclosed in notes to financialstatements under United States generally accepted accounting principles, except(i) liabilities recorded on the Company’s balance sheet at December 31,2004 (the “*Balance Sheet*”) included in the financial statementsreferred in Section 3.6(a) hereof and the notes thereto, or (ii) liabilitiesor obligations incurred since December 31, 2004 (whether or not incurredin the ordinary course of business and consistent with past practice) thatwould not, individually or in the aggregate, have a Company Material AdverseEffect.

###  

## *3.7.**                           *Absence ofChanges or Events.  Exceptas set forth in Section 3.7 of the Company Disclosure Letter or in theCompany SEC Reports, since December 31, 2004 through the date of thisAgreement, the Company and its Subsidiaries have not incurred any liability orobligation that has resulted or would reasonably be expected to result in aCompany Material Adverse Effect, and there has not been any change in thebusiness, financial condition or results of operations of the Company or any ofits Subsidiaries which has had, or would reasonably be expected to have,individually or in the aggregate, a Company Material Adverse Effect, and theCompany and its Subsidiaries have conducted their respective businesses in the ordinarycourse consistent with their past practices.

##  

## *3.8.**                           *Litigation.  Except as disclosed in the Company SECReports or as set forth in Section 3.8 of the Company Disclosure Letter,there is no (a) claim, action, suit or proceeding pending or, to the Knowledge(as defined in Section 8.6 hereof) of the Company or any of itsSubsidiaries, threatened against or relating to the Company or any of itsSubsidiaries, or (b) outstanding judgment, order, writ, injunction ordecree (collectively, “Orders”), or application, request ormotion therefor, in a proceeding to which the Company, any Subsidiary of theCompany or any of their respective assets was or is a party except actions,suits, proceedings or Orders that, individually or in the aggregate, has nothad or would not reasonably be expected to have a Company Material AdverseEffect, and neither the Company nor any Subsidiary is in default in anymaterial respect with respect to any such Order.

##  

## *3.9.**                           *Title toProperties. Section 3.9 of the CompanyDisclosure Letter includes an accurate list and general description of all realproperty owned by the Company or any of its Subsidiaries.  Each of the Company and its Subsidiaries hasgood and marketable title to the real properties that it owns (the “Owned RealProperty”) free and clear of all mortgages, covenants, conditions,restrictions, easements, liens, security interests, charges, claims,assessments and encumbrances, except for (a) rights of lessors, lessees orsublessees in such matters that are reflected in a written lease disclosed inthe Company Disclosure Letter; (b) current taxes (including assessmentscollected with taxes) not yet due and payable; (c) encumbrances, if any,that are not substantial in character, amount or extent and do not materiallydetract from the value, or interfere with present use, or the ability of theCompany or its Subsidiaries to dispose, of the property subject thereto oraffected thereby; and (d) other matters as described in Section 3.9of the Company Disclosure Letter. The Company has heretofore made available toParent correct and complete copies of all leases, subleases and otheragreements (collectively, the “Real Property Leases”) underwhich the Company or any of its Subsidiaries uses or occupies or has the rightto use or occupy, now or in the future, any real property or facility (the “Leased RealProperty”), including without limitation all modifications,amendments and supplements thereto. Except in each case where the failure would not, individually or in theaggregate, have a Company Material Adverse Effect or except as otherwise setforth in Section 3.9 of the Company Disclosure Letter, (i) theCompany or one of its Subsidiaries has a valid leasehold interest in eachparcel of Leased Real Property free and clear of all Liens except liens ofrecord and other permitted liens and each Real Property Lease is in full forceand effect, (ii) all rent and other sums and charges due and payable bythe Company or its

 

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## Subsidiaries as tenants thereunder are current in all materialrespects, (iii) no termination event or condition or uncured default of amaterial nature on the part of the Company or any such Subsidiary or, to theKnowledge of the Company or any such Subsidiary, the landlord, exists under anyReal Property Lease, (iv) the Company or one of its Subsidiaries is inactual possession of each Leased Real Property and is entitled to quietenjoyment thereof in accordance with the terms of the applicable Real PropertyLease and applicable law, and (v) the Company and its Subsidiaries ownoutright all of the personal property (except for leased property or assets forwhich it has a valid and enforceable right to use) which is reflected on theBalance Sheet, except for property since sold or otherwise disposed of in theordinary course of business and consistent with past practice and except forliens of record and other permitted liens. Except where the failure would not, individually or in the aggregate,have a Company Material Adverse Effect, the plant, property and equipment ofthe Company and its Subsidiaries that are used in the operations of theirbusinesses are in good operating condition and repair, subject to ordinary wearand tear, and, subject to normal maintenance, are available for use.

##  

## *3.10.**                    *CertainContracts.  Neither theCompany nor any of its Subsidiaries has breached, or received in writing anyclaim or notice that it has breached, any of the terms or conditions of (i) anyagreement, contract or commitment required to be filed as an exhibit to theCompany SEC Reports (including any agreements, contracts or commitments enteredinto since December 31, 2004 that will be required to be filed by theCompany with the SEC in any report), (ii) any agreements, contracts orcommitments with manufacturers, suppliers, sales representatives, distributors,or original equipment manufacturer (“OEM”) strategic partners of the Companypursuant to which the Company recognized revenues or payments in excess of $250,000for the twelve-month period ended December 31, 2004, or (iii) anyagreements, contracts or commitments containing covenants that limit theability of the Company or any of its Subsidiaries to compete in any line ofbusiness or with any Person (as defined in Section 8.6 hereof), or thatinclude any exclusivity provision or involve any restriction on the geographicarea in which the Company or any of its Subsidiaries may carry on its business(collectively, “Company Material Contracts”),in such a manner as, individually or in the aggregate, has had or wouldreasonably be expected to have a Company Material Adverse Effect.  Section 3.10 of the Company DisclosureLetter lists each Company Material Contract described in clauses (ii) and (iii) ofthe preceding sentence.  Each CompanyMaterial Contract that has not expired by its terms is in full force and effectand is the legal, valid and binding obligation of the Company and/or itsSubsidiaries, enforceable against them in accordance with its terms, subject toapplicable bankruptcy, insolvency, reorganization, moratorium and similar lawsaffecting creditors rights and remedies generally and subject, as toenforceability, to general principles of equity (regardless of whetherenforcement is sought in a proceeding at law or in equity), except where thefailure of such Company Material Contract to be in full force and effect or tobe legal, valid, binding or enforceable against the Company and/or itsSubsidiaries has not had and would not, individually or in the aggregate, reasonablybe expected to have a Company Material Adverse Effect.  Except as set forth in Section 3.10 ofthe Company Disclosure Letter, no consent, approval, waiver or authorizationof, or notice to any Person is needed in order that each such Company MaterialContract shall continue in full force and effect in accordance with its termswithout penalty, acceleration or rights of early termination by reason of theconsummation of the Merger and the other transactions contemplated by thisAgreement.  Except as set forth in Section 3.10of the Company Disclosure Letter, there is no agreement, contract, commitmentor obligation of any kind that arises by reason of the consummation of theMerger and the other transactions contemplated by this Agreement.

 

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## *3.11.**                    *Compliancewith Law.  Except where thefailure would not have a Company Material Adverse Effect, all activities of theCompany and its Subsidiaries have been, and are currently being, conducted incompliance in all material respects with all applicable United States federal,state, provincial and local and other foreign laws, ordinances, regulations,interpretations, judgments, decrees, injunctions, permits, licenses,certificates, governmental requirements, and Orders of any court or otherGovernmental Entity or any nongovernmental self-regulatory agency, and nonotice has been received by the Company or any Subsidiary of any claims filedagainst the Company or any Subsidiary alleging a violation of any such laws,regulations or other requirements which would be required to be disclosed inany Company SEC Report or any New SEC Report (as defined in Section 5.16hereof).  The Company Stock Option Planshave been duly authorized, approved and operated in compliance in all materialrespects with all applicable securities, corporate and other laws of eachjurisdiction in which participants of such plans are located.  The Company and its Subsidiaries have allpermits, licenses and franchises from Governmental Entities required to conducttheir businesses as now being conducted, except for such permits, licenses andfranchises the absence of which has not had and would not, individually or inthe aggregate, have a Company Material Adverse Effect.

##  

## *3.12.**                    *IntellectualProperty Rights. The Company and its Subsidiaries own, or arevalidly licensed or otherwise possess legally enforceable rights to use, allpatents, trademarks, trade names, service marks, domain names and copyrights,any applications for and registrations of such patents, trademarks, tradenames, service marks, domain names and copyrights, and all database rights, netlists, processes, formulae, methods, schematics, technology, know-how, computersoftware programs or applications and tangible or intangible proprietaryinformation or material that are necessary to conduct the business of theCompany and its Subsidiaries as currently conducted, or presently planned to beconducted, except for such rights the absence of which would not be reasonablyexpected to have a Company Material Adverse Effect (the “CompanyIntellectual Property Rights”).  The Company and its Subsidiaries have taken,or are taking (on going matters), all action reasonably necessary to protectthe Company Intellectual Property Rights which is customary in the industry,including without limitation, use of reasonable secrecy measures to protect thetrade secrets included in the Company Intellectual Property Rights.

##  

### (a)                                  Theexecution and delivery of this Agreement and consummation of the transactionscontemplated hereby will not result in the breach of, or create on behalf ofany third party the right to terminate or modify, any material license,sublicense or other agreement relating to the Company Intellectual PropertyRights, or any material licenses, sublicenses or other agreements as to whichthe Company or any of its Subsidiaries is a party and pursuant to which theCompany or any of its Subsidiaries is authorized to use any third partypatents, trademarks, copyrights or trade secrets (*“CompanyThird-Party Intellectual Property Rights”*), includingsoftware that is used in the manufacture of, incorporated in, or forms a partof any product sold by or expected to be sold by the Company or any of itsSubsidiaries, the breach of which would, individually or in the aggregate, bereasonably likely to have a Company Material Adverse Effect.  The Company Disclosure Letter, under thecaption referencing this Section 3.12, lists all royalties, license fees,sublicense fees or similar obligations requiring payment in excess of $100,000per year by the Company or any Subsidiary for any Company Third-PartyIntellectual Property Rights that are used in the manufacture of, incorporatedin, or forms a part of any product sold by or expected to be sold by theCompany or any of its Subsidiaries.

###  

### (b)                                 Allpatents, registered trademarks, service marks, domain names and copyrightswhich are held by the Company or any of its Subsidiaries, the loss orinvalidity of which

 

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### would reasonably be expected to cause a Company Material AdverseEffect, are in force and are believed to be valid and subsisting.  The Company (i) has not been sued in anyunresolved suit, action or proceeding, or received in writing any claim or notice,which involves a claim of infringement or misappropriation of any patents,trademarks, service marks, domain names, copyrights or violation of any tradesecret or other proprietary right of any third party; and (ii) has noKnowledge that the manufacturing, marketing, licensing or sale of its productsor services infringe upon, misappropriate or otherwise come into conflict withany patent, trademark, service mark, copyright, trade secret or otherproprietary right of any third party, which infringement, misappropriation orconflict in the cases of clause (i) and (ii) would, individuallyor in the aggregate, reasonably be expected to have a Company Material AdverseEffect.  To the Knowledge of the Company,no other Person has interfered with, infringed upon, or otherwise come intoconflict with any Company Intellectual Property Rights or other proprietaryinformation of the Company or any of its Subsidiaries which has or would,individually or in the aggregate, reasonably be expected to have a Company MaterialAdverse Effect.

###  

### (c)                                  Exceptwhere the failure to do so would not have a Company Material Adverse Effect, tothe Company’s Knowledge, each employee, agent, consultant or contractor who hasmaterially contributed to or participated in the creation or development of anycopyrightable, patentable or trade secret material on behalf of the Company,any of its Subsidiaries or any predecessor in interest thereto either:  (i) is a party to an agreement underwhich the Company or such Subsidiary is deemed to be the original owner/authorof all property rights therein; or (ii) has executed an assignment or anagreement to assign in favor of the Company, such Subsidiary or suchpredecessor in interest, as applicable, all right, title and interest in suchmaterial.

###  

### (d)                                 Exceptwhere the failure to do so would not have a Company Material Adverse Effect,the Company and its Subsidiaries have not suffered any compromise of datasecurity or any corruption or loss of data.

###  

## *3.13.**                    *Taxes.

##  

### (a)                                  *“Tax”*or *“Taxes”*shall mean all United States federal, state, provincial, local or foreign taxesand any other applicable duties, levies, fees, charges and assessments that arein the nature of a tax, including income, gross receipts, property, sales, use,license, excise, franchise, ad valorem, value-added, transfer, social securitypayments, and health taxes and any deductibles relating to wages, salaries andbenefits and payments to subcontractors for any jurisdiction in which theCompany or any of its Subsidiaries does business (to the extent required underapplicable Tax law), together with all interest, penalties and additionsimposed with respect to such amounts.

###  

### (b)                                 Exceptas set forth in (or resulting from matters set forth in) Section 3.13 ofthe Company Disclosure Letter or as could not, individually or in theaggregate, reasonably be expected to have a Company Material Adverse Effect:

###  

#### (i)                                     theCompany and its Subsidiaries have prepared and timely filed with theappropriate governmental agencies all franchise, income, sales and all othermaterial Tax returns and reports required to be filed on or before theEffective Time (collectively *“Returns”*),taking into account any extension of time to file granted to or obtained onbehalf of the Company and/or its Subsidiaries;

 

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#### (ii)                                  allTaxes of the Company and its Subsidiaries shown on such Returns or otherwiseknown by the Company to be due or payable have been timely paid in full to theproper authorities, other than such Taxes as are being contested in good faithby appropriate proceedings or which are adequately reserved for in accordancewith generally accepted accounting principles;

####  

#### (iii)                               alldeficiencies resulting from Tax examinations of income, sales and franchise andall other material Returns filed by the Company and its Subsidiaries in anyjurisdiction in which such Returns are required to be so filed have either beenpaid or are being contested in good faith by appropriate proceedings;

####  

#### (iv)                              nodeficiency has been asserted or assessed against the Company or any of itsSubsidiaries which has not been satisfied or otherwise resolved, and noexamination of the Company or any of its Subsidiaries is pending or, to theKnowledge of the Company, threatened for any material amount of Tax by anytaxing authority;

####  

#### (v)                                 noextension of the period for assessment or collection of any material Tax iscurrently in effect and no extension of time within which to file any materialReturn has been requested, which Return has not since been filed;

####  

#### (vi)                              allReturns filed by the Company and its Subsidiaries are correct and complete inall material respects or adequate reserves have been established with respectto any additional Taxes that may be due (or may become due) as a result of suchReturns not being correct or complete;

####  

#### (vii)                           to theKnowledge of the Company, no Tax liens have been filed with respect to anyTaxes;

####  

#### (viii)                        neitherthe Company nor any of its Subsidiaries have made since January 1, 1999,and none will make, any voluntary adjustment by reason of a change in theiraccounting methods for any pre-Merger period;

####  

#### (ix)                                theCompany and its Subsidiaries have made timely payments of the Taxes required tobe deducted and withheld from the wages paid to their employees;

####  

#### (x)                                   theCompany and its Subsidiaries are not parties to any Tax sharing or Tax mattersagreement; and

####  

#### (xi)                                tothe Knowledge of the Company, neither the Company nor any of its Subsidiariesis liable to be assessed for or made accountable for any Tax for which any otherperson or persons may be liable to be assessed or made accountable whether byvirtue of the entering into or the consummation of the Merger or by virtue ofany act or acts done by or which may be done by or any circumstance orcircumstances involving or which may involve any other person or persons.

####  

### (c)                                  TheCompany and its Subsidiaries are not parties to any agreement, contract, orarrangement that would, as a result of the transactions contemplated hereby,result, separately or in the aggregate, in (i) the payment of any “excessparachute payments” within the meaning of

 

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### Section 280G of the Code by reason of the Merger or (ii) thepayment of any form of compensation or reimbursement for any Tax incurred byany Person arising under Section 280G of the Code.

###  

## *3.14.**                    *Employees.  Neither the Company nor any of itsSubsidiaries is a party to any collective bargaining agreement, arrangement orlabor contract with a labor union or labor organization, whether formal orotherwise.  The Company DisclosureLetter, under the caption referencing this Section 3.14, lists allemployment, severance and change of control agreements (or any other agreementsthat may result in the acceleration of outstanding options) of the Company orits Subsidiaries.  Each of the Companyand its Subsidiaries is in compliance with all applicable laws (including,without limitation, all applicable extension orders) respecting employment andemployment practices, terms and conditions of employment, equal opportunity,anti-discrimination laws, and wages and hours, except where such noncompliancehas not had and would not, individually or in the aggregate, reasonably beexpected to have, a Company Material Adverse Effect.  There is no labor strike, slowdown or stoppage pending(or, to the Knowledge of the Company or any of its Subsidiaries, any unfairlabor practice complaints, labor disturbances or other controversies respectingemployment which are pending or threatened which, if they actually occurred,would reasonably be expected to have a Company Material Adverse Effect) againstthe Company or any of its Subsidiaries.

##  

## *3.15.**                    *EmployeeBenefit Plans.

##  

### (a)                                  *“ERISA”*means the Employee Retirement Income Security Act of 1974, as amended, and *“Plan”*means every plan, fund, contract, program and arrangement (whether written ornot) which is maintained or contributed to by the Company and its Subsidiariesfor the benefit of present or former employees or with respect to which theCompany and its Subsidiaries otherwise has current or potential liability.  Plan includes any arrangement intended toprovide:  (i) medical, surgical,health care, hospitalization, dental, vision, workers’ compensation, lifeinsurance, death, disability, legal services, severance, sickness, accident, orcafeteria plan benefits (whether or not defined in Section 3(1) ofERISA), (ii) pension, profit sharing, stock bonus, retirement,supplemental retirement or deferred compensation benefits (whether or not taxqualified and whether or not defined in Section 3(2) of ERISA), (iii) bonus,incentive compensation, stock option, stock appreciation right, phantom stockor stock purchase benefits, change in control benefits or (iv) salarycontinuation, unemployment, supplemental unemployment, termination pay,vacation or holiday benefits (whether or not defined in Section 3(3) ofERISA).  The Company Disclosure Letter,under the caption referencing this Section 3.15(a), sets forth allmaterial Plans by name and brief description.

###  

### (b)                                 Tothe extent required (either as a matter of law or to obtain the intended taxtreatment and tax benefits), all Plans comply and have complied with therequirements of ERISA, the Code and other applicable law, except where suchnoncompliance would not, individually or in the aggregate, have a CompanyMaterial Adverse Effect.  With respect tothe Plans, (i) all required contributions which are due have been made andan accrual required by generally accepted accounting principles has been madeon the books and records of the Company or its Subsidiaries for all futurecontribution obligations; (ii) there are no actions, suits or claimspending, other than routine uncontested claims for benefits; and (iii) therehave been no nonexempt prohibited transactions (as defined in Section 406of ERISA or Section 4975 of the Code), except for such transactions, ifany, which have not had and would not, individually or in the aggregate,reasonably be expected to have, a Company Material Adverse Effect.  Except as otherwise disclosed in the CompanyDisclosure Letter under the caption referencing this Section 3.15(b), allbenefits under the Plans (other than

 

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### Code Section 125 cafeteria plans) are payable either through afully-funded trust or an insurance contract and no welfare benefit Plan (asdefined in Section 3(1) of ERISA) is self-funded.

###  

### (c)                                  Parenthas received true and complete copies of (i) all Plan documents, includingrelated trust agreements or funding arrangements; (ii) the most recentdetermination letter, if any, received by the Company or its Subsidiaries fromthe Internal Revenue Service (the *“IRS”*) regarding the Plansand any amendment to any Plan made subsequent to any Plan amendments covered byany such determination letter; (iii) current summary plan descriptions;and (iv) annual returns/reports on Form 5500 and summary annualreports for the most recent plan year. To the Knowledge of the Company, nothing has occurred that couldmaterially adversely affect the qualification of the Plans and their relatedtrusts under Section 401(a) of the Code.

###  

### (d)                                 Exceptas set forth in Section 3.15 of the Company Disclosure Letter, the Companydoes not maintain or contribute to (and has never contributed to) anymulti-employer plan, as defined in Section 3(37) of ERISA.  Neither the Company nor any of itsSubsidiaries has any actual or potential material liabilities underTitle IV of ERISA, including under Section 4201 of ERISA for anycomplete or partial withdrawal from a multi-employer plan.

###  

### (e)                                  Exceptas set forth in Section 3.15 of the Company Disclosure Letter, neither theCompany nor any of its Subsidiaries has any actual or potential materialliability for death or medical benefits after separation from employment, otherthan (i) death benefits under the employee benefit plans or programs(whether or not subject to ERISA) set forth in Section 3.15 of the CompanyDisclosure Letter and (ii) health care continuation benefits described in Section 4980Bof the Code or similar requirements under applicable state law.

###  

### (f)                                    Neitherthe Company nor any of its Subsidiaries, nor any of their respective directors,officers, employees or other “fiduciaries,” as such term is defined in Section 3(21)of ERISA, has committed any breach of fiduciary responsibility imposed by ERISAor any other applicable law with respect to the Plans which would subject theCompany, Parent or any of their respective directors, officers or employees toany liability under ERISA or any applicable law, except for such breaches, ifany, which have not had and would not, individual or in the aggregate,reasonably be expected to have, a Company Material Adverse Effect.

###  

### (g)                                 Thereare no other trades or businesses (other than Subsidiaries of the Company),whether or not incorporated, which, together with the Company, would be deemedto be a “single employer” within the meaning of Code Sections 414(b), (c) or(m).

###  

### (h)                                 Exceptwith respect to Taxes on benefits paid or provided, no Tax has been waived orexcused, has been paid or is owed by any person (including, but not limited to,any Plan, any Plan fiduciary or the Company) with respect to the operations of,or any transactions with respect to, any Plan which would, individually or inthe aggregate, reasonably be expected to have a Company Material AdverseEffect.  No action has been taken by theCompany, nor has there been any failure by the Company to take any action, noris any action or failure to take action contemplated by the Company (includingall actions contemplated under this Agreement), that would subject any personor entity to any liability or Tax imposed by the IRS or the U.S. Department of Laborin connection with any Plan, except for such liability or Tax that has not hadand would not, individually or in the aggregate, reasonably be expected to havea Company Material Adverse Effect.  Noreserve for any Taxes has been established with respect to any Plan by theCompany nor has any advice been given to the Company with respect to the needto establish such a reserve, except for

 

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### such reserves which would not, individually or in the aggregate,reasonably be expected to have a Company Material Adverse Effect.

###  

### (i)                                     Thereare no (i) legal, administrative or other proceedings or governmentalinvestigations or audits, or (ii) complaints to or by any GovernmentalEntity, which are pending, anticipated or, to the Knowledge of the Company,threatened, against any Plan or its assets, or against any Plan fiduciary oradministrator, or against the Company or its officers or employees with respectto any Plan which would, individually or in the aggregate, reasonably beexpected to have a Company Material Adverse Effect.

###  

### (j)                                     Exceptas set forth in Section 3.15 of the Company Disclosure Letter, there areno leased employees, as defined in Section 414(n) of the Code, providingservices to the Company or its Subsidiaries, that must be taken into accountwith respect to the requirements under Section 414(n)(3) of the Code.

###  

### (k)                                  Exceptas set forth in Section 3.15 of the Company Disclosure Letter, each Planmay be terminated directly or indirectly by Parent and the Company, in theirsole discretion, at any time before or after the Effective Date in accordancewith its terms, without causing the Parent or the Company to incur anyliability to any person, entity or government agency for any conduct, practiceor omission of the Company which occurred prior to the Effective Date, exceptfor (i) liabilities to, and the rights of, the employees thereunderaccrued prior to the Effective Date, or if later, the time of termination, (ii) continuationrights required by the Consolidated Omnibus Budget Reconciliation Act of 1985,as amended, or other applicable law, and (iii) liabilities which would nothave a Company Material Adverse Effect.

###  

## *3.16.**                    *EnvironmentalMatters.

##  

### (a)                                  TheCompany and its Subsidiaries (i) have been in compliance and are presentlycomplying in all material respects with all applicable health, safety andEnvironmental Laws (as defined below), and (ii) have obtained all materialpermits, licenses and authorizations which are required under all applicablehealth, safety and Environmental Laws and are in compliance in all materialrespects with such permits, licenses and authorizations, except in each casefor such failure to comply or to obtain permits, licenses or authorizationsthat would not, individually or in the aggregate, reasonably be expected tohave a Company Material Adverse Effect. To the Knowledge of the Company, (i) none of the Owned RealProperty and Leased Real Property (including without limitation soils andsurface and ground waters) are contaminated with any Hazardous Materials (asdefined in Section 3.16(b) hereof) in quantities which requireinvestigation or remediation under Environmental Laws, (ii) neither theCompany nor any of its Subsidiaries is liable for any off-site contamination,and (iii) there is no environmental matter which could reasonably beexpected to expose the Company or any of its Subsidiaries to a claim to cleanupany Hazardous Materials or otherwise to remedy any pollution or damage at anyof the properties utilized in the Company’s business under any EnvironmentalLaws, that would, with respect to any of (i), (ii) or (iii) above, berequired to be disclosed in the Company SEC Reports.

###  

### (b)                                 Forpurposes of this Agreement, the term (i) *”Environmental Laws”* meansall applicable United States federal, state, provincial, local and otherforeign laws, rules, regulations, codes, ordinances, orders, decrees,directives, permits, licenses and judgments relating to pollution,contamination or protection of the environment (including, without limitation,all applicable United States federal, state, provincial, local and otherforeign laws, rules, regulations, codes, ordinances,

 

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### orders, decrees, directives, permits, licenses and judgments relatingto Hazardous Materials in effect as of the date of this Agreement), and (ii) *”HazardousMaterials”* means any dangerous, toxic or hazardous pollutant,contaminant, chemical, waste, material or substance as defined in or governedby any United States federal, state, provincial, local or other foreign law,statute, code, ordinance, regulation, rule or other requirement relatingto such substance or otherwise relating to the environment or human health orsafety, including without limitation any waste, material, substance, pollutantor contaminant that might cause any injury to human health or safety or to theenvironment or might subject the Company or any of its Subsidiaries to anyimposition of costs or liability under any Environmental Law.

###  

## *3.17.**                    *Insurance.Section 3.17 of the Company Disclosure Letter identifies each of the insurancepolicies currently in force with respect to the business and properties of theCompany and its Subsidiaries.  Except asdisclosed in Section 3.17 of the Company Disclosure Letter, there are noclaims outstanding under any insurance policy which could, individually or in theaggregate, reasonably be expected to have a Company Material Adverse Effectand, to the Knowledge of the Company or any of its Subsidiaries, neither theCompany nor any of its Subsidiaries has failed to give any notice or to presentany such claim with respect to its business under any such policy in due andtimely fashion, except where such failure would not, individually or in theaggregate, reasonably be expected to have a Company Material Adverse Effect.

##  

## *3.18.**                    *ForeignCorrupt Practices Act. Neither the Company nor any of its Subsidiaries (nor any personrepresenting the Company or any of its Subsidiaries) has at any time during thelast five years (a) made any payment in violation of the Foreign CorruptPractices Act or similar laws of other countries where the Company engages inbusiness, or (b) made any payment to any foreign, federal or stategovernmental officer or official, or other person charged with similar publicor quasi-public duties, other than payments required or permitted by the laws ofthe United States or any jurisdiction thereof.

##  

## *3.19.**                    *ExportControl Laws.  The Company has conducted its exporttransactions in accordance in all material respects with applicable provisionsof United States export control laws and regulations, including but not limitedto the Export Administration Act and implementing Export AdministrationRegulations.

##  

## *3.20.**                    *Finders orBrokers.  Except for Houlihan LokeyHoward & Zukin, whose fees will be paid by the Company, none ofthe Company, the Subsidiaries of the Company, the Board of Directors of theCompany (the “Company Board”) or any member of the CompanyBoard has employed any agent, investment banker, broker, finder or intermediaryin connection with the transactions contemplated hereby who might be entitledto a fee or any commission in connection with the Merger or the othertransactions contemplated hereby.

##  

## *3.21.**                    *BoardRecommendation.  The Company Board has,at a meeting of such Company Board duly held on November 2, 2005, approvedand adopted this Agreement, the Merger and the other transactions contemplatedhereby, declared the advisability of the Merger and recommended that the stockholdersof the Company approve the Merger and the other transactions contemplatedhereby, and has not as of the date hereof rescinded or modified in any respectany of such actions.

##  

## *3.22.**                    *VoteRequired.  The affirmativevote of the holders of a majority of the shares of Company Common Stockoutstanding on the record date set for the Company Stockholders Meeting

 

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## (as defined in Section 3.26 hereof) is the only vote of theholders of any of the Company’s capital stock necessary to approve thisAgreement and the transactions contemplated hereby.

##  

## *3.23.**                    *Opinion ofFinancial Advisor.  TheCompany has received the oral opinion of Houlihan Lokey Howard & Zukinon the date of the meeting of the Company Board referenced in Section 3.21above, to the effect that, as of such date, the Exchange Ratio is fair, from afinancial point of view, to the holders of Company Common Stock.

##  

## *3.24.**                    *Tax Matters.  Neither the Company nor, to its Knowledge,any of its affiliates has taken or agreed to take any action, or knows of anycircumstances, that (without regard to any action taken or agreed to be takenby Parent or any of its affiliates) would prevent the business combination tobe effected by the Merger from constituting a transaction qualifying as areorganization within the meaning of Section 368 of the Code.

##  

## *3.25.**                    *StateTakeover Statutes.  TheCompany Board has taken all actions so that the restrictions contained in Section 203of the DGCL applicable to a “business combination” (as defined in Section 203of the DGCL) will not apply to the execution, delivery of performance of thisAgreement or the consummation of the Merger or the other transactionscontemplated by this Agreement.

##  

## *3.26.**                    *RegistrationStatement; Proxy Statement/Prospectus.  The information supplied by the Company forinclusion in the registration statement on Form S-4 (or such other orsuccessor form as shall be appropriate) pursuant to which the shares of ParentCommon Stock to be issued in the Merger will be registered with the SEC (the “RegistrationStatement”) shall not at the time the Registration Statement(including any amendments or supplements thereto) is declared effective by theSEC contain any untrue statement of a material fact or omit to state anymaterial fact required to be stated therein or necessary in order to make thestatements therein, in light of the circumstances under which they were made,not misleading.  The information suppliedby the Company for inclusion in the proxy statement/prospectus to be sent tothe stockholders of the Company in connection with the meeting of the Company’sstockholders to consider the Merger (the “Company Stockholders Meeting”)(such proxy statement/prospectus as amended or supplemented is referred toherein as the “Proxy Statement/Prospectus”) shall not, on the date the ProxyStatement/Prospectus is first mailed to the Company’s stockholders, at the timeof the Company Stockholders Meeting at the Effective Time, contain anystatement which, at such time, is false or misleading with respect to anymaterial fact, or omit to state any material fact necessary in order to makethe statements made therein, in light of the circumstances under which they aremade, not false or misleading; or omit to state any material fact necessary tocorrect any statement in any earlier communication with respect to thesolicitation of proxies for the Company Stockholders Meeting which has becomefalse or misleading.  If at any timeprior to the Effective Time any event or information should be discovered bythe Company which should be set forth in an amendment to the RegistrationStatement or a supplement to the Proxy Statement/Prospectus, the Company shallpromptly inform Parent.  Notwithstandingthe foregoing, the Company makes no representation, warranty or covenant withrespect to any information supplied by Parent or Merger Sub which is contained inany of the foregoing documents.

 

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# **ARTICLE IVREPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT**

# ** **

Merger Sub and Parent jointly and severally representand warrant to the Company that the statements contained in this Article IVare true and correct, except as set forth in the letter delivered by Merger Suband Parent to the Company on the date hereof (the *“ParentDisclosure Letter”*) (which Parent Disclosure Letter sets forth theexceptions to the representations and warranties contained in this Article IVwith regard only to the Sections corresponding to the respective caption in theParent Disclosure Letter, any other Sections expressly referenced by suchexceptions and any additional Sections only if and to the extent that thecontext of the Parent Disclosure Letter makes it reasonably apparent that suchexceptions apply to such other Sections in this Article IV):

 

## *4.1.**                           *Organizationand Qualification.  Parent is acorporation duly incorporated, validly existing and in good standing under thelaws of the State of Delaware, with the corporate power and authority to own,lease and operate its properties and to carry on its business as now beingconducted.  Merger Sub is a corporationvalidly existing and in good standing under the laws of the State of Delaware.  Each of Merger Sub and Parent is dulyqualified or licensed to carry on its business as it is now being conducted,and is qualified to conduct business, in each jurisdiction where the characterof its properties owned or leased or the nature of its activities makes suchqualification necessary, except for failures to be so qualified that would not,individually or in the aggregate, have, or would not reasonably be expected tohave, a Parent Material Adverse Effect (as defined below).  Neither Parent nor Merger Sub is in violationof any of the provisions of its Charter Document or its GoverningDocument.  As used in this Agreement, theterm “Parent Material Adverse Effect” means any change, effect, event orcondition that (i) has a material adverse effect on the assets, businessor financial condition of Parent and its Subsidiaries, taken as a whole, or (ii) wouldprevent or materially delay Merger Sub’s or Parent’s ability to consummate thetransactions contemplated hereby.

##  

## *4.2.**                           *Capitalization.  The authorized capital stock of Parentconsists of 100,000,000 shares of Parent Common Stock, $0.20 par value pershare, and 1,000,000 shares of preferred stock, $1.00 par value per share (ofwhich 100,000 shares are designated Series A Junior ParticipatingPreferred Stock, the “Parent Preferred Stock”). As of the close of business on November 1, 2005 (the “ParentMeasurement Date”), (a) 63,574,526 shares of Parent Common Stock wereissued and outstanding, (b) no shares of Parent Preferred Stock wereissued and outstanding, (c) 15,011,443 shares of Parent Common Stock werereserved for issuance under the 1987 Stock Plan of the Parent (the “ParentStock Plan”), (d) options to purchase 11,958,035 shares of Parent CommonStock in the aggregate had been granted and remained outstanding under the ParentStock Plan, and (e) rights to acquire shares or property pursuant to the MicrosemiCorporation Shareholder Rights Plan, dated as of December 22, 2000, asamended, between Parent and Mellon Investor Services LLC (the “Parent SRP Plan”),there were no outstanding Parent Rights (as defined below).  Since the Parent Measurement Date, noadditional shares of Parent Common Stock have been issued and are outstanding,except pursuant to the exercise of options, and no Parent Rights have beengranted.  All issued and outstandingshares of Parent Common Stock are duly authorized, validly issued, fully paid,nonassessable and free of preemptive rights created by the DGCL or Parent’sCharter Document or Governing Document, or any other agreement with theCompany.  There are not at the date ofthis Agreement any existing options, warrants, calls, subscriptions,convertible securities or other rights which obligate Parent or any of itsSubsidiaries to issue, exchange, transfer or sell any shares of capital stockof Parent or any of its Subsidiaries, other than shares of Parent Common Stockissuable under the Parent Stock Plan, or awards granted pursuant thereto, andother than

 

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## Parent SRP Plan rights issued along with all past and future issuancesof shares of Parent Common Stock (collectively, “Parent Rights”).

##  

## *4.3.**                           *AuthorityRelative to this Agreement. Each of Parent and Merger Sub has the requisite corporate power andauthority to execute and deliver, and to perform its obligations under, thisAgreement and, subject to obtaining the necessary approval of its stockholders,to consummate the Merger and the other provisions contemplated hereby underapplicable law.  The execution anddelivery by Parent and Merger Sub of this Agreement and the consummation of theMerger and the transactions contemplated hereby and thereby, have been duly andvalidly authorized by the Board of Directors of Parent and Merger Sub and noother corporate proceedings on the part of Parent or Merger Sub are necessaryto authorize this Agreement or to consummate the Merger or other transactionscontemplated hereby.  This Agreement hasbeen duly and validly executed and delivered by Parent and Merger Sub and,assuming the due authorization, execution and delivery of this Agreement by theCompany, is a valid and binding obligation of Parent and Merger Sub,enforceable against them in accordance with its terms, except to the extentthat its enforceability may be limited by applicable bankruptcy, insolvency,reorganization, moratorium or other laws affecting the enforcement of creditorsrights generally or by general equitable principles.  The shares of Parent Common Stock to beissued by Parent pursuant to the Merger, as well as the Assumed Company Optionsand the shares of Parent Common Stock to be issued upon exercise thereof:  (i) have been duly authorized, and, whenissued in accordance with the terms of the Merger and this Agreement (or theapplicable option agreements), will be validly issued, fully paid andnonassessable and will not be subject to preemptive rights, (ii) will,when issued in accordance with the terms of the Merger and this Agreement (orthe applicable option agreements), be registered under the Securities Act, andregistered or exempt from registration under applicable United States “Blue Sky”laws, (iii) will, when issued in accordance with the terms of the Mergerand this Agreement (or the applicable option agreements), be listed on theNasdaq National Market and (iv) will be issued free and clear of anyLiens.

##  

## *4.4.**                           *NoConflicts; Required Filings and Consents.

##  

### (a)                                  Neitherthe execution, delivery or performance of this Agreement by Merger Sub orParent, nor the consummation of the transactions contemplated hereby, nor complianceby Merger Sub or Parent with any provision hereof will (i) violate,conflict with or result in a breach of any provision of the Charter Documentsor Governing Documents of Merger Sub or Parent, (ii) cause a default orgive rise to any right of termination, cancellation or acceleration or loss ofa material benefit under, or result in the creation of any lien, charge orother encumbrance upon any of the properties or assets of Merger Sub or Parentunder any of the terms, conditions or provisions of any note, license, bond,deed of trust, mortgage or indenture, or any other material instrument,obligation or agreement to which Merger Sub or Parent is a party or by whichits properties or assets may be bound or (iii) violate any law, judgment,ruling, order, writ, injunction, decree, statute, rule or regulationapplicable to Merger Sub or Parent or binding upon any of its properties,except for, in the case of clauses (ii) and (iii), such defaults orviolations which would not, individually or in the aggregate, reasonably beexpected to have a Parent Material Adverse Effect.

###  

### (b)                                 Nofiling or registration with or notification to and no permit, authorization,consent or approval of any Governmental Entity is required to be obtained, madeor given by Merger Sub or Parent in connection with the execution and deliveryof this Agreement or the consummation by Merger Sub of the Merger or othertransactions contemplated hereby except (i) (A) in connection withthe applicable requirements of the HSR Act, (B) the filing of aRegistration Statement (defined

 

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### in Section 3.26 hereof) with the SEC, in accordance with theSecurities Act, as further described in Section 3.26 hereof or (C) suchconsents, approvals, orders, authorizations, registrations, declarations andfilings as may be required under applicable state securities laws and the lawsof any country other than the United States, or (ii) where the failure toobtain any such consents, approvals, authorizations or permits, or to make suchfilings or notifications, would not, individually or in the aggregate,reasonably be expected to have a Parent Material Adverse Effect.

###  

## *4.5.**                           *SECFilings; Financial Statements.

##  

### (a)                                  Parenthas filed all forms, reports, schedules, statements and other documentsrequired to be filed by it since January 1, 2003 to the date hereof(collectively, as supplemented and amended since the time of filing, the *“ParentSEC Reports”*) with the SEC. The Parent SEC Reports (i) were prepared in all material respectswith all applicable requirements of the Securities Act and the Exchange Act, asthe case may be, and (ii) did not at the time they were filed contain anyuntrue statement of a material fact or omit to state any material fact requiredto be stated therein or necessary in order to make the statements therein, inlight of the circumstances under which they were made, not misleading.  The representation in clause (ii) ofthe preceding sentence does not apply to any misstatement or omission in anyParent SEC Report filed prior to the date of this Agreement which wassuperseded by a subsequent Parent SEC Report filed prior to the date of thisAgreement.

###  

### (b)                                 Theaudited consolidated financial statements and unaudited consolidated interimfinancial statements of Parent and its Subsidiaries included or incorporated byreference in such Parent SEC Reports have been prepared in accordance withUnited States generally accepted accounting principles applied on a consistentbasis during the periods involved (except as may otherwise be indicated in thenotes thereto) and present fairly, in all material respects, the financialposition and results of operations and cash flows of Parent and itsSubsidiaries on a consolidated basis at the respective dates and for therespective periods indicated (except, in the case of all such financialstatements that are interim financial statements, for normal year-endadjustments).

###  

### (c)                                  NeitherParent nor any of its Subsidiaries has any liabilities or obligations of any nature,whether absolute, accrued, unmatured, contingent or otherwise, whether due orto become due, known or unknown, or any unsatisfied judgments or any leases ofpersonalty or realty or unusual or extraordinary commitments that are requiredto be disclosed under United States generally accepted accounting principles,except (i) as set forth in the Parent SEC Reports, (ii) theliabilities recorded on Parent’s consolidated balance sheet at September 26,2004 included in the financial statements referred in Section 4.5(a) hereofand the notes thereto, (iii) liabilities or obligations incurred since September 26,2004 (whether or not incurred in the ordinary course of business and consistentwith past practice) that would not, individually or in the aggregate,reasonably be expected to have a Parent Material Adverse Effect, or (iv) liabilitiesthat would not be required by United States generally accepted accountingprinciples to be disclosed in financial statements or in the notes thereto andthat would not, individually or in the aggregate, reasonably be expected tohave a Parent Material Adverse Effect.

###  

## *4.6.**                           *Absence ofChanges or Events.  Exceptas set forth in the Parent SEC Reports, since December 31, 2004 throughthe date of this Agreement, Parent and its Subsidiaries have not incurred anyliability or obligation outside the ordinary course of business, nor has anyevent occurred or action been threatened, that has resulted or would reasonablylikely be expected to result in a Parent Material Adverse Effect

 

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## *4.7.**                           *Litigation.  Except as disclosed in the Parent SECReports, there is no (i) claim, action, suit or proceeding pending or, tothe Knowledge of Parent, threatened against or relating to Parent or any of itsSubsidiaries, or (ii) outstanding Orders, or application, request ormotion therefor, in a proceeding to which Parent, any Subsidiary of Parent orany of their respective assets was or is a party except actions, suits,proceedings or Orders that, individually or in the aggregate, has not had orwould not reasonably be expected to have a Parent Material Adverse Effect, andneither Parent nor any Subsidiary is in default in any material respect withrespect to any such Order.

##  

## *4.8.**                           *Compliancewith Law.  All activitiesof Merger Sub and Parent have been, and are currently being, conducted incompliance in all material respects with all applicable United States federal,state and local and other foreign laws, ordinances, regulations,interpretations, judgments, decrees, injunctions, permits, licenses,certificates, governmental requirements, Orders and other similar items of anycourt or other Governmental Entity or any nongovernmental self-regulatoryagency, and no notice has been received by Parent of any claims filed againsteither Merger Sub or Parent alleging a violation of any such laws, regulationsor other requirements which would be required to be disclosed in the Parent SECReports.  Merger Sub and Parent have allpermits, licenses and franchises from Governmental Entities required to conducttheir businesses as now being conducted, except for such permits, licenses andfranchises the absence of which would not, individually or in the aggregate,reasonably be expected to have a Parent Material Adverse Effect.

##  

## *4.9.**                           *Finders orBrokers.  Except for LehmanBrothers, whose fees will be paid by Parent, none of Parent, Merger Sub, theother Subsidiaries of Parent, the Boards of Directors of Parent and Merger Subor any member of such Boards of Directors has employed any agent, investmentbanker, broker, finder or intermediary in connection with the transactionscontemplated hereby who might be entitled to a fee or any commission inconnection with the Merger or the other transactions contemplated hereby.

##  

## *4.10.**                    *Tax Matters.  Neither Parent nor, to its Knowledge, any ofits affiliates has taken or agreed to take any action, or knows of anycircumstances, that (without regard to any action taken or agreed to be takenby the Company or any of its affiliates) would prevent the business combinationto be effected by the Merger from constituting a transaction qualifying as areorganization within the meaning of Section 368 of the Code.

##  

## *4.11.**                    *RegistrationStatement; Proxy Statement/Prospectus.  The information supplied by Parent and MergerSub for inclusion in the Proxy Statement/Prospectus shall not, at the time theRegistration Statement (including any amendments or supplements thereto) isdeclared effective by the SEC, contain any untrue statement of a material factor omit to state any material fact necessary in order to make the statementstherein, in light of the circumstances under which they were made, notmisleading.  The information supplied byParent for inclusion in the Proxy Statement/Prospectus shall not, on the datethe Proxy Statement/Prospectus is first mailed to the Company’s stockholders,at the time of the Company Stockholders Meeting and at the Effective Time,contain any statement which, at such time, is false or misleading with respectto any material fact, or omit to state any material fact necessary in order tomake the statements therein, in light of the circumstances under which it ismade, not false or misleading; or omit to state any material fact necessary tocorrect any statement in any earlier communication with respect to thesolicitation of proxies for the Company Stockholders Meeting which has becomefalse or misleading.  If at any timeprior to the Effective Time any event or information should be discovered byParent or Merger Sub which should be set forth in an amendment to theRegistration Statement or a supplement to the Proxy

 

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## Statement/Prospectus, Parent or Merger Sub will promptly inform theCompany.  Notwithstanding the foregoing,Parent and Merger Sub make no representation, warranty or covenant with respectto any information supplied by the Company which is contained in any of theforegoing documents.

##  

# **ARTICLE VCOVENANTS AND AGREEMENTS**

# ** **

## *5.1.**                           *Conduct ofBusiness of the Company Pending the Merger.  Except as contemplated by this Agreement oras expressly agreed to in writing by Parent, during the period from the date ofthis Agreement to the earlier of (i) the termination of this Agreement or (ii) theEffective Time, each of the Company and its Subsidiaries will conduct theirrespective operations according to its ordinary course of business consistentwith past practice, and will use commercially reasonable best effortsconsistent with past practice and policies to preserve intact its businessorganization, to keep available the services of its officers and employees andto maintain satisfactory relationships with suppliers, distributors, customersand others having business relationships with it and will take no action whichwould adversely affect the ability of the parties to consummate thetransactions contemplated by this Agreement, or the timing thereof.  Without limiting the generality of theforegoing, and except as otherwise expressly provided in this Agreement, priorto the Effective Time, the Company will not nor will it permit any of itsSubsidiaries to, without the prior written consent of Parent:

##  

### (a)                                  amendany of its Charter Documents or Governing Documents;

###  

### (b)                                 authorizefor issuance, issue, sell, deliver, grant any options, warrants, stockappreciation rights, or stock issuance rights for, or otherwise agree or committo issue, sell, deliver, pledge, dispose of or otherwise encumber any shares ofany class of its capital stock or any securities convertible into shares of anyclass of its capital stock, except (i) pursuant to and in accordance withthe terms of Company Options outstanding on the Company Measurement Date orgranted pursuant to clause (ii) below, or (ii)  the grant ofCompany Options consistent with past practices to new employees, which CompanyOptions will represent the right to acquire no more than 15,000 shares ofCompany Common Stock per new employee; provided however, that the current formof agreement under the Company Stock Option Plans shall be amended to no longerinclude any provisions providing for acceleration of vesting upon a change ofcontrol, and any other form used by the Company shall be in a form reasonablyacceptable to Parent;

###  

### (c)                                  subdivide,cancel, consolidate or reclassify any shares of its capital stock, issue orauthorize the issuance of any other securities in respect of, in lieu of or insubstitution for shares of its capital stock, declare, set aside or pay anydividend or other distribution (whether in cash, shares or property or anycombination thereof) in respect of its capital stock or purchase, redeem orotherwise acquire any shares of its own capital stock or of any of itsSubsidiaries, except as otherwise expressly provided in this Agreement;

###  

### (d)                                 (i) incuror assume any long-term or short-term debt or issue any debt securities exceptfor borrowings under existing lines of credit in the ordinary course ofbusiness consistent with past practice; (ii) assume, guarantee, endorse orotherwise become liable or responsible (whether directly, contingently orotherwise) for the material obligations of any other person (other thanSubsidiaries of the Company); or (iii) make any material loans, advancesor capital contributions to, or investments in, any other person (other than toSubsidiaries of the Company);

 

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### (e)                                  exceptas otherwise expressly contemplated by this Agreement, (i) increase in anymanner the compensation of (A) any employee who is not an officer of theCompany or any Subsidiary (a *“Non-Executive Employee”*),except in the ordinary course of business consistent with past practice or (B) anyof its directors or officers, except in the ordinary course of business,consistent with past practice, after consultation with Parent, (ii) pay oragree to pay any pension, retirement allowance or other employee benefit notrequired, or enter into, amend or agree to enter into or amend any agreement orarrangement with any such director or officer or employee, whether past or present,relating to any such pension, retirement allowance or other employee benefit,except as required to comply with law or under currently existing agreements,plans or arrangements or with respect to Non-Executive Employees, in theordinary course of business consistent with past practice, provided, however,that the vesting of outstanding options held by officers or directors may beaccelerated; (iii) grant any rights to receive any severance ortermination pay to, or enter into or amend any employment or severanceagreement with, any employee or any of its directors or officers, except asrequired by applicable law or with respect to severance or termination pay toNon-Executive Employees in the ordinary course of business, consistent withpast practices; or (iv) except as may be required to comply withapplicable law, become obligated (other than pursuant to any new or renewedcollective bargaining agreement) under any new pension plan, welfare plan,multi-employer plan, employee benefit plan, benefit arrangement, or similarplan or arrangement, which was not in existence on the date hereof, includingany bonus, incentive, deferred compensation, share purchase, share option,share appreciation right, group insurance, severance pay, retirement or other benefitplan, agreement or arrangement, or employment or consulting agreement with orfor the benefit of any person, or amend any of such plans or any of suchagreements in existence on the date hereof; *provided, however,* thatthis clause (iv) shall not prohibit the Company from renewing anysuch plan, agreement or arrangement already in existence on terms no morefavorable to the parties to such plan, agreement or arrangement;

###  

### (f)                                    exceptas otherwise expressly contemplated by this Agreement, enter into, amend in anymaterial respect or terminate any Company Material Contracts other than in theordinary course of business consistent with past practice;

###  

### (g)                                 sell,lease, license, mortgage or dispose of any of its properties or assets, otherthan (i) transactions in the ordinary course of business consistent withpast practice, (ii) sales of assets, for the fair market value thereof,which sales do not individually or in the aggregate exceed $100,000 or (iii) asmay be required or contemplated by this Agreement;

###  

### (h)                                 exceptas otherwise contemplated by the Merger, acquire or agree to acquire by mergingor consolidating with, or by purchasing a substantial portion of the assets ofor equity in, or by any other manner, any business or any corporation, limitedliability company, partnership, association or other business organization ordivision thereof or otherwise acquire or agree to acquire any assets, otherthan the acquisition of assets that is in the ordinary course of businessconsistent with past practice and which are contemplated within the budgetpreviously provided in writing by the Company to the Parent without the priorwritten consent of Parent, which consent will not be unreasonably withheld;

###  

### (i)                                     alter(through merger, liquidation, reorganization, restructuring or in any fashion)the corporate structure or ownership of the Company or any Subsidiary;

 

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### (j)                                     authorizeor commit to make any material capital expenditures not within the budgetpreviously provided in writing by the Company to Parent without the priorwritten consent of Parent, which consent shall not be unreasonably withheld;

###  

### (k)                                  makeany change in the accounting methods or accounting practices followed by theCompany, except as required by generally accepted accounting principles orapplicable law;

###  

### (l)                                     makeany election under any applicable Tax laws which would, individually or in theaggregate, have a Company Material Adverse Effect;

###  

### (m)                               settleany action, suit, claim, investigation or proceeding (legal, administrative orarbitrative) requiring a payment by the Company or its Subsidiaries in excessof $200,000 without the consent of Parent, which consent shall not beunreasonably withheld or delayed;

###  

### (n)                                 pay,discharge or satisfy any claims, liabilities or obligations (absolute, accrued,asserted or unasserted, contingent or otherwise), other than the payment,discharge or satisfaction, in the ordinary course of business consistent withpast practice or in accordance with their terms, of claims, liabilities orobligations reflected or reserved against in, or contemplated by, the mostrecent financial statements (or the notes thereto) of the Company included inthe Company SEC Reports or incurred in the ordinary course of business consistentwith past practice; or

###  

### (o)                                 agreeor enter into any contract, agreement, commitment or arrangement to do any ofthe foregoing; *provided, however,* that nothing contained hereinshall limit the ability of Parent to exercise its rights under the this Agreement.

###  

## *5.2.**                           *Preparationof Registration Statement; Proxy Statement/Prospectus; Blue Sky Laws.  As promptly as practicable and no later than twenty(20) business days after the date hereof, Parent and the Company shall prepare,and Parent shall file with the SEC, the Registration Statement, in which the ProxyStatement/Prospectus will be included as part thereof.  Parent and the Company shall use allcommercially reasonable best efforts to have such Registration Statementdeclared effective under the Securities Act as promptly as practicable afterfiling.  The Proxy Statement/Prospectuswill, when prepared pursuant to this Section 5.2 and mailed to the Company’sstockholders, comply in all material respects with the applicable requirementsof the Exchange Act and the Securities Act. The Proxy Statement/Prospectus shall be reviewed and approved by Parentand Parent’s counsel prior to the mailing of such Proxy Statement/Prospectus tothe Company’s stockholders.  Parent shallalso take any action required to be taken under any applicable provincial orstate securities laws (including “Blue Sky” laws) in connection with theissuance of the Parent Common Stock in the Merger; provided,however, that neither Parent nor the Company shall be requiredto register or qualify as a foreign corporation or to take any action thatwould subject it to service of process in any jurisdiction where any suchentity is not now so subject, except as to matters and transactions arisingsolely from the offer and sale of Parent Common Stock or the Assumed CompanyOptions.

##  

## *5.3.**                           *Company StockholderMeeting.  The Companyshall, promptly after the date hereof, take all action necessary in accordancewith the DGCL and its Certificate of Incorporation and Bylaws to convene the CompanyStockholders Meeting within 45 days of the Registration Statement beingdeclared effective by the SEC, whether or not the Company Board determines atany time after the date hereof that the Merger is no longer advisable.  The adoption of the Merger by

 

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## the stockholders of the Company shall be recommended by the CompanyBoard unless, in the good faith judgment of the Company Board, afterconsultation with outside counsel, taking such action would be inconsistent withits fiduciary obligations under applicable law. The Company Stockholders Meeting will be convened, held and conducted,and any proxies will be solicited, in compliance with the DGCL and applicablesecurities laws.  The Company shallconsult with Parent regarding the date of the Company Stockholders Meeting.  Subject to Section 5.2 and Section 5.6hereof, the Company shall use commercially reasonable best efforts to solicitfrom stockholders of the Company proxies in favor of the Merger and shall takeall other commercially reasonable actions necessary or advisable to secure thevote or consent of stockholders required to effect the Merger.

##  

*5.4.**                           **AdditionalAgreements; Cooperation.*

 

### (a)                                  Subjectto the terms and conditions herein provided, each of the parties hereto agreesto use its commercially reasonable best efforts to take, or cause to be taken,all action and to do, or cause to be done, all things necessary, proper oradvisable to consummate and make effective as promptly as practicable thetransactions contemplated by this Agreement, and to cooperate, subject tocompliance with applicable law, with each other in connection with theforegoing, including using its commercially reasonable best efforts (i) toobtain all necessary waivers, consents and approvals from other parties to loanagreements, material leases and other material contracts, (ii) to obtainall necessary consents, approvals and authorizations as are required to beobtained under any United States federal or state, foreign law or regulations, (iii) todefend all lawsuits or other legal proceedings challenging this Agreement orthe consummation of the transactions contemplated hereby, (iv) to lift orrescind any injunction or restraining order or other order adversely affectingthe ability of the parties to consummate the transactions contemplated hereby, (v) toeffect all necessary registrations and filings and submissions of informationrequested by Governmental Entities, and (vi) to fulfill all conditions tothis Agreement.

###  

### (b)                                 Eachof the parties hereto agrees, subject to compliance with applicable law, tofurnish to each other party hereto such necessary information and reasonableassistance as such other party may request in connection with its preparationof necessary filings or submissions to any regulatory or governmental agency orauthority, including, without limitation, any filing necessary under theprovisions of the HSR Act, the Exchange Act, the Securities Act or any otherUnited States federal or state, or foreign statute or regulation.  Each party hereto shall promptly inform eachother party of any material communication from the U.S. Federal TradeCommission or any other government or governmental authority regarding any ofthe transactions contemplated hereby.

###  

## *5.5.**                     *Publicity.  Parent and the Company will mutually consult concerning the news release firstannouncing this Agreement and the transactions contemplated hereby, which shallbe a joint news release.  Neither party shall issue any such newsrelease or other announcement without the consent of the other party. Thereafter,without the consent of the Parent, which consent shall not beunreasonably withheld or delayed, the Company and/or its Subsidiaries will not,and will not permit any of their respective affiliates or representatives to,issue or cause the publication of any news release or make any other publicannouncement with respect to the transactions contemplated by this Agreement, except as otherwise required by applicablelaw or by obligations pursuant to any listing agreement with the Nasdaq StockMarket, in which case the Company shall use its commercially reasonable best effortsto consult with Parent and to provide Parent with a copy of such news releaseor other announcement and afford Parent the opportunity to comment thereonprior to publication.

 

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*5.6.**                           **NoSolicitation.*

 

### (a)                                  Immediatelyupon execution of this Agreement, the Company shall (and shall cause itsofficers, directors, employees, investment bankers, attorneys and other agentsor representatives to) cease all discussions, negotiations, responses toinquiries (except as set forth in the proviso to this sentence) and othercommunications relating to any potential business combination with all third partieswho, prior to the date hereof, may have expressed or otherwise indicated anyinterest in pursuing an Acquisition Proposal (as hereinafter defined) with theCompany; *provided* that, this Section 5.6(a) shallnot prohibit activities permitted by Section 5.6(b) in response to aninquiry initiated after the date hereof.

###  

### (b)                                 Priorto termination of this Agreement pursuant to Article VII hereof, theCompany and its Subsidiaries shall not, nor shall the Company authorize orpermit any officers, directors or employees of, or any investment bankers,attorneys or other agents or representatives retained by or acting on behalfof, the Company or any of its Subsidiaries to, (i) initiate, solicit orencourage, directly or indirectly, any inquiries or the making of any proposalthat constitutes an Acquisition Proposal, (ii) engage or participate innegotiations or discussions with, or furnish any information or data to, ortake any other action to, facilitate any inquiries or making any proposal by,any third party relating to an Acquisition Proposal, (iii) enter into anyagreement with respect to any Acquisition Proposal or approve an AcquisitionProposal, or (iv) make or authorize any statement, recommendation orsolicitation in support of any possible Acquisition Proposal.  Notwithstanding anything to the contrarycontained in this Section 5.6 or in any other provision of this Agreement,prior to the Company Stockholders Meeting, the Company Board may participate indiscussions or negotiations with or furnish information to any third partymaking an unsolicited Acquisition Proposal (a *“Potential Acquiror”*) orapprove or recommend an unsolicited Acquisition Proposal if (A) a majorityof the disinterested directors of the Company Board determines in good faith,after consultation with its independent financial advisor, that a PotentialAcquiror has submitted to the Company a written Acquisition Proposal which setsforth a price or range of values to be paid by the Potential Acquiror andwhich, if consummated, would be more favorable to the Company’s stockholders,from a financial point of view, than the Merger (a “Superior Proposal”), (B) theCompany Board has determined in good faith, based on consultation withindependent financial advisor(s), that such Potential Acquiror is financiallycapable of consummating such Superior Proposal, and (C) a majority of thedisinterested directors of the Company Board determines in good faith, afterreceiving advice from reputable outside legal counsel experienced in suchmatters (and the parties hereto agree that the law firm of Davis Wright &Tremaine LLP is so experienced), that the failure to participate in suchdiscussions or negotiations or to furnish such information or to approve orrecommend such unsolicited Acquisition Proposal is inconsistent with theCompany Board’s fiduciary duties under applicable law.  In the event that the Company shall receiveany Acquisition Proposal, it shall promptly (and in no event later than forty-eight(48) hours after receipt thereof) furnish to Parent the identity of therecipient of the Acquisition Proposal and of the Potential Acquiror, the termsof such Acquisition Proposal, copies of such Acquisition Proposal and allinformation requested by the Potential Acquiror, and shall further promptlyinform Parent in writing as to the fact such information is to be providedafter compliance with the terms of the preceding sentence.  Notwithstanding the foregoing, the Companyshall not provide any non-public information to any such Potential Acquiror unless(1) it has prior to the date thereof provided such information to Parentand Merger Sub, and (2) the Company provides such non-public informationpursuant to a nondisclosure agreement with terms that are at least asrestrictive as those pursuant to the Confidential Disclosure Agreement (the “*ReciprocalConfidentiality Agreement*”), dated November 12, 2004,between Parent and the Company.  Nothingcontained herein shall prevent the Company

 

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### from complying with Rules 14d-9 and 14e-2 promulgated under theExchange Act with regard to an Acquisition Proposal or making any disclosure tothe Company’s stockholders if, in the good faith judgment of the Company Board,after receiving advice from reputable outside legal counsel experienced in suchmatters (and the parties hereto agree that the law firm of Davis Wright &Tremaine LLP is so experienced), such disclosure is required by applicablelaw.  In addition to the foregoing, theCompany shall not enter into any agreement concerning an Acquisition Proposalfor a period of not less than five (5) days after the Parent’s receipt ofa copy of the Acquisition Proposal. Further, Parent has the right to match or better any Superior Proposalof which it has been notified. New proposals from the third party may be made,and Parent retains the same rights set forth above regarding such newproposals. If the Parent has not notified Company of its decision to match orbetter the Superior Proposal by the eleventh day after Company’s notificationis received by Parent that the acquisition proposal is a Superior Proposal,Company may pay the Parent Termination Fee and terminate this Agreement inaccordance with its terms and proceed with the Superior Proposal. If Parentnotifies Company that it will match or better a Superior Proposal, thisAgreement must be amended to reflect the matched or bettered terms within two (2) daysof Parent’s decision to so match or better the Superior Proposal. Upon suchamendment, Company may not terminate this Agreement and must notify the partymaking the Superior Proposal that such proposal has been matched or betteredand that this Agreement has been amended to reflect this fact. After suchamendment to this Agreement, Company must, and must cause Company Bank and itsrepresentatives to, cease and terminate all discussions and negotiationsregarding the previous Superior Proposal, unless a new Acquisition Proposal isreceived that is determined to be a Superior Proposal pursuant to this Section 5.6.Without limiting the foregoing, the Company understands and agrees that anyviolation of the restrictions set forth in this Section 5.6(b) by theCompany or any of its Subsidiaries, or by any director or officer of theCompany or any of its Subsidiaries or any financial advisor, attorney or otheradvisor or representative of the Company or any of its Subsidiaries, whether ornot such person is purporting to act on behalf of the Company or any of itsSubsidiaries or otherwise, shall be deemed to be a breach of this Section 5.6(b) sufficientto enable Parent to terminate this Agreement pursuant to Section 7.1(d)(i) hereof.

###  

### (c)                                  Forthe purposes of this Agreement, *“Acquisition Proposal”*shall mean any proposal, whether in writing or otherwise, made by any personother than Parent and its Subsidiaries to acquire “beneficial ownership” (asdefined under Rule 13(d) of the Exchange Act) of twenty percent (20%)or more of the assets of, or twenty percent (20%) or more of the outstandingcapital stock of any of the Company or its Subsidiaries pursuant to a merger,consolidation, exchange of shares or other business combination, sale of sharesof capital stock, sales of assets, tender offer or exchange offer or similartransaction involving the Company or its Subsidiaries.

###  

## *5.7.**                           *Access toInformation.  From the dateof this Agreement until the Effective Time, and upon reasonable notice, theCompany will give Parent and its authorized representatives (including counsel,other consultants, accountants and auditors), to the extent it has the legalauthority to do so, reasonable access during normal business hours to all realproperties presently or formerly operated by the Company or its Subsidiaries,all facilities, personnel and operations and to all books and records of it andits Subsidiaries, will permit Parent to make such inspections, investigationsand testing as it may reasonably require, including upon request Phase IIenvironmental investigations, will cause its officers and those of itsSubsidiaries to furnish Parent with such financial and operating data and otherinformation with respect to its business and properties as Parent may from timeto time reasonably request and confer with Parent to keep it reasonablyinformed with respect to operational and other business matters relating to theCompany and its Subsidiaries and the status of satisfaction of conditions tothe Closing, other than information that may not be disclosed under

 

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## applicable law or in violation of an agreement or if such disclosurewould result in a waiver of the attorney-client privilege; provided,however, that in any such event the parties shall cooperate ingood faith to obtain waivers of such prohibitions or implement alternative methodsof disclosure of material information. All information obtained by Parent pursuant to this Section 5.7shall be kept confidential in accordance with the Reciprocal ConfidentialityAgreement.

##  

## *5.8.**                           *Notificationof Certain Matters.  TheCompany or Parent, as the case may be, shall promptly notify the other of (a) itsobtaining of Knowledge as to the matters set forth in clauses (i), (ii) and(iii) below, or (b) the occurrence, or failure to occur, of anyevent, which occurrence or failure to occur would be likely to cause (i) anyrepresentation or warranty contained in this Agreement to be untrue orinaccurate in any material respect at any time from the date hereof to theEffective Time, (ii) any material failure of the Company or Parent, as thecase may be, or of any officer, director, employee or agent thereof, to complywith or satisfy any covenant, condition or agreement to be complied with orsatisfied by it under this Agreement or (iii) the institution of anyclaim, suit, action or proceeding arising out of or related to the Merger orthe transactions contemplated hereby; provided, however,that no such notification shall affect the representations or warranties of theparties or the conditions to the obligations of the parties hereunder.

##  

## *5.9.**                           *Resignationof Officers and Directors. At or prior to the Effective Time, the Company shall deliver to Parentthe resignations of all officers and directors of the Company and shall use itscommercially reasonable best efforts to deliver to Parent the resignations ofsuch officers and directors of its Subsidiaries (in each case, in theircapacities as officers and directors, but not as employees if any of suchpersons are employees of the Company or any Subsidiary), except as Parent mayspecify, which resignations shall be effective at the Effective Time.

##  

*5.10.**                    **Indemnification.*

 

### (a)                                  Asof the Effective Time and for a period of ten (10) years following theEffective Time, Parent will indemnify and hold harmless from and against allclaims, damages, losses, obligations or liabilities (*“Losses”*)any persons who were directors or officers of the Company or any Subsidiaryprior to the Effective Time (the *“Indemnified Persons”*) tothe fullest extent such person could have been indemnified for such Lossesunder applicable law, under the Governing Documents of the Company or anySubsidiary or under the indemnification agreements listed on Schedule 5.10in effect immediately prior to the date hereof, with respect to any act orfailure to act by any such Indemnified Person at or prior to the Effective Time(including, without limitation, the transactions contemplated by thisAgreement).

###  

### (b)                                 Anydetermination required to be made with respect to whether an Indemnified Person’sconduct complies with the standards set forth under the DGCL or otherapplicable law shall be made by independent counsel selected by Parent andreasonably acceptable to the Indemnified Persons.  Parent shall pay such counsel’s fees andexpenses (so long as the Indemnified Persons do not challenge any suchdetermination by such independent counsel).

###  

### (c)                                  Inthe event that Parent or any of its successors or assigns (i) consolidateswith, merges or otherwise enters a business combination into or with any otherperson, and Parent or such successor or assign is not the continuing orsurviving corporation or entity of such consolidation, merger or businesscombination, or (ii) transfers all or substantially all of its propertiesand assets to any person, then, and in each case, proper provision shall bemade so that such person or the continuing or surviving corporation assumes theobligations set forth in this Section 5.10 and

 

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### none of the actions described in clauses (i) and (ii) aboveshall be consummated until such provision is made.

###  

### (d)                                 The Company represents to Parent that theamount per annum the Company paid for the current policies of directors’and officers’ liability insurance maintained by the Company (the “D&OPolicy”) for the current policy year (the“Annual Premium”) is as set forth in Section 3.17 of the CompanyDisclosure Letter. Parent and the Surviving Corporation shall either:

###  

#### (i)                                     maintainthe D&O Policy in effect for not less than six years from the EffectiveTime (provided that Parent may substitute therefor, through brokers of itschoice,  policies of at least comparablecoverage containing terms and conditions which are no less advantageous to theIndemnified Persons in all material respects so long as no lapse in coverageoccurs as a result of such substitution) with respect to all matters(including, without limitation, extended reporting endorsements (tail coverage)on fiduciary liability with respect to all senior officers and directors of theCompany), including the transactions contemplated hereby, occurring prior to,and including the Effective Time; *provided* that,in the event that any claim for any losses is asserted or made within suchsix-year period, such insurance shall be continued in respect of any such Claimuntil final disposition of any and all such Claims; and *provided,further,* that Parent shall not be obligated to make aggregate premiumpayments for such insurance to the extent such annual premiums in the aggregateexceed two hundred percent (200%) of the Annual Premium.  In such case, Parent shall purchase only asmuch coverage as possible for aggregately two hundred percent (200%) of the AnnualPremium; or

####  

#### (ii)                                  notwithstanding the foregoing, and in lieuthereof, prior to the Effective Time, the Parent may arrange for and purchase throughbrokers of its choice a directors’ and officers’ liability insurance “tail” or “runoff”insurance program, in form and substance reasonably satisfactory to Parent andthe Company, effective as of the Effective Time, to extend the reporting periodfor a period of six (6) years from and after the Effective Time withrespect to acts or omissions occurring on or prior to the Effective Time, withsuch coverage to have an aggregate coverage limit over the term of such policyin an amount at least equal to the annual aggregate coverage limits under theD&O Policy; provided that the aggregate premium for such coverageshall not exceed two (2) times the Annual Premium. In the event that the Parentpurchases such a “tail” or “runoff” policy prior to the Effective Time, Parentand the Surviving Corporation shall maintain such “tail” or “runoff” policy forso long as such “tail” or “runoff” policy shall be maintained in full force andeffect in lieu of all other obligations of Parent and the Surviving Corporationunder this Section 5.10(d).

####  

#### Neither Parent nor the Surviving Corporation shallbe deemed in breach of their obligations to maintain any insurance policypursuant to this Section 5.10(d) as to any Indemnified Party that isdenied coverage under such insurance policy by the issuer or underwriterthereof as a result of any act or omission of an Indemnified Person inconnection with either the application for any insurance policy or any claimthereunder.

####  

### (e)                                  Inthe event any claim, action, suit, proceeding or investigation (a “Claim”) forwhich indemnification is provided under this Section 5.10 is broughtagainst an Indemnified Person (whether arising before or after the EffectiveTime) after the Effective Time Parent shall, consistent with the terms of anydirectors’ and officers’ liability insurance policy, defend such IndemnifiedPerson from such claim with counsel reasonably acceptable to such IndemnifiedPerson; *provided, however*, that in the event Parent fails toprovide a defense to such Claim or it would be

 

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### inappropriate due to conflicts of interests that counsel for Parentalso represent such Indemnified Person, (i) such Indemnified Person mayretain separate counsel reasonably acceptable to Parent, (ii) theindemnifying party shall pay all reasonable fees and expenses of such counselfor such Indemnified Person as statements therefor are received, and (iii) theindemnifying party will use all commercially reasonable best efforts to assistin the defense of any such matter, provided that the indemnifying party shallnot be liable for any settlement of any Claim without its written consent,which consent shall not be unreasonably withheld, and provided further,however, that not more than one such separate counsel may be retained for allIndemnified Persons at the expense of the indemnifying party (unless, and tothe extent that, the joint representation of all Indemnified Persons poses anactual conflict of interest).  AnyIndemnified Person desiring to claim indemnification under this Section 5.10,upon learning of any Claim, shall notify the indemnifying party (but thefailure to so notify shall not relieve the indemnifying party from anyliability which it may have under this Section 5.10 except to the extentsuch failure materially prejudices such indemnifying party).

###  

### (f)                                    ThisSection 5.10 is intended to benefit the Indemnified Persons, shall beenforceable by each Indemnified Person and his or her heirs andrepresentatives.

###  

## *5.11.**              *StockholderLitigation.  The Companyshall give Parent the reasonable opportunity to participate in the defense ofany stockholder litigation against or in the name of the Company and/or itsrespective directors relating to the transactions contemplated by thisAgreement.

##  

*5.12.**                    **EmployeeBenefit Plans.*

 

### (a)                                  *401(k)Plan.*  The Companyshall take the following steps with respect to the ADVANCED POWER TECHNOLOGY,INC. Salary Savings Plan (401(k) Plan): at least three days prior to the Effective Time, the Company shallterminate the 401(k) Plan pursuant to written resolutions, the form andsubstance of which shall be satisfactory to Parent.  Individuals employed by the Company at theEffective Time (“Company Employees”) shall be allowed to participate in Parent’s401(k) plan effective as of the first payroll following the Effective Time; andall service with the Company shall be considered service with Parent forpurposes of determining eligibility, vesting, and benefit accrual (i.e., anymatching contributions) under Parent’s 401(k) plan.  As soon as administratively feasible afterassets are distributed from the 401(k) Plan, Company Employees shall be offeredan opportunity to roll their 401(k) Plan account balances into Parent’s 401(k)Plan.

###  

### (b)                                 *WelfarePlans.*  CompanyEmployees shall be eligible to participate in Parent’s disability plans, grouplife insurance plan, medical plan, dental plan, and Section 125 cafeteriaplan as soon as administratively feasible after the Effective Time.  Prior to such time, Company Employees shallremain eligible for the Company’s welfare plans, as applicable, and such planswill not be amended or changed in any material respect by Parent or the Company.  Parent shall include service and priorearnings with the Company for purposes of determining eligibility,participation, and benefit accrual under its short term disability plan, grouplife insurance plan medical plan, dental plan, and Section 125 cafeteriaplan.  Parent shall include such servicefor purposes of determining benefit eligibility or participation in Parent’sdisability plans; however, such participation shall be subject to anyapplicable preexisting condition exclusions.

###  

### (c)                                  *Vacationand PTO.*  CompanyEmployees shall be eligible to participate in Parent’s vacation or paid timeoff (“PTO”) policy, as applicable, as soon as administratively feasible afterthe Effective Time.  Prior to such dateCompany Employees shall remain eligible for the Company’s vacation pay or sickpay policies, as applicable, and such plans or policies will not be

 

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### amended or changed in any material respect by Parent or the Company.  Parent shall include service with the Companyfor purposes of determining eligibility, participation, and calculation ofvacation pay, sick pay, or PTO under Parent’s vacation or PTO policy, asapplicable.  Subject to the terms of theCompany plans or policies, each Company Employee will be entitled to carry overall vacation days and sick leave accrued but unused as of the Effective Time.

###  

### (d)                                 *IncentiveBonus Plan.*  TheCompany’s Incentive Bonus Plan shall be kept in place until December 31, 2005,after which time Company Employees may be eligible to participate in anyincentive program established by Parent from time to time.

###  

## *5.13.**                    *Determinationof Optionholders.  At leastthirty (30) business days before the Effective Time, the Company shall provideParent with a true and complete list, as of such date, of (a) the holdersof Company Options, (b) the number of shares of Company Common Stocksubject to Company Options held by each such optionholder and (c) theaddress of each such optionholder as set forth in the books and records of theCompany or any Subsidiary, following upon which there shall be no additionalgrants of Company Options without Parent’s prior written consent.  From the date such list is provided to Parentuntil the Effective Time, the Company shall provide option activity reports toParent twice monthly containing such information as Parent shall reasonablyrequest and shall provide an update of such information at and as of theEffective Time.

##  

## *5.14.**                    *Preparationof Tax Returns.  TheCompany shall file (or cause to be filed) at its own expense, on or prior tothe due date thereof, all Returns required to be filed on or before the ClosingDate.  The Company shall provide Parentwith a copy of appropriate work papers, schedules, drafts and final copies ofeach foreign and domestic, federal, provincial and state income Tax return orelection of the Company (including returns of all Employee Benefit Plans) atleast ten days before filing such return or election and shall consult withParent with respect thereto prior to such filing.

##  

## *5.15.**                    *Tax-FreeReorganization.  Parent andthe Company shall each use all commercially reasonable best efforts to causethe Merger to qualify as a reorganization within the meaning of Section 368(a) ofthe Code.  Neither Parent nor the Companyshall take or fail to take, or cause any third party to take or fail to take,any action that would cause the Merger to fail to qualify as a “reorganization”within the meaning of Section 368(a) of the Code.

##  

## *5.16.**                    *SEC Filings;Compliance.  The Companyand Parent shall each cause the forms, reports, schedules, statements and otherdocuments required to be filed with the SEC by the Company and Parent,respectively, between the date of this Agreement and the Effective Time (withrespect to either the Company or Parent, the “New SECReports”) to be prepared in all material respects with all applicablerequirements of the Securities Act and the Exchange Act, as the case may be,and such New SEC Reports will not at the time they are filed contain any untruestatement of a material fact or omit to state any material fact required to bestated therein or necessary in order to make the statements therein, in lightof the circumstances under which they are made, not misleading.

##  

## *5.17.**                    *Listing ofAdditional Shares.  Priorto the Effective Time, Parent shall file with the Nasdaq National Market aNotification Form 10b-17 for Listing Additional Shares with respect to theshares of Parent Common Stock to be issued in the Merger.

##  

## *5.18.**                    *EnvironmentalInvestigation. The Parent shall arrange for and direct environmentalinvestigations of soil and groundwater, with the assistance and cooperation ofCompany, in, under

 

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## or about properties operated, now or previously, by Company or itsSubsidiaries.  Company shall usecommercially reasonable efforts to provide Parent adequate access to any andall such properties.* *Company shall provide Parentdocumentation of any and all insurance policies, indemnities, judgments, ordersor agreements respecting liability under any Environmental Laws.

##  

*5.19.**                    *Delivery ofAncillary Documents.  TheCompany shall use its commercially reasonable best efforts to deliver theEmployment Agreements, Lock-up Agreements and the Voting Agreements,fully-executed by the parties thereto other than the Parent, within ten (10) businessdays following the execution of this agreement.

 

# **ARTICLE VICONDITIONS TO CLOSING**

# ** **

## *6.1.**                           *Conditionsto Each Party’s Obligation to Effect the Merger.  The respective obligation of each party toeffect the Merger is subject to the satisfaction or waiver on or prior to theEffective Date of the following conditions:

##  

### (a)                                  *Company StockholderApproval.*  ThisAgreement and the Merger shall have been approved and adopted by the requisitevote of the stockholders of the Company under the DGCL and the Company’sCharter Document and Governing Documents.

###  

### (b)                                 *GovernmentalAction; No Injunction or Restraints.*  No action or proceeding shall be institutedby any Governmental Entity seeking to prevent consummation of the Merger,asserting the illegality of the Merger or this Agreement or seeking damages (inan amount or to the extent that, if they were incurred or paid by the Company,would constitute a Company Material Adverse Effect) directly arising out of thetransactions contemplated hereby which continues to be outstanding.  No judgment, order, decree, statute, law,ordinance, rule or regulation entered, enacted, promulgated, enforced orissued by any court or other Governmental Entity of competent jurisdiction orother legal restraint or prohibition shall be in effect (i) imposing orseeking to impose sanctions, damages or liabilities (in an amount or to theextent that, if they were incurred or paid by the Company, would constitute aCompany Material Adverse Effect) directly arising out of the Merger on theCompany or any of its officers or directors; or (ii) preventing theconsummation of the Merger.

###  

### (c)                                  *GovernmentalConsents.*  Allnecessary authorizations, consents, orders or approvals of, or declarations orfilings with, or expiration or waiver of waiting periods imposed by, anyGovernmental Entity of any applicable jurisdiction required for theconsummation of the transactions contemplated by this Agreement shall have beenfiled, expired or obtained, as to which the failure to obtain, make or occurwould have the effect of making the Merger or this Agreement or any of thetransactions contemplated hereby illegal or which, individually or in theaggregate, would have a Parent Material Adverse Effect (assuming the Merger hadtaken place), including, but not limited to, the expiration or termination ofthe applicable waiting period, or any extensions thereof, pursuant to the HSRAct.

###  

## *6.2.**                           *Conditionsto Obligations of Parent. The obligation of Parent to effect the Merger is further subject tosatisfaction or waiver of the following conditions:

##  

### (a)                                  *Representationsand Warranties.*  Therepresentations and warranties of the Company set forth herein shall be trueand correct both when made and at and as of the Effective

 

35

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### Date, as if made at and as of such time (except to the extent expresslymade as of an earlier date, in which case as of such date), except where thefailure of such representations and warranties to be so true and correct(without giving effect to any limitation as to materiality or material adverseeffect set forth therein) does not have, and would not, individually or in theaggregate, reasonably be expected to have, a Company Material Adverse Effect.

###  

### (b)                                 *Performanceof Obligations of the Company.*  The Company shall have performed in allmaterial respects all obligations required to be performed by it under thisAgreement at or prior to the Effective Date.

###  

### (c)                                  *NoInjunctions or Restraints.* No final judgment, order, decree, statute, law, ordinance, rule orregulation entered, enacted, promulgated, enforced or issued by any court orother Governmental Entity of competent jurisdiction or other legal restraint orprohibition shall be in effect (i) imposing material limitations on theability of Parent to acquire or hold or to exercise full rights of ownership ofany securities of the Company; (ii) imposing material limitations on theability of Parent or its affiliates to combine and operate the business andassets of the Company; (iii) imposing other material sanctions, damages,or liabilities directly arising out of the Merger on Parent or any of itsofficers or directors; or (iv) requiring divestiture by Parent of anysignificant portion of the business, assets or property of the Company or ofParent.

###  

### (d)                                 *Environmental Conditions*. No condition shall be in existence at, about or under any property nowor previously owned or operated by the Company which, with a lapse of time or agiving of notice or both, could reasonably be expected to give rise toliability under any Environmental Law that, individually or in the aggregate, couldhave a Company Material Adverse Effect.

###  

### (e)                                  *Deliveryof Closing Documents.* At or prior to the Effective Time, the Company shall have delivered toParent all of the following:

###  

#### (i)                                     acertificate of the President and the Chief Financial Officer of the Company,dated as of the Effective Date, stating that the conditions precedent set forthin Sections 6.2(a), (b) and (c) hereof have been satisfied and such relatedassurances as Parent may reasonably request; and

####  

#### (ii)                                  acopy of (A) the Certificate of Incorporation of the Company, dated as of arecent date, certified by the Secretary of State of the State of Delaware, (B) theBylaws of the Company and (C) the resolutions of the Company Board and stockholdersauthorizing the Merger and the other transactions contemplated by thisAgreement, certified by the Secretary of the Company; and

####  

#### (iii)                               eachand all of the Ancillary Agreements executed by each of the individuals aslisted in Exhibit G.

####  

## *6.3.**                           *Conditionsto Obligations of the Company. The obligation of the Company to effect the Merger is further subject tosatisfaction or waiver of the following conditions:

##  

### (a)                                  *Representationsand Warranties.*  Therepresentations and warranties of Parent and Merger Sub set forth herein shallbe true and correct both when made and at and as of the Effective Date, as ifmade at and as of such time (except to the extent expressly made as of anearlier

 

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### date, in which case as of such date), except where the failure of suchrepresentations and warranties to be so true and correct (without giving effectto any limitation as to materiality or material adverse effect set forththerein) does not have, and would not, individually or in the aggregate,reasonably be expected to have a Parent Material Adverse Effect.

###  

### (b)                                 *Performanceof Obligations of Parent.* Parent shall have performed in all material respects all obligationsrequired to be performed by it under this Agreement at or prior to theEffective Date.

###  

### (c)                                  *Deliveryof Closing Documents.* At or prior to the Effective Time, the Parent shall have delivered tothe Company a certificate of the President and the Chief Financial Officer ofParent, dated as of the Effective Date, stating that the conditions precedentset forth in Sections 6.3(a) and (b) hereof have been satisfied andsuch related assurances as Company may reasonably request.

###  

### (d)                                 *TaxOpinion.*  The Companyshall have received an opinion from Davis Wright & Tremaine LLP,counsel to the Company, dated as of the Effective Time, substantially to theeffect that, on the basis of the facts, representations and assumptions setforth in such opinion which are consistent with the state of facts existing atthe Effective Time, the Merger will be treated for Federal income tax purposesas a reorganization within the meaning of Section 368(a) of the Codeand that accordingly:

###  

#### (i)                                     Nogain or loss will be recognized by the Company as a result of the Merger;

####  

#### (ii)                                  Nogain or loss will be recognized by the stockholders of the Company who exchangeCompany Common Stock for Parent Common Stock pursuant to the Merger (exceptwith respect to the Cash Component and any cash received in lieu of fractionalshares);

####  

#### (iii)                               Thetax basis of the Parent Common Stock received by the stockholders who exchangeall of their Company Common Stock in the Merger will be the same as the taxbasis of the Company Stock surrendered in exchange therefor; and

####  

#### (iv)                              Theholding period of the Parent Common Stock received by a stockholder of theCompany pursuant to the Merger will include the period during which the CompanyCommon Stock surrendered therefor was held, provided the Company Common Stockis a capital asset in the hands of the stockholder of the Company at the timeof the Merger.

####  

Parent and the Company shall each provide reasonablecooperation, including making reasonable representations, to Davis Wright &Tremaine LLP, to enable them to render such opinion.

 

# **ARTICLE VIITERMINATION**

# ** **

## *7.1.**                           *Termination.  This Agreement may be terminated at any timeprior to the Effective Time, whether before or after approval of the Merger bythe Company’s stockholders or the Parent’s stockholders:

 

37

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### (a)                                  bymutual written consent of the Company and Parent (on behalf of Parent andMerger Sub);

###  

### (b)                                 byeither the Company or Parent (on behalf of Parent and Merger Sub):

###  

#### (i)                                     ifthe Merger shall not have been completed by June 30, 2006; *provided, however,* that the right to terminate thisAgreement pursuant to this Section 7.1(b)(i) shall not be availableto any party whose failure to perform any of its obligations under thisAgreement results in the failure of the Merger to be consummated by such time;

####  

#### (ii)                                  ifstockholder approval shall not have been obtained at the Company StockholdersMeeting duly convened therefor or at any adjournment or postponement thereof; *provided, however,* that the right to terminate thisAgreement pursuant to this Section 7.1(b)(ii) shall not be availableto any party whose failure to perform any of its obligations under thisAgreement results in the failure to obtain stockholder approval.

####  

#### (iii)                               ifany restraint having any of the effects set forth in Section 6.1(b) orSection 6.2(c) hereof shall be in effect and shall have become finaland nonappealable; *provided, however,*that the right to terminate this Agreement pursuant to this Section 7.1(b)(iii) shallnot be available to any party whose failure to perform any of its obligationsunder this Agreement results in such restraint to continue in effect; or

####  

#### (iv)                              ifthe Company enters into a merger, acquisition or other agreement (including anagreement in principle) or understanding to effect a Superior Proposal or theCompany Board or a committee thereof resolves to do so; *provided,however,* that the Company may not terminate this Agreement pursuantto this Section 7.1(b)(iv) unless (a) the Company has deliveredto Parent and Merger Sub a written notice of the Company’s intent to enter intosuch an agreement to effect such Acquisition Proposal, which notice shallinclude, without limitation, the material terms and conditions of theAcquisition Proposal and the identity of the Person making the AcquisitionProposal, (b) five (5) days have elapsed following delivery to Parentand Merger Sub of such written notice by the Company, (c) Parent shall nothave notified the Company Board that Parent wishes to equal or better theSuperior Proposal and (d) during such five-day period, the Company hascooperated with Parent and Merger Sub to allow Parent and Merger Sub within suchfive-day period to propose terms of this Agreement to be at least as favorableas the Superior Proposal; *provided, further,*that the Company may not terminate this Agreement pursuant to this Section 7.1(b)(iv) unless,at the end of such five-day period, the Company Board continues reasonably tobelieve that the Acquisition Proposal constitutes a Superior Proposal;

####  

### (c)                                  bythe Company

###  

#### (i)                                     ifParent or Merger Sub shall have breached any of its representations andwarranties contained in Article IV hereof which breach has had or isreasonably likely to have a Parent Material Adverse Effect or Parent or MergerSub shall have breached or failed to perform in any material respect any of itscovenants or other agreements contained in this Agreement, in each case, whichbreach or failure to perform has not been cured by Parent or Merger Sub withinthirty days following receipt of notice thereof from the Company;

 

38

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### (d)                                 byParent (on behalf of Parent and Merger Sub):

###  

#### (i)                                     ifthe Company shall have breached any of its representations and warrantiescontained in Article III hereof which breach has had or is reasonablylikely to have a Company Material Adverse Effect or the Company shall havebreached or failed to perform in any material respect any of its covenants orother agreements contained in this Agreement, in each case (other than a breachof Section 5.6(b) hereof, as to which no materiality requirement andno cure period shall apply), which breach or failure to perform has not beencured by the Company within thirty days (30) following receipt of noticethereof from Parent; or

####  

#### (ii)                                  if(a) the Company Board or any committee thereof shall have withdrawn ormodified in a manner adverse to Parent its approval or recommendation of theMerger or this Agreement, or approved or recommended an Acquisition Proposal,or (b) the Company Board or any committee thereof shall have resolved totake any of the foregoing actions.

####  

## *7.2.**                           *Effect ofTermination.                             Thetermination of this Agreement pursuant to the terms of Section 7.1 hereofshall become effective upon delivery to the other party of written noticethereof.  In the event of the terminationof this Agreement pursuant to the foregoing provisions of this Article VII,there shall be no obligation or liability on the part of any party hereto(except as provided in Section 7.3 hereof) or its stockholders ordirectors or officers in respect thereof, except for agreements which expresslysurvive the termination of this Agreement, except for liability thatParent or Merger Sub or the Company might have to the other party or partiesarising from a breach of this Agreement due to termination of this Agreement inaccordance with Sections 7.1(c)(i) or 7.1(d)(i) or due to thefraudulent or willful misconduct of such party.

##  

## *7.3.**                           *Feesand Expenses.

##  

### (a)                                  Exceptas provided in this Section 7.3, whether or not the Merger is consummated,the Company, on the one hand, and the Parent and Merger Sub, on the other, eachshall bear their respective expenses incurred in connection with the Merger,including, without limitation, the preparation, execution and performance ofthis Agreement and the transactions contemplated hereby, and all fees andexpenses of investment bankers, finders, brokers, agents, representatives,counsel and accountants, except that the registration and filing fees incurredin connection with the filing under the HSR Act and the Registration Statementand Proxy Statement/Prospectus shall be shared equally by the Company andParent.

###  

### (b)                                 Notwithstandingany provision in this Agreement to the contrary, if this Agreement isterminated as a result of a breach of this Agreement in accordance withSections 7.1(c)(i) or 7.1(d)(i), then the nonbreaching party shall beentitled to receive from the breaching party damages resulting from suchbreach, including without limitation, all out-of-pocket fees and expensesincurred or paid by or on behalf of the nonbreaching party or any affiliate ofthe nonbreaching party in connection with this Agreement, the Merger andtransactions contemplated herein, including all fees and expenses of counsel,investment banking firm, accountants and consultants; *provided,however,* that no payments for damages shall be payable to anyparty pursuant to this Section 7.3(b) if a Termination Fee is paid tosuch party pursuant to Section 7.3(c) or 7.3(d) below.

 

39

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### (c)                                  Notwithstandingany other provision in this Agreement to the contrary, if (x) thisAgreement is terminated by the Company or Parent at a time when Parent or theCompany is entitled to terminate this Agreement pursuant to Section 7.1(b)(ii) (exceptif, immediately prior to the Company Stockholder Meeting, an event or conditionexists that would result in a Parent Material Adverse Effect) or 7.1(d)(i) and,concurrently with or within twelve months after such a termination, the Companyshall enter into an agreement, or binding arrangement or understanding withrespect to an Acquisition Proposal (which shall include, for this purpose, thecommencement by a third party of a tender offer or exchange offer or similartransaction directly with the Company’s stockholders) with a third party(collectively, a *“Third Party Deal”*) or (y) this Agreement isterminated pursuant to Section 7.1(b)(iv), or 7.1(d)(ii) (except, inthe case of 7.1(d)(ii) only, if the Company Board’s withdrawal ormodification of its approval or recommendation of this Agreement or the Mergeroccurs after the occurrence of a Parent Material Adverse Effect), then, in eachcase, the Company shall (in lieu of any obligation under this Agreement and asliquidated damages and not as a penalty or forfeiture) pay to Parent $4,000,000(the *“ParentTermination Fee”*) in cash. Such payment shall be made promptly, but in no event later than thesecond business day following:  (i) inthe case of clause (x) relating to a termination pursuant to Section 7.1(d)(i) asa result of a breach of Section 5.6, the later to occur of suchtermination and the entry of such Third Party Deal; (ii) in the case ofclause (x) other than as set forth in the immediately preceding clause (i), thelater to occur of such termination and the consummation of such Third PartyDeal; and (iii) in the case of clause (y) such termination.

###  

### (d)                                 Theparties acknowledge that the agreements contained in Sections 7.3(b), (c) and(d) hereof are an integral part of the transactions contemplated by thisAgreement, and that, without these agreements, Parent and Merger Sub on the onehand, and the Company on the other, would not enter into this Agreement.  Accordingly, if the Company fails promptly topay the amounts due pursuant to Sections 7.3(b) and/or (c) hereof, orif Parent fails promptly to pay the amounts due pursuant to Section 7.3(b) and/or(d) hereof, (i) the party failing to so pay shall pay interest onsuch amounts at the rate of ten percent (10%) per annum, compounded annually,and (ii) if, in order to obtain such payment, a party commences a suit ortakes other action which results in a judgment or other binding determinationagainst the nonpaying party for the fees and expenses in Sections 7.3(b), 7.3(c) or7.3(d) hereof, the nonpaying party shall also pay to the party entitled toreceive payment its costs and expenses (including reasonable attorneys’ fees)in connection with such suit, together with interest payable under thepreceding clause (i).

###  

# **ARTICLE VIIIMISCELLANEOUS**

# ** **

## *8.1.**                           *Nonsurvivalof Representations and Warranties.  None of the representations and warranties inthis Agreement or in any instrument delivered pursuant to this Agreement shallsurvive the Effective Time.  This Section 8.1shall not limit any covenant or agreement of the parties which by its termscontemplates performance after the Effective Time.

##  

## *8.2.**                           *Waiver.  At any time prior to the Effective Date, anyparty hereto may (a) extend the time for the performance of any of theobligations or other acts of any other party hereto, (b) waive anyinaccuracies in the representations and warranties of the other party containedherein or in any document delivered pursuant hereto, and (c) waivecompliance with any of the agreements of any other party or with any conditionsto its own obligations contained herein. Any agreement on the part of a party hereto to any such extension orwaiver shall be valid only if set forth in an instrument in writing dulyauthorized by and signed on behalf of such party.

 

40

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## *8.3.**                           *Attorneys’Fees.  Should suit bebrought to enforce or interpret any part of this Agreement, the prevailingparty will be entitled to recover, as an element of the costs of suit and notas damages, reasonable attorneys’ fees to be fixed by the court (including,without limitation, costs, expenses and fees on any appeal).

##  

## *8.4.**                           *Notices.

##  

### (a)                                  Anynotice or communication to any party hereto shall be duly given if in writingand delivered in person or mailed by first class mail and airmail, if overseas(registered or return receipt requested), facsimile (with receiptelectronically acknowledged) or overnight air courier guaranteeing next daydelivery, to such other party’s address.

###  

If to Parent:

 

MICROSEMI CORPORATION2381 Morse AvenueIrvine, California 92614Telephone No.: (949) 221-7188Facsimile No.:  (949) 756-2087Attention: James J. Peterson, President & CEO

 

with a copy to:

 

The Yocca Law Firm LLP19900 MacArthur Blvd., Suite #650

 

Irvine, California 92612Telephone No.: (949) 253-0800Facsimile No.:  (949) 203-6161Attention: Nicholas J. Yocca

 

If to the Company:

 

ADVANCED POWER TECHNOLOGY, INC.405 S.W. Columbia Street Bend, Oregon 97702Telephone No.: (541) 382-8028Facsimile No.:  (541) 388-0364Attention: Patrick P.H. Sireta, President and CEO

 

with copies to:

 

Davis Wright & Tremaine LLP1300 SW Fifth Avenue, Suite 2300

Portland, Oregon 97201-5630

Telephone No.: (503) 778-5306Facsimile No.:  (503) 778-5299Attention:  David C. Baca

 

### (b)                                 Allnotices and communications will be deemed to have been duly given: at the timedelivered by hand, if personally delivered; three (3) business days afterbeing deposited in

 

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### the mail, if mailed; when sent, if sent by facsimile; and one (1) businessday after timely delivery to the courier, if sent by overnight air courierguaranteeing next day delivery.

###  

## *8.5.**                           *Counterparts.  This Agreement may be executed via facsimilein two or more counterparts, each of which shall be deemed an original, but allof which together shall constitute one and the same instrument.

##  

## *8.6.**                           *Interpretation;Construction.  The languageused in this Agreement and the other agreements contemplated hereby shall bedeemed to be the language chosen by the parties to express their mutual intent,and no rule of strict construction shall be applied against anyparty.  The headings of articles andsections herein are for convenience of reference, do not constitute a part ofthis Agreement, and shall not be deemed to limit or affect any of theprovisions hereof.  As used in thisAgreement, “Person” means any individual,corporation, limited liability company, limited or general partnership, jointventure, association, joint stock company, trust, unincorporated organizationor other entity; “Knowledge” means the actual knowledge ofa director or any executive officer of the applicable party or any of itsSubsidiaries, as such knowledge has been obtained or would have been obtainedafter reasonable inquiry by such person in the normal conduct of the business;and all amounts shall be deemed to be stated in U.S. dollars, unlessspecifically referenced otherwise.

##  

## *8.7.**                           *Amendment.  This Agreement may be amended by the partiesat any time before or after any required approval of matters presented inconnection with the Merger by the stockholders of the Company; provided,however, that after any such approval, there shall not be madeany amendment that by law requires further approval by the stockholders of theCompany without concurrently obtaining such further approval.  This Agreement may not be amended except byan instrument in writing signed on behalf of each of the parties.

##  

## *8.8.**                           *No Third-PartyBeneficiaries.  Except forthe provisions of Section 5.10 hereof (which is intended to be for thebenefit of the persons referred to therein, and may be enforced by suchpersons) nothing in this Agreement shall confer any rights upon any person orentity which is not a party or permitted assignee of a party to this Agreement.

##  

## *8.9.**                           *GoverningLaw.  This Agreement shallbe governed by, and construed in accordance with, the laws of the State ofDelaware.  Each party hereby irrevocablywaives the right to any jury trial in connection with any action or proceedingbrought or maintained in connection with this Agreement.

##  

## *8.10.**                    *Jurisdiction.  Anylegal action or proceeding with respect to this Agreement may be brought in thesuperior courts of the State of California sitting in Orange County, Californiaor federal district courts of the United States of America for the Central Districtof California and, by execution and delivery of this Agreement, the partieshereby accept for themselves and in respect of their property, generally andunconditionally, the jurisdiction of the aforesaid courts.  The parties irrevocably consent to theservice of process out of any of the aforementioned courts in any such actionor proceeding by the delivery of notice as provided in this Agreement, suchservice to become effective thirty (30) days after such delivery.

##  

## *8.11.**                    *EntireAgreement.  This Agreement(together with the Exhibits and the Company Disclosure Letter, and the otherdocuments delivered pursuant hereto or contemplated hereby) constitutes theentire agreement between the parties with respect to the subject matter hereofand

 

42

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## supersedes all other prior agreements and understandings, both writtenand oral, between the parties with respect to the subject matter hereof, ineach case other than the Reciprocal Confidentiality Agreement.

##  

## *8.12.**                    *Validity.  The invalidity or unenforceability of anyprovision of this Agreement shall not affect the validity or enforceability ofany other provisions of this Agreement, which shall remain in full force andeffect.  Upon such determination that anyterm or other provision is invalid, illegal or incapable of being enforced, theparties shall negotiate in good faith to modify this Agreement so as to effectthe original intent of the parties as closely as possible in an acceptablemanner to the end that transactions contemplated hereby are fulfilled to theextent possible.

##  

IN WITNESS WHEREOF, the parties hereto have causedthis Agreement to be executed by their duly authorized officers all as of theday and year first above written.

 
|   | MICROSEMI  CORPORATION           |
|--------|----------------------------------|
|   |                             |
|   | By:                              |   |
|   |                             | James J.  Peterson, President and |
|   |                             | Chief Executive  Officer |
|   |                             |   |
|   | APT ACQUISITION  CORP.           |
|   |                             |   |
|   | By:                              |   |
|   |                             | James J.  Peterson, President and |
|   |                             | Chief Executive  Officer |
|   |                             |   |
|   | ADVANCED POWER  TECHNOLOGY, INC. |
|   |                             |   |
|   | By:                              |   |
|   |                             | Patrick P.H.  Sireta, President and |
|   |                             | Chief Executive  Officer |

 

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**EXHIBIT A**

 

**VOTING AGREEMENT**

 

ThisVoting Agreement (this “Agreement) is made and entered into as of November       ,2005 by and between Marines Corporation, a Delaware corporation (“Parent”), andthe signatory hereto (the “Promissor”). Terms used herein and not definedherein shall have the meaning set forth in the Merger Agreement (as definedbelow).

 

**RECITALS**

 

WHEREAS,pursuant to an Agreement and Plan of Merger dated as of November    ,2005, as may be amended from time to time (including such amendments, hereincalled the *“Merger Agreement”*) byand among Parent, Army Acquisition Corp., a Delaware corporation andwholly-owned subsidiary of Parent (the “Merger Sub”), and Army, Inc., aDelaware corporation (the “Company”), it is proposed that Parent shall issueshares of Parent Common Stock and/or Parent Stock Options in exchange forShares and Options (as defined below) pursuant to  the Merger Agreement(the “Merger”); and

 

WHEREAS,as a condition to its willingness to enter into the Merger Agreement, Parenthas required that each Promissor, in each such person’s capacity as astockholder of the Company, enter into, and the Promissor has agreed to enterinto, this Voting Agreement.

 

AGREEMENT

 

NOW,THEREFORE, for good and valuable considerations, receipt and sufficiency ofwhich are hereby acknowledged, the parties agree as follows:

 

1.                                       *Representations andWarranties of the Promissor*.  The Promissor hereby represents and warrantsto Parent as follows:

 

(a)                                  *Authority; No Violation*.  ThePromissor has all necessary power and authority to enter into and perform allof such Promissor’s obligations hereunder. The execution, delivery and performance of this Agreement by thePromissor will not violate any other agreement to which such Promissor is aparty, including any voting agreement, stockholder agreement, trust agreementor voting trust.  This Voting Agreementhas been duly and validly executed and delivered by the Promissor (and thePromissor’s spouse, if the Shares constitute community property) and constitutesa valid and binding agreement of the Promissor and such spouse, enforceableagainst the Promissor and the Promissor’s spouse, as the case may be, inaccordance with its terms.

 

(b)                                 *Ownership of Shares*.  ThePromissor is the beneficial owner or record holder of the number of shares ofthe Company’s Common Stock indicated under the Promissor’s name on thesignature page hereto (the “Existing Shares,” and together with any sharesof the Company’s Common Stock acquired by the Promissor after the date hereofthe “Shares”) and, as of the date hereof, the Existing Shares constitute all ofthe shares of the Company’s Common Stock owned of record or beneficially by thePromissor.  With respect to the ExistingShares, and if applicable  subject tocommunity property laws, the Promissor has sole voting power and sole power toissue instructions

 

1

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withrespect to the matters set forth in Section 2 hereof, sole power ofdisposition, sole power to demand appraisal rights and sole power to engage inactions set forth in Section 2 hereof, with no restrictions on the votingrights, rights of disposition or otherwise, subject to applicable laws and theterms of this Agreement.

 

(c)                                  *No Conflicts*. Neither the execution and delivery of this Agreement nor theconsummation by the Promissor of the transactions contemplated hereby willconflict with or constitute a violation of or default under any contract,commitment, agreement, arrangement or restriction of any kind to which suchPromissor is a party or by which the Promissor is bound.

 

2.                                       *Voting Agreement andAgreement Not to Transfer*.

 

(a)                                  The Promissor hereby agrees to vote all ofthe Shares held by the Promissor (i) in favor of the Merger, the MergerAgreement and the transactions contemplated by the Merger Agreement; (ii) againstany action or agreement that would result in a breach in any material respectof any covenant, representation or warranty or any other obligation oragreement of the Company under the Merger Agreement; and (iii) except withthe prior written consent of Parent, against the following actions (other thanthe Merger and the transactions contemplated by the Merger Agreement): (A) anyextraordinary corporate transactions, such as a merger, consolidation or otherbusiness combination involving the Company; (B) any sale, lease ortransfer of a material amount of the assets of the Company; (C) any change in the majority of the Board of theCompany; (D) any material change in the present capitalization of the Company;(E) any amendment of the Company’s Articles of Incorporation; (F) anyother material change in the Company’s corporate structure or business; or (G) anyother action which is intended, or could reasonably be expected to, impede,interfere with, delay, postpone, discourage or materially adversely affect thecontemplated economic benefits to Parent or Company of the transactionscontemplated by the Merger Agreement. The Promissor shall not enter into any agreement or understanding withany person or entity prior to the Termination Date (as defined below) to voteor give instructions after the Termination Date in any manner inconsistent withclauses (i), (ii) or (iii) of the preceding sentence.

 

(b)                                 The Promissor hereby agrees not to (i) sell,transfer, assign or otherwise dispose of any of his or her Shares without theprior written consent of Parent, other than Shares sold or surrendered to paythe exercise price of any stock options or to pay taxes or satisfy the Company’swithholding obligations with respect to any taxes resulting from such exerciseor (ii) pledge, mortgage or encumber such Shares.  Any permitted transferee of Shares mustbecome a party to this Agreement and any purported transfer of Shares to aperson or entity that has not become a party hereto shall be null and void.

 

3.                                       *Cooperation*.  ThePromissor agrees that he or she will not, subject to Section 4, directlyor indirectly solicit any inquiries or proposals from any person relating toany proposal or transaction for the disposition of the business or assets ofthe Company or the acquisition of voting securities of the Company or anybusiness combination between the Company or any person other than Parent.

 

4.                                       *Promissor Capacity*.  ThePromissor is entering this Agreement in his or her capacity as the record orbeneficial owner of the Shares, and not in his or her capacity as adirector/executive officer of the Company. Nothing in this Agreement shall be deemed in any

 

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manner to limit thediscretion of any Promissor to take any action, or fail to take any action, inhis or her capacity as a director/executive officer of the Company, that may berequired of such Promissor in the exercise of his or her duties andresponsibilities.

 

5.                                       *Termination*.  Theobligations of the Promissor hereunder shall terminate upon the consummation ofthe Merger.  If the Merger is notconsummated, the obligations of the Promissor hereunder shall terminate uponthe termination of the Merger Agreement, *provided*that if, in the event of such termination, the Company is required to payParent the Termination Fee specified in Section 7.3(c) of the MergerAgreement, those obligations set forth in Section 2(a) of thisAgreement shall survive until the Company pays the Termination Fee toParent.  The “Termination Date” for anyparticular provision hereunder shall be the date of termination of thePromissor’s obligations for such provision.

 

6.                                       *Specific Performance*.  ThePromissor acknowledges that damages would be an inadequate remedy to Parent foran actual or prospective breach of this Agreement and that the obligations ofthe Promissor hereto shall be specifically enforceable. Each of the partieshereto recognizes and acknowledges that a breach of any covenants or agreementscontained in this Agreement by the Promissor will cause Parent to sustaindamages for which it would not have an adequate remedy at law for moneydamages, and therefore each of the parties hereto agrees that in the event ofany such breach Parent shall be entitled to the remedy of specific performanceof such covenants and agreements and injunctive and other equitable relief inaddition to any other remedy to which they may be entitled, at law or inequity.

 

7.                                       *Miscellaneous*.

 

(a) Amendments and Waivers. Any term of this Agreement may beamended or waived with the written consent of the parties or their respectivesuccessors and assigns. Any amendment or waiver effected in accordance withthis Section 7(a) shall be binding upon the parties and theirrespective successors and assigns.

 

(b) Governing Law. This Agreement and all acts and transactionspursuant hereto and the rights and obligations of the parties hereto shall begoverned, construed and interpreted in accordance with the laws of the State ofDelaware, without giving effect to principles of conflicts of law.

 

(c) Counterparts. This Agreement may be executed in two or morecounterparts, each of which shall be deemed an original and all of whichtogether shall constitute one instrument.

 

(d) Titles and Subtitles. The titles and subtitles used in thisAgreement are used for convenience only and are not to be considered inconstruing or interpreting this Agreement.

 

(e) Notices. Any notice or other communication required orpermitted to be delivered to any party under this Agreement shall be in writingand shall be deemed properly delivered, given and received (i) whendelivered by hand; (ii) on the day sent by facsimile, provided that thesender has received confirmation of transmission as of or prior to 5:00 p.m.local time of the recipient, on such day; (iii) the first business dayafter sent by facsimile (to the extent that (A) the sender has receivedconfirmation of transmission after 5:00 p.m. local time of the recipienton the day sent by facsimile, or

 

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(B) noticeis sent on a day that is not a business day); or (iv) the third businessday after sent by registered mail or by courier or express delivery service, ineach case to the address or facsimile number set forth on the signature page tothis Agreement beneath the name of such party, or to such other address orfacsimile number as such party shall have specified in a written notice givento the other parties hereto or, if to Parent, addressed as follows:

 
| If to Parent to:     |
|----------------------|
|                 |
| Marines Corporation  |
|                 |
| Address              |
| Telephone:           |
| Fax:                 |
| Email:               |
|                 |
| With a copy to:      |
|                 |
| If to the Promissor: |
|                 |
| Name:                |
| Address              |
| Telephone:           |
| Fax:                 |
| Email:               |

 

(f) Severability. If one or more provisions of this Agreement areheld to be invalid or unenforceable under the applicable law of anyjurisdiction, the parties agree to renegotiate such provision in good faith, inorder to maintain the economic position enjoyed by each party as close aspossible to that under the provision rendered unenforceable. In the event thatthe parties cannot reach a mutually agreeable and enforceable replacement forsuch provision, then (i) such provision shall be excluded from thisAgreement, (ii) the balance of this Agreement shall be interpreted as ifsuch provision were so excluded and (iii) the balance of this Agreementshall be valid and enforceable in accordance with its terms. Each provision ofthis Agreement is separable from any other provisions of this Agreement, andeach part of each provision of this Agreement is severable from every otherpart of such provision.

 

(g) Disclosure. Promissor hereby agrees to permit Parent and theCompany to publish and disclose in the Registration Statement (including alldocuments and schedules filed with the SEC) and the Proxy Statement/Prospectus,and in any press release or other disclosure document in which Parent or theCompany reasonably determines in its good faith judgment that such disclosureis required by law, including the rules and regulations of the SEC, asappropriate, in connection with the Merger and any transactions relatedthereto, such Promissor’s identity and ownership of the Shares the nature ofthe commitments, arrangements and undertakings under this Agreement.

 

(h) Assignment.  This Agreementshall not be assigned by Promissor without the prior written consent of theParent.

 

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(i) Entire Agreement, etc. This Agreement (i) constitutes theentire agreement, and supersedes all other prior agreements, understandings,representations and warranties both written and oral among the parties withrespect to the subject matter hereof, and (ii) shall not be transferableor assignable by operation of law or otherwise and is not intended to createany obligations to, or rights in respect of, any persons other than the partieshereto; *provided*, that the Parentmay assign any of its rights and obligations hereunder to any of itssubsidiaries or to any other entity which may acquire all or substantially allof the assets, shares or business of the Parent or any of its subsidiaries orany entity with or into which the Parent or any of its subsidiaries may beconsolidated or merged.

 

(j)  *Jurisdiction.*    Anylegal action or proceeding with respect to this Agreement may be brought in thesuperior courts of the State of California sitting in Orange County, Californiaor federal district courts of the United States of America for the CentralDistrict of California and, by execution and delivery of this Agreement, theparties hereby accept for themselves and in respect of their property,generally and unconditionally, the jurisdiction of the aforesaid courts.  The parties irrevocably consent to theservice of process out of any of the aforementioned courts in any such actionor proceeding by the delivery of notice as provided in this Agreement, suchservice to become effective thirty (30) days after such delivery.

 

**(SIGNATURE PAGE FOLLOWS)**

 

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**SIGNATURES**

 

INWITNESS WHEREOF, the parties hereto have executed this Voting Agreement as ofthe date first above written.

 
|              | Marines Corporation: |
|-------------------|----------------------|
|              |                 |
|              | By:                  |   |   |
|              | Name:                |   |   |
|              | Title:               |   |   |
|              | Address              |   |   |
|              | Telephone:           |   |   |
|              | Fax:                 |   |   |
|              | Email:               |   |   |
|              |                 |
|              |                 |
| Stockholder:      |                 |
|              |                 |
| By:               |                 |   |   |
| Name:             |                 |   |   |
| Title:            |                 |   |   |
| Number of Shares: |                 |   |   |
| Address           |                 |   |   |
| Telephone:        |                 |   |   |
| Fax:              |                 |   |   |
| Email:            |                 |   |   |
|                   |                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**EXHIBIT B**

 

**NON-COMPETITION AGREEMENT**

 

ThisNon-competition Agreement (this “Agreement”) is dated as of November        ,2005, among Marines Corporation, a Delaware corporation (“Parent”) Army, Inc..,a Delaware corporation (“Company”), and                (the “Obligor”). Terms used herein and not defined herein shall have themeaning set forth in the Merger Agreement (as defined below).

 

RECITALS

 

WHEREAS,pursuant to an Agreement and Plan of Merger dated as of October       2005, as may be amended from time to time (including such amendments, hereincalled the *“Merger Agreement”*) byand among Parent, Army Acquisition Corp., a Delaware corporation andwholly-owned subsidiary of Parent (“Merger Sub”), and Company, it is proposedthat Parent shall issue shares of Parent Common Stock and/or Parent StockOptions (the “New Shares”) in exchange for issued shares of Company CommonStock (as defined below) (the “Shares”) and options to  purchase Company Common Stock (the  “Options”) pursuant to  the Merger Agreement; and

 

WHEREAS,as a condition and inducement to Parent consummating the Merger, Parent hasrequired that Obligor enter into this Agreement; and

 

WHEREAS,the Obligor is a stockholder of the Company; and

 

WHEREAS,in order to induce the Parent to enter into the Merger Agreement and tominimize the risk that the Parent will lose the benefits of the goodwill andother assets being acquired from the Merger Sub, the Obligor has agreed torestrict his/her activities in accordance with the terms and conditions of thisAgreement.

 

AGREEMENT

 

NOW,THEREFORE, in consideration of the premises, and of the representations,warranties, covenants and agreements contained herein, and other good and valuableconsideration, the receipt of and sufficiency of which the parties heretohereby acknowledge, the parties hereto hereby agree as follows:

 

1.*              **Definitions.*    Asused in this Agreement, the following terms shall have the following meanings:

 

(a)          “Restricted Business” shall mean any activitycustomarily associated with Advanced Power Technology’s ordinary course ofbusiness.

 

(b)         “Restricted Territory” shall mean the globalgeographic area.

 

2.               *Agreement Not To Compete.*

 

(a)          *Agreement.*    TheObligor agrees that for a two-year period from the date of this Agreementthrough the date that is the second anniversary of the Effective Date, Obligorshall

 

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not directly or indirectly engage in or have any ownership interest in,or participate in the financing, operation, management or control of, anyperson, firm, corporation or business that engages in a Restricted Business ina Restricted Territory, *provided*that this provision shall not prohibit the Obligor from owning up to fivepercent (5%) of any class of outstanding bonds, preferred stock or shares ofcommon stock of any such entity.

 

(b)    *ConfidentialInformation*.    The Obligorhereby acknowledges that he/she makes use of, acquires and adds to confidentialinformation of a special and unique nature and value relating to the Merger Suband its strategic plan and financial operations.  The Obligor further recognizes andacknowledges that all confidential information is the exclusive property ofMerger Sub, is material and confidential, and is critical to the successfulconduct of the business of Merger Sub. Accordingly, the Obligor hereby covenants and agrees that he will useconfidential information for the benefit of the Merger Sub only and shall notat any time, directly or indirectly, during the term of this Agreement andthereafter divulge, reveal or communicate any confidential information to anyperson, firm, corporation or entity whatsoever, or use any confidentialinformation for his own benefit or for the benefit of others.

 

(c) *   SeparateCovenants.*    If, in anyjudicial proceeding, a court shall refuse to enforce any of the separatecovenants (or any part thereof) contained in the preceding paragraphs of this Section 2,the parties agree to renegotiate such provision in good faith, in order tomaintain the economic position enjoyed by each party as closely as possible tothat under the provision rendered unenforceable. In the event that the partiescannot reach a mutually agreeable and enforceable replacement for suchprovision, then (i) such provision shall be excluded from this Agreement, (ii) thebalance of the Agreement shall be interpreted as if such provision were soexcluded and (iii) the balance of the Agreement shall be valid and enforceablein accordance with its terms. Each provision of this Agreement is separablefrom any other provisions of this Agreement, and each part of each provision ofthis Agreement is severable from every other part of such provision.

 

(d) *   Reformation.*    In the event that the provisions of this Section 2should ever be deemed to exceed the duration or geographic limitations or scopepermitted by applicable law, then such provisions shall be reformed to themaximum time or geographic limitations or scope, as the case may be, permittedby applicable laws.

 

(e) *   Injuntions;Specific Performance.*    TheObligor acknowledges that it would be impossible to determine the amount ofdamages that would result from any breach of any of the provisions of this Section 2and that the remedy at law for any breach, or threatened breach, of any of suchprovisions would likely be inadequate and, accordingly, agrees that the Parentor the Company shall, in addition to any other rights or remedies which it mayhave, be entitled to seek such equitable and injunctive relief as may beavailable from any court of competent jurisdiction to restrain the Obligor fromviolating any of such provisions of this Agreement or to cause the Obligor toperform any of such provisions.  In connectionwith any action or proceeding for injunctive relief, the Obligor hereby waivesthe claim or defense that a remedy at law alone is adequate and agrees, to themaximum extent permitted by law, to have each such provision of this Section 2specifically enforced against the Obligor, without the necessity of postingbond or other security against the Obligor, and consents to the entry ofinjunctive relief against the Obligor enjoining or restraining any breach orthreatened breach of such provisions of this Section 2.

 

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3.               *Miscellaneous.*

 

(a) Amendmentsand Waivers. Any term of this Agreement may be amended or waived with thewritten consent of the parties or their respective successors and assigns. Anyamendment or waiver effected in accordance with this Section 3(a) shallbe binding upon the parties and their respective successors and assigns.

 

(b) GoverningLaw. This Agreement and all acts and transactions pursuant hereto and therights and obligations of the parties hereto shall be governed, construed andinterpreted in accordance with the laws of the State of Delaware, withoutgiving effect to principles of conflicts of law.

 

(c) Counterparts.This Agreement may be executed in two or more counterparts, each of which shallbe deemed an original and all of which together shall constitute oneinstrument.

 

(d) Titlesand Subtitles. The titles and subtitles used in this Agreement are used forconvenience only and are not to be considered in construing or interpretingthis Agreement.

 

(e) Notices.Any notice or other communication required or permitted to be delivered to anyparty under this Agreement shall be in writing and shall be deemed properlydelivered, given and received (i) when delivered by hand; (ii) on theday sent by facsimile, provided that the sender has received confirmation oftransmission as of or prior to 5:00 p.m. local time of the recipient, onsuch day; (iii) the first business day after sent by facsimile (to theextent that (A) the sender has received confirmation of transmission after5:00 p.m. local time of the recipient on the day sent by facsimile, or (B) noticeis sent on a day that is not a business day); or (iv) the third businessday after sent by registered mail or by courier or express delivery service, ineach case to the address or facsimile number set forth on the signature page tothis Agreement beneath the name of such party, or to such other address orfacsimile number as such party shall have specified in a written notice givento the other parties hereto or, if to Parent, addressed as follows:

 
| If to Parent:       |
|---------------------|
|                |
| Marines Corporation |
| Address             |
| Telephone:          |
| Fax:                |
| Email:              |
|                |
| If to Company:      |
|                |
| Army, Inc.     |
| Address             |
| Telephone:          |
| Fax:                |
| Email:              |
|                |
| If to Obligor:      |
|                |
| Address             |
| Telephone:          |

 

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| Fax:   |
|--------|
| Email: |

 

(f) Disclosure.Holder hereby agrees to permit Parent and the Company to publish and disclosein the Registration Statement (including all documents and schedules filed withthe SEC) and the Proxy Statement/Prospectus, and in any press release or otherdisclosure document in which Parent or the Company reasonably determines in itsgood faith judgment that such disclosure is required by law, including the rules andregulations of the SEC, as appropriate, in connection with the Merger and anytransactions related thereto, such Holder’s identity and ownership of theShares and New Shares and the nature of the commitments, arrangements andundertakings under this Agreement.

 

(g) Assignment.  This Agreement shall not be assigned byObligor without the prior written consent of Parent.

 

(h) EntireAgreement, etc. This Agreement (i) constitutes the entire agreement, andsupersedes all other prior agreements, understandings, representations andwarranties both written and oral among the parties with respect to the subjectmatter hereof, and (ii) shall not be transferable or assignable byoperation of law or otherwise and is not intended to create any obligations to,or rights in respect of, any persons other than the parties hereto; *provided*, that the Parent may assign anyof its rights and obligations hereunder to any of its subsidiaries or to anyother entity which may acquire all or substantially all of the assets, sharesor business of the Parent or any of its subsidiaries or any entity with or intowhich the Parent or any of its subsidiaries may be consolidated or merged.

 

(i) *   *Jurisdiction*.*   Any legal action or proceeding with respect to this Agreement may bebrought in the superior courts of the State of California sitting in OrangeCounty, California or federal district courts of the United States of Americafor the Central District of California and, by execution and delivery of thisAgreement, the parties hereby accept for themselves and in respect of theirproperty, generally and unconditionally, the jurisdiction of the aforesaidcourts.  The parties irrevocably consentto the service of process out of any of the aforementioned courts in any suchaction or proceeding by the delivery of notice as provided in this Agreement,such service to become effective thirty (30) days after such delivery.

 

4.*    Term ofAgreement; Termination.*   This Agreement shall terminate upon the earlier of the date, if any, oftermination of the Merger Agreement in accordance with its terms or theexpiration of the period described in Section 2(a) of this Agreement.Upon such termination, no party shall have any further obligations orliabilities hereunder; *provided, however,*such termination shall not relieve any party from liability for any breach ofthis Agreement prior to such termination.

 

INWITNESS WHEREOF, the parties have executed this Non-competition Agreement as ofthe date first written above.

 
| Marines Corporation | Army, Inc. |
|---------------------|-----------------|
|                |            |
|                |            |
| By:                 |            |   | By: |   |   |
| Name:               |            |   | Name: |   |   |
| Title:              |            |   | Title: |   |   |
| Address             |            |   | Address |   |   |
| Telephone:          |            |   | Telephone: |   |   |
|                     |                 |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| Fax:       |   |   | Fax:   |   |   |
|------------|--------|--------|--------|--------|--------|
| Email:     |   |   | Email: |   |   |
|       |   |
| Obligor    |   |
|       |   |
| By:        |   |   |   |
| Name:      |   |   |   |
| Title:     |   |   |   |
| Address    |   |   |   |
| Telephone: |   |   |   |
| Fax:       |   |   |   |
| Email:     |   |   |   |
|            |        |        |        |        |        |  |  |  |  |  |  |  |  |

 

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**EXHIBIT C**

 

**LOCK-UP AGREEMENT**

 

ThisLock-Up Agreement (this “*Agreement*”)is made and entered into as of November     , 2005,between Marines Corporation , a Delaware corporation (*“Parent”*), and the undersigned stockholderand/or optionholder (*“Holder”*) ofArmy, Inc., a Delaware corporation (the *“Company”*).Terms used herein and not defined herein shall have the meaning set forth inthe Merger Agreement (as defined below).

 

**RECITALS**

 

WHEREAS,the Holder is the registered owner of (1) such number of issued andoutstanding shares of Company Common Stock (the *“Shares”*) and (2) options to purchase such number ofshares of Company Common Stock (the *“Options”*),each as is indicated beneath Holder’s signature on the last page of thisAgreement; and

 

WHEREAS,pursuant to an Agreement and Plan of Merger dated as of November     ,2005, as may be amended from time to time (including such amendments, hereincalled the *“Merger Agreement”*) byand among Parent, Army Acquisition Corp., a Delaware corporation andwholly-owned subsidiary of Parent, and the Company, it is proposed that Parentshall pay cash and issue shares of Parent Common Stock in exchange for theShares and assume the Options; and

 

WHEREAS,as a condition and inducement to Parent consummating the Merger, Parent hasrequired that Holder enter into this Agreement to serve the general purpose ofbetter aligning Holder’s financial interests with the success of thetransaction contemplated in the Merger Agreement.

 

NOW,THEREFORE, for good and valuable considerations, receipt and sufficiency ofwhich are hereby acknowledged, the parties agree as follows:

 

**AGREEMENT**

 

1.Agreement to Retain Shares.

 

(a) Transfer and Encumbrance. Except as contemplated by the MergerAgreement, and except as provided in Sections 1(b) and 2 below, during theperiod beginning on the date hereof and ending on the earlier to occur of (i) ninety(90) days following the Effective Date, and (ii) the Expiration Date (asdefined below), Holder agrees not to, directly or indirectly, (A) transfer(except as may be specifically required by court order), sell, exchange,tender, assign, contribute to the capital of any entity, or otherwise disposeof (including by merger, consolidation or otherwise by operation of law) orencumber the Shares or any New Shares (as defined below), including any sharesof Parent Common Stock received in exchange for such Shares pursuant to theMerger, enter into any short sale with respect to the Shares or any New Shares,enter into or acquire an offsetting derivative contract with respect to suchShares or any New Shares, enter into or acquire a futures or forward contractto deliver such Shares or any New Shares or enter into any other hedging orother derivative transaction that has the effect of materially changing theeconomic benefits and risks of ownership of the Shares or any New Shares, orto, directly

 

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orindirectly, make any offer or agreement relating thereto, (B) grant anyproxies or powers of attorney, deposit any of such Shares or New Shares into avoting trust or enter into a voting agreement with respect to any of suchShares or New Shares, or enter into any agreement or arrangement providing forany of the actions described in this clause, or (C) take any action thatcould reasonably be expected to have the effect of preventing or disablingHolder from performing Holder’s obligations under this Agreement, and Holderwarrants that it has not agreed to carry out any of the foregoing matters inrelation to the Shares or any New Shares; provided, however that,notwithstanding the provisions of this Section 1(a), the Holder mayprovide an irrevocable undertaking or other form of support agreement to Parentor Company in relation to the Merger. As used herein, the term “Expiration Date”shall mean the date of termination of the Merger Agreement in accordance withthe terms and provisions thereof. During the ninety (90) to one hundred eighty(180) day period following the Effective Date, the foregoing applies to fiftypercent (50%) of the Shares or any News Shares, and after one hundred eighty(180) days, the foregoing does not apply.

 

(b) Permitted Transfers. Section 1(a) shall not prohibita transfer of Shares or New Shares by Holder (i) if Holder is anindividual (A) to any member of Holder’s immediate family, or to a trustfor the benefit of Holder or any member of Holder’s immediate family, or (B) uponthe death of Holder, or (ii) if Holder is a partnership or limitedliability company, to one or more partners or members of Holder or to anaffiliated Person under common control or common management with Holder;provided, however, that any such transfer pursuant to either clause (i) or(ii) of this Section 1(b) shall be permitted only if, as aprecondition to such transfer, the transferee agrees in writing to be bound byall of the terms of this Agreement, or (iii) with respect to Options underthe Company Stock Option Plans, Holder may sell New Shares upon or after exercisethereof pursuant to an effective Registration Statement to be filed by Parentunder the Securities Act of 1933 (the “Securities Act”) provided also that suchNew Shares are sold in accordance with Parent’s Insider Trading Policy and Rule 145of the rules and regulations prescribed by the Securities and ExchangeCommission (“SEC”) pursuant to the Securities Act (“Rule 145”).

 

(c) New Shares. Holder agrees that New Shares (as defined below)shall be subject to the terms and conditions of this Agreement to the sameextent as if they constituted Shares. The term “New Shares” shall mean any andall shares of capital stock or interests in shares or other securities of theCompany or Parent, including any shares of Parent Common Stock received inexchange for such Shares pursuant to the Merger and/or received upon exerciseof the Options assumed by Parent pursuant to the Merger, that Holder purchasesor with respect to which Holder otherwise acquires registered or beneficialownership after the date of this Agreement and prior to the earlier to occur of(i) one hundred eighty (180) days following the Effective Date and (ii) theExpiration Date.

 

2.Restrictions on Shares and New Shares

 

(a) General. Holder has been advised that, as of the date hereof,Holder may be deemed to be an *“affiliate”*of the Company, as the term *“affiliate”*is defined for purposes of paragraphs (c) and (d) of Rule 145.Holder will receive Parent Common Stock in exchange for the Shares or NewShares. Notwithstanding anything to the contrary set forth in this Section 2,the execution of this Agreement should not be considered an admission on Holder’spart that Holder is an *“affiliate”*of the Company, nor as a waiver of any rights Holder may have to object to anyclaim that Holder is such an affiliate on or after the date of this Agreement.

 

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(b) Holder Representations; Restrictions on Transfer; LegendsHolder represents, warrants and covenants to Parent that in the event Holderreceives any Parent Common Stock upon consummation of the Merger:

 

(i) Holder shall not make any sale, transfer or other dispositionof the Parent Common Stock in violation of the Securities Act.

 

(ii) Holder has carefully read this Agreement and discussed therequirements of this Agreement and other applicable limitations upon Holder’sability to sell, transfer or otherwise dispose of Parent Common Stock receivedin exchange for the Shares, to the extent Holder has felt necessary, withHolder’s counsel.

 

(iii) Holder has been advised that the issuance of Parent CommonStock in connection with the Merger will be registered on a registrationstatement on Form S-4 promulgated under the Securities Act (the *“Registration Statement”*) and the resaleof such Parent Common Stock may be subject to restrictions set forth in Rule 145.Holder has been advised that, because Holder may be deemed to be an *“affiliate”* of the Company, Holder may notsell, transfer or otherwise dispose of the Parent Common Stock issued to Holderin the Merger, unless (i) such sale, transfer or other disposition is madein conformity with the limitations of Rule 145, (ii) such sale,transfer or other disposition has been registered under the Securities Act or (iii) inthe opinion of counsel reasonably acceptable to Parent, such sale, transfer orother disposition is otherwise exempt from registration under the SecuritiesAct.

 

(iv) Holder understands and agrees that stop transfer instructionswill be given to Parent’s transfer agent with respect to the Parent CommonStock issued to directors, executive officers and ten percent (10%) holders ofany class of securities of the Company (as of immediately prior to the Merger)and that there will be placed on the certificates for the Parent Common Stockissued to directors, executive officers and 10% holders of any class ofsecurities of the Company (as of immediately prior to the Merger), or anysubstitutions therefor, a legend stating in substance: *“THE SHARES REPRESENTED BY THIS CERTIFICATE WEREISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACTOF 1933, AS AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLYBE TRANSFERRED IN ACCORDANCE WITH RULE 145.”* If a sale or transferis made prior to such legend being removed pursuant to Section 2(c) below,certificates with the above legend will be substituted by delivery ofcertificates without such legend upon delivery of a declaration to Parent (the *“Declaration”*), which Declaration shall bereasonably satisfactory in form and substance to Parent, that the requirementsof Rule 145(d)(1) have been complied with.

 

(v) Holder understands and agrees that stop transfer instructionswill be given to Parent’s transfer agent with respect to the Parent CommonStock issued to Holder and there will be placed on the certificates for theParent Common Stock issued to Holder, or any substitutions therefore, a legend,in addition to all other legends necessary under applicable law, stating insubstance: *“THE SHARES REPRESENTED BY THISCERTIFICATE MAY NOT BE TRANSFERRED UNTIL THE EFFECTIVE DATE (AS DEFINED INTHE MERGER AGREEMENT DATED NOVEMBER      , 2005ENTERED INTO BY AND AMONG MARINES*

 

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*CORPORATION, ARMY ACQUISITION CORP. AND ARMY, INC. INACCORDANCE WITH THE TERMS OF A LOCK-UP AGREEMENT DATED                      ,2005 BETWEEN THE REGISTERED HOLDER HEREOF AND MARINES CORPORATION, A COPY OFWHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF MARINES CORPORATION.”*

 

(c).Parent Representations.

 

(i) Parent hereby agrees that, unless previously sold pursuant tothe applicable requirements of Rule 145, it is understood and agreed thatcertificates with the legend set forth in Section 2(b)(iv) above willbe substituted by delivery of certificates without such legend, and any stoptransfer instructions then in effect will be terminated, if (i) one (1) yearshall have elapsed from the date Holder acquired the Parent Common Stockreceived in the Merger and the provisions of Rule 145(d)(2) are thenavailable to Holder, (ii) two (2) years shall have elapsed from thedate Holder acquired the Parent Common Stock received in the Merger and theprovisions of Rule 145(d)(3) are then available to Holder, or (iii) Parenthas received either an opinion of counsel, which opinion and counsel shall bereasonably satisfactory to Parent, or a *“noaction”* letter obtained by Holder from the staff of the SEC, to theeffect that the restrictions imposed by Rule 145 under the Securities Actno longer apply to Holder. For as long as resale of any shares of Parent CommonStock owned by Holder are subject to Rule 145, Parent will use itsreasonable efforts to make all filings of the nature specified in paragraph (c)(1) ofRule 144 under the Securities Act. Upon receipt of a properly completedDeclaration, Parent shall use its reasonable efforts to instruct its transferagent to deliver shares of Parent Common Stock without the legend set forth in Section 2(b)(iv) abovein accordance with the terms of the transfer set forth in the Declaration assoon as practicable following receipt of such Declaration.

 

(ii) Parent hereby agrees that it is understood and agreed thatcertificates with the legend set forth in Section 2(b)(v) above will,to the extent required to enable the shares represented by such certificate tobe transferred by the holder thereof, be substituted by delivery ofcertificates without such legend upon the written request of the Holder if onehundred eighty (180) days shall have elapsed from the Effective Date. Uponreceipt of any such written request, Parent shall use its reasonable efforts toinstruct its transfer agent to deliver shares of Parent Common Stock withoutthe legend set forth in Section 2(b)(v) above as soon as practicablefollowing receipt of such written request.

 

4.Representations, Warranties and Covenants of Holder.

 

Holderhereby represents, warrants and covenants to Parent that Holder (i) is theregistered owner and, as set forth on the signature page, beneficial owner, ofthe Shares and Options to purchase Company Common Stock, if any, indicatedbelow Holder’s signature on the signature page to this Agreement, and (ii) isnot the registered owner of any shares, options or other securities in, orconvertible into, share capital of the Company, other than the Shares and theOptions to purchase Company Common Stock, if any, indicated below Holder’ssignature on the last page of this Agreement. Holder has the legalcapacity, power and authority to enter into and perform all of Holder’sobligations under this Agreement. This Agreement has been duly and validlyexecuted and delivered by Holder and constitutes a valid and binding agreementof Holder, enforceable against Holder in accordance with its terms, subject to (a) lawsof general

 

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application relating tobankruptcy, insolvency and the relief of debtors and (b) rules of lawgoverning specific performance, injunctive relief and other equitable remedies.

 

5.Further Assurances

 

Holdershall perform such further acts and execute such further documents andinstruments as may reasonably be required to vest in Parent the power to carryout and give effect to the provisions of this Agreement.

 

6.Fiduciary Duties

 

Notwithstandinganything in this Agreement to the contrary: (i) Holder makes no agreementor understanding herein in any capacity other than in Holder’s capacity as aregistered owner of the Shares and, to the extent applicable, any New Shares, (ii) nothingin this Agreement shall be construed to limit or affect any action or inactionby Holder, or any officer, partner, member or employee, as applicable, ofHolder, serving on the Company’s Board of Directors acting in such person’scapacity as a director or fiduciary of the Company, and (iii) Holder shallhave no liability to Parent or any its affiliates under this Agreement as aresult of any action or inaction by Holder, or any officer, partner, member oremployee, as applicable, of Holder, serving on the Company’s Board of Directorsacting in such person’s capacity as a director or fiduciary of the Company.

 

7.Miscellaneous

 

(a) Amendments and Waivers. Any term of this Agreement may beamended or waived with the written consent of the parties or their respectivesuccessors and assigns. Any amendment or waiver effected in accordance withthis Section 7(a) shall be binding upon the parties and theirrespective successors and assigns.

 

(b) Governing Law. This Agreement and all acts and transactionspursuant hereto and the rights and obligations of the parties hereto shall begoverned, construed and interpreted in accordance with the laws of the State ofDelaware, without giving effect to principles of conflicts of law.

 

(c) Counterparts. This Agreement may be executed in two or morecounterparts, each of which shall be deemed an original and all of whichtogether shall constitute one instrument.

 

(d) Titles and Subtitles. The titles and subtitles used in thisAgreement are used for convenience only and are not to be considered inconstruing or interpreting this Agreement.

 

(e) Notices. Any notice or other communication required orpermitted to be delivered to any party under this Agreement shall be in writingand shall be deemed properly delivered, given and received (i) whendelivered by hand; (ii) on the day sent by facsimile, provided that thesender has received confirmation of transmission as of or prior to 5:00 p.m.local time of the recipient, on such day; (iii) the first business dayafter sent by facsimile (to the extent that (A) the sender has receivedconfirmation of transmission after 5:00 p.m. local time of the recipienton the day sent by facsimile, or (B) notice is sent on a day that is not abusiness day); or (iv) the third business day after sent by registeredmail or by courier or express delivery service, in each case to the address orfacsimile number set forth on the signature page to this Agreement beneaththe name of such party, or to such

 

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otheraddress or facsimile number as such party shall have specified in a writtennotice given to the other party hereto).

 

(f) Severability. If one or more provisions of this Agreement areheld to be invalid or unenforceable under the applicable law of anyjurisdiction, the parties agree to renegotiate such provision in good faith, inorder to maintain the economic position enjoyed by each party as close aspossible to that under the provision rendered unenforceable. In the event thatthe parties cannot reach a mutually agreeable and enforceable replacement forsuch provision, then (i) such provision shall be excluded from thisAgreement, (ii) the balance of the Agreement shall be interpreted as ifsuch provision were so excluded and (iii) the balance of the Agreementshall be valid and enforceable in accordance with its terms. Each provision ofthis Agreement is separable from any other provisions of this Agreement, andeach part of each provision of this Agreement is severable from every otherpart of such provision.

 

(g) Specific Performance. Each of the parties hereto recognizesand acknowledges that a breach of any covenants or agreements contained in thisAgreement will cause Parent to sustain damages for which it would not have anadequate remedy at law for money damages, and therefore each of the partieshereto agrees that in the event of any such breach Parent shall be entitled tothe remedy of specific performance of such covenants and agreements andinjunctive and other equitable relief in addition to any other remedy to whichthey may be entitled, at law or in equity.

 

(h) Disclosure. Holder hereby agrees to permit Parent and theCompany to publish and disclose in the Registration Statement (including alldocuments and schedules filed with the SEC) and the Proxy Statement/Prospectus,and in any press release or other disclosure document in which Parent or theCompany reasonably determines in its good faith judgment that such disclosureis required by law, including the rules and regulations of the SEC, asappropriate, in connection with the Merger and any transactions relatedthereto, such Holder’s identity and ownership of the Shares and New Shares andthe nature of the commitments, arrangements and undertakings under thisAgreement.

 

(i) Assignment.  ThisAgreement shall not be assigned without the prior written consent of the otherparty hereto, except as provided in (j).

 

(j) Entire Agreement, etc. This Agreement (i) constitutes theentire agreement, and supersedes all other prior agreements, understandings,representations and warranties both written and oral among the parties withrespect to the subject matter hereof, and (ii) shall not be transferableor assignable by operation of law or otherwise and is not intended to createany obligations to, or rights in respect of, any persons other than the partieshereto; *provided*, that the Parentmay assign any of its rights and obligations hereunder to any of itssubsidiaries or to any other entity which may acquire all or substantially allof the assets, shares or business of the Parent or any of its subsidiaries orany entity with or into which the Parent or any of its subsidiaries may beconsolidated or merged.

 

(k) Jurisdiction*.*   Any legal action or proceeding with respectto this Agreement may be brought in the superior courts of the State ofCalifornia sitting in Orange County, California or federal district courts ofthe United States of America for the Central District of California and, byexecution and delivery of this Agreement, the parties hereby accept forthemselves and in respect of their property, generally and unconditionally, thejurisdiction of the aforesaid courts. The parties irrevocably consent

 

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tothe service of process out of any of the aforementioned courts in any such actionor proceeding by the delivery of notice as provided in this Agreement, suchservice to become effective thirty (30) days after such delivery.

 

SIGNATURE

 

Theparties have caused this Lock-up Agreement to be duly executed on the datefirst above written.

 
| Marines Corporation      | Army, Inc. |
|--------------------------|-----------------|
|                     |            |
|                     |            |
| By:                      |            |   | By: |   |   |
| Name:                    |            |   | Name: |   |   |
| Title:                   |            |   | Title: |   |   |
| Address                  |            |   | Address |   |   |
| Telephone:               |            |   | Telephone: |   |   |
| Fax:                     |            |   | Fax: |   |   |
| Email:                   |            |   | Email: |   |   |
|                     |            |
| Optionholder/Stockholder |            |
|                     |            |
| By:                      |            |   |   |
| Name:                    |            |   |   |
| Title:                   |            |   |   |
| Address                  |            |   |   |
| Telephone:               |            |   |   |
| Fax:                     |            |   |   |
| Email:                   |            |   |   |
|                          |                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| Shares of Company Common  Stock        |   | Beneficially owned shares: |
|----------------------------------------|--------|----------------------------|
| owned of record:                       |   | of Company Common Stock    |
|                                   |   |                       |
| Number of Shares                       |   | Number of Shares           |
|                                   |   |                       |
| Options to Purchase Shares  of Company |   |                       |
| Common Stock                           |   |                       |
|                                   |   |                       |
| Number of Shares                       |   |                       |

 

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**EXHIBIT E**

 

**OPTION ASSUMPTION AGREEMENT**

 

Dear «FirstName» «LastName»:

 

On                 ,2005 (the “Effective Date”) Marines Corporation (the “Parent”) acquired Army, Inc.(the “Company”) (the “Acquisition”) and on the Effective Date you held one ormore outstanding options to purchase shares of Company Common Stock granted toyou under the Company’s 1995 Stock Option Plan or the Company’s Army, Inc.2005 Equity Incentive Plan (collectively, the *“CompanyStock Option Plans”*). Pursuant to the Merger Agreement, on theEffective Date, Parent assumed all obligations of Company under youroutstanding option (or options as listed below). This Option AssumptionAgreement (the “Agreement”) evidences the terms of Parent’s assumption of anoption (or options) to purchase Company Common Stock granted to you under theCompany Stock Option Plans (the “Company Option”), and documented by a stockoption agreement (or stock option agreements) and any amendment(s) entered intoby and between you and Company (the “Option Agreement(s)”), including thenecessary adjustments for assumption of the Company Option(s) that are requiredby the Acquisition.

 

Termsused herein and not defined herein shall have the meaning set forth in theMerger Agreement.

 

The table below summarizesyour Company Option(s) immediately before the Acquisition and your AssumedCompany Options after the Acquisition:

 
| **COMPANY OPTION**    | ** ** | **ASSUMED COMPANY  OPTION**                   |
|-----------------------|------------|-----------------------------------------------|
|                  |       |                                          |   |   |   |   |   |   |   |   |
| Grant Date            |       | Option Plan-Type                              |   | Company Shares |   | Exercise Price per Share |   | No. of Shares of  Parent Stock |   | Exercise Price per Share |
|                  |       |                                          |   |   |   |   |   |   |   |   |
| «GrantDate» |       | «OptionType»-«OptionType» |   | «Company Shares» |   | $ | «Company Price» |   | «Parent Shares» |   | $ | «Parent Price» |
|                       |            |                                               |  |  |  |  |  |  |  |  |  |  |

 

Thepost-Acquisition adjustments are based on the Implied Exchange Ratio of 0.                    ****(as determined in accordance with theterms of the Merger Agreement, which is based on the Exchange Ratio andincreased by an amount that accounts for the value of the Cash Component interms of Parent Common Stock) and are intended to: (i) assure that thetotal spread of your assumed Company Option(s) ( *i.e.*, the difference between the aggregate fair marketvalue and the aggregate exercise price) does not exceed the total spread thatexisted immediately prior to the Acquisition; (ii) to preserve, on a pershare basis, the ratio of exercise price to fair market value that existedimmediately prior to the Acquisition and (iii) to the extent applicableand allowable by law, to retain incentive stock option (“ISO”) status underfederal tax laws. The number of shares of Parent Common Stock subject to yourassumed Company Option(s) was determined by multiplying the Implied ExchangeRatio by the number of shares remaining subject to your Company Option(s) onthe Closing Date and rounding the resulting product down to the next wholenumber of shares of Parent Common Stock. The exercise price per share of

 

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your assumed CompanyOption(s) was determined by dividing the exercise price per share of yourCompany Option(s) by the Implied Exchange Ratio and rounding the resultingquotient up to the next whole cent.

 

Allreferences in the Option Agreement(s) and the Company Stock Option Plansrelating to your status as an employee of Company will now be deemed to referto your status as an employee of Parent or any present or future Parentsubsidiary.

 

Theexpiration date of your assumed Company Option(s) remain the same as set forthin the Option Agreement(s), but the number of shares subject to each vestinginstallment and the exercise price per share have been adjusted to reflect theeffect of the Acquisition. All other provisions which govern either theexercise or the termination of your assumed Company Option(s) remain the sameas set forth in the Option Agreement(s), and the provisions of the OptionAgreement(s) (except as expressly modified by this Agreement and theAcquisition) will govern and control your rights under this Agreement topurchase shares of Parent Common Stock. Upon termination of your employmentwith Parent you will have the limited post-termination exercise periodspecified in your Option Agreement(s) for your assumed Company Option(s) to theextent vested and outstanding at the time of termination after which time yourassumed Company Option(s) will expire and NOT be exercisable for Parent CommonStock.

 

Nothingin this Agreement or the Option Agreement(s) interferes in any way with yourright and Parent’s right, which rights are expressly reserved, to terminateyour employment at any time for any reason. Future options, if any, you mayreceive from Parent will be governed by the terms of the Parent stock optionplan under which such options are granted, and such terms may be different fromthe terms of your assumed Company Option(s), including, but not limited to, thetime period in which you have to exercise vested options after your terminationof employment.

 

Please sign and date thisOption Assumption Agreement and, by [date], return it to Marines Corporation atthe following address:

 
| Marines Corporation  |
|----------------------|
| Attn: Administration |
| Address              |
| Telephone:           |
| Fax:                 |
| Email:               |

 

 

**(SIGNATURE PAGE FOLLOWS)**

 

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**SIGNATURE**

 

Untilyour fully executed Acknowledgment (attached to this Agreement) is received byMarines Corporation’s Stock Administration Department your Parent account willnot be activated. If you have any questions regarding this Agreement or yourassumed Company Option(s), please contact                   at(      )                 .

 
| Marines Corporation |   |
|---------------------|--------|
|                |   |
| By:                 |   |   |   |
| Name:               |   |   |   |
| Title:              |   |   |   |
| Address             |   |   |   |
| Telephone:          |   |   |   |
| Fax:                |   |   |   |
| Email:              |   |   |   |
|                     |        |  |  |  |  |  |  |  |  |

 

 

**(ACKNOWLEDGMENT PAGE FOLLOWS)**

 

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**ACKNOWLEDGMENT**

 

Theundersigned acknowledges receipt of the foregoing Option Assumption Agreementand understands and agrees that all rights and liabilities with respect to theassumed Company Option(s) listed on the table above are hereby assumed byParent and are as set forth in the Option Agreement(s) for such assumed CompanyOption(s), the Company Stock Option Plans and this Option Assumption Agreementand agree to the terms as set forth in such Stock Option Assumption Agreement.

 
| Dated: |   | , 2005 |
|--------|--------|--------|

 
| OPTIONEE   |   |
|------------|--------|
|       |   |
| By:        |   |   |   |
| Name:      |   |   |   |
| Address    |   |   |   |
| Telephone: |   |   |   |
| Fax:       |   |   |   |
| Email:     |   |   |   |
|            |        |  |  |  |  |  |  |  |

 

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